<PAGE>
<PAGE>




                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 1997

                                       OR

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

For the transition period------

                        COMMISSION FILE NUMBER 000-21673

                         AUTOBOND ACCEPTANCE CORPORATION
             (Exact name of registrant as specified in its charter)

           TEXAS                                              75-2487218
(State or other jurisdiction                              (I.R.S. Employer
 of incorporation or organization)                       Identification No.)

  301 CONGRESS AVENUE, AUSTIN, TEXAS                             78701
(Address of principal executive offices)                      (Zip Code)

                                 (512) 435-7000
               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 [ ]

AS OF MAY 1, 1997, THERE WERE 6,512,500 SHARES OF THE REGISTRANT'S COMMON
STOCK, NO PAR VALUE, OUTSTANDING.



<PAGE>
<PAGE>




TABLE OF CONTENTS
<TABLE>

<S>                                                                                                     <C>
PART I - FINANCIAL INFORMATION...........................................................................3

   ITEM 1.  FINANCIAL STATEMENTS.........................................................................3
   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
   RESULTS OF OPERATIONS................................................................................10

PART II.  OTHER INFORMATION.............................................................................22

   ITEM 1. LEGAL PROCEEDINGS............................................................................22
   ITEM 2. CHANGES IN SECURITIES........................................................................22
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................22
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................22
   ITEM 5. OTHER INFORMATION............................................................................22
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................22

SIGNATURES..............................................................................................25

EXHIBIT 27.1............................................................................................26

</TABLE>



                                     Page 2



<PAGE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                           AUTOBOND ACCEPTANCE CORPORATION
                             CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 December 31,     March 31,
                                                                    1996           1997
                                                                 ---------------------------
                                                                                (UNAUDITED)
<S>                                                             <C>             <C>         
                       ASSETS
        Cash and cash equivalents                               $  4,121,342    $    606,056
        Restricted cash                                              318,515         694,281
        Cash held in escrow                                        2,662,934       5,000,000
        Finance contracts held for sale, net                         228,429       5,911,360
        Repossessed assets held for sale, net                        152,580          85,560
        Class B Certificates                                      10,465.294       9,686,073
        Interest-only strip receivable                             4,247,274       6,520,234
        Debt issuance cost                                           997,338       1,149,192
        Trust receivable                                           2,230,003       2,889,341
        Due from affiliate                                           168,847         143,547
        Class C Notes sold pending settlement                           --         1,476,258
        Prepaid expenses and other assets                            683,955       2,061,934
                                                                ----------------------------
            Total assets                                        $ 26,276,511    $ 36,223,836
                                                                ============================

          LIABILITIES AND SHAREHOLDERS' EQUITY

        Liabilities:
          Revolving credit facilities                           $       --      $  9,530,904
          Notes payable                                           10,174,633       9,424,623
          Accounts payable and accrued liabilities                 1,474,586       1,049,403
          Bank overdraft                                                --           830,998
          Payable to affiliate                                       265,998         211,000
          Deferred income taxes                                    2,075,553       2,272,565
                                                                ----------------------------
            Total liabilities                                     13,990,770      23,319,493
                                                                ============================
        Commitments and contingencies

        Shareholders' equity:

          Preferred stock, no PAR value; 5,000,000 shares
           authorized; no shares issued
          Common stock, no par value; 25,000,000 shares                1,000           1,000
           authorized; 6,512,500 shares
           issued and outstanding
          Additional paid-in capital                               8,617,466       8,617,466
          Deferred compensation                                      (11,422)         (7,995)
          Loans to shareholders                                     (235,071)         (2,333)
          Unrealized appreciation on interest-only
           strip receivable                                             --           203,409
          Retained earnings                                        3,913,768       4,092,796
                                                                ----------------------------
            Total shareholders' equity                            12,285,741      12,904,343
                                                                ----------------------------
            Total liabilities and shareholders' equity          $ 26,276,511    $ 36,223,836
                                                                ============================
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                     Page 3


<PAGE>

<PAGE>


                         AUTOBOND ACCEPTANCE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED
                                                      MARCH 31,
                                                ----------------------
                                                 1996            1997
                                                ----------------------
<S>                                           <C>            <C>        
  Revenues:
    Interest income                           $   804,632    $   514,092
    Interest expense                             (593,023)      (872,625)
                                              ---------------------------
        Net interest income (expense)             211,609       (358,533)
    Gain on sale of finance contracts           3,142,859      3,575,747
    Servicing fee income                          170,924        191,819
    Unrealized gain on Class B Certificates          --            6,913
                                              ---------------------------
        Total revenues                          3,525,392      3,415,946
                                              ---------------------------

  Expenses:
    Provision for credit losses                   456,498          --
    Salaries and benefits                         789,219      1,758,176
    General and administrative                    286,848        997,502
    Other operating expenses                      362,170        389,014
                                              ---------------------------
        Total expenses                          1,894,735      3,144,692
                                              ---------------------------

  Income before income taxes                    1,630,657        271,254
  Provision for income taxes                      560,000         92,226
                                              ---------------------------
        Net income                            $ 1,070,657      $ 179,028
                                              ===========================

  Income per common share                     $      0.19    $      0.03
                                              ===========================

  Weighted average shares outstanding           5,691,495      6,529,887
                                              ===========================
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                     Page 4


<PAGE>


<PAGE>
                        AUTOBOND ACCEPTANCE CORPORATION
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                COMMON STOCK        ADDITIONAL
                                             -------------------     PAID-IN        DEFERRED        LOANS TO
                                              SHARES      AMOUNT     CAPITAL      COMPENSATION    SHAREHOLDERS
                                             ---------    ------    ----------    ------------    ------------
<S>                                          <C>          <C>       <C>           <C>             <C>
Balance, December 31, 1996                   6,512,500    $1,000    $8,617,466      $ (11,422)       $(235,071)
Unrealized appreciation on interest-only
  strips receivable
Amortization of deferred compensation                                                   3,427
Net payments received                                                                                  232,738
Net income
                                             ---------    ------    ----------    ------------    ------------
Balance, March 31, 1997                      6,512,500    $1,000    $8,617,466      $  (7,995)       $  (2,333) 
                                             ---------    ------    ----------    ------------    ------------
                                             ---------    ------    ----------    ------------    ------------
 
<CAPTION>
                                                 UNREALIZED
                                                APPRECIATION         RETAINED
                                            INTEREST-ONLY STRIPS     EARNINGS        TOTAL
                                            --------------------    ----------    -----------
<S>                                          <C>                    <C>           <C>
Balance, December 31, 1996                        $  --             $3,913,768    $12,285,741
Unrealized appreciation on interest-only
  strips receivable                                203,409                            203,409
Amortization of deferred compensation                                                   3,427
Net payments received                                                                 232,738
Net income                                                             179,028        179,028
                                                ----------          ----------    -----------
Balance, March 31, 1997                           $203,409          $4,092,796    $12,904,343
                                                ----------          ----------    -----------
                                                ----------          ----------    -----------
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                     Page 5


<PAGE>

<PAGE>



                         AUTOBOND ACCEPTANCE CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                                                    MARCH 31,
                                                                           -----------------------------
                                                                                1996             1997
                                                                           -----------------------------
<S>                                                                        <C>             <C>         
  Cash flows from operating activities:
   Net income                                                              $  1,070,657    $    179,028
   Adjustments to reconcile net income to net cash
   used in operating activities:
     Amortization of finance contract acquisition discount and insurance       (397,195)        (11,472)
     Amortization of deferred compensation                                       12,984           3,427
     Amortization of debt issuance costs                                         56,000         211,120
     Depreciation and amortization                                                  -            46,305
     Provision for credit losses                                                456,498             -
     Deferred income taxes                                                      560,000          92,225
     Accretion of interest-only strip receivable                                (38,507)            -
     Unrealized gain on Class B Certificates                                        -            (6,913)
     Changes in operating assets and liabilities:
       Restricted cash                                                           89,104        (375,766)
       Cash held in escrow                                                     (173,477)     (2,337,066)
       Prepaid expenses and other assets                                        (72,947)     (1,424,283)
       Class B Certificates                                                         -           786,134
       Interest-only strip receivable                                        (2,687,015)     (1.964,764
       Accounts payable and accrued liabilities                                  (3,072)       (425,183)
       Due to/due from affiliate                                               (114,507)        (29,698)
       Class C Notes sold pending settlement                                        -        (1,476,258)
     Purchases of finance contracts                                         (15,175,515)    (32,968,892)
     Sales of finance contracts                                              16,563,366      27,092,951
     Repayments of finance contracts                                            271,687         204,481
                                                                           ----------------------------
         Net cash provided by (used in) operating activities                    418,061     (12,404,624)
                                                                           ----------------------------
   Cash flows from investing activities:
     Advances to AutoBond Receivables Trusts                                   (331,000)       (659,338)
     Loan payments from (to) shareholders                                       (57,910)        232,738
     Disposal proceeds from repossessions                                           -            67,020
                                                                           ----------------------------
         Net cash used in investing activities                                 (388,910)       (359,580)
                                                                           ----------------------------
   Cash flows from financing activities:
     Net borrowings (repayments) under revolving credit facilities             (802,535)      9,530,904
     Debt issuance costs                                                            -          (362,974)
     Proceeds (repayments) from borrowings under repurchase agreement        (1,061,392)           -
     Proceeds from notes payable                                              2,059,214          15,150
     Payments on notes payable                                                 (204,301)       (765,160)
     Proceeds from subordinated debt borrowings                                 300,000            -
     Increase in bank overdraft                                                 257,206         830,998
                                                                           ----------------------------
         Net cash provided by financing activities                              548,192       9,248,918
                                                                           ----------------------------
   Net increase (decrease) in cash and cash equivalents                         577,343      (3,515,286)
   Cash and cash equivalents at beginning of period                              92,660       4,121,342
                                                                           ----------------------------
   Cash and cash equivalents at end of period                              $    670,003    $    606,056
                                                                           ============================
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                 Page 6

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<PAGE>






                AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

1. BASIS OF PRESENTATION

         The financial  statements  included  herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations.  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 regulations.  In the opinion of management, the
financial  statements reflect all adjustments (of a normal and recurring nature)
which are  necessary  to  present  fairly  the  financial  position,  results of
operations and cash flows for the interim  periods.  Results for interim periods
are not  necessarily  indicative  of the  results  for a full year.  For further
information,  refer to the audited  financial  statements and footnotes  thereto
included in the Company's Form 10-K for the year ended December 31, 1996 (Number
000-21673).

         Certain  data from the prior year has been  reclassified  to conform to
1997 presentation.

2. EARNINGS PER SHARE

         Earnings per share is calculated  using the weighted  average number of
common shares and common share equivalents  outstanding during the year. Primary
and fully  diluted  earnings  per share are the same for all periods  presented.
Effective May 30, 1996,  the Board of Directors of the Company voted to effect a
767.8125-for-1  stock  split.  All  share  information  and  earnings  per share
calculations for the periods presented in the financial  statements  herein, and
the notes hereto, have been retroactively restated for such stock split.

         The  weighted  average  number of common and common  equivalent  shares
outstanding  for the purposes of computing  net income per share were  5,691,495
and 6,529,887 for the three months ended March 31, 1996 and 1997, respectively.

3. FINANCE CONTRACTS HELD FOR SALE

         The following  amounts are included in finance  contracts held for sale
as of:

<TABLE>
<CAPTION>
                                    December 31,       March, 31,
                                       1996               1997
                                    ------------------------------
                                                      (Unaudited)
<S>                                  <C>               <C>
Unpaid principal balance             $266,450          $5,771,198
Prepaid insurance                      18,733             415,525
Contract acquisition discounts        (31,554)           (250,163)
Allowance for credit losses           (25,200)            (25,200)
                                     --------          ----------
                                     $228,429          $5,911,360
                                     ========          ========== 

</TABLE>

4. INTEREST-ONLY STRIP RECEIVABLE

         The Company adopted Statement of Financial Accounting Standards No. 125
"Transfer  and  Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) as of January 1, 1997.

                                     Page 7


<PAGE>
<PAGE>






         SFAS  No.  125  provides  new  accounting  and  reporting standards for
transfers and servicing of financial assets and  extinguishment  of liabilities.
This statement also provides  consistent  standards for distinguishing transfers
of financial assets that are sales from  transfers  that are secured  borrowings
and   requires  that  liabilities  and  derivatives  incurred  or  obtained   by
transferors  as  part of a transfer of financial assets be initially measured at
fair value.

         As a result of adopting the statement,  the excess servicing receivable
previously shown on the  Consolidated  Balance Sheet as of December 31, 1996 has
been reclassified as interest-only  strip receivable,  and accounted for like an
investment  security  classified  as  "available  for sale" under  Statement  of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). Accordingly,  any unrealized gain or
loss in the fair value is included as a component  of equity,  net of the income
tax  effect.

         The fair value of  interest-only  strip  receivable is calculated based
upon the present value of the estimated future interest income after considering
the effects or estimated prepayments,  defaults and delinquencies.  The discount
rate utilized is based upon assumptions that market  participant's would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.

         The Company  periodically  reviews the fair value of the  interest-only
strip receivable. Changes in the fair value of securities available for sale are
recognized as an adjustment to stockholders' equity. Such adjustment amounted to
a net unrealized  gain of $203,409, net of related  tax effect  of  $104,787, on
the valuation of the interest-only strip receivable for finance  contracts  held
for sale in the quarter ended March 31, 1997.

5. REVOLVING CREDIT FACILITIES

         At March 31, 1997, the Company had a $4.5 million  balance  outstanding
on a $10.0 million revolving credit facility (the "Sentry Facility") with Sentry
Financial  Corporation  ("Sentry"),  which  expires on December  31,  2000.  The
proceeds from  borrowings  under the Sentry Facility are used to acquire finance
contracts,  to pay  applicable  credit  default  insurance  premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per  month on the  average  outstanding  balance  under  the  Sentry
Facility.  The Sentry  Facility also requires the Company to pay up to 0.62% per
quarter on the average unused  balance.  Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (which was approximately 10.25% at March
31, 1997).

         The Sentry  Facility  contains  certain  conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent  balances in the reserve  accounts.  Under the Sentry  Facility,  the
Company paid interest of approximately $179,000 for the three months ended March
31, 1997. In April 1996, the Company paid a one-time  commitment fee of $700,000
to Sentry.

         The  Company  and  its  wholly  owned   subsidiary,   AutoBond  Funding
Corporation  II, entered into a $50 million  revolving  warehouse  facility (the
"Daiwa  Facility")  with Daiwa  Finance  Corporation  ("Daiwa")  effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days  following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance  contracts
and to make deposits to a reserve account.  The Daiwa Facility is collateralized
by the finance  contracts  acquired  with the  outstanding  advances.  The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance.  Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15%  (which was  approximately  6.83% at March
31, 1997) or (y) 11% per annum.  The Company also pays a non- utilization fee of
 .25% per annum on the unused amount of the line of credit. Pursuant to the Daiwa
Facility,  the Company paid a $243,750 commitment fee. The debt issuance cost is
being amortized as interest expense on a straight line basis through March 1998.
The Daiwa Facility contains certain covenants

                                     Page 8


<PAGE>
<PAGE>






and representations  similar to those in the agreements  governing the Company's
existing  securitizations   including,   among  other  things,  delinquency  and
repossession  triggers.  Advances under the Daiwa Facility totaled $5,000,000 at
March 31, 1997 and the Company paid interest of  approximately  $115,000  during
the three months ended March 31, 1997.

6. COMMITMENTS AND CONTINGENCIES

         The Company is required to represent and warrant  certain  matters with
respect to the finance contracts sold to the Trusts,  which generally  duplicate
the  substance  of the  representations  and  warranties  made by the dealers in
connection with the Company's purchase of the finance contracts. In the event of
a breach by the  Company  of any  representation  or  warranty,  the  Company is
obligated to repurchase the finance contracts from the Trust at a price equal to
the remaining principal plus accrued interest.  The Company has  generally   not
recorded any liability and has not been obligated to purchase finance  contracts
under the recourse provisions during any of the reporting periods. However,  the
Company repurchased  loans with  principal  balances  of  $620,000 in total from
a Trust during the three months ended March 31, 1997.  The Company  expects that
it  will  recover,  under  dealer  representations and warranty provisions,  the
amounts  due  on  the repurchased loans from the dealership who sold the Company
the loans.

                                     Page 9


<PAGE>
<PAGE>



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

        The  following  analysis  of the  financial  condition  and  results  of
operations  of the  Company  should be read in  conjunction  with the  Company's
Consolidated Financial Statements and Notes thereto and the other financial data
included herein.  The financial  information set forth below has been rounded in
order to simplify its  presentation.  However,  the ratios and  percentages  set
forth below are calculated using the detailed financial information contained in
the Financial  Statements and the Notes thereto, and the financial data included
elsewhere  in this Form 10-Q.  Results for interim  periods are not  necessarily
indicative of the results for a full year. For further information, refer to the
audited  financial  statements and footnotes  thereto  included in the Company's
Form 10-K for the year ended December 31, 1996 (Number 000-21673).

        AutoBond Acceptance  Corporation (the "Company") is a specialty consumer
finance company engaged in underwriting,  acquiring,  servicing and securitizing
retail  installment  contracts  ("finance  contracts")  originated by franchised
automobile  dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit  ("sub-prime  consumers").  Sub-prime  consumers  generally are borrowers
unable to qualify for traditional financing due to one or more of the  following
reasons: negative credit history (which may include late  payments, charge-offs,
bankruptcies,   repossessions   or   unpaid   judgments);  insufficient  credit;
employment or residence histories; or high debt-to-income  or  payment-to-income
ratios (which may indicate payment or economic risk).

        The  Company  acquires  finance  contracts   generally  from  franchised
automobile dealers, makes credit decisions using its own underwriting guidelines
and credit personnel and performs the collection  function for finance contracts
using  its  own  collections  department.  The  Company  also  acquires  finance
contracts  from  third  parties  other  than  dealers,  for  which  the  Company
reunderwrites  and  collects  such  finance  contracts  in  accordance  with the
Company's  standard  guidelines.  The Company  securitizes  portfolios  of these
retail automobile  installment  contracts to efficiently utilize limited capital
to allow continued growth and to achieve  sufficient  finance contract volume to
allow  profitability.  The Company markets a single finance contract acquisition
program  to  automobile   dealers  which  adheres  to  consistent   underwriting
guidelines  involving the purchase of primarily  late-model  used vehicles.  The
Company has experienced  significant  growth in its finance  contract  portfolio
since it commenced operations in August 1994.

REVENUES

        The Company's  primary sources of revenues consist of three  components:
net  interest  income,  gain on sale of  finance  contracts  and  servicing  and
collection fees.

        Net  Interest  Income.  Net interest  income  consists of the sum of two
components:  (i) the  difference  between  interest  income  earned  on  finance
contracts held for sale and interest expense incurred by the Company pursuant to
borrowings  under  its  warehouse  and  other  credit  facilities;  and (ii) the
accretion of finance contract acquisition  discounts.  Other factors influencing
net  interest  income  during  a given  fiscal  period  include  (a) the  annual
percentage rate of the finance contracts  acquired,  (b) the aggregate principal
balance of finance contracts acquired and funded through the Company's warehouse
and other credit facilities prior to securitization, (c) the length of time such
contracts  are funded by the  warehouse  and other  credit  facilities.  Finance
contract  acquisition  growth has had a significant  impact on the amount of net
interest income earned by the Company.

        Gain on Sale of Finance  Contracts.  Upon completion of a securitization
prior to 1997, the Company  recognized a gain on sale of finance contracts equal
to the present value of future excess spread cash flows from the  securitization
trust, and the difference between the net proceeds from the securitization

                                     Page 10


<PAGE>
<PAGE>






and the net carrying cost (including the cost of insurance premiums,  if any) to
the  Company  of the  finance  contracts  sold.  Excess  spread  cash flows were
comprised of Class B Certificates and an interest-only strip receivable.  Due to
the Company's utilization of a trust indenture structure for its securitizations
starting in 1997, excess spread cash flows are comprised of Class C Notes (until
sold to investors) and interest-only strip receivables. Excess spread cash flows
represent the difference  between the weighted  average contract rate earned and
the rate paid on multiple class Certificates or Notes issued to investors in the
securitization,  less  servicing  fees  and  other  costs,  over the life of the
securitization.  Excess  spread cash flows are  computed by taking into  account
certain assumptions regarding prepayments,  defaults,  proceeds from disposal of
repossessed  assets,  and  servicing  and  other  costs.  The fair  value of the
interest-only  strip  receivable is determined by discounting  the excess spread
cash flows at a rate based on assumptions that market participants would use for
similar financial instruments subject to prepayment,  default,  collateral value
and  interest  rate  risks.  The  subordinated  certificates  are then formed by
carving out 65% to 80% of the discounted excess spread cash flows. The remaining
20% to 35% of the discounted  excess spread cash flows  represent  interest-only
strip  receivable.  All  of  the  excess  spread  cash  flows  are  paid  by the
securitization  Trustee to the investor  security holders until such time as all
accrued interest  together with principal have been paid in full.  Subsequently,
all remaining excess spread cash flows are paid to the Company.

        The Company adopted Statement of Financial  Accounting Standards No. 125
"Transfer and Servicing of Financial Assets and  Extinguishment  of Liabilities"
(SFAS No. 125) as of January 1, 1997.  SFAS No. 125 provides new  accounting and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishment of liabilities. This statement also provides consistent standards
for  distinguishing  transfers of financial assets that are sales from transfers
that are secured  borrowings  and  requires  that  liabilities  and  derivatives
incurred or obtained by transferors as part of a transfer of financial assets be
initially  measured at fair value.  For transfers that result in the recognition
of a sale,  SFAS No. 125 requires  that the newly  created  assets  obtained and
liabilities  incurred by the  transferors  as a part of a transfer of  financial
assets be  initially  measured at fair value.  Interests  in the assets that are
retained are measured by allocating the previous  carrying  amount of the assets
(e.g. finance contracts) between the interests sold (e.g. investor certificates)
and interests  retained (e.g.  interest-only  strip  receivable)  based on their
relative fair values at the date of the transfer. The amounts initially assigned
to these  financial  components will be a determinant of the gain or loss from a
securitization transaction under SFAS No. 125.

        The discounted excess spread cashflows is reported on the balance sheets
as "Interest-Only  Strip Receivable".  An impairment review of the interest-only
strip  receivable  is  performed  by  calculating  the net present  value of the
expected future excess spread cash flows to the Company from the  securitization
trust utilizing the same discount rate used to record the initial  interest-only
strip  receivable.  To the extent that market and economic  changes  occur which
adversely impact the assumptions utilized in determining the interest-only strip
receivable,  the Company would record a charge against  servicing fee income and
write down the asset  accordingly.  Impairment is determined on a  disaggregated
basis  consistent  with  the  risk  characteristics  of the  underlying  finance
contracts,   consisting   principally  of  origination   date  and   originating
dealership,  as well as the  performance  of the  pool to  date.  There  were no
adjustments required as a result of impairment reviews during any of the periods
presented  in  the  financial  statements.  Should  the  Company  be  unable  to
securitize  finance  contracts  in the form of a sale in a  financial  reporting
period,  the Company would likely incur a significant  decline in total revenues
and net income or report a loss for such period.

        Gain on sale of finance contracts was $3,142,859 and $3,575,747 for each
of the  securitizations  occurring  in March 1996 and March 1997,  respectively.
This represents  approximately  16.60% and 12.75% of the outstanding balances of
the finance  contracts at each of the respective  securitization  dates. Gain on
sale can be broken into three major components: the amount by which the proceeds
from the sale of multiple  class  securities  exceed the Company's cost basis in
the finance  contracts;  costs of sale (primarily  placement,  rating agent, and
legal and  accounting  fees);  and  discounted  excess  spread  cash  flows (the
Transferor's Interests).

                                     Page 11


<PAGE>
<PAGE>




        The  Company's  cost basis in  finance  contracts  sold has varied  from
approximately 97.5% to 103% of the value of the senior investor securities. This
portion  of  recognized  gain on sale will vary based on the  Company's  cost of
insurance  covering  the  finance  contracts  and  the  discount  obtained  upon
acquisition of the finance  contracts.  Generally,  the Company acquired finance
contracts  from  dealers  at a  greater  discount  than with  finance  contracts
acquired from third parties.

        Additionally,  costs of sale  reduce the total gain  recognized.  As the
Company's  securitization  program  matures,  placement  fees  and  other  costs
associated  with the sale are expected to shrink as a percentage  of the size of
the  securitization.  For example,  costs of sale for the March 1996 transaction
were $280,000 (or 1.7%),  while costs for the March 1997  transaction were about
$293,000 (or 1.0%).

        Further,  the excess spread  component of recognized gain is affected by
various factors, including most significantly, the coupon on the senior investor
securities  and the age of the  finance  contracts  in the pool,  as the  excess
spread  cashflow  from a pool of aged, as opposed to new,  finance  contracts is
less. The aging (capture of excess spread prior to  securitization)  necessarily
results in less available excess spread cash flow from the  securitization.  The
Company  believes that margins in the range of those  previously  recognized are
sustainable  subject to adverse  interest rate  movements,  availability  of VSI
insurance  at current  rates and the  Company's  ability to continue  purchasing
finance contracts from dealers at approximately an 8.5% discount.

        The gain on sale of  finance  contracts  is  affected  by the  aggregate
principal  balance of contracts  securitized  and the gross  interest  spread on
those contracts.  The following table  illustrates the gross interest spread for
each of the Company's securitizations:

<TABLE>
<CAPTION>
                                              Remaining   Weighted
                                              Balance at  Average
                                    Original   March 31,  Contract  Certificate             Gross
    Securitization                 Balance(1)   1997        Rate       Rate     Ratings(2) Spread(3)
-----------------------------------------------------------------------------------------------------
                                  (Dollars in thousands)
<S>                                 <C>       <C>         <C>        <C>           <C>    <C>  
  AutoBond Receivables
    Trust 1995-A                     $26,261   $17,177       18.9%      7.23%      A/A3      11.7%
  AutoBond Receivables
    Trust 1996-A                      16,563    12,817       19.7%      7.15%      A/A3      12.5%
  AutoBond Receivables
    Trust 1996-B                      17,833    15,264       19.7%      7.73%      A/A3      12.0%
  AutoBond Receivables
    Trust 1996-C                      22,297    22,297(4)    19.7%      7.45%      A/A3      12.3%
  AutoBond Receivables
    Trust 1996-D                      25,000    25,000(4)    19.5%      7.37%      A/A3      12.1%
  AutoBond Receivables
    Trust 1997-A (5)                  27,196    27,196       20.8%      7.82%      A/A2      13.0%
                                   ---------------------                         BBB/BB
     Total                         $ 135,150  $ 119,751
                                   =====================
</TABLE>

  ------------------------
 (1) Refers only to balances on senior investor certificates.
 (2) Indicates  ratings by Fitch Investors  Service,  L.P. and Moody's Investors
     Service, Inc., respectively.
 (3) Difference  between weighted  average contract rate and senior  certificate
     rate.
 (4) Before expiration of the revolving periods for each trust.
 (5) Includes Class A and Class B Notes.

        Servicing  Fee  Income.  The  Company  earns  substantially  all  of its
servicing  fee income on the  contracts it services on behalf of  securitization
trusts. Servicing fee income consists of: (i) contractual


                                     Page 12


<PAGE>

<PAGE>


servicing fees received  through  securitizations,  equal to $7.00 per month per
contract included in each trust (excluding amounts paid to third-party servicers
by the trust);  (ii) the accretion of the discount applied to excess spread cash
flows in calculating the carrying value of the  interest-only  strip receivable;
and (iii) fee  income  earned as  servicer  for such items as late  charges  and
documentation  fees,  which  are  earned  whether  or not a  securitization  has
occurred.

FINANCE CONTRACT ACQUISITION ACTIVITY

        The following table sets forth  information  about the Company's finance
contract acquisition activity.

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                                    -------------------
                                                                      1996      1997
                                                                    -------------------
                                                                   (Dollars in thousands)
<S>                                                                  <C>       <C>  
     Number of finance contracts acquired                            1,310        3,062
     Principal balance of finance contracts acquired              $ 15,487     $ 34,015
     Number of active dealerships (1)                                  148          336
     Number of enrolled dealerships                                    340          890
</TABLE>

     -------------------
     (1)  Dealers  who have sold at least one  finance  contract  to the Company
     during the period.

RESULTS OF OPERATIONS

        Period-to-period comparisons of operating results may not be meaningful,
and results of  operations  from prior  periods may not be  indicative of future
results.  The following  discussion  and analysis  should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

TOTAL REVENUES

        Total revenues  decreased  $109,446 to $3.4 million for the three months
ended March 31, 1997 from $3.5 million for the three months ended March 31, 1996
due to the timing of finance contract  acquisition and  securitization  activity
resulting in decreased net interest income.

        Net Interest Income. Net interest income (expense) decreased $570,142 to
($358,533) for the three months ended March 31, 1997 from $211,609 for the three
months  ended March 31,  1996.  Interest  expense  increased  by $279,602 due to
higher net borrowing  costs  associated  with the Revolving  Credit  Facilities,
along with  increased  debt issuance costs  amortization  of $155,120.  Interest
income  declined by $290,541 due to a reduction in the average  daily balance of
finance contracts held for sale.

        Gain on Sale of Finance  Contracts.  For three  months  ended  March 31,
1997, gain on sale of finance contracts amounted to $3.6 million,  compared with
$3.1  million  for  the  comparable  1996  period.  The  Company  completed  one
securitization  aggregating  approximately  $28.0 million in principal amount of
finance contracts and the gain on sale of finance contracts accounted for 104.7%
of total  revenues.  For  three  months  ended  March  31,  1996,  there was one
securitization transaction in the principal amount of $16.6 million. The gain on
sale of finance contracts for this sale transaction accounted for 89.2% of total
revenues in 1996. The margin of gain on sale to the outstanding  balances of the
finance  contracts  securitized  for the three  months  ended March 31, 1997 was
19.75%, compared with 11.50% for the March


                                    Page 13


<PAGE>

<PAGE>



1996  transaction,  due to the  inclusion of finance  contracts  acquired from a
third-party at a 3.75% discount, in the March 1997 securitization.

        Servicing Fee Income. The Company reports servicing fee income only with
respect to finance  contracts that are  securitized.  For the three months ended
March 31,  1997,  servicing  fee  income was  $191,819,  of which  $189,077  was
collection  agent fees.  Servicing fee income  increased  $20,895 from the three
months ended March 31, 1996 as a result of increased  securitization activity by
the  Company.  As of  March  31,  1996,  the  Company  had  completed  only  two
securitizations and servicing income amounted to $170,924 for the quarter.

TOTAL EXPENSES

        Total expenses of the Company increased $1.2 million to $3.1 million for
the three  months  ended March 31, 1997 from $1.9  million for the three  months
ended March 31, 1996.  Although  operating expenses increased during the quarter
ended March 31, 1997, the Company's finance contract  portfolio grew at a faster
rate than the rate of  increase  in  operating  expenses.  Total  expenses  as a
percentage  of total  principal  balance of finance  contracts  acquired  in the
period  decreased  to 9.24%  during the three  months  ended March 31, 1997 from
12.5% for the three months ended March 31, 1996.

        Provision for Credit  Losses.  No provision for credit losses on finance
contracts held for future  securitizations  was taken for the three months ended
March  31,  1997,  due  to  the  timing  of  finance  contract  acquisition  and
securitization  activity  compared  with a provision  of $456,498  for the three
months ended March 31, 1996.

        Salaries and Benefits.  Salaries and benefits increased $968,957 to $1.8
million for the three  months  ended March 31, 1997 from  $789,219 for the three
months ended March 31, 1996.  This  increase was due primarily to an increase in
the number of the Company's employees necessary to handle the increased contract
acquisition  volume and the  collection  activities  on a growing  portfolio  of
finance  contracts,  and due to  compensation  of the Company's  Chief Executive
Officer, which the Company began paying in May 1996.

        General and Administrative Expenses. General and administrative expenses
increased  $710,655 to $997,502  for the three  months ended March 31, 1997 from
$286,848  for the three  months  ended March 31,  1996.  This  increase  was due
primarily  to growth in the  Company's  operations.  General and  administrative
expenses  consist  principally  of  office,   furniture  and  equipment  leases,
professional  fees,  communications  and office  supplies,  and are  expected to
increase as the Company continues to grow and also due to the costs of operating
as a public company.

        Other  Operating   Expenses.   Other  operating   expenses   (consisting
principally of servicing  fees,  credit bureau reports and insurance)  increased
$26,844 to $389,014 for the three months ended March 31, 1997 from  $362,170 for
the three  months  ended March 31,  1996.  This  increase  was due to  increased
finance contract acquisition volume.

NET INCOME

        In the three months ended March 31, 1997, net income decreased  $892,628
to $179,027  from $1.1 million for the three  months  ended March 31, 1996.  The
decrease  in  net  income  was   primarily   attributable   to  an  increase  in
infrastructure  costs to support higher finance contract acquisition volume. The
principal balance of finance contracts acquired increased $18.5 million to $34.0
million for the three  months  ended  March 31, 1997 from $15.5  million for the
three months ended March 31, 1996,  including $12.5 million of finance contracts
which the Company acquired in March 1997 from Credit Suisse First Boston.

                                     Page 14


<PAGE>
<PAGE>



FINANCIAL CONDITION

        Finance  Contracts Held for Sale, Net. Finance  contracts held for sale,
 net of allowance for credit  losses,  increased $5.7 million to $5.9 million at
 March 31, 1997,  from  $228,429 at December 31, 1996.  The number and principal
 balance of contracts  held for sale are largely  dependent  upon the timing and
 size of the Company's securitizations.  The Company plans to securitize finance
 contracts on a regular quarterly basis.

         Trust Receivable.  At the time a securitization  closes,  the Company's
 securitization subsidiary is required to fund a cash reserve account within the
 trust to provide additional credit support for the senior investor  securities.
 Additionally,  depending on the structure of the  securitization,  a portion of
 the future  excess spread cash flows from the trust is required to be deposited
 in the cash  reserve  account to increase  the  initial  deposit to a specified
 level.  Amounts on deposit  in cash  reserve  accounts  are also  reflected  as
 advances  to the  relevant  trust  under the item "Cash  flows  from  investing
 activities" in the Company's consolidated statements of cash flows. The initial
 cash reserve deposits for the December 1995,  March 1996, June 1996,  September
 1996,  December 1996 and March 1997  securitizations  were $525,220,  $331,267,
 $356,658,  $445,934, $500,000 and $56O,744,  respectively,  equivalent to 2% of
 the initial  principal  amount of the senior trust  certificates.  A portion of
 excess spread cash flows will increase such reserves until they reach 6%.

        Interest-Only Strip Receivable.  The following table provides historical
data regarding the interest only strip receivable:

<TABLE>
<CAPTION>
                                                        Three
                                                     Months Ended
                                                       March 31,
                                                        1997
                                                    --------------
                                                (Dollars in thousands)
<S>                                                    <C>    
 Beginning balance                                     $ 4,247
 Unrealized appreciation                                   308
 Additions                                               1,965
 Accretion                                                 -
                                                    -------------
 Ending balance                                        $ 6,520
                                                    =============
</TABLE>




DELINQUENCY EXPERIENCE

        The following table reflects the delinquency experience of the Company's
finance contract portfolio:

<TABLE>
<CAPTION>
                                                    December 31,           March 31,
                                                        1996                  1997
                                                    -------------------------------------
                                                         (Dollars in thousands)
 <S>                                                <C>                  <C>
  Principal balance of finance
   contracts outstanding                            $   104,889           $  131,654
  Delinquent finance contracts (1):
    60-89 days past due                              1,827    1.74%       2,O56    1.56%
    90 days past due and over                        1,328    1.27%       1,610    1.22%
                                                    -------------------------------------
      Total                                         $3,155    3.01%      $3,666    2.78%
                                                    =====================================
</TABLE>


-------------
(1) Percentage based on outstanding  balance.  Excludes finance  contracts where
the underlying vehicle is repossessed,  the borrower is in bankruptcy,  or there
are insurance claims filed.


                                    Page 15



<PAGE>
<PAGE>




CREDIT LOSS EXPERIENCE

        An allowance for credit losses is maintained  for all contracts held for
sale.  The Company  reports a provision for credit  losses on finance  contracts
held for  sale.  Management  evaluates  the  reasonableness  of the  assumptions
employed  by  reviewing  credit  loss  experience,  delinquencies,  repossession
trends,  the  size  of the  finance  contract  portfolio  and  general  economic
conditions and trends.  If necessary,  assumptions will be changed in the future
to reflect historical  experience to the extent it deviates materially from that
which  was  assumed.  Since  inception,  the  Company's  assumptions  have  been
consistent  and are  adequate  based upon  actual  experience.  Accordingly,  no
additional  charges to earnings to date have been necessary to accommodate  more
adverse experience than anticipated.

        If a  delinquency  exists  and a  default  is deemed  inevitable  or the
collateral  is in  jeopardy,  and  in no  event  later  than  the  90th  day  of
delinquency, the Company's Collections Department will initiate the repossession
of the financed vehicle.  Bonded, insured outside repossession agencies are used
to  secure  involuntary  repossessions.  In most  jurisdictions,  notice  to the
borrower of the Company's intention to sell the repossessed vehicle is required,
whereupon the borrower may exercise certain rights to cure his or her default or
redeem the automobile.  Following the expiration of the legally  required notice
period,  the  repossessed  vehicle is sold at a  wholesale  auto  auction (or in
limited  circumstances,   through  dealers),  usually  within  60  days  of  the
repossession.  The Company  closely  monitors the  condition of vehicles set for
auction,  and procures an appraisal under the relevant VSI policy prior to sale.
Liquidation proceeds are applied to the borrower's  outstanding obligation under
the finance contract and loss deficiency  claims under the VSI policy and Credit
Endorsement are then filed.

        Beginning in the first quarter 1997,  the Company  elected not to obtain
credit deficiency insurance on every finance contract which it acquires.  Of the
$32 million in finance contracts which the Company acquired in the first quarter
of 1997,  $12.9 million,  were covered by an Interstate  Fire & Casualty  credit
deficiency  policy.  However,  VSI  damage  policies  were  and  continue  to be
purchased for all finance  contracts.  The March 1997  securitization  structure
generated  less cash  proceeds  than prior  issuances  due to the lack of credit
deficiency  insurance  on  many of the  finance  contracts  collateralizing  the
transaction. However, offsetting much of this reduction in cash proceeds, is the
fact that the  Company  did not pay the up front  premiums  associated  with the
credit deficiency insurance, which resulted in a lower cost basis in the finance
contracts than in the past.

        Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned.  This effect on the delinquency statistics can
be  observed  in the  comparison  of quarter  ended  March 31,  1997 versus 1996
delinquency percentages. The portfolio is tangibly more seasoned as of March 31,
1997 versus March 31, 1996. Accordingly, delinquency and charge-off rates in the
portfolio  may not fully  reflect  the rates  that may  apply  when the  average
holding  period for finance  contracts in the portfolio is longer.  Increases in
the delinquency  and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its receivables.

REPOSSESSION EXPERIENCE - STATIC POOL ANALYSIS

        Because the Company's  finance contract  portfolio is continuing to grow
rapidly,  management  does not manage losses on the basis of a percentage of the
Company's  finance  contract  portfolio,  because  percentages  can be favorably
affected by large balances of recently  acquired finance  contracts.  Management
monitors actual dollar levels of delinquencies  and charge-offs and analyzes the
data on a "static pool" basis.

        The following table provides static pool repossession frequency analysis
in dollars of the Company's  portfolio  performance from inception through March
31, 1997. In this table,  all finance  contracts have been segregated by quarter
of acquisition.  All repossessions  have been segregated by the quarter in which
the repossessed contract was originally acquired by the Company. Cumulative

                                     Page 16


<PAGE>
<PAGE>


repossessions  equals  the ratio of  repossessions  as a  percentage  of finance
contracts acquired for each segregated quarter.  Annualized repossessions equals
an annual  equivalent of the cumulative  repossession  ratio for each segregated
quarter.  This table provides information  regarding the Company's  repossession
experience  over  time.  For  example,   recently   acquired  finance  contracts
demonstrate  very  few  repossessions   because  properly  underwritten  finance
contracts to subprime consumers generally do not default during the initial term
of the  contract.  Between  approximately  one year and 18 months of  seasoning,
frequency of  repossessions  on an  annualized  basis appear to reach a plateau.
Based on industry  statistics  and the  performance  experience of the Company's
finance contract portfolio, the Company believes that finance contracts seasoned
in excess  of  approximately  18  months  will  start to  demonstrate  declining
repossession  frequency.  The Company  believes this may be due to the fact that
the borrower  perceives  that he or she has equity in the  vehicle.  The Company
also  believes  that since the loans  generally  amortize  more quickly than the
collateral depreciates, losses and/or repossessions will decline over time.


<TABLE>
<CAPTION>

                                  Repossession Frequency
                     ------------------------------------------------
                     Principal Balance of                                Principal Balance
Year and Quarter of  Repossessions by                                      of Contracts
    Acquisition      Quarter Acquired    Cumulative(1)  Annualized(2)        Acquired
--------------------------------------------------------------------------------------------
                                      (Dollars in thousands)
<S>              <C>                  <C>                <C>            <C>    
1994
  Q3               $   22.05              23.67%             8.61%         $    93.17
  Q4                  524.08              22.10%             8.84%           2,371.60
1995
  Q1                1,301.63              20.63%             9.17%           6,310.42
  Q2                1,073.34              17.43%             8.72%           6,157.77
  Q3                1,135.68              15.76%             9.01%           7,205.90
  Q4                1,999.82              16.41%            10.94%          12,188.86
1996
  Q1                1,986.24              12.85%            10.28%          15,459.93
  Q2                2,124.48              11.51%            11.51%          18,458.89
  Q3                1,469.63               6.19%             8.26%          23,735.10
  Q4                  526.12               2.04%             4.08%          25,802.89
1997
  Q1                   14.28               0.04%             0.17%          34,014.88
</TABLE>

-------------------
(1) For each quarter,  cumulative  repossession  frequency  equals the number of
    repossessions divided by the number of contracts acquired.

(2) Annualized repossession frequency converts cumulative repossession frequency
    into  an  annual  equivalent  (e.g.,  for  Q4  1994,  principal  balance  of
    $524.08 thousand in  repossessions  divided by  principal  balance of $2.372
    million in contracts  acquired,  divided by 10  quarters  outstanding  times
    four equals an annual repossession frequency of 8.84%).

NET LOSS PER REPOSSESSION

        Upon initiation of the repossession  process, it is the Company's intent
to complete  the  liquidation  process as quickly as  possible.  The majority of
repossessed  vehicles are sold at wholesale auction.  The Company is responsible
for the costs of  repossession,  transportation  and storage.  The Company's net
charge-off per repossession  equals the unpaid balance less the auction proceeds
(net of associated  costs) and less proceeds from insurance  claims.  As less of
the Company's finance  contracts are acquired with credit deficiency  insurance,
the Company  expects its net loss per  repossession  to increase.  The following
table   demonstrates  the  net  charge-off  per  repossessed   automobile  since
inception.


                                     Page 17
<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                                        From
                                                                    August 1, 1994
                                                                    (Inception to
                                                                    March 31, 1997)
                                                                    -------------
<S>                                                                      <C>   
Number of finance contracts acquired                                     13,124
Number of finance vehicles repossessed                                      987
Repossessed units disposed of                                               531
Repossessed units awaiting disposition (2)                                  456
Cumulative gross charge-offs (1)                                     $5,840,912
Costs of repossession (1)                                               144,892
Proceeds from auction, physical damage insurance and refunds (1)     (3,828,745
                                                                     ----------
Net loss                                                              2,157,059
Deficiency insurance settlement received (1)                         (1,308,805)
                                                                     ----------
Net charge-offs (1)                                                    $848,254
                                                                     ==========
Net charge-offs per unit disposed                                         1,597
Recoveries as a percentage of cumulative gross charge-offs (3)            87.96%

</TABLE>

----------------
(1) Amounts are based on actual liquidation and repossession proceeds (including
    insurance proceeds) received on units for which the repossession process had
    been  completed  as of March 31 1997.

(2) The vehicles may have been sold at auction;  however AutoBond might not have
    received all insurance proceeds as of March 31, 1997.

(3) Not  including  the  costs  of  repossession  which  are  reimbursed  by the
    securitization trusts.

LIQUIDITY AND CAPITAL RESOURCES

        Since inception. the Company has primarily funded its operations and the
growth of its finance  contract  portfolio  through seven  principal  sources of
capital:  (i) cash flows from  operating  activities;  (ii) funds  provided from
borrowers'  payments  received  under  finance  contracts  held for sale;  (iii)
borrowings under various warehouse and working capital facilities; (iv) proceeds
from  securitization  transactions;  (v) cash flows from  servicing  fees:  (vi)
proceeds from the issuances of subordinated  debt and capital  contributions  of
principal shareholders and (vii) an initial public offering of common stock.

        Cash Flows.  Significant  cash flows related to the Company's  operating
activities include the use of cash for purchases of finance contracts, and, cash
provided by payments on finance  contracts and sales of finance  contracts.  For
the three months ended March 31, 1996 and 1997, $15.2 million and $33.0 million,
respectively,  was used by the Company to purchase finance  contracts.  $271,687
and $204,481,  respectively,  was received as payments on finance contracts, and
$16.6  million  and $27.1  million,  respectively,  was  received  from sales of
finance contracts, primarily through securitizations.  The Company used $331,000
and $659,338 to fund cash reserve accounts for the securitizations  completed in
the three months ended March 31, 1996 and 1997, respectively.

        Significant  activities  comprising cash flows from financing activities
include  net  borrowings  (repayments)  under  Revolving  Credit  Facilities  of
($802,535) and $9.5  million for the three months ended March 31, 1996 and 1997,
respectively.

        Revolving Credit Facilities.  The Company obtains a substantial  portion
of its  working  capital  for  the  acquisition  of  finance  contracts  through
revolving credit facilities.  Under a warehouse  facility,  the lender generally
advances  amounts  requested  by the  borrower  on a  periodic  basis,  up to an
aggregate  maximum  credit  limit  for the  facility,  for the  acquisition  and
servicing of finance  contracts or other similar  assets.  Until proceeds from a
securitization  transaction  are  used  to pay  down  outstanding  advances,  as
principal payments are received on the finance  contracts,  the principal amount
of the advances  may be paid down  incrementally  or  reinvested  in  additional
finance contracts on a revolving basis.

                                     Page 18

<PAGE>

<PAGE>



        At March 31, 1997, the Company had a $4.5 million balance outstanding on
a $10.0 million  revolving  credit facility (the "Sentry  Facility") with Sentry
Financial  Corporation  ("Sentry"),  which  expires on December  31,  2000.  The
proceeds from  borrowings  under the Sentry Facility are used to acquire finance
contracts,  to pay  applicable  credit  default  insurance  premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per  month on the  average  outstanding  balance  under  the  Sentry
Facility.  The Sentry  Facility also requires the Company to pay up to 0.62% per
quarter on the average unused  balance.  Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (which was approximately 10.25% at March
31, 1997).

        The Sentry  Facility  contains  certain  conditions and imposes  certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent  balances in the reserve  accounts.  Under the Sentry  Facility,  the
Company paid interest of approximately $179,000 for the three months ended March
31, 1997. In April 1996, the Company paid a one-time  commitment fee of $700,000
to Sentry.

        The  Company  and  its  wholly  owned   subsidiary,   AutoBond   Funding
Corporation  II, entered into a $50 million  revolving  warehouse  facility (the
"Daiwa  Facility")  with Daiwa  Finance  Corporation  ("Daiwa")  effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days  following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance  contracts
and to make deposits to a reserve account.  The Daiwa Facility is collateralized
by the finance  contracts  acquired  with the  outstanding  advances.  The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance.  Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15%  (which was  approximately  6.83% at March
31, 1997) or (y) 11% per annum. The Company also pays a  non-utilization  fee of
 .25% per annum on the unused amount of the line of credit. Pursuant to the Daiwa
Facility,  the Company paid a $243,750 commitment fee. The debt issuance cost is
being amortized as interest expense on a straight line basis through March 1998.
The Daiwa Facility  contains certain  covenants and  representations  similar to
those  in  the  agreements  governing  the  Company's  existing  securitizations
including, among other things,  delinquency and repossession triggers.  Advances
under the Daiwa Facility  totaled $5.0 million at March 31, 1997 and the Company
paid interest of approximately  $115,000 during the three months ended March 31,
1997.

        Securitization  Program. In its securitization  transactions through the
end of 1996,  the Company sold pools of finance  contracts to a special  purpose
subsidiary, which then assigned the finance contracts to a trust in exchange for
cash and certain  retained  beneficial  interests in future  excess  spread cash
flows.  The trust  issued two  classes of fixed  income  investor  certificates:
"Class A  Certificates"  which were sold to  investors,  generally at par with a
fixed  coupon,   and   subordinated   excess  spread   certificates   ("Class  B
Certificates"),  representing a senior interest in excess spread cash flows from
the  finance   contracts,   which  were  typically  retained  by  the  Company's
securitization  subsidiary and which  collateralize  borrowings on a nonrecourse
basis.  The Company also funded a cash  reserve  account  that  provides  credit
support to the Class A Certificates.  The Company's securitization  subsidiaries
also retained a "Transferor's  Interest" in the contracts that is subordinate to
the interest of the investor certificate holders.

        Commencing with the Company's March 1997 securitization transaction, the
Company sells pools of finance contracts to a special purpose subsidiary,  which
then  assigned the finance  contracts to an indenture  trustee.  Under the trust
indenture,  the special purpose  subsidiary issued three classes of fixed income
investor notes: "Class A Notes", "Class B Notes" and "Class C Notes", which were
sold to investors,  generally at par, with fixed coupons. A portion of the Class
C Notes represent a senior interest in certain excess spread cash flows from the
finance contracts, In addition, the securitization  subsidiary retains rights to
the  remaining  excess  spread  cash flows,  which may be used to  collateralize
borrowings  on a  non-recourse  basis.  The  Company  also funds a cash  reserve
account that provides  credit support to the Class A Notes,  Class B Notes and a
portion of the Class C Notes.

                                     Page 19


<PAGE>
<PAGE>




        The  retained  interests entitle the Company to receive the future  cash
flows from the trust after payment to investors,  absorption of losses,  if any,
that  arise  from  defaults on the  transferred  finance  contracts  and payment
of the other expenses and obligations of the trust.

        Securitization  transactions impact the Company's liquidity primarily in
two ways.  First,  the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds,  under those  facilities for the  acquisition of
additional finance contracts. In December 1995, March 1996, June 1996, September
1996, December 1996 and March 1997, the Company securitized  approximately $26.2
million,  $16.6 million,  $17.8 million,  $22.3 million, $25.0 million and $28.0
million, respectively, in nominal principal amount of finance contracts and used
the net proceeds to pay down borrowings under its warehouse credit facilities.

        Second,  additional  working  capital is obtained  through the Company's
practice of borrowing  funds,  on a  nonrecourse  basis,  collateralized  by its
interest in future excess spread cash flows from its  securitization  trusts. At
March 31, 1997, the Company held  interest-only  strip  receivables  and Class B
Certificates totaling $16.2 million, substantially all of which had been pledged
to collateralize notes payable of $9.5 million. The Class C Notes from the March
1997 transaction were sold to investors during the quarter.

        Initial Public Offering. On November 14, 1996, the Company completed the
initial  public  offering of its Common  Stock.  The closing  comprised  825,000
shares sold by the  Company  (including  75,000  shares  issued  pursuant to the
exercise of the underwriters  over allotment  option) and 250,000 shares sold by
the  Selling  Shareholders.  With a price  to  public  of $10 per  share  and an
underwriting  discount at $.70 per share, the Company received gross proceeds of
$7,725,000  from  the  offering,   from  which  it  paid  offering  expenses  of
approximately  $1.7 million.  The net proceeds  were being  utilized for working
capital,  repayment of  subordinated  debt of $300,000 and investment in finance
contracts.

        Although management believes the proceeds of the initial public offering
of the Company's common stock,  proceeds from finance contracts,  securitization
proceeds and borrowings under its warehouse  facilities  should be sufficient to
fund  expansion of the Company's  business  through the end of 1997,  management
also  believes that  additional  capital  through  equity or  subordinated  debt
issuances   would  allow  the  Company  to  take  better   advantage  of  growth
opportunities. There can be no assurance, however, that the Company will be able
to obtain such additional funding.

        The statements  contained in this document that are not historical facts
are forward looking  statements.  Actual results may differ from those projected
in the forward  looking  statements.  These forward looking  statements  involve
risks and  uncertainties,  including but not limited to the following  risks and
uncertainties:  changes in the  performance  of the  financial  markets,  in the
demand for and market acceptance of the Company's loan products,  and in general
economic  conditions,  including  interest rates,  presence of competitors  with
greater financial resources and the impact of competitive  products and pricing;
the effect of the  Company's  policies;  and the continued  availability  to the
Company of adequate funding sources.  Investors are also directed to other risks
discussed  in document  filed by the Company  with the  Securities  and Exchange
Commission.

IMPACT OF INFLATION AND CHANGING PRICES

        Although  the Company  does not believe  that  inflation  directly has a
material  adverse  effect on its financial  condition or results of  operations,
increases in the inflation rate generally are associated with increased interest
rates.  Because the Company  borrows  funds on a floating  rate basis during the
period  leading  up to a  securitization,  and in many cases  purchases  finance
contracts  bearing a fixed rate nearly equal but less than the maximum  interest
rate permitted by law,  increased  costs of borrowed funds could have a material
adverse  impact on the  Company's  profitability.  Inflation  also can adversely
affect the Company's operating expenses.

                                     Page 20


<PAGE>
<PAGE>






IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

        In February 1997, the Financial  Accounting  Standards Board issued SFAS
No.  128,  "Earnings  Per  Share."  SFAS  No.  128  specifies  the  computation,
presentation,  and disclosure  requirements  for earnings per share. The Company
believes the  implementation of SFAS No. 128 will not have an effect on earnings
per share calculation.

                                     Page 21


<PAGE>
<PAGE>



PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        The  Company  is  currently  not a  party  to any  material  litigation,
although it is involved from time to time in routine litigation  incident to its
business.

ITEM 2. CHANGES IN SECURITIES

        None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.

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

        Not applicable.

ITEM 5. OTHER INFORMATION

        None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS


<TABLE>
<CAPTION>

Exhibit No.                               Description of Exhibit

<S>            <C>
3.1*           Restated Articles of Incorporation of the Company

3.2*           Amended and restated Bylaws of the Company

4.1*           Specimen Common Stock Certificate

10.1*          Amended and  Restated  Loan  Origination,  Sale and  Contribution
               Agreement  dated  as of  December  15,  1995 by and  between  the
               Company and AutoBond Funding Corporation I

10.2*          Security  Agreement  dated  as of May  21,  1996  among  AutoBond
               Funding  Corporation  II, the Company and Norwest Bank Minnesota,
               National Association

10.3*          Credit  Agreement  and Side  Agreement,  dated as of May 21, 1996
               among AutoBond  Funding  Corporation  II, the Company and Peoples
               Life Insurance Company
</TABLE>

                                     Page 22


<PAGE>
<PAGE>



<TABLE>
<CAPTION>

Exhibit No.                               Description of Exhibit
<S>            <C>
10.4*          Servicing  Agreement  dated  as of May 21,  1996  among  AutoBond
               Funding  Corporation II, CSC Logic/MSA L.L.P.,  doing business as
               "Loan  Servicing  Enterprise",   the  Company  and  Norwest  Bank
               Minnesota, National Association

10.5*          Loan Acquisition Sale and Contribution  Agreement dated as of May
               21,  1996  by  and  between  the  Company  and  AutoBond  Funding
               Corporation II

10.6*          Second Amended and Restated  Secured  Revolving  Credit Agreement
               dated as of July 31, 1995 between  Sentry  Financial  Corporation
               and the Company  

10.7*          Management  Administration  and  Services  Agreement  dated as of
               January 1, 1996  between  the Company and  AutoBond,  Inc.  

10.8*          Employment  Agreement dated November 15, 1995 between Adrian Katz
               and the Company 

10.9*          Employment  Agreement  dated February 15, 1996 between Charles A.
               Pond and the Company

10.10*         Employment  Agreement effective as of May 1, 1996 between William
               O. Winsauer and the Company

10.11*         Vender's  Comprehensive  Single  Interest  Insurance  Policy  and
               Endorsements, issued by Interstate Fire & Casualty Company

10.12*         Warrant to Purchase  Common Stock of the Company  dated March 12,
               1996

10.13*         Employee Stock Option Plan

10.14*         Dealer Agreement dated November 9, 1994,  between the Company and
               Charlie Thomas Ford, Inc.

10.15*         Automobile Loan Sale  Agreement,  dated as of September 30, 1996,
               among the Company, First Fidelity Acceptance Corp., and Greenwich
               Capital Financial Products, Inc.

10.16+         Servicing  Agreement,  dated as of January 29, 1997,  between CSC
               LOGIC/MSA L.P.P.,  doing business as "Loan Servicing  Enterprise"
               and the Company

10.17+         Credit  Agreement,  dated as of February 1, 1997,  among AutoBond
               Funding Corporation II, the Company and Daiwa Finance Corporation

10.18+         Security  Agreement,  dated as of February 1, 1997,  by and among
               AutoBond  Funding  Corporation  II, the Company and Norwest  Bank
               Minnesota, National Association

10.19+         Automobile  Loan Sale  Agreement,  dated as of March 19, 1997, by
               and between Credit Suisse First Boston Mortgage Capital L.L.C., a
               Delaware  limited  liability  company,   and  the  Company

21.1+          Subsidiaries of the Company

27.1           Financial Data Schedule

                                     Page 23


<PAGE>
<PAGE>




* Incorporated  by reference from the Company's  Registration  Statement on Form
  S-1 (Registration No. 333-05359).

+ Incorporated by reference from the Company's 1996 Annual Report on Form 10-K.

(b)   Reports of Form 8-K

        No  reports  on Form 8-K were filed by the  Company  during the  quarter
ended March 31, 1997.

                                       Page 24


<PAGE>
<PAGE>







SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized on May 15, 1997.



                                 AUTOBOND ACCEPTANCE CORPORATION

                                 By: /s/ William O. Winsauer
                                     ------------------------------------------
                                     William O. Winsauer, Chairman of the Board
                                     and Chief Executive Officer

                                 By: /s/ R. T. Pigott, Jr.
                                     ------------------------------------------
                                     R. T. Pigott, Jr., Vice President and Chief
                                     Financial Officer

                                       Page 25


<PAGE>


</TABLE>