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                       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, 1997

                                      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 0-14786

                                 AUTOINFO, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                            13-2867481
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)

                                One Paragon Drive
                           Montvale, New Jersey 07645
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (201) 930-1800

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock,
                                 Par value $.01

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. |_|

As of March 23, 1998, 7,996,752 shares of the Registrant's common stock were
outstanding. The aggregate market value of the common stock (based upon the
closing price on the NASDAQ National Market System on March 20, 1998 of $ .25 of
the Registrant held by non-affiliates of the Registrant at that date was
approximately $1,809,000

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE
<PAGE>

                                    PART 1

Item 1: BUSINESS

                           FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based,
in part, on assumptions involving the continued expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this
Report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein particularly in view
of the Company's early stage operations, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.

                                     General

      AutoInfo, Inc. (the "Company") is a consumer finance company specializing
in the business of purchasing, selling and servicing retail automobile
installment contracts ("Contracts") originated by dealers ("Dealers") in the
sale of new and used automobiles, light trucks and passenger vans. Through its
purchases, the Company provides financing to borrowers with limited credit
histories, lower than average incomes or past credit problems ("Non-Prime
Borrowers"). The Company serves as an alternative source of financing for
Dealers, allowing sales to customers who otherwise might not be able to obtain
financing from more traditional sources of automobile financing such as banks,
credit unions or finance companies affiliated with major automobile
manufacturers. During 1996 and through the third quarter of 1997, the Company
employed a regional center approach, as compared to the branch network or
centralized approach utilized by a number of other non-prime automobile finance
companies. During the fourth quarter of 1997, the Company closed its Northeast
regional center and consolidated all operations including credit, funding,
underwriting and collections in its Mid Atlantic regional center. It is
management's opinion that the efficiencies and operating controls inherent in a
centralized operating center approach provide significant benefits and that the
presence and dealer relationships in local markets can be maintained through the
use of field representatives.

      In December 1995, the Company entered the non-prime automobile finance
market (the "Non-Prime Market") through the acquisition, by a wholly-owned
subsidiary, of the operating assets of Falk Finance Company ("FFC"), a Norfolk,
Virginia based non-prime automobile consumer finance company. During 1996, the
Company expanded on the FFC platform in establishing its Mid-Atlantic regional
service center which services dealers in Delaware, Georgia, Maryland, North
Carolina, South Carolina and Virginia, providing a complete range of automobile
consumer finance services including sales and marketing, credit, servicing and
collection.


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<PAGE>

      In July 1996, the Company commenced operations of its Northeast Regional
Center in Norwalk, Connecticut to provide its complete range of services to
dealers in the Northeast. This center was closed in November 1997.

      During 1997, several non-prime automobile finance companies, including the
Company, experienced poor loan performance, higher delinquency rates and
increased credit losses on their portfolio assets. In addition, during the past
several months, a number of non-prime automobile finance companies, including
the Money Store, have made strategic decisions to exit the market-place. This
trend was the direct result of several factors including: (a) the impact of
increased levels of competition on loan acquisition discounts; (b) the
heightened demand created by the increased supply of capital and used automobile
inventories; (c) the need to attract consumers with lower credit qualifications
to meet this additional demand; (d) economic uncertainties and financial
difficulties within the non-prime automobile industry as well as management
upheavals at certain industry leaders; and (e) the increased levels of
outstanding consumer debt and personal bankruptcies. These factors have
contributed to a significant reduction in available warehouse lines of credit
and a material decline in financial markets investments into the non-prime
automobile industry through the sale of equity securities, subordinated debt
instruments and securitized notes.

      The Company has experienced material operating losses during 1997. As a
result of this adverse change in the non-prime automobile finance industry and
the deterioration in the Company's financial condition, the Company has been
unable to maintain adequate levels of net worth to satisfy the loan covenant
requirement under its warehouse facility agreement with CS First Boston Mortgage
Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes
issued in October 1996. As of December 31, 1997, CSFB is no longer funding the
acquisition of non-prime automobile receivables generated by the Company. The
Company, among other actions, has restructured operations and significantly
reduced overhead. In addition, the Company has modified credit underwriting
criteria and reduced the volume of loans purchased from dealers. The Company is
exploring several opportunities including the securing of additional warehouse
facilities to support an increased level of automobile loan acquisitions, the
sale of portfolio assets to reduce outstanding debt and other restructuring
alternatives. There is no assurance that the Company will be successful in
securing additional warehouse facilities or selling portfolio assets, the
failure of which would have a material adverse effect on the Company's financial
condition.

      During the third quarter of 1997, the Company explored the sale of
approximately $40 million of securitized notes backed by approximately $48
million of automobile receivables. However, several factors, including adverse
market conditions, prevented the consummation of this transaction.

      The Company's ability to continue to acquire automobile receivables as
well as plan for future expansion is directly related to its ability to secure
required capital. In the past, the Company has demonstrated the ability to
secure warehouse lines of credit, issue receivable secured notes and obtain
subordinated debt. However, the Company's ability to secure required capital has
been hampered based upon the inability to consummate the sale of securitized
notes, as well as the uncertain status of the Company's primary credit facility.
In January 1998, the Company entered into an arrangement with a new funding
source whereby it can purchase loan contracts which meet specified criteria and
sell them through to this source for a fee. This arrangement enables the Company
to continue to purchase loans and service its dealer network. The success of
this program, as well as the Company's ability to secure additional funding
sources, will materially impact the Company's future business activities and, if
not


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<PAGE>

successful, could require the Company to sell certain of the loans in its
portfolio to meet its liquidity requirements.

      These factors raise substantial doubt about the Company's ability to
continue as a going concern.

      Although significantly curtailed, the Company continues to purchase loans
from its dealer network and employs the following strategies:

      Emphasis on Dealer Relationships--The Company believes that it is crucial
to identify and meet dealers' financing needs. When presented with a loan
application, the Company attempts to notify the dealer within one hour or less
whether it will approve the automobile loan for purchase from the dealer. The
Company's business hours generally coincide with those of the dealership and, in
some cases, the Company will provide loan processing on the dealer's premises
during dealer promotions. The Company also provides dealers with flexibility in
developing loan structures to accommodate the needs of their customers, such as
extended payment terms or low down-payment requirements when credit quality is
deemed adequate. The Company, through its sales force, maintains frequent
contacts with dealers and recommends service enhancements when warranted. By
employing consistent loan underwriting and purchasing guidelines, the Company
believes that it provides dealers with a reliable and consistent source of
financing.

      Expansion of Dealer Network--The Company is constantly undertaking
marketing activities with a view towards expanding its dealer network. These
efforts include offering innovative products and services to its dealer network,
such as CarLoanNet, the interactive internet loan application service recently
introduced by the Company.

      Maintenance of Underwriting and Loan Purchasing Guidelines--The Company
has developed and is continually modifying a proprietary credit scoring system
designed to maintain rigorous underwriting guidelines for its loan processing
operations. The Company's credit approval system monitors many evaluation
criteria, including debt-to-income, payment-to-income, loan-to-value, bankruptcy
score, credit score and stability factors, and each loan application is reviewed
by one of the Company's credit specialists to determine whether the loan should
be approved. To ensure the integrity of the credit approval system, management
tracks, on a daily basis, the approval rates and delinquency and loss rates.

      Expansion of Products and Services - The Company is constantly evaluating
new and improved services to offer to its Dealer network to both maximize
revenues and achieve further operating efficiencies.

                     The Non-Prime Auto Finance Industry

      The automobile finance industry is generally divided by the types of
automobiles sold (new versus used) and the credit worthiness of the borrower.
Generally, banks, savings and loan associations, credit unions, large
independent finance companies and captive finance companies such as Ford Motor
Credit, GMAC and Chrysler Credit tend to provide financing for new automobiles
purchased by prime customers.

      The non-prime segment of this overall market is comprised of both private
and publicly traded companies providing credit availability to consumers who are
higher financial risks and who have limited


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<PAGE>

access to traditional financing sources. These independent finance companies
tend to provide financing for used automobiles sold through new and used
automobile dealerships at higher interest rates commensurate with the higher
risk associated with the non-prime consumer.

      During 1997, several non-prime automobile finance companies, including the
Company, experienced poor loan performance, higher delinquency rates and
increased credit losses on their portfolio assets. In addition, during the past
several months, a number of non-prime automobile finance companies, including
the Money Store, have made strategic decisions to exit the market-place. This
trend was the direct result of several factors including: (a) the impact of
increased levels of competition on loan acquisition discounts; (b) the
heightened demand created by the increased supply of capital and used automobile
inventories; (c) the need to attract consumers with lower credit qualifications
to meet this additional demand; (d) economic uncertainties and financial
difficulties within the non-prime automobile industry as well as management
upheavals at certain industry leaders; and (e) the increased levels of
outstanding consumer debt and personal bankruptcies. These factors have
contributed to a significant reduction in available warehouse lines of credit
and a material decline in financial markets investments into the non-prime
automobile industry through the sale of equity securities, subordinated debt
instruments and securitized notes.

                                  Operations

Dealer Contract Purchase Programs

      As of March 20, 1998, the Company had agreements ("Dealer Agreements")
with Dealers in 12 states. Dealers submit Contracts to the Company for purchase,
although such Dealers are under no obligation to submit any Contracts to the
Company, nor is the Company obligated to purchase any Contracts. For the twelve
months ended December 31, 1997, substantially all of the Contracts purchased by
the Company consisted of financing for used cars.

      When a retail automobile buyer elects to obtain financing from a Dealer,
an application is taken for submission by the Dealer to its financing sources.
Typically, a Dealer will submit the buyer's application to more than one
financing source for review. The Company believes the Dealer's decision to
finance the automobile purchase with the Company, rather than other financing
sources, is based primarily upon an analysis of the discounted purchase price
offered for the Contract, the timeliness of response, the cash resources of the
financing source, and any conditions to purchase.

      The Company receives loan applications by fax. Upon receipt of a loan
application from a Dealer, the Company's credit personnel order a credit bureau
report on the applicant to document the buyer's credit history. If, upon review
by a Company credit officer, it is determined that the application meets the
Company's underwriting criteria, a decision is made to purchase the Contract.
When presented with a loan application, the Company attempts to notify the
Dealer within one hour as to whether it intends to purchase such Contract. The
Company buys Contracts directly from Dealers and does not make loans directly to
purchasers of automobiles.

      The Company currently purchases Contracts from Dealers at discounts up to
10% of the total amount financed under the Contracts, depending on the perceived
credit risk of the Contract. Discounts averaged 10.9% for the twelve months
ended December 31, 1997.

      The Company attempts to control Dealer misrepresentation by carefully
screening the Contracts it purchases, by establishing and maintaining
professional business relationships with Dealers, and by


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<PAGE>

including certain representations and warranties by the Dealer in the Dealer
Agreement. Pursuant to the Dealer Agreement, the Company may require the Dealer
to repurchase any Contract in the event that the Dealer breaches its
representations or warranties. There can be no assurance, however, that any
Dealer will have the financial resources to satisfy its repurchase obligations
to the Company.

Contract Purchase Criteria

      To be eligible for purchase by the Company, a Contract must have been
originated by a Dealer that has entered into a Dealer Agreement to sell
Contracts to the Company. The Contracts must be secured by a first priority lien
on a new or used automobile, light truck or passenger van and must meet the
Company's underwriting criteria. In addition, each Contract requires the
borrower to maintain physical damage insurance covering the financed vehicle and
naming the Company as a loss payee. The Company or any purchaser of the Contract
from the Company may, nonetheless, suffer a loss upon theft or physical damage
of any financed vehicle if the borrower fails to maintain insurance as required
by the Contract or is unable to pay for repairs to or replacement of the vehicle
or is otherwise unable to fulfill its obligations under the Contract.

      The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Non-Prime Borrowers and the
adequacy of the financed vehicle as security for a Contract. These criteria
include standards for price, term, amount of down payment, installment payment
and add-on interest rate, mileage, age and type of vehicle, amount of the loan
in relation to the value of the vehicle, borrower's income level, job and
residence stability, credit history and debt serviceability, and other factors.
These criteria are subject to change from time to time as circumstances may
warrant. Upon receiving this information with the borrower's application, the
Company's credit department will verify the borrower's employment, residency,
insurance and credit information provided by the borrower by contacting various
parties noted on the borrower's application, credit information bureaus and
other sources. Further, the Company conducts a direct telephonic interview with
the prospective borrower. The Company typically completes its credit review and
consummates its purchase of a Contract within 48 hours of a complete financing
package from the Dealer.

      All of the Contracts purchased by the Company are self-amortizing and
provide for level payments over the term of the Contract. For Contracts
purchased by the Company in the twelve months ended December 31, 1997, the
retail purchase price of the related automobiles averaged $11,700. Contracts
financing such purchases had annual percentage rates of interest ("APRs")
averaging 20.45%. The average original principal amount financed under Contracts
purchased in the twelve months ended December 31, 1997 was approximately $9,700,
with an average original term of approximately 49 months and an average down
payment of 16.3% of the retail purchase price of the vehicle.

      All Contracts may be prepaid at any time without penalty. In the event a
borrower elects to prepay a Contract in full, the payoff amount is calculated by
deducting the unearned interest (as determined by the "Rule of 78's" method,
where applicable) from the Contract balance.

      Each Contract purchased by the Company prohibits the sale or transfer of
the financed vehicle without the secured party's consent and allows for the
acceleration of the maturity of a Contract upon a sale or transfer without such
consent. In most circumstances, the Company will not consent to a sale or
transfer of a financed vehicle unless the related Contract is prepaid in full.

      The Company believes that the most important requirements to succeed in
the Non-Prime Market are the ability to control borrower and Dealer
misrepresentation at the point of origination; the development and consistent
implementation of objective underwriting criteria specifically designed to


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evaluate the creditworthiness of Non-Prime Borrowers; and the maintenance of an
active program to monitor performance and collect payments.

                            Collection Procedures

      The Company believes that its ability to monitor performance and collect
payments owed from Non-Prime Borrowers is primarily a function of its collection
approach and support systems. The Company believes that if payment problems are
identified early and the Company's collection staff works closely with borrowers
to address these problems, it is possible to correct many of them before they
escalate further. To this end, the Company utilizes pro-active collection
procedures, which include early and frequent contact with delinquent borrowers;
educating borrowers as to the importance of maintaining good credit; and
employing a consultative and customer service approach to assist the borrower in
meeting his or her obligations, which includes attempting to identify the
underlying causes of delinquency and cure them whenever possible. In support of
its collection activities, the Company maintains a computerized collection
system specifically designed to service automobile installment sale contracts
with Non-Prime Borrowers.

      The Company typically attempts to make telephonic contact with delinquent
borrowers on the first day after their monthly payment due date. Upon making
contact with the borrower at his home or workplace the collector inquires of the
borrower the reason for the delinquency and when the Company can expect to
receive payment. The collector will attempt to cause the borrower to make a
promise for the delinquent payment for a time generally not to exceed one week
from the date of the call. If the borrower makes such a promise, the account is
placed on a pending status and is not contacted until the outcome of the promise
is known. If the payment is made by the promise date and the account is no
longer delinquent, the account is routed out of the collection system. If the
payment is not made, or if the payment is made, but the account remains
delinquent, the account is returned to the collector for subsequent contacts.

      If a borrower fails to make or keep promises for payments, or if the
borrower is uncooperative or attempts to evade contact or hide the vehicle, a
supervisor will review the collection activity relating to the account to
determine if repossession of the vehicle is warranted. Generally, a decision
will occur between the 45th and 60th day past the borrower's payment due date,
but could occur sooner or later, depending on the specific circumstances. If a
decision to repossess is made by a supervisor, such assignment is given to one
of many licensed, bonded repossession agents used by the Company. When the
vehicle is recovered, the repossession agent delivers it to a wholesale auto
auction where it is kept until it is liquidated, usually within 60 days of the
repossession. Liquidation proceeds are applied to the borrower's outstanding
obligation under the Contract and the borrower is advised of his obligation to
pay any deficiency balance that remains. The Company uses all practical means
available to collect deficiency balances, including filing for judgments against
borrowers where appropriate.

                        Management Information Systems

      The Company maintains sophisticated data processing support and management
information systems. Finance Manager, the Company's custom-designed proprietary
software management system, is updated and maintained by the Company's MIS
Department based in Norfolk, Virginia.

                                Financing Activity

      Warehouse Facilities. The Company uses a warehouse facility to finance its
purchase of loans. The facility provides for borrowing at the LIBOR rate plus
300 basis points. Amounts outstanding under


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the warehouse facility are secured by the automobile loans pledged to the lender
as collateral for borrowings under the facility, a residual interest in the
anticipated cash flows upon the satisfaction of the Class A and Class B
securitized notes issued in October 1996 and any income tax refund for the tax
year ended May 31, 1998. Among other provisions, this facility requires the
Company to maintain tangible net worth, as defined, of $10 million and is
cancelable in the event of a material adverse change in the Company's business.

      At December 31, 1997 the Company had tangible net worth, as defined, of
approximately $2.1 million and, accordingly, did not meet the tangible net worth
standard under the CSFB facility. As of December 31, 1997, CSFB is no longer
funding the acquisition of non-prime automobile receivables generated by the
Company.

      Securitization of Loans. The Company pursues a strategy of securitizing
loans through the sale of asset-backed securities. Securitization is used by
companies as a cost-competitive source of capital compared to traditional
corporate debt financing alternatives. The Company utilizes the net proceeds
from securitizations to purchase additional automobile loans and to pay down
outstanding warehouse facilities.

      The Company securitized approximately $40 million in automobile loans
during 1996. Among other provisions, these asset-backed notes require the
maintenance of certain performance standards with respect to the portfolio of
loan contracts securitized and certain overall financial considerations of the
Company as a whole, including not realizing a net loss from operations in any
two consecutive quarters and maintenance of minimum tangible net worth, as
defined, of $7 million. At December 31, 1997 the Company had a tangible
deficiency, as defined, of ($200,000) and, accordingly, did not meet the minimum
tangible net worth standard. In addition, the Company has experienced a net loss
from operations for each of the quarters ended September 30, 1997 and December
31, 1997. Accordingly, for the quarter ended December 31, 1997, the Company did
not meet the interest coverage ratio requirement.

      During the third quarter of 1997, the Company explored the sale of
approximately $40 million of securitized notes backed by approximately $48
million of automobile receivables. However, several factors including adverse
market conditions as well as the performance of the Company's automobile
receivables prevented the consummation of a transaction.

      In a securitization, the Company (through its special purpose wholly-owned
subsidiary, AutoInfo Receivables Company, a Delaware corporation ("ARC")),
transfers automobile loans to newly-formed securitization trusts, which issue
one or more classes of asset-backed securities. The asset-backed securities are
simultaneously sold to investors (except for certain subordinated classes of
securities which may be retained by the Company). Each month, collections of
principal and interest on the automobile loans are used by the trustee to pay
the holders of the related asset-backed securities, to fund spread accounts as a
source of cash to cover shortfalls in collections, if any, and to pay expenses.
The Company continues to act as the servicer of the automobile loans held by the
trust in return for a monthly fee.

      To improve the cost effectiveness of its securitization program, the
Company arranges for credit enhancement to achieve a desired credit rating on
the asset-backed securities issued. The credit enhancement for securitizations
generally take the form of financial guaranty insurance policies issued by MBIA
(the "Credit Enhancer"), which insures payments of principal and interest due on
the asset-backed securities.

      The spread account for any securitization is generally funded with the
interest collected on the loans that exceeds the sum of the interest payable to
holders of asset-backed securities, the monthly servicing fee and certain other
amounts. Funds are withdrawn from the spread account to cover any shortfalls in
amounts payable on insured asset-backed securities or to reimburse the Credit
Enhancer for


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draws on its financial guaranty insurance policy. In addition, the funds on
deposit in any spread account for a securitization may be withdrawn to cover
shortfalls in collections or to reimburse the Credit Enhancer for draws on
policies issued in other securitizations. ARC is entitled to receive amounts
from the spread accounts to the extent the amounts deposited exceed
predetermined required minimum levels. The spread accounts cannot be accessed by
the Company or ARC until such levels have been reached or with the consent of
the Credit Enhancer. After such levels are reached, excess cash will be
distributed to ARC and then transferred to the Company.

                             Sales and Marketing

      The Company markets its dealer financing programs through a staff of 6
trained field sales representatives. The main duties of a field representative
are to solicit and enroll new dealers into the program, train the dealers
regarding the specific aspect of the Company's loan acquisition program,
encourage additional contract volume and provide a direct hands on customer
contact on a regular basis. Presently, the Company concentrates its marketing
efforts in the MidAtlantic and Northeast regions.

                                 Competition

      The non-prime automotive consumer finance market is both highly
competitive and fragmented. As such, the Company encounters competition in both
the MidAtlantic and Northeastern markets from local, regional and national
consumer finance companies, many of whom have raised significant capital through
equity offerings, securitization of their loan portfolios and warehouse lines of
credit during the past several years. Other more traditional finance sources,
such as banks and captive automobile finance companies, have not generally
serviced the non-prime segment of the market. Within the last few years, several
large companies, including Ford Motor Company, have announced their entry into
the non-prime marketplace. The major competitive factors leading to the dealer's
choice of financing source are the consistency of the application of
underwriting guidelines, the competitiveness of financing terms and dealer fees,
the timeliness of application approval and funding and the financial stability
of the source. The Company believes that it competes favorably on these factors.

                                  Regulation

      The Company's business is subject to regulations and licensing under
various federal, state and local statutes and regulations. The Company maintains
all licenses necessary for the lawful conduct of its business and operations.
The Company is not licensed to make loans directly to borrowers. Several federal
and state consumer protection laws, including the Federal Truth-In-Lending Act,
the Federal Equal Credit Opportunity Act, the Federal Fair Debt Collection
Practices Act and the Federal Trade Commission Act, regulate the extension of
credit in consumer credit transactions. These laws mandate certain disclosures
with respect to finance charges on Contracts and impose certain other
restrictions on Dealers. In addition, laws in a number of states impose
limitations on the amount of finance charges that may be charged by Dealers on
credit sales. The so called Lemon Laws enacted by the federal government and
various states provide certain rights to purchasers with respect to motor
vehicles that fail to satisfy express warrantees. The application of Lemon Laws
or violation of such other federal and state laws may give rise to a claim or
defense of a borrower against a Dealer and its assignees, including the Company
and purchasers of Contracts from the Company. The Dealer Agreement contains
representations by the Dealer that, as of the date of assignment of Contracts,
no such claims or defenses have been asserted or threatened with respect to the
Contracts and that all requirements of such federal and state laws have been
complied with in all material respects. Although a Dealer would be obligated to
repurchase Contracts that involve a breach of such warranty, there can be no
assurance that the Dealer will have the financial


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<PAGE>

resources to satisfy its repurchase obligations to the Company. Certain of these
laws also regulate the Company's loan servicing activities, including its
methods of collection. Although the Company believes that it is currently in
compliance with applicable statutes and regulations, there can be no assurance
that the Company will be able to maintain such compliance. The failure to comply
with such statutes and regulations could have a material adverse effect upon the
Company. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations or the expansion of the Company's business into jurisdictions that
have adopted more stringent regulatory requirements than those in which the
Company currently conducts business could have a material adverse effect upon
the Company.

      Upon the purchase of Contracts by the Company, the original Contracts and
related title documents for the financed vehicles are delivered by the selling
Dealers to the Company.

      The Dealer Agreement and related assignment contain representations and
warrantees by the Dealer that an application for state registration of each
financed vehicle, naming the Company as secured party with respect to the
vehicle, was effected at the date of sale of the related Contract to the
Company, and that all necessary steps have been taken to obtain a perfected
first priority security interest in each financed vehicle in favor of the
Company under the laws of the state in which the financed vehicle is registered.
If a Dealer or the Company, because of clerical error or otherwise, has failed
to take such action in a timely manner, or to maintain such interest with
respect to a financed vehicle, neither the Company nor any purchaser of the
related Contract from the Company would have a perfected security interest in
the financed vehicle and its security interest may be subordinate to the
interest of, among others, subsequent purchasers of the financed vehicle,
holders of perfected security interests or a trustee in bankruptcy of the
borrower. The security interest of the Company or the purchaser of a Contract
may also be subordinate to the interests of third parties if the interest is not
perfected due to administrative error by state recording officials. Moreover,
fraud or forgery by the borrower could render a Contract unenforceable against
third parties. In such events, the Company could be required by the purchaser to
repurchase the Contract. In the event the Company is required to repurchase a
Contract, it will generally have recourse against the Dealer from which it
purchased the Contract. This recourse will be unsecured except for a lien on the
vehicle covered by the Contract, and there can be no assurance that any Dealer
will have the financial resources to satisfy its repurchase obligations to the
Company. Subject to any recourse against Dealers, the Company will bear any loss
on repossession and resale of vehicles financed under Contracts repurchased by
it from investors.

      Under the laws of many states, liens for storage and repairs performed on
a vehicle and for unpaid taxes take priority over a perfected security interest
in the vehicle. Pursuant to its securitization purchase commitments, the Company
generally warrants that, to the best of the Company's knowledge, no such liens
or claims are pending or threatened with respect to a financed vehicle, which
may be or become prior to or equal with the lien of the related Contracts. In
the event that any of the Company's representations or warranties proves to be
incorrect, the trust or the investor would be entitled to require the Company to
repurchase the Contract relating to such financed vehicle.

      The Company, on behalf of purchasers of Contracts, may take action to
enforce the security interest in financed vehicles with respect to any related
Contracts in default by repossession and resale of the financed vehicles. The
Uniform Commercial Code ("UCC") and other state laws regulate repossession sales
by requiring that the secured party provide the borrower with reasonable notice
of the date, time and place of any public sale of the collateral, the date after
which any private sale of the collateral may be held and of the borrower's right
to redeem the financed vehicle prior to any such sale and by providing that any
such sale be conducted in a commercially reasonable manner. Financed vehicles
repossessed generally are resold by the Company through unaffiliated wholesale
automobile networks or auctions, which are attended principally by used car
dealers.


                                       10
<PAGE>

      In the event of a repossession and resale of a financed vehicle, after
payment of outstanding liens for storage, repairs and unpaid taxes, to the
extent those liens take priority over the Company's security interest, and after
payment of the reasonable costs of retaking, holding and selling the vehicle,
the secured party would be entitled to be paid the full outstanding balance of
the Contract out of the sale proceeds before payments are made to the holders of
junior security interests in the financed vehicles, to unsecured creditors of
the borrower, or, thereafter, to the borrower. Under the UCC and other laws
applicable in most states, a creditor is entitled to obtain a deficiency
judgment from a borrower for any deficiency on repossession and resale of the
motor vehicle securing the unpaid balance of such borrower's motor vehicle loan.
However, some states impose prohibitions or limitations on deficiency judgments.
If a deficiency judgment were granted, the judgment would be a personal judgment
against the borrower for the shortfall, and a defaulting borrower may often have
very little capital or few sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment
against a borrower or, if one is obtained, it may be settled at a significant
discount.

                      Patents, Trademarks and Copyrights

      "AUTOINFO" is a registered trademark and service mark of the Company.

                                  Employees

      The Company currently has 98 full-time employees. None of the Company's
employees are represented by a labor union. The Company considers its
relationship with its employees to be good.

Item 2: PROPERTIES

      The Company's MidAtlantic Regional Center leases approximately 8,000
square feet of space at 863 Glenrock Road, Norfolk, Virginia. The lease runs
through April 2001 and provides for an annual rent of $96,000. The Company's
Northeast Regional Center leases approximately 10,000 square feet of space at
444 Westport Avenue, Norwalk, Connecticut. The lease runs through May 2001 and
provides for an annual rental of $107,500. In connection with the closing of
this facility, the Company has received an offer to sub-lease such space for
rents which would mitigate its current contractual obligations. The Company
maintains an operational facility of approximately 800 square feet at 6818
Grover Street, Omaha, Nebraska. The lease for such facility runs through June
1998 at an annual rent of $10,000. The Company rents approximately 7,800 square
feet of space at One Paragon Drive, Montvale, New Jersey where it maintains its
executive offices. The lease runs through June 2002 at an annual rental of
approximately $170,000, subject to certain rent escalation provisions. The
Company believes that its present facilities are suitable and adequate for its
reasonably foreseeable growth.

Item 3. LEGAL PROCEEDINGS

      The Company is not party to any material legal proceedings.

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

      None


                                       11
<PAGE>

                                   Part II

Item 5. PRICE RANGE OF COMMON STOCK

      The Company's Common Stock is traded in the over-the-counter market and is
quoted through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on the National Market System under the symbol AUTO.
The following table sets forth, for the periods indicated, the high and low
closing bid quotations per share for the Company's Common Stock as reported by
NASDAQ.

                                            --------   --------
Year Ended December 31, 1996                High       Low
--------------------------------------      --------   --------

First quarter                               3 1/2      3
Second quarter                              3 7/16     3 1/16
Third quarter                               3          2
Fourth quarter                              3 7/8      2 3/4

Year Ended December 31, 1997                High       Low
--------------------------------------      --------   --------

First quarter                               3 3/4      2 3/16
Second quarter                              2 7/16     1 3/8
Third quarter                               2 7/16     1 7/16
Fourth quarter                              1 23/32    3/8

      As of March 20, 1998, the closing bid price per share for the Company's
Common Stock, as reported by NASDAQ was $0.25. As of March 23, 1998, the Company
had approximately 400 stockholders of record.

Possible Delisting of Common Stock from Nasdaq Market

      The Securities and Exchange Commission (the "Commission") has approved new
maintenance requirements for the Nasdaq National Market. For continuing listing
on the Nasdaq National Market, a company, among other criteria, must now have at
least $4,000,000 of total net tangible assets, 750,000 shares in the Public
Float, a market value of its Public Float of $5,000,000 and a minimum bid price
of $1.00 per share. At December 31, 1997, the Company did not meet the net
tangible assets, value of public float or minimum bid price requirement. The
Company does not have a reasonable expectation of meeting these requirements in
the near future. Accordingly, it appears likely that the Company's Common Stock
will be dropped from the Nasdaq National Market. In the event that the Company's
Common Stock is delisted from the Nasdaq Stock Market, trading, if any, in the
Company's Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" published by the National Quotation Bureau
or the OTC Bulletin Board of the National Association of Securities Dealers,
Inc. As a consequence of such delisting, a shareholder would likely find it more
difficult to sell or to obtain quotations as to prices of the Company's Common
Stock.

Dividend Policy

      The Company has never declared or paid a cash dividend on its Common
Stock. It has been the policy of the Company's Board of Directors to retain all
available funds to finance the development and growth of the Company's business.
The payment of cash dividends in the future will be dependent upon the earnings
and financial requirements of the Company and other factors deemed relevant by
the Board of Directors.


                                       12
<PAGE>

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following is a summary of selected consolidated financial data relating to
the Company. This summary has been restated to present the businesses sold as
discontinued operations.

<TABLE>
<CAPTION>
000's omitted                                            Year ended                                            Year ended
                                                         December 31,          Seven months ended                May 31,
                                                 --------------------------        December 31,        --------------------------
                                                   1997              1996              1995              1995              1994
                                                 --------          --------          --------          --------          --------
<S>                                              <C>               <C>               <C>               <C>               <C>
Statement of Operations Data:
Revenues                                         $ 19,846          $ 13,185          $  2,232          $  1,599          $  2,075

Operating expenses                                (19,089)          (12,092)           (1,847)           (4,009)           (2,283)
Provision for credit losses                       (12,456)           (5,251)               --                --                --
Write-off of goodwill and other
   intangibles                                     (2,542)               --                --                --                --
Restructuring charge                                 (867)               --                --                --                --
Unusual item- impairment of long-lived
  Assets and additional credit losses
  On acquired automobile receivables                   --           (19,293)               --                --                --
                                                 --------          --------          --------          --------          --------

(Loss) income from continuing
  Operations before tax benefit                   (15,108)          (23,451)              385            (2,410)             (208)
Benefit from income taxes                          (3,986)           (4,352)             (176)             (332)              (65)
                                                 --------          --------          --------          --------          --------


(Loss) income from continuing operations          (11,122)          (19,099)              561            (2,078)             (143)
Income from discontinued                               --                --               268            10,404             2,164
                                                 --------          --------          --------          --------          --------

Net (loss) income                                $(11,122)         $(19,099)         $    829          $  8,326          $  2,021
                                                 --------          --------          --------          --------          --------

Basic (loss) income per share (a)

  From continuing operations                     $  (1.39)         $  (2.41)         $    .07              (.28)         $   (.02)
  From discontinued operations                         --                --               .04              1.42               .30
                                                 --------          --------          --------          --------          --------
Net (loss) income per share                      $  (1.39)         $  (2.41)         $    .11          $   1.14          $    .28
                                                 --------          --------          --------          --------          --------

Diluted (loss) income per share (a)

  From continuing operations                     $  (1.39)         $  (2.41)         $    .07              (.28)         $   (.02)
  From discontinued operations                         --                --               .04              1.40               .29
                                                 --------          --------          --------          --------          --------
Net (loss) income per share                      $  (1.39)         $  (2.41)         $    .11          $   1.12          $    .27
                                                 --------          --------          --------          --------          --------
Balance Sheet Data:
Net automobile receivables after
   allowance for credit losses                   $ 78,481          $ 45,814          $ 25,074          $     --          $     --
Cash and short term investments                     4,749             8,698            24,871             8,836             7,509
  Total Assets                                     96,614            74,451            65,795            42,357            26,387
  Total debt                                       93,190            60,405            32,746             4,161             4,784
Retained earnings (deficit)                       (16,192)           (5,071)           14,029            13,199             4,873
Stockholders' equity                                1,311            12,327            31,018            30,121            20,857
</TABLE>

(a) The common stock equivalents for the years ended December 31, 1997 and 1996
were 61,864 and 16,875. The common stock equivalents for these shares were not
included in the calculation of diluted (loss) per common share because the
effect would be antidilutive.


                                       13
<PAGE>

Item #7: Management's Discussion and Analysis of Financial Condition and Results
         of Operations

      The Company, since December 1995, is a specialized consumer finance
company that acquires and services automobile receivables from automobile
dealers selling new and used vehicles to non-prime customers.

      The Company has experienced material operating losses during 1997. As a
result of this adverse change in the non-prime automobile finance industry and
the deterioration in the Company's financial condition, the Company has been
unable to maintain adequate levels of net worth to satisfy the loan covenant
requirement under its warehouse facility agreement with CS First Boston Mortgage
Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes
issued in October 1996. As of December 31, 1997, CSFB is no longer funding the
acquisition of non-prime automobile receivables generated by the Company. The
Company, among other actions, has restructured operations and significantly
reduced overhead. In addition, the Company has modified credit underwriting
criteria and reduced the volume of loans purchased from dealers. The Company is
exploring several opportunities including the securing of additional warehouse
facilities to support an increased level of automobile loan acquisitions, the
sale of portfolio assets to reduce outstanding debt and other restructuring
alternatives. There is no assurance that the Company will be successful in
securing additional warehouse facilities or selling portfolio assets, the
failure of which would have a material adverse effect on the Company's financial
condition.

      The Company's ability to continue to acquire automobile receivables as
well as plan for future expansion is directly related to its ability to secure
required capital. In the past, the Company has demonstrated the ability to
secure warehouse lines of credit, issue receivable secured notes and obtain
subordinated debt. However, the Company's ability to secure required capital has
been hampered based upon the inability to consummate the sale of securitized
notes, as well as the uncertain status of the Company's primary credit facility.
In January 1998, the Company entered into an arrangement with a new funding
source whereby it can purchase loan contracts which meet specified criteria and
sell them through to this source for a fee. This arrangement enables the Company
to continue to purchase loans and service its dealer network. The success of
this program, as well as the Company's ability to secure additional funding
sources, will materially impact the Company's future business activities and, if
not successful, could require the Company to sell certain of the loans in its
portfolio to meet its liquidity requirements.

      These factors raise substantial doubt about the Company's ability to
continue as a going concern.

      Although significantly curtailed, the Company continues to purchase loans
from its dealer network.

Results of Operations

      On April 1, 1995, the Company consummated the sale of certain assets, net
of certain liabilities, constituting the operating assets of the Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses. On July 20, 1995, the Company consummated the sale


                                       14
<PAGE>

of the operating assets of its insurance inspection services business. The
Results of Operations of these businesses have been classified as discontinued
operations.

      On December 6, 1995, the Company, through a wholly owned subsidiary,
acquired the operating assets of FALK Finance Company (FFC), a Norfolk, Virginia
based specialized financial services company. As a result of this acquisition,
the Company's primary business is to purchase non-prime automobile receivables
from new and used automobile dealers. The Company services these dealers by
providing specialized financing programs for buyers who typically have impaired
credit histories and are unable to access traditional sources of available
consumer credit.

      On February 28, 1996, the Company made an election to change its fiscal
year-end from May 31 to December 31. The Company believes this change provides
shareholders with information on a basis more comparable to other public
entities in the specialized automobile finance industry.

      The Company's continuing operations consist of its non-prime automobile
finance business and its long distance telephone services business. Except as
otherwise noted, the following discussion of the results of operations is with
respect to the Company's continuing operations.

For the Year Ended December 31, 1997

Revenues

      Revenues for the year ended December 31, 1997 totaled $19,846,000 as
compared with $13,185,000 in the prior year. Revenues from the non-prime
automobile finance business increased to $19,099,000 from $11,789,000 in the
prior year. This increase of $7,310,000 is directly related to the growth of the
automobile receivables portfolio acquired and serviced by the Company which
increased from $62,000,000 as of December 31, 1996 to $97,000,000 as of December
31, 1997. Investment income decreased to $433,000 from $884,000 in the prior
year. This decrease is the direct result of the reduction in short-term
investments utilized to fund the growth of the Company's automobile receivables
portfolio and operations. Revenues from the Company's long distance services
business decreased to $315,000 from $512,000 in the prior year. This decrease of
$197,000 is the result of the loss of customers to competing long distance
carriers.

Net Interest Income on Automobile Receivables

      The Company's principal revenue source is the net interest income, or net
spread, earned on its automobile receivables. This net spread is the
differential between interest income received on loans receivable and the
interest expense on related loans payable. The following table summarizes the
pertinent data on the Company's automobile receivables portfolio as of and for
the years ended December 31, 1997 and 1996:


                                       15
<PAGE>

                                           1997                  1996
                                   --------------------  --------------------

Average loans receivable               $88,128,000           $45,394,000
                                   --------------------  --------------------
Average debt                            81,200,000            37,629,000
                                   --------------------  --------------------

Interest revenue                       $17,269,000           $11,167,000
Interest expense                         7,988,000             3,839,000
                                   --------------------  --------------------
Net interest income                    $ 9,281,000           $ 7,328,000
                                   --------------------  --------------------

Yield on loans                            19.6%                 24.6%
Cost of funds                              9.8%                 10.2%
                                   --------------------  --------------------
Net interest spread                        9.8%                 14.4%
                                   --------------------  --------------------

Net interest margin (1)                   10.5%                 16.3%
                                   --------------------  --------------------

      (1) Net interest margin is net interest income divided by average loans
outstanding.

      The increase in average loans receivable and average debt and the
corresponding increase in interest revenue and interest expense is directly
related to the growth in the Company's non-prime automobile business. The
decline in yield on loans is the result of the growth of the Company's portfolio
in states with lower interest rate caps as well as the allocation of a portion
of unearned future interest to reserves at the date of loan acquisition.

Costs and Expenses

      Interest expense for the year ended December 31, 1997 was $8,146,000 as
compared to $3,990,000 in the prior year. Interest expense was primarily related
to the non-prime automobile financing business and the debt outstanding under
the Company's senior credit facilities ($67.9 million as of December 31, 1997),
securitized notes ($14.1 million as of December 31, 1997) and subordinated and
other debt ($11.2 million as of December 31, 1997). The increase in interest
expense of $4,156,000 is directly related to the growth of the automobile
receivables portfolio acquired and serviced by the Company.

      Operating expenses for the year ended December 31, 1997 were $10,235,000
as compared to $6,913,000 in the prior year. The increase in operating expenses
of $3,322,000 is directly related to the growth of the automobile receivables
portfolio acquired and serviced by the Company.

      Depreciation and amortization expense for the year ended December 31, 1997
was $708,000 as compared to $1,189,000 in the prior year and was primarily
attributable to the amortization of goodwill and other intangible assets
associated with the acquisition of FFC in December 1995. The decrease in
depreciation and amortization expense of $481,000 is related to the reduction in
amortization ($784,000) due to the write off of $11,193,000 of this goodwill as
of December 31, 1996 offset by an increase in depreciation ($303,000) related to
the expansion of the Company's northeast regional office and relocation of
corporate headquarters.

      The provision for credit losses for the year ended December 31, 1997 was
$12,456,000 as compared to $5,251,000 in the prior year, an increase of
$7,205,000. This provision is the result of the Company recording additional
credit losses based upon an increase in delinquency rates, the higher than


                                       16
<PAGE>

anticipated level of repossessions and the poor performance of loans originated
by specific independent automobile dealers.

      The restructuring charge for the year ended December 31, 1997 of $867,000,
which includes severance and other operating costs as well as the write-off of
certain assets in its Connecticut operating center, is the result of the
Company's decision to consolidate operations in its Norfolk, Virginia operating
center during the fourth quarter.

Loss from Continuing Operations and Income Tax Benefit

      The loss from continuing operations before income tax benefit was
$15,108,000 as compared to a loss of $23,452,000 in the prior year. This loss is
primarily attributable to the provision for credit losses ($12.5 million). The
decrease in the loss from continuing operations of $8,344,000 is directly
related to the write-off of goodwill and other intangible assets ($11.2 million)
and the additional provision for credit losses on the acquired portfolio ($8.1
million) for the year ended December 31, 1996.

      For the fiscal years ended May 31, 1995, 1994 and 1993, the Company
incurred and paid federal tax liabilities of $7,005,000, $873,000 and $783,000,
respectively. As a result of tax losses incurred, the Company has recorded an
income tax benefit of $3,986,000 for the year ended December 31, 1997 and
$4,352,000 for the year ended December 31, 1996. The current year benefit
consists of a carryback claim of $575,000 filed and received for the tax year
ended May 31, 1997 and an anticipated carryback claim of $3,411,000. The income
tax benefit of $4,352,000 for the year ended December 31, 1996 was received in
1997.

Automobile Receivables

      The following table provides information regarding the Company's allowance
for credit losses as of December 31, 1997 and 1996:

                                                  1997               1996
                                             -------------       -------------
Allowance for credit losses                  $ 19,000,000        $ 15,725,000
Percentage of outstanding
  automobile receivables                          19.5%               25.5%

      The following table summarizes the Company's delinquent accounts that were
more than 60 days delinquent as of December 31, 1997 and 1996:

                                 1997         1997        1996         1996
                              -----------   -------    -----------   -------
                                Amount         %         Amount         %
                              -----------   -------    -----------   -------
60 to 89 days delinquent      $ 3,199,000     2.5%     $ 3,290,000     4.1%
90 days or more delinquent      6,992,000     5.6%       1,739,000     2.2%
                              -----------   -------    -----------   -------
Total delinquent loans        $10,191,000     8.1%     $ 5,029,000     6.3%
                              -----------   -------    -----------   -------

For the Year Ended December 31, 1996

      The Company entered the non-prime automobile finance business in December
1995. The results of operations for the short year (seven months) ended December
31, 1995 include the operation of the Company's non-prime business for only one
month. Certain information for the full year ended December 31, 1996 is not
comparable to the prior year.


                                       17
<PAGE>

Revenues

      Revenues for the year ended December 31, 1996 were derived from the
non-prime automobile finance business ($11,789,000), the long distance telephone
service business ($512,000) and investment income ($884,000), respectively.

Net Interest Income on Automobile Receivables

      The Company's principal revenue source is the net interest income, or net
spread, earned on its automobile receivables. This net spread is the
differential between interest income received on loans receivable and the
interest expense on related loans payable. The following table summarizes the
pertinent data on the Company's automobile receivables portfolio as of and for
the years ended December 31, 1996 and the seven months ended December 31, 1995:

                                          1996                 1995(2)
                                   --------------------  --------------------

Average loans receivable               $45,394,000           $31,618,000
                                   --------------------  --------------------
Average debt                            37,629,000            30,906,000
                                   --------------------  --------------------

Interest revenue                       $11,167,000          $    741,000
Interest expense                         3,839,000               284,000
                                   --------------------  --------------------
Net interest income                    $ 7,328,000          $    457,000
                                   --------------------  --------------------

Yield on loans                            24.6%                 28.1%
Cost of funds                             10.2%                 11.0%
                                   --------------------  --------------------
Net interest spread                       14.4%                 17.1%
                                   --------------------  --------------------

Net interest margin (1)                   16.3%                 17.3%
                                   --------------------  --------------------

      (1)   Net interest margin is net interest income divided by average loans
            outstanding.

      (2)   Average amounts are for the period from December 6, 1995 through
            December 31, 1995.

Costs and Expenses

      Interest expense for the year ended December 31, 1996 of $3,990,000 was
related to the non-prime automobile financing business and the debt outstanding
under the Company's senior credit facilities ($18.1 million as of December 31,
1996), securitized notes ($31.6 million as of December 31, 1996) and
subordinated debt ($10.2 million as of December 31, 1996).

      Operating expenses for the year ended December 31, 1996 of $6,913,000 were
attributable to the Company's non-prime automobile financing business ($6.5
million), the long distance telephone service business ($.4 million).

      Depreciation and amortization expense for the year ended December 31, 1996
of $1,189,000 was primarily attributable to the amortization of goodwill and
other intangible assets associated with the acquisition of FFC in December 1995.
Approximately $784,000 of this amortization was related to the goodwill and
other intangibles written off as of December 31, 1996.


                                       18
<PAGE>

Provisions for Credit Losses and Impairment of Long-Lived Assets

      The acquisition of FFC in December 1995 included a portfolio of non-prime
automobile receivables of approximately $31 million of which approximately 80%
had been acquired by FFC from Charlie Falk's Auto Wholesalers, Incorporated
("CFAW"). In addition to the tangible assets acquired, the Company entered into
a Non-Compete Agreement and a 10 year Purchase Agreement with CFAW which, among
other provisions, provided for the continued purchase of automobile receivables
based upon established underwriting criteria at the sole discretion and option
of the Company. During the year ended December 31, 1996, the quality of the
automobile receivables acquired from CFAW, both prior to the acquisition date
and subsequent thereto, as evidenced by the number of repossessions and the
charge-off losses incurred, came into question. The Company determined to cease
acquiring automobile receivables from CFAW and accordingly, effective December
31, 1996, the Company entered into a Modification and Termination Agreement with
CFAW.

      As a result of this action and other factors, the Company had deemed a
significant portion of the goodwill associated with the acquisition of FFC as
well as the Non-Compete and Purchase Agreements are of no continuing value and,
accordingly, has taken a charge against operations as of December 31, 1996 of
$11,193,000. Furthermore, the Company recorded additional credit losses of
$8,100,000 on the acquired automobile receivables and has determined that an
additional provision for losses of $5,251,000 was necessary to provide for the
anticipated credit losses associated with automobile receivables purchased from
CFAW and other dealers during 1996, respectively. These are non-cash charges to
income which do not have a direct adverse effect on the Company's liquidity.

Loss from Continuing Operations and Income Tax Benefit

      The loss from continuing operations before income tax benefit of
$23,452,000 is primarily attributable to the write-off of goodwill and other
intangible assets ($11.2 million), the provision for credit losses on the
acquired portfolio ($8.1 million), the current provision for credit losses ($5.3
million) and the costs associated with the start-up of the Company's Northeast
regional center ($.8 million). For the fiscal years ended May 31, 1995, 1994 and
1993, the Company incurred and paid federal tax liabilities of $7,005,000,
$873,000 and $783,000, respectively. As a result of losses incurred, the Company
has recorded an income tax benefit of $4,352,000 related to anticipated
carryback claims for tax years ended December 31, 1996 and prior. No additional
benefit has been recorded for additional carryback available for tax losses
anticipated subsequent to December 31, 1996 for which the provision for credit
losses has been recognized for the year ended December 31, 1996.

Automobile Receivables

      The following table provides information regarding the Company's allowance
for credit losses as of December 31, 1996 and 1995:

                                                       1996            1995
                                                   ------------    ------------
Allowance for credit losses                        $ 15,725,000    $  6,818,000
Percentage of outstanding automobile receivables       25.5%           21.3%


                                       19
<PAGE>

      The following table summarizes the Company's delinquent accounts that were
more than 60 days delinquent as of December 31, 1996 and 1995:

                                1996         1996          1995         1995
                             ----------   -----------   ----------   -----------
                               Amount          %          Amount          %
                             ----------   -----------   ----------   -----------
60 to 89 days delinquent     $3,290,000       4.1%      $2,071,000       4.7%
90 days or more delinquent    1,739,000       2.2%       1,387,000       3.1%
                             ----------   -----------   ----------   -----------
Total delinquent loans       $5,029,000       6.3%      $3,458,000       7.8%
                             ----------   -----------   ----------   -----------

For the Seven Months Ended December 31, 1995

      On February 28, 1996, the Company elected to change its fiscal year end to
December 31. This decision is directly related to the acquisition of FFC and the
entry by the Company into the non-prime automobile finance industry. It is the
belief of management that the ability to compare the performance of the Company
against numerous other publicly traded non-prime automobile finance companies
which report the results of operations on a calendar year will provide for more
meaningful dissemination of financial information and is in the best interest of
the public and the Company's shareholders.

      Operations for the seven months ended December 31, 1995 include the
operating results of the Company's non-prime auto finance business since
December 6, 1995, the acquisition date.

Revenues

      Revenues of $2,232,000 for the seven month period ended December 31, 1995
were derived from the non-prime auto finance business for the month of December
($772,000), the Company's long distance telephone services business ($440,000)
and investment income ($1,020,000).

Costs and Expenses

      Interest expense for the seven month period ended December 31, 1995 was
$416,000 and relates to the debt assumed relating to the acquisition of FFC in
December 1995 of approximately $34,000,000 and to the $4,000,000 subordinated
notes issued by the Company in January 1994 and notes payable issued in
connection with an acquisition in January 1994. In September, 1995, the Company
elected to prepay $2,000,000 of the subordinated notes.

      Operating expenses for the seven month period ended December 31, 1995 were
$1,346,000 and consisted primarily of corporate office costs and the operating
expenses of the non-prime auto finance business acquired in December 1995.

      Depreciation and amortization expense for the seven month period ended
December 31, 1995 was $85,000 and consisted primarily of the amortization of
goodwill and other intangible assets associated with the acquisition of FFC in
December 1995.

Income from Continuing Operations and Income Tax Benefit

      Income from continuing operations before taxes for the seven month period
ended December 31, 1995 was $385,000. The income tax benefit for the seven month
period ended December 31, 1995 was


                                       20
<PAGE>

$176,000. The Company recorded a tax benefit as a result of a substantial
portion of its investment income being derived from instruments exempt from
federal taxation.

Loss from Discontinued Operations

      Loss from discontinued operations for the seven month period ended
December 31, 1995 was $28,000 and was related solely to the operations of the
Company's insurance inspection services business sold in July 1995.

Gain on Sale of Discontinued Operations

      The gain on sale of discontinued operations for the period ended December
31, 1995 was $297,000 and was related solely to the sale of the Company's
insurance inspection services business in July 1995.

Trends and Uncertainties

      During 1997, several non-prime automobile finance companies, including the
Company, experienced poor loan performance, higher delinquency rates and
increased credit losses on their portfolio assets. In addition, during the past
several months, a number of non-prime automobile finance companies, including
the Money Store, have made strategic decisions to exit the market-place. This
trend was the direct result of several factors including: (a) the impact of
increased levels of competition on loan acquisition discounts; (b) the
heightened demand created by the increased supply of capital and used automobile
inventories; (c) the need to attract consumers with lower credit qualifications
to meet this additional demand; (d) economic uncertainties and financial
difficulties within the non-prime automobile industry as well as management
upheavals at certain industry leaders; and (e) the increased levels of
outstanding consumer debt and personal bankruptcies. These factors have
contributed to a significant reduction in available warehouse lines of credit
and a material decline in financial markets investments into the non-prime
automobile industry through the sale of equity securities, subordinated debt
instruments and securitized notes.

      The Company has experienced material operating losses during 1997. As a
result of this adverse change in the non-prime automobile finance industry and
the deterioration in the Company's financial condition, the Company has been
unable to maintain adequate levels of net worth to satisfy the loan covenant
requirement under its warehouse facility agreement with CS First Boston Mortgage
Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes
issued in October 1996. As of December 31, 1997, CSFB is no longer funding the
acquisition of non-prime automobile receivables generated by the Company. The
Company, among other actions, has restructured operations and significantly
reduced overhead. In addition, the Company has modified credit underwriting
criteria and reduced the volume of loans purchased from dealers. The Company is
exploring several opportunities including the securing of additional warehouse
facilities to support an increased level of automobile loan acquisitions, the
sale of portfolio assets to reduce outstanding debt and other restructuring
alternatives. There is no assurance that the Company will be successful in
securing additional warehouse facilities or selling portfolio assets, the
failure of which would have a material adverse effect on the Company's financial
condition.

      These factors raise substantial doubt about the Company's ability to
continue as a going concern.


                                       21
<PAGE>

Liquidity and Capital Resources

      Since its entry into the Non-Prime Automobile industry in December 1995,
the Company has funded its operations with payments received from automobile
receivables, borrowings under senior credit facilities and the issuance of asset
backed secured notes.

      In October 1996, the Company issued $36.3 million of securitized notes
backed by $40.3 million of automobile receivables to a group of institutional
investors in a private placement transaction. These notes were issued in two
classes, $ 34.3 million of 6.53% Class "A" notes rated, at the time of issuance,
"AAA" by Standard & Poor's Rating Group and "Aaa" by Moody's Investors Service
and $ 2.0 million of 11.31% Class "B" notes rated, at the time of issuance, "BB"
by Standard & Poor's Rating Group. The Class "A" notes were credit enhanced with
an insurance policy issued by MBIA Insurance Corporation. The proceeds from the
securitization were used to fund Cash Reserve accounts ($5.6 million) and the
balance was used to reduce the amount outstanding under the Company's Senior
Credit facility. Among other provisions, the notes require the maintenance of
certain performance standards with respect to the portfolio of loan contracts
securitized and certain overall financial considerations of the Company as a
whole, including not realizing a net loss from operations in any two consecutive
quarters and maintenance of minimum tangible net worth, as defined, of $7
million. At December 31, 1997 the Company had a tangible deficiency, as defined,
of ($200,000) and, accordingly, did not meet the minimum tangible net worth
standard. In addition, the Company has experienced a net loss from operations
for each of the quarters ended September 30, 1997 and December 31, 1997.
Accordingly, for the quarter ended December 31, 1997, the Company did not meet
the interest coverage ratio requirement.

      In December 1996, the Company entered into a financing agreement with CSFB
which provides for a $100 million line of credit to be used for the funding of
the acquisition of non-prime automobile receivables. This facility provides for
borrowings at LIBOR plus 300 basis points. Among other provisions, this facility
requires the Company to maintain tangible net worth, as defined, of $10 million
and is cancelable in the event of a material adverse change in the Company's
business. In October 1997, the Company and CSFB entered into an amended and
restated agreement which provided CSFB with additional collateral including a
residual interest in the anticipated cash flows upon the satisfaction of the
Class A and Class B securitized notes issued in October 1996 and any income tax
refund received by the Company for the tax year ended May 31, 1998.

      At December 31, 1997 the Company had tangible net worth, as defined, of
approximately $2.1 million and, accordingly, did not meet the tangible net worth
standard under the CSFB facility. As of December 31, 1997, CSFB is no longer
funding the acquisition of non-prime automobile receivables generated by the
Company.

      During the third quarter of 1997, the Company explored the sale of
approximately $40 million of securitized notes backed by approximately $48
million of automobile receivables. However, several factors, including adverse
market conditions, prevented the consummation of this transaction.

      The Company has outstanding $10.2 million of subordinated debt. Of this
amount, $8.2 million of 12% notes was included with the liabilities assumed with
the acquisition of FALK Finance Company, Inc. ("FFC") in December 1995 and $2.0
million of 7.55% notes issued by the Company. A principal payment of $667,000
was due on the $2.0 million debt in January 1998. The Company did not make this
installment payment and has agreed to a modification agreement which extends the
due date for this payment to March 31, 1998.


                                       22
<PAGE>

      The Company's liquid assets amounted to $4.7 million as of December 31,
1997. In addition, the Company has $3.0 million in Restricted Cash Reserve
accounts established pursuant to the Indenture Agreement executed in conjunction
with the issuance of Securitized Notes issued pursuant to the Private Placement
Memorandum dated October 11, 1996 and $1.1 million in restricted collection
accounts related to its warehouse line of credit.

      The total amount of debt outstanding as of December 31, 1997 and 1996 was
$93.2 million and $60.4 million, respectively. This following table presents the
Company's debt instruments and weighted average interest rates on such
instruments as of December 31, 1996 and 1996, respectively:

                                         1997                 1996
                                           Weighted              Weighted
                                            Average               Average
                                 Balance     Rate      Balance     Rate
                               -------------------------------------------
Revolving lines of credit         $67.9      8.78%      $18.1      8.75%
Automobile receivable backed
notes                             $14.1      6.91%      $31.6      6.75%
Subordinated debt                 $10.2     11.75%      $10.2     11.75%
Other debt                        $ 1.0      8.5%       $  .5      8.5%

      The Company's ability to continue to acquire automobile receivables as
well as plan for future expansion is directly related to its ability to secure
required capital. In the past, the Company has demonstrated the ability to
secure warehouse lines of credit, issue receivable secured notes and obtain
subordinated debt. However, the Company's ability to secure required capital has
been hampered based upon the inability to consummate the sale of securitized
notes, as described above, as well as the uncertain status of the Company's
primary credit facility. In January 1998, the Company entered into an
arrangement, know as a "flow-through" strategy, with a new funding source
whereby it can purchase loan contracts which meet specified criteria and sell
them through to this source for a fee. This arrangement enables the Company to
continue to purchase loans and service its dealer network. The success of this
program, as well as the Company's ability to secure additional funding sources,
will materially impact the Company's future business activities and could, if
not successful, require the Company to sell certain of the loans in its
portfolio to meet its liquidity requirements.

      As of December 31, 1997, the Company is not receiving advances under its
senior credit facility. Therefore, unless the Company is able to successfully
implement a flow through strategy or obtain additional lines of credit, the
Company does not have sufficient liquid assets and available lines of credit to
meet its short and long-term capital requirements.

      Inflation and changing prices had no material impact on revenues or the
results of operations for the year ended December 31, 1997.

Year 2000

      The Company maintains sophisticated data processing support and management
information systems. Finance Manager, the Company's custom designed proprietary
software management system, is updated and maintained by the Company's MIS
Department based in Norfolk, Virginia. The Company has made a comprehensive
assessment of the impact of the year 2000 on its business. This assessment
included the preparation of a comprehensive inventory of computer systems and
computer-controlled devices. As of December 31, 1997, the Company's compliance
efforts are substantially complete. Finance Manager software was designed to
account for consumer loan contracts with maturity dates beyond the year 2000.
This system has been in use by the Company since 1996. Accordingly, the


                                       23
<PAGE>

Company does not expect that the cost of ensuring Year 2000 compliance will have
a material adverse impact on its financial position or results of operations in
the current year or in future years.

Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The response to this item is submitted as a separate section of this
Report beginning on page F-1.

Item 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.


                                       24
<PAGE>

                                    Part III

Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            Set forth below is information with respect to the Company's
            Directors and Executive Officers:

      SCOTT ZECHER, age 39, joined the Company in January 1984, and became its
President and Chief Operating Officer in January 1993 and its Chief Executive
Officer in October 1996. Prior to becoming President and Chief Operating
Officer, he held the position of Executive Vice President and Chief Financial
Officer. He became a director of the Company in 1989. From 1980 to 1984, he was
with the accounting firm of KPMG Peat Marwick. Mr. Zecher is a Certified Public
Accountant with a B.A. degree in Accounting and Economics from the City
University of New York at Queens College.

      JASON BACHER, age 59, has been a director of the Company since its
inception in 1976. From its inception in 1976 through March 29, 1995 Mr. Bacher
was Chairman of the Board and the Chief Executive Officer of the Company. Mr.
Bacher has been associated with the automobile salvage industry since 1961 as a
principal of Bacher Tire Company, Inc., an automobile recycler located in the
New York metropolitan area. In connection with the sale by the Company of a
principal portion of its business to ADP Claims Solutions on April 1, 1995, Mr.
Bacher joined ADP Claims Solutions.

      ROBERT FAGENSON, age 49, has been an officer and director of Fagenson &
Co., Inc., a registered broker-dealer, for more than five years. Mr. Fagenson is
a member of the Board of Directors of the New York Stock Exchange. Since April
1983, Mr. Fagenson has also served as the Secretary and a director of Starr
Securities, Inc., a registered broker- dealer, which was the underwriter of the
Company's initial public offering in May 1986. Mr. Fagenson has been a director
of the Company since June 1986. Mr. Fagenson is also a director of Healthy
Planets Products, Inc., Microtel Franchise and Development Corp. and Rentway,
Inc. Mr. Fagenson has a B.S. degree in Business Administration from Syracuse
University.

      HOWARD NUSBAUM, age 50, has been a director of the Company since its
inception in 1976. Mr. Nusbaum, who earned a B.A. degree from Brooklyn College,
has been a consultant to the automobile recycling industry since 1976. He is
presently President of SWZ Engineering, Inc.

      JEROME STENGEL, 61, has been a Vice President, Treasurer and Chief
Financial Officer of Genovese Drug Stores, Inc., an American Stock Exchange
company, for more than five years. Mr. Stengel is a Certified Public Accountant
with a B.B.A. degree from the City University of New York. He has been a
director of the Company since 1987.

      WILLIAM WUNDERLICH, age 50, joined the Company in October 1992 as its Vice
President-Finance and became Chief Financial Officer in January 1993. From 1990
to 1992, he served as Vice President of Goldstein Affiliates, Inc., a public
insurance adjusting company. From 1981 to 1990, he served as Executive Vice
President, Chief Financial Officer and a Director of Novo Corporation, a
manufacturer of consumer products. Mr. Wunderlich is a Certified Public
Accountant with a B.A. degree in Accounting and Economics from the City
University of New York at Queens College.


                                       25
<PAGE>

Option Grants during the year ended December 31, 1997

      During 1997 the Compensation Committee of the Company granted performance
based options to Scott Zecher, the Company's President and Chief Executive
Officer and William Wunderlich, the Company's Chief Financial Officer under the
1997 Plan, subject to stockholder approval of the 1997 Plan. The 1997 Plan was
approved at the 1997 Annual Stockholders' meeting. Pursuant to the grants,
Mssrs. Zecher and Wunderlich received options to purchase 450,000 and 270,000
shares of Common Stock, respectively, at an exercise price equal to $1.75, the
fair market value of the Common Stock on the date the 1997 Plan was approved.
The vesting of such options is based upon the market performance of the
Company's Common Stock. Such options will vest in thirds upon the closing price
of the Company's Common Stock reaching $5.00, $7.50 and $10.00, respectively.
These price thresholds must be achieved within two, four and six years,
respectively, from the date of grant. Any options which do not vest in
accordance with the terms of the grant, as well as any options which have not
vested as of the termination date of the grantee's employment with the Company,
will be restored to the status of unissued options under the 1997 Plan and will
be available for further issuance in accordance with the terms and provisions of
the 1997 Plan.

Aggregate Year-End Option Values

      Shown below is information with respect to unexercised options granted
under the Option Plans to the Named Executives and held by them at December 31,
1997. No options were executed by Named Executives during 1997.

                                                    Values of Unexercised
                       Number of Unexercised       In-the-Money Options at
                        Options at 12/31/97              12/31/96(1)
                      -------------------------    -------------------------
Name                  Exercisable/Unexercisable    Exercisable/Unexercisable
----                  -------------------------    -------------------------
Scott Zecher               86,666/476,667                   $0/$0
William Wunderlich        111,667/283,333                   $0/$0

----------
(1)   Based on the closing price as quoted on NASDAQ/NMS on December 31, 1997.

Director Compensation

      The Company pays a Directors fee of $750 for each meeting attended by a
non-employee director.

Item 11: EXECUTIVE COMPENSATION

      The Summary Compensation Table below includes, for the years-ended
December 31, 1997 and 1996 and the seven months ended December 31, 1995
individual compensation for services to the Company and its subsidiaries paid
to: (1) the Chief Executive Officer; and (2) the other most highly paid
executive officers of the Company in Fiscal 1995 whose salary and bonus exceeded
$100,000 (together, the "Named Executives").


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                            Long-Term        All
Name and Principal                  Annual  Compensation  Compensation      Other
Position                 Year       Salary     Bonus        Options     Compensation(2)
------------------       ----       ------  ------------  ------------  ---------------
<S>                      <C>       <C>        <C>             <C>          <C>
Scott Zecher             1997      $150,000   $100,000         --          $  4,500
    President and        1996      $150,000   $100,000         --          $  4,500
    Chief Executive      1995(1)   $ 87,500   $ 50,000         --          $  2,625
    Officer

William Wunderlich       1997      $120,000   $ 30,000         --          $  4,575
    Treasurer and        1996      $120,000   $ 30,000         --          $  4,500
    Chief Financial      1995(1)   $ 70,000   $ 15,000         --          $  1,320
    Officer
</TABLE>

----------
(1)   Represents the seven month period ended December 31, 1995.
(2)   Represents amounts contributed to the Company's 401(k) deferred
      compensation plan.

Employment Agreements

      Messrs. Zecher and Wunderlich are employed by the Company pursuant to
employment agreements which expire in April 1999. These agreements provide for
minimum annual compensation of $150,000 and $120,000, respectively, and provide
for annual review by the Board of Directors.

      The Company has entered into supplemental employment agreements (the
"Supplemental Employment Agreements") with Messrs. Zecher and Wunderlich (the
"Covered Executives"), which provide that if there is a Change in Control of the
Company (as defined therein) during the Protected Period (described below), the
terms of the Supplemental Employment Agreements will supersede the Covered
Executives' existing employment agreements and will govern the terms of the
Covered Executives' employment following the Change in Control for a three-year
term, in the case of Mr. Zecher, and a two-year term, in the case of Mr.
Wunderlich (the "Employment Term"). For these purposes, the Protected Period is
a three-year period which commenced on April 10, 1995 and is automatically
extended for one year on and each April 10 thereafter, unless the Company
otherwise notifies the Covered Executive at least 90 days prior thereto. The
Supplemental Employment Agreements provide that during the Employment Term the
Covered Executives will remain employed in their capacities with the Company as
of the Change in Control and will continue to receive an annual salary (the
"Base Salary") and benefits at least equal to that which they received prior to
the Change in Control and an annual bonus at least equal to the Covered
Executive's average annual bonus during the three years prior to the Change in
Control. The Supplemental Employment Agreements provide that if, during the
Employment Term, the Covered Executive's employment is terminated by the Company
other than for Cause or Disability or by the Executive either for Good Reason or
during the 60-day Window Period commencing on the anniversary of the Change in
Control (as each of the foregoing terms are defined in the applicable
Supplemental Employment Agreement), the Covered Executive would receive a
severance payment equal to the sum of his Base Salary and the higher of his
annual bonus for the then most recent year or his average annual bonus during
the three years preceding the Change in Control (the "Highest Annual Bonus")
multiplied by two, in the case of Mr. Zecher, and one and one-half, in the case
of Mr. Wunderlich. In addition, the restrictions on any stock-related incentive
awards held by the Covered Executive would lapse and he would be entitled to
continued coverage under the Company's life, health and disability benefits for
two years following termination of his employment (three years in the case of
Mr. Zecher) or until he receives similar benefits from a new employer. Mr.
Zecher's Supplemental Employment Agreement also provides that if he is subject
to excise taxes under Section 4999 of the Internal Revenue Code on any payments
or benefits triggered by


                                       27
<PAGE>

a Change in Control, he will be entitled to receive an additional amount such
that after the payment of all applicable taxes he will retain an amount equal to
that which he would have retained absent the excise taxes. In connection with
the Supplemental Employment Agreements, the Company also approved the creation
and funding of an Employee Protection Trust, which is a form of grantor trust
under which the assets of the trust remain subject to the satisfaction of the
general claims of the Company's creditors, to provide for the payment of all
benefits payable under the Supplemental Employment Agreements.

      The Supplemental Employment Agreements were entered into on April 10,
1995, after Steel Partners II LP acquired 14.9% of the Company's Common Stock.
In the opinion of the Board, it was necessary and desirable to enter into the
Supplemental Employment Agreements and to implement the Employee Protection
Trust so that the Covered Executives would concentrate on performing their
duties and promoting the best interests of the Company and its stockholders
without being concerned about the possibility of a Change in Control. In the
opinion of the Board of Directors, the provisions of the Supplemental Employment
Agreements and the Employee Protection Trust would not have any significant
impact on the decision of any person or entity relating to whether or not to
acquire the Company or effect a Change in Control although a person or entity
interested in acquiring, or effecting a Change in Control, of the Company may
view the provisions of the Supplemental Employment Agreement and the funding of
the Employee Protection Trust as making it more difficult to consummate an
acquisition, or effect a Change in Control, of the Company. In addition, in the
opinion of the Board of Directors, entering into the Supplemental Employment
Agreements and implementing the Employee `Protection Trust and the funding
thereof would not have an adverse impact on the Company's ability to execute its
business strategy in pursuing value for the benefit of all stockholders.


                                       28
<PAGE>

Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table, together with the accompanying footnotes, sets forth
information, as of March 26, 1998, regarding stock ownership of all persons
known by the Company to own beneficially 5% or more of the Company's outstanding
Common Stock, all directors and nominees, and all directors and officers of the
Company as a group.

Name of                         Shares of Common Stock       Percentage
Beneficial Owner                 Beneficially Owned(1)      of Ownership
----------------                ----------------------      ------------

(i) Directors
Jason Bacher                           341,605(2)              4.2%(5)
Robert Fagenson                         30,750(3)                * (5)
Howard Nusbaum                         146,154                 1.8%
Jerome Stenge(l)                        35,000                   *
Scott Zecher                           391,745(4)              4.8%(5)

All executive officers               1,056,921(7)             12.7%(6)
And directors as a group
(6 persons)

Robert G. Risher(7)
39--Greemhouse Road
Houston, TX 77084                      514,600                 6.4%

Dimensional Fund
Advisors, Inc.(7)
1299 Ocean Avenue
Santa Monica, CA 90401                 474,913                 5.9%

Irving B. Harris(7)
2 North LaSalle Street
Suite 505
Chicago, IL 60602                      497,372                 6.1%

----------
* Less than 1%
(1)   Unless otherwise indicated below, each director, executive officer and
      each 5% stockholder has sole voting and investment power with respect to
      all shares beneficially owned.
(2)   Includes 83,333 shares subject to currently exercisable options.
(3)   Includes (i) 1,500 shares owned by the Fagenson & Co. Profit Sharing Plan
      and Employee Pension Plan, of which Mr. Fagenson is a trustee, and (ii)
      29,250 shares issuable upon exercise of a Common Stock purchase warrant
      held by Mr. Fagenson which is currently exercisable.
(4)   Includes 86,666 shares subject to currently exercisable options or
      warrants. Mr. Zecher's address is c/o AutoInfo, Inc., One Paragon Drive,
      Suite 255, Montvale, New Jersey 07645.
(5)   Assumes that all currently exercisable options or warrants owned by this
      individual have been exercised.
(6)   Assumes that all currently exercisable options or warrants owned by
      members of the group have been exercised.
(7)   Information with respect to this stockholder has been derived from the
      Schedule 13D or Schedule 13G filed by such stockholder with the Securities
      and Exchange Commission.

Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On April 28, 1995 the Company entered into a Promissory Note and Security
and Pledge Agreement with Scott Zecher, its President, Chief Operating Officer
and a Director, pursuant to which the Company lent to Mr. Zecher, consistent
with the Company's past practice, the sum of $466,796.64, in connection with Mr.
Zecher's exercise of options to acquire 216,799 shares of the Company's


                                       29
<PAGE>

Common Stock (the "Shares") under the Company's 1985 and 1986 Stock Option
Plans. During 1997 the maturity date of the Note, which is non-interest bearing
and secured by the Shares, was extended to November, 1999.


                                       30
<PAGE>

                                     Part IV

Item 14: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

Financial Statements

The financial statements listed in the accompanying index to financial
statements on Page F-1 are filed as part of this report.

     Exhibits
     --------
      No. 2A      Agreement and Plan of Merger between AutoInfo, Inc. (New York)
                  and AutoInfo, Inc. (Delaware), January 20, 1987(2)

      No. 3A      Certificate of Incorporation of the Company.(3)

      No. 3B      Amended and restated By-Laws of the Company.(11)

      No. 4A      Specimen Stock Certificate.(4)

      No. 4B      Rights Agreement, dated as of March 30, 1995 between AutoInfo,
                  Inc. and American Stock Transfer & Trust Company, as Rights
                  Agent.(5)

      No. 9A      Settlement Agreement, dated June 22, 1995, between AutoInfo,
                  Inc. and Ryback Management Corporation, et al.(12)

      No. 10A     1985 Stock Option Plan.(1)

      No. 10B     1986 Stock Option Plan.(3)

      No. 10C     1989 Stock Option Plan.(7)

      No. 10D     1992 Stock Option Plan.(10)

      No. 10E     1997 Stock Option Plan.(15)

      No. 10F     1997 Non-Employee Stock Option Plan.(15)

      No. 10G     Employment Agreement between AutoInfo, Inc. and Scott Zecher
                  dated January 1, 1994, as amended by Agreement dated April 10,
                  1995(12)

      No. 10H     Supplemental Employment Agreement between AutoInfo, Inc. and
                  Scott Zecher dated as of April 10, 1995.(12)

      No. 10I     Amendment to Employment Agreement between AutoInfo, Inc. and
                  Scott Zecher dated April 10, 1997.*

      No. 10J     Employment Agreement between AutoInfo, Inc. and William
                  Wunderlich dated as of April 10, 1997.*

      No. 10K     Supplemental Employment Agreement between AutoInfo, Inc. and
                  William


                                       31
<PAGE>

                  Wunderlich as of April 10, 1995.(12)

      No. 10L     Form of AutoInfo, Inc. Employee Protection Trust Agreement
                  dated August 17, 1995.(12)

      No. 10M     Form of Restricted Stock Grant Agreement between AutoInfo,
                  Inc. and certain officers, directors and consultants.(4)

      No. 10N     Note Agreement dated January 10, 1994 between AutoInfo, Inc.
                  and certain investors with respect to issuance of 7.55%
                  Subordinated Notes due January 9, 2000 and Common Stock
                  Purchase Warrants.(6)

      No. 10O     Asset Purchase Agreement dated January 31, 1995 between ADP
                  Claims Solutions Group, Inc. and AutoInfo, Inc.(9)

      No. 10P     Promissory Note and Security and Pledge Agreement dated April
                  28, 1995 between AutoInfo, Inc. and Scott Zecher.(12)

      No. 10Q     Loan Sale Agreement dated October 1, 1996 between AutoInfo
                  Finance of Virginia, Inc. and AutoInfo Receivables
                  Company.(14)

      No. 10R     Indenture dated October 1, 1996 among AutoInfo Receivables
                  Company, as Issuer, Crestar Bank, as Custodian, and Bankers
                  Trust Company, as Indenture Trustee.(14)

      No. 10S     Servicing Agreement dated as of October 1, 1996 by and among
                  AutoInfo Finance of Virginia, Inc., Servicer, AutoInfo
                  Receivables Company, Issuer, Bankers Trust, Indenture Trustee
                  and Back-Up Servicer and Crestar Bank, Custodian.(14)

      No. 10T     Common Stock Purchase Warrant Agreement and Registration
                  Rights Agreement, each dated October 11, 1996, between
                  AutoInfo, Inc. and SunAmerica Life Insurance Company.(14)

      No. 10U     Loan Security and Servicing Agreement, dated as of December 9,
                  1996, among AutoInfo Finance of Virginia, Inc., as Borrower
                  and as Servicer, CarLoanCo., Inc., as Borrower and as
                  Servicer, and CS First Boston Mortgage Capital Corp., as
                  Lender.(14)

      No. 10V     Custody Agreement, dated as of December 9, 1996, by and among
                  CS First Boston Mortgage Capital Corp., Lender, AutoInfo
                  Finance of Virginia, Inc., Borrower and Servicer, CarLoanCo.,
                  Inc., Borrower and Servicer, and Crestar Bank, Custodian.(14)

      No. 10W     Common Stock Purchase Warrant Agreement and Registration
                  Rights Agreement, each dated as of December 10, 1996, between
                  AutoInfo, Inc. and CS First Boston Mortgage Capital Corp.(14)

      No. 21      Subsidiaries of the Registrant.(14)


                                       32
<PAGE>

      No. 23      Consent of Arthur Andersen LLP, independent public
                  accountants.*

      No. 27      Financial Data Schedule.*

----------
* Filed as an Exhibit hereto.

(1)   This Exhibit was filed as an Exhibit to the Company's Registration
      Statement on Form S-18 (File No. 33-3526-NY) and is incorporated herein by
      reference.
(2)   This Exhibit was filed as an Exhibit to the Company's Current Report on
      Form 8-K dated January 6, 1987 and is incorporated herein by reference.
(3)   This Exhibit was filed as Exhibits to the Company's definitive proxy
      statement dated October 20, 1986 and incorporated herein by reference.
(4)   This Exhibit was filed as Exhibits to the Company's Registration Statement
      on Form S-1 (File No. 33-15465) and are incorporated herein by reference.
(5)   This Exhibit was filed as an Exhibit to the Company's Registration
      Statement on Form 8-A filed April 13, 1995, and is incorporated herein by
      reference.
(6)   This Exhibit was filed as an Exhibit to the Company's Annual Report on
      Form 10-K for the year ended May 31, 1994 and is incorporated herein by
      reference.
(7)   This Exhibit was filed as an Exhibit to the Company's definitive proxy
      statement dated September 25, 1989 and is incorporated herein by
      reference.
(8)   These Exhibits were filed as Exhibits to the Company's Current Report on
      Form 8-K dated December 19, 1991 and are incorporated herein by reference.
(9)   This Exhibit was filed as an Exhibit to the Company's definitive proxy
      statement dated March 1, 1995 and is incorporated herein by reference.
(10)  This Exhibit was filed as an Exhibit to the Company's definitive proxy
      statement dated October 2, 1992 and is incorporated herein by reference.
(11)  This Exhibit was filed as an Exhibit to the Company's Current Report on
      Form 8-K dated March 30, 1995 and is incorporated herein by reference.
(12)  This Exhibit was filed as an Exhibit to the Company's Annual Report on
      Form 10-K for the year ended May 31, 1995 and is incorporated herein by
      reference.
(13)  This Exhibit was filed as an Exhibit to the Company's Current Report on
      Form 8-K dated December 6, 1995 and is incorporated herein by reference.
(14)  This Exhibit was filed as an Exhibit to the Company's Annual Report on
      Form 10-K for the year ended December 31, 1996 and is incorporated herein
      by reference.
(15)  This Exhibit was filed as an exhibit to the Company's definitive proxy
      statement dated April 22, 1997 and is incorporated herein by reference.


                                       33
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d), the Securities
      Exchange Act of 1934, the registrant has duly caused this Report to be
      signed on March 27, 1997 on its behalf by the undersigned, thereunto duly
      authorized.

                                 AutoInfo, Inc.


                                 By: /s/ Scott Zecher
                                    ---------------------------------
                                    Scott Zecher, President and Chief
                                        Executive Officer

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


 /s/ Scott Zecher
 ------------------------
 Scott Zecher                 Director, President,
                              Chief Executive Officer        March 27, 1998


 /s/ William Wunderlich
 ------------------------
 William Wunderlich           Chief Financial Officer,
                              Secretary and Treasurer
                              (Principal Financial &         March 27, 1998
                              Accounting Officer)


 /s/ Jason Bacher
 ------------------------
 Jason Bacher                 Director                       March 27, 1998



 ------------------------
 Robert Fagenson              Director


 /s/ Howard Nusbaum
 ------------------------
 Howard Nusbaum               Director                       March 27, 1998


 /s/ Jerome Stengel
 ------------------------
 Jerome Stengel               Director                       March 27, 1998


                                       34
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Public Accountants                                     F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996                 F-3

Consolidated Statements of Operations for the Years Ended
      December 31, 1997 and 1996 and the Seven Months Ended
      December 31, 1995                                                      F-4

Consolidated Statements of Stockholders' Equity for the Years
      Ended December 31, 1997 and 1996 and the Seven Months Ended
      December 31, 1995                                                      F-5

Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1997 and 1996 and the Seven Months Ended
      December 31, 1995                                                      F-6

Notes to Consolidated Financial Statements                                   F-7

Information required by schedules called for under Regulation S-X is either not
applicable or is included in the Consolidated Financial Statements or Notes
thereto.


                                       F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

      To the Board of Directors and Stockholders of AutoInfo, Inc:

      We have audited the accompanying consolidated balance sheets of AutoInfo,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996 and the seven month period ended December 31, 1995. 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 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 financial position of AutoInfo, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996
and the seven month period ended December 31, 1995, in conformity with generally
accepted accounting principles.

      The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1, losses incurred by the Company have had a significant adverse impact on the
Company's financial position and results of operations and, as a result, as
discussed in Note 8, the Company has violated certain financial covenants
related to its revolving credit facility and its automobile receivables backed
notes. Additionally, the Company's primary lender under its revolving credit
facility has ceased funding the Company's acquisition of non-prime automobile
receivables and, accordingly, the Company has significantly curtailed the
purchase of loans from its dealer network. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.


ARTHUR ANDERSEN LLP

New York, New York
March 24, 1998


                                      F-2
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                       ASSETS
                                                                          1997             1996
                                                                     -------------    -------------
<S>                                                                  <C>              <C>
Gross automobile receivables                                         $ 126,428,067    $  81,406,679
Unearned  interest                                                     (28,946,529)     (19,867,745)
                                                                     -------------    -------------
Net automobile receivables                                              97,481,538       61,538,934
Allowance for credit losses (Note 7)                                   (19,000,487)     (15,725,390)
                                                                     -------------    -------------
Net automobile receivables after allowance for credit losses            78,481,051       45,813,544

Cash                                                                     2,506,502        3,805,629
Restricted cash (Note 9)                                                 4,088,483        6,881,846
Short-term investments (Note 6)                                          2,242,069        4,892,199
Fixed assets, net of accumulated depreciation of $1,098,356
   and $352,145 as of December 31, 1997 and 1996,
   respectively                                                          2,099,126        1,725,774
Goodwill and other intangibles, net of accumulated
   amortization of $153,668 as of December 31, 1996
   (Notes 2 and 13)                                                             --        2,906,587
Other assets                                                             3,785,355        4,073,502
Refundable income taxes (Note 10)                                        3,411,211        4,352,000
                                                                     -------------    -------------
                                                                     $  96,613,797    $  74,451,081
                                                                     =============    =============


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
   Revolving lines of credit (Note 9)                                $  67,935,706    $  18,082,472
   Automobile receivables backed notes (Note 9)                         14,063,140       31,611,989
   Subordinated notes and other debt (Note 9)                           11,190,979       10,710,330
   Accounts payable and accrued liabilities                              2,112,630        1,718,901
                                                                     -------------    -------------
Total Liabilities                                                       95,302,455       62,123,692
                                                                     -------------    -------------

Commitments and contingencies (Note 11)

Stockholders' equity
   Common Stock - authorized 20,000,000 shares $.01 par value;
      issued and outstanding 7,996,752 at December 31, 1997 and
      7,954,752 at December 31, 1996                                        79,968           79,548
   Additional paid-in capital                                           18,233,362       18,171,282
   Officer note receivable (Note 12)                                      (466,797)        (466,797)
   Deferred compensation under stock bonus plan (Note 12)                 (342,873)        (385,930)
   Retained (Deficit)                                                  (16,192,318)      (5,070,714)
                                                                     -------------    -------------
   Total stockholders' equity                                            1,311,342       12,327,389
                                                                     -------------    -------------
                                                                     $  96,613,797    $  74,451,081
                                                                     =============    =============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                      F-3
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                  AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                                 Seven Months
                                                 Year Ended      Year Ended         Ended
                                                 December 31,    December 31,    December 31,
REVENUES                                             1997             1996           1995
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
Interest and other finance revenue               $ 19,098,602    $ 11,789,130    $    771,502
Investment income                                     432,986         884,459       1,020,382
Long distance telephone services                      314,643         511,534         439,839
                                                 ------------    ------------    ------------
Total revenues                                     19,846,231      13,185,123       2,231,723
                                                 ------------    ------------    ------------
COSTS AND EXPENSES
Interest expense                                    8,145,959       3,989,912         415,904
Operating expenses                                 10,234,902       6,913,086       1,346,218
Depreciation and amortization                         708,248       1,189,298          84,889
Write off of goodwill and other intangibles
   (Note 2)                                         2,541,438              --              --
Provision for credit losses                        12,456,124       5,251,000              --
Restructuring charge (Note 3)                         867,141              --              --
                                                 ------------    ------------    ------------
                                                   34,953,812      17,343,296       1,847,011
Unusual item - impairment of long-lived assets
   and additional credit losses on acquired
   automobile receivables (Note 13)                        --      19,293,328              --
                                                 ------------    ------------    ------------
Total costs and expenses                           34,953,812      36,636,624       1,847,011
                                                 ------------    ------------    ------------
(Loss) income from continuing operations
   before income tax benefit                      (15,107,581)    (23,451,501)        384,712
Income tax benefit                                 (3,985,977)     (4,352,000)       (175,960)
                                                 ------------    ------------    ------------
(Loss) income from continuing operations          (11,121,604)    (19,099,501)        560,672

Income from discontinued operations net
   of income tax benefit  (Note 5)                         --              --         268,676
                                                 ------------    ------------    ============
Net (loss) income                                $(11,121,604)   $(19,099,501)   $    829,348
                                                 ============    ============    ============
Basic and diluted per share data (Note 16):
   (Loss) income from continuing operations      ($      1.39)   ($      2.41)   $        .07
   Income from discontinued operations                     --              --             .04
                                                 ------------    ------------    ------------

Net (loss) income per share                      ($      1.39)   ($      2.41)   $        .11
                                                 ============    ============    ============
Weighted average number of common
   and Common equivalent shares                     8,009,097       7,920,515       7,770,917
                                                 ------------    ------------    ------------
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                      F-4
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                  AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                                            Deferred
                            Shares of                      Additional                      Compensation    Retained
                           Common Stock      Common        Paid - In      Officer Note      Under Stock    Earnings
                           Outstanding       Stock          Capital        Receivable       Bonus Plan     (Deficit)
                          --------------   -----------  ---------------  --------------  ---------------  ------------
<S>                          <C>          <C>             <C>             <C>             <C>             <C>
Balance June 1, 1995         7,756,252    $     77,563    $ 17,725,267    $   (466,797)   $   (414,686)   $ 13,199,439
Exercise of stock
   options                      21,500             215          57,410              --              --              --
Amortization  of
   deferred
   compensation                     --              --              --              --          10,594              --
Net income                          --              --              --              --              --         829,348
                          ------------    ------------    ------------    ------------    ------------    ------------
Balance December 31,
  1995                       7,777,752          77,778      17,782,677        (466,797)       (404,092)     14,028,787
Common shares issued           177,000           1,770         388,605              --              --              --
Amortization  of
   deferred
   compensation                     --              --              --              --          18,162              --
Net (loss)                          --              --              --              --              --     (19,099,501)
                          ------------    ------------    ------------    ------------    ------------    ------------
Balance, December 31,
  1996                       7,954,752          79,548    $ 18,171,282    $   (466,797)   $   (385,930)   $ (5,070,714)

Common shares issued            64,000             640          89,360              --              --              --
Forfeiture of  deferred
   shares                      (22,000)           (220)        (27,280)             --          27,500              --
Amortization  of
   deferred
   compensation                     --              --              --              --          15,557              --
Net (loss)                          --              --              --              --              --     (11,121,604)
                          ------------    ------------    ------------    ------------    ------------    ------------
Balance, December 31,
  1997                       7,996,752    $     79,968    $ 18,233,362    $   (466,797)   $   (342,873)   $(16,192,318)
                          ============    ============    ============    ============    ============    ============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                      F-5
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                  AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                            December 31,     December 31,     December 31,
                                                                1997             1996             1995
                                                           -------------    -------------    -------------
<S>                                                        <C>              <C>              <C>
Cash flows from operating activities:
   Net (loss) income                                       $ (11,121,604)   $ (19,099,501)   $     829,348
   Adjustments to reconcile net (loss)  income to
   net cash (used for) operating activities:
      Depreciation and amortization expenses                     708,248        1,189,298           84,889
      Amortization of deferred compensation                       15,557           18,162           10,594
      Gain on sale of discontinued operations                         --               --         (449,756)
      Provision for  credit losses                            12,456,124        5,251,000               --
      Write-off  of goodwill and other intangibles             2,541,438               --               --
      Restructuring charge                                       436,086               --               --
      Unusual item - impairment of long-lived assets
          and additional losses on acquired
          automobile receivables                                      --       19,293,328               --
Changes in assets and liabilities:
   Automobile receivables, net                               (45,023,631)     (34,290,686)        (986,632)
   Other assets                                                  188,147       (3,081,728)        (573,645)
   Refundable income taxes                                       940,789       (4,352,000)              --
   Accounts payable and accrued liabilities                      393,729         (311,933)      (6,625,804)
                                                           -------------    -------------    -------------
Net cash (used for) continuing operations                    (38,465,117)     (35,384,060)      (7,711,006)
                                                           -------------    -------------    -------------
Net cash (used for) discontinued operations                           --               --         (105,141)
                                                           -------------    -------------    -------------
Cash flows from investing activities:
   Sale of discontinued operations                                    --               --        3,750,000
   Acquisitions                                                       --               --       (4,912,333)
   Capital expenditures                                       (1,152,537)      (1,797,168)        (497,661)
   Redemption of short-term investments                       12,899,102       43,941,466      103,294,353
   Purchases of short term investments                       (10,248,972)     (24,927,206)     (88,886,323)
                                                           -------------    -------------    -------------
Net cash provided by investing activities                      1,497,593       17,217,092       12,748,036
                                                           -------------    -------------    -------------
Cash Flows from  Financing Activities:
   Issuance of notes                                          51,410,902       36,789,873               --
   Reduction of borrowings                                   (18,625,868)      (8,900,272)      (4,546,540)
   Decrease (increase) in restricted cash                      2,793,363       (6,881,846)              --
   Issuance of common stock                                       90,000               --               --
   Exercise of stock options                                          --               --           57,625
                                                           -------------    -------------    -------------
Net cash provided by (used for) financing activities          35,668,397       21,007,755       (4,488,915)
                                                           -------------    -------------    -------------

Net (decrease) increase in cash                               (1,299,127)       2,840,787          442,974
Cash at beginning of year                                      3,805,629          964,842          521,868
                                                           -------------    -------------    -------------
Cash at end of year                                        $   2,506,502    $   3,805,629    $     964,842
                                                           =============    =============    =============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                      F-6
<PAGE>

                         AUTOINFO, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                  AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995


Note 1 - Business and Summary of Significant Accounting Policies

Business

      On December 6, 1995, AutoInfo, Inc. (the "Company"), a Delaware
corporation, through a newly formed wholly owned subsidiary, acquired the
operating assets of Falk Finance Company ("FFC"), a Norfolk, Virginia based
specialized financial services company, for $5,125,000 in cash and the
assumption of liabilities and debt approximating $34,000,000 (Note 4). As a
result of this acquisition, the Company's primary business is to purchase
non-prime automobile retail installment contracts from independent and
franchised used vehicle dealers. The Company services these dealers by providing
specialized financing programs for buyers who typically have impaired credit
histories and are unable to access traditional sources of available consumer
credit.

      In conjunction with the acquisition of FFC, the Company entered into a ten
year agreement with Charlie Falk Auto Wholesale, Incorporated ("CFAW"). This
agreement provided and established the basis for conducting business and the
criteria under which the Company purchased contracts from CFAW. Effective
December 31, 1996, the Company and CFAW mutually agreed to and entered into a
termination agreement which, among other provisions, provides for the Company to
continue to purchase contracts which meet established underwriting criteria only
through March 1997 (see Note 13). In 1997 and 1996, approximately 7% and 38%,
respectively, of all contracts funded by the Company were purchased from CFAW.

      In July 1996, the Company commenced operations of its Northeast Regional
center in Norwalk, Connecticut to provide its complete range of services to
dealers in the Northeast. This center was closed during the fourth quarter of
1997.

      During 1997, several non-prime automobile finance companies, including the
Company, experienced poor loan performance, higher delinquency rates and
increased credit losses on their portfolio assets. In addition, during the past
several months, a number of non-prime automobile finance companies, including
the Money Store, have made strategic decisions to exit the market-place. This
trend was the direct result of several factors including: (a) the impact of
increased levels of competition on loan acquisition discounts; (b) the
heightened demand created by the increased supply of capital and used automobile
inventories; (c) the need to attract consumers with lower credit qualifications
to meet this additional demand; (d) economic uncertainties and financial
difficulties within the non-prime automobile industry as well as management
upheavals at certain industry leaders; and (e) the increased levels of
outstanding consumer debt and personal bankruptcies. These factors have
contributed to a significant reduction in available warehouse lines of credit
and a material decline in financial markets investments into the non-prime
automobile industry through the sale of equity securities, subordinated debt
instruments and securitized notes.


                                      F-7
<PAGE>

      The Company has experienced material operating losses during 1997. As a
result of this adverse change in the non-prime automobile finance industry and
the deterioration in the Company's financial condition, the Company has been
unable to maintain adequate levels of net worth to satisfy the loan covenant
requirement under its warehouse facility agreement with CS First Boston Mortgage
Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes
issued in October 1996 (Note 9). As of December 31, 1997, CSFB is no longer
funding the acquisition of non-prime automobile receivables generated by the
Company. The Company, among other actions, has restructured operations and
significantly reduced overhead. In addition, the Company has modified credit
underwriting criteria and reduced the volume of loans purchased from dealers.
The Company is exploring several opportunities including the securing of
additional warehouse facilities to support an increased level of automobile loan
acquisitions, the sale of portfolio assets to reduce outstanding debt and other
restructuring alternatives. There is no assurance that the Company will be
successful in securing additional warehouse facilities or selling portfolio
assets, the failure of which would have a material adverse effect on the
Company's financial condition.

      During the third quarter of 1997, the Company explored the sale of
approximately $40 million of securitized notes backed by approximately $48
million of automobile receivables. However, several factors, including adverse
market conditions, prevented the consummation of this transaction.

      The Company's ability to continue to acquire automobile receivables as
well as plan for future expansion is directly related to its ability to secure
required capital. In the past, the Company has demonstrated the ability to
secure warehouse lines of credit, issue receivable secured notes and obtain
subordinated debt. However, the Company's ability to secure required capital has
been hampered based upon the inability to consummate the sale of securitized
notes, as well as the uncertain status of the Company's primary credit facility.
In January 1998, the Company entered into an arrangement with a new funding
source whereby it can purchase loan contracts which meet specified criteria and
sell them through to this source for a fee. This arrangement enables the Company
to continue to purchase loans and service its dealer network. The success of
this program, as well as the Company's ability to secure additional funding
sources, will materially impact the Company's future business activities and, if
not successful, could require the Company to sell certain of the loans in its
portfolio to meet its liquidity requirements.

      These factors raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern.
Accordingly, the accompanying consolidated financial statements do not include
any adjustments that might be necessary should the Company be unable to continue
as a going concern. Accordingly, the carrying amounts of the Company's assets
and

      As further discussed in Note 2, due to the substantial doubt regarding the
Company's ability to continue as a going concern, the Company determined that
the carrying amount of its goodwill and other intangibles was impaired and,
accordingly, such amounts have been written off in 1997.

      Although significantly curtailed, the Company continues to purchase loans
from its dealer network.

      Prior to December 1995, the Company operated in different business lines.
During the fiscal year ended May 31, 1995 and on July 20, 1995, the Company sold
substantially all of its operating


                                      F-8
<PAGE>

assets for $34,100,000 in cash in two separate transactions. As a result, the
Company's sole operating business which remained provides long distance
telephone communications services

Summary of Significant Accounting Policies

Basis of Presentation

      The financial statements of the Company have been prepared using the
accrual basis of accounting under generally accepted accounting principles
("GAAP"). The accounting policies of the Company conform with GAAP and with
general practices within the financial services industry.

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.

Automobile Receivables

      Automobile receivables represent retail installment sales contracts
purchased from automobile dealers at discounts ranging up to 20%.

Allowance for Credit Losses

      The Company established an allowance for credit losses in the FFC acquired
portfolio as of the date of acquisition based upon an evaluation of a number of
factors including prior loss experience, contractual delinquencies, the value of
underlying collateral and other factors. At the time of the purchase of
installment contracts from dealers an allowance for credit losses is established
based on an analysis of similar factors. The allowance is periodically evaluated
for adequacy based upon a review of credit loss experience, delinquency trends,
static pool loss analysis and an estimate of future losses inherent in the
existing finance receivable portfolio. Subsequent to the purchase of loans, a
provision for losses, if any, is charged to income in order to maintain the
allowance at an adequate level. The Company charges the allowance for loss
account at the time a customer receivable is deemed uncollectable. Any reduction
in the required allowance will be amortized to income prospectively as an
adjustment in the yield on the related loans.

      The estimate of the allowance for credit losses requires a high degree of
judgment based upon, among other things, the inherent risk associated with the
portfolio of loans being purchased from dealers. Changes in estimates and
additional losses on portfolios could develop in the future based on changes in
economic factors and other circumstances and such changes could be significant.
The Company estimates and records losses as they become apparent, estimable and
probable.

Concentration of Credit Risks

      The Company's primary credit risk relates to lending to individuals who
cannot obtain traditional forms of financing. The Company has acquired
automobile receivables in 13 states and, accordingly, does not believe that its
business is subject to credit risk with respect to geographic concentration.


                                      F-9
<PAGE>

Repossessed Vehicles Held for Sale

      The Company repossesses the collateral when a determination is made that
collection efforts are unlikely to be successful. The value of a repossessed
vehicle is recorded based upon the lower of the carrying amount of the
automobile receivable or an estimate of the fair value of the collateral upon
liquidation. As of December 31, 1997 and 1996, there were 605 and 304
repossessed vehicles held for resale with an aggregate value of approximately
$1,953,000 and $804,000, respectively, which amounts are included in other
assets on the accompanying consolidated balance sheets.

Revenue Recognition

      The Company recognizes interest income from automobile receivables on the
interest method. The accrual of interest income is suspended when a loan is
ninety days contractually delinquent. All discounts on the purchase of
installment contracts from dealers are held in reserve and are considered to
cover future anticipated credit losses. Fees received for the purchase of
automobile receivables are deferred and amortized to interest income over the
contractual lives of the contracts using the interest method.

Restricted Cash

      Restricted cash consists of $3,006,893 held in reserve accounts pursuant
to Class A and Class B Auto Backed Notes sold in October 1996 by AutoInfo
Receivables Company, a wholly owned subsidiary of the Company (Note 9) and
$1,081,590 in collection accounts pursuant to the Company's revolving credit
facility with CSFB (Note 9).

Short-term Investments

      Short-term investments include common stock and bond funds, money market
instruments and municipal bonds. Investments are carried at cost which
approximates market value (see Note 6).

Fixed Assets

      Fixed assets are carried at cost less accumulated depreciation.
Depreciation of fixed assets is provided on the straight-line method over the
estimated useful lives of the related assets which range from three to five
years. Depreciation expense totaled $529,185, $238,926 and $14,587 for the years
ended December 31, 1997 and 1996 and the seven months ended December 31, 1995,
respectively.

Goodwill and Other Intangibles

      The excess of cost over the fair value of net assets acquired was
allocated to goodwill and other intangibles and was being amortized using the
straight-line method over periods of up to twenty years. In March 1995, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
pronouncement is effective for fiscal years beginning after December 15, 1995.
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company currently uses methods that are consistent
with SFAS No. 121 to evaluate the carrying amount of goodwill and other
intangibles including comparing estimated future cash flows identified with each


                                      F-10
<PAGE>

long-lived asset group. For purposes of such comparison, portions of unallocated
excess of cost over net assets acquired were attributed to related long-lived
assets and identifiable intangible assets based upon the relative fair values of
such assets at acquisition.

      In the fourth quarter of 1997, the Company determined that goodwill and
other intangible assets were impaired resulting in a charge to operations (see
Note 2). In the fourth quarter of 1996, the Company determined that certain
components of goodwill and other intangible assets associated with the
acquisition of FFC were impaired resulting in a charge to operations (see Note
13).

      Amortization expense related to goodwill and other intangibles totaled
$179,064, $950,372, and $70,302 for the years ended December 31, 1997 and 1996
and the seven months ended December 31, 1995, respectively.

(Loss) Earnings Per Share

      In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for prior periods have been restated to conform to the new requirements.

      Basic (loss) earnings per share is based on net (loss) income divided by
the weighted average number of common shares outstanding. Common stock
equivalents outstanding were antidilutive for the years ended December 31, 1997
and 1996.

Use of Estimates

      The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities and contingent liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the periods
presented. Management estimates that are particularly sensitive to change relate
to the determination of the adequacy of the allowance for credit losses on
automobile receivables. The Company believes that all such assumptions are
reasonable and that all estimates are adequate, however, actual results could
differ from those estimates.

Income Taxes

      The Company utilizes the asset and liability method for accounting for
income taxes. Under the asset and 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 income in the period that includes the
enactment date.


                                      F-11
<PAGE>

Stock-Based Compensation

      The Company accounts for stock-based compensation issued to employees in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company did not adopt the financial reporting
requirements of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," for stock based compensation
granted to employees in accordance with the provisions of SFAS 123 and
accordingly, the Company has disclosed in the notes to the financial statements
the pro forma net loss for the periods presented as if the fair value based
method was used. (Note 12).

New Accounting Pronouncements

      In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 with earlier application permitted.

      In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS 131 requires disclosures for each
segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. SFAS 131 is effective for fiscal years beginning after
December 15, 1997 with earlier application permitted.

      In management's opinion, SFAS Nos. 130 and 131, when adopted, will not
have a material effect on the Company's financial statements.


Note 2 - Write-Off of Goodwill and Other Intangibles

      Due to the substantial doubt regarding the Company's ability to continue
as a going concern (Note 1), the Company determined that the carrying amount of
its goodwill and other intangibles was impaired, and accordingly, such amounts
have been written-off in 1997.


Note 3 - Restructuring Charge

      During the fourth quarter of 1997, the Company made the decision to
consolidate credit, funding and collections operations into its Norfolk,
Virginia operating center and close its Northeast regional operating center in
Norwalk, Connecticut. This decision was based upon several factors including
management's opinion that the efficiencies and operating controls inherent in a
centralized operating center approach provide significant benefits and that the
presence and dealer relationships in local markets can be maintained through the
use of field representatives. The Company recorded a charge to earnings related
to this restructuring of $867,141, of which $436,086 represents non-cash
charges. Such amount includes severance costs and the write-off of certain
assets.


                                      F-12
<PAGE>

Note  4 - Business Acquisitions

      On December 6, 1995, the Company, through a newly formed wholly owned
subsidiary, acquired the operating assets of Falk Finance Company ("FFC"), a
Norfolk, Virginia based specialized financial services company, for $5,125,000
in cash and the assumption of liabilities and debt approximating $34,000,000.
The results of operations of this business have been consolidated with the
Company since December 6, 1995.

      The following unaudited pro-forma results of operations for the seven
month period ended December 31, 1995 is presented as though the Company's
business acquisition during the seven month period ended December 31, 1995 had
occurred at the beginning of the period:

            Revenues                                          $ 5,957,662
            Net income                                        $   601,400
            Net income per share                              $       .08

Note 5 - Discontinued Operations

      On July 20, 1995, the Company sold the assets relating to its Insurance
Inspection Services business for $3,750,000 in cash. The gain on the sale was
$296,839 after applicable taxes of $152,917.

      Summarized results of operations of the discontinued operations were as
follows:

                                                         For the seven
                                                         months ended
                                                         December 31,
                                                             1995
                                                         -------------
  Revenues                                                 $ 533,318
                                                           =========
   (Loss) before income taxes                                (42,685)
   Income tax (benefit)                                      (14,522)
                                                           ---------
   Net (loss) from discontinued operations                 $ (28,163)
                                                           =========
   Gain on sale                                            $ 449,756
   Income Taxes                                              152,917
                                                           ---------
   Net income from sale of discontinued operations         $ 296,839
                                                           =========


Note 6 - Short-Term Investments

      Debt and equity securities used as part of the Company's investment
management that may be sold in response to cash needs, changes in interest
rates, and other factors have been classified as securities available for sale.
Such securities are reported at cost which approximates fair value and have
maturities of less than one year and included:


                                      F-13
<PAGE>

                                                  December 31,      December 31,
                                                      1997               1996
                                                  ------------      ------------
Common stock and bond funds                        $1,626,979        $2,883,524
Money market instruments                              615,090           665,619
Municipal bonds                                            --         1,343,056
                                                   ----------        ----------
                                                   $2,242,069        $4,892,199
                                                   ----------        ----------

      Gains and losses on disposition of securities are recognized on the
specific identification method in the period in which they occur. Unrealized
gains and losses, if material, would be excluded from earnings and reported as a
separate component of stockholders' equity on an after-tax basis. During the
years ended December 31, 1997 and 1996 and the seven month period ended December
31, 1995, gains and losses arising from the disposition of marketable securities
as well as unrealized gains and losses were not material.


Note 7 - Credit Losses

      A rollforward of allowance for credit losses by significant component is
as follows:

                                     Portfolio
                                   Acquired from      Other
                                        FFC         Portfolios         Total
                                   -------------   ------------    ------------
Balance at December 31, 1995       $  6,122,195    $    696,000    $  6,818,195

Purchase discounts                           --       9,781,195       9,781,195
Charge offs                         (10,469,000)     (5,156,000)    (15,625,000)
Yield adjustments                            --       1,400,000       1,400,000
Additions to reserve (Note 13)        8,100,000       5,251,000      13,351,000
                                   ------------    ------------    ------------
Balance at December 31, 1996          3,753,195      11,972,195      15,725,390

Purchase discounts                           --       8,973,097       8,973,097
Charge offs                          (2,874,000)    (18,902,000)    (21,776,000)
Yield adjustments                            --       4,310,000       4,310,000
Additions to reserve                         --      11,768,000      11,768,000
                                   ------------    ------------    ------------
Balance at December 31, 1997       $    879,195    $ 18,121,292    $ 19,000,487
                                   ------------    ------------    ------------

The charge offs and additions to reserves for the years ended December 31, 1997
and 1996 are the result of an increase in delinquency rates, the higher than
anticipated level of repossessions, and the poor performance of loans originated
by specific independent automobile dealers.


Note 8 - Investment

      In December 1991, the Company acquired a Preferred Stock Investment (3,293
shares of $500 par value, 7% cumulative convertible preferred stock) in
ComputerLogic, Inc., a Georgia corporation ("ComputerLogic"), which offers
computer based products to the automobile parts and repair industries. The
Preferred Stock elects not less than 40% of the ComputerLogic board of
directors. The Company's Preferred Stock Investment is convertible into 38% of
the outstanding capital stock of


                                      F-14
<PAGE>

ComputerLogic. The purchase price consisted of cash of $1,250,000 and 101,667
shares of the Company's Common Stock. The investment was being carried at the
lower of cost or net realizable value.

      The Company as of May 31, 1995 wrote off its preferred stock investments
totaling $1,804,256 which included unpaid management fees and unpaid preferred
stock dividends of $155,460 as of May 31, 1995 and determined that any future
fees and dividend received would be recorded as income when received. During the
years ended December 31, 1997 and 1996 the Company received $144,000 and
$280,000, respectively, in dividends from ComputerLogic.

Note 9 - Debt

Revolving Lines of Credit

      In December 1996, the Company entered into a revolving credit agreement
with CS First Boston Mortgage Capital Corp. ("CSFB"), which provides for
borrowings of up to $100 million collateralized by installment automobile loan
contracts. Among other provisions, this facility requires the Company to
maintain tangible net worth, as defined, of $10 million and is cancelable in the
event of a material adverse change in the Company's business.

      In October 1997, the Company and CSFB entered into an amended and restated
agreement which provided CSFB with additional collateral including a residual
interest in the anticipated cash flows upon the satisfaction of the Class A and
Class B automobile receivables backed notes issued in October 1996 and any
income tax refund for the tax year ended May 31, 1998.

      At December 31, 1997 the Company had tangible net worth, as defined, of
approximately $2.1 million and, accordingly, did not meet the tangible net worth
standard. As of December 31, 1997, CSFB is no longer funding the acquisition of
non-prime automobile receivables generated by the Company and, accordingly, the
Company has significantly curtailed the purchase of loans from its dealer
network.

      The note matures in December 1999. Interest is payable monthly at the
LIBOR rate (5.96% as of December 31, 1997) plus 3%. Advances outstanding as of
December 31, 1997 were $67,935,706 collateralized by net automobile receivables
of $80,085,304 and the weighted average interest rate for the month of December
1997 was 8.96%

      In conjunction with the acquisition of FFC on December 6, 1995, the
Company entered into a revolving credit facility with Finova Capital Corporation
("Finova") which provided for borrowings of up to $42 million. Interest is
payable monthly at the prime rate (8.25% at December 31, 1996) plus 1.75%.
Advances outstanding as of December 31, 1996 were $14,839,000 and the weighted
average interest rate for the month of December 1996 was 10.0%. This revolving
credit facility was terminated and repaid through the utilization of the CSFB
revolving credit facility in January 1997.

      The unused portion of the line of credit with CSFB as of December 31, 1997
was approximately $32 million. However, as of December 31, 1997, CSFB has ceased
to fund the acquisition of non-prime automobile receivables generated by the
Company.


                                      F-15
<PAGE>

Automobile Receivables Backed Notes

      In October 1996, AutoInfo Receivables Company, a wholly-owned special
purpose subsidiary of the Company, sold, in a private placement, $34,281,119 of
6.53% Class A Auto Loan Backed Notes and $2,016,536 of 11.31% Class B Auto Loan
Backed Notes with a stated maturity date of January 2002. These Notes are repaid
from the collection of payments of principal and interest and are collateralized
by approximately $40,330,000 of automobile receivables and a Reserve Account in
the amount of approximately $5,600,000. In addition, the repayment of principal
of the Class A Notes is guaranteed by insurance issued by MBIA Insurance
Corporation, a nationally recognized insurance company. At the time of issuance,
the Class A Notes were rated AAA by Standard & Poors's Rating Group and Aaa by
Moody's Investor Service and the Class B Notes were rated BB by Standard &
Poors's Rating Group.

      The Company acts as servicer and, as such, performs collection and
servicing activities on these receivables. An Indenture and Servicing Agreement
requires, among other provisions, the maintenance of certain performance
standards with respect to the portfolio of loan contracts securitized and
certain overall financial considerations of the Company as a whole, including
not realizing a net loss from operations in any two consecutive quarters and
maintenance of minimum tangible net worth, as defined, of $7 million. At
December 31, 1997 the Company had tangible deficiency, as defined, of ($200,000)
and, accordingly, did not meet the minimum tangible net worth standard. In
addition, the Company has experienced a net loss from operations for the quarter
ended September 30, 1997 and December 31, 1997. Accordingly, for the quarter
ended December 31, 1997, the Company did not meet the interest coverage ratio
requirement.

      The proceeds from the issuance of these notes were used to reduce the
borrowings under the Company's senior credit facility as well as to fund the
Reserve Account. The assets of AutoInfo Receivables Company are not available to
pay general creditors of the Company.

      As of December 31, 1997, the balance of the Class A and Class B Notes, the
underlying loan contracts receivable backing these Notes and the Reserve Account
balances were as follows:

                                                 Underlying           Reserve
                                                 Receivables          Account
                            Note Balance           Balance            Balance
                            ------------        ------------        -----------
Class A Notes               $ 13,176,625        $ 15,289,671        $ 2,804,292
Class B Notes                    886,515             (a)               202,602
                            ------------                            -----------
                            $ 14,063,140                            $ 3,006,894
                            ------------                            -----------

      (a) The Class B Notes are collateralized by the loan contracts only after
the Class A noteholders are paid in full.


                                      F-16
<PAGE>

Subordinated Notes and Other Debt

Subordinated notes and other debt consist of the following:

                                                           1997          1996
                                                       -----------   -----------
Subordinated notes (a)                                 $ 8,200,000   $ 8,200,000
Subordinated notes due January 2000 payable
   in equal Annual installments in January 1998,
   1999 and 2000 with Interest at 7.55% paid
   semi-annually (b)                                     2,000,000     2,000,000
Other notes payable due in monthly installments
   through 2001 with interest at prime to 12.4%            990,979       510,330
                                                       -----------   -----------
Total other notes                                      $11,190,979   $10,710,330
                                                       -----------   -----------

      (a) On December 6, 1995 as part of the acquisition of FFC, the Company
assumed unsecured subordinated notes in the amount of $9,800,000. In 1996, the
Company redeemed $1,600,000 of the Series B Notes. These notes bear interest at
the rate of 12% per annum, payable monthly. The Series A Notes ($4,900,000)
mature on May 1, 1999 and the Series B Notes ($3,300,000) mature on December 31,
2000.

      (b) The Company did not make the installment payment due in January 1998
and has agreed to a modification agreement which extends the due date for this
installment to March 31, 1998.

      The Company paid interest of approximately $7,122,000 and $3,938,000 for
the years ended December 31, 1997 and 1996, respectively, and $231,000 for the
seven month period ended December 31, 1995.


Note 10 - Income Taxes

      For the years ended December 31, 1997 and 1996 and the seven months ended
December 31, 1995, the provision (benefit) for income taxes consisted of the
following:

                                      Year ended     Year ended     Year ended
                                      December 31,   December 31,   December 31,
                                          1997           1996           1995
                                      -----------    -----------    -----------
Federal                               $(3,985,977)   $(4,352,000)   $  (184,960)
State                                       --             --             9,000
                                      -----------    -----------    -----------
Income tax benefit on loss
   from continuing operations         $(3,985,977)   $(4,352,000)   $  (175,960)
                                      -----------    -----------    -----------
Income tax on income from
   discontinued operations:
   Federal                                  --             --       $   (14,522)
                                      -----------    -----------    -----------
                                            --             --       $   (14,522)
                                      -----------    -----------    -----------


                                      F-17
<PAGE>

Income taxes on gain on sale
   of discontinued operations:
   Federal                                  --             --       $   152,917
                                      -----------    -----------    -----------
                                            --             --       $   152,917
                                      -----------    -----------    -----------

      The following table reconciles the Company's effective income tax rate on
(loss) income from continuing operations to the Federal Statutory Rate for the
years ended December 31, 1997 and 1996 and the seven month period ended December
31, 1995:

                                      Year ended     Year ended     Year ended
                                      December 31,   December 31,   December 31,
                                          1997           1996           1995
                                      -----------    -----------    -----------
Federal Statutory Rate                   (34.0)%        (34.0)%         34.0%
Effect of:
State and local taxes, net of
   federal Benefit                          --             --            (.8)
Benefit from tax exempt income             (.7)           (.8)         (81.4)
Preferred stock investment write-off        --             --             --

Valuation allowance against
   deferred tax assets                     8.3           15.3             --
Other, net                                  --             --            2.5
                                      -----------    -----------    -----------
                                         (26.4)%        (19.5)%        (45.7)%
                                      ===========    ===========    ===========

      The Company paid income taxes of approximately $0, $0 and $6,632,000 for
the years ended December 31, 1997 and 1996 and the seven month period ended
December 31, 1995, respectively.

      Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carrybacks. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities were as follows:

                                                 December 31,       December 31,
                                                     1997               1996
                                                 -----------        -----------
Deferred tax assets:
   Purchase discounts                            $ 6,221,236        $ 2,514,163
   Goodwill                                        3,333,317          2,518,163
   Deferred fees                                     117,115                 --
                                                 -----------        -----------
Gross deferred tax assets                          9,671,668          5,032,326
Less: valuation allowance                         (5,128,038)        (4,290,054)
                                                 -----------        -----------
Deferred tax asset                                 4,543,630            742,272

Deferred tax liability:
   Allowance for credit losses                     4,543,640            742,272
                                                 -----------        -----------
Net deferred tax asset                           $        --        $        --
                                                 ===========        ===========


                                      F-18
<PAGE>

      The deferred tax asset is fully reserved for as the Company's management
does not expect such amounts to be realized. Refundable income taxes on the
accompanying consolidated balance sheets as of December 31, 1997 and 1996
represent the Company's refundable income tax based upon the utilization of
available tax credit carrybacks in its federal income tax return.


Note 11 - Commitments and Contingencies

Leases

      The Company is obligated under noncancellable operating leases for
premises and equipment expiring at various dates through 1999. Future minimum
lease payments are $581,000, $537,000, $517,000, $272,000 and $95,000 for each
of the five year periods ended December 31, 2002. Lease expense for the years
ended December 31, 1997 and 1996 and the seven month period ended December 31,
1995 was approximately $399,000, $227,000 and $68,000, respectively.

401(k) Plan

      The Company is obligated under its 401(k) Plan to match fifty percent of
employee contributions up to a maximum of three percent of eligible
compensation. 401(k) Plan expense for the years ended December 31, 1997 and 1996
and the seven month period ended December 31, 1995 was approximately $95,000,
$38,000 and $3,000, respectively.

Other Agreements

      The Company has employment agreements with Messrs. Zecher and Wunderlich,
two officers of the Company, one of whom is also a stockholder. The agreements
expire through 1999 and provide for aggregate annual compensation of
approximately $400,000. In addition, the Company has an employment agreement
with a non-officer employee. This agreement expires in April 1999 and provides
for an aggregate minimum annual compensation of $150,000 plus a minimum annual
bonus of $60,000. An employment agreement with another non-officer employee was
terminated in March 1998.

      The Company has entered into supplemental employment agreements (the
"Supplemental Employment Agreements") with Messrs. Zecher and Wunderlich (the
"Covered Executives"), which provide that if there is a Change in Control of the
Company (as defined therein) during the Protected Period (described below), the
terms of the Supplemental Employment Agreements will supersede the Covered
Executives' existing employment agreements and will govern the terms of the
Covered Executives' employment following the Change in Control for a three-year
term, in the case of Mr. Zecher, and a two-year term, in the case of Mr.
Wunderlich (the "Employment Term").

      The Supplemental Employment Agreements provide that during the Employment
Term, the Covered Executives will remain employed in their capacities with the
Company as of the Change in Control and will continue to receive an annual
salary (the "Base Salary") and benefits at least equal to that which they
received prior to the Change in Control and an annual bonus at least equal to
the Covered Executive's average annual bonus during the three years prior to the
Change in Control. The Supplemental Employment Agreements provide that if,
during the Employment Term, the Covered Executive's employment is terminated by
the Company other than for Cause or Disability or by the Executive either for
Good Reason or during the 60-day Window Period commencing on the anniversary


                                      F-19
<PAGE>

of the Change in Control (as each of the foregoing terms are defined in the
applicable Supplemental Employment Agreement), the Covered Executive would
receive a severance payment equal to the sum of his Base Salary and the higher
of his annual bonus for the then most recent year or his average annual bonus
during the three years preceding the Change in Control (the "Highest Annual
Bonus") multiplied by two, in the case of Mr. Zecher, and one and one-half, in
the case of Mr. Wunderlich. In addition, the restrictions on any stock-related
incentive awards held by the Covered Executive would lapse and he would be
entitled to continued coverage under the Company's life, health and disability
benefits for two years following termination of his employment (three years in
the case of Mr. Zecher) or until he receives similar benefits from a new
employer. Mr. Zecher's Supplemental Employment Agreement also provides that if
he is subject to excise taxes under Section 4999 of the Internal Revenue Code on
any payments or benefits triggered by a Change in Control, he will be entitled
to receive an additional amount such that after the payment of all applicable
taxes, he will retain an amount equal to that which he would have retained
absent the excise taxes. In connection with the Supplemental Employment
Agreements, the Company also approved the creation of an Employment Protection
Trust Agreement which is a form of a grantor trust under which the assets of the
trust remain subject to the satisfaction of the general claims of the Company's
creditors, to provide for the payment of all benefits payable under the
Supplemental Employment Agreements.

Litigation

      The Company is involved in litigation arising in the ordinary course of
its business. Based upon management's and outside counsel's opinions, such
litigation is not expected to have a materially adverse impact on the financial
position or results of operations of the Company.


Note 12 - Stockholders' Equity

Possible Delisting of Common Stock from Nasdaq Market

      The Securities and Exchange Commission (the "Commission") has approved new
maintenance requirements for the Nasdaq National Market. For continuing listing
on the Nasdaq National Market, a company, among other criteria, must now have at
least $4,000,000 of total net tangible assets, 750,000 shares in the Public
Float, a market value of its Public Float of $5,000,000 and a minimum bid price
of $1.00 per share. At December 31, 1997, the Company did not meet the net
tangible assets, value of public float or minimum bid price requirement. The
Company does not have a reasonable expectation of meeting these requirements in
the near future. Accordingly, it appears likely that the Company's Common Stock
will be dropped from the Nasdaq National Market. In the event that the Company's
Common Stock is delisted from the Nasdaq Stock Market, trading, if any, in the
Company's Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" published by the National Quotation Bureau
or the OTC Bulletin Board of the National Association of Securities Dealers,
Inc. As a consequence of such delisting, a shareholder would likely find it more
difficult to sell or to obtain quotations as to prices of the Company's Common
Stock.

Stock Bonus Plan

      The Company, in 1987 and 1995 issued 410,000 and 15,000 shares,
respectively, of Common Stock pursuant to a restricted stock bonus plan to key
executives, directors and consultants.

      These shares will vest ratably every two years over a period of 30 years.
The unvested portion is subject, upon the occurrence of certain events, to
either forfeiture or accelerated vesting. Such shares were recorded at their
estimated fair market value at the date of the grant as determined by the Board
of Directors and are charged as compensation expense ratably over the vesting
period. During 1997, 22,000 shares were forfeited. As of December 31, 1997
135,667 of such shares had vested and 267,333 remained, subject to forfeiture.

Warrants

      In connection with the $4,000,000 7.55% subordinated long-term notes
issued in January 1994, the Company issued to the noteholders six year warrants
to purchase 533,333 shares of Common Stock at a per share price of $4.00. In
September 1995, the Company prepaid $2,000,000 of the notes. In conjunction with
the prepayment, 196,296 of these warrants were canceled. The Company has
reserved 337,037 shares of Common Stock for issuance upon the exercise of the
remaining warrants.

      In connection with a May 1986 public offering of Common Stock, the Company
issued warrants to the underwriter for the purchase of 96,000 shares of its
Common Stock at a per share price


                                      F-20
<PAGE>

of $4.80. During fiscal 1992, 66,750 warrants to purchase shares of the
Company's Common Stock expired. The remaining 29,250 warrants are exercisable
through May 1998. The Company has reserved 29,250 shares of Common Stock for
issuance upon the exercise of these warrants.

      In connection with the $2,016,536 Class B Notes issued in October 1996,
the Company issued 3 year warrants to purchase 159,095 shares of Common Stock at
a per share price of $2.70. The Company has reserved 159,095 shares of Common
Stock for issuance upon exercise of these warrants.

      In connection with the $100 million credit facility provided by CSFB in
December 1996, the Company issued 3 year warrants to purchase 125,000 shares of
Common Stock at a per share price of $3.70. The Company has reserved 125,000
shares of Common Stock for issuance upon exercise of these warrants.

      No warrants have been exercised to date.

Stock Option Plans

      The Company has five stock option plans, The 1985 Plan, The 1986 Plan, The
1989 Plan, The 1992 Plan and The 1997 Plan ("the Plans"). The Company accounts
for these Plans under APB Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these Plans been determined
consistent with SFAS No. 123, the Company's net (loss) income and (loss)
earnings per share would have been reduced to the following pro forma amounts:

                                       1997             1996            1995
                                   ------------     ------------    ------------
Net (loss) income:

   As reported                     $(11,121,604)    $(19,099,501)     $829,348
   Pro forma                       $(11,316,689)    $(19,206,821)     $806,178

(Loss) earnings per share:

   As reported                           ($1.39)          ($2.41)         $.11
   Pro forma                             ($1.41)          ($2.43)         $.10

      The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated. Pursuant to the
Plans, a total of 2,842,500 shares of Common Stock were made available for grant
of stock options. Under the Plans, options have been granted to key personnel
for terms of up to ten years at not less than fair value of the shares at the
dates of grant and are exercisable in whole or in part at stated times
commencing one year after the date of grant. No further grant will be issued
under the 1986 Plan. At December 31, 1997, options to purchase 429,833 shares of
Common Stock were exercisable with respect to the Plans.


                                      F-21
<PAGE>

      Option activity for the years ended December 31, 1997 and 1996 and the
seven months ended December 31, 1995 was as follows:

                                                  Number of     Weighted Average
                                                   Shares        Exercise Price
                                                 -----------    ----------------
Outstanding at June 1, 1995                         434,833         $     3.75
Exercised during the period                         (21,500)              2.68
                                                 ----------         ----------

Outstanding at December 31, 1995                    413,333               3.70
Granted during the year                             241,000               2.96
                                                 ----------         ----------

Outstanding at December 31, 1996                    654,333               3.43
Granted during the year                             815,000               1.75
Forfeited during the year                          (224,500)              3.28
                                                 ----------         ----------

Outstanding at December 31, 1997                  1,244,833         $     2.36
                                                 ----------         ----------

Weighted average fair value of options granted:
               1997                                  $   .61
               1996                                  $   .96
               1995                                  $  1.14

      The fair value of each option grant is estimated on the date of grant
using the Black-Shoals option pricing model with the following weighted
assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.52, 6.20 and 6.36 percent; expected lives of 4 years for all
options granted; expected volatility of 33.0, 26.2 and 29.1 percent.

      On April 10, 1995, an officer of the Company exercised options to acquire
216,799 shares. In connection with this exercise, the Company received a full
recourse, non-interest bearing note secured by a pledge of the acquired shares
in the amount of $466,797. The due date has been extended through November 1999.

Other Options

      An option issued upon the commencement of employment to a non-officer
employee in April 1996 to purchase an aggregate of 400,000 shares of the
Company's Common Stock was canceled in conjunction with the termination of the
related employment agreement in March 1998.


Note 13 - Unusual Item - Impairment of Long-Lived Assets on Acquired Business
and Additional Credit Losses on Acquired Automobile Receivables

      The Acquisition of FFC in December 1995 included a portfolio of non-prime
automobile receivables of approximately $31 million of which approximately 80%
had been acquired by FFC from CFAW. In addition to the tangible assets acquired,
the Company entered into a Non-Compete Agreement and a 10 year Purchase
Agreement with CFAW which, among other provisions, provided for the continued
purchase of automobile receivables based upon established underwriting criteria
at the


                                      F-22
<PAGE>

sole discretion and option of the Company. During the year ended December 31,
1996, the quality of the automobile receivables acquired from CFAW, both prior
to the acquisition date and subsequent thereto, as evidenced by the number of
repossessions and the charge-off losses incurred, came into question. The
Company determined to cease acquiring automobile receivables from CFAW and
accordingly, on December 31, 1996, the Company entered into a Modification and
Termination Agreement with CFAW.

      As a result of this action and other factors, the Company deemed a
significant portion of the goodwill associated with the acquisition of FFC as
well as the Non-Compete and Purchase Agreements were of no continuing value and,
accordingly, took a charge against operations as of December 31, 1996 of
$11,193,000 based on its evaluation of the fair value of such assets in
accordance with SFAS No. 121. Furthermore, the Company recorded additional
credit losses of $8,100,000 on the acquired automobile receivables.


Note 14 - Fair Value of Financial Instruments

      The following disclosures of fair value were determined by management
using available market information and appropriate valuation methodologies.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and / or
estimation methodologies may have a material effect on the estimated fair value
amounts.

      Cash and cash equivalents and accounts payable and accrued liabilities are
carried at amounts which reasonably approximate fair value.

      Due to the failure of the Company to complete a securitization of its
automobile receivables in 1997 (Note 9), an estimate of the fair value of the
net automobile receivables outstanding at December 31, 1997 and 1996 could not
be practicably made.

      Due to the variable rate nature of the Company's revolving line of credit
with an aggregate carrying amount of $67,935,706 and $18,082,472 at December 31,
1997 and 1996, respectively, such amounts approximate fair value.

      The carrying amounts of the Company's automobile receivables backed notes
totaling $14,063,140 and $31,611,989 at December 31, 1997 and 1996 approximate
fair value.

      Due to the current financial condition of the Company, the inability of
the Company to obtain financing and insufficient collateral supporting the
Company's subordinated notes and other debt with an aggregate carrying amount of
$11,190,979 and $10,710,330 at December 31, 1997 and 1996 a determination of
fair value could not be made.

      Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for the purposes of these consolidated financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.


                                      F-23
<PAGE>

Note 15 - Quarterly Results of Operations (Unaudited)

                                      Year Ended December 31, 1997
                                              Quarter Ended
                        -------------------------------------------------------
                         March 31       June 30     September 30   December 31
                        -----------   -----------   ------------   ------------
Revenues                $ 4,404,905   $ 5,381,105   $  5,343,430   $  4,716,791

Net (loss) income       $   248,184   $ 1,561,495   $ (2,636,007)  $(10,295,276)

Basic and diluted per
share data:
    Net (loss) income   $       .03   $       .19   $       (.32)  $      (1.29)


                                      Year Ended December 31, 1996
                                              Quarter Ended
                        -------------------------------------------------------
                         March 31       June 30     September 30   December 31
                        -----------   -----------   ------------   ------------
Revenues                $ 2,758,043   $ 3,115,163   $  3,343,430   $  3,968,487

Net (loss) income       $   401,549   $  (939,051)  $ (3,095,320)  $(15,466,679)

Basic and diluted per
share data
    Net (loss) income   $       .05   $      (.12)  $       (.39)  $      (1.95)


Note 16 - Calculation of Earnings Per Share

      The following table reconciles the components of basic and diluted (loss)
earnings per share for net (loss) income for the years ended December 31, 1997
and 1996 and the seven months ended December 31, 1995:


                                      F-24
<PAGE>

<TABLE>
<CAPTION>
                                                  1997            1996            1995
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Numerator:
     Basic (loss) earnings per common share
     - (loss) income available to common
     shareholders                             $(11,121,604)   $(19,099,501)   $    829,348

     Effect of dilutive securities (a)                  --              --              --
                                              ------------    ------------    ------------
     Diluted (loss) earnings per common
     share - (loss) income available to
     common shareholders                      $(11,121,604)   ($19,099,501)   $    829,348
                                              ------------    ------------    ------------
Denominator:
     Basic (loss) earnings per common share
     - weighted average common shares
     outstanding                                 8,009,097       7,920,515       7,765,261

     Effect of dilutive securities (a)                  --              --           5,656
                                              ------------    ------------    ------------
     Diluted (loss) earnings per common
     share - weighted average common and
     common equivalent shares outstanding        8,009,097       7,920,515       7,770,917
                                              ------------    ------------    ------------
Basic and diluted (loss) earnings per
common share                                  $      (1.39)   $      (2.41)   $        .11
                                              ------------    ------------    ------------
</TABLE>

      (a) The common stock equivalents for the years ended December 31, 1997 and
1996 were 61,864 and 16,875. The common stock equivalents for these shares were
not included in the calculation of diluted (loss) per common share because the
effect would be antidilutive.


Note 17 - Subsequent Event - Sale of Automobile Receivables

      On March 24, 1998, the Company sold 1,210 automobile receivables with a
net balance of approximately $11,192,000 for net cash proceeds of $9,932,000,
which was applied as a reduction of the loans outstanding under the Company's
revolving credit agreement with CSFB. Any resulting gain or loss, on this
transaction after the allocation of applicable allowance for credit losses, is
not expected to be material.


                                      F-25