MONACO FINANCE INC, 10QSB, 1999-05-17

MONACO FINANCE INC
10QSB, 1999-05-17
AUTO DEALERS & GASOLINE STATIONS

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FORM 10-QSB

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: MARCH 31, 1999

Commission File Number: 0-18819

MONACO FINANCE, INC.
--------------------
(Exact Name of Registrant as Specified in its Charter)

Colorado
--------
(State or Other Jurisdiction of Incorporation or Organization)
84-1088131
----------
(I.R.S. Employer Identification No.)

370 Seventeenth Street, Suite 5060, Denver, Colorado 80202
----------------------------------------------------------
(Address of Principal Executive Offices)

(303) 592-9411
--------------
(Registrant's Telephone Number, Including Area Code)

N/A
---
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports),
Yes X No
-

and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
-

Number of shares outstanding of the Issuer's Common Stock as of March 31,
1999:

Class A Common Stock, $.01 par value: 2,554,558 shares
Class B Common Stock, $.01 par value: 254,743 shares

Exhibit index is located on page .
Total number of pages : 32
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES

FORM 10-QSB

QUARTER ENDED MARCH 31, 1999

INDEX

PAGE NO.
---------
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (unaudited) 3
Consolidated Balance Sheets at March 31, 1999 (unaudited)
and December 31, 1998 4
Consolidated Statement of Shareholders' Equity for the three
months ended March 31, 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-16
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-28
PART II - OTHER INFORMATION 29
EXHIBIT 11 - Computation of Net Earnings (Loss) per
Common Share 30
EXHIBIT 27 - Financial Data Schedule 31
SIGNATURE 32

<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
MONACO FINANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998
(unaudited)
<TABLE>

THREE MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>

REVENUES:
Interest $ 3,742,051 $6,549,238
Other income 9,936 10

Total revenues $ 3,751,987 $6,549,248

COSTS AND EXPENSES:
Provision for credit losses (Note 3) 750,000 16,873
Operating expenses 3,965,990 3,516,014
Interest expense (Note 5) 2,258,169 3,054,522
Total costs and expenses 6,974,159 6,587,409

Net (loss) before income taxes (3,222,172) (38,161)
Income tax expense (Note 7) 0 0

Net (loss) (3,222,172) (38,161)

Preferred stock dividends (Note 6) 109,123 0

Net (loss) applicable to common stockholders' ($3,331,295) ($38,161)

(Loss) per common share - basic and
diluted (Note 6) ($1.19) ($0.02)

Weighted average number of common
shares outstanding 2,809,301 1,776,554
<FN>

See notes to consolidated financial statements.
</TABLE>

<PAGE>

MONACO FINANCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
<TABLE>

MARCH 31, DECEMBER 31,
1999 1998
<S> <C> <C>

ASSETS
Current Assets
Cash and cash equivalents 424,244 515,679
Restricted cash 6,833,293 5,501,967
Automobile receivables - net (Notes 3 and 5) 91,716,443 107,201,241
Other receivables 62,017 66,527
Repossessed vehicles held for sale 2,973,758 3,048,171
Deferred income taxes (Note 7) 0 0
Furniture and equipment, net of accumulated
depreciation of $3,028,242 and $2,660,985 1,739,463 2,173,295
Other assets 1,154,951 1,371,854
Total assets 104,904,169 119,878,734

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 997,294 1,234,377
Accrued expenses and other liabilities 1,531,828 1,431,127
Notes payable (Note 5) 0 50,000
Warehouse note payable (Note 5) 55,063,787 43,581,000
Portfolio purchase note payable (Note 5) 33,035,666 39,298,048
Promissory notes payable (Note 5) 3,650,000 ,2850,000
Senior subordinated debt (Note 5) 999,998 999,998
Convertible senior subordinated debt (Note 5) 3,785,000 4,055,000
Automobile receivables-backed notes (Note 5) 0 17,213,594
Total liabilities 99,063,573 110,713,144
Commitments and contingencies (Note 4)
Stockholders' equity (Note 6)
Series 1998-1 preferred stock; no par value, 10,000,000
shares authorized, 2,347,587 shares issued;
liquidation preference. 4,695,174 4,695,174
Series 1999-1 preferred stock; no par value, 585,725 shares
shares authorized; 418,375 shares issued; $836,750
liquidation preference subordinate to 1998-1 836,750 836,750
Class A common stock, $.01 par value; 30,000,000
shares authorized, 2,554,558 shares issued 127,728 127,728
Class B common stock, $.01 par value; 2,250,000
shares authorized, 254,743 shares issued 12,737 12,737
Additional paid-in capital 31,076,868 31,070,567
Accumulated (deficit) -30,908,661 -27,577,366
Total stockholders' equity 5,840,596 9,165,590
Total liabilities and stockholders' equity 104,904,169 119,878,734
<FN>

See notes to consolidated financial statements.
</TABLE>

<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the three months ended March 31, 1999
(unaudited)

<TABLE>

SERIES 1999-1 SERIES 1998-1
PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 418,375 $ 836,750 234,7587 $ 4,695,174
Imputed value on issuance of warrants
Net (loss) for the period
=============== ================ ============ ===========
418,375 $ 836,750 2,347,587 $ 4,695,174

CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN- RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ------ ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance - December 31, 1998 2,554,558 $127,728 254,743 $12,737 $31,070,567 ($27,577,366) $ 9,165,590
Imputed value on issuance of warrants 6,301 6,301
Net (loss) for the period (3331295) (3,331,295)
========= ======== ======= ======= =========== ============= ============
2,554,558 $127,728 254,743 $12,737 $31,076,868 ($30,908,661) $ 5,840,596

<FN>

See notes to consolidated financial statements.
</TABLE>

<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
(unaudited)
<TABLE>

THREE MONTHS ENDED MARCH, 31,
1999 1998
------------------------------ ------------
<S> <C> <C>

Cash flows from operating activities:
- ---------------------------------------------------
Net loss -$3,331,295 -$38,161
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 413,566 261,308
Provision for credit losses 750,000 16,873
Amortization of excess interest 1,274,872 2,67,742
Amortization of other assets 562,156 369,369
Deferred tax asset 0 38,197
Loss on sale of fixed assets 17789 0
Other -13,605 -4,028
Change in assets and liabilities:
Receivables 1,803,323 5,461,363
Prepaids and other assets 29,735 -9,262
Accounts payable -237,083 -440,213
Accrued liabilities and other 114,307 301,621
Net cash provided by operating activities 1,383,765 8,124,809
Cash flows from investing activities:
- ---------------------------------------------------
Retail installment sales contracts purchased -1,310,635 -92,621,663
Proceeds from payments on contracts 13,046,162 15,457,826
Return/(Purchase) of furniture and equipment 2,327 -388,944
Proceeds from sale of fixed assets 150 0
Net cash (used in) investing activities 11,738,004 -77,552,781
Cash flows from financing activities:
- ---------------------------------------------------
Net borrowings under lines of credit 5,220,405 77,452,524
Net decrease (increase) in restricted cash -1331326 10,721
Proceeds from notes 800,000 0
Payments on notes -17,533,594 -6,362,774
Proceeds from exercise of stock options 0 0
Increase in debt issue and conversion costs -368,689 -363,512
Net cash provided by (used in) financing activities -13,213,204 70736,959
Net decrease in cash and cash equivalents -91,435 1,308,987
Cash and cash equivalents, beginning of year 515,679 757,541
Cash and cash equivalents, end of year $ 424,244 $ 2,066,528
<FN>

See notes to consolidated financial statements.
</TABLE>

<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Monaco Finance, Inc. (the "Company") is a specialty consumer finance
company which has engaged in the business of underwriting, acquiring,
servicing and securitizing automobile retail installment contracts
("Contract(s)"). The Company has provided special finance programs (the
"Program(s)") to assist purchasers of vehicles who do not qualify for
traditional sources of bank financing due to their adverse credit history, or
for other reasons which may indicate credit or economic risk ("Sub-prime
Customers). The Company has acquired Contracts in connection with the sale of
used, and to a limited extent, new vehicles, to customers, from automobile
dealers (the "Dealer(s)" or the "Dealer Network") located in forty-eight
states, the majority of which are acquired from four states. The Company has
also purchased portfolios of sub-prime loans from third parties other than
dealers. At March 31, 1999 the Company's loan portfolio had an outstanding
balance of approximately $91.7 million.

Pacific USA Holdings Corp. and related entities ("Pacific USA) holds a
controlling interest in the Company at March 31, 1999 (Note6).

The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-QSB and consequently do not
include all of the disclosures normally made in the registrant's annual Form
10-KSB filing. These financial statements should be read in conjunction with
the financial statements and notes thereto included in Monaco Finance, Inc.'s
latest annual report on Form 10-KSB.

PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
Monaco Finance, Inc. and its wholly-owned subsidiaries, MF Receivables Corp.
II ("MF II"), MF Receivables Corp. III ("MF III"), MF Receivables Corp. IV
("MF IV") and Monaco Funding (the "Subsidiaries"). All inter-company accounts
and transactions have been eliminated in consolidation.

INTERIM UNAUDITED FINANCIAL STATEMENTS
Information with respect to March 31, 1999 and 1998, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations
of the Company. The results of operations for the three months ended March 31,
1999 and 1998 are not necessarily indicative of the results of the entire
year.

REPOSSESSED VEHICLES HELD FOR RESALE
Repossessed vehicles held for resale consist of repossessed vehicles
awaiting liquidation. Repossessed vehicles are carried at estimated actual
cash value. At March 31, 1999 and December 31, 1998, approximately 807 and
843 repossessed vehicles, respectively, were awaiting liquidation. Included
are vehicles held for resale, vehicles which have been sold for which payment
has not been received and un-located vehicles (skips), which a portion of the
value may be recovered from insurance proceeds.

EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding. Dilutive earnings per share is computed similarly, but
also gives effect to the impact convertible securities, such as convertible
debt, stock options and warrants, if dilutive, would have on net income and
average common shares outstanding if converted at the beginning of the year.
The Company has incurred losses in each of the periods covered in these
financial statements, thereby making the inclusion of convertible securities
in the 1998 and 1999 dilutive earnings per share computations anti-dilutive.
Accordingly, convertible securities have already been excluded from the
previously reported primary and fully diluted earnings per share amounts and
do not require restatement. Basic and dilutive earnings per share are the
same for each period presented.

USE OF ESTIMATES
The preparation of financial statements in conformity with general
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are
adequate, however, actual results could differ from those estimates.

In connection with the purchase of Contracts, the Company is required to
estimate the number and dollar amount of loans expected to result in defaults
and to estimate the amount of loss that will be incurred under each default.
The Company currently provides allowances for these losses based on the
historical performance of the Contracts which are tracked by the Company on a
static pool basis. The actual losses incurred could differ materially from the
amounts that the Company has estimated in preparing the historical
consolidated financial statements. Furthermore, the recent transfer of the
portfolio to another servicer may adversely impact the performance of the
portfolio.

TREASURY STOCK
In accordance with Section 7-106-302 of the Colorado Business Corporation
Act, shares of its own capital stock acquired by a Colorado corporation are
deemed to be authorized but un-issued shares. APB Opinion No. 6 requires the
accounting treatment for acquired stock to conform to applicable state law.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

MARCH 31,
<TABLE>

<S> <C> <C>
1999 1998
Cash Payments for:
Interest . . . . . $2,195,087 $2,709,569
Income Taxes . . . $ 0 $ 3,180
<FN>

</TABLE>

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Included as part of the consideration paid for the January 1998 portfolio
acquisition from Pacific USA Holdings Corp. (Notes 5 and 6), the Company
issued 162,231 shares of Class A Common Stock valued at $2.00 per share and
2,433,457 shares of 8% Cumulative Convertible Preferred Stock, Series 1998-1
valued at $2.00 per share. As of March 31, 1999 Pacific USA repurchased
certain loans that have resulted in the surrender of 85,870 shares of
Preferred Stock.
Effective July 1, 1998, Pacific USA Holdings Corp. converted $4,463,250
of its $5.0 million Promissory Note (Note 5) into 939,632 restricted shares of
the Company's Class A Common Stock.

Effective December 31, 1998, Pacific USA Holdings Corp. converted the
remaining $536,750 of its $5.0 million Promissory Note (Note 5) and $300,000
of its $1.4 million Promissory Note (Note 5) into 418,375 shares of 8%
Cumulative Subordinated Preferred Stock, Series 1999-1 valued at $2.00 per
share.

RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform
with the current year presentation.

NOTE 2 - CONTINUED OPERATIONS
- ---------------------------------
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. During the three months ended
March 31, 1999 and for the year ended December 31, 1998, the Company continued
to suffer recurring losses in excess of $3,000,000 and $11,000,000,
respectively, resulting in an accumulated deficit of approximately $31,000,000
at March 31, 1999. In addition, the Company lost its financing sources (Note
5). The Company will be seeking to obtain new financing sources. In the
event the Company obtains new financing sources it will attempt to implement a
business strategy based upon joint ventures with third parties. This strategy
will include purchasing Contracts having (i) higher discounts to face (ii)
shorter terms and (iii) lower amounts financed. No assurance can be nor is
given that new and adequate sources of financing will be obtained.
Furthermore, no assurance can be nor is given that the business strategy will
be implemented, and if implemented will be successful. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.

NOTE 3 - AUTOMOBILE RECEIVABLES
<TABLE>

Automobile receivables consist of the following:

<S> <C> <C>
MARCH 31, DECEMBER 31,
1999 1998
Retail installment sales contracts $90,082,839 $ 85,370,939
Retail installment sales contracts-Trust (Note 5) 0 19,742,374
Total finance receivables 90,082,839 105,113,313
Allowance for credit losses (6,988,281) (9,872,318)
Automobile receivables - direct 83,094,558 95,240,995
Excess interest receivable 5,090,802 6,307,075
NAFCO loan loss reimbursement receivable (Note 6) 2,337,724 4,034,830
Accrued interest 1,081,456 1,426,838
Other 111,903 191,503
Automobile related receivables 8,621,885 11,960,246
Automobile receivables - net $91,716,443 $ 107,201,241
<FN>

</TABLE>

At March 31, 1999, the accrual of interest income was suspended on $1.6
million of principal amount of retail installment sales contracts.

At the time installments sale contracts ("Contracts") are originated or
purchased, the Company estimates future losses of principal based on the type
and terms of the Contract, the credit quality of the borrower and the
underlying value of the vehicle financed. This estimate of loss is based on
the Company's risk model, which takes into account historical data from
similar contracts originated or purchased by the Company since its inception
in 1988. However, since the risk model uses past history to predict the
future, changes in national and regional economic conditions, borrower mix and
other factors could result in actual losses differing from initially
predicted losses.

The allowance for credit losses, as presented below, has been established
utilizing data obtained from the Company's risk models and is continually
reviewed and adjusted in order to maintain the allowance at a level which, in
the opinion of management, provides adequately for current and future losses
that may develop in the present portfolio. A provision for credit losses is
charged to earnings in an amount sufficient to maintain the allowance. This
allowance is reported as a reduction to Automobile Receivables.

<TABLE>

ALLOWANCE FOR
CREDIT LOSSES
<S> <C>

Balance as of December 31, 1998 . . . . . . . $ 9,872,318
Provisions for credit losses. . . . . . . . . 750,000
Unearned interest income. . . . . . . . . . . 58,599
Unearned discounts. . . . . . . . . . . . . . 106,848
Retail installment sale contracts charged off (6,236,416)
Recoveries. . . . . . . . . . . . . . . . . . 2,436,932
Balance as of March 31, 1999. . . . . . . . . $ 6,988,281

<FN>

</TABLE>

The provision for credit losses is based on estimated losses on all
Contracts purchased prior to January 1, 1995 with zero discounts ("100%
Contracts") and for all Contracts originated by CarMart which have been
provided for by additions to the Company's allowance for credit losses as
determined by the Company's risk analysis.

Upon the acquisition of certain Contracts from its Dealer Network, a
portion of future interest income, as determined by the Company's risk
analysis, was capitalized into Automobile Receivables (excess interest
receivable) and correspondingly used to increase the allowance for credit
losses (unearned interest income). Receipts of excess interest are applied to
reduce excess interest receivable. For the three months ended March 31, 1999,
$1,274,872 of excess interest income was amortized against excess interest
receivable.

Unearned discounts result from the purchase of Contracts from the Dealer
Network at less than 100% of the face amount of the note. All such discounts
are used to increase the allowance for credit losses.

NOTE 4 - COMMITMENTS AND CONTINGENCIES
- -------------------------------------------

CONTINGENCIES
The Company and its Subsidiaries at times are subject to various legal
proceedings and claims that arise in the ordinary course of business. In the
opinion of management of the Company, based in part on the advice of counsel,
the amount of any ultimate liability with respect to these actions will not
materially affect the results of operations, cash flows or financial position
of the Company. It is the Company's and its Subsidiaries' policy to vigorously
defend litigation, however, the Company and its Subsidiaries have, and may in
the future, enter into settlements of claims where management deems
appropriate.

NOTE 5 - DEBT
- ----------------
In February and March of 1999 the Company, MFIII, and MFIV received
verbal notification from Daiwa that there existed certain violations of
non-portfolio performance related covenants in the credit agreement and that
as a result (i) no additional funds would be advanced to MFIII under the
Warehouse Line of Credit; (ii) Daiwa has mandated that the Company cooperate
in transferring the servicing of the auto loans to a successor servicer to be
appointed by Daiwa; and (iii) except for servicing related fees and expenses,
Daiwa is collecting all cash flows in excess of Daiwa's regularly scheduled
principal and interest payments under the Credit Facilities. In connection
with the foregoing (i) MFIII and MFIV will be entering into a servicing
agreement with a successor servicer (an unrelated third party) selected by
Daiwa; and (ii) the Company did complete the servicing transfer on April 15,
1999. (See Item 2.)

LASALLE NATIONAL BANK
In January 1996, the Company entered into a revolving line of credit
agreement with LaSalle National Bank ("LaSalle") providing a line of credit
of up to $15 million, not to exceed a borrowing base consisting of eligible
accounts receivable to be acquired. The scheduled maturity date of the line of
credit was extended from January 1, 1998 to March 23, 1998, at which time the
outstanding balance on the line of credit was paid in full.

On or about March 23, 1998, the Company entered into a senior debt
financing facility with LaSalle and the outstanding balance was paid in full
on January 8, 1999.

WAREHOUSE LINE OF CREDIT - DAIWA FINANCE CORPORATION
In December 1997, MF Receivables Corp. III ("MF III"), a wholly owned
special purpose subsidiary of the Company, entered into a $75 million
Warehouse Line of Credit with Daiwa Finance Corporation ("Daiwa"). All
advances received under the line of credit are secured by eligible loan
Contracts and all proceeds received from those Contracts. The scheduled
maturity date in respect to any advance under the line of credit is the
earlier of 364 days following the date of the advance or December 3, 1999.
Under the Credit Agreement, 85% of the amount advanced to the Company accrues
interest at a rate equal to LIBOR plus 2.5% per annum. The remaining 15% of
the amount advanced accrues interest at a rate of 12% per annum. The Company
is obligated to pay Daiwa an unused facility fee equal to .375% of the average
daily unused portion of the credit agreement. The Credit Agreement requires
the Company to maintain certain standard ratios and covenants. At March 31,
1999, the Company had borrowed $55,063,787 against this line of credit. The
assets of MF III are not available to pay general creditors of the Company.
(See Item 2.)

PORTFOLIO PURCHASE CREDIT FACILITY - DAIWA FINANCE CORPORATION
In January 1998, MF Receivables Corp. IV ("MF IV"), a wholly owned
special purpose subsidiary of the Company, entered into a $73,926,565.01
Portfolio Purchase Credit Facility (the "Credit Facility") with Daiwa. The
proceeds from the Credit Facility were used to acquire an $81.1 million
portfolio from Pacific USA Holdings Corp. and certain of its subsidiaries
(Note 5). All advances received under the Credit Facility are secured by
eligible purchased loan Contracts and all proceeds received from those
Contracts. The scheduled maturity date with respect to the advances under the
Credit Facility is the earlier of January 6, 1999 or the disposition date of
the eligible purchased loan Contract. Under the Credit Facility, prior to July
1, 1998, 85% of the amount advanced to the Company accrues interest at a rate
equal to LIBOR plus 1.0% per annum. Effective July 1, 1998, the interest rate
on this advance changes to LIBOR plus 3.5% per annum. The remaining 15% of
the amount advanced accrues interest at a rate of LIBOR plus 1.0% per annum
prior to July 1, 1998. Effective July 1, 1998, the interest rate on this
advance changes to 15% per annum. The Credit Facility Agreement requires the
Company to maintain certain standard ratios and covenants. At March 31, 1999,
the Credit Facility had an outstanding balance of $33,035,666. The assets of
MF IV are not available to pay general creditors of the Company. (See Item
2.)

PACIFIC USA HOLDINGS CORP. - INSTALLMENT NOTE
On October 9, 1996, the Company entered into a Securities Purchase
Agreement with Pacific USA Holdings Corp. ("Pacific") whereby, among other
things, Pacific agreed to acquire certain shares of the Company's Class A
Common Stock. On November 1, 1996, the Company entered into a Loan Agreement
with Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan").
On February 7, 1997, the Securities Purchase Agreement was terminated by the
parties; however, the Pacific Loan and its corresponding Installment Note
remained in effect.

On April 25, 1997, the Company executed a Conversion and Rights Agreement
(the "Conversion Agreement") with Pacific. The Conversion Agreement converted
the entire $3,000,000 outstanding principal amount of the installment note
made by Pacific to the Company into 300,000 restricted shares of the Company's
Class A Common Stock. The Conversion Agreement also released the Company from
all liability under the Loan Agreement executed on October 29, 1996 between
the Company and Pacific pursuant to which the $3 million loan was made.

PACIFIC USA HOLDINGS CORP. - PROMISSORY NOTE
On June 30, 1998, the Company and Pacific USA, a related party, agreed to
enter into a $5.0 million Loan Agreement ("Pacific USA Note"). Effective July
1, 1998, the Company and Pacific USA entered into a Conversion and Rights
Agreement whereby $4,463,250 of the principal amount of the Pacific USA Note
was converted into 939,632 restricted shares of the Company's Class A Common
Stock. As consideration for the conversion, the Company agreed, subject to
shareholder approval, which was obtained on November 12, 1998, to change the
conversion ratio of the Company's Preferred Stock held by Pacific USA. The
remaining unconverted principal balance of the Pacific USA Note of $536,750
was converted into 268,375 shares of the Company's Series 1999-1 8% Cumulative
Subordinated Preferred Stock as of December 31, 1998.

On September 8, 1998 the Company and Pacific Southwest Bank entered into
a Promissory Note agreement whereby Pacific Southwest lent the Company
$950,000. The Promissory Note accrues interest at the prime rate plus 1% per
annum. All outstanding principal, plus accrued and unpaid interest, was due
six months from the date of the Promissory Note. The Company is past due on
principal payments related to the Promissory Note.

On September 30, 1998 the Company and Pacific USA entered in to a
Promissory Note agreement whereby Pacific USA advanced the Company $1,000,000.
The Note was modified on October 31, 1998 to increase the principal balance by
$400,000. Effective December 31, 1998 the Note was modified when Pacific USA
converted $300,000 of the Note balance into 150,000 shares of the Company's
Series 1999-1 8% Cumulative Subordinated Preferred Stock. A third
modification, also effective December 31, 1998, increased the principal
balance by $800,000, and a fourth modification effective January 8, 1999
increased the principal balance by $400,000.00. All the aforementioned
outstanding principal, plus accrued and unpaid interest, was due six months
from the date of the Promissory Note. A fifth modification effective February
10, 1999 increased the principal balance by $400,000.00 and had a maturity
date of April 30, 1999. The sixth modification effective April 12, 1999,
increased the principal balance by $210,000.00, and it extended the maturity
date to September 30, 1999 on all advances. The Promissory Note accrues
interest at the prime rate plus 1% per annum.

CONVERTIBLE SUBORDINATED DEBENTURES
On March 15, 1993, the Company completed a private placement of
$2,000,000, 7% Convertible Subordinated Notes (the "Notes") with interest
payable semiannually commencing September 1, 1993. Additionally, the
purchasers of the Notes exercised an option to purchase an additional
$1,000,000 aggregate principal amount of the Notes on September 15, 1993. The
principal amount of the Notes, plus accrued and unpaid interest, was due on
March 1, 1998. On March 1, 1998, the Company repaid one-half, or $692,500, of
the then outstanding principal amount of the Notes. The maturity date of the
remaining principal amount of notes of $692,500 was extended to April 15,
1998, without penalty, at which time the Company repaid the remaining
principal amount. Certain of these Notes with an aggregate principal amount
of $1,615,000 were converted resulting in the issuance of 94,444 shares of
Class A Common Stock.

SENIOR SUBORDINATED NOTE - ROTHSCHILD
On November 1, 1994 the Company sold, in a private placement, unsecured
Senior Subordinated Notes ("Rothschild Notes") in the gross principal amount
of $5,000,000 to Rothschild North America, Inc. ("Rothschild"). The
Rothschild Notes accrue interest at a fixed rate per annum of 9.5% through
October 1, 1997, and for each month thereafter, a fluctuating rate per annum
equal to the lesser of (a) 11.5% or (b) 3.5% above LIBOR.

Interest was due and payable the first day of each quarter commencing on
January 1, 1995. Principal payments in the amount of $416,667 were due and
payable the first day of January, April, July and October of each year
commencing January 1, 1997.

On June 15, 1998, the Company and Rothschild amended the Note Purchase
Agreement to require principal payments of $450,000 on the last day of each
March, June, September and December. In lieu of the principal payment of
$416,667 due on July 1, 1998, the Company made a payment to Rothschild on June
30, 1998 of $600,000. The unpaid principal amount of the Rothschild Notes,
plus accrued and unpaid interest, is due October 1, 1999. At March 31, 1999
the outstanding balance was $999,998. In March 1999, the Company failed to
make the scheduled payment and has received verbal notification from
Rothschild that the Company is in default of certain payment covenants
pertaining to the Rothschild Notes. The Company believes Rothschild lenders
have certain enforcement rights under their agreement. These rights, in the
opinion of the Company, are subject to specific subordination and
"stand-still" provisions as long as the Company has senior debt outstanding.
As of March 31, 1999 the Company had approximately $3,800,000 of senior debt,
including accrued interest, outstanding.

SENIOR SUBORDINATED NOTES - BLACK DIAMOND
On January 9, 1996, the Company entered into a Purchase Agreement for the
sale of an aggregate of $5 million in principal amount of 12% Convertible
Senior Subordinated Notes due 2001 (the "12% Notes"). This agreement was
subsequently amended and approved by the Company's Board of Directors and
approved by the Company's Shareholders on September 10, 1996. Interest on the
12% Notes is payable monthly at the rate of 12% per annum and the 12% Notes
were convertible, subject to certain terms contained in the Indenture, into
shares of the Company's Class A Common Stock, par value $.01 per share, at a
conversion price of $4.00 per share, subject to adjustment under certain
circumstances. The 12% Notes were issued pursuant to an Indenture dated
January 9, 1996, between the Company and Norwest Bank Minnesota, N.A., as
trustee. The Company agreed to register, for public sale, the shares of
restricted Common Stock issuable upon conversion of the 12% Notes. The 12%
Notes were sold pursuant to an exemption from the registration requirements
under the Securities Act of 1933, as amended.

A provision had been made for the issuance of up to an additional $5
million in principal amount of the 12% Notes ("Additional 12% Notes") on or
before September 10, 1998, between the Company and Black Diamond Advisors,
Inc. ("Black Diamond"), one of the initial purchasers, with an initial
conversion price of $3.00 per share.

On June 12, 1998, the Company and the related noteowners agreed to amend
the Indenture to cancel the conversion feature of the 12% Notes and to require
principal payments of $135,000 per month commencing in June 1998. The
maturity date of the 12% Notes was also amended to the earlier of the maturity
date of the Rothschild Notes or October 1, 1999. The outstanding balance of
the 12% Notes as of March 31, 1999 was $3,785,000. In March, April and May
1999, the Company failed to make the scheduled payments and has received
verbal notification from Black Diamond that the Company is in default of
certain payment covenants pertaining to the 12% Notes. The Company believes
the 12% Note lenders have certain enforcement rights under their agreements.
These rights, in the opinion of the Company, are subject to specific
subordination and "stand-still" provisions as long as the Company has senior
debt outstanding. As of March 31, 1999 the Company had approximately
$3,800,000 of senior debt, including accrued interest, outstanding.

AUTOMOBILE RECEIVABLES - BACKED NOTES
In June 1997, MF Receivables Corp. II ("MF II"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $42,646,534
of Class A automobile receivables-backed notes ("Series 1997-1A Notes" or
"Term Note") to an outside investor and $2,569,068 of Class B automobile
receivables-backed notes ("Class B Notes") to Monaco Funding Corp., a
wholly-owned special purpose subsidiary of the Company. The Series 1997-1A
Notes accrued interest at a fixed rate of 6.71% per annum. On or about
January 16, 1999 the Company redeemed the outstanding Class A Certificates of
MFII for a total redemption price of approximately $16.7 million. The
transaction was financed through the existing Warehouse Credit Facility with
Daiwa Finance Corporation and MFIII. Following the redemption, the Company,
MFII, and MFIII, entered into an arrangement whereby the assets of MFII,
consisting of $18.7 million of Automobile Backed Consumer Contracts were
transferred to MFIII.

In connection with the purchase of the Class B Notes, Monaco Funding
Corp. borrowed $2,525,000 from a financial institution ("Promissory Note").
The Promissory Note accrues interest at a fixed rate of 16% per annum and is
collateralized by the proceeds from the Class B Notes. The Class B Notes, and
the Promissory Note, were repaid in April 1998.

The assets of MF I, MF II and Monaco Funding Corp. were not available to
pay general creditors of the Company.

NOTE 6 - STOCKHOLDERS' EQUITY
- ---------------------------------

COMMON STOCK
The Company has two classes of common stock. The two classes are the
same except for the voting rights of each. Each share of Class B stock
retains three votes while each share of Class A stock retains one vote per
share.

STOCK OPTION PLANS
During the three months ended March 31, 1999, no new stock options were
granted. During this same period no options were exercised and 19,914 options
were cancelled.

The Company accounts for its stock option plan in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation, which encourages entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net earnings and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.

The Company uses one of the most widely used options pricing models, the
Black-Scholes model (the Model), for purposes of valuing its stock options
grants. The Model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, it requires the input of highly subjective assumptions including the
expected stock price volatility, expected dividend yields, the risk free
interest rate, and the expected life. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the value determined by the Model is
not necessarily indicative of the ultimate value of the granted options.

PREFERRED STOCK
In connection with its portfolio acquisition strategy, the Company
entered into an Amended and Restated Asset Purchase Agreement dated as of
January 8, 1998 (the "Asset Purchase Agreement"), with Pacific USA Holdings
Corp. ("Pacific USA") and certain of its wholly-owned or partially-owned
subsidiaries - Pacific Southwest Bank ("PSB"), NAFCO Holding Company LLC
("NAFCO"), Advantage Funding Group, Inc. ("Advantage") and PCF Service, LLC -
providing for, among other things, the purchase by the Company of sub-prime
automobile loans from NAFCO and Advantage having an unpaid principal balance
of approximately $81,115,233 for a purchase price of $77,870,623 of which
$73,003,709 was paid in cash. Daiwa Finance Corporation (Note 5) provided
financing. The Company also agreed to issue Daiwa warrants for the purchase of
50,000 shares of Class A Common Stock for which the Company imputed a value of
$84,000. The balance of the purchase price of $4,866,914 was paid through the
issuance of 2,433,457 shares of the Company's 8% Cumulative Convertible
Preferred Stock, Series 19981 (the "1998-1 Preferred Stock") valued at $2.00
per share. As of December 31, 1998, Pacific USA repurchased loans with an
original purchased principal balance of approximately $2.9 million. In
addition to the repurchase proceeds of $2.6 million from Pacific USA, 85,870
shares of 1998-1 Preferred Stock were surrendered by Pacific USA to the
Company. In consideration for converting approximately $4.5 million of the
Pacific USA Note into 939,632 shares of the Company's Class A Common Stock,
the Company agreed, subject to shareholder approval, to change the conversion
ratio of the 1998-1 Preferred Stock held by Pacific USA. As originally issued,
each share of 1998-1 Preferred Stock was convertible at any time into one-half
share of Class A Common Stock. Since shareholder approval was obtained on
November 12, 1998, each two shares of 1998-1 Preferred Stock is convertible
into four shares of the Company's Class A Common Stock. As a result of the
five for one reverse split of the common shares, the conversion ratio was
amended to be each 2.5 shares of 1998-1 Preferred Stock is convertible into 1
share of the Company's Class A Common Stock, or an aggregate of up to 939,035
shares of Class A Common Stock.

As required by the Asset Purchase Agreement, PSB entered into a Loan Loss
Reimbursement Agreement whereby it agreed to reimburse the Company for up to
15% of any losses incurred by the Company in connection with the loans
acquired from NAFCO and Advantage. In consideration therefore, the Company
issued 162,230 shares of Class A Common Stock. The Company allocated
$1,622,304 to the cost of the purchased loans, which represents the value
assigned to the common shares.

Pacific USA was the record owner of 300,000 shares of Class A Common
Stock as of December 31, 1997. As a result of the December 1997 Option
Agreement with Consumer Finance Holdings, Inc. ("CFH"), a wholly owned
subsidiary of Pacific USA, it was granted the power to vote the 166,000 shares
of Class B Common Stock beneficially owned by the Messrs. Ginsburg and Sandler
(then the President and Executive Vice President, respectively, of the
Company) ("the Shareholders") and a limited power to direct the voting of
shares subject to proxies held by the Shareholders. Also, under the terms of
the Asset Purchase Agreement dated January 8, 1998, Pacific USA was issued
162,231 shares of the Company's Class A Common Stock and under the Conversion
Rights Agreement dated July 1, 1998, Pacific USA was issued 939,632 shares of
the Company's Class A Common Stock. As of the date of this report, 2,554,558
shares of Class A Common Stock were issued and outstanding and 254,743 shares
of Class B Common Stock were issued and outstanding. The Class A Common Stock
has one vote per share while the Class B Common Stock has three votes per
share. The Class A and Class B Common Stock generally vote together as one
class. Accordingly, Pacific USA may be deemed to be the beneficial owner of
approximately 59.0% of the combined outstanding shares of Class A and Class B
Common Stock and controls approximately 65.3% of the total voting power.
Pacific USA has an option expiring in December 2000 to purchase 166,000 shares
of Class B Common Stock, owned by the Shareholders, while the Shareholders
have an option, also expiring in December 2000, to require that Pacific USA
purchase all of such shares. Upon exercise of either the put option or the
call option, the Class B Common Stock purchased by CFH will automatically
convert into Class A Common Stock thereby reducing the voting power of Pacific
USA. As described herein, Pacific USA also has the right, at any time, to
convert the shares of 1998-1 Preferred Stock into 1,021,824 shares of Class A
Common Stock.

At March 31, 1999, dividends on the 1998-1 Preferred Stock are accrued
but not paid.

On November 30, 1998, Pacific USA converted $536,750 of unsecured debt
and $300,000 of secured debt into 418,375 shares of 8% Cumulative Subordinated
Preferred Stock, Series 1999-1 (the "1999-1 Preferred Stock") of the Company
valued at $2.00 per share. The 1999-1 Preferred Stock is subordinate to the
1998-1 Preferred Stock with respect to payment of dividends, redemption and
upon any liquidation of the Company. The 1999-1 Preferred Stock has no voting
rights other than as provided in the articles of incorporation or as required
by law. The Company has the right to redeem the 1999-1 Preferred Stock at any
time and from time to time, in whole or in part, for cash in the amount of
$2.00 per share plus accrued but unpaid dividends. However, the 1999-1
Preferred Stock shall not be redeemed so long as any 1998-1 Preferred Stock is
issued and outstanding. Dividends on the 1999-1 Preferred Stock are at the
annual rate of 8% ($.16 per share) payable quarterly in shares of 1999-1
Preferred Stock. No dividends other than those payable solely in common stock
shall be paid with respect to the common stock unless all accumulated and
unpaid dividends on the 1998-1 Preferred Stock shall have been declared and
paid in full.

NOTE 8 - INCOME TAXES
- -------------------------
The Company is required to measure current and deferred tax consequences
of all events recognized in the financial statements by applying the
provisions of enacted tax laws to determine the amount of taxes payable or
refundable currently or in future years. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
on available evidence, are not expected to be realized. The major and primary
source of any differences is due to the Company accounting for income and
expense items differently for financial reporting and income tax purposes.

A reconciliation of the statutory federal income tax to the effective
anticipated tax is as follows:
<TABLE>

THREE MONTHS ENDED MARCH 31,
--------------------------------

1999 1998
<S> <C> <C>

Pretax (loss). . . . . . . . . . . $(3,222,172) $(38,161)
Federal tax expense (benefit)
At statutory rate - 34%. . . $(1,095,538) $(12,975)
State income tax expense (benefit) (161,109) (1,297)
. . . . . . . . . . . . . . . . . (1,256,647) (14,272)
Less valuation allowance . . . . . (1,256,647) (14,272)
Income tax expense (benefit) . . . $ 0 $ 0

<FN>

</TABLE>

Deferred taxes are recorded based upon differences between the financial
statements and tax basis of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities as of March 31,
1999, were as follows:

<TABLE>

<S> <C>

DEFERRED TAX ASSETS:
Federal and State NOL tax carry-forward $ 17,948,721
Other 194,068
======================================= ======================
18,142,789

Valuation Allowance (12,150,474)
Total deferred tax assets 5,992,315
Deferred tax liabilities:
Allowances and origination fees (5,992,315)
Total deferred tax liability (5,992,315)
Net deferred tax asset $ 0
<FN>

</TABLE>

As of March 31, 1999, the Company had a net operating loss carryforward
of approximately $45.8 million for federal income tax reporting purposes
which, if unused, will expire between 2011 and 2014.
During the year ended December 31, 1998 there were transactions involving
changes in ownership that will significantly restrict the utilization of net
operating loss carryforwards in the future.

The principal temporary differences that will result in deferred tax
assets and liabilities are certain expenses and losses accrued for financial
reporting purposes not deductible for tax purposes until paid, depreciation
for tax purposes in excess of depreciation for financial reporting purposes
and the utilization of net operating losses. The effect of the differences
outlined above generated a long-term deferred tax asset of approximately
$12,000,000. In 1998, management determined that it was more likely than not
that the Company would not realize its deferred tax asset, therefore they
fully allowed for the entire balance resulting in a charge to 1998 income of
$1,541,582. Accordingly, there is no net deferred tax asset reflected in the
accompanying consolidated financial statements.
<PAGE>

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

FORWARD-LOOKING STATEMENTS
- ---------------------------
This quarterly report on form 10-QSB for the period ended March 31, 1999,
contains forward-looking statements. Statements that are not historical facts,
including statements about management's expectations for fiscal 1999 and
beyond, are forward-looking statements. Without limiting the foregoing, the
words "believe," "expect," "anticipate," "intends," "forecast," "project" and
similar expressions generally identify forward-looking statements. Additional
written or oral forward-looking statements may be made by the Company from
time to time in filings with the Securities and Exchange Commission or
otherwise. Such forward-looking statements are within the meaning of that term
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Such statements may include,
but are not limited to, projections of revenues, income, or loss, adequacy of
the allowance for credit losses, availability of Contracts meeting the
Company's desired risk parameters, capital expenditures, plans for future
operations, financing needs, plans or availability, objectives relating to the
Automobile Receivables and the related allowance and plans relating to
products or services of the Company, as well as assumptions relating to the
foregoing.

Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this quarterly report, including the Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," describe factors, among others, that could
contribute to or cause such differences. Additional factors that could cause
actual results to differ materially from those expressed in such
forward-looking statements are set forth in Exhibit 99 to the annual report on
Form 10-KSB for December 31, 1998. Such factors include, but are not limited
to, the Company's dependence upon additional capital to expand operations, its
reliance on debt financing, its recent losses and the effect of the
discontinuance of the CarMart operations, its reliance on securitizations, its
cost of capital and associated interest rate risks, the risks of lending to
higher-risk borrowers, the risk of adverse economic changes, the risk
associated with delayed repossessions, the potential inadequacy of its loan
loss reserves, the risk associated with extensive regulation, supervision and
licensing, the possibility of uninsured losses, the risk associated with
substantial competition, its dependence on key personnel, insurance risks,
"Year 2000" risks, the effect of outstanding options and warrants, the fact
that the Company has, to date, not paid cash dividends on its Common Stock,
the risk associated with not meeting the NASDAQ maintenance requirements and
the risk associated with one controlling shareholder.

SUMMARY
- -------
The Company's revenues and net (loss) primarily are derived from the
Company's loan portfolio consisting of Contracts purchased from the Dealer
Network, Contracts purchased from third-party originators, Contracts financed
from vehicle sales at the Company's Dealerships and Contracts purchased
through portfolio acquisitions.

The average discount on all Contracts originated pursuant to discounted
Finance Programs during the three months ended March 31, 1999 and 1998 was
approximately 7.6% and 5.9%, respectively. The Company has serviced all of the
loans that it owns. On April 15, 1999 the Company, at the mandate of Daiwa,
transferred loan servicing to an unrelated third party servicer chosen by
Daiwa. The loan portfolio at March 31, 1999 carries a contract annual
percentage rate of interest that averages approximately 21%, before discounts,
and has an original weighted average term of approximately 51 months. The
average amount financed per Contract for the three months ended March 31, 1999
and 1998 was approximately $9,844 and $9,501, respectively.
<PAGE>

RESULTS OF OPERATION
- ----------------------

OVERVIEW
<TABLE>

INCOME STATEMENT DATA
-----------------------
Quarters ended March 31,
---------------------------

(dollars in thousands, except share amounts) 1999 1998
Total revenues $ 3,752 $ 6,549
Total costs and expenses $ 6,974 $ 6,587
Net (loss) ($3,222) ($38)
Preferred stock dividends $ 109 $ 0
Net (loss) applicable to common stockholders' ($3,331) ($38)
Net (loss) per common share - basic and assuming dilution ($1.19) ($0.02)
Weighted average number of common shares outstanding 2,809,301 1,776,554
<FN>

</TABLE>

<TABLE>

INCOME STATEMENT DATA
As a % Of Outstanding Loan Portfolio (Annualized)

Quarters Ended March 31,
--------------------------
1999 1998
-------------------------- -------------
<S> <C> <C>

Average Interest Bearing Loan Portfolio Balance $ 97,598,076 $156,719,828
Interest Income 15.3% 16.7%
Interest Expense 9.2% 7.8%
- ---------------- -------------------------- -------------
6.1% 8.9%
Operating Expenses 16.2% 9.0%
Provision for Credit Losses 3.1% -
Other Income - -
- ---------------- -------------------------- -------------
19.3% 9.0%
Net (loss) before income taxes (13.2%) (0.1%)
Income tax expense - -
Net (loss) (13.2%) (0.1%)
Preferred stock dividends .4% -
Net (loss) available to common stockholders (13.6%) (0.1%)
<FN>

</TABLE>

BALANCE SHEET DATA
<TABLE>

<S> <C> <C> <C>
MARCH 31, MARCH 31, DECEMBER 31,
----------- ----------- --------------
(dollars in thousands) 1999 1998 1998
----------- ----------- --------------
Total assets $ 104,904 $ 168,029 $ 119,879
Total liabilities $ 99,064 $ 153,035 $ 110,713
Retained earnings (deficit) ($30,909) ($16,527) ($27,577)
Stockholders' equity $ 5,841 $ 14,994 $ 9,166
<FN>

</TABLE>

The Company's revenues decreased 43% from $6.5 million in the first
quarter of 1998 to $3.7 million in the comparable 1999 period. Net (loss)
applicable to common stockholders' increased from ($38,161) in the first
quarter of 1998 to ($3,331,295) in the comparable 1999 period. (Loss) per
common share for the first quarter of 1998 was ($0.02), based on 1.8 million
weighted average common shares outstanding, compared with ($1.19) per common
share, based on 2.8 million weighted average common shares outstanding, for
the comparable 1999 period. The increase in net loss was primarily due to (i)
decreased interest income which is a result of the natural aging of the
portfolio, (ii) loss of Daiwa as a funding source, (iii) the inability of the
company to purchase portfolios, (iv) higher expenses related to preparing for
the transfer of loan servicing to another servicer, and (v) by an increase in
the provision for credit losses booked in the first quarter of 1999.

OPERATIONAL ANALYSIS
- ---------------------
<TABLE>

SELECTED OPERATING DATA
Quarters ended March 31,
---------------------------
<S> <C> <C>

(dollars in thousands, except where noted) 1999 1998
------- --------
Interest income $3,742 $ 6,549
Other income 9 __
Provision for credit losses $ 750 $ 17
Operating expenses $3,966 $ 3,516
Interest expense $2,258 $ 3,054
Operating expenses as a % of outstanding portfolio 4.3% 2.3%
Contracts from Dealer Network 144 465
Contracts from portfolio purchases 0 10,037
Total contracts 144 10,502
Average amount financed (dollars) $9,844 $ 9,501
<FN>

</TABLE>

REVENUES
- --------
Total revenues for the quarter ended March 31, 1999, decreased $2.7
million when compared to first quarter of 1998 primarily due to a decrease of
$2.8 million in interest income. The rate of interest income earned for the
quarter ended March 31, 1999 was 15.3% based on an average interest bearing
portfolio balance of $97,598,076 as compared to a rate of interest income
earned of 16.7% based on an average interest bearing portfolio balance of
$156,719,828 for the quarter ended March 31, 1998. The Company's management
believes the yields for the first quarter of 1999, should be representative of
the interest income to be earned during the remainder of 1999.

The lower reported interest rate of 15.3% in the first quarter of 1999
and 16.7% in the 1998 first quarter, when compared to the contract annual
percentage rate of interest (21.3% at March 31, 1999 and 22.8% at March 31,
1998), results from the Company's use of the excess interest method of
accounting. Under this method the Company uses part of its interest income as
well as contract discounts and a provision for credit losses to establish its
allowance for credit losses on its portfolio.

During the first quarter of 1999, the Company's net Automobile
Receivables decreased from $150.8 million at March 31, 1998 to $98.7 million
at March 31, 1999. During the first quarter of 1999, the Company originated
144 loans totaling $1.4 million with an average amount financed of $9,844 as
compared to 465 loans originated and 10,037 loans through portfolio purchases
totaling $99.8 million with an average amount financed of $9,501 for the first
quarter of 1998. The average discount on all Contracts originated by the
Company was 7.6% and 5.9% for the quarters ended March 31, 1999 and 1998,
respectively.

The decrease in loan originations during the first quarter of 1999 is
primarily attributable to (i) during the first quarter of 1998 the Company
purchased a large loan portfolio with no comparable purchases during the first
quarter of 1999 and (ii) during the first quarter of 1999 the Company was not
able to borrow additional funds under its Warehouse Line of Credit with Daiwa
(see Item 2).

At March 31, 1999, only $.2 million of the Company's Auto Receivable
Loan Portfolio was generated from the discontinued CarMart operations as
compared to $1.1 million of its portfolio at March 31, 1998.

COSTS AND EXPENSES
- --------------------
An additional provision for credit losses was made in the first quarter
of 1999 of $750,000. An additional provision of $16,873 was made in the
quarter ended March 31, 1998. The provision for credit losses represents
estimated current losses based on the Company's risk analysis of historical
trends and expected future results. The increase in the provisions for credit
losses primarily was due to recording an amount sufficient to maintain the
allowance. Net charge-offs as a percentage of Average Net Automobile
Receivables increased from 2.9% in the first three months of 1998 to 4.4% in
the comparable 1999 period. Although the Company believes that its allowance
for credit losses is sufficient for the life of its current portfolio, further
provisions for credit losses may be charged to future earnings in an amount
sufficient to maintain the allowance. The Company had 1.9% of its loan
portfolio over 60 days past due at March 31, 1999 compared with 1.2% at March
31, 1998.

The Company believes that the increase in net charge-offs as a percentage
of Average Net Automobile Receivables is due to the portfolio mix. The
Company acquired a large portfolio in January 1998 that had predicted losses
of a higher rate than the 1997 portfolio. These losses were adequately
reserved for at the time the portfolio was purchased.

Effective October 1, 1996, the Company adopted a new methodology for
reserving for and analyzing its loan losses. This accounting method is
commonly referred to as static pooling. The static pooling reserve methodology
allows the Company to stratify its Automobile Receivables portfolio, and the
related components of its Allowance for Credit Losses (i.e. discounts, excess
interest, charge offs and recoveries) into separate and identifiable quarterly
pools. These quarterly pools, along with the Company's estimate of future
principal losses and recoveries, are analyzed quarterly to determine the
adequacy of the Allowance for Credit Losses. The method previously used by the
Company to analyze the Allowance for Credit Losses was based on the total
Automobile Receivables portfolio.

As part of its adoption of the static pooling reserve method, where
necessary, the Company adjusted its quarterly pool allowances to a level
necessary to cover all anticipated future losses (i.e. life of loan) for each
related quarterly pool of loans.

Under static pooling, excess interest and discounts are used to increase
the Allowance for Credit Losses and represent the Company's primary reserve
for future losses on its portfolio. To the extent that any quarterly pool's
excess interest and discount reserves are insufficient to absorb future
estimated losses, net of recoveries, adjusted for the impact of current
delinquencies, collection efforts, and other economic indicators including
analysis of the Company's historical data, the Company will provide for such
deficiency through a charge to the Provision for Credit Losses and the
establishment of an additional Allowance for Credit Losses. To the extent that
any excess interest and discount reserves are determined to be sufficient to
absorb future estimated losses, net of recoveries, the difference will be
accreted into interest income on an effective yield method over the estimated
remaining life of the related quarterly static pool.

Operating expenses increased $0.5 million, or 16.3%, from $3.5 million in
first quarter of 1998 to $4.0 million in the comparable 1999 period. This
increase primarily was due to an increase of $362,000 in depreciation and
amortization and an increase of $247,000 related to consulting and
professional fees. The major components of operating expenses are as follows:

<TABLE>

QUARTERS ENDED MARCH 31,
------------------------
<S> <C> <C> <C>

INCREASE/
(dollars in thousands) 1999 1998 (DECR.)
------- ------- -----------
Salaries and benefits $1,247 $1,507 ($260)
Depreciation and amortization 976 614 362
Consulting and professional fees 1,039 792 247
Telephone 85 124 (39)
Travel and entertainment 36 58 (22)
Loan origination fees (27) (78) 51
Rent/Office Supplies/Postage 215 291 (76)
All other 395 208 187
================================= ======= ======= ===========
$3,966 $3,516 $ 450
<FN>

</TABLE>

Interest expense decreased $.8 million, or 26%, from $3.1 million in the
first quarter of 1998 to $2.3 million in the comparable 1999 period. This
decrease primarily was due to a reduction in borrowings in 1999 related to not
being able to secure a new funding source and a minimal amount of new loans in
the first quarter of 1999. From December 31, 1998 through March 31, 1999, net
increases (decreases) in the Company's debt were as follows:

<TABLE>

(dollars in thousands)
<S> <C>

Notes payable - LaSalle ($50)
Warehouse line of credit - Daiwa 11,483
Portfolio purchase credit facility - Daiwa (6,262)
Promissory note payable 800
Senior subordinated debt 0
Convertible senior subordinated debt (270)
Automobile receivables-backed notes (17,214)
=========================================== =========
TOTAL ($11,513)
<FN>

</TABLE>

The average annualized interest rate on the Company's debt was 9.0% for
the first quarter of 1999 versus 8.0% for the comparable 1998 period. This
increase primarily was due to higher interest rates on borrowings in 1999.
Interest rates on the Warehouse Line of Credit with Daiwa are 2.5% over LIBOR
on 85% of the amount advanced and 12% on the remaining 15% of the amount
advanced. Interest rates on Portfolio Purchase Credit Facility with Daiwa
were 1.0% over LIBOR increasing to 3.5% over LIBOR on 85% of the amount
advanced and 15% on the remaining 15% of the amount advanced effective July 1,
1998.

The annualized net interest margin percentage, representing the
difference between interest income and interest expense divided by average
finance receivables, decreased from 12.4% in the first quarter of 1998 to
11.1% in the comparable 1999 period. This decrease was due primarily to a
larger interest spread associated with the Company's portfolio acquisitions
partially offset by the amortization of excess interest receivable as
described in Note 2 of the Notes to Consolidated Financial Statements.

NET (LOSS)
- -----------
Net loss increased $3.3 million from $(38,000) in the first quarter of
1998 to $(3.3) million in the comparable 1999 period. This decrease in loss
was primarily due to the following changes on the Consolidated Statements of
Operations:

(INCREASE)DECREASE
TO NET (LOSS)
------------------
<S> <C>

(in thousands of dollars)
Interest and other income ($2,797)
Provision for credit losses (733)
Operating expenses (450)
Interest expense 796
Preferred stock dividends (109)
============================= ========
Net (increase) to net (loss) ($3,293)

<FN>

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------

GENERAL
The Company's cash flows for the quarters ended March 31, 1999 and 1998
are summarized as follows:
<TABLE>

<CAPTION>
CASH FLOW DATA
QUARTERS ENDED MARCH 31,
-----------------------
(dollars in thousands) 1999 1998
--------- ---------
<S> <C> <C>
Cash flows provided by (used in):
Operating activities $ 1,384 $ 8,123
Investing activities 11,738 (77,551)
Financing activities (13,213) 70,737
Net increase(decrease) in cash and cash equivalents $ (91) $ 1,309

<FN>

</TABLE>

The Company's business has been and will continue to be cash intensive.
The Company's principle need for capital is to fund cash payments made to
Dealers and to third-party originators in connection with purchases of
installment contracts and the purchase of existing loan portfolios. In the
past, these purchases have been financed through the Company's capital,
warehouse lines of credit, securitizations and cash flows from operations. In
1998 the Company did not complete any securitizations due primarily to adverse
market conditions during the fourth quarter of 1998. Furthermore, the Company
does not anticipate any securitizations in 1999.

In order for the Company to continue the purchase of installment
contracts it will be necessary to obtain a line of credit or alternative
financing. The Company does not presently have and may not be able to obtain a
line of credit or other such financing. The failure to obtain financing will
have a material adverse effect on the Company's business, financial condition,
results of operations and ability to pay operating expenses. In February of
1999 the Company was advised by Pacific, who is the Company's major
shareholder, Senior Lender, and major source of working capital, that it no
longer intends to continue to contribute capital or loan funds to meet the
Company's working capital requirements. Notwithstanding the foregoing, Pacific
has continued to provide certain secured loans to the Company. However, no
assurance can or is given that such financing will continue in the future At
the present time the company does not generate sufficient cash flows to pay
for its operations.

The Company on November 1, 1996, obtained a $3 million term loan from
Pacific USA Holdings Corp., which was converted to 300,000 shares of Class A
Common Stock as of April 25, 1997, as described in Note 6 to the Company's
Consolidated Financial Statements.

The Agreements underlying the terms of the Company's Automobile
Receivable - Backed Securitization Program ("Securitization Program"), the
Portfolio Purchase Line of Credit, and the Warehouse Line of Credit with Daiwa
Finance Corp., described below, contain certain covenants which, if not
complied with, could materially restrict the Company's liquidity. Under the
terms of the Portfolio Purchase Line of Credit and the Warehouse Line of
Credit approximately 80% and 90%, respectively, of the face amount of
Contracts, in the aggregate, was originally advanced to the Company for
purchasing qualifying Contracts. The balance must be financed through
capital. In the first quarter of 1999 the Company received verbal notice from
Daiwa that the Company is in violation of certain non-portfolio performance
related covenants.

During 1993, the Company completed the Note Offering described in Note 6
of the Notes to Consolidated Financial Statements. In the Note Offering, the
Company sold 7% Convertible Subordinated Notes in the aggregate principal
amount of $2,000,000. The purchasers of the Notes exercised an option to
purchase an additional $1,000,000 aggregate principal amount on September 15,
1993. The principal amount of the Notes, plus accrued interest thereon, was
due March 1, 1998. On March 1, 1998, the Company repaid $692,500 of principal
amount of the Notes. The maturity date of the remaining principal amount of
the Notes of $692,500 was extended to April 15, 1998, without penalty, at
which time the Company repaid the remaining principal amount. The Notes were
convertible into Class A Common Stock of the Company prior to maturity at a
conversion price of $3.42 per share, subject to adjustment for dilution.
Certain of these Notes with an aggregate principal amount of $1,615,000 were
converted in 1994 and 1995, resulting in the issuance of 94,444 shares of
Class A Common Stock.

On November 1, 1994, the Company sold in a private placement unsecured
Senior Subordinated Notes ("Rothschild Notes") in the principal amount of
$5,000,000 to Rothschild North America, Inc. Interest is due and payable the
first day of each quarter commencing on January 1, 1995. Principal payments
in the amount of $416,667 are due and payable the first day of January, April,
July and October of each year, commencing January 1, 1997. The unpaid
principal amount of the Notes, plus accrued and unpaid interest, is due
October 1, 1999. In June of 1998 the Company and Rothschilds amended the Note
Purchase Agreement to require principal payments of $450,000 on the last day
of each March, June, September and December. In March 1999, the Company
failed to make the scheduled payment and as a result is in default of certain
payment covenants pertaining to the Rothschild Notes. The Company believes
Rothschild lenders have certain enforcement rights under their agreement.
These rights, in the opinion of the Company, are subject to specific
subordination and "stand-still" provisions as long as the Company has senior
debt outstanding. As of March 31, 1999 the Company had approximately
$3,800,000 of senior debt outstanding.

In June 1997, MF Receivables Corp. II ("MF II"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $42,646,534
of Class A automobile receivables-backed notes ("Series 1997-1A Notes" or
"Term Note") to an outside investor and $2,569,068 of Class B automobile
receivables-backed notes ("Class B Notes") to Monaco Funding Corp., a
wholly-owned special purpose subsidiary of the Company. The Series 1997-1A
Notes accrue interest at a fixed rate of 6.71% per annum and were expected to
be fully amortized by December 2002. An Indenture and Servicing Agreement
required that the Company and MF II maintain certain financial ratios, as well
as other representations, warranties and covenants. On or about January 16,
1999 the Company redeemed the outstanding Class A Certificates of MFII for a
total redemption price of approximately $16.7 million. The transaction was
financed through the existing Warehouse Credit Facility with Daiwa Finance
Corporation and MFIII. Following the redemption, the Company, MFII, and
MFIII, entered into an arrangement whereby the assets of MFII, consisting of
$18.7 million of Automobile Backed Consumer Contracts were transferred to
MFIII.

In connection with the purchase of the Class B Notes, Monaco Funding
Corp. borrowed $2,525,000 from a financial institution ("Promissory Note").
The Promissory Note accrued interest at a fixed rate of 16% per annum and was
collateralized by the proceeds from the Class B Notes. The Class B Notes were
expected to be fully amortized by December 2002. Monaco Funding Corp. was
required to maintain certain covenants and warranties under the Pledge
Agreement. The Promissory Note was paid in full in March 1998.

The assets of MF I, MF II and Monaco Funding Corp. were not available to
pay general creditors of the Company. All cash collections in excess of
disbursements to the Series 1997-1A and Promissory Note noteholders and other
general disbursements were paid to MF I and MF II on a monthly basis.

On January 9, 1996, the Company entered into a Purchase Agreement for the
sale of an aggregate of $5 million in principal amount of 12% Convertible
Senior Subordinated Notes due 2001 (the "12% Notes"). This agreement was
subsequently amended and passed by the Company's Board of Directors on
September 10, 1996. Interest on the 12% Notes is payable monthly at the rate
of 12% per annum and the 12% Notes were convertible, subject to certain terms
contained in the Indenture, into shares of the Company's Class A Common Stock,
par value $.01 per share, at a conversion price of $4.00 per share, subject to
adjustment under certain circumstances. The 12% Notes were issued pursuant to
an Indenture dated January 9, 1996, between the Company and Norwest Bank
Minnesota, N.A., as trustee. The Company agreed to register, for public sale,
the shares of restricted Common Stock issuable upon conversion of the 12%
Notes. The 12% Notes were sold pursuant to an exemption from the registration
requirements under the Securities Act of 1933, as amended.

In January 1996, the Company entered into a revolving line of credit
agreement with LaSalle National Bank ("LaSalle") providing a line of credit
of up to $15 million, not to exceed a borrowing base consisting of eligible
accounts receivable to be acquired. The scheduled maturity date of the line
of credit was extended from January 1, 1998 to March 23, 1998, at which time
the outstanding balance on the line of credit was paid in full. At the option
of the Company, the interest rate charged on the loans was either .5% in
excess of the prime rate charged by lender or 2.75% over the applicable LIBOR
rate. The Company was obligated to pay the lender a fee equal to .25% per
annum of the average daily unused portion of the credit commitment. The
obligation of the lender to make advances was subject to standard conditions.
The collateral securing payment consisted of all Contracts pledged and all
other assets of the Company. The Company had agreed to maintain certain
restrictive financial covenants. The scheduled maturity date of the line of
credit was extended from January 1, 1998 to March 23, 1998, at which time the
outstanding balance on the line of credit was paid in full.

On or about March 23, 1998, the Company entered into a senior debt
financing facility with LaSalle that was paid in full in January 1999.

On October 9, 1996, the Company entered into a Securities Purchase
Agreement with Pacific USA Holdings Corp. ("Pacific") whereby, among other
things, Pacific agreed to acquire certain shares of the Company's Class A
Common Stock. On November 1, 1996, the Company entered into a Loan Agreement
with Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan").
On February 7, 1997, the Securities Purchase Agreement was terminated by the
parties, however, the Pacific Loan and its corresponding Installment Note
remained in effect.

In December 1997, MF Receivables Corp. III ("MF III"), a wholly owned
special purpose subsidiary of the Company, entered into a $75 million
Warehouse Credit Facility with Daiwa Finance Corporation ("Daiwa"). All
advances received under the line of credit are secured by eligible loan
Contracts and all proceeds received from those Contracts. The scheduled
maturity date in respect to any advance under the line of credit is the
earlier of 364 days following the date of the advance or December 3, 1999.
Under the MFIII Credit Agreement, 85% of the amount advanced to the Company
accrues interest at a rate equal to LIBOR plus 2.5% per annum. The remaining
15% of the amount advanced accrues interest at a rate of 12% per annum. The
Company is obligated to pay Daiwa an unused facility fee equal to .375% of the
average daily unused portion of the credit agreement. The MFIII Credit
Agreement requires the Company to maintain certain standard ratios and
covenants. At March 31, 1999, the Company had borrowed $55.064 million
against this line of credit. The assets of MF III are not available to pay
general creditors of the Company.

In January 1998, MF Receivables Corp. IV ("MF IV"), a wholly owned
special purpose subsidiary of the Company, entered into a $73,926,565
Portfolio Purchase Credit Facility (the "Credit Facility") with Daiwa. The
proceeds from the Credit Facility were used to acquire an $81.1 million
portfolio from Pacific USA Holdings Corp. and certain of its subsidiaries
(Note 5). All advances received under the Credit Facility are secured by
eligible purchased loan Contracts and all proceeds received from those
Contracts. The scheduled maturity date with respect to the advances under the
Credit Facility is the earlier of January 6, 1999 or the disposition date of
the eligible purchased loan Contract. The Company believes this maturity date
was verbally extended by Daiwa. Under the Credit Facility, prior to July 1,
1998, 85% of the amount advanced to the Company accrued interest at a rate
equal to LIBOR plus 1.0% per annum. Effective July 1, 1998, the interest rate
on this advance changed to LIBOR plus 3.5% per annum. The remaining 15% of
the amount advanced accrued interest at a rate of LIBOR plus 1.0% per annum
prior to July 1, 1998. Effective July 1, 1998, the interest rate on this
advance changed to 15% per annum. The Credit Facility Agreement requires the
Company to maintain certain standard ratios and covenants. At March 31, 1999,
the Credit Facility had an outstanding balance of $33.035 million. The assets
of MF IV are not available to pay general creditors of the Company.

In February and March of 1999 the Company, MFIII, and MFIV received
verbal notification from Daiwa that there existed certain violations of
non-portfolio performance related covenants in the credit agreement and that
as a result (i) no additional funds would be advanced to MFIII under the
Warehouse Line of Credit; (ii) Daiwa has mandated that the Company cooperate
in transferring the servicing of the auto loans to a successor servicer to be
appointed by Daiwa; and (iii) except for servicing related fees and expenses,
Daiwa is collecting all cash flows in excess of Daiwa's regularly scheduled
principal and interest payments under the Credit Facilities. In connection
with the foregoing (i) MFIII and MFIV will be entering into a servicing
agreement with a successor servicer (an unrelated third party) selected by
Daiwa; and (ii) the Company completed the servicing transfer on April 15,
1999. As a result of the servicing transfer mandated by Daiwa, it is possible
there will be degradation in the performance level of the loan portfolios.

On June 30, 1998, the Company and Pacific USA, a related party, agreed to
enter into a $5.0 million Loan Agreement ("Pacific USA Note"). Effective July
1, 1998, the Company and Pacific USA entered into a Conversion and Rights
Agreement whereby $4,463,250 of the principal amount of the Pacific USA Note
was converted into 939,632 restricted shares of the Company's Class A Common
Stock. As consideration for the conversion, the Company agreed, subject to
shareholder approval, which was obtained on November 12, 1998, to change the
conversion ratio of the Company's Preferred Stock held by Pacific USA. The
remaining unconverted principal balance of the Pacific USA Note of $536,750
was converted into 268,375 shares of the Company's Series 1999-1 8% Cumulative
Subordinated Preferred Stock as of December 31, 1998.

In March 1999 the Company failed to make the principal payments to
Pacific Southwest Bank under a secured loan agreement. The interest accrued
through March 31, 1999 was paid on April 2, 1999. As of May 8, 1999 no action
has been taken by Pacific Southwest Bank to enforce their rights or otherwise
accelerate payment of the debt. No assurance is, nor can be given that
Pacific Southwest Bank will not exercise any or all of their rights under the
secured loan agreement in the future.

In March 1996, the Company announced that its Board of Directors had
authorized the purchase of up to 100,000 shares of Class A Common Stock,
representing approximately 10% of its Class A Common Stock outstanding.
Subject to applicable securities laws, repurchases may be made at such times,
and in such amounts, as the Company's management deems appropriate. As of
March 31, 1999, the Company had repurchased 26,900 shares of Class A Common
Stock.

The Company has never paid cash dividends on its Common Stock and does
not anticipate a change in this policy in the foreseeable future. Certain of
the Company's loan agreements contain covenants that restrict the payment of
cash dividends.

Effective November 23, 1998 the Company initiated a 1 for 5 reverse stock
split. To effect the split, the Company's authorized, issued, and outstanding
$.01 par Class A and B common stock was decreased from 12,772,790 to 2,554,558
shares and from 1,273,715 to 254,743 shares, respectively. All periods
presented and related footnote disclosures have been adjusted to reflect the
reverse split.

The Company's Class A Common Stock is traded in the over-the-counter
market and is currently quoted on the Electronic Bulletin Board.

The Company's cash needs have been funded through a combination of
earnings and cash flow from operations, its existing Warehouse Line of Credit
and securitizations, as well as capital and secured loans provided by its
major shareholder and Senior Lender, Pacific USA Holdings Corp. In February
1999 the Company was advised by Pacific that it could no longer be relied upon
to provide capital or loans to fund the Company's working capital needs.
Although Pacific has continued to provide certain additional secured loans to
the Company, no assurance can be given that such funding will continue. Also,
in February and March 1999 the Company received verbal notification from Daiwa
that (i) MFIII and MFIV are in violation of certain covenants unrelated to
performance of the portfolio under the Warehouse Line of Credit and the
Portfolio Purchase Credit Facility (collectively the "Credit Facilities"); and
(ii) that a servicer event of default has occurred.

In connection with the foregoing, Daiwa mandated a transfer of servicing
to a successor servicer appointed by Daiwa. As a result, the Company is not
receiving nor can it expect to receive monthly distributions of excess funds
from the Credit Facilities, through dividends from MFIII and MFIV, unless and
until Daiwa is paid in full. At this time the Company is unable to determine
whether or not it will receive any future cash flows or other residual
interests from the loan portfolios collateralizing the Credit Facilities. As
a result of the servicing transfer mandated by Daiwa, it is possible there
will be degradation in the performance level of the loan portfolios.

For the first time since the Company's inception, the Company's
independent auditors have added an explanatory paragraph to the independent
auditor's report for the year ended December 31, 1998 regarding certain
substantial matters which, in their opinion, raise substantial doubt about the
Company's ability to continue as a going concern.

OTHER
- -----

ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" ("Statement 132"), which revises employers'
disclosures about pension and other postretirement benefit plans. Statement
132 does not change the measurement or recognition of those plans, but
requires additional information on changes in benefit obligations and fair
values of plan assets and eliminated certain disclosures previously required
by SFAS Nos. 87, 88 and 106. Statement 132 is effective for financial
statements with fiscal years beginning after December 15, 1997.

During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement 133 establishes new
standards by which derivative financial instruments must be recognized in an
entity's financial statements. Besides requiring derivatives to be included
on balance sheets at fair value, Statement 133 generally requires that gains
and losses from later changes in a derivative's fair value be recognized
currently in earnings. Statement 133 is required to be adopted by the Company
in 2000. Management, however, does not expect the impact of this statement to
have a material impact on the financial statement presentation, financial
position or results of operations.

The Company has not determined what additional disclosures, if any, may
be required by the provisions of Statements 132 and 133 but does not expect
adoption of these statements to have a material effect on its results of
operations.

EMPLOYEES AND FACILITIES
- --------------------------
At May 14, 1999, the Company employed 28 persons on a full time basis.
On April 15, 1999 the Company, at the mandate of Daiwa, transferred the loan
servicing to an unrelated third party servicer acceptable to Daiwa. As a
result, approximately 50 employees were eliminated from the Company's
operations on April 15, 1999.

SOFTWARE AND DATA LICENSING
- ------------------------------
Effective November 30, 1998, Pacific USA Holdings Corp. ("Pacific") paid
the Company $200,000 in cash and entered into a Software License and
Development Agreement and a Data Licensing Agreement (the "License
Agreements") with the Company. Pursuant to the License Agreements, the
Company, as licensor, granted to Pacific, as licensee, a perpetual, fully paid
up, nontransferable, exclusive license covering certain proprietary software
and historical data developed by the Company with respect to consumer
automobile loans, including risk analysis (the "Monaco Software"). Pacific
acquired the right to make modifications, changes or improvements to the
Monaco Software (referred to as the "Advanced Software"). Pacific has the
right to develop and market the Advanced Software as it deems fit in its sole
discretion. Pacific granted to the Company a fully paid up, nontransferable,
nonexclusive license limited to use of the Advanced Software for the Company's
internal business purposes only. This license will terminate 90 days following
any change in control of the Company. In addition, Pacific has a right of
first refusal to purchase the Monaco Software.

INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company from inception to March 31, 1999.

YEAR 2000 ISSUE
- -----------------
The "Year 2000" issue affects the Company's installed computer systems,
network elements, software applications and other business systems that have
time-sensitive programs that may not properly reflect or recognize the Year
2000. Because many computers and computer applications define dates by the
last two digits of the year, "00" may not be properly identified as the Year
2000. This error could result in miscalculations or system failures.

The Company is conducting a review of its computer systems to identify
those areas that could be affected by the "Year 2000" issue and is developing
an implementation plan to ensure compliance. The Company is using both
internal and external sources to identify, correct and reprogram, and test its
systems for Year 2000 compliance. Because third party failures could have a
material impact on the Company's ability to conduct business, confirmations
are being requested from our processing vendors and suppliers to certify that
plans are being developed to address the Year 2000 issue. The Company
presently believes that, with modification to existing software and investment
in new software, the Year 2000 problem will not pose significant operational
concerns nor have a material impact on the financial position or results of
operation in any given year. The total cost of modifications and conversions
is not expected to be material and will be expensed as incurred.

FUTURE EXPANSION AND STRATEGY
- --------------------------------
Given the recent changes in the Company's financing sources, the Company
will be seeking to obtain new financing sources. In the event the Company
obtains new financing sources it will attempt to implement a business strategy
based upon joint ventures with third parties. This strategy will include
purchasing Contracts having (i) higher discounts to face (ii) shorter terms
and (iii) lower amounts financed. No assurance can be nor is given that new
and adequate sources of financing will be obtained. Furthermore, no assurance
can be nor is given that the business strategy will be implemented, and if
implemented will be successful.

During 1998, the Company acquired contracts from approximately 358
dealers in 48 states, the majority of which were purchased in four states. In
order to reduce operating expenses, and related to the loss of funding, in the
first quarter of 1999 the Company reduced its marketing representatives from 2
to 0.

PORTFOLIO ACQUISITIONS: In January 1998, the Company completed the
acquisition of $81 million in auto loans from affiliates of Pacific USA and in
February 1998 the Company acquired approximately $14 million of auto loans
from an independent third party. Further portfolio acquisitions are not
anticipated at this time.

FUNDING AND FINANCING STRATEGIES: From inception through 1991, the
Company financed the acquisition of Contracts through loans from its principal
stockholders and banks. In October 1991, the Company expanded its financing
sources by completing its first asset-backed automobile receivables
securitization. In 1992, the Company entered into a secured revolving line of
credit with Citicorp Leasing Inc. ("Citicorp") to finance Contracts. In 1994,
the Company securitized $34.1 million of its Contracts and in 1995 it obtained
a $150 million revolving secured warehouse line and securitized $43.1 million
in Contracts. In 1997, the Company securitized $51.4 million of its Contracts
and entered into a $75 million Warehouse Line of Credit. In 1998 the Company
entered into a $73.9 Portfolio Purchase Credit Facility. In addition, the
Company received capital of $5,300,000 as well as secured loans of $1,900,000
from Pacific USA Holdings Corp. The Company also received a secured loan from
Pacific Southwest Bank for $.95 million. Since 1993, the Company has used
revolving lines of credit, private placement borrowings, common stock, warrant
exercises, and its Automobile Receivable-Backed Securitization Program and the
corresponding Revolving Notes and Warehouse Notes as its primary sources of
capital. In the first quarter of 1999 significant events have occurred which
have negatively and materially impacted the Company's financing sources (see
the discussion in "Liquidity and Capital Resources").

RISK EVALUATION AND UNDERWRITING: As discussed in more detail elsewhere
herein, the Company has developed proprietary credit scoring and risk
evaluation systems which predicts the frequency of default and the resultant
predicted loss after repossession and sale of financed vehicles. This system
assists the Company's credit buyers and underwriters in pricing loans to be
acquired. Credit buyers can negotiate interest rates, loan term, purchase
discount and fees and terms of the deal, including such items as down payment,
in order to achieve a desired risk adjusted rate of return for each Contract.

CENTRALIZED OPERATING STRUCTURE: Management believes the centralization
of all operations in one location results in a consistent, cost effective
means of operating a sub-prime automobile loan business.

COLLECTIONS MANAGEMENT: Management believes that collections and recovery
are vital to the successful operation of the Company. The Company has
invested substantial amounts of time, money and resources in developing an
efficient collections department. The results of the Company's efforts are
evidenced by its percentage of delinquent contracts, which at March 31, 1999,
was 7.63% over 30 days past due. This percentage consisted of 5.67% 30 to 59
days past due, 1.38% 60 to 89 days past due and 0.58% over 90 days past due.
Due to recent events the Company will utilize a third party servicer to
service the Contracts (see discussion in Liquidity and Capital Resources).

CONTROLLING INTEREST: As a result of the Asset Purchase Agreement dated
January 8, 1998, Pacific USA Holdings Corp. ("Pacific USA") increased its
voting power in the Company to 65.3%. Pacific USA is the beneficial owner of
59.0% of the Company's outstanding voting stock. Pacific USA is a diverse
U.S. holding company whose businesses include technology, real estate, and
consumer finance.

<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES

FORM 10-QSB

QUARTER ENDED MARCH 31, 1999

PART II - OTHER INFORMATION
---------------------------

ITEM 1. LEGAL PROCEEDINGS
Although not subject to any material litigation at this time, the Company
and its Subsidiaries at times are subject to various legal proceedings and
claims that arise in the ordinary course of business. In the opinion of
management of the Company, based in part on the advice of counsel, the amount
of any ultimate liability with respect to these actions will not materially
affect the results of operations, cash flows or financial position of the
Company. It is the Company's and its Subsidiaries' policy to vigorously
defend litigation, however, the Company and its Subsidiaries have, and may in
the future, enter into settlements of claims where management deems
appropriate.

ITEM 2. CHANGES IN SECURITIES
(b.) Certain of the Company's loan agreements, including loan agreements
entered into in the first quarter of 1996, contain covenants that restrict the
payment of cash dividends.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

ITEM 5. OTHER INFORMATION
None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
11 - Computation of Net Earnings per Common Share. Page .
27 - Financial Data Schedule. Page .

(B) REPORTS ON FORM 8 - K:
A Form 8-K dated January 16, 1999 was filed announcing the conversion by
Pacific USA Holdings Corp. ("Pacific") of certain unsecured and secured debt
into Preferred Stock of the company; the payment of $200,000 by Pacific to the
company in connection with a Software License and Development Agreement and;
the redemption by MF II of the outstanding Class A Certificates previously
issued in connection with the June 26, 1997 Master Financing Securitization.

A Form 8-K dated February 11, 1999 was filed announcing the resignation
of John Sloan as a Director of the company as well as the resignation of
Joseph Cutrona as Chief Executive Officer; the election of James T. Moran as
Chief Executive Officer and as a Director of the Company; the advice by
Pacific that it no longer intended to continue funding the Company's monthly
capital requirements and; the appointment of a special committee to review
strategic alternatives on behalf of the Company.

A Form 8-K dated February 20, 1999 was filed announcing the resignation
of James T. Moran as a Director and Chief Executive Officer of the Company.

EXHIBIT 11
MONACO FINANCE, INC. AND SUBSIDIARIES
-------------------------------------
Computation of Earnings (Loss) Per Common Share

THREE MONTHS ENDED MARCH 31,
--------------------------------

1999 1998
------------ ----------
<S> <C> <C>

EARNINGS (LOSS) PER COMMON SHARE - BASIC AND ASSUMING DILUTION
NET EARNINGS (LOSS)
- --------------------------------------------------------------------
Net (loss) ($3,331,295) ($38,161)
- -------------------------------------------------------------------- ------------ ----------
AVERAGE COMMON SHARES OUTSTANDING
- --------------------------------------------------------------------
Weighted average common shares outstanding - basic 2,809,301 1,776,554
Shares issuable from assumed exercise of stock options (a) (b) (b)
Shares issuable from assumed exercise of stock warrants (a) (b) (b)
Shares issuable from assumed conversion of 7% subordinated debt (b) (b)
Shares issuable from assumed conversion of senior subordinated note (b) (b)
- -------------------------------------------------------------------- ------------ ----------
Weighted average common shares outstanding - assuming dilution 2,809,301 1,776,554
- -------------------------------------------------------------------- ------------ ----------
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND ASSUMING DILUTION
- --------------------------------------------------------------------
(Loss) per common share - basic and assuming dilution ($1.19) ($0.02)
<FN>

Notes:
------
(a) Dilutive potential common shares are calculated using the treasury stock method.
(b) The computation of earnings per common share assuming dilution excludes dilutive
potential common shares that have an anti-dilutive effect on earnings per share.
</TABLE>

<PAGE>
EXHIBIT 27
<TABLE>

MONACO FINANCE, INC., AND SUBSIDIARIES
Financial Data Schedule
For the 3 Months Ending March 31, 1999

ITEM 3 -MOS YEAR-TO-DATE
- ---------------------------------------------------------- ----------------- -----------------
<S> <C> <C>

Fiscal year end Fri, Dec 31, 1999 Fri, Dec 31, 1999
Period end Wed, Mar 31, 1999 Wed, Mar 31, 1999
Period type 3 month 3 month
Cash and cash items 7257537 7257537
Marketable securities 0 0
Notes and other receivables 98704725 98704725
Allowance for doubtful accounts -6988281 -6988281
Inventory 0 0
Total current assets 102237821 102237821
Property, plant and equipment 4767705 4767705
Accumulated depreciation 3028242 3028242
Total assets 104904169 104904169
Total current liabilities 2529122 2529122
Bonds, mortgages and similar debt 96534451 96534451
Preferred stock-mandatory redemption 0 0
Preferred stock no-mandatory redemption 5531924 5531924
Common stock 140465 140465
Other stockholders' equity 168207 168207
Total liabilities and stockholders' equity 104904169 104904169
Net sales of tangible products 0 0
Total revenues 3751987 3751987
Cost of tangible goods sold 0 0
Total costs and expenses applicable to sales and revenues 3965990 3965990
Other costs and expenses 0 0
Provision for doubtful accounts and notes 750000 750000
Interest and amortization of debt discount 2258169 2258169
Income before taxes and other items -3222172 -3222172
Dividend expense 109123 109123
Income tax expense 0 0
Income/(loss) continuing operations -3331295 -3331295
Discontinued operations 0 0
Extraordinary items 0 0
Cumulative effect-changes in accounting principals 0 0
Net income (loss) -3331295 -3331295
Earnings per common share-basic -1.19 -1.19
Earnings per common share-assuming dilution -1.19 -1.19
<FN>

</TABLE>

<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.

MONACO FINANCE, INC.
(Registrant)

Date: May 15, 1999
By: /s/ Morris Ginsburg
---------------------
Morris Ginsburg, President,
Chief Executive Officer, Principal
Financial and Accounting Officer
and Director

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 7,257,537 7,257,537
<SECURITIES> 0 0
<RECEIVABLES> 98,704,725 98,704,725
<ALLOWANCES> (6,988,281) (6,988,281)
<INVENTORY> 0 0
<CURRENT-ASSETS> 102,237,821 102,237,821
<PP&E> 4,767,705 4,767,705
<DEPRECIATION> 3,028,242 3,028,242
<TOTAL-ASSETS> 104,904,169 104,904,169
<CURRENT-LIABILITIES> 2,529,122 2,529,122
<BONDS> 96,534,451 96,534,451
0 0
5,531,924 5,531,924
<COMMON> 140,465 140,465
<OTHER-SE> 168,207 168,207
<TOTAL-LIABILITY-AND-EQUITY> 104,904,169 104,904,169
<SALES> 0 0
<TOTAL-REVENUES> 3,751,987 3,751,987
<CGS> 0 0
<TOTAL-COSTS> 3,965,990 3,965,990
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 750,000 750,000
<INTEREST-EXPENSE> 2,258,169 2,258,169
<INCOME-PRETAX> (3,222,172) (3,222,172)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,331,295) (3,331,295)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,331,295) (3,331,295)
<EPS-PRIMARY> (1.19) (1.19)
<EPS-DILUTED> (1.19) (1.19)

</TABLE>