SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A
                                 AMENDMENT NO. 1


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

                  For the quarterly period ended March 31, 2005


                        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.)

                 1309 South Main Street Waterbury, CT     06706
               (Address of principal executive offices) (Zip code)

                                 (203) 756-1300
               (Registrant's telephone number including area code)

                              774 Straits Turnpike
                               Watertown, CT 06795
              (Former name, former address and former fiscal year,
                         if changed since last report)

      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         3,870,137
      Common Stock, Class B, par value $.001 per share         2,579,252

<PAGE>

                                EXPLANATORY NOTE

      Hometown Auto Retailers, Inc. (the "Company" or "Hometown") is filing this
Amendment No. 1 on Form 10-Q/A to amend our previously filed Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2005 as filed with the
Securities and Exchange Commission (the "SEC") on May 16, 2005 (the "Original
Filing").

      A discussion of the restatement is set forth in Note 2 to the Unaudited
Consolidated Financial Statements and in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations included in this
Amendment No. 1 on Form 10-Q/A. Changes have also been made to the following
items in this Amendment No. 1 on Form 10-Q/A as a result of the restatement.

o     Item 1. Financial Statements and Supplementary Data, including the Notes
      to the Consolidated Financial Statements.

o     Item 2. Managements Discussion and Analysis of Financial Condition and
      Results of Operations.

      The changes do not affect working capital or total cash flows. The other
portions of the Original Filing are unaffected by the restatement and have not
been amended. All information in this amendment is as of the date of the
Original Filing and does not reflect any subsequent information or events
occurring after the date of the Original Filing, except to reflect the changes
discussed in the restatement note. Accordingly, this amendment should be read in
conjunction with the Original Filing.


                                       2
<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                       Page
<S>      <C>                                                                           <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  Consolidated Balance Sheets at March 31, 2005 (Unaudited - Restated)
         and December 31, 2004 (Audited - Restated)                                      4
         Unaudited Consolidated Statements of Operations for the three months ended
         March 31, 2005 and 2004                                                         5
         Unaudited Consolidated Statements of Stockholders' Equity
         for the three months ended March 31, 2005 and 2004                              6
         Unaudited Consolidated Statements of Cash Flows for the three months ended
         March 31, 2005 and 2004 (Restated)                                              7
         Notes to Unaudited Consolidated Financial Statements                            8
ITEM 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                                      16
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk                     23
ITEM 4.  Controls and Procedures                                                        23

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                              24
ITEM 2.  Unregistered Sales Of Equity Securities and Use of Proceeds                    24
ITEM 3.  Defaults Upon Senior Securities                                                24
ITEM 4.  Submission of Matters to a Vote of Security Holders                            24
ITEM 5.  Other Information                                                              24
ITEM 6.  Exhibits                                                                       24

SIGNATURES                                                                              25

CERTIFICATIONS                                                                          26
</TABLE>

                           FORWARD LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q/A 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. 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."


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         March 31,      December 31,
                                                 ASSETS                     2005           2004
                                                                         (Restated)      (Restated)
                                                                         (Unaudited)
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Current Assets:
   Cash and cash equivalents                                            $      5,336    $      6,101
   Accounts receivable, net                                                    6,320           5,081
   Inventories, net                                                           42,930          43,440
   Prepaid expenses and other current assets                                     745             634
   Deferred and prepaid income taxes                                           1,464           1,464
                                                                        ------------    ------------
     Total current assets                                                     56,795          56,720

Property and equipment, net                                                   13,663          13,854
Other assets                                                                   3,524           3,649
                                                                        ------------    ------------
     Total assets                                                       $     73,982    $     74,223
                                                                        ============    ============

                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Floor plan notes payable - trade                                     $     15,703    $     17,382
   Floor plan notes payable - non-trade                                       26,870          25,092
   Accounts payable and accrued expenses                                       5,750           5,106
   Current maturities of long-term debt and capital lease obligations          5,477           5,505
   Deferred revenue                                                              664             735
                                                                        ------------    ------------
     Total current liabilities                                                54,464          53,820

Long-term debt and capital lease obligations                                   8,521           8,621
Long-term deferred income taxes                                                  123             123
Other long-term liabilities and deferred revenue                                 716             726
                                                                        ------------    ------------
     Total liabilities                                                        63,824          63,290

Commitments and Contingencies

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, 3,870,137 shares issued and outstanding                             4               4
   Common stock, Class B, $.001 par value, 3,760,000 shares
   authorized, 3,519,252 shares issued                                             3               3
   Additional paid-in capital                                                 30,017          30,017
   Accumulated deficit                                                       (18,823)        (19,091)
   Less: treasury stock, 940,000 Class B shares in 2005                       (1,043)             --
                                                                        ------------    ------------
     Total stockholders' equity                                               10,158          10,933
                                                                        ------------    ------------
     Total liabilities and stockholders' equity                         $     73,982    $     74,223
                                                                        ============    ============
</TABLE>

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


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                    For the Three Months
                                                       Ended March 31,
                                               --------------------------------
                                                    2005              2004
                                               --------------    --------------
<S>                                            <C>               <C>
Revenues
   New vehicle sales                           $       38,025    $       41,115
   Used vehicle sales                                  15,560            16,910
   Parts and service sales                              6,156             5,959
   Other, net                                           2,025             1,894
                                               --------------    --------------
      Total revenues                                   61,766            65,878

Cost of sales
   New vehicle                                         35,592            38,355
   Used vehicle                                        14,003            15,244
   Parts and service                                    2,865             2,759
                                               --------------    --------------
      Total cost of sales                              52,460            56,358
                                               --------------    --------------
      Gross profit                                      9,306             9,520

Selling, general and administrative expenses            8,009             8,648
                                               --------------    --------------
      Income from operations                            1,297               872

   Interest income                                         70                44
   Interest (expense)                                    (920)             (774)
   Other income                                             2                 2
   Other (expense)                                         --                (4)
                                               --------------    --------------

Pre-tax income                                            449               140
      Provision for income taxes                          181                38
                                               --------------    --------------
Net income                                     $          268    $          102
                                               ==============    ==============

Earnings per share, basic                      $         0.04    $         0.01
                                               ==============    ==============

Earnings per share, diluted                    $         0.04    $         0.01
                                               ==============    ==============

Weighted average shares outstanding, basic          7,086,500         7,175,105
Weighted average shares outstanding, diluted        7,210,990         7,471,259
</TABLE>

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


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                           Class A                   Class B                          Retained
                         Common Stock              Common Stock         Additional     Earnings                      Total
                    -----------------------   -----------------------    Paid-in     (Accumulated   Treasury     Stockholders'
                      Shares       Amount       Shares       Amount      Capital       Deficit)       Stock         Equity
                    ----------   ----------   ----------   ----------   ----------    ----------    ----------    ----------
<S>                      <C>     <C>               <C>     <C>          <C>           <C>           <C>           <C>
Balance at
December 31, 2003        3,656   $        4        3,519   $        3   $   29,760    $  (22,839)   $       --    $    6,928
Net income                  --           --           --           --           --           102            --           102
                    ----------   ----------   ----------   ----------   ----------    ----------    ----------    ----------
Balance at
March 31, 2004           3,656   $        4        3,519   $        3   $   29,760    $  (22,737)   $       --    $    7,030
                    ==========   ==========   ==========   ==========   ==========    ==========    ==========    ==========


Balance at
December 31, 2004        3,870   $        4        3,519   $        3   $   30,017    $  (19,091)   $       --    $   10,933
Net income                  --           --           --           --           --           268            --           268
Litigation
Settlement
(Note 9)                    --           --           --           --           --            --        (1,043)       (1,043)
                    ----------   ----------   ----------   ----------   ----------    ----------    ----------    ----------
Balance at
March 31, 2005           3,870   $        4        3,519   $        3   $   30,017    $  (18,823)   $   (1,043)   $   10,158
                    ==========   ==========   ==========   ==========   ==========    ==========    ==========    ==========
</TABLE>





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


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      For the Three Months ended
                                                                               March 31,
                                                                        ------------------------
                                                                           2005          2004
                                                                        (Restated)    (Restated)
                                                                        ----------    ----------
<S>                                                                     <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                              $      268    $      102
Adjustments to reconcile net income to net cash
   provided by operating activities -
   Depreciation and amortization                                               335           311
   Loss on sale of fixed assets                                                 --             4
   Deferred income taxes                                                       181            38
   Changes in assets and liabilities:
      Accounts receivable, net                                              (1,239)         (667)
      Inventories, net                                                         562        (6,494)
      Prepaid expenses and other current assets                               (111)           (9)
      Prepaid taxes                                                            (32)          (90)
      Other assets                                                             (64)           11
      Floor plan notes payable - trade                                      (1,679)        3,758
      Accounts payable and accrued expenses                                   (399)          493
      Deferred revenue                                                         (71)         (142)
      Other long-term liabilities and deferred revenue                         (10)           79
                                                                        ----------    ----------
   Net cash (used in) operating activities                                  (2,259)       (2,606)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                          (57)          (94)
                                                                        ----------    ----------
   Net cash (used in) investing activities                                     (57)          (94)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from floor plan notes payable - non-trade                       39,637        42,159
   Payment of floor plan notes payable - non-trade                         (37,859)      (38,719)
   Principal payments of long-term debt and capital lease obligations         (452)         (560)
   Proceeds from long-term borrowings                                          225            --
                                                                        ----------    ----------
   Net cash provided by financing activities                                 1,551         2,880

Net increase (decrease) in cash and cash equivalents                          (765)          180
CASH AND CASH EQUIVALENTS, beginning of period                               6,101         5,639
                                                                        ----------    ----------
CASH AND CASH EQUIVALENTS, end of period                                $    5,336    $    5,819
                                                                        ==========    ==========
 Cash paid for - Interest                                               $      897    $      770
 Cash paid for - Taxes                                                  $       32    $       90
 Purchases financed by capital lease obligations                        $      117    $      327
</TABLE>


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


                                       7
<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 8 franchised dealerships and 1
stand-alone service facility, located in New Jersey, New York, Connecticut,
Massachusetts and Vermont. Hometown's dealerships offer 9 American and Asian
automotive brands including Chevrolet, Chrysler, Dodge, Ford, Jeep, Lincoln,
Mazda, Mercury and Toyota.

2.    RESTATEMENT

      Hometown has restated its Balance Sheets and Statements of Cash Flows in
this Quarterly Report on Form 10-Q/A for the quarterly period ended March 31,
2005. The balance sheets restatement is to breakdown the floor plan notes
payable into trade and non-trade components, where it had previously been shown
as a single line item, which has been consistent with industry practice. The
Statements of Cash Flows reclassification is to show the non-trade component of
floor plan notes payable as a financing activity, where it had been shown as an
operating activity. This reclassification is being done to comply with guidance
under SFAS 95, "Statement of Cash Flows", which states that payments to
suppliers should be classified as an operating activity. The floor plan lender
is FMCC, an affiliate of Ford, Lincoln and Mercury; therefore; floor plan notes
payable amounts due from purchases of inventory from Ford, Lincoln and Mercury
are classified as floor plan - trade and the related borrowings and payments are
to be classified as operating activities in the Statements of Cash Flows.
Amounts due for inventory purchases from all other manufacturers are classified
as floor plan notes payable - non-trade and the related borrowings and payments
are to be classified as financing activities in the Statements of Cash Flows.
The changes do not affect working capital or total cash flows. See Note 7.

<TABLE>
<CAPTION>
 (in thousands)                             Three months ended                Year ended
                                              March 31, 2005               December 31, 2004
                                        ---------------------------  ----------------------------
                                         Previously      Restated      Previously      Restated
                                          Reported                      Reported
                                        ------------   ------------   ------------   ------------
<S>                                     <C>            <C>            <C>            <C>
Balance Sheets:

Floor plan notes payable - trade        $     42,573   $     15,703   $     42,474   $     17,382
Floor plan notes payable - non- trade   $         --   $     26,870   $         --   $     25,092
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
 (in thousands)                                Three months ended               Three months ended
                                                  March 31, 2005                  March 31, 2004
                                           ----------------------------    ----------------------------
                                            Previously      Restated       Previously        Restated
                                             Reported                        Reported
                                           ------------    ------------    ------------    ------------
<S>                                        <C>             <C>             <C>             <C>
Statements of Cash Flows:

Floor plan notes payable - trade           $         99    $     (1,679)   $      7,198    $      3,758
Net cash provided by (used in) operating
activities                                 $       (481)   $     (2,259)   $        834    $     (2,606)

Proceeds from floor plan notes
   payable - non-trade                     $         --    $     39,637    $         --    $     42,159
Payment of floor plan notes
   payable - non-trade                     $         --    $    (37,859)   $         --    $    (38,719)
Net cash provided by (used in)
   financing activities                    $       (227)   $      1,551    $       (560)   $      2,880
</TABLE>


3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The accompanying consolidated balance sheet (restated) as of March 31,
2005, the consolidated statements of operations for the three months ended March
31, 2005 and 2004, the consolidated statements of stockholders' equity and the
consolidated statements of cash flows (restated) for the three months ended
March 31, 2005 and 2004, 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, 2004, which are included in
Hometown's filing of its amended annual report on Form 10-K/A Amendment No. 1.

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

      Stock-based Compensation

      At March 31, 2005, 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


                                       9
<PAGE>

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.

<TABLE>
<CAPTION>
                                                         Three Months Ended March 31,
                                                              2005          2004
                                                           ----------    ----------
                                                   (in thousands, except per share data)
<S>                                                        <C>           <C>
Net income, as reported                                    $      268    $      102
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (1)                                     (2)           (7)
                                                           ----------    ----------
Pro forma net income                                       $      266    $       95
                                                           ==========    ==========
Earnings per share:
Basic, as reported                                         $     0.04    $     0.01
Basic, pro forma                                           $     0.04    $     0.01

Diluted, as reported                                       $     0.04    $     0.01
Diluted, pro forma                                         $     0.04    $     0.01
</TABLE>

(1)   All awards refer 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.

      New Accounting Pronouncements

      In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51. The objective of this interpretation is to provide
guidance on how to identify a variable interest entity ("VIE") and requires the
VIE to be consolidated by its primary beneficiary. The primary beneficiary is
the party that absorbs a majority of the VIE's expected losses and/or receives a
majority of the entity's expected residual returns, if they occur. In December
2003, the FASB issued FIN 46(R) ("Revised Interpretations") delaying the
effective date for certain entities created before February 1, 2003 and making
other amendments to clarify the application of the guidance. In adopting FIN
46(R) Hometown has evaluated its variable interests to determine whether they
are in fact VIE's and whether Hometown was the primary beneficiary of the VIE.
This evaluation resulted in determining that Hometown has a VIE with a related
party, whereby Hometown guarantees the mortgage debt of the company. The
adoption of this interpretation did not have a material effect on Hometown's
financial statements.

      SFAS No. 123 (Revised 2004), "Share-Based Payment," issued in December
2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123 (Revised 2004)
requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the next fiscal
year that begins after June 15, 2005 and the Company will adopt the standard in
the first quarter of fiscal 2006. The Company has not determined the impact, if
any, that this statement will have on its consolidated financial position or
results of operations.


                                       10
<PAGE>

4.    EARNINGS PER SHARE / STOCKHOLDERS EQUITY

      "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 to purchase approximately 518,000
shares of common stock were outstanding during 2005. Options and warrants to
purchase approximately 1,063,000 shares of common stock were outstanding during
2004. Basic and diluted weighted average shares for the three months ended March
31, 2005 and 2004 are as follows:

                                   Three Months Ended March 31,

                                       2005           2004
                                   ------------   ------------

Basic, Weighted Average Shares        7,086,500      7,175,105
                                   ============   ============

Common Stock Equivalents                124,490        296,154
                                   ------------   ------------
Diluted, Weighted Average Shares      7,210,990      7,471,259
                                   ============   ============

      Basic weighted average shares reflect a reduction of 940,000 Class B
shares from the settlement of the Vergopia litigation on March 3, 2005. This is
reflected as Treasury Stock. See Note 9.

      The common stock equivalents are options whose exercise price is less than
the average market price of the common shares during the period. In 2005,
options to purchase 238,000 shares of Hometown common stock were excluded from
the calculation of diluted income per share due to the option prices being
greater than the average market price of the common shares during the period. In
2004, options and warrants to purchase 163,000 shares of Hometown common stock
were excluded from the calculation of diluted income per share due to the option
and warrant prices being greater than the average market price of the common
shares during the period.

      The basic and diluted income per share for the three months ended March
31, 2005 and 2004 is $0.04 and $0.01, respectively.

5.    INVENTORIES

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

                                       3/31/05        12/31/04
                                     ------------   ------------
                                           (in thousands)
      New Vehicles                   $     32,703   $     33,616
      Used Vehicles                         8,208          7,761
      Parts, accessories and other          2,019          2,063
                                     ------------   ------------
         Total Inventories           $     42,930   $     43,440
                                     ============   ============

      The lower of cost or market adjustment was $0.7 million at March 31, 2005
and December 31, 2004, respectively.


                                       11
<PAGE>

6.    INTANGIBLE ASSETS

      As of March 31, 2005 and December 31, 2004, Hometown's intangible assets
consisted of the following:

                                  3/31/05       12/31/04
                                 ----------    ----------
                                      (in thousands)
      Deferred finance charges   $      272    $      272
      Accumulated amortization         (126)         (121)
      Non-compete agreement             381           381
      Accumulated amortization         (349)         (333)
      Franchise Fee                      10            10
      Accumulated amortization           (3)           (3)
                                 ----------    ----------
         Net intangible assets   $      185    $      206
                                 ==========    ==========


      These assets are included in Other Assets in the consolidated financial
statements.

7.    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.

      Hometown is 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. The FMCC agreement has no set maturity date and it is the
intention of Hometown to continue with this financing on an ongoing basis.

      FMCC directly pays the manufacturers from which Hometown purchases new
vehicle inventory. The process is done electronically where an Electronic Funds
Transfer (EFT) is made whereby the vehicle is purchased with funds from the
floor plan line. Hometown does not have the discretion to receive these funds
prior to disbursement to the manufacturers. Hometown finances used vehicles
acquired by trade-in at the time a customer is purchasing a new vehicle shortly
after receipt of the used vehicle from the customer. Hometown will also acquire
used vehicles at auction, where more likely than not, arrangements have been
made with FMCC for payment to be made by FMCC on our behalf using funds
available from the floor plan notes payable line of credit.

      Hometown typically makes monthly interest payments on the amount financed,
but is not generally required to repay the principal prior to sale of the
vehicle.

      Outstanding floor plan borrowings financing new vehicles of manufacturers
that are affiliates of FMCC (Ford, Lincoln and Mercury) are classified as "floor
plan notes payable - trade". All other floor plan borrowings are classified as
"floor plan notes payable - non-trade".

      The Statement of Cash Flows reflects changes in "floor plan notes payable
- trade" as a cash operating activity and the changes in "floor plan notes
payable -non- trade" as a cash financing activity.

8.    LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

      Hometown is subject to certain financial covenants calculated
semi-annually at June 30th and December 31st, related to its real estate
mortgages. At December 31, 2004, Hometown was in default of its loan agreement


                                       12
<PAGE>

for Baystate Lincoln Mercury for failure to comply with a financial covenant.
Accordingly, Hometown has reclassified $4,239,000 of related long-term debt to
current at March 31, 2005. Total debt for this mortgage at March 31, 2005 is
$4,541,000. On March 16, 2005, the lender notified Hometown that it is not
declaring an event of default in connection with the loan, however, reserving
all rights to declare an event of default in the future should the financial
covenant default not be cured. If an event of default was declared and only at
the lenders option, Hometown could be required to pay all outstanding debt plus
a defeasance penalty and transaction costs totaling approximately $1,400,000.
Although Hometown does not believe the lender will call the loan, in the event
it is called, Hometown believes it would be able to secure alternate financing.
Hometown believes the market value of the property is approximately $6,200,000.
Hometown believes it would be able to borrow up to 100% of the market value of
the property. Assuming borrowing $6,000,000 at a current variable interest rate
of approximately 7.44% for a 15-year mortgage, monthly payments would be
approximately $6,800 lower than the current monthly payments being made on the
property.

9.    COMMITMENTS AND CONTINGENCIES

      Litigation

      During the fourth quarter of 2004, Hometown announced that it had resolved
in principle to settle the litigation matters described in Footnote 9 in the
Notes to Unaudited Consolidated Financial Statements as contained in Hometown's
most recent Form 10-Q as filed with the Securities and Exchange Commission on
November 12, 2004. On March 3, 2005 the execution and delivery of a settlement
agreement and applicable releases of claims from all parties to the litigation
was completed. The settlement agreement settles all claims made by Salvatore A.
Vergopia and Edward A. Vergopia, former directors and executive officers of the
Corporation, and Janet Vergopia, the wife of Salvatore A. Vergopia (the
"Vergopias"). The settlement also finally resolved the related insurance
coverage litigation with Universal Underwriters Group and The Chubb Group of
Insurance Companies. The gross payment to the Vergopias by all parties was $4
million of which $600,000 was paid by Hometown in March 2005. The settlement
with the Vergopias and the insurers included an exchange of mutual releases of
claims among the parties and a withdrawal of all claims with prejudice and
without costs or attorneys fees to any party. On May 11, 2005, the parties
completed the transfer to the Vergopias of certain Westwood Lincoln Mercury
Sales, Inc. assets, including its Lincoln Mercury franchise and have completed
the termination of Hometown's Westwood, New Jersey lease. Hometown received all
of the 940,000 shares of Class B Common Stock owned by the Vergopias in March
2005. The Settlement Agreement does not constitute an admission of liability or
wrongdoing by any party.

      The 940,000 shares of Hometown stock was recorded at fair market value on
March 3, 2005, the date of the executed settlement agreement, and is shown as a
reduction of Stockholders' Equity as Treasury Stock of $1,043,000. The assets
and liabilities being transferred to the Vergopias will be recorded as a
reduction of those accounts at book value on May 11, 2005. At the time of the
Original Filing of this Form 10-Q, the final accounting for the transaction has
not yet been completed, but it is estimated that a gain of approximately
$600,000 will result from the transaction. Hometown wrote off the goodwill
associated with this franchise in 2002 and expensed the aforementioned $600,000
March payment in prior periods. At March 31, 2005, Hometown has recorded a
liability of $1,043,000 included in Accounts Payable and Accrued Expenses,
pending the assets and liabilities transfer to the Vergopias.

      Hometown Auto Retailers, Inc. d/b/a Muller Toyota, Inc. has been named as
one of 1,667 defendants in a complaint filed by Maryann Cerbo, et. al. in the
Superior Court of New Jersey in Bergen County and allegedly served upon Hometown
on December 30, 2004. The action has been brought on behalf of about 111 named
plaintiffs and, purportedly on behalf of a class of individuals and companies
who have purchased or leased a motor vehicle from the defendants. Plaintiffs
contend that the defendants (a) overcharged for registration and/or title fees;
(b) failed to properly itemize documentary costs and governmental costs; (c)
charged grossly excessive documentary fees not reasonably related to costs; and


                                       13
<PAGE>

(d) failed to disclose that the defendants are not required to perform certain
documentary services. It appears from the complaint that plaintiffs have
attempted to name as defendants all franchised automobile dealers in the State
of New Jersey, as well as a large assortment of other persons and entities.
There are no allegations that Hometown ever performed any services for any of
the plaintiffs. The complaint makes certain class action allegations and alleges
violations of the New Jersey Consumer Fraud Act as well as common law fraud.
Hometown does not believe that the eventual outcome of this case will have a
material adverse effect upon 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 may guaranty or partially guaranty 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.

      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. Hometown recorded the lease as a
capital lease. As of March 31, 2005 the mortgage debt balance is $4.2 million,
which agrees to the capital lease obligation. Hometown makes annual lease
payments of $864,000 to the landlord. The annual mortgage payments made by the
landlord total approximately $774,000. The mortgage matures March 2013.

      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. Also, certain Hometown dealerships
provide a three or five year 100,000-mile limited warranty on new and/or used
vehicles. The cost of this warranty is charged to the cost of sale of the
vehicle. The warranty covers certain parts and service for three or five years
or until the vehicle reaches an odometer reading of 100,000 miles, whichever
comes sooner. The warranty is insured, making the cost of the warranty fixed for
Hometown. The insurance company pays costs associated with the warranty work to
Hometown. An insurance company that is wholly owned by Ford Motor Company
reinsures the insurance policy. If the insurance company were to fail, Hometown
would be responsible for the costs of the service. Hometown has not recorded any
additional reserve for this warranty program.

      Hometown records a reserve referred to as "policy" for used vehicle
warranties and the labor portion of service warranties based on available
historical information. At March 31, 2005 and December 31, 2004, Hometown has a
reserve of $212,000 and $208,000, respectively. The reserve is based on the last
three months of used vehicle units sold and the average cost of repairs over the
last twelve months. While Hometown believes its estimated liability for product
warranties is adequate and that the judgment applied is appropriate, the
estimated liability for product warranties could differ materially from future
actual warranty costs.

<TABLE>
<CAPTION>
                                                Balance At       Additions To Costs                    Balance At End
          Reserve for Policy Work            Beginning of Year      and Expenses        Deductions       of Quarter
      ------------------------------        ------------------    ----------------    -------------    --------------
<S>                                         <C>                   <C>                 <C>              <C>
 Three Months Ended March 31, 2005               $208,000             $204,000          $(200,000)        $212,000
</TABLE>


                                       14
<PAGE>

      Connecticut dealerships operate under state laws, which make the dealers
responsible for providing warranty service and insurance in the event of default
by the insurance carriers. Accordingly, commissions on insurance and service
contract sales are required to be recognized over the life of the related
insurance product. For these dealerships, Hometown records the revenue as a
liability and amortizes the amount into revenue over a five-year period. At
March 31, 2005 and December 31, 2004, Hometown had $1,117,000 and $1,140,000 of
related deferred revenue, respectively. During the three months ended March 31,
2005, these dealerships generated approximately $83,000 of related warranty
service and insurance revenue, which was deferred. During the same period,
approximately $106,000 of deferred revenue was amortized to Other Revenues, net.
At March 31, 2005 and December 31, 2004, Hometown also had other deferred
revenue of $261,000 and $319,000, respectively.

      Franchise Agreements

      Toyota Motor Sales, U.S.A., Inc. has extended Hometown's current Toyota
Dealer Agreement through May 18, 2005. Previously on March 13, 2003, Hometown
was notified by Toyota Motor Sales, U.S.A., that Hometown must correct certain
operational deficiencies or make substantial progress toward rectifying such
deficiencies. Toyota had previously expressed concerns that the financial
resources of the Toyota dealerships were being used to finance the cash flow
deficits of other Hometown dealerships and that because of this the financial
health of the Toyota dealerships were detrimentally affected by a net working
capital deficiency. Toyota requested and Hometown provided a written action plan
and consolidated financial forecast. Toyota also expressed concerns about the
impact of Ford Motor Credit's financing terms upon the Toyota dealerships and
the existing litigation, which has now been settled, including the Vergopia's as
discussed above. Hometown developed and implemented 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 in the second quarter of 2003 and advances on
warranty income from Hometown's Extended Service Plan vendor. Hometown has been
in regular contact with Toyota to review the efforts of Hometown to resolve the
deficiencies alleged by Toyota. The two Toyota dealerships for the fiscal year
ended December 31, 2004 had combined revenues of $98.1 million and pre-tax
income before allocation of corporate costs of $2.2 million. Hometown believes
that it has corrected the alleged net working capital deficiency for the Toyota
dealerships, that it has alleviated the concerns expressed by Toyota and that
Hometown will enter into a new dealer agreement with Toyota Motor Sales, U.S.A.;
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 defaults.


                                       15
<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 amended annual report
on Form 10-K/A amendment No. 1 for the year ended December 31, 2004.

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 8 franchised dealerships and 1
stand-alone service facility located in New Jersey, New York, Connecticut,
Massachusetts and Vermont. Hometown's dealerships offer 9 American and Asian
automotive brands including Chevrolet, Chrysler, Dodge, Ford, Jeep, Lincoln,
Mazda, Mercury and Toyota.

Restatement

      Hometown has restated its Balance Sheets and Statements of Cash Flows in
this Quarterly Report on Form 10-Q/A for the quarterly period ended March 31,
2005. The balance sheets restatement is to breakdown the floor plan notes
payable into trade and non-trade components, where it had previously been shown
as a single line item, which has been consistent with industry practice. The
Statements of Cash Flows reclassification is to show the non-trade component of
floor plan notes payable as a financing activity, where it had been shown as an
operating activity. This reclassification is being done to comply with guidance
under SFAS 95, "Statement of Cash Flows", which states that payments to
suppliers should be classified as an operating activity. The floor plan lender
is FMCC, an affiliate of Ford, Lincoln and Mercury; therefore; floor plan notes
payable amounts due from purchases of inventory from Ford, Lincoln and Mercury
are classified as floor plan - trade and the related borrowings and payments are
to be classified as operating activities in the Statements of Cash Flows.
Amounts due for inventory purchases from all other manufacturers are classified
as floor plan notes payable - non-trade and the related borrowings and payments
are to be classified as financing activities in the Statements of Cash Flows.
The changes do not affect working capital or total cash flows. See Note 7.

<TABLE>
<CAPTION>
 (in thousands)                              Three months ended               Year ended
                                               March 31, 2005              December 31, 2004
                                        ---------------------------   ---------------------------
                                         Previously      Restated      Previously     Restated
                                          Reported                      Reported
                                        ------------   ------------   ------------   ------------
<S>                                     <C>            <C>            <C>            <C>
Balance Sheets:

Floor plan notes payable - trade        $     42,573   $     15,703   $     42,474   $     17,382
Floor plan notes payable - non- trade   $         --   $     26,870   $         --   $     25,092
</TABLE>


                                       16
<PAGE>

<TABLE>
<CAPTION>
 (in thousands)                                Three months ended              Three months ended
                                                  March 31, 2005                  March 31, 2004
                                           ----------------------------    ----------------------------
                                            Previously      Restated       Previously        Restated
                                             Reported                       Reported
                                           ------------    ------------    ------------    ------------
<S>                                        <C>             <C>             <C>             <C>
Statements of Cash Flows:

Floor plan notes payable - trade           $         99    $     (1,679)   $      7,198    $      3,758
Net cash provided by (used in) operating
activities                                 $       (481)   $     (2,259)   $        834    $     (2,606)

Proceeds from floor plan notes
   payable - non-trade                     $         --    $     39,637    $         --    $     42,159
Payment of floor plan notes
   payable - non-trade                     $         --    $    (37,859)   $         --    $    (38,719)
Net cash provided by (used in)
   financing activities                    $       (227)   $      1,551    $       (560)   $      2,880
</TABLE>


Three months ended March 31, 2005 compared with three months ended March 31,
2004.

      Units

      The units sold by category for Hometown for the quarters ended March 31,
2005 and 2004, are as follows:

                            For the three months
                                ended March 31,
                              2005         2004
                           ----------   ----------
New vehicle                     1,437        1,496
Used vehicle - retail             737          915
Used vehicle - wholesale          693          903
                           ----------   ----------
Total units sold                2,867        3,314
                           ==========   ==========

      Revenue

      Total revenue decreased $4.1 million, or 6.2% to $61.8 million for three
months ended March 31, 2005 from $65.9 million for three months ended March 31,
2004. This decrease was primarily due to decreased new vehicle sales ($3.1
million) and decreased sales of used vehicles ($1.3 million) partially offset by
an increase in parts and service revenues ($0.2 million) and other revenues
($0.1 million).

      Revenue from the sale of new vehicles decreased $3.1 million, or 7.5% to
$38.0 million for the three months ended March 31, 2005 from $41.1 million for
three months ended March 31, 2004. The decrease is attributable to a reduction
of 59 units sold in 2005 compared to 2004 ($1.6 million) combined with a 3.7%
decrease in average selling price ($1.5 million). The decrease was primarily due
to the Lincoln Mercury ($4.1 million), Chevrolet ($0.8 million) and Ford ($0.5
million) dealerships, partially offset by an increase at the Toyota ($1.6
million) and Chrysler/Jeep ($0.7 million) dealerships. The decrease at the
Lincoln Mercury dealerships was primarily due to a decrease of 107 units sold in


                                       17
<PAGE>

2005 compared to 2004 ($3.8 million) combined with a 3.4% decrease in the
average selling price ($0.3 million). The Lincoln Mercury increase includes a
decrease in sales of 55 livery units ($1.9 million). The decrease at the
Chevrolet dealership was primarily due to a decrease of 33 units sold in 2005
compared to 2004. The decrease at the Ford dealership was primarily due to a
decrease of 27 units sold in 2005 compared to 2004 ($0.7 million), partially
offset by a 4.4% increase in the average selling price ($0.2 million). The
increase at the Toyota dealerships was primarily due to an increase of 80 units
sold in 2005 compared to 2004 ($1.9 million), partially offset by a 1.9%
decrease in the average selling price ($0.3 million). Included in this was an
increase in fleet sales of $0.4 million due to an increase of 30 units sold. The
Chrysler/Jeep increase was primarily due to an additional 28 units sold in 2005
compared to 2004.

      Revenue from the sale of used vehicles decreased $1.3 million, or 7.7% to
$15.6 million for the three months ended March 31, 2005 from $16.9 million for
three months ended March 31, 2004. This was due to decreased used vehicle
revenues at retail ($1.2 million), primarily due to a decrease of 178 units
($2.6 million), partially offset by a 12.8% increase in average selling price
($1.4 million); plus a decrease in used vehicle sales at wholesale ($0.1
million), due to a decrease of 210 units ($0.8 million) partially offset by a
25.8% increase in average selling price ($0.7 million). The increase in
wholesale average selling price is a function of the decrease in retail sales.
High quality vehicles that were taken as trade-ins at the time of new vehicle
purchases, were not being sold at retail, necessitating being sold at wholesale.
The decreased revenues at retail were primarily due to decreases at the Toyota
($0.8 million), Chevrolet ($0.4 million) and Lincoln Mercury dealerships ($0.4
million) along with the closing of a used car outlet ($0.4 million). The
decrease at Toyota was primarily due to the reduction of 66 units ($1.0 million)
partially offset by a 6.9% increase in average selling price ($0.2 million). The
decrease at Chevrolet was primarily due to the reduction of 43 units ($0.6
million) partially offset by a 9.2% increase in average selling price ($0.2
million). The decrease at Lincoln Mercury was primarily due to the reduction of
41 units ($0.7 million) partially offset by a 7.8% increase in average selling
price ($0.3 million). Ford ($0.4 million), Mazda ($0.2 million) and
Chrysler/Jeep ($0.2 million) had increases in revenues at retail in 2005
compared to 2004. The increase at Ford was primarily due to a 30.5% increase in
average selling price. The increase at Mazda was primarily due to an additional
16 units ($0.3 million) sold in 2005 compared to 2004 partially offset by a
12.2% decrease in average selling price ($0.1 million). Lincoln Mercury ($0.5
million), Ford (less than $0.1 million) and Mazda (less than $0.1 million)
experienced decreases in wholesale, while there were increases at Toyota ($0.2
million), Chevrolet ($0.1 million) and Chrysler/Jeep ($0.1 million).

      Parts and service revenue increased $0.2 million, or 3.3%, to $6.2 million
for the three months ended March 31, 2005, from $6.0 million for the three
months ended March 31, 2004. The Toyota dealerships accounted for $0.1 million
with the remaining $0.1 million spread across the other dealerships.

      Other dealership revenues increased $0.1 million, or 5.3% to $2.0 million
for the three months ended March 31, 2005 from $1.9 million for the three months
ended March 31, 2004. The increase is primarily attributable to increased
extended service plan income.

      Gross Profit

      Total gross profit decreased $0.2 million, or 2.1%, to $9.3 million for
the three months ended March 31, 2005, from $9.5 million for the three months
ended March 31, 2004. This decrease was primarily attributable to decreased
gross profit on new vehicle sales ($0.4 million) and used vehicle sales (0.1
million) partially offset by increases gross profit on parts and service sales
($0.1 million) other dealership revenues ($0.2 million). Gross profit percentage
for Hometown was 15.1% in 2005 and 14.5% in 2004. Adjusting both periods for
fleet sales, which generate low gross profit margins, gross profit percentage
was 15.2% in 2004 and 14.5% in 2003.

      Gross profit on the sale of new vehicles decreased $0.4 million, or 14.3%,
to $2.4 million for the three months ended March 31, 2005, from $2.8 million for
the three months ended March 31, 2004. The decrease in gross profit is primarily
attributable to an 8.2% decrease in average gross profit per vehicle ($0.3
million) combined with a reduction of 59 units ($0.1 million) sold in 2005
compared to 2004. The unit increase is net of a 39-unit increase attributable to
fleet sales, which had a minimal effect on the increase in gross profit. All
brands, except for Mazda, experienced a decrease in gross profit on the sale of


                                       18
<PAGE>

new vehicles in the 2005 period compared to 2004. Lincoln Mercury accounted for
$0.2 million while all of the other dealerships accounted for the remainder.
Mazda had a minimal increase. Gross profit percentage for 2005 was 6.4% compared
to 6.7% for 2004. Adjusting both periods for fleet sales, which generate low
margins, gross profit percentage for new vehicles was 6.5% in 2005 compared to
6.7% in 2004.

      Gross profit on the sale of used vehicles decreased $0.1 million, or 5.9%,
to $1.6 million for the three months ended March 31, 2005, from $1.7 million for
the three months ended March 31, 2004. This decrease is primarily due to a
178-unit decrease at retail ($0.3 million), partially offset by a 7.7% increase
in average gross profit per retail unit ($0.1 million). Decreases at retail for
Toyota and Lincoln Mercury (together totaling $0.1 million) and Chevrolet ($0.1
million) dealerships were partially offset by increases at the Ford, Mazda and
Chrysler/Jeep (together totaling $0.1 million) dealerships. The closing of a
used car outlet in 2004 accounted for an additional $0.1 million. The decrease
at Toyota was primarily due to a decrease of 66 units ($0.1 million), partially
offset by a 16.0% increase in average gross profit per unit (less than $0.1
million). The decrease at Lincoln Mercury and Chevrolet was primarily due to a
decrease of 41 units and 45 units, respectively. The increase at Ford and
Chrysler/Jeep was primarily due to an increase in average gross profit per
vehicle of 34.9% and 1.4%, respectively. The increase at Mazda was primarily due
to an increase of 16-units sold in 2005 compared to 2004. Gross profit on the
sale of used vehicles at wholesale increased $0.1 million to $0.2 million for
the three months ended March 31, 2005, from $0.1 million for the three months
ended March 31, 2004. The increase in wholesale gross profit is a function of
the decrease in retail sales. High quality vehicles that were taken as trade-ins
at the time of new vehicle purchases, were not being sold at retail,
necessitating being sold at wholesale. Gross profit percentage on the sale of
used vehicles was 10.0% in 2005 compared to 9.9% in 2004.

      Parts and service gross profit increased $0.1 million, or 3.1%, to $3.3
million for the three months ended March 31, 2005, from $3.2 million for the
three months ended March 31, 2004. The increase is due to the increased revenue
described above. Gross profit percentage was 53.5% in 2005 compared to 53.7% in
2004.

      Selling, General and Administrative Expenses

      Selling, general and administrative expenses decreased $0.6 million, or
7.0%, to $8.0 million for the three months ended March 31, 2005 from $8.6
million for the three months ended March 31, 2004. The decrease was primarily
due to decreases in salaries and employee benefits ($0.3 million), legal and
other professional fees ($0.1 million), rent ($0.1 million) and various other
costs ($0.1 million). Included in these selling, general and administrative
expense reductions was approximately $0.1 million associated with the closing of
the used car lot.

      Interest Expense

      Interest expense increased $0.1 million, or 12.5% to $0.9 for the three
months ended March 31, 2005 from $0.8 million for the three months ended March
31, 2004. The increase is primarily attributable to an increase in floor plan
interest expense resulting from an increase in interest rates.

      Provision for income tax

      The effective income tax rate was 40.3% in the quarter ended March 31,
2005 and 27.1% in the same period of 2004. The rates were based on current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book income. The 2005 rate reflects the expected effective tax
rate for the year. The 2004 rate reflects the expected full year effective tax
rate of 40% adjusted for a reduction in the valuation allowance associated with
the 2004 amortization of goodwill for tax purposes. At December 31, 2004
deferred taxes were adjusted primarily to reflect a reduction of the valuation
allowance on the deferred tax asset due to the ability to project sufficient
income to recover the deferred tax asset. Deferred taxes, including the
valuation allowance, will be reviewed throughout fiscal 2005.


                                       19
<PAGE>

      Net Income

      Net income increased $0.2 million to $0.3 million for the three months
ended March 31, 2005 from $0.1 million for the three months ended March 31,
2004. See above for explanation of the improvement.

      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. See Note 3 to the unaudited consolidated
financial statements.

      The basic and diluted income per share for the three months ended March
31, 2005 and 2004 is $0.04 and $0.01, respectively.

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 and (iii) consumer buying patterns.

Effects of Inflation

      Due to the relatively low levels of inflation experienced in the 2005 and
2004 periods, inflation did not have a significant effect on the results of
Hometown during those periods.


                                       20
<PAGE>

Liquidity and Capital Resources

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

      Cash and Cash Equivalents

      Total cash and cash equivalents was $5.3 million and $6.1 million at March
31, 2005 and December 31, 2004, respectively.

      Cash Flow from Operations

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

<TABLE>
<CAPTION>
                                                                  Three months ended
                                                                        March 31,
                                                                 2005            2004
                                                             ------------    ------------
                                                                     (in thousands)

<S>                                                          <C>             <C>
      Net cash (used in) operating activities                $     (2,259)   $     (2,606)
      Net cash (used in) investing activities                         (57)            (94)
      Net cash provided by financing activities                     1,551           2,880
                                                             ------------    ------------
      Net increase (decrease) in cash and cash equivalents   $       (765)   $        180
                                                             ============    ============
</TABLE>

      For the three months ended March 31, 2005, net cash used in operations of
$2.3 million primarily consists of: (i) the decrease in floor plan notes payable
- trade of $1.7 million less the decrease in inventory of $0.6 million, (ii) the
increase in accounts receivable of $1.2 million, (iii) a decrease in accounts
payable, accrued expenses and deferred revenues of $0.5 million and (iv) an
increase in prepaid expenses and other assets of $0.2 million; partially offset
by net income of $0.3 million plus non-cash items of $0.5 million. The decrease
in inventory of $0.6 million would be expected to generate a similar decrease in
floor plan notes payable (trade and non-trade); however, due to the timing of
floor plan payoffs, floor plan notes payable (trade and non-trade) actually
increased $0.1 million. Net cash used in investing activities of $0.1 million is
due to capital expenditures. Net cash used in financing activities of $1.6
million is due to (i) the net change (increase) in non-trade floor plan notes
payable of $1.8 million (see operating activities) and (ii) proceeds from
long-term borrowings of $0.2 million; partially offset by principal payments of
long-term debt and capital lease obligations of $0.4 million.

      For the three months ended March 31, 2004, net cash used in operations of
$2.6 million primarily consists of: (i) the increase in inventory of $6.5
million less the increase in floor plan notes payable - trade of $3.8 million
and (ii) the increase in accounts receivable of $0.7 million; partially offset
by (iii) net income plus non-cash items of $0.4 million and (iv) an increase in
accounts payable and accrued expenses of $0.5 million. Inventory (an increase of
$6.5 million) and related floor plan liability (trade and non-trade increase of
$7.2 million) increased due to inventory that was purchased with the expectation
of higher sales in 2004, which did not materialize. The increase in floor plan
liability in excess of inventory is due to timing of payments. Net cash used in
investing activities of $0.1 million is due to capital expenditures. Net cash
provided by financing activities of $2.9 million is due to the net change
(increase) in non-trade floor plan notes payable of $3.4 million (see operating
activities) partially offset by principal payments of long-term debt and capital
lease obligations.

      Capital Expenditures

      Capital expenditures for fiscal 2005 are expected to be $0.3 million,
consisting primarily of equipment purchases and building and leasehold
improvements.


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<PAGE>

      Receivables

      Hometown had $6.3 million in accounts receivable at March 31, 2005
compared to $5.1 million at December 31, 2004. The increase in receivables is
due to the increase in sales that takes place in March compared to December. The
majority of those receivables, $3.0 million and $2.4 million as of March 31,
2005 and December 31, 2004, 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 at March
31, 2005 and December 31, 2004.

      Inventories

      Hometown had $42.9 million in inventories, net at March 31, 2005 compared
to $43.4 million at December 31, 2004. The majority of inventory, $32.7 million
and $33.6 million as of March 31, 2005 and December 31, 2004, 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 adjustment was $0.7 million at
March 31, 2005 and December 31, 2004.

      Floor Plan Financing

      See Note 7 to the unaudited consolidated financial statements.

      Long-Term Debt and Capital Lease Obligations

      See Note 8 to the unaudited consolidated financial statements.

      Commitments and Contingencies

      See Note 9 to the unaudited consolidated financial statements.

Forward Looking Statement

      When used in the amended Quarterly Report on Form 10Q/A Amendment No. 1,
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.


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<PAGE>

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 the prime or LIBOR borrowing rates. Based on
floor plan amounts (trade and non-trade) outstanding at March 31, 2005 of $42.6
million, a 1% change in the prime rate would result in a $0.4 million change to
annual floor plan interest expense.

      At March 31, 2005, Hometown invested $2.6 million of excess cash, of which
$0.1 million was invested in money market accounts paying a weighted average
interest rate of 1.23% at March 31, 2005, and $2.5 million was invested in a
Ford Motor Credit Company cash management account paying interest of 6.50% at
March 31, 2005. The cash management account interest rate is tied to the rate
charged on Hometown's floor plan financing arrangement.


ITEM 4. CONTROLS AND PROCEDURES

      We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended, are recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to use its
judgment in evaluating the cost to benefit relationship of possible controls and
procedures.

      At March 31, 2005, management, with the participation of the CEO and CFO,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation and subject to the
foregoing, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective to accomplish their
objectives.

      There have been no significant changes in our internal controls over
financial reporting during the most recently completed fiscal quarter that
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.


                                       23
<PAGE>

                           PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

      See Note 9 - Commitments and Contingencies - Litigation, to the notes to
      the unaudited consolidated financial statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      NONE

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

      NONE

ITEM 5. OTHER INFORMATION

      NONE

ITEM 6. EXHIBITS

      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


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<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.


         September 20, 2005             By: /s/ Corey E.  Shaker
         ------------------------       --------------------------------------
         Date                           Corey E. Shaker
                                        President and Chief Executive Officer


         September 20, 2005             By: /s/ Charles F. Schwartz
         ------------------------       --------------------------------------
         Date                           Charles F. Schwartz
                                        Chief Financial Officer


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