<PAGE>

                       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 June 30, 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 June 30, 2003 (Unaudited)
         and December 31, 2002 (Audited)                                      3

         Unaudited Consolidated Statements of Operations for three and six
         months ended June 30, 2003 and 2002 (six months Restated)            4

         Unaudited Consolidated Statements of Stockholders' Equity for the
         six months ended June 30, 2003 and 2002 (Restated)                   5

         Unaudited Consolidated Statements of Cash Flows for six months
         ended June 30, 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          27

ITEM 4.  Controls and Procedures                                             28

PART II. OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K                                    28

SIGNATURES                                                                   29

CERTIFICATIONS                                                               30

                           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 heading
"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>
                                                                                                      June 30,          December 31,
                                                 ASSETS                                                 2003               2002
                                                                                                     (Unaudited)
                                                                                                       --------          --------
<S>                                                                                                    <C>               <C>
Current Assets:
   Cash and cash equivalents                                                                           $  4,928          $  3,624
   Accounts receivable, net                                                                               7,044             4,883
   Inventories, net                                                                                      37,978            39,169
   Prepaid expenses and other current assets                                                                555               510
   Deferred income taxes and taxes receivable                                                             1,229             1,245
                                                                                                       --------          --------
     Total current assets                                                                                51,734            49,431
Property and equipment, net                                                                              12,777            12,882
Other assets                                                                                              1,092             1,503
                                                                                                       --------          --------
     Total assets                                                                                      $ 65,603          $ 63,816
                                                                                                       ========          ========
                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Floor plan notes payable                                                                            $ 38,516          $ 38,522
   Accounts payable and accrued expenses                                                                  6,376             5,072
   Current maturities of long-term debt and capital lease obligations                                     1,031             1,164
   Deferred revenue                                                                                         799               588
                                                                                                       --------          --------
     Total current liabilities                                                                           46,722            45,346
Long-term debt and capital lease obligations                                                             12,546            13,059
Long-term deferred income taxes                                                                              97               118
Long-term deferred revenue                                                                                  726               743
                                                                                                       --------          --------
     Total liabilities                                                                                   60,091            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                                                                                  (24,255)          (25,217)
                                                                                                       --------          --------
     Total stockholders' equity                                                                           5,512             4,550
                                                                                                       --------          --------
     Total liabilities and stockholders' equity                                                        $ 65,603          $ 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           For the Six Months
                                                                     Ended June 30,                Ended June 30,
                                                               --------------------------    --------------------------
                                                                   2003          2002           2003           2002
                                                                                                            (Restated)
                                                               -----------    -----------    -----------    -----------
<S>                                                            <C>            <C>            <C>            <C>
Revenues
   New vehicle sales                                           $    50,952    $    44,920    $    86,882    $    81,575
   Used vehicle sales                                               18,739         19,923         35,133         40,037
   Parts and service sales                                           6,219          5,928         12,435         12,030
   Other, net                                                        2,193          2,231          3,973          4,453
                                                               -----------    -----------    -----------    -----------
      Total revenues                                                78,103         73,002        138,423        138,095
Cost of sales
   New vehicle                                                      47,748         42,122         81,368         76,555
   Used vehicle                                                     16,945         18,170         31,763         36,431
   Parts and service                                                 2,711          2,609          5,633          5,401
                                                               -----------    -----------    -----------    -----------
      Total cost of sales                                           67,404         62,901        118,764        118,387
                                                               -----------    -----------    -----------    -----------
      Gross profit                                                  10,699         10,101         19,659         19,708
Selling, general and administrative expenses                         9,029          8,823         17,415         17,236
                                                               -----------    -----------    -----------    -----------
      Income from operations                                         1,670          1,278          2,244          2,472
   Interest income                                                       7              4             14             21
   Interest (expense)                                                 (799)          (790)        (1,577)        (1,600)
   Other income                                                        938             18            951             24
   Other (expense)                                                      --             (1)            (3)            (3)
                                                               -----------    -----------    -----------    -----------
      Income before taxes and cumulative effect of
          accounting change                                          1,816            509          1,629            914
      Provision for income taxes                                       733            200            667            370
                                                               -----------    -----------    -----------    -----------
      Income before cumulative effect of accounting change           1,083            309            962            544
      Cumulative effect of accounting change                            --             --             --        (23,708)
                                                               -----------    -----------    -----------    -----------
Net income (loss)                                              $     1,083    $       309    $       962    $   (23,164)
                                                               ===========    ===========    ===========    ===========
Earnings (loss) per share, basic
     Before cumulative effect of accounting change             $      0.15    $      0.04    $      0.13    $      0.07
     Cumulative effect of accounting change                             --             --             --          (3.30)
                                                               -----------    -----------    -----------    -----------
Earnings (loss) per share, basic                               $      0.15    $      0.04    $      0.13    $     (3.23)
                                                               ===========    ===========    ===========    ===========
Earnings (loss) per share, diluted
     Before cumulative effect of accounting change             $      0.15    $      0.04    $      0.13    $      0.07
     Cumulative effect of accounting change                             --             --             --          (3.30)
                                                               -----------    -----------    -----------    -----------
Earnings (loss) per share, diluted                             $      0.15    $      0.04    $      0.13    $     (3.23)
                                                               ===========    ===========    ===========    ===========
Weighted average shares outstanding, basic                       7,175,105      7,175,105      7,175,105      7,175,105
Weighted average shares outstanding, diluted                     7,175,105      7,175,105      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
                            Common Stock           Common Stock    Additional                  Total
                        -------------------   -------------------   Paid-in   Accumulated   Stockholders'
                         Shares     Amount     Shares     Amount    Capital     Deficit        Equity
                        --------   --------   --------   --------   --------    --------      --------
<S>                        <C>     <C>           <C>     <C>        <C>         <C>           <C>
Balance at                 3,562   $      3      3,613   $      4   $ 29,730    ($ 2,285)     $ 27,452
    December 31, 2001
Conversion of Class B
Common to Class A
Common                         2         --         (2)        --         --          --            --
Paid subscription
receivable                    --         --         --         --         30          --            30
Net loss                      --         --         --         --         --     (23,164)      (23,164)
                        --------   --------   --------   --------   --------    --------      --------
Balance at
 June 30, 2002
 (Restated)                3,564   $      3      3,611   $      4   $ 29,760    ($25,449)     $  4,318
                        ========   ========   ========   ========   ========    ========      ========
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 income                    --         --         --         --         --         962           962
                        --------   --------   --------   --------   --------    --------      --------
Balance at
30-Jun-03                  3,565   $      3      3,610   $      4   $ 29,760    ($24,255)     $  5,512
                        ========   ========   ========   ========   ========    ========      ========
</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 Six Months ended June 30,
                                                                          ---------------------------------
                                                                                  2003        2002
                                                                                            (Restated)
                                                                                --------    --------
<S>                                                                             <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                               $    962    $(23,164)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities -
   Cumulative effect of accounting change                                             --      23,708
   Depreciation and amortization                                                     691         553
  (Gain) on sale of sales and service franchise                                     (936)         --
  (Gain) on sale of fixed assets                                                      (3)         --
   Deferred income taxes                                                             373         138
   Changes in assets and liabilities:
      Accounts receivable, net                                                    (2,113)       (639)
      Inventories, net                                                             1,605      (5,596)
      Prepaid expenses and other current assets                                      (63)        (37)
      Other assets                                                                    21         168
      Floor plan notes payable                                                        (6)      6,472
      Accounts payable and accrued expenses                                        1,304        (336)
      Deferred revenue - current                                                     211         103
      Other long term liabilities and deferred revenue                               (17)        (13)
                                                                                --------    --------
   Net cash provided by operating activities                                       2,029       1,357
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                               (442)     (1,214)
   Proceeds from sale of property and equipment                                        6          --
   Proceeds from sale of sales and service franchise                                 936          --
                                                                                --------    --------
   Net cash provided by (used in) investing activities                               500      (1,214)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt and capital lease obligations             (1,264)       (483)
   Proceeds from long-term borrowings                                                 39          30
                                                                                --------    --------
   Net cash (used in) financing activities                                        (1,225)       (453)
Net increase (decrease) in cash and cash equivalents                               1,304        (310)
CASH AND CASH EQUIVALENTS, beginning of period                                     3,624       4,446
                                                                                --------    --------
CASH AND CASH EQUIVALENTS, end of period                                        $  4,928    $  4,136
                                                                                ========    ========
 Cash paid for - Interest                                                       $  1,557    $  1,563
 Cash paid for - Taxes                                                          $    260    $    256
 Purchases financed by capital lease obligations                                $    579    $    301
</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 9 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 June 30, 2003, the
consolidated  statements of  operations  for the three and six months ended June
30,  2003 and  2002  (six  months  Restated),  the  consolidated  statements  of
stockholders'  equity and the consolidated  statements of cash flows for the six
months ended June 30, 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
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 June 30, 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                Six Months Ended
                                                      June 30, 2003   June 30, 2002   June 30, 2003   June 30, 2002
                                                                                                        (Restated)
                                                      --------------  --------------  --------------  --------------
                                                                             (in thousands)
<S>                                                   <C>               <C>             <C>             <C>
Net income (loss), as reported                        $    1,083        $      309      $      962      $  (23,164)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (1)                                                   (6)               (7)            (12)            (14)
                                                      ----------        ----------      ----------      ----------
Pro forma net income (loss)                           $    1,077        $      302      $      950      $  (23,178)
                                                      ==========        ==========      ==========      ==========
Earnings (loss) per share:
Basic, as reported                                    $     0.15        $     0.04      $     0.13      $    (3.23)
Basic, pro forma                                      $     0.15        $     0.04      $     0.13      $    (3.23)
Diluted, as reported                                  $     0.15        $     0.04      $     0.13      $    (3.23)
Diluted, pro forma                                    $     0.15        $     0.04      $     0.13      $    (3.23)
</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
1,401,000 and 1,373,000  shares of common stock were  outstanding as of June 30,
2003 and 2002,  respectively.  The basic and diluted weighted average shares are
7.2  million  shares for the three and six months  ended June 30, 2003 and 2002.
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  earnings  per share is $0.15 and $0.04 for the
three months ended June 30, 2003 and June 30, 2002, respectively.  The basic and
diluted  earnings per share for the six months ended June 30, 2003 is $0.13. The
three and six months ended June 30, 2003 includes  $0.08 per share from the gain
on sale of a Chrysler /Jeep Sales and Service  Franchise  (Note 8). The restated
basic and  diluted  (loss) per share for the six months  ended June 30,  2002 is
$(3.23),  which includes  basic and diluted  income per share before  cumulative
effect of accounting  change of $0.07 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.

4.       GOODWILL -  RESTATEMENT  OF SIX MONTHS  ENDED JUNE 30,  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.


                                       8
<PAGE>

         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 six months
ended  June  30,  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  companies  within
Hometown's  Standard Industrial  Classification  (SIC) code. These methodologies
differ 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 six  months  ended  June  30,  2002
financial statements,  and the restated six months ended June 30, 2002 financial
statements is as follows:

<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30, 2002
                                                                            (in thousands)
                                                           As Reported     Effect of Charge        Restated
<S>                                                       <C>                <C>                  <C>
Reported net income                                       $      544         $     --             $      544
Less: Cumulative effect of accounting change                    --              (23,708)             (23,708)
                                                          ----------         ----------           ----------
Adjusted net income (loss)                                $      544         $  (23,708)          $  (23,164)
                                                          ==========         ==========           ==========
Earnings (loss) per share, Basic
     Reported net income                                  $     0.07         $     --             $     0.07
     Cumulative effect of accounting change                     --                (3.30)               (3.30)
                                                          ----------         ----------           ----------
     Adjusted net income (loss)                           $     0.07         $    (3.30)          $    (3.23)
                                                          ==========         ==========           ==========
Earnings (loss) per share, Diluted
     Reported net income                                  $     0.07         $     --             $     0.07
     Cumulative effect of accounting change                     --                (3.30)               (3.30)
                                                          ----------         ----------           ----------
     Adjusted net income (loss)                           $     0.07         $    (3.30)          $    (3.23)
                                                          ==========         ==========           ==========
</TABLE>


                                       9
<PAGE>

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

   Reporting Unit        Balance at        Impairments           Balance at
                     December 31, 2001                       December 31, 2002
   --------------    -----------------     ------------      -----------------
   Total Company          $ 23,708          $ 23,708                $ -
                     =================     ============      =================

         As of June 30, 2003 and December 31, 2002, Hometown's intangible assets
consisted of the following:

                                               6/30/03       12/31/02
                                             -----------    -----------
                                                   (in thousands)

Deferred finance charges                        $  267        $  267
Accumulated amortization                           (89)          (78)
Non-compete agreement                              381           381
Accumulated amortization                          (238)         (206)
                                                ------        ------
   Net intangible assets (a)                    $  321        $  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:

                                                       6/30/03      12/31/02
                                                     ----------    ----------
                                                           (in thousands)
         New Vehicles                                   $28,109      $ 29,236
         Used Vehicles                                    7,518         7,264
         Parts, accessories and other                     2,351         2,669
                                                     ----------    ----------
            Total Inventories                           $37,978      $ 39,169
                                                     ==========    ==========

         The lower of cost or market reserves were $0.7 million and $0.6 million
at June 30, 2003 and December 31, 2002, respectively.

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.


                                       10
<PAGE>

7.       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 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  cross-claim  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.

         Litigation counsel has been retained by our insurers 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  Vergopias  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.


                                       11
<PAGE>

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  Vergopias  for  discovery  and  case  management  purposes.   Universal
originally  acknowledged its obligation to defend and indemnify Hometown against
the Vergopias 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.

         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 June 30, 2003,  Hometown fully and
                  partially   guaranteed  limousine  vehicle  loans  aggregating
                  approximately $46,000.

         (ii)     Portfolio  of  8  vehicle   loans,   granted  by  a  financial
                  institution, to various customers of the dealership with below
                  average credit. As of June 30, 2003, Hometown fully guaranteed
                  vehicle  loans  associated  with these  customers  aggregating
                  approximately $18,000.

         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 June 30, 2003,  Hometown has reserved  $15,000  against a total
maximum payout of $64,000 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
June 30, 2003,  18 of these loans remain  outstanding.  Hometown has reserved $0
against a total  maximum  payout of $207,000 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 16  loans  whose  liens  were  not  properly  perfected
totaling  approximately  $127,000 as of June 30, 2003. Hometown will be required
to pay the  remaining  loan  balance  should  the  customers  default  on  their
payments.  Hometown  is working to perfect  these  liens and has taken  steps to
prevent this from occurring in the


                                       12
<PAGE>

future.  Hometown  has  reserved  $3,000 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  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 June 30,
2003 the mortgage  debt  balance is $4.8  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 June 30, 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 new and used
vehicle  warranties  and the  labor  portion  of  service  warranties  based  on
available  historical  information.  At June 30,  2003  and  December  31,  2002
Hometown has a reserve of $205,000 and  $172,000,  respectively.  The reserve is
based on the  last  three  months  of new and 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>
                                               Balance At      Additions To                   Balance At End
                                              Beginning of      Costs and                           of
          Reserve for Policy Work                 Year           Expenses       Deductions        Quarter
 ----------------------------------------   ----------------  ---------------  ------------    -------------
<S>                                             <C>              <C>            <C>              <C>
      Six Months Ended June 30, 2003            $172,000         380,000        (347,000)        $205,000
</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
June 30, 2003 and December 31, 2002,  Hometown had  $1,232,000 and $1,237,000 of
related  deferred  revenue,  respectively.  During the six months ended June 30,
2003, these  dealerships  generated  approximately  $252,000 of related warranty
service and  insurance  revenue,  which was  deferred.  During the same  period,
approximately $257,000 of deferred revenue was amortized to Other Revenues, net.
At June 30, 2003 and December 31, 2002, Hometown also had other deferred revenue
of $293,000 and $94,000, respectively.


                                       13
<PAGE>

         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 requested and
Hometown  provided 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  7,  Commitments  and
Contingencies  -  Litigation  and  in  Managements  Discussion  and  Analysis  -
Litigation. Hometown has developed plans to correct the operational deficiencies
that would  bring  Hometown  into  compliance.  Hometown  has  obtained  written
confirmations  from Ford Motor  Credit in  response  to  Toyota's  requests  for
information  relating to  financing  arrangements.  In  addition,  Hometown  has
improved  net  working  capital  through the sale of a  Chrysler/Jeep  Sales and
Service  Franchise  (Note 8) and  advances  on warranty  income from  Hometown's
Extended  Service Plan vendor.  Other  possible  plans  include the sale of real
property,  obtaining an outside line of credit and private equity financing.  In
addition, Hometown has been 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.

8.       SALE OF CHRYSLER/JEEP SALES AND SERVICE FRANCHISE

         On June 3, 2003  Hometown  sold the  Chrysler/Jeep  Sales  and  Service
Franchise  for its  Waterbury,  CT store for $950,000 in cash.  The  transaction
resulted  in Hometown  recording a $936,000  gain on the sale and is included in
Other Income in Hometown's  Consolidated  Statement of Operations  for the three
and six months ending June 30, 2003.  Hometown will continue to use the property
for the sale of used cars. The lease for the property expires in 2013.  Hometown
wrote off the goodwill associated with this franchise in 2002. See Note 4.


                                       14
<PAGE>


ITEM 2.  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 9 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 4,  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 six months
ended  June  30,  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
differ 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 six  months  ended  June  30,  2002
financial statements,  and the restated six months ended June 30, 2002 financial
statements is as follows:

<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30, 2002
                                                                            (in thousands)
                                                           As Reported     Effect of Charge       Restated
                                                            ------------  -------------------    ------------
<S>                                                         <C>                <C>               <C>
Reported net income                                         $      544         $     --          $      544
Less: Cumulative effect of accounting change                      --              (23,708)          (23,708)
                                                            ----------         ----------        ----------
Adjusted net income (loss)                                  $      544         $  (23,708)       $  (23,164)
                                                            ==========         ==========        ==========
Earnings (loss) per share, Basic
     Reported net income                                    $     0.07         $     --          $     0.07
     Cumulative effect of accounting change                       --                (3.30)            (3.30)
                                                            ----------         ----------        ----------
     Adjusted net income (loss)                             $     0.07         $    (3.30)       $    (3.23)
                                                            ==========         ==========        ==========
Earnings (loss) per share, Diluted
     Reported net income                                    $     0.07         $     --          $     0.07
     Cumulative effect of accounting change                       --                (3.30)            (3.30)
                                                            ----------         ----------        ----------
     Adjusted net income (loss)                             $     0.07         $    (3.30)       $    (3.23)
                                                            ==========         ==========        ==========
</TABLE>

UNITS

         The units sold by category  for  Hometown  for the three and six months
ended June 30, 2003 and 2002, are as follows:

                            For the three months            For the six months
                                ended June 30,                ended June 30,
                             2003             2002         2003            2002
                            -----            -----        -----           -----
New vehicle                 2,098            1,828        3,466           3,256
Used vehicle - retail       1,000            1,099        1,936           2,199
Used vehicle - wholesale      768              727        1,380           1,424
                            -----            -----        -----           -----
Total units sold            3,866            3,654        6,782           6,879
                            =====            =====        =====           =====

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002.

         REVENUE

         Total revenue increased $5.1 million,  or 7.0% to $78.1 million for the
three months ended June 30, 2003, from $73.0 million for three months ended June
30,  2002.  This  increase  was  primarily  due to: (i)  increased  sales of new
vehicles  ($6.1  million)  and (ii)  increased  parts and  service  sales  ($0.3
million),  partially  offset by (iii)  decreased  sales of used  vehicles  ($1.2
million).  New  vehicle  sales  were  helped  by the  continuation  of  consumer
financing deals,  such as zero percent  financing,  which in turn contributed to
the decrease in used vehicle sales.

         Revenue from the sale of new vehicles increased $6.1 million,  or 13.6%
to $51.0  million for the three months ended June 30, 2003,  from $44.9  million
for the three months ended June 30, 2002.  An increase of


                                       16
<PAGE>

270 units sold in 2003 compared to 2002 ($6.6 million) was partially offset by a
1.2% decrease in average selling price ($0.5 million). The increase is primarily
due to  increases  at  Hometown's  Chevy ($2.6  million),  Ford ($1.8  million),
Lincoln Mercury ($1.5  million),  Toyota ($0.8 million) and Mazda ($0.6 million)
dealerships   partially  offset  by  a  decrease  at  Hometown's   Chrysler/Jeep
dealerships  ($1.2 million).  The increase at the Chevy dealership was primarily
due to an  increase of 104 units sold in 2003  compared to 2002 ($2.4  million),
combined  with a 2.6%  increase in the  average  selling  price ($0.2  million).
Included in this was an  increase  in fleet  sales of 42 units  ($0.8  million).
Excluding fleet sales,  other Chevy new vehicle sales increased $1.8 million due
to the sale of 62 additional units ($1.4 million), combined with a 6.4% increase
in average selling price ($0.4 million). The increase at the Ford dealership was
primarily  due to an  increase  of 67 units sold in 2003  compared to 2002 ($1.7
million),  combined  with a 1.5%  increase  in the average  selling  price ($0.1
million). The increase at the Lincoln Mercury dealerships was primarily due to a
9.9%  increase in the average  selling  price ($1.2  million),  combined with an
additional  9 units sold in 2003  compared to 2002 ($0.3  million).  The Lincoln
Mercury  increase  is net of a  decrease  in  sales  of 19  livery  units  ($0.9
million).  The  increase  at the  Toyota  dealerships  was  primarily  due to an
increase of 118 units sold in 2003  compared to 2002 ($2.5  million),  partially
offset by a 7.9% decrease in the average selling price ($1.7 million).  Included
in this was an increase in fleet  sales of 41 units  ($0.3  million).  Excluding
fleet sales,  other Toyota new vehicle sales  increased  $0.5 million due to the
sale of 77 additional  units ($1.9 million)  partially offset by a 7.8% decrease
in average  selling price ($1.4 million).  The increase at the Mazda  dealership
was  primarily due to an additional 26 units sold in 2003 compared to 2002 ($0.6
million). The Chrysler/Jeep decrease was primarily due to a decrease of 54 units
sold ($1.4 million) in the 2003 period compared to the 2002 period. A portion of
the decrease  ($0.6 million) was  attributable  to the sale of one of Hometown's
Chrysler/Jeep new car franchises on June 3, 2003.

         Revenue from the sale of used vehicles decreased $1.2 million, or 6.0%,
to $18.7  million for three months ended June 30, 2003,  from $19.9  million for
the three  months ended June 30, 2002.  This was  primarily  due to reduced used
vehicle sales at wholesale ($0.9 million),  due to a lower average selling price
($1.2 million)  partially offset by an additional 41 units ($0.3 million),  plus
reduced used  vehicles  sold at retail  ($0.3  million) due to a reduction of 99
units sold  ($1.4  million),  partially  offset by an 8.0%  increase  in average
selling price ($1.1 million). A Lincoln Mercury / Mazda dealership accounted for
$0.2  million of the  decrease in used  vehicles  sales at retail and all of the
decrease in used  vehicles  sales at  wholesale.  This was  primarily due to the
dealership  reducing its  emphasis on the sale of high-end  used cars during the
2002 period,  causing an increase in retail and wholesale sales of such vehicles
in 2002.  Many of the other  dealerships  had increases in used vehicle sales at
wholesale, but were completely offset by the decrease described above.

         Parts and  service  revenue  increased  $0.3  million,  or 5.1% to $6.2
million for the three  months  ended June 30,  2003,  from $5.9  million for the
three months ended June 30, 2002.

         Other dealership revenues stayed the same at $2.2 million for the three
months  ended June 30, 2002 and June 30, 2003.  An increase in other  dealership
revenues attributable to increased unit sales of new vehicles ($0.2 million) was
offset by decreases in other dealership revenues  attributable to decreased unit
sales of used vehicles ($0.2 million).

         GROSS PROFIT

         Total gross profit increased $0.6 million, or 5.9% to $10.7 million for
the three months ended June 30,  2003,  from $10.1  million for the three months
ended  June 30,  2002.  This  increase  was  primarily  attributable  to: (i) an
increase  in new  vehicle  gross  profit of $0.3  million,  (ii) a $0.1  million
increase in used vehicle gross profit and (iii) a $0.2 million increase in gross
profit on parts and service  sales.  Gross  profit  percentage  for Hometown was
13.7% in 2003 and 13.8% in 2002.  Adjusting  both  periods  for Toyota and Chevy
fleet sales, gross profit percentage was 14.7% in 2003 and 2002.

         Gross profit on the sale of new vehicles  increased  $0.3  million,  or
10.3%,  to $3.2  million for the three  months  ended June 30,  2003,  from $2.9
million for the three months  ended June 30, 2002.  The increase in gross profit
is primarily attributable to an increase of 270 units ($0.4 million),  partially
offset by a 3.4%


                                       17
<PAGE>

decrease in average  gross profit per vehicle  ($0.1  million).  Included in the
unit increase are 83 units attributable to an increase in Toyota and Chevy fleet
sales,  which  had a  minimal  effect  on the  increase  in gross  profit.  Most
dealerships  experienced an increase in gross profit in the 2003 period compared
to 2002.  Chrysler/Jeep  had a decrease partly due to the sale of one of the new
car  franchises  on June 3,  2003.  Gross  profit  percentage  for 2003 was 6.3%
compared  to 6.4% for 2002.  Adjusting  both  periods for Toyota and Chevy fleet
sales, which generate low margins,  gross profit percentage for new vehicles was
6.9% in 2003 and 7.0% in 2002.

         Gross profit on the sale of used vehicles  increased  $0.1 million,  or
5.9%, to $1.8 million for the three months ended June 30, 2003 from $1.7 million
for the three months ended June 30, 2002.  This  increase is primarily due to an
18.8%  increase in average  gross profit per vehicle ($0.1  million),  partially
offset by a decrease of 58 units (less than $0.1  million).  The  improvement in
average gross profit per vehicle was  attributable to used vehicles sold at both
retail and wholesale.  Gross profit  percentage on the sale of used vehicles was
9.6% in 2003 compared to 8.3% in 2002.

         Parts and service gross profit increased $0.2 million, or 6.1%, to $3.5
million for the three  months  ended June 30,  2003,  from $3.3  million for the
three months ended June 30, 2002. The increase was primarily attributable to the
increase in revenues.  Gross  profit  percentage  was 56.5% in 2003  compared to
55.9% in 2002.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased $0.2 million, or
2.3%,  to $9.0  million  for the three  months  ended June 30,  2003,  from $8.8
million for the three months ended June 30, 2002. Increases in advertising ($0.1
million),  insurance ($0.1 million) and various  reserves for chargebacks  ($0.1
million), were partially offset by a reduction in salaries and employee benefits
($0.1 million).

         OTHER INCOME

         In June 2003, Hometown sold a Chrysler/Jeep Sales and Service Franchise
in Waterbury, CT resulting in a gain of approximately $936,000 recorded in Other
Income.

         INTEREST EXPENSE

         Interest expense stayed consistent at $0.8 million for the three months
ended June 30, 2003 and 2002.

         PROVISION FOR INCOME TAX

         The effective  income tax rate was 40.4% for the quarter ended June 30,
2003 and 39.3% for 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.

         NET INCOME

         Net income  increased $0.8 million to $1.1 million for the three months
ended June 30, 2003, from $0.3 million for the three months ended June 30, 2002.
The improvement is primarily due to the gain on sale of the Chrysler/Jeep  Sales
and Service  Franchise  recorded in Other Income.  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.


                                       18
<PAGE>

Options and warrants to purchase approximately 1,401,000 and 1,373,000 shares of
common stock were  outstanding as of June 30, 2003 and 2002,  respectively.  The
basic and diluted  weighted  average  shares are 7.2 million shares for both the
three  months ended June 30, 2003 and 2002.  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.  The basic and diluted  earnings per share is $0.15 and $0.04 for
the three months ended June 30, 2003 and June 30, 2002, respectively.  The three
months ended June 30, 2003  includes  $0.08 per share from the gain on sale of a
Chrysler/Jeep Sales and Service Franchise (Note 8).

SIX MONTHS  ENDED JUNE 30,  2003  COMPARED  WITH SIX MONTHS  ENDED JUNE 30, 2002
(RESTATED).

         REVENUE

         Total revenue increased $0.3 million, or 0.2% to $138.4 million for the
six months  ended June 30,  2003,  from $138.1  million for the six months ended
June 30, 2002.  This  increase was  primarily  due to: (i) increased new vehicle
sales ($5.3 million) and (ii) increased  parts and service sales ($0.4 million),
partially  offset by (iii) decreased sales of used vehicles ($4.9 million);  and
(iv) decreased other revenues ($0.5  million).  New vehicle sales were helped by
the continuation of consumer  financing deals,  such as zero percent  financing,
which in turn contributed to the decrease in used vehicle sales.

         Revenue from the sale of new vehicles increased $5.3 million,  or 6.5%,
to $86.9 million for the six months ended June 30, 2003,  from $81.6 million for
the six  months  ended  June  30,  2002.  The  increase  is  attributable  to an
additional  210 units  sold in 2003  compared  to 2002 ($5.3  million),  average
selling price  remained  consistent  across both  periods.  The increase in unit
sales occurred in the second quarter of 2003 as discussed above. The increase is
primarily  due to  increases  at  Hometown's  Chevy ($2.4  million),  Ford ($1.7
million),  Lincoln Mercury ($1.6 million), Mazda ($1.4 million) and Toyota ($0.3
million) dealerships partially offset by a decrease at Hometown's  Chrysler/Jeep
dealerships  ($2.1 million).  The increase at the Chevy dealership was primarily
due to an  increase of 95 units sold in 2003  compared  to 2002 ($2.3  million),
combined  with a 1.6%  increase in the  average  selling  price ($0.1  million).
Included in this was an  increase  in fleet  sales of 42 units  ($0.8  million).
Excluding fleet sales,  other Chevy new vehicle sales increased $1.6 million due
to the sale of 53 additional units ($1.3 million), combined with a 4.1% increase
in average selling price ($0.3 million). The increase at the Ford dealership was
primarily  due to an  increase  of 54 units sold in 2003  compared to 2002 ($1.4
million),  combined  with a 3.2%  increase  in the average  selling  price ($0.3
million). The increase at the Lincoln Mercury dealerships was primarily due to a
9.8% increase in the average selling price ($2.0 million), partially offset by a
decrease of 12 units sold in 2003 compared to 2002 ($0.4  million).  The Lincoln
Mercury  increase  is net of a  decrease  in  sales  of 18  livery  units  ($0.7
million).  The  increase  at  the  Mazda  dealership  was  primarily  due  to an
additional 66 units sold in 2003 compared to 2002 ($1.4  million).  The increase
at the Toyota  dealerships  was primarily due to an increase of 99 units sold in
2003 compared to 2002 ($2.2 million), partially offset by a 5.0% decrease in the
average selling price ($1.9  million).  Included in this was a decrease in fleet
sales of $0.3 million due to a 6.7% decrease in average selling price, partially
offset by an  increase  of 7 units.  Excluding  fleet  sales,  other  Toyota new
vehicle  sales  increased  $0.6 million due to the sale of 92  additional  units
($2.2  million)  partially  offset by a 5.1%  decrease in average  selling price
($1.6 million). The Chrysler/Jeep decrease was primarily due to a decrease of 92
units sold ($2.3  million) in the 2003 period  compared  to the 2002  period.  A
portion of the decrease  ($0.6 million) was  attributable  to the sale of one of
Hometown's Chrysler/Jeep new car franchises on June 3, 2003.

         Revenue  from the sale of used  vehicles  decreased  $4.9  million,  or
12.3%,  to $35.1 million for six months ended June 30, 2003,  from $40.0 million
for the six months ended June 30, 2002.  This was due to a decrease of 263 units
sold at retail ($3.7  million),  partially  offset by a 3.4% increase in average
selling price ($0.9 million) plus reduced used vehicle sales at wholesale  ($2.1
million) due to a reduction of 44 units ($0.3 million) and lower average selling
price ($1.8  million).  A Lincoln  Mercury/Mazda  dealership  accounted for $1.6
million of the decrease in used vehicle  sales at retail and all of the decrease
in used vehicle  sales at wholesale.  This was  primarily due to the  dealership
reducing its emphasis on the sale of high-end  used cars during the 2002 period,
causing an increase in retail and wholesale sales of such vehicles in 2002. Many
of the other  dealerships had increases in used vehicle sales at wholesale,  but
were completely offset by the decrease


                                       19
<PAGE>

described above. Used vehicles sold at retail at all other dealerships decreased
$1.2  million  due to a decrease  of 171 units sold  ($2.1  million),  partially
offset by an increase in average selling price ($0.9 million).  Most dealerships
contributed to the decrease.

         Parts and service  revenue  increased  $0.4 million,  or 3.3%, to $12.4
million for the six months ended June 30, 2003,  from $12.0  million for the six
months ended June 30, 2002.

         Other  dealership  revenues  decreased  $0.5 million,  or 11.1% to $4.0
million for the six months  ended June 30,  2003,  from $4.5 million for the six
months ended June 30, 2002.  This decrease is from the first quarter of 2003 and
is primarily  attributable to decreases in other dealership  revenues  (extended
service plan income,  finance  income and other income) of used  vehicles,  from
decreased unit sales and lower average other revenue per vehicle sold.

         GROSS PROFIT

         Total gross profit remained  constant at $19.7 million for both the six
months ended June 30, 2003 and June 30, 2002.  An increase in new vehicle  gross
profit of $0.3  million  and an  increase  in gross  profit on parts and service
sales of $0.2 million were offset by a $0.5 million  decrease in gross profit on
other  dealership  revenues.  Gross profit  percentage for Hometown was 14.2% in
2003 and 14.3% in 2002. Adjusting both periods for Toyota and Chevy fleet sales,
gross profit percentage was 14.9% in 2003 and 14.8% in 2002.

         Gross profit on the sale of new vehicles  increased  $0.3  million,  or
5.8%, to $5.5 million for the six months ended June 30, 2003,  from $5.2 million
for the six  months  ended  June 30,  2002.  The  increase  in gross  profit  is
primarily attributable to an increase of 210 units ($0.3 million).  There was no
change in average gross profit per vehicle. Included in the unit increase are 49
units  attributable to an increase in Toyota and Chevy fleet sales,  which had a
minimal effect on the increase in gross profit. Most dealerships  experienced an
increase in gross profit in the 2003 period compared to 2002.  Chrysler/Jeep had
a decrease  partly due to the sale of one of the new car  franchises  on June 3,
2003.  Gross  profit  percentage  for 2003 was 6.3%  compared  to 6.4% for 2002.
Adjusting  both  periods for Toyota and Chevy fleet  sales,  which  generate low
margins,  gross  profit  percentage  for new  vehicles was 6.7% in both 2003 and
2002.

         Gross profit on the sale of used vehicles  remained at $3.4 million for
both the six months ended June 30, 2003 and June 30,  2002. A 13.8%  increase in
average gross profit per vehicle ($0.2  million) was offset by a decrease of 307
units ($0.2 million). A Lincoln Mercury/Mazda dealership,  discussed in revenues
above,  accounted  for a $0.1  million  decrease,  which  was  offset by the net
increase at the remaining locations. Gross profit percentage on the sale of used
vehicles was 9.6% in 2003 compared to 8.6% in 2002.

         Parts and service gross profit increased $0.2 million, or 3.0%, to $6.8
million for the six months  ended June 30,  2003,  from $6.6 million for the six
months ended June 30,  2002.  The increase  was  primarily  attributable  to the
increase in revenues.  Gross  profit  percentage  was 54.8% in 2003  compared to
55.0% in 2002.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased $0.2 million, or
1.2%,  to $17.4  million  for the six  months  ended June 30,  2003,  from $17.2
million for the six months ended June 30, 2002.  Increases in advertising  ($0.2
million),  insurance ($0.2 million), reserves for chargebacks ($0.1 million) and
various  other costs ($0.1  million),  were  partially  offset by a reduction in
salaries and employee benefits ($0.4 million).

         OTHER INCOME

         In June 2003, Hometown sold a Chrysler/Jeep Sales and Service Franchise
in Waterbury, CT resulting in a gain of approximately $936,000 recorded in Other
Income.


                                       20
<PAGE>

         INTEREST EXPENSE

         Interest  expense stayed  consistent at $1.6 million for the six months
ended June 30, 2003 and 2002.

         PROVISION FOR INCOME TAX

         The  effective  income tax rate was 40.9% for the six months ended June
30, 2003 and 40.5% for 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.

         INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE

         Income before cumulative effect of accounting change increased $418,000
to $962,000 for the six months ended June 30,  2003,  from  $544,000 for the six
months ended June 30, 2002. The improvement is primarily due to the gain on sale
of the Chrysler/Jeep  Sales and Service Franchise  recorded in Other Income. See
above for explanation of other 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 six months ended June 30, 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 INCOME (LOSS)

         Net income (loss) improved $24.2 million, to income of $1.0 million for
the six months ended June 30, 2003,  from a loss of $(23.2)  million for the six
months ended June 30, 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
1,401,000 and 1,373,000  shares of common stock were  outstanding as of June 30,
2003 and 2002,  respectively.  The basic and diluted weighted average shares are
7.2 million  shares for both the six months  ended June 30,  2003 and 2002.  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  earnings per share for the six months ended June 30,
2003 is $0.13 and  includes  $0.08 per share from the gain on sale of a Chrysler
Sales and Service  Franchise (Note 8). The restated basic and diluted (loss) per
share for the six months ended June 30, 2002 is $(3.23),  which  includes  basic
and diluted income per share before  cumulative  effect of accounting  change of
$0.07  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.


                                       21
<PAGE>

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 $4.9  million and $3.6 million at
June 30, 2003 and December 31, 2002, respectively.

         Cash Flow from Operations

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

                                                            Six months ended
                                                                June 30,
                                                            2003        2002
                                                                     (Restated)
                                                        ----------  ----------
                                                            (in thousands)
Net cash provided by operating activities                $ 2,029       $ 1,357
Net cash provided by (used in) investing activities          500        (1,214)
Net cash (used in) financing activities                   (1,225)         (453)
                                                         -------       -------
Net increase (decrease) in cash and cash equivalents     $ 1,304       $  (310)
                                                         =======       =======

         For the six  months  ended  June  30,  2003,  net  cash  provided  from
operations of $2.0 million  primarily  consists of: (i) net income plus non-cash
items of $1.1 million;  (ii) the decrease in inventory in excess of the decrease
in floor plan  liability  of $1.6  million;  and (iii) an  increase  in accounts
payable and accrued  expenses of $1.3  million;  partially  offset by  increased
accounts receivable of $2.1 million.  Net cash provided by investing  activities
of


                                       22
<PAGE>

$0.5 million is  primarily  due the  proceeds  from the sale of a  Chrysler/Jeep
Sales and  Service  Franchise  of $0.9  million,  partially  offset  by  capital
expenditures  of $0.4  million.  Net cash used in financing  activities  of $1.2
million  is due to  principal  payments  of  long-term  debt and  capital  lease
obligations.

         For the six  months  ended  June  30,  2002,  net  cash  provided  from
operations  of $1.4 million  primarily  consists of: (i) net loss plus  non-cash
items of $1.2 million;  and (ii) the increase in floor plan  liability in excess
of the  increase  in  inventory  of $0.9  million;  partially  offset  by  (iii)
increased accounts  receivable of $0.6 million;  and (iv) a decrease in accounts
payable  and  accrued  expenses  of $0.3  million.  Net cash  used in  investing
activities of $1.2 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 $0.5  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  ($0.2  million) and the remaining
costs  associated  with the  construction  of a new showroom at our  Framingham,
Massachusetts dealership ($0.4 million).

         Receivables

         Hometown  had $7.0  million in  accounts  receivable  at June 30,  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 June compared to December.  The
majority of those receivables, $3.7 million and $2.8 million as of June 30, 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 $0.3 million and $0.2
million at June 30, 2003 and December 31, 2002, respectively.

         Inventories

         Hometown  had  $38.0  million  in  inventories,  net at June  30,  2003
compared to $39.2 million at December 31, 2002. The majority of inventory, $28.1
million  and  $29.2  million  as  of  June  30,  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
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 $0.7  million and $0.6  million at June 30,  2003 and  December  31,  2002,
respectively.

         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.


                                       23
<PAGE>

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:

         (iii)    Portfolio of 9 customer's  limousine  vehicle loans granted by
                  Ford Motor Credit Co. As of June 30, 2003,  Hometown fully and
                  partially   guaranteed  limousine  vehicle  loans  aggregating
                  approximately $46,000.

         (iv)     Portfolio  of  8  vehicle   loans,   granted  by  a  financial
                  institution, to various customers of the dealership with below
                  average credit. As of June 30, 2003, Hometown fully guaranteed
                  vehicle  loans  associated  with these  customers  aggregating
                  approximately $18,000.

         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 June 30, 2003,  Hometown has reserved  $15,000  against a total
maximum payout of $64,000 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
June 30, 2003,  18 of these loans remain  outstanding.  Hometown has reserved $0
against a total  maximum  payout of $207,000 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 16  loans  whose  liens  were  not  properly  perfected
totaling  approximately  $127,000 as of June 30, 2003. Hometown will be required
to pay the remaining loan balance should the customer 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 $3,000 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  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 June 30,
2003 the mortgage  debt  balance is $4.8  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 June 30, 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


                                       24
<PAGE>

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 new and used
vehicle  warranties  and the  labor  portion  of  service  warranties  based  on
available  historical  information.  At June 30,  2003  and  December  31,  2002
Hometown has a reserve of $205,000 and  $172,000,  respectively.  The reserve is
based on the  last  three  months  of new and 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>
                                           Balance At      Additions To                   Balance At End
                                          Beginning of      Costs and                           of
          Reserve for Policy Work             Year           Expenses       Deductions        Quarter
     -------------------------------      ------------     ------------     ----------    --------------
<S>                                         <C>              <C>            <C>              <C>
      Six Months Ended June 30, 2003        $172,000         380,000        (347,000)        $205,000
</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
June 30, 2003 and December 31, 2002,  Hometown had  $1,232,000 and $1,237,000 of
related  deferred  revenue,  respectively.  During the six months ended June 30,
2003, these  dealerships  generated  approximately  $252,000 of related warranty
service and  insurance  revenue,  which was  deferred.  During the same  period,
approximately $257,000 of deferred revenue was amortized to Other Revenues, net.
At June 30, 2003 and December 31, 2002, Hometown also had other deferred revenue
of $293,000 and $94,000, respectively.

SALE OF CHRYSLER/JEEP SALES AND SERVICE FRANCHISE

         On June 3, 2003  Hometown  sold the  Chrysler/Jeep  Sales  and  Service
Franchise  for its  Waterbury,  CT store for $950,000 in cash.  The  transaction
resulted  in Hometown  recording a $936,000  gain on the sale and is included in
Other Income in Hometown's  Consolidated  Statement of Operations  for the three
and six months ending June 30, 2003.  Hometown will continue to use the property
for the sale of used cars. The lease for the property expires in 2013.  Hometown
wrote off the goodwill associated with this franchise in 2002. See Note 4.

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 requested and
Hometown  provided 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  7,  Commitments  and
Contingencies  -  Litigation  and  in  Managements  Discussion  and  Analysis  -
Litigation. Hometown has developed plans to correct the operational deficiencies
that would  bring  Hometown  into  compliance.  Hometown  has  obtained  written
confirmations  from Ford Motor  Credit in  response  to  Toyota's  requests  for
information  relating to  financing  arrangements.  In  addition,  Hometown  has

                                       25
<PAGE>

improved  net  working  capital  through the sale of a  Chrysler/Jeep  Sales and
Service  Franchise  and  advances on warranty  income from  Hometown's  Extended
Service Plan vendor.  Other  possible  plans include the sale of real  property,
obtaining an outside line of credit and private equity  financing.  In addition,
Hometown  has been 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  cross-claim  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.

         Litigation counsel has been retained by our insurers 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  Vergopias  breaches of
certain agreements,  as well as breaches of their fiduciary duties. Discovery is
proceeding in this action.


                                       26
<PAGE>

         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  Vergopias  for  discovery  and case  management
purposes.  Universal  originally  acknowledged  its  obligation  to  defend  and
indemnify  Hometown against the Vergopias 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.

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.

ITEM 3.  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 June 30,  2003 of $38.5  million,  a 1% change in the prime rate
would result in a $0.4 million change to annual floor plan interest expense.

         At June 30, 2003,  Hometown  invested  $2.3 million of excess cash,  of
which $1.6  million was  invested  in money  market  accounts  paying a weighted
average  interest rate of 0.95% at June 30, 2003,  and $0.7 million was


                                       27
<PAGE>

invested in a Ford Motor Credit Company cash management  account paying interest
of 5.25% at June 30, 2003. The cash management  account interest rate is tied to
rate charged on Hometown's floor plan financing arrangement.

ITEM 4.  CONTROLS AND PROCEDURES

         The  Company's  certifying  officers  have  concluded  based  on  their
evaluation  of  the  Company's  disclosure  controls  and  procedures  that  the
disclosure  controls and  procedures as of the end of the quarter ended June 30,
2003 are  effective  in  ensuring  that  material  information  relating  to the
Company,  including  its  consolidated  subsidiaries,   is  made  known  to  the
certifying  officers by others within those  entities,  as  appropriate to allow
timely decisions regarding required  disclosure,  particularly during the period
in which this Form 10-Q was being prepared and that  information  required to be
disclosed  by the  Company in its  reports  that it files  under the  Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods  specified in the  Securities and Exchange  Commission's  rules and
forms.  In  addition,  there was no change in internal  control  over  financial
reporting  during the quarter ended June 30, 2003 that has materially  affected,
or is reasonably  likely to materially  affect,  the Company's  internal control
over financial reporting.

                           PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       a. Exhibits:

         31.1     Chief Executive Officer Certification

         31.2     Chief Financial Officer Certification

         32.1     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

         32.2     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

       b. Reports on Form 8-K

         On May 15,  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 its
         2003 first quarter results.


                                       28
<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.

         August 12, 2003                 By: /s/ Corey E.  Shaker
         ------------------------        --------------------------------------
         Date                            Corey E. Shaker
                                         President and Chief Executive Officer

         August 12, 2003                 By: /s/ Charles F. Schwartz
         ------------------------        --------------------------------------
         Date                            Charles F. Schwartz
                                         Chief Financial Officer

                                       29