<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 June 30, 1997

                                       OR

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

For the transition period from               to

                        COMMISSION FILE NUMBER 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 AUGUST 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...........................................................25

ITEM 1. LEGAL PROCEEDINGS............................................................25
ITEM 2. CHANGES IN SECURITIES........................................................25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................25
ITEM 5. OTHER INFORMATION............................................................25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................25

EXHIBIT 27.1.........................................................................27


SIGNATURES...........................................................................28
</TABLE>


                                     Page 2



<PAGE>


<PAGE>


                            PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                            AUTOBOND ACCEPTANCE CORPORATION
                              CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                DECEMBER 31,   JUNE 30,
                                                                    1996         1997
                                                                --------------------------
                                                                             (UNAUDITED)
                            ASSETS

<S>                                                              <C>         <C>         
Cash and cash equivalents                                        $ 4,121,342 $    175,661
Restricted funds                                                   2,981,449   10,483,904
Finance contracts held for sale, net                                 228,429      329,312
Repossessed assets held for sale, net                                152,580      534,263
Class B certificates                                              10,465,294    8,861,463
Interest-only strip receivable                                     4,247,274   10,979,742
Debt issuance cost                                                   997,338      954,579
Trust receivable                                                   2,230,003    3,655,427
Due from affiliate                                                   168,847      192,547
Other assets                                                         683,955    4,261,958
                                                                ==========================
        Total assets                                             $26,276,511  $40,428,856
                                                                ==========================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Revolving credit facilities                                    $        --  $ 7,000,000
  Notes payable                                                   10,174,633   10,653,293
  Accounts payable and accrued liabilities                         1,474,586    2,829,913
  Bank overdraft                                                          --    1,851,327
  Payable to affiliate                                               265,998      282,822
  Deferred income taxes                                            2,075,553    3,180,632
                                                                --------------------------
    Total liabilities                                             13,990,770   25,797,987
                                                                --------------------------

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 authorized,            1,000        1,000
    6,512,500 shares issued and outstanding
  Additional paid-in capital                                       8,617,466    8,617,466
  Deferred compensation                                             (11,422)      (4,568)
  Loans to shareholders                                            (235,071)      (2,323)
  Unrealized appreciation on interest-only strip receivable               --      959,629
  Retained earnings                                                3,913,768    5,059,665
                                                                --------------------------
    Total shareholders' equity                                    12,285,741   14,630,869
                                                                --------------------------

        Total liabilities and shareholders' equity               $26,276,511  $40,428,856
                                                                ==========================
</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              SIX MONTHS ENDED
                                                     JUNE 30,                       JUNE 30,
                                           ----------------------------------------------------------
                                              1996              1997          1996           1997
                                           ----------------------------------------------------------
<S>                                       <C>             <C>            <C>             <C>         
Revenues:
  Interest income .....................   $    665,719    $  1,279,640   $  1,470,351    $  1,793,732
  Gain on sale of finance contracts ...      3,042,641       5,116,397      5,743,986       8,692,144
  Servicing fee income ................        106,284         242,490        277,208         434,402
  Other income (loss) .................          --           (527,701)          --          (520,788)
                                        --------------------------------------------------------------
    Total revenues ....................      3,814,644       6,110,826      7,491,545      10,399,490
                                        --------------------------------------------------------------
Expenses:
  Provision for credit losses .........         48,500            --           63,484            --
  Interest expense ....................        544,497         955,679      1,137,520       1,828,397
  Salaries and benefits ...............      1,056,828       1,732,971      1,846,047       3,272,625
  General and administrative ..........        597,500       1,543,133        884,348       2,759,157
  Other operating expenses ............        202,067         393,675        564,237         782,689
                                        --------------------------------------------------------------
    Total expenses ....................      2,449,392       4,625,458      4,495,636       8,642,868
                                        --------------------------------------------------------------
Income before income taxes and ........      1,365,252       1,485,368      2,995,909       1,756,622
extraordinary loss
Provision for income taxes ............        460,000         518,499      1,020,000         610,725
                                        --------------------------------------------------------------
Income before extraordinary loss ......        905,252         966,869      1,975,909       1,145,897
Extraordinary loss, net of tax benefits
of $50,000                                    (100,000)           --         (100,000)           --
                                        ==============================================================
      Net income ......................   $    805,252    $    966,869   $  1,875,909    $  1,145,897
                                        ==============================================================

Income per common share:
  Income before extraordinary loss ....   $       0.16    $       0.15   $       0.35    $       0.18
  Extraordinary loss ..................           (.02)           --            (0.02)           --
                                        --------------------------------------------------------------
      Net income ......................   $       0.14    $       0.15   $       0.33    $       0.18
                                        ==============================================================
Weighted average shares outstanding ...      5,706,311       6,528,321      5,698,367       6,529,104
                                        ==============================================================
</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>
                                                                 SIX MONTHS ENDED
                                                                   JUNE 30, 1997
                                                               --------------------

<S>                                                                <C>         
Common stock:
  Balance, December 31, 1996 ..................................    $      1,000
                                                                   ------------
  Balance, June 30, 1997 ......................................           1,000
                                                                   ------------

Additional paid-in capital:
  Balance, December 31, 1996 ..................................       8,617,466
                                                                   ------------
  Balance, June 30, 1997 ......................................       8,617,466
                                                                   ------------

Deferred compensation:
  Balance, December 31, 1996 ..................................         (11,422)
  Amortization of deferred compensation .......................           6,854
                                                                   ------------
  Balance, June 30, 1997 ......................................          (4,568)
                                                                   ------------

Loans to shareholders:
  Balance, December 31, 1996 ..................................        (235,071)
  Net payments received .......................................         232,748
                                                                   ------------
  Balance, June 30, 1997 ......................................          (2,323)
                                                                   ------------

Unrealized appreciation on interest-only strip receivable:
  Balance, December 31, 1996 ..................................            --
  Increase in unrealized appreciation on interest-only strip ..         959,629
  receivable
                                                                   ------------
  Balance, June 30, 1997 ......................................         959,629
                                                                   ------------

Retained earnings:
  Balance, December 31, 1996 ..................................       3,913,768
  Net income ..................................................       1,145,897
                                                                   ------------
  Balance, June 30, 1997 ......................................       5,059,665
                                                                   ------------

Total shareholders' equity ....................................    $ 14,630,869
                                                                   ============
</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>
                                                                     SIX MONTHS ENDED
                                                                          JUNE 30
                                                              -------------------------------
                                                                    1996             1997
                                                              -------------------------------
<S>                                                             <C>             <C>         
Cash flows from operating activities:
  Net income ................................................   $  1,875,909    $  1,145,897
  Adjustments to reconcile net income to net cash used in
     operating activities:
   Amortization of finance contract acquisition discount and        (878,557)        (11,472)
   insurance
   Amortization of deferred compensation ....................         25,768           6,584
   Amortization of debt issuance costs ......................        135,571         430,733
   Depreciation and amortization ............................           --            89,457
   Provision for credit losses ..............................         63,484            --
   Deferred income taxes ....................................        970,000         610,725
   Accretion of interest-only strip receivable ..............        (53,910)        102,783
   Unrealized gain on Class B certificates ..................           --            52,862
  Changes in operating assets and liabilities:
   Restricted funds .........................................       (260,307)     (7,502,455)
   Other assets .............................................       (477,892)     (3,667,460)
   Class B certificates .....................................     (3,257,806)      1,550,969
   Interest-only strip receivable ...........................       (674,325)     (5,381,267)
   Accounts payable and accrued liabilities .................       (329,239)      1,355,327
   Due to/due from affiliate ................................       (342,297)         (6,876)
  Purchases of finance contracts ............................    (33,358,304)    (66,945,327)
  Sales of finance contracts ................................     35,842,076      65,573,597
  Repayments of finance contracts ...........................        324,957         809,626
                                                                ----------------------------
     Net cash used in operating activities ..................       (394,872)    (11,786,027)
                                                                ----------------------------
Cash flows from investing activities:
  Advances to AutoBond Receivables Trusts ...................     (1,532,348)     (1,425,424)
  Loan payments from (to) shareholders ......................       (282,675)        232,748
  Disposal proceeds from repossessions ......................        975,662          91,009
                                                                ----------------------------
     Net cash used in investing activities ..................       (839,361)     (1,101,667)
                                                                ----------------------------
Cash flows from financing activities:
  Net borrowings (payments) under revolving credit facilities       (913,129)      7,000,000
  Debt issuance costs .......................................       (259,431)       (387,974)
  Repayments of borrowings under repurchase agreement .......     (1,061,392)           --
  Proceeds from notes payable ...............................      6,734,306       2,041,388
  Payments on notes payable .................................     (3,160,684)     (1,562,728)
  Proceeds from subordinated debt borrowings ................        300,000            --
  Increase in bank overdraft ................................      1,324,784       1,851,327
                                                                ----------------------------
     Net cash provided by financing activities ..............      2,964,454       8,942,013
                                                                ----------------------------
Net increase (decrease) in cash and cash equivalents ........      1,730,221      (3,945,681)
Cash and cash equivalents at beginning of period ............         92,660       4,121,342
                                                                ============================
Cash and cash equivalents at end of period ..................   $  1,822,881    $    175,661
                                                                ============================

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


                                     Page 6



<PAGE>


<PAGE>



                   AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      (UNAUDITED)

1. BASIS OF PRESENTATION

        The consolidated financial statements of AutoBond Acceptance Corporation
("the Company") 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. Fully
diluted earnings per share are not presented because the relevant potentially
dilutive securities are not significant. 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 6,528,321
and 6,529,104 for the three months and six months ended June 30, 1997,
respectively.


3. FINANCE CONTRACTS HELD FOR SALE

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


</TABLE>
<TABLE>
<CAPTION>
                                    December 31, 1996  June 30, 1997
                                   ----------------------------------
                                                         (Unaudited)
<S>                                 <C>             <C>     
Unpaid principal balance ...............   $ 266,450    $ 362,933
Prepaid insurance ......................      18,733         --
Contract acquisition discounts..........     (31,554)      (8,421)
Allowance for credit losses.............     (25,200)     (25,200)
                                           ======================
                                           $ 228,429    $ 329,312
                                           ======================
</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. 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

                                     Page 7



<PAGE>


<PAGE>


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 as 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. Any impairment deemed permanent is recorded as a charge against
earnings.

        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 participants would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.

        The changes in the interest-only strip receivable follow:
<TABLE>
<CAPTION>
                         Six Months Ended
                           June 30, 1997
                         ------------------
                            (Unaudited)
<S>                             <C>       
Beginning balance               $4,247,274
Unrealized appreciation          1,453,984
Additions                        5,643,627
Accretion                          102,783
Impairment charge                (467,926)
                         ==================
Ending balance                 $10,979,742
                         ==================
</TABLE>


        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. This adjustment amounted to
a net unrealized gain of $959,629, net of related tax effect of $494,355, on the
valuation of the interest-only strip receivable for the six months ended June
30, 1997. Additionally, the Company recorded a charge against earnings for
permanent impairment of the interest-only strip receivable, determined on a
disaggregated basis, of $467,926 during the six months ended June 30, 1997.


5. REVOLVING CREDIT FACILITIES

        At June 30, 1997, the Company had no outstanding balance 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% (10.25% at June 30, 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 incurred interest expense of $241,767 for the six months ended June 30,
1997.

                                     Page 8



<PAGE>


<PAGE>



        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% (6.84% at June 30, 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. At June 30, 1997, advances
under the Daiwa Facility totaled $7,000,000, in addition to $33,000,000 in
advances derecognized pursuant to SFAS No. 125. The Company incurred interest
expense of approximately $445,232 during the six months ended June 30, 1997.

        On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated subsidiary.
Accordingly, as of such date, $33,000,000 of advances were outstanding and
secured by $35,798,557 of finance contracts in the Company's unconsolidated
qualifying special purpose subsidiary, AutoBond Master Funding Corporation.
These secured variable funding notes are convertible into term notes prior to
March 1998 at the option of the noteholder.


6. NOTES PAYABLE

        The following amounts are included in notes payable as of:

<TABLE>
<CAPTION>
                           December 31, 1996  June 30, 1997
                           ----------------------------------
                                               (Unaudited)
<S>                         <C>                <C>
Notes payable, secured by
   Class B certificates          $10,050,781     $ 8,526,047
Convertible notes payable               --         2,000,000
Other notes payable                  123,852         127,245
                           ==================================
                                 $10,174,633     $10,653,292
                           ==================================
</TABLE>


        Pursuant to the an agreement (the "Securities Purchase Agreement")
entered into on June 30, 1997, the Company issued by private placement
$2,000,000 in aggregate principal amount of senior secured convertible notes
("Convertible Notes"). Interest is payable quarterly at a rate of 18% per annum
until maturity on June 30, 2000. If the Company pays down the Convertible Notes
in full prior to June 30, 1998, the holders will have no conversion rights. The
Convertible Notes, collateralized by the interest-only strip receivables from
the Company's first four securitizations, are convertible into shares of common
stock of the Company upon the earlier to occur of (i) an event of default on the
Convertible Notes and (ii) June 30, 1998, through the close of business on June
30, 2000, subject to prior redemption. The conversion price is equal to the
outstanding principal amount of the Convertible Note being converted divided by
the lesser of (x) $5.00 (as adjusted by the terms of the Securities Purchase
Agreement) and (y) 85% of the average of the five lowest closing bid prices of
the Company's common stock on the Nasdaq Stock Market, or such other exchange or
market where the common stock is then traded during the 60 trading days
immediately preceding the date the Convertible Note is converted or the
applicable date of repayment (subject to adjustment under certain circumstances
specified in the Securities Purchase Agreement). The Company

                                     Page 9



<PAGE>

<PAGE>


also paid certain debt issuance costs to the purchaser totaling $25,000, which
is being amortized as interest expense on a straight line basis through June 30,
2000.

        Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998.


7. 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 repurchased finance
contracts totaling $619,520 from a Trust during the three months ended March 31,
1997. Of the total amount of these finance contracts, $190,320 were purchased
from one dealer. Although the Company has requested that this dealer repurchase
such contracts, the dealer has refused. The Company has commenced litigation
against such dealer.


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 



                                    Page 10



<PAGE>
<PAGE>



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:
interest income, gain on sale of finance contracts and servicing fee income.

        Interest Income. Interest income consists of the sum of three primary
components: (i) interest income earned on finance contracts held for sale by the
Company; (ii) interest income earned on Class B certificates, and (iii) the
accretion of the interest-only strip receivable. Other factors influencing
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, and (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
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 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 represent the
difference between the weighted average contract rate earned and the rate paid
on multiple class certificates issued to investors in the securitization, taking
into account certain assumptions regarding prepayments, defaults, proceeds from
disposal of repossessed assets, and servicing and other costs, over the life of
the securitization.

        The Company implemented 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 is a determinant of the
gain or loss from a securitization transaction under SFAS No. 125.

        The discounted excess spread cash flows are reported on the consolidated
balance sheet as "Interest-Only Strip Receivable". 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 the
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.

        An impairment review of the interest-only strip receivable is performed
quarterly by calculating the net present value of the expected future excess
spread cash flows after giving effect to changes in


                                    Page 11


<PAGE>

<PAGE>


assumptions due to market and economic changes and the performance of the loan
pool to date. The discount rate used is the same as that used to record the
initial interest-only strip receivable. 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. To the extent that
the Company deems the asset to be permanently impaired, the Company would record
a charge against earnings and write down the asset accordingly. The Company
recorded an adjustment to other income (loss) of $467,926 during the three
months ended June 30, 1997 as a result of the impairment review. Should the
Company be unable to sell finance contracts acquired during 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.

        In the Company's March 1997 securitization transaction, the Company sold
a pool 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
represented a senior interest in certain excess spread cash flows from the
finance contracts. In addition, the securitization subsidiary retained rights to
the remaining excess spread cash flows, which may be used to collateralize
borrowings on a non-recourse basis. The Company also funded a cash reserve
account that provides credit support to the Class A Notes, Class B Notes and a
portion of the Class C Notes.

        Gain on sale of finance contracts was $2,749,612, $2,972,804,
$3,554,745, $3,543,539 and $3,575,748 for each of the securitizations occurring
in March 1996, June 1996, September 1996, December 1996 and March 1997,
respectively. Gain on sale of finance contracts into the new unconsolidated
securitization subsidiary in June 1997 totaled $5,103,190. This represents
approximately 16.6%, 16.7%, 15.9%, 14.2%, 13.9% and 14.3% of the outstanding
balances of the finance contracts at each of the respective dates.

        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 varies 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 has 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.

        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 cash flow 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


                                    Page 12


<PAGE>

<PAGE>



spread for each of the Company's securitizations (dollars in thousands):
<TABLE>
<CAPTION>
                                      Remaining  Weighted
                                      Balance at Average
                                       June 30,  Contract Certificate           Gross
      Securitization       Balance 1     1997      Rate      Rate    Ratings2  Spread
                                                                                 3
-------------------------------------------------------------------------------------
<S>                        <C>          <C>       <C>       <C>      <C>      <C>
AutoBond Receivables
  Trust 1995-A                $26,261    $15,306     18.9%     7.23%  A/A3     11.7%
AutoBond Receivables
  Trust 1996-A                 16,563     11,601     19.7%     7.15%  A/A3     12.5%
AutoBond Receivables
  Trust 1996-B                 17,833     13,606     19.7%     7.73%  A/A3     12.0%
AutoBond Receivables
  Trust 1996-C                 22,297     20,068     19.7%     7.45%  A/A3     12.3%
AutoBond Receivables
  Trust 1996-D4                25,000     25,000     19.5%     7.37%  A/A3     12.1%
AutoBond Receivables
  Trust 1997-A5                27,196     25,676     20.8%     7.82%  A/A2     13.0%
                                                                     BBB/BB
                           ======================
     Total                   $135,150   $111,257
                           ======================
</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 Reflects status of trust in revolving period.
5 Includes Class A and Class B Notes.


        On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
unconsolidated qualifying special purpose subsidiary, AutoBond Master Funding
Corporation. These secured variable funding notes are convertible into term
notes prior to March 1998 at the option of the noteholder.

        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 administrative 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


                                    Page 13


<PAGE>

<PAGE>



activity (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                                          June 30,
                                                                   ----------------------
                                                                         1996       1997
                                                                   ---------------------

<S>                                                                      <C>      <C>  
Number of finance contracts acquired                                     2,856    6,017
 Principal balance of finance contracts acquired                       $33,902  $69,288
 Number of active dealerships 1                                            252      831
 Number of enrolled dealerships                                            492    1,136
</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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996

TOTAL REVENUES

        Total revenues increased $2,296,182 to $6,110,826 for the three months
ended June 30, 1997 from $3,814,644 for the three months ended June 30, 1996 due
to the growth in finance contract acquisition activity.

        Interest Income. Interest income increased $613,921 to $1,279,640 for
the three months ended June 30, 1997 from $665,719 for the three months ended
June 30, 1996 due to higher outstanding volumes of finance contracts held for
sale. The Company began the quarter ended June 30, 1997 with $5.9 million in
finance contracts held for sale carried over from the quarter ended March 31,
1997.

        Gain on Sale of Finance Contracts. For three months ended June 30, 1997,
gain on sale of finance contracts amounted to $5,116,397, compared with
$3,042,641 for the comparable 1996 period. The Company sold finance contracts
aggregating approximately $35.8 million into the new unconsolidated
securitization subsidiary on June 30, 1997 and the gain on sale of finance
contracts accounted for 83.7% of total revenues. For three months ended June 30,
1996, there was one securitization transaction in the principal amount of $17.8
million. The gain on sale of finance contracts for this sale transaction
accounted for 79.8% of total revenues in the three months ended June 30, 1996.
The ratio of gain on sale to the outstanding balances of the finance contracts
sold for the three months ended June 30, 1997 was 14.3%, compared with 17.1% for
the comparable 1996 period.

        Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the three months ended
June 30, 1997, servicing fee income was $242,490, primarily collection agent
fees. Servicing fee income increased by $136,206 from the three months ended
June 30, 1996 as a result of increased securitization activity by the Company.
As of June 30, 1996, the Company had completed only three securitizations and
servicing income amounted to $106,284 for the quarter.

        Other Income (Loss). For three months ended June 30, 1997, other loss
amounted to $527,701, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of


                                    Page 14


<PAGE>

<PAGE>



$467,926 during the period. Additionally, unrealized loss on the Company's Class
B certificates totaled $59,775 during the three months ended June 30, 1997.


TOTAL EXPENSES

        Total expenses of the Company increased $2,176,066 to $4,625,458 for the
three months ended June 30, 1997 from $2,449,392 for the three months ended June
30, 1996. Total expenses as a percentage of total principal balance of finance
contracts acquired in the period decreased to 13.1% for the three months ended
June 30, 1997 compared to 13.3% for the three months ended June 30, 1996.

        Provision for Credit Losses. No provision for credit losses on finance
contracts held for future securitizations was taken for the three months ended
June 30, 1997, due to the timing of finance contract acquisition and
securitization activity compared with a provision of $48,500 for the three
months ended June 30, 1996.

        Interest Expense. Interest expense rose to $955,679 for the three months
ended June 30, 1997 from $544,497 for the three months ended June 30, 1996.
Interest expense increased by $411,182 due to higher net borrowing costs
associated with the revolving credit facilities, along with increased debt
issuance costs amortization of $219,613.

        Salaries and Benefits. Salaries and benefits increased $676,143 to
$1,732,971 for the three months ended June 30, 1997 from $1,056,828 for the
three months ended June 30, 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. The number of employees of the Company increased by 93 to
172 employees at June 30, 1997, compared to 79 employees at June 30, 1996.

        General and Administrative Expenses. General and administrative expenses
increased $945,633 to $1,543,133 for the three months ended June 30, 1997 from
$597,500 for the three months ended June 30, 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, non-employee marketing commissions, 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 servicer fees, credit bureau reports and insurance) increased
$191,608 to $393,675 for the three months ended June 30, 1997 from $202,067 for
the three months ended June 30, 1996. This increase was due to increased finance
contract acquisition volume.


NET INCOME

        In the three months ended June 30, 1997, net income increased $161,617
to $966,869 from $805,252 for the three months ended June 30, 1996. The increase
in net income was primarily attributable to an increase in finance contract
acquisition volume. The principal balance of finance contracts acquired
increased $16.9 million to $35.3 million for the three months ended June 30,
1997 from $18.4 million for the three months ended June 30, 1996.


                                    Page 15


<PAGE>

<PAGE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

TOTAL REVENUES

        Total revenues increased $2,907,945 to $10,399,490 for the six months
ended June 30, 1997 from $7,491,545 for the six months ended June 30, 1996
primarily due to increased finance contract acquisition and sales volumes. The
principal balance of contracts acquired rose from $33.9 million during the six
months ended June 30, 1996 to $69.2 million during the six months ended June 30,
1997.

        Interest Income. Interest income increased $323,381 to $1,793,732 for
the six months ended June 30, 1997 from $1,470,351 for the six months ended June
30, 1996 due to growth in finance contract acquisition activities.

        Gain on Sale of Finance Contracts. For six months ended June 30, 1997,
gain on sale of finance contracts amounted to $8,692,144, compared with
$5,743,986 for the comparable 1996 period. The Company completed sales
aggregating approximately $63.8 million in principal amount of finance contracts
and the gain on sale of finance contracts accounted for 83.6% of total revenues
for the current period. For the six months ended June 30, 1996, there were two
securitization transactions totaling a principal amount of $34.4 million
resulting in gain on sale of finance contracts of $5,743,986 which accounted for
76.7% of total revenues. The ratio of gain on sale to the outstanding balances
of the finance contracts sold for the six months ended June 30, 1997 was 13.6%,
compared with 16.6% for the two transactions completed in the prior year period.

        Servicing Fee Income. Servicing fee income increased $157,194 to
$434,402 for the six months ended June 30, 1997 from $277,208 for the six months
ended June 30, 1996 due to growth in securitization activities. The Company was
administering seven securitization trusts at June 30, 1997 compared to three
securitization trusts at June 30, 1996.

        Other Income (Loss). For six months ended June 30, 1997, other loss
amounted to $520,788, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of $467,926
during the period. Additionally, unrealized loss on the Company's Class B
certificates totaled $52,862 during the six months ended June 30, 1997.


TOTAL EXPENSES

        Total expenses of the Company increased $4,147,232 to $8,642,868 for the
six months ended June 30, 1997 from $4,495,636 for the six months ended June 30,
1996. Although operating expenses increased during the six months ended June 30,
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 12.5%
during the six months ended June 30, 1997 from 13.3% for the six months ended
June 30, 1996.

        Provision for Credit Losses. No provision for credit losses on finance
contracts held for future securitizations was necessary during the six months
ended June 30, 1997 compared with a provision of $63,484 for the six months
ended June 30, 1996.

        Interest Expense. Interest expense increased by $690,877 due to higher
borrowing volumes associated with the revolving credit facilities, along with
increased debt issuance costs amortization of $430,733.

        Salaries and Benefits. Salaries and benefits increased $1,426,578 to
$3,272,625 for the six months ended June 30, 1997 from $1,846,047 for the six
months ended June 30, 1996. This increase was due


                                    Page 16



<PAGE>
<PAGE>



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.

        General and Administrative Expenses. General and administrative expenses
increased $1,874,809 to $2,759,157 for the six months ended June 30, 1997 from
$884,348 for the six months ended June 30, 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, non-employee marketing commissions, 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 servicer fees, credit bureau reports and insurance) increased
$218,452 to $782,689 for the six months ended June 30, 1997 from $564,237 for
the six months ended June 30, 1996. This increase was due to increased finance
contract acquisition volume.


NET INCOME

        In the six months ended June 30, 1997, net income decreased $730,012 to
$1,145,897 from $1,875,909 for the six months ended June 30, 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 $35.4 million to $69.3 million for the six
months ended June 30, 1997 from $33.9 million for the six months ended June 30,
1996, including $12.5 million of finance contracts which the Company acquired in
March 1997 from Credit Suisse First Boston.


FINANCIAL CONDITION

        Finance Contracts Held for Sale, Net. Finance contracts held for sale,
net of allowance for credit losses, increased $100,883 to $329,312 at June 30,
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 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 and the June 1997 sale into the
unconsolidated special purpose subsidiary were $525,220, $331,267, $356,658,
$445,934, $500,000, $560,744 and $715,971, respectively, equivalent to 2% of the
initial principal amount of the senior trust securities. A portion of excess
spread cash flows will increase such reserves until they reach 6%.

        Other Assets. On June 30, 1997, the Daiwa Facility was restructured so
that advances thereunder and the finance contracts securing them could be
derecognized pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
unconsolidated qualifying special purpose subsidiary. In conjunction with this
transaction, the Company retained a partial interest in the loans sold of
$2,497,485, representing the difference between the principal amount of the
finance contracts transferred and the amount funded through the variable rate
funding notes. It is


                                    Page 17


<PAGE>

<PAGE>



expected that this amount will be realized upon conversion of the secured
variable funding notes into term notes prior to March 1998.


DELINQUENCY EXPERIENCE

        The following table reflects the delinquency experience of the Company's
finance contract portfolio (dollars in thousands):

<TABLE>
<CAPTION>
                                             December 31,    June 30, 1997
                                                 1996
                                           ----------------------------------
<S>                                            <C>              <C>     
Principal balance of finance contracts         $104,889         $154,653
outstanding
Delinquent finance contracts 1:
60-89 days past due                           1,827   1.74%    4,038   2.61%
90 days past due and over                     1,328   1.27%    2,786   1.80%
                                           ==================================
Total                                        $3,155   3.01%   $6,824   4.41%
-------------------------------------------==================================
1 Percentage based upon outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or there
are insurance claims filed.
</TABLE>



CREDIT LOSS EXPERIENCE

        An allowance for credit losses is maintained for 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


                                    Page 18


<PAGE>

<PAGE>

the finance contracts than in the past. The Company expects to utilize a new
credit deficiency insurance policy for future securitizations.

        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 June 30, 1997 versus 1996
delinquency percentages. The portfolio is tangibly more seasoned as of June 30,
1997 versus June 30, 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 June
30, 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
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  Annualized     Acquired
                                                 1           2
------------------------------------------------------------------------------------
                              (Dollars in thousands)
<S>                             <C>              <C>          <C>        <C>       
1994
    Q3                          $     21.93      22.53%       7.84%      $    93.17
    Q4                               543.74      22.93%       8.34%        2,371.60
 1995
    Q1                             1,372.16      21.74%       8.70%        6,310.42
    Q2                             1,182.94      19.21%       8.54%        6,157.44
    Q3                             1,319.80      18.32%       9.16%        7,205.90
    Q4                             2,340.22      19.20%      10.97%       12,188.86
1996
    Q1                             2,609.80      16.88%      11.25%       15,459.93
    Q2                             2,817.73      15.26%      12.21%       18,458.82
    Q3                             2,482.84      10.46%      10.46%       23,735.10
</TABLE>



                                    Page 19



<PAGE>
<PAGE>



<TABLE>
<CAPTION>

                             Repossession Frequency
                      ----------------------------------------------
                      Principal Balance of                        Principal Balance
 Year and Quarter of    Repossessions by                             of Contracts
     Acquisition        Quarter Acquired    Cumulative  Annualized     Acquired
                                                 1           2
------------------------------------------------------------------------------------
                              (Dollars in thousands)
<S>                             <C>              <C>          <C>        <C>       
    Q4                             1,460.59       5.66%       7.55%       25,802.89
1997
    Q1                               845.00       2.48%       4.97%       34,014.88
    Q2                                29.72        .08%        .34%       35,273.26
</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 $543.74
thousand in repossessions divided by principal balance of $2.372 million in
contracts acquired, divided by 11 quarters outstanding times four equals an
annual repossession frequency of 8.34%).



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.
<TABLE>
<CAPTION>
                                                                        From August 1,
                                                                       1994 (Inception)
                                                                       to June 30, 1997
                                                                       ------------------
<S>                                                                               <C>   
Number of finance contracts acquired                                              16,079
Number of vehicles repossessed                                                     1,416
Repossessed units disposed of                                                        608
Repossessed units awaiting disposition 2                                             808
Cumulative gross charge-offs 1                                                $6,687,060
Costs of repossession 1                                                          165,903
Proceeds from auction, physical damage insurance and refunds 1               (4,088,756)
                                                                       ------------------
Net loss                                                                       2,764,207
Deficiency insurance settlement received 1                                   (1,653,352)
                                                                       ==================
Net charge-offs 1                                                             $1,110,855
                                                                       ==================
Net charge-offs per unit disposed                                                  1,827
Recoveries as a percentage of cumulative gross charge-offs 3                      85.87%
</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 June 30, 1997.

2 The vehicles may have been sold at
auction; however AutoBond might not have received all insurance proceeds as of
June 30, 1997.

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


                                    Page 20


<PAGE>

<PAGE>


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 six months ended June 30, 1996 and 1997, $33.4 million and $66.9 million,
respectively, was used by the Company to purchase finance contracts, $324,957
and $809,626, respectively, was received as payments on finance contracts, and
$35.8 million and $65.6 million, respectively, was received from sales of
finance contracts, primarily through securitizations. The Company used $687,925
and $1,276,715 to fund cash reserve accounts for the securitizations completed
in the six months ended June 30, 1996 and 1997, respectively.

        Significant activities comprising cash flows from financing activities
include net borrowings (repayments) under revolving credit facilities of
$(913,129) and $7.0 million for the six months ended June 30, 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.

        At June 30, 1997, the Company had no outstanding balance 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% (10.25% at June 30, 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. In April 1996, the Company paid a
one-time commitment fee of $700,000 to Sentry. Under the Sentry Facility, the
Company incurred interest expense of $241,767 for the six months ended June 30,
1997.

        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% (6.84% at June 30, 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


                                    Page 21


<PAGE>

<PAGE>

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. At June 30, 1997, advances under the Daiwa Facility
totaled $7,000,000, in addition to $33,000,000 in advances derecognized pursuant
to SFAS No. 125. The Company incurred interest expense of approximately $445,232
during the six months ended June 30, 1997.

        On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
qualifying unconsolidated special purpose subsidiary, AutoBond Master Funding
Corporation. These secured variable funding notes are convertible into term
notes prior to March 1998 at the option of the noteholder.

        Notes Payable. Pursuant to the an agreement (the "Securities Purchase
Agreement") entered into on June 30, 1997, the Company issued by private
placement $2,000,000 in aggregate principal amount of senior secured convertible
notes ("Convertible Notes"). Interest is payable quarterly at a rate of 18% per
annum until maturity on June 30, 2000. If the Company pays down the Convertible
Notes in full prior to June 30, 1998, the holders will have no conversion
rights. The Convertible Notes, collateralized by the interest-only strip
receivables from the Company's first four securitizations, are convertible into
shares of common stock of the Company upon the earlier to occur of (i) an event
of default on the Convertible Notes and (ii) June 30, 1998, through the close of
business on June 30, 2000, subject to prior redemption. The conversion price is
equal to the outstanding principal amount of the Convertible Note being
converted divided by the lesser of (x) $5.00 (as adjusted by the terms of the
Securities Purchase Agreement) and (y) 85% of the average of the five lowest
closing bid prices of the Company's common stock on the Nasdaq Stock Market, or
such other exchange or market where the common stock is then traded during the
60 trading days immediately preceding the date the Convertible Note is converted
or the applicable date of repayment (subject to adjustment under certain
circumstances specified in the Securities Purchase Agreement). The Company also
paid certain debt issuance costs to the purchaser totaling $25,000, which is
being amortized as interest expense on a straight line basis through June 30,
2000.

        Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998.

        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 non-recourse
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.

        In the Company's March 1997 securitization transaction, the Company sold
a pool 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 retained rights to the
remaining excess spread cash flows, which may be used to collateralize
borrowings on a non-recourse

                                    Page 22


<PAGE>

<PAGE>

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.

        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 non-recourse basis, collateralized by its
interest in future excess spread cash flows from its securitization trusts. At
June 30, 1997, the Company held interest-only strip receivables and Class B
Certificates totaling $19.7 million, substantially all of which had been pledged
to collateralize notes payable of $10.7 million. The Class C Notes from the
March 1997 transaction were sold to investors during March 1997.

        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 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, issuance of convertible notes 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



                                    Page 23


<PAGE>

<PAGE>


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.


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 a significant effect
on the earnings per share calculation.




                                    Page 24



<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

        The Company's annual meeting of shareholders was held on May 13, 1997 at
the company's headquarters in Austin, Texas. At the meeting, William O.
Winsauer, Adrian Katz, John S. Winsauer, Thomas I. Blinton, Robert S. Kapito,
Manual A. Gonzalez and Stuart A. Jones, comprising all of the Company's Board of
Directors, were elected to an additional one-year term. In addition, the annual
appointment of Coopers & Lybrand L.L.P. as the Company's independent public
accountants was approved.

        A total of 5,493,900 shares (representing a quorum of 84.3% of the
Company's outstanding common stock) were voted at the meeting for the election
of directors and the approval of the accountants. 5,487,900 shares were voted
"FOR" both items, with 6,000 share votes withheld.


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 25



<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  effective  as of May 1,  1996  between  William  O.
              Winsauer and the Company
10.10*        Vender's  Comprehensive Single Interest Insurance Policy and Endorsements,
              issued by Interstate Fire & Casualty Company
10.11*        Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.12*        Employee Stock Option Plan 10.13* Dealer Agreement dated November 9,
              1994, between the Company and Charlie
              Thomas Ford, Inc.
10.14*        Automobile Loan Sale Agreement,  dated as of September 30, 1996, among the
              Company,  First Fidelity Acceptance Corp., and Greenwich Capital Financial
              Products, Inc.
10.15+        Servicing Agreement, dated as of January 29, 1997, between CSC
              LOGIC/MSA L.P.P., doing business as "Loan Servicing Enterprise"
              and the Company
10.16+        Credit  Agreement,  dated as of February 1, 1997,  among AutoBond  Funding
              Corporation II, the Company and Daiwa Finance Corporation
10.17+        Security Agreement, dated as of February 1, 1997, by and among
              AutoBond Funding Corporation II, the Company and Norwest Bank
              Minnesota, National Association
10.18+        Automobile Loan Sale Agreement, dated as of March 21, 1997, by and
              between Credit Suisse First Boston Mortgage Capital L.L.C., a
              Delaware limited liability company, and the Company
10.19         Credit Agreement,  dated as of June 30, 1997, by and among AutoBond Master
              Funding Corporation, the Company and Daiwa Finance Corporation
10.20         Trust Indenture,  dated as of June 30, 1997, among AutoBond Master Funding
              Corporation, the Company and Norwest Bank Minnesota, National Association.
10.21         Securities  Purchase  Agreement,  dated as of June 30, 1997,  by and among
              the  Company,   Lion  Capital   Partners,   L.P.  and  Infinity   Emerging
              Opportunities Limited.
21.1          Subsidiaries of the Company
27.1          Financial Data Schedule
</TABLE>

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


+ Incorporated by reference to the Company's 1996 annual report on Form 10-K for
the year ended December 31, 1996.


x Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997.


(b)      Reports of Form 8-K

        No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.




                                    Page 26


<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 August 14, 1997.

                                   AUTOBOND ACCEPTANCE CORPORATION


                                         /s/ WILLIAM O. WINSAUER
                                   BY:______________________________________
                                     WILLIAM O. WINSAUER, CHAIRMAN OF THE BOARD
                                               AND CHIEF EXECUTIVE OFFICER
                                               


                                        /s/ R. T. PIGOTT, JR.
                                   BY:______________________________________
                                     R. T. PIGOTT, JR., VICE PRESIDENT AND
                                                CHIEF FINANCIAL OFFICER


                                Page 27

<PAGE>