<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-Q

                  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

                           SEARCH CAPITAL GROUP, INC.
                 ---------------------------------------------
                 (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:

                                                 Number of Shares Outstanding
         Class                                       at January 31, 1997
------------------------------                 -------------------------------
Common Stock, $.01 par value                             3,293,124


<PAGE>   2



                           SEARCH CAPITAL GROUP, INC.
                                FORM 10-Q 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..............................................13
             
PART II      OTHER INFORMATION................................................................21
             
Item 1.      Legal Proceedings................................................................21
             
Item 2.      Changes in Securities............................................................20
             
Item 4.      Submission of Matters to a Vote of Security Holders..............................23
             
Item 6.      Exhibits and Reports on Form 8-K.................................................24
             
SIGNATURES   .................................................................................26
</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-Q 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.






                                       2
<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)              $     74,766,000    $     37,086,000
Unearned interest                                     (14,045,000)         (6,435,000)
                                                 ----------------    ----------------
Net contracts receivable                               60,721,000          30,651,000
Allowance for credit losses                           (10,445,000)        (13,353,000)
Net loan origination costs                                451,000             406,000
                                                 ----------------    ----------------
    Net contracts receivable - after allowance
      for credit losses & other costs                  50,727,000          17,704,000
                                                 ----------------    ----------------

Cash and cash equivalents                              15,697,000          17,817,000
Vehicles held for resale                                  592,000             566,000
Property and equipment, net                             1,509,000           1,062,000
Goodwill, net (Note 4)                                 10,705,000                --
Notes receivable and other assets, net                    478,000             197,000
                                                 ----------------    ----------------

    Total assets                                 $     79,708,000    $     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              1,976,000           7,088,000
    Accrued interest                                      298,000              15,000
    Notes payable                                       5,014,000           2,283,000
                                                 ----------------    ----------------
    Total liabilities                                  46,016,000          10,342,000
                                                 ----------------    ----------------
  Stockholders' Equity
  Preferred stock                                         201,000             154,000
  Common stock                                            263,000             259,000
  Additional paid-in capital                           86,081,000          81,784,000
  Accumulated deficit                                 (52,853,000)        (54,043,000)
  Treasury stock                                             --            (1,150,000)
                                                 ----------------    ----------------
    Total stockholders' equity                         33,692,000          27,004,000
                                                 ----------------    ----------------
    Total liabilities and stockholders' equity   $     79,708,000    $     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                                                         $    7,036,000    $    7,367,000
Interest expense                                                              1,163,000         5,542,000
                                                                         --------------    --------------
Net interest income                                                           5,873,000         1,825,000

Recovery of (provision for)  credit losses                                    4,611,000        (3,172,000)
                                                                         --------------    --------------
Net interest income (loss) after recoveries of
  (provisions for) credit losses                                             10,484,000        (1,347,000)
                                                                         --------------    --------------

General and administrative expense                                            9,294,000        13,178,000
Settlement                                                                         --           2,931,000
Reorganization                                                                     --             565,000
                                                                         --------------    --------------
Operating and other expense                                                   9,294,000        16,674,000
                                                                         --------------    --------------

Net income (loss) before dividends                                            1,190,000       (18,021,000)
Preferred stock dividends                                                     4,458,000           180,000
                                                                         --------------    --------------

 Net loss to common stockholders                                         $   (3,268,000)   $  (18,201,000)
                                                                         --------------    --------------

 Primary net loss per share attributable to common stockholders          $         (.96)   $       (16.67)
                                                                         ==============    ==============

Weighted average number of common shares outstanding (Note 6)                 3,419,000         1,092,000
                                                                         ==============    ==============

<CAPTION>
                                                                        Three Months End  Three Months Ended
                                                                        December 31, 1996  December 31, 1995
                                                                        ----------------- ------------------
<S>                                                                      <C>               <C>           
Interest revenue                                                         $    3,138,000    $    2,589,000
Interest expense                                                                873,000           774,000
                                                                         --------------    --------------
Net interest income                                                           2,265,000         1,815,000
Recovery of (provision for) credit losses                                     1,173,000        (5,381,000)
                                                                         --------------    --------------
Net interest income (loss) after recoveries of
  (provisions for) credit losses                                              3,438,000        (3,566,000)
                                                                         --------------    --------------

General and administrative expense                                            3,372,000         4,518,000
Settlement                                                                         --              94,000
Reorganization                                                                     --             250,000
                                                                         --------------    --------------
Operating and other expense                                                   3,372,000         4,862,000
                                                                         --------------    --------------

Net income (loss) before dividends                                               66,000        (8,428,000)
Preferred stock dividends                                                     1,512,000            60,000
                                                                         --------------    --------------

Net loss to common stockholders                                          $   (1,446,000)   $   (8,488,000)
                                                                         --------------    --------------

Primary  net loss per share attributable to common stockholders          $         (.42)   $        (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
                                                            -----------------  -----------------
OPERATING ACTIVITIES:
<S>                                                          <C>               <C>            
Net income (loss)                                            $    1,190,000    $  (18,021,000)
   Adjustments to reconcile net income (loss) to cash used
     in operations:
     Provision for (recovery of) credit losses                   (2,562,000)        3,172,000
     Amortization of deferred offering costs                         24,000         2,129,000
     Amortization of loan origination costs                         357,000           884,000
     Amortization of Goodwill                                       306,000              --
     Depreciation                                                   325,000           375,000
   Changes in assets and liabilities:
     Decreases (increases) in other assets                          962,000           466,000
     Increases (decreases) in accounts payable                   (4,552,000)        5,043,000
                                                             --------------    --------------
Cash used in operations                                          (3,950,000)       (5,952,000)
                                                             --------------    --------------

INVESTING ACTIVITIES:
     Purchase of contracts receivable                           (32,856,000)      (16,921,000)
     (Increase) in loan origination fee                            (403,000)         (174,000
     Principal payments on contracts receivables
          including proceeds from sales of vehicles              15,190,000        30,706,000
     Proceeds from sales of vehicles                              2,704,000         1,233,000
     Purchase of property and equipment                            (772,000)         (464,000)
     Decrease in restricted cash                                       --           6,413,000
                                                             --------------    --------------
Cash provided by investing activities                           (16,137,000)       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                                        (90,000)             --
     Capital lease principal payments                               (46,000)          (68,000)
     Net proceeds from sale of stock                              4,346,000            12,000
     Loans for stock purchases                                   (1,099,000)             --
     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                  14,613,000        (3,046,000)
                                                             --------------    --------------


     CHANGE IN CASH AND CASH
     EQUIVALENTS:

     Change in cash and cash equivalents                         (5,474,000)       11,795,000
     Cash and cash equivalents - beginning                       17,817,000         1,633,000
     Net cash acquired                                            3,354,000              --
                                                             --------------    --------------
     Cash and cash equivalents - ending                      $   15,697,000    $   13,428,000
                                                             ==============    ==============
---------------------------------------------------------------------------------------------

     SUPPLEMENTAL INFORMATION:
           Cash Paid for Interest                            $      881,000    $    3,725,000
                                                             ==============    ==============
</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                     400,000         4,000      15,031,648        150,000      25,875,219       259,000
                                          =========================================================================================

Debt Conversion - Hall Financial Group                                                                   2,500,000        25,000

Additional Investment - Hall Financial Group                              2,032,800         20,000       1,638,400        16,000

Stock Investment - Alex. Brown & Sons, Inc.                                                                211,702         2,000

Acquisition - DACC                                                        2,554,060         26,000       1,277,030        13,000

Conversion of 9%/7% Preferred to Common                                     (79,454)        (1,000)        158,908         2,000

Treasury Stock Purchase - Hall Financial
  Group

One-for-Eight "Reverse" Split                (350,000)                  (17,096,672)                   (27,703,602)

Acquisition - U.S. Lending                                                  271,867         22,000         231,066        18,000

Retirement of Treasury Stock                                               (254,100)       (20,000)       (895,599)      (72,000)

Preferred Dividends

Year-to-Date Income
                                          -----------------------------------------------------------------------------------------

Balance at December 31, 1996                   50,000         4,000       2,460,149        197,000       3,293,124       263,000
                                          =========================================================================================
</TABLE>


         See accompanying notes to consolidated financial statements.



                                       6
<PAGE>   7

<TABLE>
<CAPTION>
            Preferred 9%                            Common
           Treasury Stock                       Treasury Stock                Paid In          Accumulated          Grand
     Shares             Amount            Shares             Amount           Capital            Deficit            Total
---------------------------------------------------------------------------------------------------------------------------------

-                   -                  3,026,389         (1,150,000)        81,784,000       (54,043,000)        27,004,000
=================================================================================================================================
<S>                     <C>             <C>              <C>               <C>                                    
                                                                             1,692,000                            1,717,000

                                                                             4,310,000                            4,346,000

                                                                               150,000                              152,000

                                                                             8,065,000                            8,104,000

                                                                                (1,000)                          -

 2,032,800             (20,000)        4,138,400         (8,980,000)                                             (9,000,000)

(1,778,700)                           (6,269,190)                                                                -
                                                                             4,597,000                            4,637,000

  (254,000)             20,000          (895,599)        10,130,000        (10,058,000)                          -

                                                                            (4,458,000)                          (4,458,000)

                                                                                               1,190,000          1,190,000
---------------------------------------------------------------------------------------------------------------------------------
        -                   -                 -                  -          86,081,000       (52,853,000)        33,692,000
=================================================================================================================================
</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.

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

         The Company records contract purchases at cost with any premium paid
recorded as an acquisition cost and amortized over the remaining life of the
related loans. Generally, an initial reserve is recorded for any acquisition
discount, which is the difference between the amount financed at the time of
acquisition and the acquisition cost. Contractual finance charges are initially
recorded to unearned interest and recorded to interest income using the
interest method. The Company evaluates the impairment of loans based on
contractual delinquency and other factors. Reserves are established for
impaired loans to reduce the net receivable to the lower of cost or estimated
net realizable value. Interest income is not recognized on loans where the
contractual delinquency exceeds sixty days or concerns otherwise exist
regarding the collectibility of the account. Reserve requirements in excess of
the initial reserve are provided, as needed, through a charge to the provision
for credit losses. Recorded reserves in excess of anticipated losses are
recorded as reductions in the allowance for loan losses.



                                       8
<PAGE>   9


         Most of the Company's contracts receivable are due from individuals in
metropolitan areas of southern and western states. To some extent, collection
of the receivables will be dependent on local economic conditions. In the
opinion of management, a portion of the receivables will be repaid or extended
either before or past the contractual maturity date. Therefore, the tabulations
below should not be regarded as a forecast of future cash collections nor
indicators of future performance.

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 _       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%      6,226,000      1,116,000      5,110,000
                                                  ------------    ------------    ------------   ------------   ------------
                         Total                          11,595             100%   $ 74,766,000   $ 14,045,000     60,721,000
                                                                  ============    ============   ============   
Allowance for credit losses                                                                                      (10,445,000)
                                                                                                                ------------
Receivables, net of allowance for credit losses                                                                 $ 50,276,000
                                                                                                                ============
</TABLE>


<TABLE>
<CAPTION>
                                                                              As of December 31, 1996
                                                  --------------------------------------------------------------------------
                                                    Number of                       Total
         Contractual                                 Active        % of Total       Unpaid         Unearned        Net
         Delinquency                               Contracts _       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 LOAN 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              7,560,000
Provision for loan losses                                 333,000
Recovery of prior credit losses                         2,308,000
Reduction in allowance for credit losses               (6,097,000)
Loans charged off against allowance                    (7,012,000)
                                                     ------------
Balance at end of period                             $ 10,445,000
                                                     ============
</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 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




                                      10
<PAGE>   11
(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 $78,000, and an undetermined amount
of delinquent accounts and foreclosure deficiency balance.

         Effective 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 Corporation ("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 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 which Search delivered 159,629 (1,277,030 shares on a pre-split
basis)



                                      11
<PAGE>   12


shares of Common Stock, 319,258 (2,554,060 shares on a pre-split basis) shares
of 9%/7% Convertible Preferred Stock, and warrants to purchase 159,629
(1,277,030 shares on a pre-split basis) shares of Common Stock preliminarily
valued at $8,357,000, in addition to assuming certain indebtedness. The
estimated value of the consideration delivered will be finalized by the end of
the Company's fiscal year. Since it is not unusual for large equity
transactions to have liquidity adjustments, a discount on the purchase of up to
35% of the preliminary estimate of fair value may be required. Such a reduction
would also result in a reduction in the amount recorded as excess value. The
excess of preliminary gross value given over fair value of the net assets
acquired of approximately $11,300,000 is being amortized over fifteen years on
the straight line method. Under the terms of the transaction, SFIV assumed
approximately $17,500,000 in bank debt under a restructured line of credit and
acquired net assets of approximately $21,000,000. The Company plans to use the
DACC facilities as a regional marketing branch for southeastern states, a
collection center, and as a full service consumer loan facility.

         The Company evaluates the recoverability and remaining life of its
excess value and determines whether the excess value should be completely or
partially written-off or the amortization period accelerated. The Company will
recognize an impairment of excess value if undiscounted estimated future
operating cash flows of the acquired business are determined to be less than
the carrying amount of the excess value. If the Company determines that the
excess value has been impaired, the measurement of the impairment will be equal
to the excess of the carrying amount of the excess value over the amount of the
undiscounted estimated future operating cash flows. If an impairment of excess
value were to occur, the Company would reflect the impairment through a
reduction in the carrying value of excess value.

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.



                                      12
<PAGE>   13



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.       OTHER

         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.


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 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 from time to
time makes bulk acquisitions of these receivables. 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




                                      13
<PAGE>   14



make and collect retail sales finance loans, second mortgage real estate loans,
and other consumer loans.

         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.

         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.



                                      14
<PAGE>   15



         Interest revenue decreased from $7,367,000 for the nine months ended
December 31, 1995 to $7,036,000 for the nine months ended December 31, 1996.
The decrease of $331,000, or 4%, 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.

         Interest expense decreased from $5,542,000 for the nine months ended
December 31, 1995 to $1,163,000 for the nine months ended December 31, 1996.
The decrease of $4,379,000, or 79%, is primarily a result of lower debt levels
after confirmation of the Fund Subsidiaries' plan of reorganization during the
first calendar quarter of 1996.

         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 provided the Company with a new pool of deficiency balances
to collect, of which the Company collected approximately $688,000 since the
acquisition of DACC's assets effective August 2, 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 $2,895,000 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 $9,294,000 for the nine months ended
December 31, 1996. The decrease of $3,884,000, 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. 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.

         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





                                      15
<PAGE>   16



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.

         Interest revenue increased from $2,589,000 for the three months ended
December 31, 1995, to $3,138,000 for the three months ended December 31, 1996.
The increase of $549,000, or 21%, 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.

         Interest expense increased from $774,000 for the three months ended
December 31, 1995 to $873,000 for the three-month period ended December 31,
1996. The increase in interest 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.

         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





                                      16
<PAGE>   17



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 $3,372,000 for the three months ended
December 31, 1996. The decrease of $1,146,000, or 25%, 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. 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.

         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% 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.




                                      17
<PAGE>   18



         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 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
$3,950,000 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 $2,002,000 is primarily a result of reduction in expense accruals of 
$4,552,000 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




                                      18
<PAGE>   19



$2,105,000 was due primarily to the confirmation of the Fund Subsidiaries' plan
of reorganization. Additionally, the provision for credit losses was $3,172,000
in the nine months in 1995 compared to a recovery of $2,562,000 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.

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 $34,881,000 from
$20,793,000 for the nine months ended December 31, 1995 to a use of $16,137,000
for the nine months ended December 31, 1996. The increase is primarily due to a
increase of $15,935,000 in contract purchases, and a decrease of $13,467,000 in
principal payments on contracts receivable.

         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.

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 $14,613,000 of cash compared to utilizing cash of
$3,046,000 during the same nine-month period ended December 31, 1995. The
change of $17,659,000 was caused primarily by




                                      19
<PAGE>   20
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%.

         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 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 $1,099,000 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.



                                      20
<PAGE>   21



         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 cash on 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.


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.

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;





                                      21
<PAGE>   22



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 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.




                                      22
<PAGE>   23



         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 Stock 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 Preferred Stock, 12% Senior Convertible
               Preferred Stock or and 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,
               dividends rates, redemptions 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 11/19/06
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:




                                      23
<PAGE>   24



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 an 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.

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        42,474,924            9,861,576        758,283          1,550
             
Item 3        43,630,265           11,634,673        466,716
</TABLE>


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.

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.
          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)



                                      24
<PAGE>   25
Exhibit
Number                           Description
--------  --------------------------------------------------------------------

     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


         (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.



                                      25
<PAGE>   26

SIGNATURES


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

                           SEARCH CAPITAL GROUP, INC.

<TABLE>
<CAPTION>
SIGNATURE                       TITLE                                             DATE
---------                       -----                                             ----
<S>                                                                                   <C>    
/s/ George C. Evans                                                          February 7, 1997
---------------------------                                                 --------------------
George C. Evans                 Chairman of the Board, President, Chief
                                Executive Officer, Chief Operating
                                Officer and Director


/s/ Robert D. Idzi                                                            February 7, 1997
---------------------------                                                 ---------------------
Robert D. Idzi                  Senior Executive Vice President, Chief
                                Financial Officer and Treasurer


/s/ Andrew D. Plagens                                                         February 7, 1997
---------------------------                                                 ---------------------
Andrew D. Plagens               Vice President, Controller and Chief
                                Accounting Officer
</TABLE>





                                      26


<PAGE>   27
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.
          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