SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2003

                        Commission file number: 000-24669

                          HOMETOWN AUTO RETAILERS, INC.
             (Exact name of Registrant as specified in its charter)

               Delaware                                   06-1501703
    (State or other jurisdiction of                     (IRS Employer
     incorporation or organization)                   Identification No.)

         774 Straits Turnpike
             Watertown, CT                                   06795
(Address of principal executive offices)                  (Zip code)

                                 (860) 945-6900
              (Registrant's telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

                     Title                                         Outstanding
  --------------------------------------------------             --------------
  Common Stock, Class A, par value $.001 per share                  3,564,605
  Common Stock, Class B, par value $.001 per share                  3,610,500


<PAGE>

                                      INDEX

PART I.    FINANCIAL INFORMATION                                            Page

ITEM 1.    Consolidated Balance Sheets at March 31, 2003 (Unaudited)
           and December 31, 2002 (Audited)                                    3

           Unaudited Consolidated Statements of Operations for three
           months ended March 31, 2003 and 2002 (Restated)                    4

           Unaudited Consolidated Statements of Stockholders' Equity
           for the three months ended March 31, 2003 and 2002 (Restated)      5

           Unaudited Consolidated Statements of Cash Flows for three
           months ended March 31, 2003 and 2002 (Restated)                    6

           Notes to Unaudited Consolidated Financial Statements               7

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

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk        24

ITEM 4.    Controls and Procedures                                           24

PART II.   OTHER INFORMATION

ITEM 6.    Exhibits and Reports on Form 8-K                                  26

SIGNATURES                                                                   27

CERTIFICATIONS                                                               28

                           FORWARD LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of Hometown Auto Retailers, Inc. ("Hometown") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Hometown's plans and objectives are based, in part, on
assumptions involving the continued expansion of business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of Hometown. Although Hometown believes that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this Report will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements, the inclusion of such information should not be regarded as a
representation by Hometown or any other person that the objectives and plans of
Hometown will be achieved. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth herein under the headings
"Business", "Certain Factors That May Affect Future Growth" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                       2
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                March 31,           December 31,
                                      ASSETS                                       2003                 2002
                                                                               (Unaudited)
                                                                               -----------          ------------
<S>                                                                              <C>                  <C>
Current Assets:
   Cash and cash equivalents                                                     $  5,593             $  3,624
   Accounts receivable, net                                                         5,743                4,883
   Inventories, net                                                                38,721               39,169
   Prepaid expenses and other current assets                                          567                  510
   Deferred income taxes and taxes receivable                                       1,283                1,245
                                                                                 --------             --------
     Total current assets                                                          51,907               49,431

Property and equipment, net                                                        12,812               12,882
Other assets                                                                        1,529                1,503
                                                                                 --------             --------
     Total assets                                                                $ 66,248             $ 63,816
                                                                                 ========             ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Floor plan notes payable                                                      $ 40,767             $ 38,522
   Accounts payable and accrued expenses                                            5,742                5,072
   Current maturities of long-term debt and capital lease obligations               1,107                1,164
   Deferred revenue                                                                   584                  588
                                                                                 --------             --------
     Total current liabilities                                                     48,200               45,346

Long-term debt and capital lease obligations                                       12,783               13,059
Long-term deferred income taxes                                                       108                  118
Long-term deferred revenue                                                            728                  743
                                                                                 --------             --------
     Total liabilities                                                             61,819               59,266

Stockholders' Equity
   Preferred stock, $.001 par value, 2,000,000 shares
   authorized, no shares issued and outstanding                                        --                   --
   Common stock, Class A, $.001 par value, 12,000,000 shares
   authorized, 3,564,605 and 3,563,605 shares issued and
   outstanding                                                                          3                    3
   Common stock, Class B, $.001 par value, 3,760,000 shares
   authorized, 3,610,500 and 3,611,500 shares issued and
   outstanding                                                                          4                    4
   Additional paid-in capital                                                      29,760               29,760
   Accumulated deficit                                                            (25,338)             (25,217)
                                                                                 --------             --------
     Total stockholders' equity                                                     4,429                4,550
                                                                                 --------             --------
     Total liabilities and stockholders' equity                                  $ 66,248             $ 63,816
                                                                                 ========             ========
</TABLE>

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


                                       3
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                            For the Three Months
                                                                                Ended March 31,
                                                                      -----------------------------------
                                                                          2003                    2002
                                                                                               (Restated)
                                                                      -----------             -----------
<S>                                                                   <C>                     <C>
Revenues
   New vehicle sales                                                  $    35,930             $    36,655
   Used vehicle sales                                                      16,394                  20,114
   Parts and service sales                                                  6,216                   6,102
   Other, net                                                               1,780                   2,222
                                                                      -----------             -----------
      Total revenues                                                       60,320                  65,093

Cost of sales
   New vehicle                                                             33,620                  34,362
   Used vehicle                                                            14,818                  18,332
   Parts and service                                                        2,922                   2,792
                                                                      -----------             -----------
      Total cost of sales                                                  51,360                  55,486
                                                                      -----------             -----------
      Gross profit                                                          8,960                   9,607

Selling, general and administrative expenses                                8,386                   8,413
                                                                      -----------             -----------
      Income from operations                                                  574                   1,194

   Interest income                                                              7                      17
   Interest (expense)                                                        (778)                   (810)
   Other income                                                                13                       6
   Other (expense)                                                             (3)                     (2)
                                                                      -----------             -----------
      Income (loss) before taxes and cumulative effect of
          accounting change                                                  (187)                    405
      Provision (benefit) for income taxes                                    (66)                    170
                                                                      -----------             -----------
      Income (loss) before cumulative effect of accounting
           change                                                            (121)                    235
      Cumulative effect of accounting change                                   --                 (23,708)

                                                                      -----------             -----------
Net (loss)                                                            $      (121)            $   (23,473)
                                                                      ===========             ===========
Earnings (loss) per share, basic
     Before cumulative effect of accounting change                    $     (0.02)            $      0.03
     Cumulative effect of accounting change                                    --                   (3.30)
                                                                      -----------             -----------
Earnings (loss) per share, basic                                      $     (0.02)            $     (3.27)
                                                                      ===========             ===========
Earnings (loss) per share, diluted
     Before cumulative effect of accounting change                    $     (0.02)            $      0.03
     Cumulative effect of accounting change                                    --                   (3.30)
                                                                      -----------             -----------
Earnings (loss) per share, diluted                                    $     (0.02)            $     (3.27)
                                                                      ===========             ===========

Weighted average shares outstanding, basic                              7,175,105               7,175,105
Weighted average shares outstanding, diluted                            7,175,105               7,175,105
</TABLE>

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


                                       4
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
            UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                        Class A                    Class B                              Retained
                                      Common Stock               Common Stock           Additional       Earnings          Total
                                 -----------------------   -------------------------      Paid-in     (Accumulated    Stockholders'
                                  Shares         Amount      Shares          Amount       Capital        Deficit)         Equity
                                  ------         ------      ------          ------       -------        --------         ------
<S>                                <C>           <C>          <C>            <C>           <C>           <C>             <C>
 Balance at
     December 31, 2001             3,562         $   3        3,613          $   4         $29,730       $ (2,285)       $ 27,452
 Conversion of Class B Common
 to Class A Common                     2            --           (2)            --              --             --              --
 Net loss                             --            --           --             --              --        (23,473)        (23,473)
                                   -----         -----       ------          -----         -------       --------        --------
 Balance at
  March 31, 2002
 (Restated)                        3,564         $   3        3,611          $   4         $29,730       $(25,758)       $  3,979
                                   =====         =====       ======          =====         =======       ========        ========

 Balance at
    December 31, 2002              3,564         $   3        3,611          $   4         $29,760       $(25,217)       $  4,550
 Conversion of Class B Common
 to Class A Common                     1            --           (1)            --              --             --              --
 Net loss                             --            --           --             --              --           (121)           (121)
                                   -----         -----       ------          -----         -------       --------        --------
 Balance at
 March 31, 2003                    3,565         $   3        3,610          $   4         $29,760       $(25,338)       $  4,429
                                   =====         =====       ======          =====         =======       ========        ========
</TABLE>

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


                                       5
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                   For the Three Months ended
                                                                                           March 31,
                                                                                 -----------------------------
                                                                                  2003                 2002
                                                                                                    (Restated)
                                                                                 -------            ----------
<S>                                                                              <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                                                       $  (121)            $(23,473)
Adjustments to reconcile net (loss) to net cash
   provided by operating activities -
   Cumulative effect of accounting change                                             --               23,708
   Depreciation and amortization                                                     349                  283
  (Gain) on sale of fixed assets                                                      (3)                  --
   Deferred income taxes                                                             (81)                  24
   Changes in assets and liabilities:
      Accounts receivable, net                                                      (812)                (715)
      Inventories, net                                                               708               (3,248)
      Prepaid expenses and other current assets                                      (75)                (153)
      Other assets                                                                    16                  149
      Floor plan notes payable                                                     2,245                4,749
      Accounts payable and accrued expenses                                          670                 (567)
      Deferred revenue                                                                (4)                  68
      Other long term liabilities and deferred revenue                               (15)                  75
                                                                                 -------             --------
   Net cash provided by operating activities                                       2,877                  900

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                               (236)                (658)
   Proceeds from sale of property and equipment                                        6                   --
                                                                                 -------             --------
   Net cash (used in) investing activities                                          (230)                (658)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt and capital lease obligations               (717)                (245)
   Proceeds from long-term borrowings                                                 39                   --
                                                                                 -------             --------
   Net cash (used in) financing activities                                          (678)                (245)

Net increase (decrease) in cash and cash equivalents                               1,969                   (3)
CASH AND CASH EQUIVALENTS, beginning of period                                     3,624                4,446
                                                                                 -------             --------
CASH AND CASH EQUIVALENTS, end of period                                         $ 5,593             $  4,443
                                                                                 =======             ========
 Cash paid for - Interest                                                        $   777             $    840
 Cash paid for - Taxes                                                           $    21             $    170
 Purchases financed by capital lease obligations                                 $   345             $     --
</TABLE>

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


                                       6
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    BUSINESS AND ORGANIZATION

      Business of Hometown Auto Retailers, Inc. ("Hometown" or the "Company")

      Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 10 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown's dealerships
offer 10 American and Asian automotive brands including Chevrolet, Chrysler,
Dodge, Ford, Jeep, Lincoln, Mazda, Mercury, Oldsmobile and Toyota.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The accompanying consolidated balance sheet as of March 31, 2003, the
consolidated statements of operations for the three months ended March 31, 2003
and 2002 (Restated), the consolidated statements of stockholders' equity and the
consolidated statements of cash flows for the three months ended March 31, 2003
and 2002 (Restated), are unaudited. The consolidated financial statements
include all significant majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

      In the opinion of management, all adjustments necessary to present fairly
the financial position, results of operations and cash flows for the interim
periods were made. Certain reclassifications have been made to the prior year
amounts to conform to the current year presentation. Due to seasonality and
other factors, the results of operations for interim periods are not necessarily
indicative of the results that will be realized for the entire year.

      Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, were omitted. Accordingly, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2002, which are included in the
Hometown's filing of its annual report on Form 10-K.

      The financial statements have been prepared in conformity with generally
accepted accounting principles and, accordingly, include amounts based on
estimates and judgments of management. Actual results could differ from those
estimates.

      Stock-based Compensation

      At March 31, 2003, Hometown has one stock-based employee compensation
plan, the 1998 Stock Option Plan (the "Stock Option Plan"). As allowed by SFAS
148, Hometown has elected not to use one of the alternative methods of
transition available for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Hometown accounts for this
plan under the recognition and measurement principles of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to or greater than the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation.


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                  Three Months Ended March 31,
                                                                    2003                2002
                                                                                     (Restated)
                                                                 ----------          ----------
                                                                           (in thousands)
<S>                                                              <C>                 <C>
      Net (loss), as reported                                    $     (121)         $  (23,473)
      Deduct: Total stock-based employee compensation
      expense determined under fair value based method
      for all awards, net of related tax effects (1)                    (23)                (28)
                                                                 ----------          ----------
      Pro forma net (loss)                                       $     (144)         $  (23,501)
                                                                 ==========          ==========
      Earnings (loss) per share:
      Basic, as reported                                         $    (0.02)         $    (3.27)
      Basic, pro forma                                           $    (0.02)         $    (3.28)

      Diluted, as reported                                       $    (0.02)         $    (3.27)
      Diluted, pro forma                                         $    (0.02)         $    (3.28)
</TABLE>

      (1)   All awards refers to awards granted, modified, or settled in fiscal
            periods since plan inception in 1998; that is, awards for which the
            fair value was required to be measured under Statement 123.

3.    EARNINGS PER SHARE

      "Basic earnings (loss) per share" is computed by dividing net income
(loss) by the weighted average common shares outstanding. "Diluted earnings
(loss) per share" is computed by dividing net income (loss) by the weighted
average common shares outstanding adjusted for the incremental dilution of
potentially dilutive securities. Options and warrants to purchase approximately
1,428,000 and 1,288,000 shares of common stock were outstanding during the 2003
and 2002 periods, respectively, but were not included in the computation of
diluted earnings (loss) per share because the option and warrant prices were
greater than the average market price of the common shares or the effect would
have been anti-dilutive.

4.    GOODWILL - RESTATEMENT OF MARCH 31, 2002 FINANCIAL STATEMENTS

      Effective January 1, 2002, Hometown adopted SFAS 142. At that time,
Hometown ceased recording goodwill amortization. SFAS 142 requires the
completion of a transitional impairment test in the year of adoption, with any
impairment identified upon initial implementation treated as a cumulative effect
of a change in accounting principle.

      Under SFAS 142, goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. According to the
criteria under SFAS 142, it has been determined that Hometown is a single
reporting unit.

      During 2002, Hometown completed its goodwill impairment testing which
resulted in Hometown recording a one-time, non-cash charge of approximately
$23.7 million to write-off the carrying value of goodwill. This charge is
non-operational in nature and is reflected as a cumulative effect of an
accounting change in the accompanying statement of operations for the three
months ended March 31, 2002. Approximately $9.6 million of this charge is tax
deductible, resulting in a deferred tax benefit of approximately $3.8 million
against which a full valuation allowance was recorded.

      In calculating the impairment charge, the fair value of the reporting unit
was estimated using both the discounted cash flow method and the guideline
company method. The discounted cash flow method used


                                       8
<PAGE>

Hometown's estimates of future cash flows discounted to present value using an
appropriate discount rate. The guideline company method selects certain value
measures of guideline companies and calculates appropriate market multiples
based on the fundamental value measures of the guideline companies and compares
same to Hometown. The guideline companies chosen were other publicly traded
company's within Hometown's Standard Industrial Classification (SIC) code. These
methodologies differs from Hometown's previous policy, as permitted under SFAS
121, using undiscounted cash flows to determine if goodwill is recoverable.

      The goodwill impairment is associated with goodwill that resulted from
acquisitions since the formation of Hometown. The amount of the impairment
reflects the effect of the change in methodology in determining impairment
charges as discussed above.

      The effect of the charge on the 2002 first quarter financial statements,
and the restated 2002 first quarter financial statements is as follows:

<TABLE>
<CAPTION>
                                                                    Three Months Ended March 31, 2002
                                                                               (in thousands)
                                                             As Reported      Effect of Change           Restated
<S>                                                           <C>                <C>                    <C>
      Reported net income                                     $      235         $       --             $      235
      Less: Cumulative effect of accounting change                    --            (23,708)               (23,708)
                                                              ----------         ----------             ----------
      Adjusted net income (loss)                              $      235         $  (23,708)            $  (23,473)
                                                              ==========         ==========             ==========

      Earnings (loss) per share, Basic
           Reported net income                                $     0.03         $       --             $     0.03
           Cumulative effect of accounting change                     --              (3.30)                 (3.30)
                                                              ----------         ----------             ----------
           Adjusted net income (loss)                         $     0.03         $    (3.30)            $    (3.27)
                                                              ==========         ==========             ==========

      Earnings (loss) per share, Diluted
           Reported net income                                $     0.03         $       --             $     0.03
           Cumulative effect of accounting change                     --              (3.30)                 (3.30)
                                                              ----------         ----------             ----------
           Adjusted net income (loss)                         $     0.03         $    (3.30)            $    (3.27)
                                                              ==========         ==========             ==========
</TABLE>

      A summary of changes in Hometown's goodwill during the year ended December
31, 2002, is as follows:

<TABLE>
<CAPTION>
                                         Balance at               Impairments               Balance at
   Reporting Unit                     December 31, 2001                                 December 31, 2002
                                                                (in thousands)
   --------------                     -----------------         --------------          -----------------
<S>                                       <C>                       <C>                        <C>
   Total Company                          $ 23,708                  $ 23,708                   $ --
                                          ========                  ========                   ====
</TABLE>


                                       9
<PAGE>

      As of March 31, 2003 and December 31, 2002, Hometown's intangible assets
consisted of the following:

                                             3/31/03           12/31/02
                                             -------           --------
                                                  (in thousands)
      Deferred finance charges                $ 267             $ 267
      Accumulated amortization                  (83)              (78)
      Non-compete agreement                     381               381
      Accumulated amortization                 (222)             (206)
                                              -----             -----
         Net intangible assets (a)            $ 343             $ 364
                                              =====             =====

      (a) These assets are included in Other Assets in the consolidated
financial statements

5.    INVENTORIES

      New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific unit basis. Parts and accessories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Inventories, net consist of the following:

                                              3/31/03           12/31/02
                                              -------           --------
                                                   (in thousands)
      New Vehicles                            $29,296            $29,236
      Used Vehicles                             7,000              7,264
      Parts, accessories and other              2,425              2,669
                                              -------            -------
         Total Inventories                    $38,721            $39,169
                                              =======            =======

      The lower of cost or market reserves were $0.6 million at March 31, 2003
and December 31, 2002.

6.    FLOOR PLAN NOTES PAYABLE

      Hometown has a floor plan line of credit at each dealership with Ford
Motor Credit Corporation ("FMCC"). The FMCC floor plan agreement provides
financing for vehicle purchases and is secured by and dependent upon new and
used vehicle inventory levels. Maximum availability under the FMCC agreement is
a function of new and used car sales and is not a pre-determined amount.

      In June 2002, Hometown renewed its floor plan agreement with FMCC and is
now subject to the FMCC standard financing agreement which provides for floor
plan loans for new and used vehicles that have variable interest rates that
increase or decrease based on movements in the prime or LIBOR borrowing rates.

8.    COMMITMENTS AND CONTINGENCIES

      Litigation

      In May 2001, Hometown's wholly-owned subsidiary Morristown Auto Sales,
Inc. ("Morristown") assigned to Crestmont MM, L.P. (the "Assignee") the lease
for the premises, where it was operating its Lincoln Mercury dealership in
Morristown, New Jersey. On or about July 12, 2002, Morristown received notice
from the landlord that the Assignee had not paid the required monthly rent,
maintained the premises in accordance with the lease, nor


                                       10
<PAGE>

provided the required insurance for the premises. In September 2002, Hometown
received notice of a complaint filed by the landlord against Hometown,
Morristown and certain former officers seeking payment of rent and other
obligations through June 2005. In October 2002, Morristown filed a complaint
against the Assignee to recover any potential damages from the Assignee as
provided under the lease assignment. The Assignee has made a claim against
Hometown for breach of the assignment agreement and misrepresentation of the use
of the subject property. The Assignee has also brought a claim against
Morristown's president, Hometown's Chief Executive Officer, for
misrepresentation. Total anticipated costs for the remainder of the lease term,
through June 2005, is $540,000 for rent plus certain other costs. Hometown
believes it has meritorious defenses to the claim and counterclaim and intends
to vigorously defend this action. In fact the landlord has leased the premises
for the period January 29, 2003 through January 29, 2004 for a total of
$120,000, to another tenant thereby significantly reducing Morristown's exposure
to a damages judgment for lost rent. Hometown does not believe that the eventual
outcome of the case will have a material adverse effect on Hometown's
consolidated financial position or results of operations.

      In July 2002, Hometown received notice of a complaint filed by the Trust
Company of New Jersey ("Trust Company") for payment under certain guaranty
agreements allegedly made by Hometown's wholly-owned subsidiary Westwood Lincoln
Mercury Sales, Inc. ("Westwood") in favor of Trust Company in connection with a
sale of vehicles in 1998. Trust Company is seeking approximately $390,000 plus
other costs. Hometown does not believe that Westwood has any obligations under
the guaranty agreements due to certain actions taken by Trust Company in
relation to the underlying debt, the debtor and other guarantors. Hometown
believes it has meritorious defenses and intends to vigorously defend this
action. Hometown does not believe that the eventual outcome of the case will
have a material adverse effect on Hometown's consolidated financial position or
results of operations.

      On or about February 7, 2001, Salvatore A. Vergopia and Edward A.
Vergopia, directors and formerly executive officers of Hometown, and Janet
Vergopia, the wife of Salvatore A. Vergopia (the "Vergopias") filed a complaint
in the Superior Court of New Jersey in Bergen County, against Hometown, its
officers and directors, certain holders of its Class B common stock, and certain
other unnamed persons, alleging breach of two employment agreements, wrongful
termination of employment, breach of a stockholders' agreement and certain other
wrongful conduct, including age discrimination and breach of fiduciary duty. The
Vergopias are seeking back pay, front pay, compensatory, consequential and
punitive damages, for an unspecified amount as well as, reinstatement,
injunctive and other legal and equitable relief. Salvatore A. Vergopia and
Edward A. Vergopia have also commenced a second action for defamation against
Hometown and its Chief Executive Officer, which has been consolidated with the
action initially filed.

      We have retained litigation counsel to represent us in this action. A
motion has been granted such that only a single shareholder remains as an
individual shareholder defendant. Also, Hometown has filed counterclaims to
recover damages associated with the Vergopia's breaches of certain agreements,
as well as breaches of their fiduciary duties. Discovery is proceeding in this
action.

      We believe that the Vergopias commenced this action in response to our
dismissal of both Salvatore A. Vergopia and Edward A. Vergopia from their
officerships and employment positions with us. We believe we have meritorious
defenses and are vigorously defending this action. Hometown does not believe
that the eventual outcome of the case will have a material adverse effect on
Hometown's consolidated financial position or results of operations.

      Universal Underwriters Group ("Universal"), Hometown's insurance provider,
commenced a lawsuit against The Chubb Group of Insurance Companies ("Chubb"),
Hometown's Director and Officer Liability Insurance provider, Hometown, certain
officers, directors and shareholders of Hometown and the Vergopias seeking a
declaration of its coverage obligations with respect to the suit brought by the
Vergopias discussed above. The suit has been consolidated with the suit brought
by the Vergopia's for discovery and case management purposes. Universal
originally acknowledged its obligation to defend and indemnify Hometown against
the Vergopia's claims and engaged separate counsel to represent Hometown and its
directors. Universal is now seeking to limit its obligations under the
comprehensive insurance policy as well as require Chubb, to share in defense and
indemnity obligations. Hometown originally commenced an action seeking
affirmative declaration of its rights under its policy with Universal, but
allowed this action to be stayed pending a resolution of the action brought by
Universal.


                                       11
<PAGE>

Hometown has brought counterclaims against Universal and a cross-claim for
declaratory judgment against Chubb. Hometown maintains that the insurers are
obligated to defend and indemnify on all claims brought by the Vergopias.
Discovery is ongoing on this matter. Hometown believes it has meritorious claims
and is vigorously defending this action and prosecuting its counterclaims and
cross-claims. Hometown does not believe that the eventual outcome of the case
will have a material adverse effect on Hometown's consolidated financial
position or results of operations.

      Hometown from time to time may be a defendant in lawsuits arising from
normal business activities. Management reviews pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on Hometown's consolidated
financial position or results of operations.

      Guarantees

      Hometown guarantees or partially guarantees loans advanced by financial
institutions to certain customers. It is Hometown's policy to provide reserves
for potential future default losses based on available historical information.

      One of Hometown's dealerships, prior to fiscal 2000, had entered into
various arrangements whereby Hometown guaranteed or partially guaranteed loans
advanced by financial institutions to certain customers as follows:

      (i)   Portfolio of 9 customer's limousine vehicle loans granted by Ford
            Motor Credit Co. As of March 31, 2003, Hometown fully and partially
            guaranteed limousine vehicle loans aggregating approximately
            $48,000.

      (ii)  Portfolio of 11 vehicle loans, granted by a financial institution,
            to various customers of the dealership with below average credit. As
            of March 31, 2003, Hometown fully guaranteed vehicle loans
            associated with these customers aggregating approximately $58,000.

      The guarantees in (i) and (ii) above are related to loans whereby Hometown
is required to pay the remaining loan balance upon default by the customer. As
of March 31, 2003, Hometown has reserved $45,000 against a total maximum payout
of $106,000 for these loans. The reserve amount represents loans that are
currently delinquent. Hometown would expect to realize proceeds from the sale of
these vehicles upon repossession of such vehicle. The amount of proceeds, if
any, is undetermined due to not knowing the condition of the vehicles.

      The same dealership during fiscal 2000 and 2001 partially guaranteed loans
advanced by Ford Motor Credit Co. to a certain limousine customer. As of March
31, 2003, 22 of these loans remain outstanding. Hometown has reserved $0 against
a total maximum payout of $253,000 for these loans. Hometown has not reserved
for these loans due to the expected fair value of the vehicles approximating or
exceeding the unamortized portion of the loan balance.

      There are also 33 loans whose liens were not properly perfected totaling
approximately $251,000 as of March 31, 2003. Hometown will be required to pay
the remaining loan balance should the customer's default on their payments.
Hometown is working to perfect these liens and has taken steps to prevent this
from occurring in the future. Hometown has reserved $41,000 for these loans. The
reserve amount represents loans that are currently delinquent. Hometown would
expect to realize proceeds from the sale of these vehicles upon repossession of
such vehicle. The amount, if any, is undetermined due to not knowing the
condition of the vehicles.

      Hometown will continue to provide a reserve for potential future default
losses associated with the guarantees based on available historical information.
The reserve continues to decrease as the loans are paid off and due to no new
loan guarantees being provided by Hometown to customers with below average
credit.

      In connection with the acquisition in 1999 of real estate used by Baystate
Lincoln Mercury, Hometown guaranteed the mortgage debt of Rellum Realty Company.
The 1999 guaranty was given in substitution for a


                                       12
<PAGE>

February 1998 guaranty of that debt by the Muller Group, a subsidiary of
Hometown. In the event of default by Rellum Realty Company, Hometown is required
to make the mortgage payments, but does not take ownership of the property. As
of March 31, 2003 the mortgage debt balance is $4.9 million. Hometown makes
annual lease payments of $756,000 to the landlord. The annual mortgage payments
made by the landlord total approximately $774,000. The mortgage matures March
2013. The lease was recorded as a capital lease. The capital lease obligation is
$4.3 million at March 31, 2003.

      Warranties

      Hometown's new vehicle sales and certain used vehicle sales have
manufacturer warranties that specify coverage and period. In these instances,
Hometown is reimbursed by the manufacturer for the cost of parts and service on
the vehicle covered by these warranties, as specified by the manufacturer.
Hometown also provides a limited warranty on used vehicles sold at retail. The
warranty period is as agreed upon by the customer and may be subject to a
minimum period as mandated by the state. The typical warranty period ranges up
to three months. Hometown also sells parts and service. Manufacturer parts are
covered by limited warranties, as specified by the manufacturer. Service also
has a limited warranty; whereby the part and certain labor costs are covered
under the limited manufacturer warranty.

      Hometown records a reserve referred to as "policy" for used vehicle
warranties and the labor portion of service warranties based on available
historical information. At March 31, 2003 and December 31, 2002 Hometown has a
reserve of $148,000 and $172,000, respectively. The reserve is based on the last
three months of used vehicle units sold and the average cost of repairs over the
last twelve months. While Hometown believes its estimated liability for product
warranties is adequate and that the judgment applied is appropriate, the
estimated liability for product warranties could differ materially from future
actual warranty costs.

<TABLE>
<CAPTION>
                                                                          Additions To
                                                       Balance At           Costs and                         Balance At End of
             Reserve for Policy Work                Beginning of Year       Expenses          Deductions           Quarter
     ----------------------------------------      ----------------      ---------------     ------------       -------------
<S>                                                     <C>                  <C>              <C>                 <C>
        Three Months Ended March 31, 2003               $172,000             99,000           (123,000)           $148,000
</TABLE>

      Other revenues generated by sales of extended service plans, finance,
insurance and other do not have any Hometown warranties attached to the sale,
except for certain sales in Connecticut dealerships.

      Connecticut dealerships operate under state laws, which make the dealers
responsible for providing warranty service and insurance in the event of default
by the insurance carriers. Accordingly, commissions on insurance and service
contract sales are required to be recognized over the life of the related
insurance product. For these dealerships, Hometown records the revenue as a
liability and amortizes the amount into revenue over a five-year period. At
March 31, 2003 and December 31, 2002, Hometown had $1,237,000 of related
deferred revenue. During the three months ended March 31, 2003, these
dealerships generated approximately $128,000 of related warranty service and
insurance revenue, which was deferred. During the same period, approximately
$128,000 of deferred revenue was amortized to Other Revenues, net. At March 31,
2003 and December 31, 2002, Hometown also had other deferred revenue of $75,000
and $94,000, respectively.

      Franchise Agreements

      On March 13, 2003, Hometown was notified by Toyota Motor Sales, U.S.A.,
Inc. that Hometown must correct certain operational deficiencies or make
substantial progress toward rectifying such deficiencies during the next six
months. Toyota has expressed concerns that the financial resources of the Toyota
dealerships are being used to finance the cash flow deficits of affiliated
companies and that because of this the Toyota dealerships do not meet their net
working capital requirements by approximately $1.0 million. Toyota has also
requested that Hometown provide a written action plan and consolidated financial
forecast. Toyota has also expressed concerns about the impact of Ford Motor
Credit's financing terms upon the Toyota dealerships and the existing
litigation, including the Vergopia's as discussed above in Note 8, Commitments
and Contingencies - Litigation and in


                                       13
<PAGE>

Managements Discussion and Analysis - Litigation. Hometown is developing plans
to correct the operational deficiencies that would bring Hometown into
compliance. These plans include various alternatives such as; obtaining an
outside line of credit, private equity financing, sale of real property, sale of
a dealership, and advances on warranty income from Hometown's Extended Service
Plan vendor. In addition, Hometown will be in monthly contact with Toyota to
review the efforts of Hometown to resolve the deficiencies alleged by Toyota.
The two Toyota dealerships at December 31, 2002 had combined revenues of $100.6
million and pre-tax income before allocation of corporate costs of $2.5 million.
Hometown believes that it will be able to alleviate the concerns expressed by
Toyota; however, Toyota has reserved the right to terminate the Toyota
Dealership Agreements if sufficient progress is not made to correct the alleged
deficiencies. Should Hometown be notified by Toyota that they intend to
terminate the Toyota Dealership Agreements, Hometown believes it would have a
reasonable amount of time to cure the default.


                                       14
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      Management's discussion and analysis of financial condition and results of
operations is based on the historical financial statements of Hometown Auto
Retailers, Inc. and contains forward-looking statements that involve risks and
uncertainties. Hometown's actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors, as
described under "Risk Factors" as detailed on Hometown's annual report on Form
10-K for the year ended December 31, 2002.

Overview

      Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 10 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown's dealerships
offer 10 American and Asian automotive brands including Chevrolet, Chrysler,
Dodge, Ford, Jeep, Lincoln, Mazda, Mercury, Oldsmobile and Toyota.

Restatement Of Prior Years Financial Statements - Cumulative Effect of
Accounting Change

      As discussed in Note 3, effective January 1, 2002, Hometown adopted SFAS
142. At that time, Hometown ceased recording goodwill amortization. SFAS 142
requires the completion of a transitional impairment test in the year of
adoption, with any impairment identified upon initial implementation treated as
a cumulative effect of a change in accounting principle.

      Under SFAS 142, goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. According to the
criteria under SFAS 142, it has been determined that Hometown is a single
reporting unit.

      During 2002, Hometown completed its goodwill impairment testing which
resulted in Hometown recording a one-time, non-cash charge of approximately
$23.7 million to write-off the carrying value of goodwill. This charge is
non-operational in nature and is reflected as a cumulative effect of an
accounting change in the accompanying statement of operations for the three
months ended March 31, 2002. Approximately $9.6 million of this charge is tax
deductible, resulting in a deferred tax benefit of approximately $3.8 million
against which a full valuation allowance was recorded.

      In calculating the impairment charge, the fair value of the reporting unit
was estimated using both the discounted cash flow method and the guideline
company method. The discounted cash flow method used Hometown's estimates of
future cash flows discounted to present value using an appropriate discount
rate. The guideline company method selects certain value measures of guideline
companies and calculates appropriate market multiples based on the fundamental
value measures of the guideline companies and compares same to Hometown. The
guideline companies chosen were other publicly traded company's within
Hometown's Standard Industrial Classification (SIC) code. These methodologies
differs from Hometown's previous policy, as permitted under SFAS 121, using
undiscounted cash flows to determine if goodwill is recoverable.

      The goodwill impairment is associated with goodwill that resulted from
acquisitions since the formation of Hometown. The amount of the impairment
reflects the effect of the change in methodology in determining impairment
charges as discussed above.


                                       15
<PAGE>

      The effect of the charge on the 2002 first quarter financial statements
and the restated 2002 first quarter financial statements is as follows:

<TABLE>
<CAPTION>
                                                                     Three Months Ended March 31, 2002
                                                                               (in thousands)
                                                             As Reported      Effect of Change           Restated
                                                             -----------      ----------------          ----------

<S>                                                           <C>                <C>                    <C>
      Reported net income                                     $      235         $       --             $      235
      Less: Cumulative effect of accounting change                    --            (23,708)               (23,708)
                                                              ----------         ----------             ----------
      Adjusted net income (loss)                              $      235         $  (23,708)            $  (23,473)
                                                              ==========         ==========             ==========

      Earnings (loss) per share, Basic
           Reported net income                                $     0.03         $       --             $     0.03
           Cumulative effect of accounting change                     --              (3.30)                 (3.30)
                                                              ----------         ----------             ----------
           Adjusted net income (loss)                         $     0.03         $    (3.30)            $    (3.27)
                                                              ==========         ==========             ==========

      Earnings (loss) per share, Diluted
           Reported net income                                $     0.03         $       --             $     0.03
           Cumulative effect of accounting change                     --              (3.30)                 (3.30)
                                                              ----------         ----------             ----------
           Adjusted net income (loss)                         $     0.03         $    (3.30)            $    (3.27)
                                                              ==========         ==========             ==========
</TABLE>

Three months ended March 31, 2003 compared with three months ended March 31,
2002.

The units sold by category for Hometown for the quarters ended March 31, 2003
and March 31, 2002, are as follows:

                                           For the three months
                                              ended March 31,
                                           2003             2002
                                          -----            -----
      New vehicle                         1,368            1,428
      Used vehicle - retail                 936            1,100
      Used vehicle - wholesale              612              697
                                          -----            -----
      Total units sold                    2,916            3,225
                                          =====            =====

      Revenue

      Total revenue decreased $4.8 million, or 7.4% to $60.3 million for three
months ended March 31, 2003 from $65.1 million for three months ended March 31,
2002. This decrease was primarily due to: (i) decreased sales of used vehicles
($3.7 million); (ii) decreased new vehicle sales ($0.8 million) and (iii)
decreased other revenues ($0.4 million), partially offset by increased parts and
service sales ($0.1 million).

      Revenue from the sale of new vehicles decreased $0.8 million, or 2.2% from
$36.7 million for the three months ended March 31, 2002 to $35.9 million for
three months ended March 31, 2003. A decrease of 60 units sold in 2003 compared
to 2002 ($1.5 million) was partially offset by a 2.3% increase in average
selling price ($0.7 million). The decrease is primarily due to decreases at
Hometown's Chrysler/Jeep ($0.9 million), Toyota ($0.4 million) and Chevy ($0.2
million) dealerships partially offset by an increase at Hometown's Mazda
dealership ($0.8 million). The Chrysler/Jeep decrease was primarily due to a
decrease of


                                       16
<PAGE>

38 units sold ($0.9 million) in the 2003 period compared to the 2002 period. The
decrease in the Toyota dealerships was due to a decrease of 19 units in 2003
compared to 2002 ($0.4 million). Included in this was a decrease in fleet sales
of 34 units ($0.5 million). Excluding fleet sales, other Toyota new vehicle
sales increased $0.1 million due to the sale of 15 additional units ($0.4
million), partially offset by a 1.9% decrease in average selling price ($0.3
million). The decrease at the Chevy dealership was primarily due to a decrease
of 9 units sold in 2003 compared to 2002 ($0.2 million), partially offset by an
increase in the average selling price. The increase at the Mazda dealership was
primarily due to an additional 40 units sold in 2003 compared to 2002 ($0.9
million), partially offset by a decrease in average selling price ($0.1
million).

      Revenue from the sale of used vehicles decreased $3.7 million, or 18.4%
from $20.1 million for the three months ended March 31, 2002 to $16.4 million
for three months ended March 31, 2003. This was due to a decrease of 164 units
sold at retail ($2.3 million) combined with a 1.2% decrease in average selling
price ($0.2 million) plus reduced used vehicles sales at wholesale ($1.2
million) due to a reduction of 85 units ($0.5 million) and lower average selling
price ($0.7 million). A Lincoln Mercury / Mazda dealership accounted for $3.5
million of the decrease in used vehicles sales. This was primarily due to the
dealership reducing emphasis on its high-end used car line during the second
quarter of 2002, as Hometown experienced a significant drop off in demand for
its high-end used car line and increased weakness on financing for these
vehicles as the economy has weakened. Although Hometown still sells high-end
used cars, it is not expected to be a significant portion of revenues from sales
of used cars at retail. The Ford dealership had a decrease of $0.4 million,
primarily due to a decrease of 38 units ($0.6 million) sold at retail including
a slight decrease in average selling price, partially offset by an increase in
the average selling price of units sold at wholesale ($0.2 million).

      Parts and service sales revenue increased $0.1 million, or 1.6% from $6.1
million for the three months ended March 31, 2002, to $6.2 million for the three
months ended March 31, 2003.

      Other dealership revenues decreased $0.4 million, or 18.2% from $2.2
million for the three months ended March 31, 2002 to $1.8 million for the three
months ended March 31, 2003. This decrease is primarily attributable to
decreases in extended service plan income, finance income and other income due
to decreased unit sales of both new and used vehicles combined with lower
average other revenue per vehicle sold.

      Gross Profit

      Total gross profit decreased $0.6 million, or 6.3%, from $9.6 million for
the three months ended March 31, 2002, to $9.0 million for the three months
ended March 31, 2003. This decrease was primarily attributable to: (i) decreased
other dealership gross profit of $0.4 million, discussed above, and (ii) a
decrease in used vehicle gross profit of $0.2 million. Gross profit percentage
for Hometown was 14.9% in 2003 and 14.8% in 2002. Adjusting both periods for
Toyota fleet sales, gross profit percentage was 15.0% in 2003 and 2002.

      Gross profit on the sale of new vehicles was $2.3 million for the three
months ended March 31, 2003 and 2002. A decrease in gross profit attributable to
a decrease of 60 units ($0.1 million) was offset by an increase in average gross
profit per vehicle ($0.1 million). Gross profit percentage for 2003 was 6.4%
compared to 6.3% for 2002. Adjusting both periods for Toyota fleet sales, which
generate low margins, gross profit percentage for new vehicles was 6.5% in 2003
and 6.4% in 2002.

      Gross profit on the sale of used vehicles decreased $0.2 million, or
11.1%, from $1.8 million for the three months ended March 31, 2002, to $1.6
million for the three months ended March 31, 2003. This decrease is primarily
due to a decrease of 164 units sold at retail ($0.3 million) partially offset by
a 2.2% increase in average gross profit per vehicle ($0.1 million). A Lincoln
Mercury / Mazda dealership, discussed in revenues above, accounted for
essentially the entire decrease. Gross profit on the sale of used vehicles at
wholesale is minimal and was up slightly for the three months ended March 31,
2003 compared to the 2002 period.


                                       17
<PAGE>

      Parts and service gross profit stayed consistent at $3.3 million for the
three months ended March 31, 2002 and 2003. The increase in revenues was offset
by a decrease in gross profit percentage.

      Selling, General and Administrative Expenses

      Selling, general and administrative expenses stayed consistent at $8.4
million for the three months ended March 31, 2002 and 2003. A reduction in
salaries and employee benefits ($0.3 million) was offset by increases in
insurance ($0.1 million), advertising ($0.1 million) and various other costs
($0.1 million).

      Interest Expense

      Interest expense stayed consistent at $0.8 million for the three months
ended March 31, 2003 and 2002.

      Provision (benefit) for income tax

      The effective income tax rate was 35.3% in the quarter ended March 31,
2003 and 42.0% in the same period of 2002. The rates were based on current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book income. The 2003 rate is lower due to a state tax provision
being required for certain dealerships although there is a loss in consolidation
for Hometown.

      Income (Loss) Before Cumulative Effect of Accounting Change

      Income (loss) before cumulative effect of accounting change decreased $0.3
million to a loss of ($0.1) million for the three months ended March 31, 2003
from income of $0.2 million for the three months ended March 31, 2002. See above
for explanation of changes.

      Cumulative Effect of Accounting Change

      In accordance with SFAS 142, Hometown completed its goodwill impairment
testing during 2002, which resulted in Hometown recording a one-time, non-cash
charge of approximately $23.7 million to write-off the carrying value of
goodwill. This charge is non-operational in nature and is reflected as a
cumulative effect of an accounting change in the accompanying statement of
operations for the three months ended March 31, 2002 (restated). Approximately
$9.6 million of this charge is tax deductible, resulting in a deferred tax
benefit of approximately $3.8 million against which a full valuation allowance
was recorded. See Note 4 to the consolidated financial statements.

      Net Loss

      Net loss decreased $23.4 million to $(0.1) million for the three months
ended March 31, 2003 from a loss of $(23.5) million for the three months ended
March 31, 2002 (restated). The decreased loss is primarily due to the write-off
of the carrying value of goodwill in the 2002 period. See above for explanation
of other changes.

      Earnings Per Share, Basic and Diluted and Weighted Average Shares

      "Basic earnings (loss) per share" is computed by dividing net income
(loss) by the weighted average common shares outstanding. "Diluted earnings
(loss) per share" is computed by dividing net income (loss) by the weighted
average common shares outstanding adjusted for the incremental dilution of
potentially dilutive securities. Options and warrants to purchase approximately
1,428,000 and 1,288,000 shares of common stock were outstanding as of March 31,
2003 and 2002, respectively. The options and warrants were not included in the
computation of diluted earnings (loss) per share because the option and warrant
prices were greater than the average market price of the common shares or the
effect would have been anti-dilutive.

      The basic and diluted (loss) per share for the three months ended March
31, 2003 is $(0.02). The restated basic and diluted (loss) per share for the
three months ended March 31, 2002 is $(3.27), which includes basic and diluted


                                       18
<PAGE>

income per share before cumulative effect of accounting change of $0.03 and
basic and diluted (loss) per share for a cumulative effect of accounting change
of $(3.30), resulting from the goodwill impairment charge associated with the
implementation of SFAS 142. See Note 4 to the consolidated financial statements
for the recognition of an impairment of the carrying value of its goodwill in
2002, in accordance with SFAS 142.

      The weighted average shares, basic and diluted, for the three months ended
March 31, 2003 and 2002 are 7.2 million shares and 7.2 million shares,
respectively. The weighted average shares for the basic and diluted calculation
are the same due Hometown incurring a net loss in both periods.

Cyclicality

      Hometown's operations, like the automotive retailing industry in general,
are affected by a number of factors relating to general economic conditions,
including consumer business cycles, consumer confidence, economic conditions,
availability of consumer credit and interest rates. Although the above factors,
among others, may affect Hometown's business, Hometown believes that the impact
on Hometown's operations of future negative trends in such factors will be
somewhat mitigated by its (i) strong parts, service and collision repair
services, (ii) variable cost salary structure, (iii) geographic regional focus,
and (iv) product diversity.

Seasonality

      Hometown's operations are subject to seasonal variations, with the second
and third quarters generally contributing more revenues and operating profit
than the first and fourth quarters. This seasonality is driven primarily by: (i)
Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers, (ii) weather-related
factors, which primarily affect parts and service and (iii) consumer buying
patterns.

Effects of Inflation

      Due to the relatively low levels of inflation experienced in the 2002 and
2003 periods, inflation did not have a significant effect on the results of
Hometown during those periods.

Liquidity and Capital Resources

      The principal sources of liquidity are cash on hand, cash from operations
and floor plan financing.

      Cash and Cash Equivalents

      Total cash and cash equivalents was $5.6 million and $3.6 million at March
31, 2003 and December 31, 2002, respectively.


                                       19
<PAGE>

      Cash Flow from Operations

      The following table sets forth the consolidated selected information from
the unaudited statements of cash flows:

<TABLE>
<CAPTION>
                                                                         Three months ended
                                                                              March 31,
                                                                       2003                2002
                                                                                        (Restated)
                                                                      -------           ----------
                                                                            (in thousands)
<S>                                                                   <C>                 <C>
      Net cash provided by operating activities                       $ 2,877             $ 900
      Net cash (used in) investing activities                            (230)             (658)
      Net cash (used in) financing activities                            (678)             (245)
                                                                      -------             -----
      Net increase (decrease) in cash and cash equivalents            $ 1,969             $  (3)
                                                                      =======             =====
</TABLE>

      For the three months ended March 31, 2003, net cash provided from
operations of $2.9 million primarily consists of: (i) net loss plus non-cash
items of $0.1 million; (ii) the increase in floor plan liability of $2.2
million; (iii) the decrease in inventory of $0.7 million; and (iv) an increase
in accounts payable and accrued expenses of $0.7 million; partially offset by
increased accounts receivable of $0.8 million. Net cash used in investing
activities of $0.2 million is primarily due to capital expenditures. Net cash
used in financing activities of $0.7 million is due to principal payments of
long-term debt and capital lease obligations.

      For the three months ended March 31, 2002, net cash provided from
operations of $0.9 million primarily consists of: (i) net loss plus non-cash
items of $0.5 million; and (ii) the increase in floor plan liability in excess
of the increase in inventory of $1.5 million; partially offset by (iii)
increased accounts receivable of $0.7 million; and (iv) a decrease in accounts
payable and accrued expenses of $0.6 million. Net cash used in investing
activities of $0.7 million is primarily due to capital expenditures associated
with the construction of a new showroom at our Framingham, Massachusetts
dealership. Net cash used in financing activities of $0.2 million is due to
principal payments of long-term debt and capital lease obligations.

      Capital Expenditures

      Capital expenditures for fiscal 2003 are expected to be $0.6 million,
consisting primarily of equipment purchases ($0.3 million) and the remaining
costs associated with the construction of a new showroom at our Framingham,
Massachusetts dealership ($0.3 million).

      Receivables

      Hometown had $5.7 million in accounts receivable at March 31, 2003
compared to $4.9 million at December 31, 2002. The increase in receivables is
due to the increase in sales that takes place in March compared to December. The
majority of those receivables, $3.2 million and $2.8 million as of March 31,
2003 and December 31, 2002, respectively, are due from finance companies that
provide or secure financing for customer purchases, and primarily represent
contracts-in-transit. These amounts are typically received within seven days of
the transaction. The allowance for doubtful accounts is $0.2 million at March
31, 2003 and December 31, 2002.

      Inventories

      Hometown had $38.7 million in inventories, net at March 31, 2003 compared
to $39.2 million at December 31, 2002. The majority of inventory, $29.3 million
and $29.2 million as of March 31, 2003 and December 31, 2002, respectively, is
new vehicle inventory. New, used and demonstrator vehicle values are stated at
the lower of cost or market, determined on a specific unit basis. Parts and
accessories are stated at the lower of cost (determined on a


                                       20
<PAGE>

first-in, first-out basis) or market. Hometown assesses the lower of cost or
market reserve requirement for vehicles, on an individual unit basis, taking
into consideration historical loss rates, the age and composition of the
inventory and current market conditions. The lower of cost or market reserves
were $0.6 million at March 31, 2003 and December 31, 2002.

      Floor Plan Financing

      Hometown has a floor plan line of credit at each dealership with Ford
Motor Credit Corporation ("FMCC"). The FMCC floor plan agreement provides
financing for vehicle purchases and is secured by and dependent upon new and
used vehicle inventory levels. Maximum availability under the FMCC agreement is
a function of new and used car sales and is not a pre-determined amount.

      In June 2002, Hometown renewed its floor plan agreement with FMCC and is
now subject to the FMCC standard financing agreement which provides for floor
plan loans for new and used vehicles that have variable interest rates that
increase or decrease based on movements in the prime or LIBOR borrowing rates.

Guarantees

      Hometown guarantees or partially guarantees loans advanced by financial
institutions to certain customers. It is Hometown's policy to provide reserves
for potential future default losses based on available historical information.

      One of Hometown's dealerships, prior to fiscal 2000, had entered into
various arrangements whereby Hometown guaranteed or partially guaranteed loans
advanced by financial institutions to certain customers as follows:

      (i)   Portfolio of 9 customer's limousine vehicle loans granted by Ford
            Motor Credit Co. As of March 31, 2003, Hometown fully and partially
            guaranteed limousine vehicle loans aggregating approximately
            $48,000.

      (ii)  Portfolio of 11 vehicle loans, granted by a financial institution,
            to various customers of the dealership with below average credit. As
            of March 31, 2003, Hometown fully guaranteed vehicle loans
            associated with these customers aggregating approximately $58,000.

      The guarantees in (i) and (ii) above are related to loans whereby Hometown
is required to pay the remaining loan balance upon default by the customer. As
of March 31, 2003, Hometown has reserved $45,000 against a total maximum payout
of $106,000 for these loans. The reserve amount represents loans that are
currently delinquent. Hometown would expect to realize proceeds from the sale of
these vehicles upon repossession of such vehicle. The amount of proceeds, if
any, is undetermined due to not knowing the condition of the vehicles.

      The same dealership during fiscal 2000 and 2001 partially guaranteed loans
advanced by Ford Motor Credit Co. to a certain limousine customer. As of March
31, 2003, 22 of these loans remain outstanding. Hometown has reserved $0 against
a total maximum payout of $253,000 for these loans. Hometown has not reserved
for these loans due to the expected fair value of the vehicles approximating or
exceeding the unamortized portion of the loan balance.

      There are also 33 loans whose liens were not properly perfected totaling
approximately $251,000 as of March 31, 2003. Hometown will be required to pay
the remaining loan balance should the customer's default on their payments.
Hometown is working to perfect these liens and has taken steps to prevent this
from occurring in the future. Hometown has reserved $41,000 for these loans. The
reserve amount represents loans that are currently delinquent. Hometown would
expect to realize proceeds from the sale of these vehicles upon repossession of
such vehicle. The amount, if any, is undetermined due to not knowing the
condition of the vehicles.


                                       21
<PAGE>

      Hometown will continue to provide a reserve for potential future default
losses associated with the guarantees based on available historical information.
The reserve continues to decrease as the loans are paid off and due to no new
loan guarantees being provided by Hometown to customers with below average
credit.

      In connection with the acquisition in 1999 of real estate used by Baystate
Lincoln Mercury, Hometown guaranteed the mortgage debt of Rellum Realty Company.
The 1999 guaranty was given in substitution for a February 1998 guaranty of that
debt by the Muller Group, a subsidiary of Hometown. In the event of default by
Rellum Realty Company, Hometown is required to make the mortgage payments, but
does not take ownership of the property. As of March 31, 2003 the mortgage debt
balance is $4.9 million. Hometown makes annual lease payments of $756,000 to the
landlord. The annual mortgage payments made by the landlord total approximately
$774,000. The mortgage matures March 2013. The lease was recorded as a capital
lease. The capital lease obligation is $4.3 million at March 31, 2003.

Warranties

      Hometowns new vehicle sales and certain used vehicle sales have
manufacturer warranties that specify coverage and period. In these instances,
Hometown is reimbursed by the manufacturer for the cost of parts and service on
the vehicle covered by these warranties, as specified by the manufacturer.
Hometown also provides a limited warranty on used vehicles sold at retail. The
warranty period is as agreed upon by the customer and may be subject to a
minimum period as mandated by the state. The typical warranty period ranges up
to three months. Hometown also sells parts and service. Manufacturer parts are
covered by limited warranties, as specified by the manufacturer. Service also
has a limited warranty; whereby the part and certain labor costs are covered
under the limited manufacturer warranty.

      Hometown records a reserve referred to as "policy" for used vehicle
warranties and the labor portion of service warranties based on available
historical information. At March 31, 2003 and December 31, 2002 Hometown has a
reserve of $148,000 and $172,000, respectively. The reserve is based on the last
three months of used vehicle units sold and the average cost of repairs over the
last twelve months. While Hometown believes its estimated liability for product
warranties is adequate and that the judgment applied is appropriate, the
estimated liability for product warranties could differ materially from future
actual warranty costs.

<TABLE>
<CAPTION>
                                                                          Additions To
                                                       Balance At           Costs and                         Balance At End of
             Reserve for Policy Work                Beginning of Year       Expenses          Deductions           Quarter
     ----------------------------------------      ----------------      ---------------     ------------       -------------
<S>                                                     <C>                  <C>              <C>                 <C>
        Three Months Ended March 31, 2003               $172,000             99,000           (123,000)           $148,000
</TABLE>

      Other revenues generated by sales of extended service plans, finance,
insurance and other do not have any Hometown warranties attached to the sale,
except for certain sales in Connecticut dealerships.

      Connecticut dealerships operate under state laws, which make the dealers
responsible for providing warranty service and insurance in the event of default
by the insurance carriers. Accordingly, commissions on insurance and service
contract sales are required to be recognized over the life of the related
insurance product. For these dealerships, Hometown records the revenue as a
liability and amortizes the amount into revenue over a five-year period. At
March 31, 2003 and December 31, 2002, Hometown had $1,237,000 of related
deferred revenue. During the three months ended March 31, 2003, these
dealerships generated approximately $128,000 of related warranty service and
insurance revenue, which was deferred. During the same period, approximately
$128,000 of deferred revenue was amortized to Other Revenues, net. At March 31,
2003 and December 31, 2002, Hometown also had other deferred revenue of $75,000
and $94,000, respectively.

Franchise Agreements

      On March 13, 2003, Hometown was notified by Toyota Motor Sales, U.S.A.,
Inc. that Hometown must correct certain operational deficiencies or make
substantial progress toward rectifying such deficiencies during the


                                       22
<PAGE>

next six months. Toyota has expressed concerns that the financial resources of
the Toyota dealerships are being used to finance the cash flow deficits of
affiliated companies and that because of this the Toyota dealerships do not meet
their net working capital requirements by approximately $1.0 million. Toyota has
also requested that Hometown provide a written action plan and consolidated
financial forecast. Toyota has also expressed concerns about the impact of Ford
Motor Credit's financing terms upon the Toyota dealerships and the existing
litigation, including the Vergopia's as discussed below in Litigation and in
Note 8 to the consolidated financial statements, Commitments and Contingencies -
Litigation. Hometown is developing plans to correct the operational deficiencies
that would bring Hometown into compliance. These plans include various
alternatives such as; obtaining an outside line of credit, private equity
financing, sale of real property, sale of a dealership, and advances on warranty
income from Hometown's Extended Service Plan vendor. In addition, Hometown will
be in monthly contact with Toyota to review the efforts of Hometown to resolve
the deficiencies alleged by Toyota. The two Toyota dealerships at December 31,
2002 had combined revenues of $100.6 million and pre-tax income before
allocation of corporate costs of $2.5 million. Hometown believes that it will be
able to alleviate the concerns expressed by Toyota; however, Toyota has reserved
the right to terminate the Toyota Dealership Agreements if sufficient progress
is not made to correct the alleged deficiencies. Should Hometown be notified by
Toyota that they intend to terminate the Toyota Dealership Agreements, Hometown
believes it would have a reasonable amount of time to cure the default.

Litigation

      In May 2001, Hometown's wholly-owned subsidiary Morristown Auto Sales,
Inc. ("Morristown") assigned to Crestmont MM, L.P. (the "Assignee") the lease
for the premises, where it was operating its Lincoln Mercury dealership in
Morristown, New Jersey. On or about July 12, 2002, Morristown received notice
from the landlord that the Assignee had not paid the required monthly rent,
maintained the premises in accordance with the lease, nor provided the required
insurance for the premises. In September 2002, Hometown received notice of a
complaint filed by the landlord against Hometown, Morristown and certain former
officers seeking payment of rent and other obligations through June 2005. In
October 2002, Morristown filed a complaint against the Assignee to recover any
potential damages from the Assignee as provided under the lease assignment. The
Assignee has made a claim against Hometown for breach of the assignment
agreement and misrepresentation of the use of the subject property. The Assignee
has also brought a claim against Morristown's president, Hometown's Chief
Executive Officer, for misrepresentation. Total anticipated costs for the
remainder of the lease term, through June 2005, is $540,000 for rent plus
certain other costs. Hometown believes it has meritorious defenses to the claim
and counterclaim and intends to vigorously defend this action. In fact the
landlord has leased the premises for the period January 29, 2003 through January
29, 2004 for a total of $120,000, to another tenant thereby significantly
reducing Morristown's exposure to a damages judgment for lost rent. Hometown
does not believe that the eventual outcome of the case will have a material
adverse effect on Hometown's consolidated financial position or results of
operations.

      In July 2002, Hometown received notice of a complaint filed by the Trust
Company of New Jersey ("Trust Company") for payment under certain guaranty
agreements allegedly made by Hometown's wholly-owned subsidiary Westwood Lincoln
Mercury Sales, Inc. ("Westwood") in favor of Trust Company in connection with a
sale of vehicles in 1998. Trust Company is seeking approximately $390,000 plus
other costs. Hometown does not believe that Westwood has any obligations under
the guaranty agreements due to certain actions taken by Trust Company in
relation to the underlying debt, the debtor and other guarantors. Hometown
believes it has meritorious defenses and intends to vigorously defend this
action. Hometown does not believe that the eventual outcome of the case will
have a material adverse effect on Hometown's consolidated financial position or
results of operations.

      On or about February 7, 2001, Salvatore A. Vergopia and Edward A.
Vergopia, directors and formerly executive officers of Hometown, and Janet
Vergopia, the wife of Salvatore A. Vergopia (the "Vergopias") filed a complaint
in the Superior Court of New Jersey in Bergen County, against Hometown, its
officers and directors, certain holders of its Class B common stock, and certain
other unnamed persons, alleging breach of two employment agreements, wrongful
termination of employment, breach of a stockholders' agreement and certain other
wrongful conduct, including age discrimination and breach of fiduciary duty. The
Vergopias are seeking back pay, front pay, compensatory, consequential and
punitive damages, for an unspecified amount as well as, reinstatement,
injunctive and other legal and equitable relief. Salvatore A. Vergopia and
Edward A. Vergopia have


                                       23
<PAGE>

also commenced a second action for defamation against Hometown and its Chief
Executive Officer, which has been consolidated with the action initially filed.

      We have retained litigation counsel to represent us in this action. A
motion has been granted such that only a single shareholder remains as an
individual shareholder defendant. Also, Hometown has filed counterclaims to
recover damages associated with the Vergopia's breaches of certain agreements,
as well as breaches of their fiduciary duties. Discovery is proceeding in this
action.

      We believe that the Vergopias commenced this action in response to our
dismissal of both Salvatore A. Vergopia and Edward A. Vergopia from their
officerships and employment positions with us. We believe we have meritorious
defenses and are vigorously defending this action. Hometown does not believe
that the eventual outcome of the case will have a material adverse effect on
Hometown's consolidated financial position or results of operations.

      Universal Underwriters Group ("Universal"), Hometowns insurance provider,
commenced a lawsuit against The Chubb Group of Insurance Companies ("Chubb"),
Hometown's Director and Officer Liability Insurance provider, Hometown, certain
officers, directors and shareholders of Hometown and the Vergopias seeking a
declaration of its coverage obligations with respect to the suit brought by the
Vergopias discussed above. The suit has been consolidated with the suit brought
by the Vergopia's for discovery and case management purposes. Universal
originally acknowledged its obligation to defend and indemnify Hometown against
the Vergopia's claims and engaged separate counsel to represent Hometown and its
directors. Universal is now seeking to limit its obligations under the
comprehensive insurance policy as well as require Chubb, to share in defense and
indemnity obligations. Hometown originally commenced an action seeking
affirmative declaration of its rights under its policy with Universal, but
allowed this action to be stayed pending a resolution of the action brought by
Universal. Hometown has brought counterclaims against Universal and a
cross-claim for declaratory judgment against Chubb. Hometown maintains that the
insurers are obligated to defend and indemnify on all claims brought by the
Vergopias. Discovery is ongoing on this matter. Hometown believes it has
meritorious claims and is vigorously defending this action and prosecuting its
counterclaims and cross-claims. Hometown does not believe that the eventual
outcome of the case will have a material adverse effect on Hometown's
consolidated financial position or results of operations.

      Hometown from time to time may be a defendant in lawsuits arising from
normal business activities. Management reviews pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on Hometown's consolidated
financial position or results of operations.

Quantitative and Qualitative Disclosures about Market Risk

      We are exposed to market risk from changes in interest rates on our
amounts outstanding under our floor plan financing arrangement, which bears
interest at variable rates based on prime. Based on floor plan amounts
outstanding at March 31, 2003 of $40.8 million, a 1% change in the prime rate
would result in a $0.4 million change to annual floor plan interest expense.

      Hometown invests excess cash, $2.8 million at March 31, 2003, in a money
market account that was paying interest of 0.88% at March 31, 2003.

Controls and Procedures

      (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date
within 90 days of the filing date of this quarterly report on Form 10-Q (the
"Evaluation Date")), have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and effective to
ensure that material


                                       24
<PAGE>

information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities, particularly during the
period in which this quarterly report on Form 10-Q was being prepared.

      (b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective
actions were taken.

Forward Looking Statement

      When used in the Quarterly Report on Form 10Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect Hometown's future plans of operations, business strategy, results of
operations and financial condition. Hometown wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors including the ability
of Hometown to consummate, and the terms of, acquisitions. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth herein and others set forth from time to time
in Hometown's reports and registration statements filed with the Securities and
Exchange Commission (the "Commission"). Hometown disclaims any intent or
obligation to update such forward-looking statements.


                                       25
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

      a.    Exhibits:

            99.1  Chief Executive Officer Certification pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

            99.2  Chief Financial Officer Certification pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

            99.3  Chief Executive Officer Certification

            99.4  Chief Financial Officer Certification

      b.    Reports on Form 8-K

            On March 27, 2003, Hometown filed a report on Form 8-K with respect
            to Items 7 and 9 on such report, related to the Company's announcing
            it's 2002 annual results.


                                       26
<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.

                                          Hometown Auto Retailers, Inc.


May 14, 2003                              By: /s/ Corey E.  Shaker
------------------------                  --------------------------------------
Date                                      Corey E. Shaker
                                          President and Chief Executive Officer


May 14, 2003                              By: /s/ Charles F. Schwartz
------------------------                  --------------------------------------
Date                                      Charles F. Schwartz
                                          Chief Financial Officer


                                       27