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, 2002

                        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 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           3,563,605
     Common Stock, Class B, par value $.001 per share           3,611,500

<PAGE>

                                INTRODUCTORY NOTE

       This Amendment No. 1 to the Registrants Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2002, as filed by the Registrant on May 31,
2002, is being filed to: (i) Disclose all information required by paragraph 61
of SFAS 142 with respect to initial application of SFAS 142 including its impact
on each of the last three fiscal years. See Note 5 - Goodwill; (ii) Revised the
disclosure with regard to Deferred Revenue. See Note 3 and Managements
Discussion and Analysis - Restatement of Prior Years Financial Statements; (iii)
Disclose in Note 12 - Litigation, information that had previously been disclosed
in the Registrants Annual Report on Form 10-K for the year ended December 31,
2001; and (iv) correct minor other errors.


                                       2
<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                          Page
<S>                                                                                     <C>
ITEM 1.  Consolidated Balance Sheets at March 31, 2002 (Unaudited)
         and December 31, 2001 (Audited)                                                  4

         Unaudited Consolidated Statements of Operations for three months ended
         March 31, 2002 and 2001(Restated)                                                5

         Unaudited Consolidated Statements of Stockholders' Equity
         for the three months ended March 31, 2002 and 2001 (Restated)                    6

         Unaudited Consolidated Statements of Cash Flows for three months ended
         March 31, 2002 and 2001 (Restated)                                               7

         Notes to Unaudited Consolidated Financial Statements                             8

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

PART II. OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K                                                24

SIGNATURES                                                                               25
</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 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 included
herein particularly in view of Hometown's limited history of operating multiple
dealerships in a combined entity, 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>

                          PART I. FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                                                       March 31,   December 31,
       ASSETS                                                             2002         2001
                                                                      (Unaudited)
                                                                      -----------  ------------
<S>                                                                     <C>           <C>
Current Assets:
 Cash and cash equivalents                                              $  4,443      $  4,446
 Accounts receivable, net                                                  6,371         5,656
 Inventories, net                                                         35,296        31,887
 Prepaid expenses and other current assets                                   497           344
 Deferred income taxes and taxes receivable                                1,692         1,681
                                                                        --------      --------
 Total current assets                                                     48,299        44,014

Property and equipment, net                                               12,308        11,889
Goodwill, net                                                             23,708        23,708
Other assets                                                               2,080         2,231
                                                                        --------      --------
 Total Assets                                                           $ 86,395      $ 81,842
                                                                        ========      ========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Floor plan notes payable                                               $ 37,440      $ 32,553
 Accounts payable and accrued expenses                                     5,593         6,160
 Current maturities of long-term debt and capital lease obligations          723           709
 Deferred revenue                                                            544           476
                                                                        --------      --------
 Total current liabilities                                                44,300        39,898
Long-term debt and capital lease obligations                              12,610        12,797
Long-term deferred income taxes                                              775           721
Other long-term liabilities and deferred revenue                           1,023           974
                                                                        --------      --------
 Total liabilities                                                        58,708        54,390

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, 3,563,605 and 3,561,605 shares issued and outstanding             3             3
 Common stock, Class B, $.001 par value, 3,760,000 shares
 authorized, 3,611,500 and 3,613,500 shares issued and outstanding             4             4
 Additional paid-in capital                                               29,730        29,730
 Accumulated deficit                                                      (2,050)       (2,285)
                                                                        --------      --------
 Total stockholders' equity                                               27,687        27,452
                                                                        --------      --------
 Total liabilities and stockholders' equity                             $ 86,395      $ 81,842
                                                                        ========      ========
</TABLE>

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


                                       4
<PAGE>

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

                                                      For the Three Months
                                                         Ended March 31,
                                                   ----------------------------
                                                      2002              2001
                                                                     (Restated)
                                                   -----------      -----------
Revenues
   New vehicle sales                               $    36,655      $    34,659
   Used vehicle sales                                   20,114           18,285
   Parts and service sales                               6,102            5,948
   Other, net                                            2,222            1,755
                                                   -----------      -----------
      Total revenues                                    65,093           60,647

Cost of sales
   New vehicle                                          34,433           32,234
   Used vehicle                                         18,261           16,371
   Parts and service                                     2,792            2,852
                                                   -----------      -----------
      Total cost of sales                               55,486           51,457
                                                   -----------      -----------
      Gross profit                                       9,607            9,190

Amortization of goodwill                                    --              178
Selling, general and administrative expenses             8,372            7,531
                                                   -----------      -----------
      Income from operations                             1,235            1,481

   Interest income                                          17                1
   Interest (expense)                                     (851)          (1,271)
   Other income                                              6              254
   Other (expense)                                          (2)              (1)
                                                   -----------      -----------

      Income before taxes                                  405              464

Provision for income taxes                                 170              267
                                                   -----------      -----------
      Net income                                   $       235      $       197
                                                   ===========      ===========
Earnings per share, basic                          $       .03      $      0.03
Earnings per share, diluted                        $       .03      $      0.02
Weighted average shares outstanding, basic           7,175,105        6,000,109
Weighted average shares outstanding, diluted         7,175,105        8,032,305

              The accompanying notes are an integral part of these
                       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   Stockholders'
                            Shares     Amount      Shares       Amount     Capital         Deficit)       Equity
                            ------     -------     ------      -------   -----------    -------------  -------------
<S>                          <C>       <C>          <C>        <C>         <C>             <C>            <C>
Balance at
 December 31, 2000
 (Restated)                  2,301     $     2      3,699      $     4     $28,786         $  (149)       $28,643
Net income                      --          --         --           --          --             197            197
                             -----     -------      -----      -------     -------         -------        -------
Balance at
 March 31, 2001
 (Restated)                  2,301     $     2      3,699      $     4     $28,786         $    48        $28,840
                             =====     =======      =====      =======     =======         =======        =======

Balance at
 December 31, 2001           3,562     $     3      3,613      $     4     $29,730         $(2,285)       $27,452
Conversion of Class B
Common to Class A
 Common                          2          --         (2)          --          --              --             --
Net income                      --          --         --           --          --             235            235
                             -----     -------      -----      -------     -------         -------        -------
Balance at
 March 31, 2002              3,564     $     3      3,611      $     4     $29,730         $(2,050)       $27,687
                             =====     =======      =====      =======     =======         =======        =======
</TABLE>

              The accompanying notes are an integral part of these
                       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,
                                                                        --------------------------
                                                                            2002        2001
                                                                                     (Restated)
                                                                          -------    ----------
<S>                                                                       <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                $   235      $   197
Adjustments to reconcile net income
   to net cash provided by (used in) operating activities -
   Depreciation and amortization                                              239          393
   Gain on disposal of business unit                                           --         (254)
   Deferred income taxes                                                       24          247
   Changes in assets and liabilities:
      Accounts receivable, net                                               (715)        (867)
      Inventories, net                                                     (3,409)       5,133
      Prepaid expenses and other current assets                              (153)        (122)
      Other assets                                                            170           65
      Floor plan notes payable                                              4,887       (3,300)
      Accounts payable and accrued expenses                                  (567)         718
      Deferred revenue                                                         68          (10)
      Other long term liabilities and deferred revenue                         49          (50)
                                                                          -------      -------
   Net cash provided from operating activities                                828        2,150

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                        (658)         (63)
   Disposal of business unit                                                   --          615
                                                                          -------      -------
   Net cash provided by (used in) investing activities                       (658)         552

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt and capital lease obligations        (173)        (159)
   Received from Ford Motor Credit Corporation                                 --        4,612
                                                                          -------      -------
   Net cash by provided by (used in) financing activities                    (173)       4,453

Net increase (decrease) in cash and cash equivalents                           (3)       7,155
CASH AND CASH EQUIVALENTS, beginning of period                              4,446          586
                                                                          -------      -------
CASH AND CASH EQUIVALENTS,  end of period                                 $ 4,443      $ 7,741
                                                                          =======      =======
 Cash paid for - Interest                                                 $   881      $ 1,271
 Cash paid for - Taxes                                                    $   170      $    32
</TABLE>

              The accompanying notes are an integral part of these
                       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 10 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown's dealerships
offer 12 American and Asian automotive brands including Chevrolet, Chrysler,
Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile and
Toyota.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The accompanying consolidated balance sheet as of March 31, 2002, the
consolidated statements of operations, the consolidated statements of
stockholders' equity and the consolidated statements of cash flows for the three
months ended March 31, 2002 and March 31, 2001, 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 items in the March 31, 2001 financial statements were
reclassified to conform to the classification of the March 31, 2002 financial
statements. 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, 2001, which are included in the
Hometown's filing of its annual report on Form 10-K.

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

      New Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which
supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of" and the accounting and reporting provisions of Accounting
Principles Board Opinion (APB) 30, "Reporting the Results of Operations -
Reporting the Effects of the Disposal of a Segment Business and Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions". SFAS 144 addresses
financial accounting and reporting for the impairment and disposal of long-lived
assets. Discontinued operations accounting will be used for a component of an
entity and future operating losses of discontinued operations will no longer be
accrued. Additionally, assets acquired and held for disposal are recorded based
on fair value less cost to sell at the acquisition date. SFAS 144 is effective
for fiscal years beginning after December 15, 2001.


                                       8
<PAGE>

      In June 2001, the FASB approved SFAS Nos. 141 and 142 "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS
141, among other things, eliminates the "Pooling of Interests" method
of accounting for business acquisitions entered into after June 30, 2001. SFAS
142, among other things, eliminates the need to amortize goodwill and requires
companies to use a fair-value approach to determine whether there is an
impairment of existing and future goodwill.

      Additionally, an acquired intangible asset should be separately recognized
if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. Intangible
assets with definitive lives will need to be amortized over their useful lives.
These statements are effective for Hometown beginning January 1, 2002.

      Goodwill amortization, which ceased on January 1, 2002, was $178,000 for
the three months ended March 31, 2001. The statement requires that by June 30,
2002, a company must establish its fair value benchmarks in order to test for
impairment. Hometown adopted this statement effective January 1, 2002, but is
still in the process of evaluating its benchmark assessments. By calendar year
end, Hometown is required to determine the correct implied fair value of the
goodwill and record any impairment charges that result from this application as
a cumulative effect of a change in accounting principle. Future impairment
losses would be recorded as an operating expense.

      Hometown is currently evaluating the impact of SFAS 142 on its
consolidated financial statements and believes that, if the current market price
of Hometown's common stock is indicative of fair value, the majority of its
goodwill may be impaired as of the initial adoption of this statement. See
Note 5.


3.    RESTATEMENT OF PRIOR YEARS FINANCIAL STATEMENTS

      Subsequent to fiscal year end December 31, 2001, Hometown determined: (i)
two dealership operating leases should have more appropriately been classified
as capital leases, (ii) certain manufacturer incentives should have been more
appropriately reflected as a reduction of inventory costs, and (iii) certain
insurance product sales generated in Connecticut should be recognized over the
life of the contract due to operating under a dealer obligor status according to
state law. Accordingly, Hometown has restated prior year financial statements to
reflect these changes. These restatements are as follows:

      (i) Reflecting the two leases as capital leases resulted in recording an
increase in buildings and capital lease obligations of $5.2 million as of July
1998, the lease inception date. Hometown has recorded (a) depreciation expense
on the building, (b) interest expense and principal payments on the related
capital lease obligation and (c) eliminated the lease expense that had
previously been recorded. The effect on income before taxes from these
adjustments was to reduce pre-tax income by $38,000 for the three months ended
March 31, 2001. The after tax effect of these adjustments was to reduce net
income $16,000 for the three months ended March 31, 2001. These adjustments
caused a reduction in basic and diluted earnings per share of less than $0.01
for the three months ended March 31, 2001.

      (ii) Manufacturers provide certain assistance to dealerships that had been
recorded as a reduction of interest expense when received. This is more
appropriately reflected as a reduction of inventory costs and cost of sales at
the time of sale of the vehicle. The effect on income before taxes from these
adjustments was to increase pre-tax income by $167,000 for the three months
ended March 31, 2001. The after tax effect of these adjustments was to increase
net income by $71,000 for the three months ended March 31, 2001. These
adjustments caused an increase of $0.01 in basic and diluted earnings per share
for the three months ended March 31, 2001.

      (iii) 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. Previously, the income had been recognized at the
time of sale of the vehicle. The revenue is taken into income over a five-year
period, which is the life of the contract. The effect on income before taxes
from these adjustments was to increase pre-tax income by $36,000 for the three
months ended March 31, 2001. The after tax effect of these


                                       9
<PAGE>

adjustments was to increase net income by $15,000 for the three months ended
March 31, 2001. These adjustments increased basic and diluted earnings per share
by less than $0.01 for the three months ended March 31, 2001.

      At March 31, 2002 and December 31, 2001 Hometown had $1,245,000 and
$1,264,000 of deferred revenue, respectively, relating to insurance and service
contract income.

      The total effect of the aforementioned adjustments was to increase income
before taxes $165,000 for the three months ended March 31, 2001. The total
effect of these changes was to increase net income $70,000 for the three months
ended March 31, 2001. The total effect of these changes was to increase basic
per share $0.01 for the three months ended March 31, 2001. There was no effect
on diluted earnings per share. Restated basic and diluted earnings per share are
$0.03 and $0.02, respectively for the three months ended March 31, 2001.

4.    EARNINGS PER SHARE

      "Basic earnings per share" is computed by dividing net income by the
weighted average common shares outstanding. "Diluted earnings per share" is
computed by dividing net income by the weighted average common shares
outstanding adjusted for the incremental dilution of potentially dilutive
securities. For the three months ended March 31, 2001 the computation of diluted
earnings per share included approximately 2,032,000 common shares, in relation
to a stock guaranty issueable in relation to an acquisition (Note 10). Options
and warrants to purchase approximately 1,288,000 and 492,000 shares of common
stock were outstanding during the 2002 and 2001 periods, respectively, but were
not included in the computation of diluted earnings per share because the option
and warrant prices were greater than the average market price of the common
shares.

      See Note 5 for the effect of discontinuing the recording of goodwill
amortization effective January 1, 2002 per SFAS 142.

5.    GOODWILL

      As discussed in Note 2, effective January 1, 2002, Hometown has adopted
SFAS 142 but is still in the process of evaluating its benchmark assessments.
Effective January 1, 2002, the Company ceased recording goodwill amortization.
By calendar year end, Hometown is required to determine the correct implied fair
value of the goodwill and record any impairment charges that result from this
application as a cumulative effect of a change in accounting principle. Future
impairment losses would be recorded as an operating expense.

      Hometown is currently evaluating the impact of SFAS 142 on its
consolidated financial statements. As part of this process, Hometown is
obtaining appraisals of its reporting units to determine the correct implied
fair value of the goodwill and record any impairment charges that result from
this application. Hometown believes that, if the current market price of
Hometown's common stock is indicative of fair value, the majority of its
goodwill may be impaired as a result of the application of this statement.


                                       10
<PAGE>

      Goodwill amortization expense is as follows:

                                       For the Three Months Ended
                                       --------------------------
                                         03/31/02      03/31/01
                                         --------      --------
                                                     (Restated)
                                             (in thousands)

      Goodwill amortization(a)           $     --      $   149
                                         ========      =======

      Reported net income                $    235      $   197
                                         ========      =======

      (a) Goodwill amortization reflects the effect of income tax. The majority
of goodwill amortization is non-deductible for tax purposes.

      The 2001 (restated) results do not reflect the provisions of SFAS 142. Had
Hometown adopted SFAS 142 on January 1, 2001, historical net income and basic
and diluted net income per common share would have been changed to the adjusted
amounts indicated below.

                                       For the Three Months Ended
                                       --------------------------
                                         03/31/02      03/31/01
                                         --------      --------
                                                     (Restated)
                                             (in thousands)

      Reported net income                 $   235      $   197
      Add: Goodwill amortization(a)            --          149
                                          -------      -------

      Adjusted net income                 $   235      $   346
                                          =======      =======

      Earnings per share, Basic
           Reported net income            $  0.03      $  0.03
           Goodwill amortization (a)           --         0.03
                                          -------      -------
           Adjusted net income            $  0.03      $  0.06
                                          =======      =======

      Earnings per share, Diluted
           Reported net income            $  0.03      $  0.02
           Goodwill amortization(a)            --         0.02
                                          -------      -------
           Adjusted net income            $  0.03      $  0.04
                                          =======      =======

      (a) Goodwill amortization reflects the effect of income tax. The majority
of goodwill amortization is non-deductible for tax purposes.


                                       11
<PAGE>

      The 2001, 2000 (restated) and 1999 (restated) full year results do not
reflect the provisions of SFAS 142. Had Hometown adopted SFAS 142 on January 1,
1999, historical net income (loss) and basic and diluted net income (loss) per
common share would have been changed to the adjusted amounts indicated below.

<TABLE>
<CAPTION>
                                                   For the Years Ended December 31,
                                                   --------------------------------
                                                2001             2000            1999
                                              ---------       ---------       ---------
                                                              (Restated)      (Restated)
                                                            (in thousands)
<S>                                           <C>             <C>             <C>
      Reported net income (loss)              $  (2,136)      $  (3,800)      $     641
      Add: Goodwill amortization (a)                585             545             508
                                              ---------       ---------       ---------
      Adjusted net income (loss)              $  (1,551)      $  (3,255)      $   1,149
                                              =========       =========       =========

      Earnings (loss) per share, Basic
           Reported net income (loss)         $   (0.32)      $   (0.63)      $    0.11
           Goodwill amortization (a)               0.08            0.09            0.09
                                              ---------       ---------       ---------
           Adjusted net income (loss)         $   (0.24)      $   (0.54)      $    0.20
                                              =========       =========       =========

      Earnings (loss) per share, Diluted
           Reported net income (loss)         $   (0.32)      $   (0.63)      $    0.11
           Goodwill amortization (a)               0.08            0.09            0.08
                                              ---------       ---------       ---------
           Adjusted net income (loss)         $   (0.24)      $   (0.54)      $    0.19
                                              =========       =========       =========
</TABLE>

      (a) Goodwill amortization reflects the effect of income tax. The majority
of goodwill amortization is non-deductible for tax purposes.

6.    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:

                                        3/31/02     12/31/01
                                        -------     --------
                                           (in thousands)

      New Vehicles                      $23,906      $21,722
      Used Vehicles                       9,876        8,559
      Parts, accessories and other        1,514        1,606
                                        -------      -------
         Total Inventories              $35,296      $31,887
                                        =======      =======


                                       12
<PAGE>

7.    INVESTMENT IN CARDAY.COM

      On October 18, 2001, CarDay Inc. ceased operations. Hometown owns
7,380,000 shares of CarDay Inc. As a result of CarDay Inc. ceasing operations,
Hometown now considers the investment to be permanently and totally impaired,
and it is not anticipated that any shareholders will receive any distributions
from the dissolution of CarDay Inc. The entire investment in CarDay Inc. was
charged against income in the quarter ended September 30, 2001.

      Summarized financial data for CarDay.com for the periods it was not part
of the companies consolidated financial results is as follows:

                                  Statement of Operations Data
                                Three Months Ended March 31, 2001
                                             (000's)
                                ---------------------------------
      Revenues                              $   149
      Gross profit                          $   128
      Loss from operations                  $(2,464)
      Net loss                              $(2,444)

8.    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.

      The FMCC floor plan loans carry an interest rate of prime less 0.75% for
new vehicles and prime less 0.50% for used vehicles. These rates are for the
first year only. Subsequent to the first year Hometown will be subject to the
FMCC standard financing agreement. Hometown is in the process of renewing its
floor plan agreement with FMCC. Hometown expects rates under the new plan to
increase in relation to the current plan particularly with respect to the rates
charged for used vehicles. The new agreement has not been finalized as of May
31, 2002.


                                       13
<PAGE>

9.    OTHER INCOME / OTHER EXPENSE

      The significant components of Other Income and Other Expense are:

                                                03/31/02       03/31/01
                                                    (in thousands)
                                                --------       --------
      Other Income:
      Gain on sale of Morristown franchise      $     --       $    254
      Miscellaneous                                    6             --
                                                --------       --------
      Total Other Income                        $      6       $    254
                                                ========       ========
      Other Expense:
      Miscellaneous                             $     (2)      $     (1)
                                                --------       --------
      Total Other Expense                       $     (2)      $     (1)
                                                ========       ========

      In January 2001, Hometown sold the franchise for its Morristown, NJ store
back to Lincoln Mercury for $0.7 million in cash. During the first quarter of
2001, Hometown received $650,000 of the purchase price and paid out a broker's
commission of $35,000. The transaction resulted in Hometown recording a $254,000
gain on the sale, which is included in other income.

10.   STOCK GUARANTEE

      On April 1, 1999, Hometown acquired Newburgh Toyota. The purchase price
was $2.9 million in cash, 100,000 shares of Hometown Class A Common Stock and
the assumption of floor plan and various other debt for the fully capitalized
operation. The acquisition resulted in goodwill of approximately $2.7 million.

      The Company guaranteed that stock issued in connection with this
acquisition will have a market value of at least $1,000,000 by March 31, 2001.
Such amount was included in the original purchase accounting. On June 28, 2001,
an agreement was signed with the former owners settling the guarantee whereby
the Company issued 200,000 shares of Hometown stock and will pay $240,000,
payable in monthly installments through December 31, 2002 and a monthly profit
sharing payment equal to 20% of Newburgh Toyota's monthly pre-tax income over
$57,142 for the period from April 1, 2001 to December 31, 2002. In accordance
with APB No. 16, the issuance of the 200,000 shares and the cash settlement did
not result in a change in purchase accounting as the original purchase
accounting contemplated the guaranteed stock price and because the settlement is
outside the allocation period. The cash settlement is being accounted for as a
period expense.

11.   FUNDS RECEIVED FROM FORD MOTOR CREDIT CORPORATION

      At the end of March 2001 Hometown received a cash deposit of $4.6 million
from Ford Motor Credit Corporation. The Company notified FMCC and kept the funds
segregated from its operating accounts while awaiting resolution of the matter.
The funds were subsequently returned to FMCC in June 2001.

12.   LITIGATION

      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, in an unspecified amount as well as, reinstatement, injunctive
and other legal and equitable relief.

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

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


                                       14
<PAGE>

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

      Management's discussion and analysis of financial condition and results of
operations is based on the historical financial statements of Hometown Auto
Retailers, Inc. and contains forward-looking statements that involve risks and
uncertainties. Hometown's actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors, as
described under "Risk Factors" as detailed on Hometown's annual report on Form
10-K/A for the year ended December 31, 2001.

Overview

      Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 10 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown's dealerships
offer 12 American and Asian automotive brands including Chevrolet, Chrysler,
Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile and
Toyota.

Restatement Of Prior Years Financial Statements

      Subsequent to fiscal year end December 31, 2001, Hometown determined: (i)
two dealership operating leases should have more appropriately been classified
as capital leases, (ii) certain manufacturer incentives should have been more
appropriately reflected as a reduction of inventory costs, and (iii) certain
insurance product sales generated in Connecticut should be recognized over the
life of the contract due to operating under a dealer obligor status according to
state law. Accordingly, Hometown has restated prior year financial statements to
reflect these changes. These restatements are as follows:

      (i) Reflecting the two leases as capital leases resulted in recording an
increase in buildings and capital lease obligations of $5.2 million as of July
1998, the lease inception date. Hometown has recorded (a) depreciation expense
on the building, (b) interest expense and principal payments on the related
capital lease obligation and (c) eliminated the lease expense that had
previously been recorded. The effect on income before taxes from these
adjustments was to reduce pre-tax income by $38,000 for the three months ended
March 31, 2001. The after tax effect of these adjustments was to reduce net
income $16,000 for the three months ended March 31, 2001. These adjustments
caused a reduction in basic and diluted earnings per share of less than $0.01
for the three months ended March 31, 2001.

      (ii) Manufacturers provide certain assistance to dealerships that had been
recorded as a reduction of interest expense when received. This is more
appropriately reflected as a reduction of inventory costs and cost of sales at
the time of sale of the vehicle. The effect on income before taxes from these
adjustments was to increase pre-tax income by $167,000 for the three months
ended March 31, 2001. The after tax effect of these adjustments was to increase
net income by $71,000 for the three months ended March 31, 2001. These
adjustments caused an increase of $0.01 in basic and diluted earnings per share
for the three months ended March 31, 2001.

      (iii) 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. Previously, the income had been recognized at the
time of sale of the vehicle. The revenue is taken into income over a five-year
period, which is the life of the contract. The effect on income before taxes
from these adjustments was to increase pre-tax income by $36,000 for the three
months ended March 31, 2001. The after tax effect of these adjustments was to
increase net income by $15,000 for the three months ended March 31, 2001. These
adjustments increased basic and diluted earnings per share by less than $0.01
for the three months ended March 31, 2001.

      At March 31, 2002 and December 31, 2001 Hometown had $1,245,000 and
$1,264,000 of deferred revenue, respectively relating to insurance and service
contract income.


                                       15
<PAGE>

      The total effect of the aforementioned adjustments was to increase income
before taxes $165,000 for the three months ended March 31, 2001. The total
effect of these changes was to increase net income $70,000 for the three months
ended March 31, 2001. The total effect of these changes was to increase basic
per share $0.01 for the three months ended March 31, 2001. There was no effect
on diluted earnings per share. Restated basic and diluted earnings per share are
$0.03 and $0.02, respectively for the three months ended March 31, 2001.

Combined Revenues, Units, Gross Profit and Gross Profit Percentage to Revenues
(Unaudited)

      The total revenue by category for Hometown for the quarters ended March
31, 2002 and March 31, 2001, are as follows:

                                 For the three months ended
                                         March 31,
                                     2002         2001
                                               (Restated)
                                   -------      -------
                                       (in thousands)

New vehicle                        $36,655      $34,659
Used vehicle - retail               15,738       15,708
Used vehicle - wholesale             4,376        2,577
Parts and service                    6,102        5,948
F&I and other                        2,222        1,755
                                   -------      -------
Total Revenue                      $65,093      $60,647
                                   =======      =======

      The units sold by category for Hometown for the quarters ended March 31,
2002 and March 31, 2001, are as follows:

                                  For the three months ended
                                          March 31,
                                      2002         2001
                                     -----        -----
New vehicle                          1,428        1,351
Used vehicle - retail                1,100        1,102
Used vehicle - wholesale               697          734
                                     -----        -----
Total units sold                     3,225        3,187
                                     =====        =====


                                       16
<PAGE>

      The gross profit by category for Hometown for the quarters ended March 31,
2002 and March 31, 2001, are as follows:

                                   For the three months ended
                                           March 31,
                                       2002         2001
                                                (Restated)
                                    ---------   ----------
                                        (in thousands)
New vehicle                           $2,222      $2,425
Used vehicle - retail                  1,822       1,845
Used vehicle - wholesale                  31          69
Parts and service                      3,310       3,096
F&I and other                          2,222       1,755
                                      ------      ------
Total Gross Profit                    $9,607      $9,190
                                      ======      ======

      The gross profit percent of revenue by category for Hometown for the
quarters ended March 31, 2002 and March 31, 2001, are as follows:

                                    For the three months ended
                                           March 31,
                                        2002       2001
                                                 (Restated)
                                     ---------   ----------
New vehicle                              6.1%        7.0%
Used vehicle - retail                   11.6%       11.7%
Used vehicle - wholesale                 0.7%        2.7%
Parts and service                       54.2%       52.1%
F&I and other                          100.0%      100.0%
                                       -----       -----
Total Gross Profit percent              14.8%       15.2%
                                       =====       =====


                                       17
<PAGE>

Three months ended March 31, 2002 compared with three months ended March 31,
2001.

      Revenue

      Total Revenue increased $4.5 million, or 7.4% to $65.1 million for three
months ended March 31, 2002 from $60.6 million for three months ended March 31,
2001. Adjusting for the sale of the Morristown Lincoln Mercury dealership ($0.1
million) in January 2001 to Lincoln Mercury, the increase is $4.6 million. This
increase was primarily due to: (i) increased new vehicle sales of 81 units ($2.1
million); (ii) increased sales of used vehicles sold at wholesale ($1.8 million)
primarily caused by an increase of high-end vehicle sales, (iii) increased parts
and service ($0.2 million) and (iv) increased other revenues ($0.4 million)
primarily due to increased finance revenue from new and used vehicle sales.

      Revenue from the sale of new vehicles increased $2.0 million, or 5.8% from
$34.7 million for the three months ended March 31, 2001 to $36.7 million for
three months ended March 31, 2002. Adjusting for the sale of the Morristown
Lincoln Mercury dealership ($0.1 million) in January 2001 to Lincoln Mercury,
the increase is $2.1 million. The increase is primarily due to increases at
Hometown's Toyota ($2.8 million) and Chevy ($1.8 million) dealerships partially
offset by decreases at Hometown's Lincoln Mercury dealerships ($3.0 million).
The Toyota increase was primarily due to an additional 115 units sold in 2002
compared to 2001 of which 54 units ($0.9 million) were attributable to fleet
sales. The increase in the Chevy dealership was due to the sale of 68 additional
units sold in 2002 ($1.6 million) compared to 2001, combined with an increase in
average selling price in 2002 ($0.2 million) compared to 2001. The decreases at
the Lincoln Mercury dealerships were primarily due to a decrease of 113 units
sold in 2002 compared to 2001. One of Hometown's Lincoln Mercury dealerships,
located in the New York Metropolitan area, was particularly affected by the
downturn in the economy, accounting for approximately 80% of the Lincoln Mercury
revenue decrease.

      Revenue from the sale of used vehicles at retail was flat at $15.7 million
for the quarters ended March 31, 2002 and 2001. Both units sold and average
revenue per sale were essentially the same for both periods. Revenue from the
sale of used vehicles at wholesale increased $1.8 million, or 69.2%, from $2.6
million for the quarter ended March 31, 2001, to $4.4 million for the quarter
ended March 31, 2002. This increase is primarily due to sales from Hometown's
high-end used car business, which experienced an increase of 99 units and a
29.6% increase in average selling price. It is not expected that this volume or
increased average selling price will continue. The effect on both sales of used
vehicles at retail and wholesale from the sale of the Morristown Lincoln Mercury
dealership in January 2001 to Lincoln Mercury was minimal.

      Parts and service sales revenue increased $0.2 million, or 3.4% from $5.9
million for the three months ended March 31, 2001, to $6.1 million for the three
months ended March 31, 2002. The effect from the sale of the Morristown Lincoln
Mercury dealership in January 2001 to Lincoln Mercury was minimal.

      Other dealership revenues increased $0.4 million, or 22.2% from $1.8
million for the three months ended March 31, 2001 to $2.2 million for the three
months ended March 31, 2002. This increase was primarily attributable to
increased finance income for both new and used vehicles. The effect from the
sale of the Morristown Lincoln Mercury dealership in January 2001 to Lincoln
Mercury was minimal.

      Gross Profit

      Total gross profit increased $0.4 million, or 4.3%, from $9.2 million for
the three months ended March 31, 2001, to $9.6 million for the three months
ended March 31, 2002. This increase was primarily attributable to: (i) Other
dealership gross profit of $0.4 million, primarily from finance fee income
discussed above and (ii) parts and service increase of $0.2 million, partially
offset by (iii) a decrease in new vehicle gross profit of $0.2 million. Gross
profit increased by $0.2 million in the 2001 period due to the financial
statement restatement adjustments discussed above. The effect on all components
of gross profit from the sale of the Morristown Lincoln Mercury dealership in
January 2001 to Lincoln Mercury was minimal. Gross profit


                                       18
<PAGE>

percentage for Hometown was 14.8% in 2002 compared to 15.2% in the 2001 period.
Adjusting both periods for Toyota fleet sales and the sale of Morristown Lincoln
Mercury, gross profit percentage was 15.0% and 15.3% in the 2002 and 2001
periods, respectively.

      Gross profit on the sale of new vehicles decreased $0.2 million, or 8.3%,
from $2.4 million for the three months ended March 31, 2001, to $2.2 million for
the three months ended March 31, 2002. The decrease was primarily due to the
financial statement restatement adjustments discussed above ($0.2 million).
Gross profit percentage for 2002 was 6.1% compared to 7.0% for 2001. This
decrease in gross profit percentage is substantially offset by increased volume
discussed above. The decrease in gross profit percentage was primarily due to a
decrease at the Toyota dealerships, which was caused in part by the increased
sale of fleet vehicles (0.12% of the difference), which generates little gross
profit for the dealership, and increased competition.

      Gross profit on the sale of used vehicles at retail was flat at $1.8
million for the three months ended March 31, 2002 and 2001. Both units sold and
average gross profit per unit were essentially the same for both periods. Gross
profit on the sale of used vehicles at wholesale is minimal and was down
slightly for the three months ended March 31, 2002 compared to the 2001 period.

      Parts and service gross profit increased $0.2 million, or 6.5%, from $3.1
million for the three months ended March 31, 2001, to $3.3 million for the three
months ended March 31, 2002. The increase was attributable to increased revenues
combined with an increase in gross profit margin.

      Amortization of Goodwill

      According to SFAS 142, the Company ceased recording goodwill amortization
on January 1, 2002. Goodwill amortization was $0.2 million for the three months
ended March 31, 2001. See Note 5.

      Selling, General and Administrative Expenses

      Selling, general and administrative expenses increased $0.9 million, or
12.0%, from $7.5 million for the three months ended March 31, 2001, to $8.4
million for the three months ended March 31, 2002. The increase is primarily due
to increases in salaries and employee benefits of $0.4 million and a $0.3
million reduction of reserves reflected in the 2001 quarter. Hometown had
established reserves at December 31, 2000 to cover losses related to recourse
loan portfolios. Due to substantial pay downs of these loans during the first
quarter of 2001, Hometown reduced its exposure to potential charge backs and
correspondingly lowered its reserves by $0.3 million.

      Interest Income

      Interest income increased to $17,000 for the three months ended March 31,
2002 from $1,000 for the three months ended March 31, 2001. The increase is the
result of the new floor plan agreement with Ford Motor Credit Corp., which
allows us to invest excess cash in interest bearing accounts. Our previous
credit agreement provided that we apply excess cash against the outstanding
floor plan liability.

      Interest Expense

      Interest expense decreased $0.4 million to $0.9 million for the three
months ended March 31, 2002 from $1.3 million for the three months ended March
31, 2001. The decrease is primarily attributable to a decrease in floor plan
interest expense, which decreased due to a reduction in interest rates and a
decrease in the average floor plan liability from the three months ended March
31, 2001.

      Other Income

      Included in other income for the three months ended March 31, 2001 is a
$254,000 gain on sale of the Morristown Lincoln Mercury dealership to Lincoln
Mercury in January 2001.


                                       19
<PAGE>

      Provision for income tax

      The effective income tax rate was 42.0% in the quarter ended March 31,
2002 and 57.5% in the same period of 2001. The rates were based on current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book income. The difference in the effective tax rates for the
two periods is primarily non-deductible goodwill amortization in the 2001
period. According to SFAS 142, Hometown ceased recording goodwill amortization
on January 1, 2002.

      Net Income

      Net income increased $38,000 to $235,000 for the quarter ended March 31,
2002 from $197,000 for the quarter ended March 31, 2001. The increase is due to
the changes described above.

      Earnings Per Share, Basic and Diluted and Weighted Average Shares

      The basic and diluted earnings per share for the three months ended March
31, 2002 is $0.03. The restated basic and diluted earnings per share for the
three months ended March 31, 2001 is $0.03 and $0.02, respectively. For the
three months ended March 31, 2001 the computation of diluted earnings per share
included approximately 2,032,000 common shares, in relation to a stock guaranty
issueable in relation to an acquisition (Note 10). Options and warrants to
purchase approximately 1,288,000 and 492,000 shares of common stock were
outstanding during the 2002 and 2001 periods, respectively, but were not
included in the computation of diluted earnings per share because the option and
warrant prices were greater than the average market price of the common shares.

      See Note 5 for the effect of discontinuing the recording of goodwill
amortization effective January 1, 2002 per SFAS 142.

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
its 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 2001 and
2002 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 $4.4 million at both March 31, 2002
and December 31, 2001.

      Cash Flow from Operations

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

<TABLE>
<CAPTION>
                                                                     Three months ended
                                                                         March 31,
                                                                   2002            2001
                                                                                (Restated)
                                                                ---------       ----------
                                                                      (in thousands)
<S>                                                             <C>             <C>
      Net cash provided by operating activities                 $     828       $    2,150
      Net cash provided by (used in) investing activities            (658)             552
      Net cash provided by (used in) financing activities            (173)           4,453
                                                                ---------       ----------
      Net increase (decrease) in cash and cash equivalents      $      (3)      $    7,155
                                                                =========       ==========
</TABLE>

      For the three months ended March 31, 2002, net cash provided from
operations of $0.8 million primarily consists of: (i) net income plus non-cash
items of $0.5 million; and (ii) the increase in floor plan liability in excess
of the increase in inventory of $1.5 million; partially offset by (iii)
increased accounts receivable of $0.7 million; and (iv) a decrease in accounts
payable and accrued expenses of $0.6 million. Net cash used in investing
activities of $0.7 million is primarily due to capital expenditures associated
with the construction of a new showroom at our Framingham, Massachusetts. Net
cash used in financing activities of $0.2 million is due to principal payments
of long-term debt and capital lease obligations.

      For the three months ended March 31, 2001, net cash provided from
operations of $2.2 million primarily consists of: (i) net income plus non-cash
items of $0.6 million; (ii) the decrease in inventory in excess of the decrease
in floor plan liability of $1.8 million; and (iii) an increase in accounts
payable and accrued expenses of $0.7 million; partially offset by (iv) increased
accounts receivable of $0.9 million. Net cash provided by investing activities
of $0.6 million is primarily due to the sale of Hometown's Morristown Lincoln
Mercury dealership to Lincoln Mercury of $0.6 million, partially offset by
capital expenditures of $63,000. Net cash provided by financing activities of
$4.5 million is due to cash sent to Hometown in error from Ford Motor Credit
Corporation of $4.6 million (Note 11) partially offset principal payments of
long-term debt and capital lease obligations of $0.2 million.

      Capital Expenditures

      Capital expenditures for fiscal 2002 are expected to be $1.6 million
consisting primarily of the estimated construction and associated expenses for
building a new showroom at our Framingham, Massachusetts dealership.


                                       21
<PAGE>

      Receivables

      The Company had $6.4 million in accounts receivable at March 31, 2002
compared to $5.7 million at December 31, 2001. The majority of those receivables
are from companies that provide or secure financing for customer purchases.

      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.

      The FMCC floor plan loans carry an interest rate of prime less 0.75% for
new vehicles and prime less 0.50% for used vehicles. These rates are for the
first year only. Subsequent to the first year Hometown will be subject to the
FMCC standard financing agreement. Hometown is in the process of renewing its
floor plan agreement with FMCC. Hometown expects rates under the new plan to
increase in relation to the current plan particularly with respect to the rates
charged for used vehicles. The new agreement has not been finalized as of May
31, 2002.

Disposals

      In January 2001, Hometown sold the franchise for its Morristown, NJ store
back to Lincoln Mercury for $0.7 million in cash. During the first quarter of
2001, Hometown received $650,000 of the purchase price and paid out a broker's
commission of $35,000. The transaction resulted in Hometown recording a $254,000
gain on the sale, which is included in other income.

Litigation

      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, in an unspecified amount as well as, reinstatement, injunctive
and other legal and equitable relief.

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

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

Quantitative and Qualitative Disclosures about Market Risk

      We are exposed to market risk from changes in interest rates on our
amounts outstanding under our floor plan financing arrangement, which bears
interest at variable rates based on prime. Based on floor plan amounts
outstanding at March 31, 2002 of $37.4 million, a 1% change in the prime rate
would result in a $0.4 million change to annual floor plan interest expense.


                                       22
<PAGE>

      Hometown invests excess cash, $1.3 million at March 31, 2002, in a money
market account that was paying interest of 1.55% at March 31, 2002.

New Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which
supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of" and the accounting and reporting provisions of Accounting
Principles Board Opinion (APB) 30, "Reporting the Results of Operations -
Reporting the Effects of the Disposal of a Segment Business and Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions". SFAS 144 addresses
financial accounting and reporting for the impairment and disposal of long-lived
assets. Discontinued operations accounting will be used for a component of an
entity and future operating losses of discontinued operations will no longer be
accrued. Additionally, assets acquired and held for disposal are recorded based
on fair value less cost to sell at the acquisition date. SFAS 144 is effective
for fiscal years beginning after December 15, 2001.

      In June 2001, the FASB approved SFAS Nos. 141 and 142 "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS
141, among other things, eliminates the "Pooling of Interests" method of
accounting for business acquisitions entered into after June 30, 2001. SFAS 142,
among other things, eliminates the need to amortize goodwill and requires
companies to use a fair-value approach to determine whether there is an
impairment of existing and future goodwill.

      Additionally, an acquired intangible asset should be separately recognized
if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. Intangible
assets with definitive lives will need to be amortized over their useful lives.
These statements are effective for the Company beginning January 1, 2002.

      Goodwill amortization, which ceased on January 1, 2002, was $178,000 for
the three months ended March 31, 2001. The statement requires that by June 30,
2002, a company must establish its fair value benchmarks in order to test for
impairment. Hometown adopted this statement effective January 1, 2002, but is
still in the process of evaluating its benchmark assessments. By calendar year
end, Hometown is required to determine the correct implied fair value of the
goodwill and record any impairment charges that result from this application as
a cumulative effect of a change in accounting principle. Future impairment
losses would be recorded as an operating expense.

      Hometown is currently evaluating the impact of SFAS 142 on its
consolidated financial statements and believes that, if the current market price
of Hometown's common stock is indicative of fair value, the majority of its
goodwill may be impaired as of the initial adoption of this statement. See Note
5.

Forward Looking Statement

      When used in the Quarterly Report on Form 10Q/A, 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>

                           PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

      a.    Exhibits:

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

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

            99.3  Chief Executive Officer Certification

            99.4  Chief Financial Officer Certification

      b.    Reports on Form 8-K

            NONE


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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 13, 2002                        By: /s/ Corey E.  Shaker
------------------------                  --------------------------------------
Date                                      Corey E. Shaker, President and Chief
                                          Executive Officer


September 13, 2002                        By: /s/ Charles F. Schwartz
------------------------                  --------------------------------------
Date                                      Charles F. Schwartz
                                          Chief Financial Officer


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