<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC  20549

                                  FORM 10-Q/A
                                AMENDMENT NO. 1

                  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934


   For the quarter ended:                              Commission File Number:
     December 31, 1996                                         0-9539         
   ----------------------                              -----------------------

             S E A R C H    C A P I T A L    G R O U P,    I N C .
             ----------------------------------------------------- 
             (Exact name of Registrant as specified in its charter)


        Delaware                                          41-1356819
--------------------------------              ----------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)                                                  

                           700 North Pearl, Suite 400
                              Dallas, Texas 75201
                              -------------------
          (Address of principal executive offices, including zip code)
                                  214-965-6000
                                  ------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               Yes  [X]     No  [ ]
                                    

      APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
                      DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                               Yes  [X]     No  [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:


<TABLE>
<CAPTION>
                                                Number of Shares Outstanding
           Class                                      at January 31, 1997
-----------------------------                   ----------------------------
<S>                                             <C>
Common Stock, $.01 par value                                3,293,124
</TABLE>

<PAGE>   2


                           SEARCH CAPITAL GROUP, INC.
                                FORM 10-QA INDEX



<TABLE>
<CAPTION>
      PART I      FINANCIAL INFORMATION                              PAGE
      ------                                                         ----
      <S>         <C>                                                <C>

      Item 1.     Consolidated Financial Statements...................  3

      Item 2.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations................. 15

      SIGNATURES...................................................... 30
</TABLE>


The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are
of a normal recurring nature) have been included for a fair presentation of the
results of operations.  The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.

                        SAFE HARBOR STATEMENT UNDER THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-QA for quarter ended December 31, 1996 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "goal,"
"continue," or comparable terminology, that involve risks or uncertainties and
that are qualified in their entirety by the cautions and risk factors contained
in the Company's 10-K Transition Report for the six months ended March 31, 1996
and in other Company documents filed with the Securities and Exchange
Commission.


<PAGE>   3



                   PART I.  FINANCIAL INFORMATION

                   ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS


                  SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                Unaudited          Audited
                                            -----------------   --------------
                                            December 31, 1996   March 31, 1996
                                            -----------------   --------------
<S>                                         <C>                   <C>
ASSETS                                                          
------                                                          
Gross contracts receivable (Note 2)           $ 74,962,000       $ 37,086,000  
Unearned interest                              (14,063,000)        (6,435,000)
                                              ------------       ------------  
Net contracts receivable                        60,899,000         30,651,000  
Allowance for credit losses                    (11,207,000)       (13,353,000)
Net loan origination costs                       1,572,000            406,000  
                                              ------------       ------------  
 Net contracts receivable - after                                              
  allowance for credit losses & other costs     51,264,000         17,704,000  
                                              ------------                     
Cash and cash equivalents                       15,697,000         17,817,000  
Vehicles held for resale                           591,000            566,000  
Property and equipment, net                      1,524,000          1,062,000  
Intangibles, net                                 6,117,000                  -  
Other assets                                       595,000            197,000  
                                              ------------       ------------  
 Total assets                                 $ 75,788,000       $ 37,346,000  
                                              ============       ============  
LIABILITIES AND STOCKHOLDERS' EQUITY                                           
------------------------------------ 
Lines of credit                               $ 36,725,000       $          -  
Accrued settlements                                500,000            688,000  
Dividends payable                                1,503,000            268,000  
Accounts payable and other liabilities           2,917,000          7,088,000  
Accrued interest                                   298,000             15,000  
Notes payable                                    5,014,000          2,283,000  
Redeemable warrants                                998,000            593,000  
                                              ------------       ------------  
 Total liabilities                              47,955,000         10,935,000  
                                              ------------       ------------  

Stock repurchase commitment                      2,078,000          2,078,000  


Stockholders' Equity                                                           

Convertible preferred stock                        201,000            154,000  
Common stock                                       252,000            248,000  
Additional paid-in capital                      79,743,000         79,124,000  
Accumulated deficit                            (53,325,000)       (54,043,000)
Treasury stock                                           -         (1,150,000)
                                              ------------       ------------  
                                                26,871,000         24,333,000  
Notes receivable--stockholders
                                                (1,116,000)                 -  
                                              ------------       ------------  
 Net stockholders' equity                       25,755,000         24,333,000  
                                              ------------       ------------  
 Total liabilities and stockholders' equity   $ 75,788,000       $ 37,346,000  
                                              ============       ============  
</TABLE>                                                         

          See accompanying notes to consolidated financial statements.


                                       3

<PAGE>   4


                  SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                  Nine Months Ended    Nine Months Ended
                                                                 December  31, 1996    December 31, 1995
                                                                 ------------------   -------------------
<S>                                                              <C>                  <C>
Interest revenue                                                     $ 6,861,000          $  7,367,000    
Interest expense                                                       1,255,000             5,542,000    
                                                                     -----------          ------------    
Net interest income                                                    5,606,000             1,825,000    
Reduction of (provision for)  credit losses (Note 2)                   4,611,000            (3,172,000)   
                                                                     -----------          ------------    
Net interest income (loss) after reduction of                                                            
(provisions for) credit losses                                        10,217,000            (1,347,000)   
                                                                     -----------          ------------    
General and administrative expense                                     9,499,000            13,178,000    
Settlement                                                                     -             2,931,000    
Reorganization                                                                 -               565,000    
                                                                     -----------          ------------    
Operating and other expense                                            9,499,000            16,674,000    
                                                                     -----------          ------------    
Net income (loss) before dividends                                       718,000           (18,021,000)   
Preferred stock dividends                                              4,458,000               180,000    
                                                                     -----------          ------------    
Net loss to common stockholders                                      $(3,740,000)         $(18,201,000)   
                                                                     -----------          ------------    
Primary net loss per share attributable to common stockholders       $     (1.09)         $     (16.67)   
                                                                     ===========          ============    
Weighted average number of common shares outstanding (Note 6)          3,419,000             1,092,000    
                                                                     ===========          ============    

                                                                 Three Months Ended   Three Months Ended
                                                                 December 31, 1996    December 31, 1995
                                                                 ------------------   ------------------
Interest revenue                                                     $ 2,963,000          $  2,589,000    
Interest expense                                                         917,000               774,000    
                                                                     -----------          ------------    
Net interest income                                                    2,046,000             1,815,000    
Reduction of (provision) for                                                        
 credit losses (Note 2)                                                1,173,000            (5,381,000)   
                                                                     -----------          ------------    
Net interest income (loss) after reduction of                                                            
 charged-off accounts and provision for credit losses                  3,219,000            (3,566,000)   
                                                                     -----------          ------------    
General and administrative expense                                     3,456,000             4,518,000    
Settlement                                                                     -                94,000    
Reorganization                                                                 -               250,000    
                                                                     -----------          ------------    
Operating and other expense                                            3,456,000             4,862,000    
                                                                     -----------          ------------    
Net income (loss) before dividends                                      (237,000)           (8,428,000)   
Preferred stock dividends                                              1,512,000                60,000    
                                                                     -----------          ------------    
Net loss to common stockholders                                      $(1,749,000)         $ (8,488,000)   
                                                                     -----------          ------------    
Primary  net loss per share attributable to common stockholders      $      (.51)         $      (7.83)   
                                                                     ===========          ============    
Weighted average number of common shares outstanding (Note 6)          3,442,000             1,084,000    
                                                                     ===========          ============    
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>   5

                  SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                    NINE MONTHS ENDED         NINE MONTHS ENDED
                                                    DECEMBER 31, 1996         DECEMBER 31, 1995
                                                    -----------------         -----------------
<S>                                                 <C>                         <C>
OPERATING ACTIVITIES:                                 
Net income (loss)                                     $    718,000              $(18,021,000)
Adjustments to reconcile net income (loss) to                                   
cash used in operations:                                                        
Reduction of (provision for) credit losses (Note 2)     (2,262,000)                3,172,000
Accretion of Warrant Debt                                   84,000                         -
Amortization of deferred offering costs                     31,000                 2,129,000
Amortization of loan origination costs                     535,000                   884,000
Amortization of Goodwill                                   586,000                         -
Depreciation                                               404,000                   375,000
Changes in assets and liabilities:                                             
Decreases (increases) in other assets                    1,214,000                   466,000
Increases (decreases) in accounts payable               (4,572,000)                5,043,000
                                                      ------------              ------------
Cash used in operations                                 (3,262,000)               (5,952,000)
                                                      ------------              ------------
INVESTING ACTIVITIES:                                                           
Purchase of contracts receivable                       (33,786,000)              (16,921,000)
(Increase) in loan origination fee                        (215,000)                 (174,000)
Principal payments on contracts receivables                                     
including proceeds from sales of vehicles               15,475,000                30,706,000
Proceeds from sales of vehicles                          2,703,000                 1,233,000
Purchase of property and equipment                        (645,000)                 (464,000)
Decrease in restricted cash                                      -                 6,413,000
                                                      ------------              ------------
Cash provided by (used in) investing activities        (16,468,000)               20,793,000
                                                      ------------              ------------
FINANCING ACTIVITIES:                                                           
Borrowings under line of credit                         27,213,000                 1,700,000
Repayments under lines of credit                        (8,504,000)               (1,695,000)
Notes payable proceeds                                      14,000                         -
Notes payable repayments                                         -                (1,690,000)
Deferred offering costs                                   (215,000)                        -
Capital lease principal payments                           (46,000)                  (68,000)
Net proceeds from sale of stock                          4,116,000                    12,000
Loans for stock purchases                               (1,116,000)                        -
Purchase of treasury stock                              (4,000,000)               (1,125,000)
Payment of dividends on preferred stock                 (3,221,000)                 (180,000)
                                                      ------------              ------------
Cash provided by (used in) financing activities         14,227,000                (3,046,000)
                                                      ------------              ------------
CHANGE IN CASH AND CASH EQUIVALENTS:                                            
Change in cash and cash equivalents                     (5,503,000)               11,795,000
Cash and cash equivalents - beginning                   17,817,000                 1,633,000
Net cash acquired                                        3,383,000                         -
                                                      ------------              ------------
Cash and cash equivalents - ending                    $ 15,697,000              $ 13,428,000
                                                      ============              ============

=============================================================================================
SUPPLEMENTAL INFORMATION:                                                                
Cash Paid for Interest                                $    973,000              $  3,725,000
Subdebt Issued                                        $  5,000,000              $          -
Non cash activities Transfer of                                                  
Receivables to Vehicles Held for Resale               $    894,000              $  3,689,000
                                                      ============              ============
</TABLE>


                                       5

<PAGE>   6


                  SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR APRIL 1, 1996 THROUGH DECEMBER 31, 1996
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                Preferred Stock 12%       Preferred Stock 9%          Common Stock
                                                 Shares      Amount      Shares       Amount        Shares     Amount
                                               ----------  ----------  ----------  -------------  ----------  ---------
<S>                                            <C>         <C>         <C>         <C>            <C>         <C>
Balance at March 31, 1996                        50,000      $4,000    1,878,956     $150,000      3,096,628   $248,000  
                                                 ======      ======    =========     ========      =========   ========  
Debt Conversion - Hall Financial Group, Inc.                                                                             
(Note 5)                                              -      $    -            -     $      -        312,500   $ 25,000  
Additional Investment - Hall Financial Group,                                                                            
Inc. (Note 5)                                         -           -      254,100       20,000        204,800     16,000  
Stock Investment - Alex. Brown & Sons,                                                                                   
Incorporated                                          -           -            -            -         26,462      2,000  
Acquisition - Dealers Alliance Credit Corp.                                                                              
(Note 4)                                              -           -      319,257       26,000        159,629     13,000  
Conversion of 9%/7% preferred to common               -           -      (13,755)      (1,000)        27,511      2,000  
Stock repurchase - Hall Financial Group, Inc.                                                                            
(Note 5)                                              -           -            -            -              -          -  
Acquisition - U.S. Lending Corporation                                                                                   
(Note 5)                                              -           -      271,867       22,000        231,066     18,000  
Retirement of treasury stock                          -           -     (254,100)     (20,000)      (895,599)   (72,000) 
Preferred stock dividends                             -           -            -            -              -          -  
Net income                                            -           -            -            -              -          -  
                                                 ------      ------    ---------     --------      ---------   --------  
Balance at December 31, 1996                     50,000      $4,000    2,456,325     $197,000      3,162,997   $252,000  
                                                 ======      ======    =========     ========      =========   ========  
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       6

<PAGE>   7








<TABLE>
<CAPTION>
     Preferred 9%/7%                Common                                                    Stockholders'
     Treasury Stock             Treasury Stock               Paid In         Accumulated           Equity
 Shares       Amount        Shares         Amount            Capital           Deficit        (Capital Deficit)
---------    -------       -------      -----------       ------------      ------------      -----------------
<S>          <C>           <C>          <C>                  <C>            <C>                  <C>           
        -    $     -       378,299      $(1,150,000)      $ 79,124,000      $(54,043,000)        $24,333,000   
=========    =======       =======      ===========       ============      ============         ===========   
        -          -             -      $         -       $  1,692,000      $          -         $ 1,717,000   
        -          -             -                -          4,310,000                 -           4,346,000   
        -          -             -                -            150,000                 -             152,000   
        -          -             -                -          4,521,000                 -           4,560,000   
        -          -             -                -             (1,000)                -                   -   
  254,100    (20,000)      517,300       (8,980,000)                 -                 -          (9,000,000)  
        -          -             -                -          4,463,000                 -           4,503,000   
(254,100)     20,000      (895,599)      10,130,000        (10,058,000)                -                   -   
        -          -             -                          (4,458,000)                -          (4,458,000)  
        -          -             -                                   -           718,000             718,000   
---------    -------       -------      -----------       ------------      ------------         -----------    
        -    $     -             -                        $ 79,743,000      $(53,325,000)        $26,871,000   
=========    =======       =======      ===========       ============      ============         ===========   
</TABLE>  
                                                                         
                                                                         
                                       7

<PAGE>   8


                  SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   BASIS OF PRESENTATION

     The consolidated financial statements of Search Capital Group, Inc.
("Search") and together with its subsidiaries ("Company") are unaudited and
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q.  Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures present fairly, in all material
respects, the financial position of the Company for the periods presented.

     During the nine months ended December 31, 1996, the Company recorded
adjustments which it considers not of a normal recurring nature.  These
adjustments include a gain related to the closure of the Company's retail lots
and related make-ready facility of $124,000, the reduction of an amount
previously reported as a liability under a terminated warranty program in the
amount of $136,000, and reversal of previously recorded non-cash expenses
associated with a self-funded insurance program in the amount of $36,000.

     These financial statements should be read in conjunction with the audited
consolidated financial statements and related notes and schedules included in
the Company's Form 10-K Transition Report for the six months ended March 31,
1996.  The consolidated financial statements include the accounts of the
Company.  All significant intercompany accounts and transactions have been
eliminated.  Certain reclassifications have been made to prior periods'
balances to conform to current period presentation.

     Effective November 15, 1996, the Company effected a one-for-eight reverse
split of its outstanding shares of Preferred and Common Stock. The split
reduced the number of Search's Common Stock from 24,496,470 shares to 3,062,059
shares outstanding, the outstanding shares of 9%/7% Convertible Preferred Stock
from 17,506,254 shares to 2,188,282 shares outstanding, and the outstanding
shares of 12% Senior Preferred Stock from 400,000 to 50,000 shares.
Accordingly, all share and per share amounts have been restated to give effect
to the reverse split.  

2.   CONTRACT RECEIVABLES, ALLOWANCE FOR CREDIT LOSSES, and INTEREST INCOME

     The Company records receivable purchases at cost.  Contractual finance
charges are recorded as unearned interest and amortized to interest income
using the interest method. As discussed below, amortization of interest income
ceases upon impairment.  An initial allowance for credit losses is recorded at
the acquisition of a receivable equal to the difference between the amount
financed and the acquisition cost, which is what the Company estimates to be
fair value. An additional allowance may be recorded at acquisition if it is
determined that the discount recorded as allowance is not adequate to cover
expected losses.

     In accordance with SFAS No. 114, receivables are analyzed on a
loan-by-loan basis.  The Company evaluates the impairment of receivables
generally based on the receivables' contractual delinquency.  The Company
considers receivables that are contractually delinquent 60 days or more or with
respect to which the underlying collateral has been repossessed to be impaired.
When the receivable is considered impaired, interest income ceases to be
recognized.  Once

                                       8

<PAGE>   9
impaired, the Company looks to the underlying collateral for repayment of the
receivable.  Therefore, at impairment, the Company writes down the receivable
to its estimated net realizable value, which is the fair value of the
underlying collateral if it has been repossessed or the estimated recoverable
cash flow if no repossession has occurred.  If the measured amount of the
impaired receivable is less than the Company's net recorded investment in the
receivable, the Company recognizes a charge to provision for credit losses in
the amount of the deficiency and increases the allowance for credit losses by a
corresponding amount.  The provision for credit losses is adjusted for any
differences between the final net proceeds from resale of the underlying
collateral and the estimated net realizable value.  Generally, the Company
charges off a receivable against the allowance for credit losses at 180 days
contractual delinquency, if no significant payments have been received in the
last six months, or, if earlier, after receipt of the sale proceeds from
liquidation of the collateral securing the receivable.  Subsequent proceeds
received on a  previously charged-off receivable are recorded as a recovery to
the allowance for credit losses.  Any excess of cost paid ("premium") for net
receivables acquired is recorded as an asset and amortized over the life of the
related loans acquired as an adjustment to yield using the interest method.

CONTRACTUAL DELINQUENCIES

     The following tables set forth certain information related to the
contractual delinquency of the Company's receivables as of December 31, 1996
and March 31, 1996.




<TABLE>
<CAPTION>
                                            AS OF DECEMBER 31, 1996
                          --------------------------------------------------------------------
                          NUMBER OF                     TOTAL      
      CONTRACTUAL          ACTIVE       % OF TOTAL      UNPAID        UNEARNED        NET
      DELINQUENCY         CONTRACTS(1)    ACTIVE     INSTALLMENTS     INTEREST     RECEIVABLES
------------------------  ---------     ----------   ------------    ---------    ------------
<S>                          <C>           <C>       <C>            <C>           <C>   
Current to 60 days past                                      
due                          10,425        92%       $68,540,000    $12,929,000  $ 55,611,000
61-over days past due         1,170         8%         6,422,000      1,134,000     5,288,000
                             ------       ---        -----------    -----------  ------------
                   Total     11,595       100%       $74,962,000    $14,063,000    60,899,000
                             ======       ===        ===========    ===========    
Allowance for credit                                                              
losses                                                                            (11,207,000)
                                                                                 ------------
Receivables, net of allowance for credit losses                                  $ 49,692,000
                                                                                 ============


                                                AS OF MARCH 31, 1996
                          -------------------------------------------------------------------
                          NUMBER OF                    TOTAL      
      CONTRACTUAL          ACTIVE      % OF TOTAL      UNPAID        UNEARNED        NET
      DELINQUENCY         CONTRACTS(1)   ACTIVE     INSTALLMENTS     INTEREST     RECEIVABLES
------------------------  ---------    ----------   ------------    ---------     -----------
<S>                          <C>           <C>       <C>            <C>           <C>   

Current to 60 days past
due                           7,575        95%       $34,995,000    $6,055,000    $28,940,000
61-over days past due           421         5%         2,091,000       380,000      1,711,000
                             ------       ---        -----------    -----------   -----------
                   Total      7,996       100%       $37,086,000    $6,435,000     30,651,000
                             ======       ===        ===========    ===========    
Allowance for credit
losses                                                                            (13,353,000)
                                                                                  -----------
Receivables, net of allowance for credit losses                                   $17,298,000
                                                                                  ===========
</TABLE>

(1)  Excludes  342 and 333 accounts which were reclassified to vehicles held
     for resale as of December 31, 1996 and March 31, 1996, respectively.

                                       9

<PAGE>   10


ALLOWANCE FOR CREDIT LOSSES

     The following table shows the changes in the Company's allowance for loan
losses for the nine months ending December 31, 1996.


<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDING
                                                           DECEMBER  31, 1996
                                                           ------------------
<S>                                                        <C>
Balance at beginning of period                                 $13,353,000
Allowance recorded on acquisition of loans                       8,314,000
Increase in allowance for loan losses                              333,000
Proceeds received on previously charged off accounts             2,349,000
Reduction in allowance for credit losses                          (894,000)
Receivables charged off against allowance                       (7,304,000)
Reduction in allowance for credit losses                        (4,944,000)
                                                               -----------
Balance at end of period                                       $11,207,000
                                                               -----------
Net credit losses as a percent of average net receivables             26.9%
                                                               =========== 
</TABLE>

     The allowance for credit losses contains both a provision for anticipated
loan losses and a reduction in allowance for loan losses from prior estimates.

<TABLE>
<S>                                            <C>
Cash recoveries                                $2,349,000
Net change in estimated allowance delinquency   2,262,000
                                               ----------
Net effect on income statement                 $4,611,000
                                               ==========
</TABLE>

GENERAL CONTRACT CHARACTERISTICS

     The following sets forth certain general information related to the
contract receivables of the Company as of December 31, 1996 and March 31, 1996.


<TABLE>
<CAPTION>
                                                               AS OF            AS OF
                                                         DECEMBER 31, 1996  MARCH 31, 1996
                                                         -----------------  --------------
<S>                                                      <C>                <C>
Unearned interest as a percent of gross receivables           18.78%            17.35%
Allowance for loan losses as percent of net receivables       17.20%            43.56%
Average original loan amount                                 $7,940            $6,997
Average net receivable remaining balance                     $5,237            $3,833
Weighted average APR                                          22.71%            23.81%
Weighted average original term in months                      40.40             32.42
Weighted average remaining term in months                     30.60             19.09
</TABLE>

3.   TRANSACTIONS WITH HALL AND AFFILIATES

     On November 30, 1995, Search entered into a Funding Agreement ("Funding
Agreement") with Hall Financial Group, Inc. ("HFG").  Pursuant to the Funding
Agreement, HFG made loans totaling $2,283,000 ("HFG Notes") to Search.  The HFG
Notes could, at the

                                       10

<PAGE>   11

election of HFG or its assigns, be converted into a maximum 312,500 (2,500,000
shares on a pre-split basis) shares of Search Common Stock.  Effective April 2,
1996, Hall/Phoenix Inwood, Ltd. ("HPIL"), as assignee from HFG of the HFG
Notes, fully exercised the rights of the holder of the HFG Notes to convert the
Notes into 312,500 (2,500,000 shares on a pre-split basis) shares of Search
Common Stock.

     The Funding Agreement also provided to HFG the option to purchase Common
Stock, 9%/7% Convertible Preferred Stock, and warrants.  Effective April 2,
1996, HPIL, as assignee of HFG, fully exercised this purchase option by paying
$4,346,000 cash to Search for which Search issued 204,800 (1,638,400 shares on
a pre-split basis) shares of Search Common Stock, 254,100 (2,032,800 shares on
a pre-split basis) shares of 9%/7% preferred stock, and warrants to purchase
84,500 (676,000 shares on a pre-split basis) shares of Common Stock to HPIL.

     Pursuant to the Funding Agreement, HFG was entitled to elect one director
if HFG converted the HFG Notes into Common Stock and to elect another director
if HFG purchased at least $1,000,000 present value of securities from Search.
As a result of satisfaction of these conditions, two HFG officers were
appointed as directors of Search.

     On October 16, 1996, the two directors and HPIL filed suit against Search
seeking access as directors to certain of Company's books and records.  On
October 24, 1996, Search initiated legal action against the two directors and
HPIL.  On November 21, 1996, Search, the two directors and HPIL entered into a
settlement agreement.  As a result of the agreement, Search paid HPIL
$4,000,000 in cash and executed a $5,000,000, 14% subordinated debenture to
repurchase from HPIL all of its 517,422 shares of Common Stock, 254,102 shares
of preferred stock, warrants to purchase Common Stock and to settle all claims
against Search.  The parties also agreed to dismiss all litigation and mutually
release each other, and the two directors resigned from Search's Board.  See
"Liquidity and Capital Resources."


4.   ACQUISITIONS

     Effective November 25, 1996, Search Funding III, Inc. ("SFIII"), a
wholly-owned subsidiary of Search, completed its acquisition of certain assets
of U.S. Lending Corporation ("USLC").  USLC conducted purchasing and servicing
of used motor vehicle receivables in Deerfield Beach, Florida.  USLC had been
operating under Chapter 11 of the Federal Bankruptcy Code.  The acquisition was
accounted for under the purchase method of accounting.  Accordingly, results of
operations related to the acquired assets have been included in the
consolidated financial statements since the date of acquisition.  The purchase
price was allocated to the assets acquired based upon their estimated fair
value.  Search purchased USLC's net assets valued at $4,819,000 for 231,066
(1,848,528 shares on a pre-split basis) shares of Common Stock,  271,867
(2,174,936 shares on a pre-split basis) shares of 9%/7% Convertible Preferred
Stock, and warrants to purchase 154,960 (1,239,680 shares on a pre-split basis)
shares of Common Stock.  The assets acquired were approximately $3,500,000 in
cash, gross receivables of $2,200,000, and repossessed vehicles with an
aggregate wholesale value of approximately

                                       11

<PAGE>   12

$78,000, and an undetermined amount of delinquent accounts and foreclosure
deficiency balance accounts.

     On August 2, 1996, Search Funding IV, Inc. ("SFIV"), a wholly-owned
subsidiary of Search, acquired all of the assets and assumed certain
liabilities of Dealers Alliance Credit Corp. ("DACC").  DACC conducted
purchasing and servicing of used motor vehicle receivables in Atlanta, Georgia.
DACC had purchased loans from over 1,000 new  and used car dealers, primarily
in Georgia, Texas, Tennessee and Florida.  The Company has been using the DACC
facilities as a regional marketing branch for southeastern states, a collection
center and as a full-service consumer loan facility.  The acquisition was
accounted for under the purchase method of accounting.  Accordingly, results of
operations related to the acquired assets have been included in the
consolidated financial statements since the date of acquisition.  The purchase
price was allocated to the net assets acquired based upon their estimated fair
value.  For DACC's net assets, valued at approximately $21,000,000, Search
delivered 159,629 shares of common stock, 319,257 shares of 9%/7%
convertible preferred stock, and Warrants to purchase 159,629 shares of
common stock with a total value of $4,795,000.  In addition, the Company
assumed approximately $17,450,000 in bank debt under a restructured line of
credit.

     The calculation of the purchase price and allocation to the acquired
assets of DACC is as follows (in thousands):



<TABLE>
<C>                                                        <C>
Net contracts receivable                                    $14,380
Cash and cash equivalents                                       753
Vehicles held for sale                                          284
Property and equipment                                          222
Customer lists                                                2,175
Dealer network                                                2,200
Other assets                                                    835
                                                            -------
Total estimated fair value of assets acquired                20,849
                                                            -------
Liabilities assumed                                          18,239
Fair value of Search equity instruments issued, including     4,795
redeemable warrants treated as debt                         
Direct acquisition costs                                        143
Total cost                                                  $23,177
                                                            -------
Cost in excess of fair value of net assets acquired and     
other identifiable intangibles                              $ 2,328
                                                            =======
</TABLE>

     The cost in excess of fair value of net tangible assets acquired of
$6,703,000 is being amortized over a weighted term of approximately 11 years on
a straight-line basis.  The Company periodically evaluates the recoverability
and remaining life of the excess value and determines whether it should be
completely or partially written-off or the amortization period accelerated.
The Company will recognize an impairment of excess value to the extent that the

                                       12

<PAGE>   13

undiscounted estimated future operating cash flows of the acquired assets are
determined to be less than the carrying amount of the excess value.  If an
impairment of excess value were to occur, the Company would reflect the
impairment through a reduction in the carrying value of such excess value.

     The Warrants issued in the DACC transaction have redemption features which
require the Company to redeem all unexercised warrants at $2.00 for each share
of stock subject to the Warrants in March 2001.  The Warrants are considered
debt and have been recorded at their estimated fair value.  The accretion from
fair value to redemption amount is recorded as interest expense over the term
of the warrants using the interest method.

     In September 1996, the Company acquired approximately $12,000,000 in gross
receivables from Eagle Finance Corp. for a total cash price of approximately
$9,600,000.  In November 1996, the Company acquired approximately $21,000,000
in gross receivables from MS Financial, Inc. for a total cash price of
approximately $14,400,000.  The receivables were purchased at a premium over
the net assets acquired.  The premiums are amortized over the life of the
related portfolio as an adjustment to yield using the interest method.


5.   LINE OF CREDIT

     On September 11, 1996, Search Funding II, Inc. ("SFII"), a wholly-owned
subsidiary of Search, entered into a revolving Line of Credit Agreement (the
"Line") with Hibernia National Bank (HNB).  The Line bears interest at the
prime rate plus one percentage point, or 9.25% as of January 31, 1997.  The
Line has a maximum commitment of $25,000,000 and is limited to a percentage of
eligible contracts held by SFII.  The Line is secured by all SFII assets and
expires on September 11, 1999.  Search has guaranteed the Line.  Search and
SFII must comply with covenants that require the maintenance of certain
financial ratios and other financial conditions.


6.   REVERSE STOCK SPLIT

     Effective November 15, 1996, the Company effected a one-for-eight reverse
split of its outstanding shares of Preferred and Common Stock.  The split
reduced the number of Search's Common Stock from 24,496,470 shares to 3,062,059
shares outstanding, the outstanding shares of 9%/7% Convertible Preferred Stock
from 17,506,254 shares to 2,188,282 shares outstanding, and the outstanding
shares of 12% Senior Preferred Stock from 400,000 to 50,000 shares.
Accordingly, all share and per share amounts have been restated to give effect
to the reverse split.  See Item 2 of Part II for further discussion of the
effects of the reverse split.


                                       13

<PAGE>   14


7.   RELATED PARTY INFORMATION

     A director of the Company is a principal in a securities firm which will
receive fees for its services to be rendered in connection with obtaining
potential subordinate debt and senior debt financing for the Company.  It is
estimated that the Company will pay a marketing fee of $60,000 which will be
credited against a placement fee of 3.0% related to the subordinated debt
offering and a .375% agency fee for the senior debt.

     A director of the Company is a managing director of an investment banking
firm retained by the Company to act as its financial advisor.  The Company is
obligated to pay $50,000 per year under this agreement to the firm.


8.   STOCK CANCELLATION AND STOCK REPURCHASE AGREEMENT

     In May 1995, Search purchased from one of its directors 62,500 shares of
Search's common stock for $18.00 per share, market value on that date.
Simultaneously with the purchase, the director resigned from the Board.  Search
was also given an irrevocable proxy expiring in May 1997 to vote 101,515 shares
of common stock held by a trust formed by the former director.  These shares
held by the trust and an additional 13,902 shares held by an individual
retirement account of the former director were subject to a "put" to the
Company in May 1997 for $18.00 per share, the market value at the date of the
agreement.  These shares are shown on the balance sheet outside of permanent
equity at the redemption price.  If these redeemable shares were excluded from
net loss per share, the nine months ended December 31, 1996 loss per share
would have been $(1.13).


9.   LEGAL PROCEEDINGS

     On January 9, 1996, Search received notice from plaintiffs that a suit had
been filed on December 21, 195 against Search, certain of its former officers
and directors, and certain underwriters of three of the Fund Subsidiaries.  The
case is styled Janice and Warrant Bowe, et. al. vs. Search Capital Group, Inc.,
Cause No. 1:95CV 649GR, and was filed in the Federal District Court for the
Southern District of Mississippi.  The case was reassigned under Cause No.
1:95CSV649BR upon recusal of the judge originally assigned to this case because
of his relationship with certain defendants.  The plaintiffs allege violations
of the securities laws by the defendants and seek unspecified damages,
rescission, punitive damages and other relief.  The plaintiffs also seek
establishment of a class of plaintiffs consisting of all persons who have
purchased Notes issued by three of the Fund Subsidiaries.  Although no
assurances can be given, the Company believes it has meritorious defenses to
this action and will defend itself vigorously.  While the ultimate outcome of
this litigation cannot be determined, management estimates that the total
expenses and losses from the litigation will be at least $500,000, and,
accordingly, management has established a reserve of $500,000 for this
litigation.



                                       14

<PAGE>   15


10.  REDEEMABLE WARRANTS

     Search is authorized to issue Warrants to purchase up to 10,000,000 shares
of common stock pursuant to a warrant agreement dated as of March 22, 1996, as
amended.  Warrants to purchase 625,000 shares are to be issued to noteholders
and other unsecured claim holders under the Joint Plan.

     The exercise price per share of the Warrants is $2.00 and increases by
$2.00 on March 15 of each successive year through 2000.  The Warrants will
expire on March 14, 2001, at which time Search must redeem all unexercised
Warrants at a redemption price of $2.00 per share.  Because the Warrants must be
redeemed if not exercised, they have been classified outside of permanent
equity as debt at fair value.  An accretion to the redemption amount of
$1,879,000 will be made over the term of five years using the interest method.

11.  NOTES RECEIVABLE STOCKHOLDERS

     In July 1996, the Company implemented a loan program for its directors and
senior executive officers to finance the purchase of shares of common stock
and 9%/7% convertible preferred stock in open market transactions. The loans
are evidenced by promissory notes from the borrowers, bear interest at the
prime rate, payable quarterly, and mature three years from the date made. The
shares of stock purchased with the proceeds of the loans are pledged to the
Company as security for the loans. The aggregate amount of these loans
outstanding as December 31, 1996 was $1,116,000. These loans are shown as a
deduction from total stockholders equity on the face of the balance sheet.

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

GENERAL

     The Company specializes in the purchase and servicing of used motor
vehicle receivables.  These receivables are secured by medium-priced, used
automobiles and light trucks which typically have been purchased by consumers
with substandard credit histories at retail prices generally ranging from
$5,000 to $15,000.  The Company generally purchases these receivables from a
network of unaffiliated new and used automobile dealers (the "Dealer Network").
The Company from time to time makes bulk acquisitions of these receivables.
The members of the Dealer Network generate the receivables and offer them for
sale on a non-exclusive basis to the Company.  Members of the Dealer Network
forego some future profit on each receivable sold to the Company in exchange
for an immediate return of their invested capital.  The Company's acquisition
of DACC enhanced the Company's Dealer Network by adding new dealers to the
network with existing purchasing relationships.  Additionally, the Company now
has a larger marketing presence in the southeastern United States non-prime
automobile market.  The Company has identified the dealers DACC purchased
contracts from which would be eligible to become a member of the Dealer
Network.  It is anticipated that new receivables from these dealers will help
increase the Company's purchasing volume during the fiscal year ending March
31, 1997 and thereafter.  The Company plans to add marketing representatives
who will work out of the existing facilities previously occupied by DACC.  The
Company also plans to use the existing systems and office space to conduct
limited purchasing activity of new receivables. DACC was using the software the
Company was in the process of converting to at the time of the Acquisition. The
Company plans to continue to use the same software and equipment at the current
location. The equipment acquired in the purchase is suitable for the Company's
continued use. The Company expects to receive applications, evaluate credit 
risk, assess collateral value and make preliminary loan approval or turndowns.
This will decrease the

                                       15

<PAGE>   16

current work load for the Company's employees engaged in similar activities in
its Dallas, Texas purchasing facility.

     In addition to the benefits the Company expects to receive from an
enhanced Dealer Network, the Company has plans for a consumer loan operation to
be initially based in the same facilities.  The Company identified over 600
accounts which it intends to target for conversion to consumer loans.  The
current personnel in the branch, combined with the Company's existing
management, have significant experience in consumer lending.  The initial
consumer loans will be made after regulatory approval is obtained.  It is
expected that one third of the targeted consumer loan customers will ultimately
be converted into consumer loans which the Company will attempt to retain as
customers for an indefinite period of time.  It is expected that the benefits
from the consumer loan operation will be minimal during fiscal 1997.  However,
during fiscal 1998, the Company expects to generate additional revenue both
from interest income and insurance product commissions.  

     The Company administers its receivables purchasing, servicing and 
management activities utilizing a receivables management system developed by
Norwest Financial Information Systems Group, Inc. in conjunction with the
Company's proprietary Auto Note Management System software.  The Company
commenced its used motor vehicle receivables purchasing and servicing business
in 1991.

     The Company opened its first consumer finance office on November 1, 1996,
in Baton Rouge, Louisiana.  The Company intends to be fully operational in its
two Puerto Rico consumer finance locations by the end of its fiscal year.  The
Company plans to open consumer loan branches in Texas, Oklahoma, Georgia, and
Tennessee in the near future.  These offices will make and collect retail sales
finance loans, second mortgage real estate loans, and other consumer loans.
The acquisition of DACC and USLC assets provided the Company with two offices
with which to conduct future consumer lending activities.  These offices as of
December 31, 1996 were strictly being used as remote collection facilities and
will be converted to consumer lending offices as well upon licensing approval.
The Company anticipates both offices to be engaged in consumer lending activity
by the end of its third calendar quarter of 1998.

     Prior to November 4, 1994, the Company primarily financed the purchase of
used motor vehicle receivables through the private and public sale of
interest-bearing notes (the "Notes") issued by wholly-owned subsidiaries
organized specifically for this purpose (the "Fund Subsidiaries") and through
reinvestment of operating cash flow.  Until March 1996, the purchasing of
receivables for the Fund Subsidiaries was governed by trust indentures (the
"Trust Indentures") which restricted management's ability to alter its
receivables purchasing criteria.  In March 1996, following confirmation of the
Fund Subsidiaries' plan of reorganization under Chapter 11 of the bankruptcy
code, the Notes and the indebtedness represented by the Notes, together with
their related Trust Indentures, were canceled.  At that time, the Company
implemented its new purchasing program (the "Preferred Program").  The
Preferred Program continues to focus on the purchasing of used motor vehicle
receivables whose obligors have non-prime credit histories, but places more
emphasis on job, income, and residence stability and re-established positive
credit of the obligor than the Company's earlier programs.


                                       16

<PAGE>   17


     The Company anticipates lower repossession rates and higher repossession
sale proceeds as a result of the Preferred Program.  If the Company is unable
to select the proper dealers, purchase contracts with obligors which meet its
credit criteria, and realize collection proceeds in adequate amounts, the
repossession rate and sale proceeds could be higher and lower, respectively.
The terms of loans under the Preferred Program generally  range from 30 months
to 60 months.

RESULTS OF OPERATIONS

Comparison of Nine-Month Periods Ended December 31, 1996 and 1995

     The Company purchased 845 contracts under its new Preferred Program in
non-bulk transactions during the nine months ended December 31, 1996 compared
to 3,354 contracts under its prior program in non-bulk transactions during the
nine months ended December 31, 1995.  The cost of these contract purchases was
$8,726,000 ($10,327 per contract) compared to $16,464,000 ($4,908 per contract)
for the nine-month periods in 1996 and 1995, respectively.  The Company
purchased 2,603 contracts in bulk purchase transactions at a cost of
$24,966,000 ($9,591 per contract) during the nine months ended December 31,
1996 compared to 112 contracts purchased in bulk purchase transactions at a
cost of  $513,000 ($4,580 per contract) for the nine months ended December 31,
1995.  The increase in cost of contracts purchased in non-bulk transactions of
$5,419 is due to a higher purchase price per contract under the Preferred
Program generally due to a lower-mileage vehicle, higher credit quality
customers and higher wholesale and retail value per vehicle.  The increase in
cost of contracts purchased in bulk purchase transactions of $5,011 is due to
the Company purchasing contracts that involve higher credit quality obligors or
higher-value vehicle collateral than the contracts previously purchased by the
Company, or both.  The Company expects to continue to see an increase in its
per-contract cost under its Preferred Program when compared to purchases under
the prior program.  The Company's acquisition of assets from DACC and USLC
provided the Company with approximately 4,150 accounts with aggregate balances
of $28,100,000, for an average balance of $6,771 each.

     Interest revenue decreased from $7,367,000 for the nine months ended
December 31, 1995 to $6,861,000 for the nine months ended December 31, 1996.
The decrease of $506,000, or 7%, is primarily a result of higher average
interest earning net receivables for the nine month-period ended December 31,
1995 of $45,372,000 compared to $35,529,000 average interest earning net
receivables for the nine-month period ended December 31, 1996.  The higher
average interest from any assets are primarily the result of the acquisitions
which occurred during the nine months ended December 31, 1996 of both bulk 
contracts and DACC and USLC assets.


                                       17

<PAGE>   18


     Interest expense decreased from $5,542,000 for the nine months ended
December 31, 1995 to $1,255,000 for the nine months ended December 31, 1996.
The decrease of $4,287,000, or 77%, is primarily a result of lower debt levels
after confirmation of the Fund Subsidiaries' plan of reorganization during the
first calendar quarter of 1996.  Interest expense is expected to increase as
the Company enters into additional financing relationships.  The Company's debt
with LaSalle National Bank which is required to be repaid by August 1997
averaged a $14,528,000 outstanding loan balance for the nine-month period
Ending December 31, 1996.  The interest expense associated with this bank note
is expected to decrease as the outstanding loan balance decreases.  The
Company's line of credit with Hibernia National Bank averaged a $15,108,000
outstanding loan balance during the nine-month period ended December 31, 1996.
The interest expense associated with this line of credit is expected to
increase as the Company borrows additional funds to expand its receivable base.

     The provision for credit losses decreased from $3,172,000 for the nine
months ended December 31, 1995 to a recovery of $4,611,000 for the nine months
ended December 31, 1996, due primarily to increased recoveries from previously
charged-off accounts and reduced provision requirements.  During the nine-month
period ended December 31, 1996, the Company recovered $2,308,000 of proceeds
from accounts previously charged off compared to $228,000 for the nine months
ended December 31, 1995.  The Company's remote collections facilities, which
were opened during the second calendar quarter of 1995, have been successful in
contacting and collecting some of the chronically delinquent and charged-off
accounts and locating previously identified skips.  Additionally, the
acquisition of DACC and USLC assets provided the Company with new pools of
deficiency balances to collect, of which the Company collected approximately
$688,000 since the acquisition during the nine months ended December 31, 1996.
In the future, management anticipates a lower amount of recovery of prior
credit losses as these collections decrease.  During the nine months ended
December 31, 1996, the Company received a one-time settlement of $115,000 from
a car dealer for deficiencies on sales of repossessed cars purchased from that
dealer.  During the nine months ended December 31, 1996, the Company reduced
its allowance for loan losses by $4,944,000, of which $2,349,000 was primarily
due to recovery proceeds and the remaining $2,595,000 was a non-cash reduction
to reflect lower than anticipated loan losses from certain loans.
Additionally, during the nine months ended December 31, 1996, the Company
increased its allowance for loan losses by $333,000 to reflect an increase in
anticipated loan losses from certain loans.

     General and administrative expenses decreased from $13,178,000 for the
nine months ended December 31, 1995 to $9,499,000 for the nine months ended
December 31, 1996.  The decrease of $3,679,000, or 29%, is primarily related to
reduced expenses associated with processing repossessions, personnel cost, and
professional fees.  The Company closed all three of its retail lots and its
related make-ready facility, which were used to process repossessions, by
December 31, 1995.  Additional costs included expenses associated with the
reorganization over the nine month period ending December 31, 1995. The
Company's employee count averaged 124 persons for the nine months ended
December 31, 1996 compared to 143 persons for the nine months ended December
31, 1995.  The Company's acquisitions of DACC and USLC increased the Company's
general and administrative expenses primarily for personnel and occupancy
costs.


                                       18

<PAGE>   19


     Preferred stock dividends increased from $180,000 for the nine months
ended December 31, 1995 to $4,458,000 for the nine months ended December 31,
1996.  The increase of $4,278,000 is related to the issuance of 1,879,000
shares of the Company's 9%/7% Convertible Preferred Stock upon confirmation of
the Fund Subsidiaries' plan of reorganization, 319,000 shares of 9%/7%
Convertible Preferred Stock in connection with the acquisition of assets of
DACC, and 271,000 shares of 9%/7% Convertible Preferred Stock in the
acquisition of assets of USLC.  The Company had 50,000 shares of its 12%
Convertible Preferred Stock outstanding and no 9%/7% Convertible Preferred
Stock outstanding during the nine months ended December 31, 1995, compared to
50,000 and an average of 2,170,000 shares of 12% Convertible Preferred Stock
and 9%/7% Convertible Preferred outstanding during the nine months ended
December 31, 1996.

Comparison of Three-Month Periods Ended December 31, 1996 and 1995

     The Company purchased 336 contracts in non-bulk transactions under the
Preferred Program during the three months ended December 31, 1996 compared to
760 contracts in non-bulk transactions under its prior program during the three
months ended December 31, 1995.  The cost of non-bulk contract purchases was
$3,650,000 ($10,863 per contract) compared to $3,722,000 ($4,897 per contract)
for the three-month periods in 1996 and 1995, respectively.  The Company
purchased 1,505 bulk contracts at a cost of $15,249,000 ($10,132 per contract)
during the three months ended December 31, 1996 compared to 112 bulk contracts
at a cost of $513,000 ($4,580 per contract) during the three-month period ended
December 31, 1995.  The increase in cost in non-bulk contracts of $5,966 per
contract is due to a higher purchase price per contract under the Preferred
Program compared to the Company's prior program. The Company expects to
continue to see an increase in its per-contract cost under its Preferred
Program when compared to purchases under the prior program.  The increase in
cost per bulk contract of $5,552 per contract is due to a generally higher
credit quality customer and/or collateral than what was previously purchased by
the Company, or both.  The Company expects to continue to see an increase in
its non-bulk and bulk contract cost under its Preferred Program when compared
to non-bulk and bulk purchases under the prior program.  The Company's
acquisition of USLC's assets during the three months ended December 31, 1996
provided the Company with approximately 1,000 accounts with aggregate balances
of $2,100,000 for an average balance of $2,100 each.

     Interest revenue increased from $2,589,000 for the three months ended
December 31, 1995, to $2,963,000 for the three months ended December 31, 1996.
The increase of $374,000, or 14%, is primarily a result of higher average
interest earning net receivables for the three-month period ended December 31,
1996, of $52,086,000 compared to $38,662,000 average interest earning net
receivables for the three-month period ended December 31, 1995.  The higher
average interest earning assets are primarily the result of the acquisitions
which occurred during the three-month period ended December 31, 1996 of both 
bulk contract acquisitions and the DACC and USLC acquisitions.

     Interest expense increased from $774,000 for the three months ended
December 31, 1995 to $917,000 for the three-month period ended December 31,
1996.  The increase in interest

                                       19

<PAGE>   20

expense is a result of the Fund Subsidiaries not recognizing interest expense,
other than the  offering cost amortization, during the period subsequent to
their filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
August 1995 and borrowings under lines of credit after the reorganization.  The
Company anticipates an increase in the amount of interest expense in the
foreseeable future due to continued utilization of its credit line to fund
contract purchases and to pay interest on its current and contemplated
borrowings.  Interest expense is expected to increase as the Company enters
into additional financing relationships.  The Company debt with LaSalle
National Bank, which is required to be repaid by August 1997, averaged a
$13,512,000 outstanding loan balance for the three-month period ending December
31, 1996.  The interest expense associated with this bank note is expected to
decrease as this outstanding loan balance decreases.  The Company's line of
credit with Hibernia National Bank averaged a $19,985,000 outstanding loan
balance during the three-month period ended December 31, 1996.  The interest
expense associated with this line of credit is expected to increase as the
Company borrows additional funds to expand its receivable base.

     The provision for credit losses decreased from $5,381,000 for the three
months ended December 31, 1995 to a recovery of $1,173,000 for the three months
ended December 31, 1996, due primarily to increased recoveries from previously
charged-off accounts and the reduction in the provision for credit losses.
During the three-month period ended December 31, 1996, the Company recovered
$561,000 of proceeds from accounts previously charged off compared to $228,000
for the three months ended December 31, 1995.  The Company's remote collections
facilities, which were opened during the second calendar quarter of 1995, have
been successful in contacting and collecting some of the chronically delinquent
and charged-off accounts and locating previously identified skips.
Additionally, the acquisition of DACC provided the Company with a new pool of
deficiency balances to collect, of which the Company collected over $250,000 in
the three months ended December 31, 1996.  In the future, management
anticipates a lower amount of recovery of prior credit losses as these
collections decrease.  During the three months ended December 31, 1996, the
Company reduced its allowance for loan losses by $735,000 to reflect
lower-than-anticipated loan losses from certain loans.  Additionally, during
the three months ended December 31, 1996, the Company increased its allowance
for credit losses by $333,000 to reflect an increase in anticipated loan losses
from certain loans.

     General and administrative expenses decreased from $4,518,000 for the
three months ended December 31, 1995 to $3,456,000 for the three months ended
December 31, 1996.  The decrease of $1,062,000, or 24%, is primarily related to
reduced expenses associated with processing repossessions, personnel cost, and
professional fees.  The Company closed all three of its retail lots and a
related make-ready facility, which were used to process repossessions, by
December 31, 1995.  Additional costs included expenses associated with the
reorganization over the nine month period ending December 31, 1995. The
Company's employee count averaged 142 persons for the three months ended
December 31, 1996 compared to 127 persons for the nine months ended December
31, 1995.  The Company's acquisitions of DACC and USLC assets increased the
Company's general and administrative expenses primarily for personnel and
occupancy costs.

     Preferred stock dividends increased from $60,000 for the three months
ended December 31, 1995 to $1,512,000 for the three months ended December 31,
1996.  The increase of $1,452,000 is related to the issuance of 1,879,000
shares of the Company's 9%/7%

                                       20

<PAGE>   21

Convertible Preferred Stock upon confirmation of the Fund Subsidiaries' plan of
reorganization, 319,000 shares of 9%/7% Convertible Preferred Stock in the
acquisition of DACC, and 271,000 shares of 9%/7% Convertible Preferred Stock in
the acquisition of USLC.  The Company had 50,000 shares of its 12% Convertible
Preferred Stock outstanding and no 9%/7% Convertible Preferred Stock during the
three months ended December 31, 1995, compared to 50,000 and an average of
2,170,000 shares of 12% Convertible Preferred Stock and 9%/7% Convertible
Preferred Stock, respectively, outstanding during the three months ended
December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

General

     The Company will be required to raise substantial amounts of cash to
support its operating, financing, and investing activities.  Currently, the
Company's principal cash requirements are to purchase receivables and originate
loans, cover operating expenses, pay preferred stock dividends, and pay
interest on its line of credit.  The Company has a significant amount of cash
on hand as of December 31, 1996, which it considers adequate to meet its
reasonably anticipated needs.  The Company intends to invest a portion of this
cash into non-prime automobile and consumer receivables.  In the future,
additional liquidity will be necessary to support growth of the Company's loan
portfolios and operations.

     Because the used motor vehicle and consumer finance industries require the
purchase, origination, and carrying of receivables, a relatively high ratio of
borrowings to net worth is customary and will be an important element in the
Company's operations.  The Company intends to leverage its net worth and any
subordinated debt in the future to enhance its liquidity.  Additionally, the
Company will endeavor to maximize its liquidity by diversifying its sources of
funds, which it is anticipated will include (a) cash from operations, (b) the
securitization of receivables, (c) lines of credit available from commercial
banks and other financing sources, and (d) subordinated debt-offerings.

     The Company is continuing preparation of a private placement memorandum to
issue $25,000,000 to $50,000,000 of senior subordinated notes with warrants to
purchase Common Stock.  Additionally, the Company is discussing with several
commercial lenders, including investment banking firms, banks, and finance
companies, arrangements for them to provide additional financing, which would
be utilized for the purchases of receivables and/or the purchases of other
operating entities.  The Company is currently reviewing term sheets regarding
two such facilities.  The Company is also seeking several additional
participants to expand  its $25,000,000 line of credit with Hibernia Bank.  As
of December 31, 1996, the Company had approximately $24,000,000 outstanding
under its line with Hibernia Bank.  The Company has terminated negotiations
with respect to its previously announced commitment for a warehouse line of
credit.

     The Company intends to evaluate and pursue acquisition opportunities that
the Company anticipates will enable it to grow its receivable base.  The
Company will consider all forms of financing available to it with respect to
any particular acquisition, including additional

                                       21

<PAGE>   22

borrowings and sales or exchanges of equity or debt securities.  The Company's
ability to acquire additional portfolios and companies is dependent on its
obtaining additional financing.

OPERATING ACTIVITIES

Principal Sources and Uses of Cash in Operating Activities

     The principal source of cash from operating activities is provided by net
interest income.  The principal uses of cash in operations are for general and
administrative expenses, other non-recurring types of expenses, and payments
relating to previously accrued expenses.

Comparison of Operating Cash Flows for the Nine Months Ended December 31, 1996
to the Nine Months Ended December 31, 1995

     During the nine months ended December 31, 1996, the Company utilized
$3,262,000 of cash in its operations compared to $5,952,000 of cash being
utilized in operations in the nine months ended December 31, 1995.  The
decrease of $2,690,000 is primarily a result of reduction in expense accruals
of $4,572,000 related to the Fund Subsidiaries' plan of reorganization during
the nine months ended December 31, 1996 compared to an increase in accruals of
$5,043,000 in the same period ended December 31, 1995. The change in offering
cost amortization of $2,098,000 was due primarily to the confirmation of the
Fund Subsidiaries' plan of reorganization.  Additionally, the provision for
credit losses was a $3,172,000 non-cash charge in the nine months in 1995
compared to a non-cash reduction of $2,262,000 in the nine months in 1996.

     The Company anticipates having negative operating cash flows in the
foreseeable future as it continues to expand its Dealer Network and consumer
finance operations to grow its receivable base. The Company will have to cover
negative operating cash flows with sources of cash from investing and financing
activities.

INVESTING ACTIVITIES

Principal Sources and Uses of Cash Provided by Investing Activities

     The principal sources of cash from investing activities include cash from
principal payments on receivables and proceeds from the sale of repossessed
vehicles and other collateral.  The principal uses of cash in investing
activities include cash used for purchasing receivables, making consumer loans,
and purchases of property and equipment.

Comparison of Investing Cash Flows for the Nine Months Ended December 31, 1996
to the Nine Months Ended December 31, 1995.

     Cash used by investing activities increased by $37,041,000 from
$20,793,000 for the nine months ended December 31, 1995 to a use of $16,248,000
for the nine months ended December 31, 1996.  The increase is primarily due to
an increase of $16,865,000 in contract purchases in order to grow the Company's
receivable base, and a decrease of $15,231,000 in principal payments on
contracts receivable due to lower levels of receivables and fewer repossession
proceeds in the period ending December 31, 1996.

                                       22

<PAGE>   23



     The Company anticipates encountering negative cash flows from investing
activities in the foreseeable future as it continues to expand its non-prime
automobile receivable base by expanding into more states and greater market
penetration in existing states and continues its expansion into consumer
finance.

FINANCING ACTIVITIES

Principal Sources and Uses of Cash Provided by Financing Activities

     The principal sources of cash from financing activities are from
borrowings under line of credit agreements, debt offerings proceeds, sales of
equity securities, and subordinate debt offerings.  The principal uses of cash
in financing activities include cash for the repayment of amounts borrowed
under lines of credit, repayment of debt offerings, and payment of dividends on
preferred stock.

     On November 30, 1995, Search entered into a Funding Agreement with HFG.
Pursuant to the Funding Agreement, HFG made loans totaling $2,283,000 to
Search. The HFG Notes could, at the election of HFG or its assigns, be converted
into a maximum 312,500 shares of Search Common Stock. Effective April 2, 1996.
HPIL, as assignee from HFG of the HFG Notes, fully exercised the rights of the
holder of the HFG Notes to convert the Notes into 312,500 shares of Search
Common Stock.

Comparison of Financing Cash Flows for the Nine Months Ended December 31, 1996
to the Nine Months Ended December 31, 1995.

     During the nine months ended December 31, 1996, the Company's financing
activities provided $14,227,000 of cash compared to utilizing cash of
$3,046,000 during the same nine-month period ended December 31, 1995.  The
change of $17,273,000 was caused primarily by borrowings exceeding payments
under its line of credit and proceeds from sale of stock during the nine months
ended December 31, 1996.

     The Company's acquisition of assets from DACC required the Company to
assume approximately $17,450,000 in bank debt.  The terms of the loan require
the Company to repay the loan by August 1997.  Any portion not retired would
require refinancing under existing terms or terms more or less favorable to the
Company or a cash payment from existing cash on hand to liquidate the loan.
Currently, the Company anticipates having to refinance or liquidate a portion
of the loan at its maturity date.  Management is evaluating several possible
options.

     Since the date of acquisition, the Company has reduced the balance on the
loan by $5,662,000, or 32%, to $11,788,000 as of January 31, 1997.  During this
same period of time, the collateral base has decreased from approximately
$25,600,000 in gross contracts receivable and inventory to $18,283,000, or
28.5%.

     The Company acquisition of bulk purchases from Eagle and MS Financial was
financed with borrowings under its line of credit with Hibernia National Bank
and from cash on hand.  The Company currently has $23,873,000 outstanding under
this line as of January 31, 1997.

     On November 21, 1996 the Company purchased shares of its Common Stock and
9%/7% Convertible Preferred Stock and warrants for the purchase of Common Stock
from HPIL for $9,000,000.  The Company paid $4,000,000 in cash and executed a
$5,000,000, 14% subordinated debenture.  Interest is payable monthly.  Through
February 3, 1997, the Company

                                       23

<PAGE>   24

had paid HPIL a total of $140,000 in interest.  The interest rate increases by
1% per annum every six months until it reaches 17%.  The maturity date is
November 21, 2000, but must be repaid in full earlier if the Company sells more
than $20,000,000, or in a proportionate amount if the Company sells less than
$20,000,000 in equity or debt securities.

     The Company's annual dividend requirements on the outstanding shares of
its 12% Preferred Stock and 9%/7% Preferred Convertible Stock, as of December
31, 1996, were $240,000 and $6,200,000, respectively.  The annual dividend
requirement on the Company's 9%/7% Convertible Preferred Stock will remain at
that level until March 31, 1999, and then decrease to $4,822,000 until March
2003.  Any conversion of Preferred Stock to Common Stock would reduce these
dividend requirements.  Payment of the dividend on the 9%/7% Convertible
Preferred Stock in cash may be restricted under some of the Company's debt
agreements.  If payment of dividends in cash is restricted, the Company may be
able to pay the dividend in the Company's Common Stock under specific
circumstances.

     During the nine months ended December 31, 1996, the Company implemented a
loan program for its directors and certain officers to finance the purchase of
the Company's common and preferred stock in open-market transactions.  The
loans bear interest at the prime rate and require quarterly interest payments
and mature at the end of three years.  As of December 31, 1996, the Company had
advanced $1,116,000 to ten of the eligible participants to fund stock
purchases.  Currently, the maximum allowed to be funded for any participant is
$150,000.  During the nine months ended December 31, 1996, the Company recorded
$39,000 of interest revenue from participants under this program.  The loans
are evidenced by notes from participants and the Company holds the stock as
collateral under security agreements.

     The Company is currently in negotiations to restructure the terms of its
potential obligation to purchase 101,516 shares from a trust formed by a former
director of the Company and 13,000 shares from the former director under stock
purchase agreements dated May 5, 1995.  The trust and the director, at their
option, can elect to have the Company purchase the shares of stock at $18.00
per share.  This purchase would require approximately $2,000,000 in cash on
hand unless an additional source is available.

     The Company will seek to increase its cash flows from financing activities
through one or more of the following:  anticipated subordinated debt offering,
completion and utilization of warehouse lines, and debt and stock offerings.
The Company will require additional cash flow to grow its receivable base and
expand into consumer finance, and it is anticipated it will look to financing
activities to provide this liquidity.

                                       24

<PAGE>   25



PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS


     During the three months ended December 31, 1996, Search settled the
litigation between it, Craig Hall, Larry E. Levey, and Hall Phoenix/Inwood,
Ltd. reported in Search's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.  On November 21, 1996, the parties reached a compromise and
settlement agreement whereby Search gave HPIL $4,000,000 in cash and a
$5,000,000 subordinated debenture.  Both parties have agreed to dismiss all
litigation and mutually release each other.  Messrs. Hall and Levey have
resigned from the Board of Directors of the Company and, along with HFG and
HPIL, have agreed that for a period of five years, they will refrain from
taking substantially any action with respect to the Registrant.  See Note 3 of
Notes to Condensed Financial Statements in Part I, Item 1, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
Liquidity and Capital Resources in Part I, Item 2 for further discussion.

     There are presently no other legal proceedings, threatened or pending,
relating to the Company which would, in the opinion of management, have a
material impact on earnings or the financial condition of the Company.

ITEM 2. CHANGES IN SECURITIES

     Certain clarifying amendments to the Certificate of Designation for the
Company's 9%/7% Convertible Preferred Stock and a one-for-eight "reverse" split
of the Company's Common Stock, 12% Senior Convertible Preferred Stock and 9%/7%
Convertible Preferred Stock and Series B 9%/7% Preferred Stock were effected on
November 22, 1996.

     The principal effects of the clarifying amendments to the terms of the
Certificate of Designation for the 9%/7% Convertible Preferred Stock are as
follows:


1.   Specify that the record date for purpose of determining stockholders
     entitled to receive quarterly dividends on the 9%/7% Convertible Preferred
     Stock is the close of business on the last day of the calendar quarter;

2.   Define Effective Date as used in the Certificate of Designation as March
     15, 1996; the effective date of the Fund Subsidiaries' plan
     reorganization;

3.   Specifies March 31, 1989 as the end date of the period during which the 9%
     dividend rate is applicable;

4.   Clarify that (i) only those holders who were issued stock pursuant to the
     reorganization plan were entitled to the retroactive payment of dividends
     for the period from July 1, 1995 through the Effective Date, and (ii)
     dividends on each share of 9%/7% Convertible Preferred Stock not issued
     pursuant to the reorganization plan shall begin to accrue on the date such
     shares are issued;

5.   Specify that the members of the Board of Directors of the Company
     immediately preceding a merger must be a majority of the members of the
     board of directors of the company surviving the merger, whether it is the
     Company or another company, for the requirement that a merger

                                       25

<PAGE>   26


   be approved by the holders of at least 50% of the outstanding shares of
   9%/7% Convertible Preferred Stock not to apply;


6.   Supplement and clarify the provisions of the Certificate of Designation
     regarding mandating conversion by adding provisions that address (i) the
     method of selecting the 50% of the shares to be converted, (ii) the manner
     in which notice of the conversion is to be provided, (iii) the content of
     such notice, and (iv) the manner in which certificates for 9%/7%
     Convertible Preferred Stock are to be exchanged for certificates of the
     underlying Common Stock;

7.   Clarify that the 50% mandatory conversion applies to all outstanding
     shares of 9%/7% Convertible Preferred Stock regardless of when they were
     issued;

8.   Provide that after the effective date of the conversion (i) the accrual of
     dividends upon the converted 9%/7% Convertible Preferred Stock will cease
     and (ii) all rights of holders of such stock will cease, except for the
     right to receive shares of the Common Stock and accrued, unpaid dividends;

9.   Clarify (i) the conversion rate for the 9%/7% Convertible Preferred Stock
     upon the final mandatory conversion on the seventh anniversary of the
     Effective Date and (ii) that the conversion rate for the final mandatory
     conversion and the trigger prices per share for the initial 50% mandatory
     conversion were subject to adjustment if and when the normal two-for-one
     conversion rate for the 9%/7% Convertible Preferred Stock was adjusted for
     extraordinary transactions, such as stock splits or combinations, as
     initially inferred from the existing provisions.

     The amendments also clarify that the Company will pay through the date of
conversion any accrued, unpaid dividends on any 9%/7% Convertible Preferred
Stock that is mandatorily converted.

     Several provisions in the initial Certificate of Designation were
dependent on the market price or average market price of the Common Stock, but
failed to contain adequate definitions of those terms.  The amendments provide
suitable and consistent definitions of these terms.  The amendments also add
provisions specifying how the Common tock is to be valued for purposes of any
dividend payable on the 9%/7% Convertible Preferred Stock in shares of Common
Stock.  The new provisions specified that the Common Stock dividend value will
be based on the average market price of the Common Stock for the 20 trading-day
period ending five days prior to the dividend payment date.

     The principal effects of the one-for-eight "reverse" split amendments are
as follows:

     1.    The one-for-eight "reverse" stock split decreased the number
           of outstanding shares of the Common Stock, 9%/7% Convertible
           Preferred Stock, Series B Preferred Stock, and 12% Preferred Stock
           by 87.5%.  The split did not affect the proportionate equity
           interest in the Company of any holder of Common Stock, 9%/7%
           Convertible

                                       26

<PAGE>   27

           Preferred Stock, 12% Senior convertible Preferred Stock or Series B
           Preferred Stock.  Certain terms of the 9%/7% Convertible Preferred
           Stock, 12% Preferred Stock, and Series B Preferred Stock were
           increased proportionately to retain the appropriate relationship
           between conversion rates, dividend rates, redemption prices,
           conversion trigger prices and liquidation prices.

     Upon effectiveness of the clarifying amendments to the Certificate of
Designation for the 9%/7% Convertible Preferred Stock, each issued and
outstanding share of Series B 9%/7% Convertible Preferred Stock was
automatically converted into one share of 9%/7% Convertible Preferred Stock.
On January 10, 1997, Search filed a Certificate of Elimination of Series B
9%/7% Convertible Preferred Stock with the Delaware Secretary of State
canceling and eliminating the Series B 9%/7% Convertible Preferred Stock.
Shares of that series have reverted to the status of authorized but unissued
shares of preferred stock undesignated as to series.

     On November 19, 1996, the Company issued warrants to purchase 11,250
shares of the Common Stock to one of its directors for services to be rendered
as a director.  These warrants were exempt from registration pursuant to
Section 4, (2) of Securities Act of 1933, as amended.  The warrants expire on
November 19, 2006 and are exercisable at $9.00 per share of Common Stock.

     On November 25, 1996, the Company issued 231,066 shares of its Common
Stock, 271,867 shares of its 9%/7% Convertible Preferred Stock and warrants to
purchase 194,960 shares of Common Stock in exchange for approximately
$5,500,000 in assets from USLC.  These securities are exempt from registration
pursuant to Section 1145 of the Federal Bankruptcy Code.  The warrants expire
on March 14, 2001 and are exercisable at $16.00 to $24.00 per share.


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

     On November 15, 1996, the Company held a special meeting of its
stockholders to vote on the following items:


Item 1  Approval of an increase in the number of shares of the Company's Common
        Stock for which options may be granted pursuant to the Company's 1994
        Employee Stock Option Plan from 1,750,000 shares to 5,000,000 shares;

Item 2  Approval of certain clarifying amendments to the terms of the Company's
        9%/7% Convertible Preferred Stock; and

Item 3  Approval of amendments to the Company's Restated Certificate of
        Incorporation to effect a one-for-eight "reverse" stock split of the
        Company's Common Stock, 9%/7% Convertible Preferred Stock, 12% Senior
        Preferred Stock and Series B Preferred Stock.


                                       27

<PAGE>   28


     The following table shows the voting with respect to these items.


<TABLE>
<CAPTION>
           For       Against    Abstentions  Broker Non-Votes
        ----------  ----------  -----------  ----------------
<S>     <C>         <C>         <C>          <C>
Item 1  22,859,382  14,744,565    990,828         2,280
Item 2  43,474,924   9,861,576    758,283         1,550
Item 3  43,630,265  11,634,673    466,716  
</TABLE>


                                       28

<PAGE>   29


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits:

           The following exhibits are filed in response to Item 601 of
           Regulation S-K.


<TABLE>
<S>      <C>
Exhibit
Number                                 Description
-------  -----------------------------------------------------------------------
    3.1  Restated Certificate of Incorporation of Search Capital Group, Inc.
         (incorporated by reference to Exhibit 3.1 to the Company's Transition
         Report on Form 10-K for the transition period ended March 31, 1996
    3.2  Certificate of Amendment of Certificate of Designation of 9%/7%
         Convertible Preferred Stock (incorporated by reference to Exhibit 3.1
         to the Company's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1996 (the "9/30/96 Form 10-Q"))
    3.3  Certificate of Designation Series B 9%/7% Convertible Preferred Stock
         (incorporated by reference to Exhibit 3.2 to the 9/30/96 Form 10-Q
    3.4  Certificate of Correction to the Restated Certificate of Incorporation
         (incorporated by reference to Exhibit 3.3 to the 9/30/96 Form 10-Q)
    3.5  Certificate of Amendment of Certificate of Designation of 9%/7%
         Convertible Preferred Stock (incorporated by reference to Exhibit 3.4
         to the 9/30/96 Form 10-Q)
    3.6  Certificate of Amendment to Certificate of Designation of Series B
         9%/7% Convertible Preferred Stock (incorporated by reference to
         Exhibit 3.5 to the 9/30/96 Form 10-Q)
    3.7  Certificate of Amendment of Restated Certificate of Incorporation
         (incorporated by reference to Exhibit 4.7 to the Company's
         Registration Statement on Form S-3, Registration No. 333-20551)
    3.8  Certificate of Elimination of Series B 9%/7% Convertible Preferred
         Stock (incorporated by reference to Exhibit 4.8 to the Company's
         Registration Statement on Form S-3, Registration No. 333-20551)
     27  Financial Data Schedule
</TABLE>

      (b)  Reports on Form 8-K:

           The Company filed a Current Report on Form 8-K, dated November 21,
      1996, reporting the events described in Part I, Item 1.

           The Company filed a Current Report on Form 8-K, dated November 25,
      1996 reporting the acquisition of substantially all of the assets of U.S.
      Lending Corp.


                                       29

<PAGE>   30


                           SEARCH CAPITAL GROUP, INC.



<TABLE>
<CAPTION>
SIGNATURE          TITLE                                            DATE
---------          -----                                            ----
<S>                <C>                                              <C>
                                                                    June 6, 1997
-----------------                                                   ------------
Robert D. Idzi     Senior Executive Vice President, Chief
                   Financial Officer and Treasurer
                                                                    June 6, 1997
-----------------                                                   ------------
Andrew D. Plagens  Senior Vice President, Controller and Chief
                   Accounting Officer
</TABLE>


                                       30

<PAGE>   31
                               INDEX TO EXHIBITS


Exhibit No.                        Description
-----------  -------------------------------------------------------------------

    27       Financial Data Schedule