================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
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                                    FORM 10-K

    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)
       [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001
                                       or
       []  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
                For the transition period from __________ to _____________.


                         Commission File Number 0-20841
                            UGLY DUCKLING CORPORATION

             (Exact name of registrant as specified in its charter)

             Delaware                                      86-0721358
  (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                     Identification No.)


     4020 E. Indian School Road,
          Phoenix, Arizona                                   85018
(Address of principal executive offices)                  (Zip Code)

       (Registrant's telephone number, including area code) (602) 852-6600

Securities registered pursuant to Section 12(b) of the Act:
        Title of Class                 Name of each Exchange on which registered
        --------------                 -----------------------------------------
12% Subordinated Debentures Due 2003               American Stock Exchange
11% Subordinated Debentures Due 2007               American Stock Exchange


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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 29, 2002,  there were 100 shares of common stock of the  Registrant,
all of which are owned by UDC Holdings Corporation.

================================================================================

<PAGE>




                            Ugly Duckling Corporation
                                TABLE OF CONTENTS
                   For the fiscal year ended December 31, 2001
<TABLE>
<CAPTION>

                                                                                                                            Page
  <S>        <C>          <C>                                                                                               <C>
  PART I
             Item 1       Business.....................................................................................        1
             Item 2       Properties...................................................................................        5
             Item 3       Legal Proceedings............................................................................        5
             Item 4       Submission Of Matters To A Vote Of Security Holders..........................................        6
             Item 4A      Executive Officers Of The Registrant.........................................................        6
  PART II
             Item 5       Market Price Of The Registrant's Common Equity Securities And Related
                          Stockholder Matters..........................................................................        7
             Item 6       Selected Consolidated Financial Data.........................................................        7
             Item 7       Management's Discussion And Analysis Of Financial Condition And
                          Results Of Operations........................................................................       10
             Item 7A      Quantitative And Qualitative Disclosures About Market Risk...................................       32
             Item 8       Consolidated Financial Statements And Supplementary Data.....................................       34
             Item 9       Changes In And Disagreements With Accountants On Accounting and
                          Financial Disclosures........................................................................       59
  PART III
             Item 10      Directors And Executive Officers Of The Registrant...........................................       59
             Item 11      Executive Compensation.......................................................................       59
             Item 12      Security Ownership Of Certain Beneficial Owners And Management...............................       62
             Item 13      Certain Relationships And Related Transactions...............................................       63
  PART IV
             Item 14      Exhibits, Consolidated Financial Statement Schedules, And Reports On
                          Form 8-K.....................................................................................       65
  Signatures...........................................................................................................       70
</TABLE>



<PAGE>






                                     PART I

                               ITEM 1 -- BUSINESS

Principal Line of Business

     We operate the largest chain of buy-here  pay-here car  dealerships  in the
United  States.  At December 31,  2001,  we operated 76  dealerships  located in
eleven large markets from coast to coast.  We have one primary line of business:
to sell and finance  quality used vehicles  exclusively to customers  within the
sub-prime segment of the used car market.

     Our business is divided into three operating  segments.  Information  about
our  operating  segments can be found in Note (18) of the Notes to  Consolidated
Financial  Statements.   Operating  segment  information  is  also  included  in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Business Segment Information".

     We commenced  operations  through various entities  beginning in 1989. Ugly
Duckling  Corporation  was formed in Arizona in 1992 and was  reincorporated  in
Delaware in 1996.

     For a  discussion  of our  recent  giong  private  transaction,  see "Legal
Proceedings - Closing of Going Private Transaction."

               Overview of Used Car Sales and Finance Industry (1)

Used Car Sales and Financing

     Used  car  retail  sales  typically  occur  through  either  manufacturer's
franchised new car dealerships  that sell used cars or through  independent used
car  dealerships.  The  market  for  used  car  sales  is  significant  and  has
approximately  22,000 franchised and 54,000  independent used car dealers in the
United States.

     The automobile  financing  industry is the  third-largest  consumer finance
market in the country,  after mortgage debt and credit card revolving debt. This
industry is served by such  traditional  lending  sources as banks,  savings and
loans, and captive finance subsidiaries of automobile manufacturers,  as well as
by independent finance companies and buy-here pay-here dealers. In general,  the
industry is categorized  according to the type of car sold (new versus used) and
the   credit   characteristics   of  the   borrower.   Based  on  these   credit
characteristics,   credit  worthiness  classifications  have  evolved  generally
ranging from A through D, with the D classification representing those customers
being the least credit worthy. The C and D, or sub-prime  segment,  is comprised
of customers who typically  have limited credit  histories,  low incomes or past
credit  problems.  This  sub-prime  market segment alone is estimated to produce
$147 billion in year 2002 retail sales. Of the C and D total market, independent
used car dealerships provide approximately $64 billion of total retail sales, or
43.5%.

     We are a buy-here  pay-here dealer and participate in the sub-prime segment
of the independent used car sales and finance market.  Buy-here pay-here dealers
typically  offer  their  customers  certain  advantages  over  more  traditional
financing sources, including:

     o    expanded credit opportunities;

     o    flexible payment terms,  including  structuring loan payment due dates
          as weekly or biweekly, often coinciding with a customer's payday; and

     o    the ability to make payments in person at the dealerships.  This is an
          important  feature  to many  sub-prime  borrowers  who  may  not  have
          checking  accounts or are otherwise unable to make payments by the due
          date through use of the mail due to the timing of paydays.
--------------------------------------------------------------------------------
(1) The  industry  statistical  information  presented  in this  section is from
information provided to us by CNW Marketing/Research of Brandon, Oregon.
<PAGE>

                     Company Dealership (Retail) Operations

Growth in Dealership Sites

     We commenced  dealership  operations  in 1992 with the  acquisition  of two
dealerships in Arizona.  At December 31, 1996, we had expanded to 8 dealerships,
all in Arizona.  Beginning in 1997, we expanded through a combination of de novo
dealership developments and acquisitions. Acquisitions in 1997 and 1999 added 38
dealerships  in ten new  markets  outside of Arizona.  Since 1996,  we have also
developed a total of 26 de novo sites in existing  markets.  In December 2000 we
closed one of our Arizona dealerships due to a land condemnation by the State of
Arizona  for a  freeway  project  and in 2001 we closed a second  dealership  in
Arizona and  consolidated  its business with another one of our stores.  We have
slowed our growth of used car dealerships and have decided to focus on improving
profitability of existing  operations and conserving  capital. On March 4, 2002,
the  Company was taken  private and as a result our ability to grow  through the
acquisition of additional stores, new or used, will be limited by our ability to
access additional capital resources.  See Note (17) of the Notes to Consolidated
Financial  Statements for a further discussion of the going private  transaction
and see "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources - Risk Factors".

The following table  summarizes the number of dealerships in operation by market
for the last three years:

                                      Dealerships by Market
                              ---------------------------------------
                                2001           2000          1999
                              ----------     ---------     ----------
Los Angeles.............          13             13            12
Phoenix.................           7              8             9
San Antonio.............           9              9             9
Atlanta.................           9              9             9
Tampa...................           9              9             9
Dallas..................           9              9             7
Richmond................           5              5             5
Orlando.................           7              7             4
Tucson..................           3              3             3
Albuquerque.............           3              3             3
Las Vegas...............           2              2             2
                              ----------     ---------     ----------
                                  76             77            72
                              ==========     =========     ==========

Retail Car Sales

     We  distinguish  our  retail  operations  from  those of  typical  buy-here
pay-here dealers through our:

o dedication to customer service,      o advertising and marketing programs,
o larger inventories of used cars,     o upgraded facilities, and
o network of multiple locations,       o centralized purchasing.

     Our  dealerships  are generally  located in high  visibility,  high traffic
commercial  areas,  and tend to be newer and  cleaner in  appearance  than other
buy-here pay-here dealerships. These characteristics help promote our image as a
friendly  and  reputable  business.  We believe  this  image,  coupled  with our
widespread  brand name  recognition,  enables us to attract  customers who might
otherwise visit another buy-here pay-here dealer.

     Each dealership is run by a general manager who has  responsibility for the
operations of the dealership facility, including:

     o underwriting and approval of sales and loan originations,
     o profitability of the dealership,
     o hiring, training, and performance of dealership employees,
     o post-sale customer relations, and
     o inventory maintenance,
     o the appearance and condition of the facility.

     Our dealerships  generally  maintain an average inventory of 50 to 150 used
cars and  feature a wide  selection  of makes and models  (with  ages  generally
ranging from 3 to 8 years) and a range of sale prices.  This inventory allows us
to meet the  tastes and  budgets of a broad  range of  potential  customers.  We
acquire  our  inventory  from  new or  late-model  used  car  dealers,  used car
wholesalers,  used car auctions, and customer trade-ins. In making purchases, we
take into account each car's retail value,  longevity,  and the costs of buying,
reconditioning,  and delivering  the car for resale.  After  purchase,  cars are

<PAGE>

generally  delivered  to one  of  our 13  inspection  centers,  where  they  are
inspected and reconditioned for sale.


Used Car Financing

     We  finance  substantially  all  of the  used  cars  that  we  sell  at our
dealerships through retail installment loan contracts. Subject to the discretion
of our dealership or sales  managers,  potential  customers must meet our formal
underwriting  guidelines  before we will agree to finance the purchase of a car.
In  connection  with each sale,  we require our  customers  to complete a credit
application.  Our  employees  then analyze and verify the  customer  application
information,   which  contains  employment  and  residence   histories,   income
information,  references,  and other information regarding the customer's credit
history.

     Our credit  underwriting  process  takes into  account  the  ability of our
managers to make sound judgments  regarding the extension of credit to sub-prime
borrowers  and to  personalize  financing  terms to meet the needs of individual
customers.  For example,  we may  schedule  loan  payments to coincide  with the
customer's paydays, whether weekly, biweekly, semi-monthly, or monthly.

     During 2000, we initiated a risk management department, which has developed
and continues to focus on credit risk modeling techniques for our business. As a
result of the  establishment of this function,  we have already made significant
business adjustments in our underwriting policies. We anticipate that these will
have a positive impact in lowering loan losses on new originations.  In 2001, we
developed  and  implemented  our  first  generation  of  statistically   derived
scorecards. We believe these tools will improve our ability to assess and manage
underwriting quality.

Monitoring and Collections

     One of our goals is to minimize  credit losses through close  monitoring of
loans in our portfolio.  When a car sale is completed, the loan is automatically
added to our loan servicing database.  Our monitoring and collections staff then
use our collection software to monitor the performance of the loans.

     The  collection  software  provides  us  with,  among  other  capabilities,
up-to-date activity reports,  allowing prompt  identification of customers whose
accounts  have become past due. Our early  detection of a customer's  delinquent
status, as well as our commitment to working directly with our customers, allows
us to identify and address payment  problems  quickly,  and reduce the chance of
credit loss.

     Unlike  most  other  used  car  dealership  chains  or  automobile  finance
companies,  we encourage our customers to make payments on their loans in person
at any of our  dealerships or at any of our collection  facilities.  When a past
due customer arrives to make a payment,  the Office  Coordinator  processing the
payment will notify the in-store account representative. This allows the account
representative to speak with the customer in person and reinforce the importance
of making  payments  on time.  Payments  received at our  dealerships  currently
account for more than 70% of monthly loan receipts.

     Although the majority of customer payments are made at the dealerships,  we
utilized  central  collection  facilities  for all loans until 2000. In March of
2001,  we  completed  the move of  collections  for  accounts  less than 60 days
delinquent  out to the  individual  dealerships.  This enables our collectors to
have  more  direct  contact  with  our  customers,  which  we  believe  improves
collections  and  customer  service.  In  addition,  during  2001 we closed  our
collection centers in Clearwater,  Florida and Tucson,  Arizona and consolidated
these  functions at our  collection  facilities in Gilbert,  Arizona and Dallas,
Texas.  Currently all accounts  greater than 60 days  delinquent are serviced by
our Gilbert Collection Center.

Integrated Computer System

     We manage all the operations of our inspection centers,  dealerships,  loan
service  centers,  and our  accounting  and  reporting  functions  with a single
integrated computer system. When we purchase a used car, the system adds the car
to  inventory  and records the  appropriate  entries in our  accounting  system.
Reconditioning  costs  also are  subsequently  tracked  for each  car.  With the
generation of a sales  contract,  the system adds the loan to our loan servicing
and collections database and records the sale, cost of sale, inventory, loan and
all related  entries in our accounting  system.  We use both local and wide-area
data and voice communication  networks that allow us to account for all purchase
and sale  activity  centrally  and to service large volumes of loans from one of
our centralized servicing facilities. At the same time, we retain the capability
and  flexibility  that  allows  our  customers  to make  payments  at any of our
dealership  locations.  We  also  have  developed  comprehensive  databases  and
sophisticated  management  tools,  including  static pool  analysis,  to analyze
customer  payment  history  and loan  performance  and to  monitor  underwriting
effectiveness.

Advertising and Marketing

     In general,  our  advertising  campaigns  emphasize  our ability to provide
financing  to most  sub-prime  borrowers,  our multiple  locations  and our wide
selection of quality used cars. We believe that our marketing  approach  creates
brand  name   recognition  and  promotes  our  image  as  a  professional,   yet
approachable,   business.  We  use  television,   radio,  billboard,  and  print

<PAGE>

advertising,   as  well  as   Internet   sites   at   www.uglyduckling.com   and
www.duckloans.com  to market our  dealerships.  We also operate a  loan-by-phone
program using our toll-free  telephone number of  1-800-THE-DUCK.  Substantially
all our marketing materials are produced in both English and Spanish.

     A  primary  focus of our  marketing  strategy  is our  ability  to  finance
consumers with poor credit histories. Consequently, we have initiated innovative
marketing  programs  designed  to  attract  sub-prime  borrowers,  assist  these
customers in establishing  good credit,  reward those customers who pay on time,
develop customer loyalty, and increase referral and repeat business.

Internet Activity

     In 1999,  we began to accept  credit  inquiries via the Internet on our web
site  at   www.uglyduckling.com.   In  2001,  we  added  a  new  Internet  site,
www.duckloans.com.  Credit  inquiries  received over the web are reviewed by our
employees,  who then contact the customers and schedule appointments.  The sales
process is then  completed at the store.  This "clicks and mortar"  approach has
increased our internet  generated  sales  dramatically  since inception in 1999,
with internet  based  applications  spawning sales totaling $58.0 million during
2001, $36.9 million during 2000, and $8.0 million in 1999. We are in the process
of developing new strategies to increase Internet application levels and enhance
closing  ratios,  and  believe  sales  activity  via the  Internet  has become a
complimentary method of expanding our base of operations.

Securitization Program

     We  periodically  securitize our loan portfolio as a significant  source of
capital to finance our  business.  Historically  we have  applied two methods in
structuring these transactions. For the quarter ended September 30, 1998 and for
prior  periods,  we  structured  and recorded  securitization  transactions  for
accounting  purposes using what we refer to as the "gain on sale" method.  After
September 30, 1998, we changed the way we structured and recorded securitization
transactions for accounting  purposes to what we refer to as the "collateralized
borrowing"  method.  The  application  of these two methods in  structuring  and
recording securitization  transactions result in materially different accounting
entries on our books.  See  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations - Overview - Other Significant Items."

Discontinued Operations

     In December 1999, we sold our Cygnet Dealer Finance (CDF)  subsidiary to an
entity   controlled   by  Ernest  C.  Garcia  II,  our  Chairman  and  principal
shareholder,  for approximately $37.5 million,  the book value of our investment
in CDF.  As a result  of the sale,  CDF has been  reclassified  as  discontinued
operations  for 1999 and all preceding  years.  See Note (2) and Note (6) of the
Notes to Consolidated Financial Statements for further discussion of the sale of
CDF.

     Effective  December  31,  1999,  we adopted a formal  plan to  abandon  any
efforts to acquire  third party loans or servicing  rights to  additional  third
party  portfolios.  Accordingly,  our Cygnet Servicing and the associated Cygnet
Corporate segment are reported as components of discontinued operations. We plan
to complete servicing the portfolios that we currently service.

     In 1994, we acquired  Champion  Financial  Services,  Inc., an  independent
automobile  finance  company.  In April 1995, we initiated an aggressive plan to
expand  Champion's  branch office network and, by December 31, 1997, we operated
83 branch offices across the country. In February 1998, we announced our plan to
close the branch  office  network  and exited this line of business in the first
quarter of 1998. See Note (2) of the Notes to Consolidated  Financial Statements
for further discussion of our discontinued operations.

Trademarks and Proprietary Rights

     We have an  ongoing  program  under  which  we  evaluate  our  intellectual
property  and  consider  appropriate  federal  and state  intellectual  property
related filings.  We believe that there is significant  value in our trademarks,
but that our business as a whole is not materially  dependent on our trademarks.
We believe we have taken appropriate measures to protect our proprietary rights.
However, there can be no assurance that these efforts have been successful.

Employees

     At February 28, 2002, we employed  approximately 2,200 persons, with 1,400,
600 and 200 employed in the  operation of our retail,  portfolio  and  corporate
segments,  respectively.  None of our  employees  are  covered  by a  collective
bargaining agreement.
<PAGE>

Seasonality

     Historically,  we have experienced  higher same store revenues in the first
three quarters of the year than in the last quarter of the year. We believe that
these results are due to seasonal buying patterns resulting in part because many
of our customers  receive  income tax refunds during the first half of the year,
which are a primary source of down payments on used car purchases.

                              ITEM 2 -- PROPERTIES

     As of December 31, 2001, we owned nine properties and all other  facilities
were leased. For a description of our major leases, see "Management's Discussion
and Analysis of Financial  Condition  and Results of Operations  "Liquidity  and
Capital  Resources - Supplemental  Borrowings - Sale-Leaseback of Real Property"
and "- Liquidity and Capital Resources - Capital  Expenditures and Commitments."
Facilities  operated currently include 76 dealerships,  13 inspection centers, 2
service  centers  focusing  on after sale  repairs,  2 loan  administration  and
collection facilities that service our loan portfolio, and our corporate office.
In May  2001,  we  closed  two of our four loan  administration  and  collection
facilities.  See Note (1) of the Notes to Consolidated  Financial Statements for
further  discussion  of these  closings.  In April  and July  2001,  we closed a
service  center  located in Los Angeles,  California,  and San  Antonio,  Texas,
respectively.  In August  2001,  we closed one  dealership  located in  Phoenix,
Arizona and consolidated its business with another one of our stores.  In August
2001 our  corporate  headquarters'  lease expired and we relocated our corporate
offices to a facility leased from Verde  Investments,  Inc., an affiliate of Mr.
Ernest Garcia II, our chairman.  See Note (7) of Notes to Consolidated Financial
Statements and "Management's  Discussion and Analysis of Financial Condition and
Results of Operations - Supplemental Borrowings - Sale-Leaseback of Property."

                           ITEM 3 -- LEGAL PROCEEDINGS

     We  sell  our  cars  on an "as is"  basis.  We  require  all  customers  to
acknowledge  in writing on the date of sale that we disclaim any  obligation for
vehicle-related problems that subsequently occur. Although we believe that these
disclaimers are enforceable  under  applicable  laws,  there can be no assurance
that they will be upheld in every instance. Despite obtaining these disclaimers,
in the  ordinary  course of  business,  we  receive  complaints  from  customers
relating to vehicle condition  problems as well as alleged violations of federal
and state consumer lending or other similar laws and regulations.  Most of these
complaints  are  made  directly  to  us  or  to  various   consumer   protection
organizations and are subsequently  resolved.  However,  customers  occasionally
name us as a defendant  in civil suits filed in state,  local,  or small  claims
courts. Additionally,  in the ordinary course of business, we are a defendant in
various other types of legal  proceedings.  Although we cannot determine at this
time the amount of the ultimate  exposure from these lawsuits,  if any, based on
the advice of  counsel  we do not  expect  the final  outcome to have a material
adverse effect on the Company.

     Going Private Transaction Related Actions. On March 20, 2001, a shareholder
derivative  complaint  was  filed,   purportedly  on  behalf  of  Ugly  Duckling
Corporation,  in the Court of  Chancery  for the State of Delaware in New Castle
County,  captioned Berger v. Garcia, et al., No. 18746NC.  The complaint alleges
that our current  directors  breached  fiduciary duties owed to us in connection
with  certain  transactions  between  us and Mr.  Garcia  and  various  entities
controlled by Mr.  Garcia.  The complaint was amended on April 17, 2001 to add a
second cause of action, on behalf of all persons who owned our common stock, and
their successors in interest,  which alleges that our current directors breached
fiduciary duties in connection with the then proposed  acquisition by Mr. Garcia
of all of the outstanding shares of Ugly Duckling common stock. Ugly Duckling is
named as a nominal  defendant in the action.  The original cause of action seeks
to void all  transactions  deemed to have been  approved in breach of  fiduciary
duty and recovery by Ugly Duckling of alleged  compensatory damages sustained as
a result of the  transactions.  The second  cause of action  sought to enjoin us
from  proceeding  with  the  proposed  acquisition  by Mr.  Garcia,  or,  in the
alternative, awarding compensatory damages to the class.

     Following  Mr.  Garcia's  offer in early April 2001,  five  additional  and
separate purported  shareholder class action complaints were filed between April
17 and April 25, 2001 in the Court of Chancery  for the State of Delaware in New
Castle County.  They are captioned  Turberg v. Ugly Duckling  Corp., et al., No.
18828NC,  Brecher v. Ugly Duckling Corp.,  et al., No. 18829NC,  Suprina v. Ugly
Duckling  Corporation,  et al., No.  18830NC,  Benton v. Ugly Duckling Corp., et
al., No. 18838NC, and Don Hankey Living Trust v. Ugly Duckling  Corporation,  et
al., No. 18843NC. Each complaint alleges that Ugly Duckling,  and its directors,
breached  fiduciary  duties in connection  with the proposed  acquisition by Mr.
Garcia of all of the outstanding  shares of the Ugly Duckling common stock.  The
complaints  sought to enjoin the then proposed  acquisition by Mr. Garcia and to
recover  compensatory damages caused by the proposed acquisition and the alleged
breach of fiduciary duties. These cases were consolidated in June 2001.

     In September,  2001,  Mr.  Garcia  withdrew his offer to acquire our common
stock by means of a merger,  and in November  2001  initiated a tender offer for
our stock.  On December 10, 2001, we announced our Board of Directors had agreed
to an  amended  tender  offer and back end  merger at $3.53  per  share,  and an
agreement in principle to resolve the shareholder  litigation.  In January 2002,

<PAGE>

after the  completion  of  confirmatory  discovery,  a settlement  agreement was
entered into resolving this  litigation.  A settlement  hearing is scheduled for
April 17, 2002, and we mailed a notice to shareholders of the settlement and the
hearing.  The settlement resolves the litigation and includes a payment by us of
the  plaintiffs'  attorney  fees with the court  setting the actual amount to be
awarded.  However,  we cannot  determine at this time the amount of the ultimate
exposure.

     Closing of Going Private  Transaction.  UDC  Acquisition  Corp.,  an entity
controlled by Ugly Duckling's  Chairman,  Mr. Ernest Garcia, and Ugly Duckling's
President  and  Chief  Executive  Officer,  Gregory  B.  Sullivan,  successfully
completed  its amended  tender offer for the common  stock of Ugly  Duckling not
owned by Mr. Garcia,  Mr. Sullivan or their affiliates.  As of the expiration of
the offer,  UDC Acquisition  Corp. owned or controlled over 92% of the Company's
outstanding  shares when combined with the shares  already owned by Mr.  Garcia,
Mr. Sullivan and their affiliates. Because UDC Acquisition Corp. owned more than
90% of the common stock of Ugly  Duckling,  it was able to complete a short form
merger with and into Ugly Duckling  without any further  action by Ugly Duckling
shareholders.  The merger closed on March 4, 2002 and Ugly Duckling  Corporation
was the surviving entity.

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

     No matter was submitted to a vote of our security holders during the fourth
quarter of 2001.

                 ITEM 4A -- EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Information Concerning our Chairman of the Board and our Executive Officers
    as of March 2002.


<TABLE>
<CAPTION>

       <S>      <C>                     <C>   <C>        <C>
                Name                    Age              Position
       ----------------------------     ---   -----------------------------------
       Ernest C. Garcia II ........      44   Chairman of the Board
       Gregory B. Sullivan.........      43   President, Chief Executive Officer and Director
       Mark G. Sauder..............      41   Vice President, Chief Financial Officer
       Jon D. Ehlinger.............      44   Vice President, General Counsel and Secretary
       C. Robert Fulton............      36   Vice President, Treasurer
</TABLE>

     Ernest C. Garcia II has served as our Chairman of the Board since 1992. Mr.
Garcia  served  as Chief  Executive  Officer  from 1992 to 1999,  and  served as
President  from 1992 to 1996.  Mr.  Garcia is the majority  stockholder  of Ugly
Duckling, owning indirectly approximately 90% of our stock as of March 29, 2002.
Mr.  Garcia is  President  of Verde  Investments,  Inc.  (Verde),  a real estate
investment corporation that is also an affiliate of ours.

     Gregory B. Sullivan was appointed Chief Executive Officer in July 1999. Mr.
Sullivan has served as our  President  since March 1996 and as of March 29, 2002
indirectly owns 10% of our stock. In 1998, Mr. Sullivan was elected to our Board
of  Directors.  Mr.  Sullivan has also served as President of Ugly  Duckling Car
Sales,  Inc. since December 1996. From 1995 through  February 1996, Mr. Sullivan
was a consultant to us. Mr. Sullivan  formerly served as President and principal
stockholder  of an amusement  game  manufacturing  company that he co-founded in
1989  and  sold in  1994.  Prior  to 1989,  Mr.  Sullivan  was  involved  in the
securities  industry  and  practiced  law with a large  Arizona  firm.  He is an
inactive member of the State Bar of Arizona.

     Mark G. Sauder was appointed as Vice President, Chief Financial Officer and
Principal  Accounting  Officer in February 2002. From September 1997 to December
2001, he held various executive  management positions for Cygnet Dealer Finance,
Inc. and its affiliate ZoomLot Corporation, including serving as Chief Operating
Officer and Chief Financial Officer.  Cygnet and ZoomLot were in the business of
providing   credit   facilities  for,  and/or   purchasing  and  selling  retail
installment contracts from, sub-prime auto dealers. From 1990 to 1997 Mr. Sauder
served as CFO for a real estate lending and development company.  Prior to 1990,
Mr. Sauder held senior  financial,  management or  accounting  positions  with a
major real estate  developer,  a financial  institution and a public  accounting
firm.

     Jon D.  Ehlinger  has served as our Vice  President,  General  Counsel  and
Secretary  since July 1999,  joining us in 1998 as the General  Counsel for Ugly
Duckling  Car Sales and Finance  Corporation.  Prior to 1998,  Mr.  Ehlinger was
in-house  counsel for almost thirteen years for a major  financial  institution.
Mr.  Ehlinger is licensed to practice law in Arizona and has also worked for two
Arizona law firms.

     Robert Fulton was appointed as our Treasurer in February  2001.  Mr. Fulton
joined us in November 2000.  From April 1998 to November 2000, Mr. Fulton served
as  the  Director  of  Investor   Relations/Assistant   Treasurer  at  The  Dial
Corporation.  Prior to that time, Mr. Fulton held various industry  positions in
corporate treasury and banking.

     Our officers are elected each year by our Board of Directors.  Our officers
hold  office  until their  successors  are chosen and  qualified  or until their
earlier  retirement,  resignation,  or removal.  There is no family relationship
among any of our officers and directors.
<PAGE>



                                     PART II

       ITEM 5 -- MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY SECURITIES
                         AND RELATED STOCKHOLDER MATTERS

     Our common  stock was traded on the Nasdaq  Stock  Market  under the symbol
"UGLY." The high and low closing sales prices of the common  stock,  as reported
by Nasdaq for the two most recent fiscal years are reported below.
<TABLE>
<CAPTION>

                                                                                                        Market Price
                                                                                                    ------------------
                                                                                                    High           Low
                                                                                                    ----           ---
    <S>                                                                                          <C>           <C>
    Fiscal Year 2001:
    First Quarter...........................................................................     $     4.81    $     3.38
    Second Quarter..........................................................................           4.90          3.19
    Third Quarter...........................................................................           4.50          2.52
    Fourth Quarter..........................................................................           3.45          2.00
    Fiscal Year 2000:
    First Quarter...........................................................................     $     8.50    $     6.69
    Second Quarter..........................................................................           8.13          6.84
    Third Quarter...........................................................................           7.50          5.81
    Fourth Quarter..........................................................................           5.88          3.94
</TABLE>

     On March 4, 2002, we were delisted from Nasdaq.  Our last reported  trading
price on March 4, 2002 was $3.50. See "Security  Ownership of Certain Beneficial
Owners and Management."

     Dividend  Policy.  It is the current  policy of our Board of  Directors  to
retain any earnings to finance the operations and expansion of our business.  In
addition,  the terms of our primary  revolving  credit facility  prevent us from
declaring or paying dividends without consent of the lender.  From time to time,
our other financings may also include restrictions. See "Management's Discussion
and Analysis of Financial  Condition  and Results of Operations -- Liquidity and
Capital Resources -- Financing Resources -- Revolving Facility."

     1998 Exchange  Offer.  In the fourth  quarter of 1998, we issued a total of
approximately  $17.5  million  of our 12%  subordinated  debentures  due 2003 in
exchange  for  approximately  2.7  million  shares  of  our  common  stock.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Liquidity and Capital Resources -- Supplemental Borrowings -- 1998
Exchange  Offer."  Beginning on March 2, 1999, the debentures  became listed and
traded on the American Stock Exchange under the ticker symbol UGY.

     2000 Exchange  Offer.  In the second  quarter of 2000, we issued a total of
approximately  $11.9  million  of our 11%  subordinated  debentures  due 2007 in
exchange  for  approximately  1.1  million  shares  of  our  common  stock.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Liquidity and Capital Resources -- Supplemental Borrowings -- 2000
Exchange Offer."  Beginning on April 24, 2000, the debentures  became listed and
traded on the American Stock Exchange under the ticker symbol UGY.


                 ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA

     The  following  table  sets  forth  our  selected  historical  consolidated
financial data for each of the years in the five-year  period ended December 31,
2001. The selected annual historical consolidated financial data for 2001, 2000,
1999,  1998,  and 1997 are  derived  in part  from  our  consolidated  financial
statements   audited  by  KPMG  LLP,   independent   auditors.   For  additional
information,  see our consolidated financial statements included in this report.
The following table should be read in conjunction with "Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations."  Certain
information presented below under the captions: "Other Operating Data", "Segment
Operating  Expense  Data",  "Balance  Sheet Data" and "Loan  Portfolio  Data" is
unaudited.


<PAGE>
                            UGLY DUCKLING CORPORATION
                         Consolidated Operating Results
 (In thousands, except cars sold, per cars sold, and earnings per share amounts)
<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                      -------------------------------------------------------------------------
                                                           2001         2000           1999           1998           1997
                                                      -------------------------------------------------------------------------

<S>                                                   <C>          <C>           <C>            <C>            <C>
Cars Sold                                                  47,718       56,870         46,120         35,964         16,636
                                                      =========================================================================

Total Revenues                                        $   571,378  $   603,001   $    458,482   $    332,479   $    155,419
                                                      =========================================================================

Sales of Used Cars                                    $   434,360  $   483,282   $    389,908   $    287,618   $    123,814
Less:
   Cost of Used Cars Sold                                 247,999      268,248        219,037        165,282         72,358
   Provision for Credit Losses                            151,071      141,971        102,955         65,318         22,354
                                                      -------------------------------------------------------------------------
                                                           35,290       73,063         67,916         57,018         29,102
                                                      -------------------------------------------------------------------------
Other Income (Expense):
   Interest Income                                        137,018      119,719         68,574         17,287         12,559
   Portfolio Interest Expense                            (30,457)     (26,698)       (14,597)        (2,860)          (175)
                                                      -------------------------------------------------------------------------
      Net Interest Income                                 106,561       93,021         53,977         14,427         12,384
   Servicing and Other Income                                  -            -              -          15,481         12,325
   Gain on Sale of Loans                                       -            -              -          12,093          6,721
                                                      -------------------------------------------------------------------------
Total other income                                        106,561       93,021         53,977         42,001         31,430

Income before Operating Expenses                          141,851      166,084        121,893         99,019         60,532
Operating Expenses:
     Selling and Marketing                                 25,134       28,756         23,132         18,246         10,538
     General and Administrative                           109,159      103,532         74,098         69,894         39,414
     Depreciation and Amortization                          9,512        9,065          6,948          4,912          3,148
                                                      -------------------------------------------------------------------------
      Operating Expenses                                  143,805      141,353        104,178         93,052         53,100
                                                      -------------------------------------------------------------------------

Income (Loss) before Other Interest Expense               (1,954)       24,731         17,715          5,967          7,432
Other Interest Expense                                     11,175        9,463          3,028            161            531
                                                      -------------------------------------------------------------------------

Earnings (Loss) before Income Taxes                      (13,129)       15,268         14,687          5,806          6,901
Income Taxes (Benefit)                                    (3,087)        6,205          6,000          2,351          2,820
                                                      -------------------------------------------------------------------------

Earnings (Loss) from Continuing Operations
   before Extraordinary Item:                            (10,042)        9,063          8,687          3,455          4,081
                                                      =========================================================================
Earnings (Loss) per Common Share from
   Continuing Operations before Extraodinary Item:
      Basic                                           $    (0.82)  $      0.67   $       0.58   $       0.19   $       0.23
                                                      =========================================================================
      Diluted                                         $    (0.82)  $      0.67   $       0.57   $       0.19   $       0.22
                                                      =========================================================================
Weighted Average Shares Used in Computation:
   Basic  Shares Outstanding                               12,286       13,481         15,093         18,082         17,832
                                                      =========================================================================
   Diluted Shares Outstanding                              12,286       13,627         15,329         18,405         18,234
                                                      =========================================================================
</TABLE>


<PAGE>


    ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA -Continued
<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                   ------------------------------------------------------------------------
                                                        2001          2000          1999          1998           1997
                                                   ------------------------------------------------------------------------
                                                 ($ in thousands, except number of dealerships, per car sold and per share amounts)
<S>                                                <C>             <C>           <C>            <C>            <C>
Operating Data:
Total Revenues                                        $   571,378  $   603,001   $    458,482   $    332,479   $    155,419
Sales of Used Cars                                    $   434,360  $   483,282   $    389,908   $    287,618   $    123,814
Earnings (Loss) from Cont Ops before Extraordinary
 Item per Diluted Share                               $    (0.82)  $      0.67   $       0.57   $       0.19   $       0.22
Earnings before Interest, Taxes, Depr. & Amort.       $    38,015  $    60,494   $     39,260   $     13,739   $     10,755
Internet Generated Revenue
 as Percent of Sales of Used Cars                           13.4%         7.6%           2.1%             *              *
Number Dealerships in Operation                                76           77             72             56             41
Average Sales per Dealership per Month                         52           62             64             63             79
Number of Used Cars Sold                                   47,718       56,870         46,120         35,964         16,636
Sales Price - Per Car Sold                            $     9,103  $     8,498   $      8,454   $      7,997   $      7,443
Cost of Sales - Per Car Sold                          $     5,197  $     4,717   $      4,749   $      4,595   $      4,349
Gross Margin - Per Car Sold                           $     3,906  $     3,781   $      3,705   $      3,402   $      3,094
Provision - Per Car Sold                              $     3,166  $     2,496   $      2,232   $      1,816   $      1,344
Total Operating Expense - Per Car Sold                $     3,014  $     2,486   $      2,259   $      2,587   $      3,192
Total Operating Income (Loss) - Per Car Sold          $      (41)  $       435   $        384   $        166   $        447
Total Operating Income (Loss)                         $   (1,954)  $    24,731   $     17,715   $      5,967   $      7,432
Earnings (Loss) before Income Taxes                   $  (13,129)  $    15,268   $     14,687   $      5,806   $      6,901
Cost of Used Cars as Percent of Sales                       57.1%        55.5%          56.2%          57.5%          58.4%
Gross Margin as Percent of Sales                            42.9%        44.5%          43.8%          42.5%          41.6%
Provision - % of Originations                               35.4%        30.1%          26.9%          23.6%          19.1%
Total Operating Expense - % of Total Revenues               25.2%        23.4%          22.7%          28.0%          34.2%
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold               $     1,792  $     1,579   $      1,550   $      1,574   $      1,760
Retail Operating Expense-% of Used Car Sales                19.7%        18.6%          18.3%          19.7%          23.7%
Corporate/Other Expense - Per Car Sold                $       535  $       412   $        417   $        462   $        625
Corporate/Other Expense - % of Total Revenue                 4.5%         3.9%           4.1%           5.0%           6.7%
Portfolio Expense - % of End of Period Managed
 Principal                                                   6.4%         5.4%           3.2%           6.8%           7.3%
Balance Sheet Data:
Finance Receivables, net                              $   495,254  $   500,469   $    365,586   $    126,168   $     60,778
Inventory                                             $    58,618  $    63,742   $     62,865   $     44,145   $     32,372
Total Assets                                          $   647,657  $   652,121   $    536,711   $    337,281   $    275,633
Portfolio Notes Payable                               $   377,305  $   406,551   $    275,774   $    101,732   $     65,171
Subordinated Notes Payable                            $    31,259  $    34,522   $     28,611   $     37,980   $     12,000
Total Debt                                            $   461,074  $   457,652   $    340,941   $    155,611   $     77,171
Total Stockholder's Equity                            $   145,483  $   155,400   $    165,680   $    162,767   $    181,774
Common Shares Outstanding - End of Period                  12,275       12,292         14,888         15,841         18,521
Book Value per Share                                  $     11.85  $     12.64   $      11.13   $      10.28   $       9.81
Tangible Book Value per Share                         $     10.91  $     11.62   $      10.15   $       9.36   $       8.93
Total Debt to Equity                                          3.2          2.9            2.1            1.0            0.4
Loan Portfolio Data:
Interest Income                                       $   137,018  $   119,719   $     68,574   $     17,287   $     12,559
Average Yield on Portfolio                                  26.3%        26.3%          25.9%          25.7%          26.7%
Portfolio Interest Expense                            $    30,457  $    26,698   $     14,597   $      2,860   $        175
Average Borrowing Cost                                       8.3%         8.7%           8.0%           9.5%             *
Principal Balances Originated                         $   426,221  $   472,091   $    382,335   $    277,226   $    116,830
Principal Balances Originated as % of Sales                 98.1%        97.7%          98.1%          96.4%          94.4%
Number of Loans Originated                                 47,461       56,666         45,756         35,560         16,001
Average Original Amount Financed                      $     8,980  $     8,331   $      8,356   $      7,796   $      7,301
Number of Loans Originated as % of Units Sold               99.5%        99.6%          99.2%          98.9%          96.2%
Portfolio Delinquencies:
     Current                                                64.5%        66.1%          63.2%          61.0%             *
     1 to 30 days                                           26.2%        26.1%          27.8%          32.2%             *
     31 to 60 days                                           5.6%         4.7%           5.9%           4.7%             *
     Over 60 days                                            3.7%         3.1%           3.1%           2.1%             *
Principal Outstanding - Managed                       $   514,699  $   519,005   $    424,480   $    292,683   $    183,321
Principal Outstanding - Retained                      $   514,699  $   514,946   $    358,818   $     93,936   $     55,965
Number of Loans Outstanding - Managed                      82,254       84,864         70,450         49,601         35,762
Number of Loans Outstanding - Retained                     82,254       82,598         53,081         12,415          7,993
* Information not available.

</TABLE>

<PAGE>

                ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     In this discussion and analysis we explain our general financial  condition
and results of operations. In particular, we analyze and explain the significant
annual changes in the consolidated  results of operations as well as significant
annual  changes for our retail,  portfolio and corporate  segments.  As you read
this  discussion,  you should  refer to our  Consolidated  Financial  Statements
beginning on page 34, which contain our financial condition at December 31, 2001
and 2000 and the results of our  operations  for years ended  December 31, 2001,
2000, and 1999.

Overview

We have experienced a number of significant  events during the past three years.
Some of the more important events follow:

    During 1999 we:
     o    completed the conversion of loan portfolio administration,  accounting
          and financial reporting, and collections to a single computer system,
     o    completed two  acquisitions  and developed new dealerships to increase
          our total number of  dealerships  in operation from 56 at December 31,
          1998 to 72 at December 31, 1999,
     o    completed the sale of Cygnet Dealer  Finance,  Inc. to Cygnet  Capital
          Corporation, an affiliate of Mr. Garcia, and
     o    adopted a formal  plan to  discontinue  the  operations  of our Cygnet
          Servicing subsidiary operations.

    During 2000 we:
     o    implemented in store collectors in all 77 dealerships,
     o    developed  5  new   dealerships   to  increase  our  total  number  of
          dealerships  in  operation  from  72 at  December  31,  1999  to 77 at
          December 31, 2000,
     o    completed an exchange  offer through  which we acquired  approximately
          1.1 million  shares of our common stock in exchange for $11.9  million
          of subordinated debentures,
     o    repurchased an additional 1.6 million shares of our common stock at an
          average price of $7.19 per share, and
     o    increased the amount  charged to current  operations for our provision
          for  credit  losses to 30.1% of  originations,  an  increase  from the
          amount previously charged of 27%.


    During 2001 we:
     o    implemented  loan grading  resulting in higher credit standards and an
          improved underlying credit quality mix of originations,
     o    incurred a  significant  increase in Provision  for Credit  Losses for
          2001 to 35.4% of originations  versus 30.1% in 2000, related primarily
          to prior year originations and the reduced speed of portfolio growth,
     o    moved our  corporate  headquarters  to a stand  alone  building in the
          third quarter that is estimated to save $0.7 million  annually in rent
          and other general location costs,
     o    completed  a  reduction  in work force in the  fourth  quarter to save
          approximately $3.6 million annually in salary and wages and benefits,
     o    consolidated  collection and loan servicing  centers by closing two of
          four centralized centers to save $0.9 million annually,
     o    incurred $1.6 million in privatization  expenses related to the tender
          offers made by Ernest C. Garcia II, and
     o    felt  the  negative  impact  of the  recession  and the  September  11
          terrorist attacks on both our sales volumes and portfolio performance.

     Other Significant Items - We securitize our loan portfolio as a significant
source of capital to finance  our  business.  Historically  we have  applied two
methods in structuring these  transactions  that result in materially  different
accounting  entries on our books. Our financial  results reported herein include
periods where both  securitization  structures  were utilized,  we will describe
these structures and the material impact they have had on financial results.

     Subsequent to September 30, 1998 - Beginning in the fourth quarter of 1998,
we changed the way we  structured  securitization  transactions  for  accounting
purposes  to what we  refer  to as the  "collateralized  borrowing"  method  and
accordingly recognize the income and associated costs over the life of the loan.
The change in structure  beginning in the fourth  quarter of 1998 did not affect
our prior securitizations.

     Collateralized  Borrowing  Method  -  Under  the  collateralized  borrowing
method,  we retain the securitized  loans on our balance sheet,  and we record a
note payable  known as Class A  obligations  for the amount  loaned to us by the
Class A note holders.  As additional  collateral for the borrowers,  at closing,
cash is deposited into a restricted cash "reserve"  account  (reported herein as

<PAGE>

Investments  Held  in  Trust).  Under  this  accounting  method,  our  financial
statements  include interest income,  interest expense,  servicing costs and the
other  costs  generally  associated  with  loan  portfolio  accounting  and  are
recognized over the life of the loan.

     September 30,1998 and prior. For the securitization  transactions closed in
the  third  quarter  of  1998  and  prior,  we  structured  and  recorded  these
transactions  for  accounting  purposes  using  what we refer to as the "gain on
sale"  method.  The  computation  of amounts  reported as Gain on Sale income is
equal to the difference  between the sales proceeds for the Finance  Receivables
sold and our recorded investment in the Finance Receivables sold. Our investment
in  Finance  Receivables  consisted  of the  principal  balance  of the  Finance
Receivables  securitized  net of the Allowance for Credit Losses  related to the
securitized receivables.  We then reduced our Allowance for Credit Losses by the
amount of Allowance for Credit Losses attributable to the loans securitized.  We
allocated the recorded investment in the Finance Receivables between the portion
of the Finance  Receivables  sold and the portion retained based on the relative
fair values on the date of sale.

     Gain on Sale Method - Under the gain on sale  method,  we  transferred  the
securitized  loans off of our balance  sheet,  and recorded a residual  interest
(reported herein as Residual Interest in Finance Receivables Sold) and a Gain on
Sale of Loans.  Subsequent  to a sale we did not  record  traditional  financial
statement  elements  generally  associated with loan portfolios such as interest
income,  interest  expense,  servicing  costs and  other  costs,  but  rather we
estimated  them at the time of sale and recorded  them as an element of the gain
computation.

     With  this   overview  and   background   information,   the  following  is
management's  discussion  and  analysis of  financial  condition  and results of
operations.

Sales of Used Cars and Cost of Used Cars Sold ($ in  thousands,  except  per car
sold amounts)
<TABLE>
<CAPTION>
                                              2001            2000             1999           % Change
                                         ---------------  --------------  -----------------------------------
                                                                                           2001      2000
                                                                                         --------------------
<S>                                      <C>              <C>             <C>             <C>      <C>
Number of Used Cars Sold ...........              47,718          56,870            46,120  (16.1%)     23.3%
                                         ===============  ==============  ================

Sales of Used Cars .................           $ 434,360       $ 483,282         $ 389,908  (10.1%)     23.9%

Cost of Used Cars Sold .............             247,999         268,248           219,037   (7.5%)     22.5%
                                         ---------------  --------------  ----------------
Gross Margin .......................           $ 186,361       $ 215,034         $ 170,871  (13.3%)     25.8%
                                         ===============  ==============  ================

Gross Margin % .....................               42.9%           44.5%             43.8%
Per Car Sold:
Sales ..............................           $   9,103       $   8,498          $  8,454     7.1%      0.5%

Cost of Used Cars Sold .............               5,197           4,717             4,749    10.2%    (0.7%)
                                         ---------------  --------------  ----------------
Gross Margin .......................           $   3,906       $   3,781          $  3,705     3.3%      2.1%
                                         ===============  ==============  ================
</TABLE>

     The number of Used Cars Sold has decreased  from 2000 to 2001 impacting the
Sales of Used Cars.  This is mainly  attributable  to the  Company  implementing
higher credit standards combined with the effects of the recession.  Further, we
closed one dealership in December  2000 and another  dealership in mid 2001. We
anticipate  future  unit  sales  to  remain  constant  as the  recession  eases,
notwithstanding  our  continuing  focus on improving  credit quality and lack of
dealership expansion. Through our analysis of the primary factors that influence
loan performance, we determined that a higher cost and better quality of vehicle
positively  affects  the gross loan loss rate  across all  credit  grades.  As a
result we made a decision to upgrade the  quality of our  vehicle  inventory  in
2001  resulting  in the average  sales price  increasing  7.1% and the cost of a
vehicle increasing 10.2% in 2001. We foresee this trend continuing in 2002 as we
continue to move toward  better  quality  inventory.  The average  gross  margin
increased  $125 per car in 2001 due to the Company  increasing  our gross margin
dollar  target  combined  with placing  greater  emphasis on achieving the gross
margin target at the dealership management level. We calculate our vehicle sales
price using a fixed dollar  margin and not as a percentage  of cost;  therefore,
when we increased the quality and the related cost of vehicles in 2001 the gross
margin percentage decreased to 42.9%.

     Unit sales  increased in 2000  compared to 1999 due primarily to the growth
in number of dealerships from 72 in 1999 to 77 in 2000, coupled with an increase
in the sales price per car sold.  Same store  revenues  and unit sales  remained
comparable for 2000 and 1999. The gross margin improved in 2000 compared to 1999
as we were  successful in increasing  our sales prices by more than the increase
in cost of used cars sold,  along with  initiatives to more tightly  control the
costs we were paying for our vehicles.

     Our Internet site continues to be a valuable tool  generating a steady flow
of credit applications, which lead to the closing of sales at the dealership. We
accept credit applications from potential customers via our website,  located at
www.uglyduckling.com. Our employees review the credit applications received over

<PAGE>

the  web and  then  contact  the  customers  and  schedule  appointments  at our
dealerships.  Internet  applications continue to provide an increasing amount of
sales. Although total Internet applications declined slightly to 50,000 in 2001,
the close  ratio  improved  resulting  in 6,473  cars sold and $58.0  million of
revenues  in 2001  compared  to 4,347 cars sold and $39.6  million in revenue in
2000.  Internet  activity  resulted in $8.0 million of revenue in 1999.  We also
added a new website for credit applications in 2001, www.duckloans.com.

     The Company finances substantially all of its sales. In 2001 we implemented
credit scoring that involves  internally grading our sub-prime  customers from A
to D-. In order to shift our origination mix from the least  profitable D grades
toward the more profitable A to C grades,  we implemented a policy of increasing
down payment requirements for the D grade customer from $600 at the beginning of
2001 to $900 to $1,200 at the end of the year.  As a result of the  higher  down
payment  requirements  for D customers,  the close rates for D grades  decreased
substantially  in 2001 resulting in a better credit mix. The down payment policy
for A to C customers  remained  unchanged in 2001 with a minimum down payment of
$600. Our loan performance  analysis  indicates that loans with repeat customers
have lower loss rates.  In 2001,  we began to focus on  retaining  these  valued
customers by providing a zero down program for repeat customers whose loans have
performed well. The zero down program for repeat customers  partially offset the
increase in down  payments for D grade  customers,  resulting in an average down
payment of approximately $777 for 2001 and $721 for 2000. The Company uses fixed
minimum down payment amounts based on credit grade.  Therefore,  as sales prices
increase  and we do not increase  the minimum  down  payment  requirements,  the
amount  financed as a percentage  of sales price rises,  which  occurred in 2001
versus 2000.

     The percentage of sales revenue  financed for 2000 decreased versus 1999 as
a result of  initiatives  put in place in May 2000 to increase  the minimum down
payment requirement from $500 to $600.

The  following  table  indicates  the  percentage  of sales  units  and  revenue
financed:
<TABLE>
<CAPTION>


<S>                                                   <C>           <C>          <C>
                                                      2001          2000         1999
                                                  ------------- ------------- ------------
Percentage of used cars sold financed.......              99.5%         99.6%        99.2%
                                                  ============= ============= ============
Percentage of sales revenue financed........              98.1%         97.7%        98.1%
                                                  ============= ============= ============
</TABLE>

Provision for Credit Losses ($ in thousands)
<TABLE>
<CAPTION>

                                                                                        % Change
                                     ----------------------------------------   -------------------------
<S>                                  <C>          <C>            <C>            <C>           <C>
                                         2001          2000          1999           2001        2000
                                     ------------ -------------- -------------  ------------- -----------

Provision for Credit Losses              $151,071      $141,971      $102,955           6.4%       37.9%
                                     ============ =============== =============
Provision per loan originated              $3,183        $2,513        $2,250          26.7%       11.7%
                                     ============ =============== =============
Provision as a percentage of
  principal balances originated             35.4%         30.1%         26.9%
                                     ============ =============== =============
</TABLE>

     Provision  for  Credit  Losses  ("Provision")  is the  amount  we charge to
current  operations on each car sold to establish an Allowance for Credit Losses
("Allowance").  The Provision in total,  per loan originated and as a percent of
principal balances originated, increased in both 2001 and 2000.

     The Provision  for 2001  increased to 35.4% of the amount  financed  versus
30.1% in 2000. The Company's policy is to maintain an Allowance for all loans in
its portfolio to cover estimated net charge-offs for the next twelve months. Our
loans have experienced  lifetime net losses in the 31% to 34% range for the past
few years. With origination  growth over this time we have been able to maintain
an adequate  Allowance in accordance  with GAAP and Company  policy by providing
between  27% and 31% of the  amount  financed.  However,  in 2001 the  volume of
portfolio  originations  decreased from 2000 due to the implementation of higher
credit  standards and the effects of the recession.  Due to the decreased volume
of  originations,  an  increase  in  the  Provision  as  a  percentage  of  loan
originations was needed in order to maintain an adequate Allowance.  The Company
has begun to improve the underlying  credit quality mix of its  originations due
to improved credit standards and the introduction of loan grading.  As a result,
2001  originations are performing  better to date than prior year  originations.
Offsetting  these  improvements  are  the  effects  of  the  recession  and  the
performance  of loans  originated  prior to 2001 that do not have the benefit of
the new higher  credit  standards  and are  emerging at loss levels  higher than
previously estimated.  As a result, the Provision for Credit Losses increased to
$151  million in 2001  compared  to $142  million in 2000.  The  Allowance  as a
percentage  of loan  principal is 19.8% at December  31, 2001,  up from 19.4% at
December 31, 2000.
<PAGE>

     The 2000  Provision  increased  to $142  million in 2000  compared  to $103
million in 1999.  The increase can be attributed  to an overall  increase in the
Provision  charged to current  operations from 26.9% of loans originated in 1999
to 30.1% of  originations  for 2000.  The  increase  was obtained by raising the
amount charged to current  operations to 29% of loan  originations  beginning in
the third  quarter of 2000,  as well as  recording  an  additional  $5.9 million
provision, net of income taxes, during the fourth quarter of 2000. This increase
in Provision was the result of continued review of the adequacy of the Allowance
balance based on how losses were emerging on a static pool basis.

Net Interest Income ($ in thousands)
<TABLE>
<CAPTION>

                                                                                             % Change
<S>                                   <C>             <C>             <C>            <C>           <C>
                                           2001            2000           1999           2001         2000
                                      --------------- --------------- -------------- ------------- ------------

Interest Income                        $    137,018    $    119,719    $    68,574          14.4%         74.6%
Portfolio Interest Expense
                                           (30,457)        (26,698)       (14,597)          14.1%         82.9%
                                      --------------- --------------- --------------

Net Interest Income                    $    106,561    $     93,021   $     53,977          14.6%         72.3%
                                      =============== =============== ==============

Average Effective Yield                       26.3%           26.3%          26.0%
                                      =============== =============== ==============
Average Borrowing Cost                         8.3%            8.7%           8.0%
                                      =============== =============== ==============
</TABLE>

     Interest  Income  consists  primarily  of  interest  on finance  receivable
principal balances retained on our balance sheet. Although the average effective
yield on finance receivables  remained constant at 26.3% for both 2000 and 2001,
the average retained  principal balance increased from $436.9 million in 2000 to
$514.8  million in 2001.  As a result,  Interest  Income  increased  from $119.7
million in 2000 to $137.0  million in 2001.  The  increase  in average  retained
principal  balance is primarily  the result of the change in our  securitization
structure  in  1998,  when we  switched  from  the  Gain on Sale  Method  to the
Collateralized  Borrowing Method as previously  discussed,  as well as increased
sales revenues in 2000 that resulted in a higher beginning  portfolio balance at
January 1, 2001.

     Retained  principal  balances grew from $358.8 million at December 31, 1999
to $514.9  million at December  31, 2000  primarily as a result of the change in
our  securitization  structure,  coupled  with  the year  over  year  growth  in
revenues.  Interest income consists of interest from 1999 and 2000  originations
accounted for under the Collateralized Borrowing Method and interest income from
Residuals  in  Finance   Receivables  Sold  retained  under  our  securitization
structure using the Gain on Sale method from 1998 and prior years. The effect of
Gain on Sale  Method  on  interest  income  has  continued  to  diminish  as the
outstanding  retained  principal  balances  from  1998  and  prior  originations
continue to decline.  Residuals  from Finance  Receivables  Sold  decreased from
$17.4  million at December  31, 1999 to $1.1 million at December 31, 2000 and $0
at December 31, 2001. Both retained  principal balances and Residuals in Finance
Receivables  Sold are  components  of Finance  Receivables,  Net.  See  "Finance
Receivables, Net" beginning on page 18.

     Portfolio  Interest Expense for 2001 consists  primarily of interest on our
revolving  warehouse  facility  and  the  Class  A  obligations  issued  in  our
securitization  transactions  arising from the collateralized  borrowings on the
retained portfolio.  The increase in interest expense from $26.7 million in 2000
to $30.5 million in 2001 is due primarily to the increase in retained  principal
balances  noted  above.  Offsetting  the  effect  of the  increase  in  retained
principal  balances was a decrease in the effective  borrowing cost from 8.7% in
2000 to 8.3% in 2001 due to the  decline  in the LIBOR  rate  during  2001.  Our
portfolio  effective  borrowing  rate should  continue to decline in 2002 as the
bulk  of  our  loan  portfolio  is  increasingly   composed  of  2001  or  later
securitizations  at lower  interest  rates and as long as there are no  dramatic
interest rate increases in 2002.

     Total Portfolio  Interest  Expense  increased from $14.6 million in 1999 to
$26.7 million in 2000. The increase in interest  expense was attributable to the
increase in retained  principal  balances  noted above.  The increase in average
borrowing  costs was  attributable  to a rise in interest  rates on our variable
rate debt, additional higher debt related to our exchange offers and an increase
in the interest rate on our senior subordinated note payable.


Income before Operating Expenses ($ in thousands)
<TABLE>
<CAPTION>
                                                                                                             % Change
                                                                                                        -------------------
<S>                                                          <C>           <C>           <C>            <C>       <C>
                                                                 2001           2000          1999         2001     2000
                                                             --------------------------------------------------------------
Income before Operating Expenses..................           $    141,851  $   166,084   $    121,893     (14.6%)     36.3%
                                                             ==============================================================
</TABLE>
<PAGE>

     The  decrease in Income  before  Operating  Expenses  in 2001 is  primarily
attributable  to the  decrease  in sales  units  combined  with the  increase in
provision for loan losses,  which are  partially  offset by an increase in gross
margin on used cars sold and an increase in net  interest  income as  previously
discussed.  The  increase  in  income  before  operating  expenses  in 2000  was
attributable  to growth in the  number  of cars  sold and net  interest  income,
partially  offset by a decrease in gain on sale of loans and servicing and other
income.

Operating Expenses ($ in thousands, except per car sold amounts)
<TABLE>
<CAPTION>
                                                                                                                 % Change
                                                                                                            -------------------
<S>                                                       <C>              <C>               <C>             <C>      <C>
                                                               2001             2000              1999        2001      2000
                                                          ---------------- ----------------  --------------- -------- ---------
Operating Expenses ...............................        $      143,805   $        141,353  $     104,178        1.7%    35.7%
                                                          ================ ================  ================
Per Car Sold......................................        $        3,014   $          2,486  $       2,259       21.2%    10.0%
                                                          ================ ================  ================
As % of Total Revenue.............................                 25.2%              23.4%             22.7%
                                                          ================ ================  ================
</TABLE>

     Operating  expenses,  which  consist of  selling,  marketing,  general  and
administrative   and   depreciation/amortization   expenses   increased  due  to
non-recurring  expenses,  including  restructuring  charges of $2.5  million and
privatization  expenses  of  $1.6  million,  partially  offset  by  cost  saving
initiatives to reduce operating expenses in the year ended December 31, 2001. In
2001,  we also  wrote off notes  receivable  from two  officers  of the  Company
totaling  $1.0 million  including  accrued  interest  (see  Officer  Termination
Agreements  in Exhibits  10.38 and 10.39 and an  additional  discussion of these
agreements in Item  11-Executive  Compensation  - Contracts  With  Directors and
Executive Officers and Severance Agreements). The increase in Operating Expenses
on a per car sold basis in 2001 was primarily  due to the 16.1%  decrease in the
number of cars sold in 2001 in conjunction  with the increase in total Operating
Expenses.

     Operating expenses grew in 2000 due to the overall growth in the operations
of the  Company.  Increases  in  Operating  Expenses on a per car sold basis was
primarily a result of increases in salary and salary  related  expenses in 2000.
See additional discussion of operating expenses in Note (18) of the Consolidated
Financial Statements.

Other Interest Expense

     Other  Interest  Expense  increased to $11.2  million in 2001, up from $9.5
million in 2000.  Other  Interest  Expense  relates to Other  Notes  Payable and
Subordinated  Notes  Payable.  The average  outstanding  balance for Other Notes
Payable was $34.5  million in 2001 compared to $26.6 million in 2000. In January
2001, we renewed and increased the amount borrowed under the senior secured note
payable and in August 2001, we entered into a new $36 million  inventory line of
credit.  As of December 31, 2001,  the amount  borrowed under the inventory line
was $21 million and the  outstanding  balance on the senior secured note payable
increased from $11.1 million at December 31, 2000 to $26 million at December 31,
2001. The average  outstanding  balance of Subordinated  Notes Payable was $32.9
million in 2001 compared to $31.6 million in 2000.

     Other Interest Expense increased $6.5 million in 2000, up from $3.0 million
in 1999.  Interest  expense  arising  from our  subordinated  debt  totaled $9.5
million in 2000 and $3.0 million in 1999.  The increase was partially due to the
additional debt incurred in our stock exchange offer completed during the second
quarter of 2000 as well as a full year of  interest  expense on our $38  million
senior secured  credit  facility that we entered into in midyear 1999. A portion
of the  Subordinated  Notes  Payable  interest  expense  was  attributed  to the
financing of assets and activities reported as discontinued  operations.  As the
assets and activities of discontinued  operations diminished,  we did not retire
the  subordinated  notes  payable but rather used these  borrowings  to fund our
operations. Subordinated debt carries interest rates generally higher than those
charged on our collateralized borrowings or unsecured senior note.

Income Taxes

     Income Tax Benefit  totaled  $3.1  million for the year ended  December 31,
2001  compared to Income Taxes of $6.2  million for the year ended  December 31,
2000,  and $6.0 million for the year ended  December 31, 1999. Our effective tax
rate was 23.5% for the year ended  December 31,  2001,  40.6% for the year ended
December 31, 2000, and 40.9% for the year ended December 31, 1999.
<PAGE>

Earnings (Loss) from Continuing Operations before Extraordinary Item

     The Loss from  Continuing  Operations  before  Extraordinary  Item totaled
$10.0  million in 2001 compared to Earnings from  Continuing  Operations  before
Extraordinary Item of $9.1 million in 2000 and $8.7 million in 1999. The loss in
2001 was due  primarily  to the  decrease  in the number of used cars sold,  the
increase in  provision  for loan  losses,  the  privatization  expenses  and the
restructuring costs, partially offset by an increase in net interest income from
the continuing growth of our retained portfolio.

     The increase in Earnings from  Continuing  Operations in 2000 resulted from
an increase in the number of used cars sold, an increase in gross margin on used
cars  sold,  and an  increase  in net  interest  income  from the  growth of our
retained  portfolio  while  maintaining  or decreasing  operating  expenses as a
percent of total  revenues.  The  increase  in 2000 versus 1999 was offset by an
increase in the  provision for credit  losses  charged to current  operations as
previously mentioned.

Discontinued Operations

     Earnings from  Discontinued  Operations,  net of income tax  benefits,  was
break even in 2001 and in 2000,  and $.6  million  in 1999.  See Note (2) to the
Consolidated Financial Statements.

Business Segment Information

     We report our operations based on three operating segments.  These segments
are reported as Retail, Portfolio and Corporate.

     Operating Expenses for our business  segments,  along with a description of
the included  activities,  for the years ended December 31, 2001, 2000, and 1999
follows:

     Retail Operations. Operating expenses for our retail segment consist of our
marketing  efforts,  maintenance  and  development  of dealership and inspection
center sites, and direct  management of used car purchases,  reconditioning  and
sales  activities.  A  summary  of  retail  operating  expenses  follows  ($  in
thousands, except per car sold amounts):
<TABLE>
<CAPTION>

                                                                                                                % Change
                                                                                                      -----------------------------
<S>                                          <C>                  <C>               <C>               <C>             <C>
                                                   2001                2000               1999            2001           2000
                                             ------------------   ----------------  ----------------- -------------- --------------
Retail Expense:
Selling and Marketing..................          $       25,134      $      28,756      $      23,132        (12.6%)          24.3%
General and Administrative.............                  54,848             56,373             44,770         (2.7%)          25.9%
Depreciation and Amortization..........                   5,518              4,677              3,588          18.0%          30.4%
                                             ------------------   ----------------  -----------------
Retail Expense.........................          $       85,500      $      89,806      $      71,490         (4.8%)          25.6%
                                             ==================   ================  =================
Per Car Sold:
Selling and Marketing..................                     527                506                502           4.2%           0.8%
General and Administrative.............                   1,149                991                970          15.9%           2.2%
Depreciation and Amortization..........                     116                 82                 78          41.5%           5.1%
                                             ------------------   ----------------  -----------------
Total..................................          $        1,792      $       1,579      $       1,550          13.5%           1.9%
                                             ==================   ================  =================
</TABLE>

     Selling  and  marketing  expenses  as a percent  of  revenue  has  remained
relatively  constant since 1999. Although our number of used cars sold decreased
in 2001, this is partially offset by the increase in average selling price. On a
per car sold basis,  expenses have increased  primarily due to a decrease in the
number of used cars sold in 2001.  Additional  dealerships  in existing  markets
increased units sold and revenues to support the increased selling and marketing
costs in 2000.

     General and Administrative expenses decreased in 2001 from 2000 as a result
of numerous cost saving  initiatives.  On a per car sold basis,  these  expenses
have  increased  primarily  due to a  decrease  in the number of used cars sold.
General and  administrative  expenses increased from 1999 to 2000 primarily as a
result of growth in  operating  dealerships  and on a per car sold  basis  these
expenses  increased  primarily due to a rise in salary and related  costs.  As a
percent of used car sales revenue,  general and administrative expenses in 2001,
2000, and 1999 remained relatively stable,  primarily as a result of an increase
in average selling price.

     Portfolio Operations.  Operating expenses for our portfolio segment consist
of loan servicing and collection efforts,  securitization  activities, and other
operations  pertaining directly to the administration and collection of the loan
portfolio.  A summary of portfolio  operating  expenses follows ($ in thousands,
except expense per month per loan serviced):
<PAGE>
<TABLE>
<CAPTION>

                                                                                                             % Change
                                                                                                       ---------------------
<S>                                                <C>                <C>              <C>             <C>         <C>
                                                         2001              2000             1999         2001        2000
                                                   -----------------  ---------------- --------------- ----------  ---------
Portfolio Expense:
General and Administrative..................       $       31,822     $      27,005    $       12,337      17.8%      118.9%
Depreciation and Amortization...............                  970             1,128             1,141    (14.0%)      (1.1%)
                                                   -----------------  ---------------- ----------------
Portfolio Expense...........................       $       32,792     $      28,133    $       13,478      16.6%      108.7%
                                                   =================  ================ ================

Expense per Month per Loan Serviced.........       $        31.13     $       26.94    $        13.96
                                                    =================  ================================
Expense as % of EOP Managed
Principal Balances..........................                 6.4%              5.4%              3.2%
                                                   =================  ================ ================
</TABLE>

     Expenses per loan  serviced and as a percent of average  managed  portfolio
has increased year over year.  The increases in 2001 are primarily  attributable
to  additional  costs  associated  with  closing  two  of our  four  centralized
collection and loan servicing centers, and the rollout of many of our collectors
from the centralized  collection  centers and into the dealerships.  In 2001, we
closed our Clearwater, Florida and Tucson, Arizona collection and loan servicing
centers and,  consolidated their operations with our Dallas,  Texas and Gilbert,
Arizona facilities. In 2000, we moved the collectors that focus on the 1 to 30
day delinquent  accounts from our collection centers and located them at each of
our  dealerships.  In 2001,  we moved  collections  for  contracts 31 to 60 days
delinquent  from the  collection  centers  and placed  them at each  dealership.
Locating  collectors  physically at each dealership results in a lower number of
accounts per collector.  However,  we believe that the improved  collections and
customer  service  outweighs  the higher  costs  associated  with  decentralized
collections on accounts less than 1 to 60 days delinquent.

     Corporate Operations.  Operating expenses for our corporate segment consist
of costs to  provide  managerial  oversight  and  reporting  for Ugly  Duckling,
develop and implement  policies and  procedures,  and provide  expertise to Ugly
Duckling  in areas such as  finance,  legal,  human  resources  and  information
technology. A summary of corporate expenses follows ($ in thousands,  except per
car sold amounts):
<TABLE>
<CAPTION>

                                                                                                                   % Change
                                                                                                              --------------------
<S>                                                      <C>                <C>             <C>               <C>       <C>
                                                               2001              2000             1999          2001      2000
                                                         -----------------  --------------- ----------------- --------- ----------
Corporate Expense:
General and Administrative........................         $     22,489       $    20,154     $     16,991        11.6%      18.6%
Depreciation and Amortization.....................                3,024             3,260            2,219       (7.2%)      46.9%
                                                         -----------------  --------------- -----------------
Corporate Expense.................................         $     25,513       $    23,414     $     19,210         9.0%      21.9%
                                                         -----------------  --------------- -----------------
Per Car Sold......................................         $        535       $       412     $        417
                                                          =================  =============== =================
   As % of Total Revenues ........................                 4.5%              3.9%             4.1%
                                                         =================  =============== =================
</TABLE>

     Corporate   operating   expenses   increased  in  2001   primarily  due  to
non-recurring costs associated with the privatization and restructuring charges;
offsetting  these  increases were the numerous cost savings  initiatives in 2001
and the benefit of reduced ongoing costs from the  restructuring.  The reduction
in sales volume and revenues in 2001 amplified the increase in corporate expense
on a per car  sold  basis  and as a  percentage  of  total  revenues.  Operating
expenses related to our corporate  segment remained  relatively stable on both a
per car sold basis and as a percent of total  revenue in 2000  compared to 1999.
In 1999 and 2000 as new car dealerships were opened in existing markets, revenue
and units sold increased while expenditures related to infrastructure deployment
and support,  human resource activities and regulatory compliance increased at a
lesser rate.  As our retained  portfolio  increased,  there was a  proportionate
increase in net interest  income  thereby  significantly  improving the ratio of
corporate expenses to total revenues in 2000.
<PAGE>

Financial Position

     The following table represents key components of our financial  position ($
in thousands):
<TABLE>
<CAPTION>

                                            December 31,       December 31,       Percentage
                                                2001               2000             Change
                                          -----------------  ---------------- ---------------
<S>                                       <C>                 <C>               <C>
Total Assets                              $       647,657     $       652,121           (0.7%)


Inventory                                          58,618              63,742           (8.0%)
Other Assets                                       20,006              11,724           70.6%
Finance Receivables, Net                          495,254             500,469           (1.0%)
Net Assets of Discontinued Operations               3,899               4,175            6.6%


Total Debt                                        461,074             457,652            0.7%
Notes Payable - Portfolio                         377,305             406,551           (7.2%)
Other Notes Payable                                52,510              16,579          216.7%
Subordinated Notes Payable                         31,259              34,522           (9.5%)
Stockholders' Equity                              145,483             155,400           (6.4%)
</TABLE>

     Inventory. Inventory represents the acquisition and reconditioning costs of
used cars  located at our  dealerships  and our  inspection  centers.  Inventory
levels are typically  higher at year-end in preparation  for the strong seasonal
sale  period  during the first and second  quarters  of the year.  We  generally
acquire  our used car  inventory  from  three  sources:  approximately  55% from
wholesalers,  40% from auctions and 5% from new car dealerships. The decrease in
inventory  balance from 2000 to 2001 is based on lower  projected  sales for the
first quarter of 2002  compared to the first  quarter of 2001. In addition,  our
inventory  allowance  increased for  obsolescence  and wholesale  losses by $1.2
million.

     Other  Assets.  The  increase in Other  Assets  consists  primarily of cash
deposited  into an escrow  account in January 2001 as additional  collateral for
the senior secured note payable secured by the B-pieces of our  securitizations.
The cash  collateral  is released  pro rata as the senior  secured  note payable
balance is  reduced.  The  initial  cash  deposit  was $7.0  million  and, as of
December 31, 2001,  it has been reduced to $5.4  million.  In December  2001, we
purchased  residual  interests in 8  securitization  trusts from First Merchants
Acceptance  Corporation  ("FMAC")  for a price of $2.6  million.  Officer  notes
receivable from two officers totaling $1.0 million were written off in 2001. See
Exhibit 10.38 and 10.39 for the employee  termination  agreements and additional
discussion in Item  11-Executive  Compensation  - Contracts  With  Directors and
Executive Officers and Severance Agreements.
<PAGE>

    Finance Receivables, Net

    A summary of Finance Receivables, Net follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                    December 31,
                                                       ----------------------------------------
                                                              2001                  2000
                                                       -------------------    -----------------
     <S>                                               <C>                    <C>
     Contractually Scheduled Payments..................   $     694,572         $     696,220
     Unearned Interest Income..........................       (179,873)             (181,274)
                                                       -------------------    -----------------
     Principal Balances, net...........................         514,699               514,946
     Accrued Interest..................................           5,824                 5,655
     Loan Origination Costs............................           6,635                 7,293
                                                       -------------------    -----------------
     Principal Balances, net...........................         527,158               527,894
     Investments Held in Trust.........................          69,996                71,139
     Residuals in Finance Receivables Sold.............              -                 1,136
                                                       -------------------    -----------------
     Finance Receivables...............................         597,154               600,169
     Allowance for Credit Losses.......................       (101,900)              (99,700)
                                                       -------------------    -----------------
     Finance Receivables, net..........................   $     495,254         $     500,469
                                                       ===================    =================
     Allowance as % of Ending Principal Balances, net             19.8%                 19.4%
                                                       ===================    =================
</TABLE>

     Net  Finance  Receivables  remained  relatively  unchanged  in  2001 as new
originations  approximated the portfolio runoff  consisting of regular principal
payments, payoffs and charge offs.

     The following  table reflects  activity in the Allowance for Credit Losses,
as well as  information  regarding  charge  off  activity,  for the years  ended
December 31, 2001 and 2000 ($ in thousands):
<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                                                            -------------------------------------
                                                                  2001                2000
                                                            -----------------   -----------------
<S>                                                         <C>                 <C>
Allowance Activity:
Balance, Beginning of Period......................          $          99,700   $          76,150
Provision for Credit Losses.......................                    151,071             141,971
Other Allowance Activity..........................                      (133)             (2,666)
Net Charge Offs...................................                  (148,738)           (115,755)
                                                            -----------------   -----------------
Balance, End of Period............................          $         101,900   $          99,700
                                                            =================   =================
Allowance as % Ending Principal Balances..........                     19.8%                19.4%
                                                            =================   =================
Charge off Activity:
Principal Balances................................          $       (187,149)   $       (149,734)
Recoveries, Net...................................                     38,411              33,979
                                                            -----------------   -----------------
Net Charge Offs...................................          $       (148,738)   $       (115,755)
                                                            =================   =================
</TABLE>

     The Allowance for Credit Losses  increased  $2.2 million as of December 31,
2001 related primarily to originations prior to 2001 that are emerging at higher
loss  levels than  previously  estimated  due to the  effects of the  recession.
Offsetting  these higher loss rates on older  originations  are new originations
since the 1st quarter of 2001 that are performing better than prior years due to
the implementation of higher credit standards as previously discussed.

     Even though a loan is charged off, we continue with  collection  efforts on
the loan.  Recoveries  as a percentage  of principal  balances  charged off from
dealership  operations  averaged  20.5% for the year  ended  December  31,  2001
compared to 22.7% for the year ended  December 31, 2000. The change from 2000 to
2001 can be attributed  to lower auction  prices for vehicles due to the effects
of the  recession  and the  impact  of the  September  11th  terrorist  attacks.
Decreasing  sales volumes for used car dealers  resulted in dealers buying fewer
cars at auction,  which had a negative  effect on auction prices and an increase
in supply.

     The  Allowance  for  Credit  Losses  is  maintained  at  a  level  that  in
management's  judgment  is adequate to provide  for  estimated  probable  credit
losses  inherent  in our retail  portfolio  over the next  twelve  months and is
reviewed on an ongoing  basis.  See  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations - Static Pool Analysis" below.

     Net  Assets of  Discontinued  Operations.  See Note (2) of the Notes to the
Consolidated Financial Statements included herein.
<PAGE>

     Total Debt.  Total Debt is  comprised of Notes  Payable - Portfolio,  Other
Notes Payable and  Subordinated  Notes Payable.  We finance the increases in our
loan portfolio and other assets primarily through additional  borrowings through
our warehouse line, additional securitizations and our inventory line of credit.
See "Management's  Discussion and Analysis of Financial Conditions and Operation
- Financing Resources" below.

     Notes  Payable -  Portfolio.  Notes  Payable -  Portfolio  consists  of our
warehouse  line and  securitizations.  The decrease in 2001 was primarily due to
the decrease in the  borrowings on our warehouse  line as a result of adding new
borrowings  through a $36 million inventory line of credit. The inventory credit
line is included in Other Notes Payable at December 31, 2001.

     Other Notes Payable - The increase in Other Notes Payable was primarily due
to the new $36 million  inventory  line of credit in August  2001,  as mentioned
above,  and the January 2001 renewal and  increased  amount  borrowed  under the
senior  secured note payable to an  unrelated  party  secured by B-pieces of the
securitizations.  As of  December  31,  2001,  the  amount  borrowed  under  the
inventory line was $21 million and the outstanding balance on the senior secured
note payable was  increased  from $11.1  million at December  31,  2000,  to $26
million at December 31, 2001.

     Subordinated Notes Payable - The decrease in Subordinated Notes Payable was
primarily due to the repurchase of  approximately  $3.6 million of  subordinated
debentures  issued  in  connection  with our 1998  stock  exchange  offer and by
principal payments of $6.5 million made on our senior subordinated note payable,
partially  offset  by  the  $7  million   subordinated  note  payable  to  Verde
Investments,  Inc., an affiliate of Mr. Garcia, entered into in January 2001 and
which was paid down to $5.4 million at December 31, 2001.  Other  decreases  are
primarily due to the  amortization of capitalized  loan fees. See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Financing Resources."

Stockholders' Equity. See the Consolidated  Financial Statements included herein
- Consolidated Statement of Stockholders' Equity.

Static Pool Analysis

     We use a "static pool"  analysis to monitor  performance  for loans we have
originated at our dealerships. In a static pool analysis, we assign each month's
originations  to a  unique  pool  and  track  the  charge  offs  for  each  pool
separately.  We  calculate  the  cumulative  net charge  offs for each pool as a
percentage of that pool's original  principal  balances,  based on the number of
complete  payments  made by the  customer  before  charge  off.  The table below
displays the cumulative net charge offs of each pool as a percentage of original
loan cumulative  balances,  based on the quarter the loans were originated.  The
table is further  stratified  by the number of  payments  made by our  customers
prior to charge off.  For periods  denoted by "x",  the pools have not  seasoned
sufficiently to allow us to compute  cumulative  losses.  For periods denoted by
"-",  the pools have not yet  reached the  indicated  cumulative  age.  While we
monitor  static  pools on a monthly  basis,  for  presentation  purposes  we are
presenting the information in the table below on a quarterly basis.

     Currently  reported  cumulative  losses  may  vary  from  those  previously
reported for the reasons listed below;  however,  management  believes that such
variation will not be material:

     o    ongoing collection efforts on charged off accounts, and
     o    the  difference  between  final  proceeds  on the sale of  repossessed
          collateral versus our estimates of the sale of proceeds.

     The following  table sets forth as of February 28, 2002, the cumulative net
charge offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed  by customers  before  charge off. The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).
<PAGE>

          Pool's Cumulative Net Losses as Percentage of Pool's Original
                           Aggregate Principal Balance
                                 (In thousands)
<TABLE>
<CAPTION>


                                 Monthly Payments Completed by Customer Before Charge Off
                            Orig.         0          3         6         12        18         24       TLI    Reduced
                            -----         -          -         -         --        --         --       ---    -------
   <S>                  <C>          <C>        <C>       <C>       <C>        <C>       <C>       <C>      <C>
   1993                   $12,984      8.8%      21.4%     27.6%      32.8%     34.8%      35.3%     36.8%     100.0%
   1994                   $23,589      5.3%      14.6%     19.6%      25.2%     27.5%      28.2%     28.8%     100.0%
   1995                   $36,569      1.9%       8.1%     13.1%      19.0%     22.1%      23.4%     24.1%     100.0%
   1996                   $48,996      1.5%       8.1%     13.9%      22.1%     26.2%      27.9%     28.9%     100.0%
   1997
   1st Quarter            $16,279      2.1%      10.7%     18.2%      24.8%     29.8%      32.0%     33.5%     100.0%
   2nd Quarter            $25,875      1.5%       9.9%     15.8%      22.7%     27.3%      29.4%     30.6%     100.0%
   3rd Quarter            $32,147      1.4%       8.3%     13.2%      22.4%     26.9%      29.1%     30.6%     100.0%
   4th Quarter            $42,529      1.4%       6.8%     12.6%      21.8%     26.0%      28.7%     29.9%     100.0%
   1998
   1st Quarter            $69,708      0.9%       6.9%     13.4%      20.8%     26.3%      28.7%     29.9%     100.0%
   2nd Quarter            $66,908      1.1%       8.0%     14.2%      21.7%     27.2%      29.1%     30.1%     100.0%
   3rd Quarter            $71,027      1.0%       7.9%     13.2%      22.9%     27.6%      30.1%     30.9%     100.0%
   4th Quarter            $69,583      0.9%       6.6%     13.0%      24.2%     28.9%      31.3%     32.2%      99.8%
   1999
   1st Quarter           $103,068      0.8%       7.4%     15.0%      23.4%     29.3%      31.5%     32.8%      99.2%
   2nd Quarter            $95,768      1.1%       9.8%     16.6%      25.2%     31.3%      33.6%     34.7%      97.3%
   3rd Quarter           $102,585      1.0%       8.2%     14.1%      25.2%     30.7%      33.5%     34.6%      94.4%
   4th Quarter            $80,641      0.7%       5.9%     12.6%      23.5%     28.9%      x         32.4%      90.1%
   2000
   1st Quarter           $128,123      0.3%       6.5%     14.5%      24.1%     30.3%      -         33.3%      84.6%
   2nd Quarter           $118,778      0.6%       8.5%     15.9%      25.9%     x          -         33.8%      77.9%
   3rd Quarter           $124,367      0.7%       7.7%     14.3%      25.8%     -          -         31.8%      69.6%
   4th Quarter           $100,823      0.6%       6.6%     13.6%      x         -          -         28.2%      60.0%
   2001
   1st Quarter           $126,013      0.4%       6.4%     14.2%      -         -          -         23.6%      50.0%
   2nd Quarter           $103,521      0.5%       6.3%     x          -         -          -         16.0%      36.1%
   3rd Quarter           $109,037      0.7%       x        -          -         -          -          6.9%      19.9%
   4th Quarter            $87,355      x          -        -          -         -          -          1.9%       4.9%
</TABLE>



<PAGE>



     The  following  table sets forth the  principal  balances  delinquent  as a
percentage  of  total  outstanding  loan  principal   balances  from  dealership
operations.
<TABLE>
<CAPTION>

                                                                   December 31,
                                                          --------------------------------
                                                                2001           2000
                                                          --------------------------------
<S>                                                       <C>              <C>
         Days Delinquent:
         Current...........................................        64.5%          66.1%
         1-30 Days.........................................         26.2           26.1
         31-60 Days........................................          5.6            4.7
         61-90 Days........................................          3.7            3.1
                                                          --------------------------------
         Total Portfolio...................................       100.0%         100.0%
                                                          ================================
</TABLE>

     In  accordance  with our charge off policy,  no accounts  were more than 90
days delinquent as of December 31, 2001 and 2000. The increase in  delinquencies
as of  December  31,  2001 are the  result of the  recession  combined  with the
effects  of the  September  11  disaster,  both of which  contributed  to higher
unemployment.  Partially  offsetting  the  negative  impact  of the  economy  on
delinquencies  are the  positive  effects  of higher  credit  standards  and the
improved  credit quality mix of originations in the 2nd, 3rd and 4th quarters of
2001. The  delinquencies  for  originations  in the 2nd, 3rd and 4th quarters of
2001 are lower at December 31, 2001 than  delinquencies for originations for the
2nd, 3rd and 4th quarters of 2000 were at December 31, 2000, notwithstanding the
recession.

     Although loan losses on recently  originated  loan pools indicate  improved
loan performance  over those loan pools originated in prior years,  based on our
review of delinquency  trends,  historical loan losses and projected charge offs
for the entire on balance sheet portfolio, we increased our provision for credit
losses,  effective  with  loans  originated  during  2001 to 35.4% of the amount
financed versus 30.1% in 2000. The Company's  policy is to maintain an Allowance
for all loans in its portfolio to cover  estimated net  charge-offs for the next
twelve months. Our loans have experienced  lifetime net losses in the 31% to 34%
range for the past few years.  With  origination  growth  over this time we have
been able to maintain an adequate  Allowance in accordance with GAAP and Company
policy by providing between 27% and 31% of the amount financed. However, in 2001
the  volume  of  portfolio   originations   decreased   from  2000  due  to  the
implementation  of higher  credit  standards  and the effects of the  recession.
Recent period  originations  are performing  better than prior years' due to the
implementation  of higher credit standards and improved  inventory as previously
discussed. However, prior year originations are performing at loss levels higher
than  previously  estimated  due to the  recession.  As a  result  of all  these
factors,  the  Provision for Credit Losses was increased to $151 million in 2001
compared  to $142  million  in  2000.  The  Allowance  as a  percentage  of loan
principal is 19.8% at December 31, 2001,  up from 19.4% at December 31, 2000. An
increase in the  Provision as a percentage  of loan  originations  was needed in
order to maintain an adequate Allowance.

Securitizations

     Under the current legal structure of our  securitization  program,  we sell
loans to our subsidiaries that then securitize the loans by transferring them to
separate   trusts  that  issue  several   classes  of  notes  and   certificates
collateralized by the loans. The  securitization  subsidiaries then sell Class A
notes or certificates  (Class A obligations or Notes Payable) to investors.  The
subordinate  classes  are  retained  by us or our  subsidiaries.  We continue to
service the securitized loans.

     The  Class  A  obligations  have  historically  received  investment  grade
ratings.  To secure the payment of the Class A obligations,  the  securitization
subsidiaries  have obtained an insurance policy from MBIA Insurance  Corporation
that  guarantees  payment of amounts to the holders of the Class A  obligations.
Additionally,  we also establish a cash "reserve" account for the benefit of the
Class  A  obligation  holders.  The  reserve  accounts  are  classified  in  our
consolidated  financial  statements  as  Investments  Held  in  Trust  and are a
component of Finance Receivables, Net.

     Reserve Account Requirements.  Under our current securitization  structure,
we make an initial cash deposit into a reserve account,  generally equivalent to
3.0%-6.0% of the initial underlying Finance Receivables  principal balance,  and
pledge this cash to the reserve account agent. The trustee then makes additional
deposits  to  the  reserve   account  out  of  collections  on  the  securitized
receivables as necessary to fund the reserve account to a specified  percentage,
historically  ranging from 8.0% to 11.0%, of the underlying Finance Receivables'
principal balance. The trustee makes distributions to us when:

<PAGE>

     o    the reserve account balance exceeds the specified percentage,
     o    the required periodic payments to the Class A certificate  holders are
          current,
     o    the portfolio  charge off and  delinquency  triggers are not exceeded,
          and
     o    the trustee, servicer and other administrative costs are current.

     Due to the impact of the  recession,  the events of September  11th and the
poor auction recovery market at year end 2001, three of our trusts, 2000B, 2000C
and 2001A, reached termination event charge-off levels for the month of December
2001, and one trust,  1999C,  reached a termination  event  delinquency level in
January  2002,  that  triggered  an  acceleration  of rights  for MBIA under the
Insurance Agreements of the respective trusts. These rights include, among other
things, the ability to transition servicing on these trusts to a third party and
accelerate the cash flow to the A bondholders until they have been paid in full.
These trusts  reached  these levels only for the month  indicated  and have been
under these levels since then. We continue to trap cash in the reserve  accounts
of these trusts related to these breaches in charge-off and delinquency  levels.
MBIA has retained  their rights under these  breaches,  but based on discussions
with MBIA,  we believe the Company will continue to function as the servicer for
these trusts.  Further, based on our discussions with MBIA, we believe that when
these trusts are below the performance  triggers for two consecutive months MBIA
will  allow us to begin  releasing  cash in excess of the  greater  of a reserve
account level of 20% of the outstanding Finance Receivables principal balance or
4% of the original Finance  Receivable  principal  balances.  Based upon current
trust performance,  we believe these trusts will begin releasing cash in the 2nd
and 3rd quarters of 2002. We expect to repurchase  the 1999C trust in April 2002
and as a result all of the cash in the reserve  account  will be released to the
Company.

     In addition,  the impact of the recession and the events of September 11th,
also caused us to reach a portfolio  event  delinquency  level in 2000A that has
triggered the right of MBIA to trap cash until higher reserve account levels are
met or the  delinquencies  fall below the required  levels.  As a result,  trust
2000A is required to trap cash to the greater of 16% of the outstanding  Finance
Receivable  principal balance or 3% of the original Finance Receivable  balance.
As of December 31, 2001,  the 2000A  reserve  account  totaled 15.1% of the then
outstanding Finance Receivable balance, and in January 2002 began releasing cash
in excess of the reserve account levels. This breach is self-curing and once the
trust  delinquency and charge-off  levels are below the performance  tests,  the
reserve  balance  requirement  will  return to the  normal  specified  level and
release all cash to the Company to that level. No additional  waiver or approval
is required for this process.

     We expect to complete in early April 2002 our first  securitization  of the
year, 2002A,  with MBIA providing the insurance in the transaction.  As a result
of the higher than normal  delinquency and charge-off levels reached as a result
of  the  events  mentioned  above,  MBIA  has,  as  a  condition  of  the  2002A
transaction,  requested an additional  enhancement of $2.5 million, in an escrow
account,  to protect  them from any  potential  losses on any  currently  active
trusts.

     We have mutually agreed with MBIA to further diversify our lending sources,
a process that we initiated in 2001 with our  inventory  and  warehouse  lending
facilities, and as a result we expect that our next securitization, after 2002A,
will not be insured or we will engage a different insurer for that transaction.
<PAGE>

     Certain Financial Information Regarding Our Securitizations

     The following table summarizes certain financial information and attributes
     of our securitizations:
<TABLE>
<CAPTION>

  (In thousands, except for securitizations completed)                      2001               2000               1999
                                                                       --------------     --------------     --------------
  <S>                                                                  <C>                <C>                <C>
  Number of Securitizations Completed                                          3                  3                  3
  Principal Balances Securitized - Retained by Company and
     Recorded as Finance Receivables.............................      $      404,800     $      443,000     $      359,700
  Class A Obligations Issued - Retained by Company and Recorded
     as Notes Payable ...........................................      $      288,000     $      314,500     $      257,800
  Weighted Average Yield of Class A Obligations .................                4.4%               7.1%               6.3%
  Range of Yields for Class A Obligations........................         3.4% - 5.1%        6.8% - 7.3%        5.7% - 6.8%
  Average Net Spreads (after fees and expenses)..................               19.3%              16.9%              17.6%
  Range of Net Spreads (after fees and expenses).................       18.8% - 20.0%      16.7% - 17.1%      17.1% - 18.2%
</TABLE>
<PAGE>

Liquidity and Capital Resources

     In recent periods,  our needs for additional capital resources have leveled
as we slowed the growth of our business. We require capital for:

     o    investment in our loan portfolio,
     o    working capital and general corporate purposes,
     o    the purchase of inventories, and
     o    the purchase of property and equipment.

    We fund our capital requirements primarily through:

o   operating cash flow,                   o   our inventory line, and
o   securitization transactions,           o   supplemental borrowings.
o   our revolving warehouse facility,

     In 2001, we reached  historic highs for liquidity  primarily as a result of
several  factors,  including  our decision in the prior year to slow our growth,
slower sales and resulting inventory purchases,  and the successful  negotiation
of  three  credit  facilities  totaling  $171  million  in  2001.  These  credit
facilities  included the renewal of our senior  secured loan facility in January
2001, for $35 million, the new warehouse credit facsility with Greenwich Capital
in April 2001, for up to $100 million and the new inventory credit facility with
Auto  Finance  Corporation  that  closed in August  2001,  for $36  million.  At
December 31, 2001, we had approximately  $21.0 million outstanding under our $36
million  inventory line and  approximately  $38.2 million  outstanding under our
$100 million warehouse facility.

     For  2002,  we  also  believe  we  will  have  adequate  liquidity  for our
operations,    notwithstanding   the   termination   events   under   the   four
securitizations  discussed  above.  We expect to close our first  securitization
transaction  of 2002,  insured by MBIA, in April and believe we will continue to
be able to  securitize  our loan pools  throughout  the year. We expect that our
second  securitization  in 2002  either will not be insured or we will engage an
insurer other than MBIA for that  transaction.  In March of 2002, we renewed our
$100 million warehouse credit facility for an additional 364 day period in March
of 2002 and have begun  preliminary  negotiations  on  renewing  our $35 million
senior secured loan facility. This $35 million facility,  which has been reduced
to $26 million outstanding as of December 31, 2001, matures in February 2003. If
it is not  renewed,  then  starting  in  October  2002,  the  regular  principal
reductions increase from the current $1.0 million per month up to the greater of
$3.0  million  per month or 50% of the cash flows from  classes of notes  issued
through  securitizations  that are  subordinate to Class A bonds.  Our inventory
facility does not expire until June of 2003.

     As a result of the termination  events and portfolio event described above,
residual cash  otherwise  available to us is being trapped for five of our seven
securitization  trusts. The cash reserve levels for the four trust that have hit
termination events (1999C, 2000B, 2000C and 2001A) are expected to increase $5.5
million, from $22.4 Million at December 31, 2001, to approximately $27.9 million
during  2002,  and then begin  releasing  cash.  We expect to buy back the 1999C
trust in April 2002,  generating  cash flow of  approximately  $4.7 million.  In
addition,  we expect that the reserve  accounts for 2000B,  2000C and 2001A will
either return to normal levels in the 3rd and 4th quarters of 2002 or the trusts
will be bought back by us,  resulting in the release of these cash  reserves and
generating additional cash flow. Furthermore,  the portfolio event trust, 2000A,
had trapped  sufficient cash by January 2002 so that it began  releasing  excess
cash in  January  2002.  We expect the trust to be below all  performance  level
events in 2002,  allowing for the release of additional cash from that trust. As
a result  of these  events  and as  previously  discussed,  we will also make an
additional  $2.5  million  deposit in escrow as  additional  collateral  for our
securitizations in conjunction with our 2002A  securitization.  We do not expect

<PAGE>

the  cumulative  effect of these events and the  trapping of cash to  materially
impatct our ability to adequately  fund our operations in 2002.  However,  if we
experience  adverse trends in  delinquencies or charge-offs, or we are unable to
renew our senior term  facility or are unable to securitize  our loan pools,  it
could have a  material  adverse  impact on our  liquidity.  See "Risk  Factors -
Securitization Transactions."


Cash Flow

     Net Cash Provided by Operating Activities decreased by $26.2 million in the
year ended  December  31,  2001 to $163.3,  down from cash  provided in the year
ended  December  31,  2000 of  $189.5  million.  The  decrease  in 2001  was due
primarily  to the net loss of $9.7  million in 2001  compared to net earnings of
$9.1 million in 2000, and a decrease in accrued liabilities, offset partially by
an  increase in the  provision  for credit  losses and a decrease  in  inventory
levels due to lower  anticipated  sales  volumes for 2002.  Net Cash Provided by
Operating  Activities  increased by $61.4 million in the year ended December 31,
2000 to $189.5  million,  compared to $128.1  million at December 31, 1999.  The
increase in 2000 was due primarily to consistent  inventory levels at the end of
2000 and 1999, an increase in the provision for credit  losses,  and an increase
in accrued  liabilities,  offset by a decrease in the net  current and  deferred
income taxes payable.

     Net Cash Used in  Investing  Activities  decreased  by $127.5  million,  to
$155.1 million in the year ended December 31, 2001 compared to $282.6 million in
2000.  The  decrease  is due  primarily  to a decrease  in  finance  receivables
originated  due to lower sales  volumes,  an increase in  collections on finance
receivables  due to a higher  beginning of the year  receivable  balance in 2001
compared to 2000 and a decrease in purchases of property  and  equipment  due to
not adding  dealership  locations  in 2001,  partially  offset by a decrease  in
investments  held in trust. Net Cash Used in Investing  Activities  decreased by
$70.3 million to $282.6  million in the year ended December 31, 2000 compared to
$352.9  million  in  1999.  The  decrease  was  due in part  to an  increase  in
collections on finance receivables, a decrease in investments held in trust, and
a decrease in cash  advanced  under  notes  receivable,  partially  offset by an
increase in finance  receivables  due to growth in  revenues  and an increase in
purchases of property and equipment.

     Net Cash (Used in)  Provided by  Financing  Activities  decreased  by $78.5
million,  to $8.7 million used in the year ended  December 31, 2001  compared to
$69.8 million  provided in 2000.  The decrease is primarily due to a decrease in
funds  received from  additions to portfolio  notes payable due to a decrease in
the amounts  securitized as a result of lower  originations in 2001, an increase
in repayments of notes payable due to a higher  beginning of the year balance in
notes payable in 2001 compared to 2000, an increase in repayments of other notes
payable  related  primarily  to pay  downs on the  senior  secured  note and the
inventory line,  increased  repayments of subordinated  notes payable related to
the  regularly  scheduled  repayments  on  the  senior  subordinated  notes  and
repurchase of a portion of the subordinated  debentures as part of a stock offer
exchange.  Offsetting  these  were  increases  in  additional  collections  from
investments  held in trust due to higher  average  finance  receivables in 2001,
additions  to  other  notes  payable  consisting  primarily  of draws on the new
inventory line and an increase in the senior  secured note payable,  no treasury
stock  acquisitions in 2001, and a decrease in initial deposits into investments
held in trust due to lower initial  reserve  account  balances  required for the
2001  securitizations.  Net Cash Provided by Financing  Activities  decreased by
$82.4 million to $69.8  million in the year ended  December 31, 2000 compared to
$152.2  million in 1999. The decrease was primarily due to increases in payments
on portfolio  notes  payable and a decrease in funds  received  from other notes
payable,  offset by an increase in funds received from  portfolio  notes payable
due to larger securitization transactions in 2000.

Financing Resources

     Revolving  Facility.  In April 2001, we replaced our warehouse  receivables
facility and in August 2001, we replaced our inventory  facility.  Both lines of
credit were previously with GE Capital.

     Our new revolving  warehouse  facility is with Greenwich  Capital Financial
Products,  Inc. and was renewed for an  additional  364-day  term through  March
2003.  The facility  allows for maximum  borrowings  of $100 million  during the
entire  renewed term, as compared to $75 million during the period May 1 through
November 30  increasing  to $100  million  during the period  December 1 through
April 30 under the initial  term.  In addition,  the 65% cap on the advance rate
was removed and the  calculation  of the warehouse  advance  relative to the net
securitization  advance was  improved by 2%. The lender  maintains  an option to
adjust the advance  rate to reflect  changes in market  conditions  or portfolio
performance. The interest rate on the facility is LIBOR plus 2.80%. The facility
is secured with  substantially  all Company  assets.  At December 31, 2001,  the
Company was not in compliance with the interest  coverage ratio,  debt to EBITDA
ratio and the gross  margin  ratio  covenants  of this  facility  and received a
waiver from the lender.  The Company was in compliance  with all other  required
covenants.

     The new  revolving  inventory  facility is for $36 million,  an $11 million
increase from the prior facility,  and expires in June of 2003. Advance rates on
inventory  purchased range from 80% to 100% of the purchase price.  The interest
rate on the  facility is Prime plus  6.00%.  The  facility  is secured  with the
Company's  automobile  inventory.  At December 31, 2001,  the Company was not in
compliance with the interest coverage ratio covenant of this facility and was in
default due to the trusts  termination  events,  and  received a waiver from the
lender  for  both.  The  Company  was in  compliance  with  all  other  required
covenants.
<PAGE>

     Securitizations.  Our  securitization  program  is a primary  source of our
working  capital.  Securitizations  generate  cash  flow for us from the sale of
Class A obligations,  ongoing servicing fees, and excess cash flow distributions
from  collections  on the  loans  securitized  after  payments  on the  Class  A
obligations,  payment of fees,  expenses,  and insurance premiums,  and required
deposits to the reserve accounts.

     Securitization  also  allows us to fix our cost of funds  for a given  loan
portfolio.  See "Management's Discussion and Analysis of Financial Condition and
Results of  Operations--Securitizations"  for a more complete description of our
securitization program.

Supplemental Borrowings

     Senior  Subordinated  Notes. In February 1998, we borrowed a total of $15.0
million of subordinated debt from unrelated third parties for a three-year term.
We issued  warrants to the lenders of this debt to purchase up to 500,000 shares
of our common stock at an exercise price of $10.00 per share, exercisable at any
time  until the later of  February  2001,  or when the debt is paid in full.  On
September 30, 2000, the Loan Agreement,  Warrants and Warrant Agreements between
us and certain  Lenders under this Loan  Agreement,  were amended to: reduce the
outstanding principal balance under the Loan Agreement from $15 million to $13.5
million; require us to take out one of the lenders in the facility by paying off
that lender's $1.5 million  share of the loan (which  occurred),  and cancel the
number  of  outstanding  warrants  attributable  to that  portion  of the  loan;
increase the interest rate under the Loan  Agreement to 15%;  extend the term of
the Loan  Agreement  to February  12,  2003;  and provide for the  repayment  of
principal and the  corresponding  reduction of warrants  under certain terms and
conditions.  This debt is senior to the  subordinated  debentures  issued in our
exchange offers (described below),  subordinate to our other  indebtedness,  and
had a $5.0 million  balance at December 31, 2001.  With the closing of the going
private transaction, the warrants terminated.

     In May 1999,  we borrowed  approximately  $38.0  million  from an unrelated
party for a term of two years maturing on May 1, 2001 (Residual  Loan). The note
called for  monthly  principal  payments  of  generally  not less than  $800,000
through May 2000 and not less than $1.7 million  thereafter,  plus interest at a
rate equal to LIBOR plus 550 basis points. The loan balance was $11.1 million at
December 31, 2000. In January 2001, we entered into a $35 million senior secured
loan facility as a renewal for this facility.  The new facility has a term of 25
months.  We must make  principal  payments of $1.0  million per month from April
2001,  through  Sepetember  2003.  Thereafter  through  maturity,  the agreement
requires minimum payments of the greater of $3.0 million per month or 50% of the
cash  flows  from  classes  of  notes  issued  through  securitization  that are
subordinate to the Class A bonds.  Interest is payable monthly at LIBOR plus 600
basis  points.  The balance on this note was $26.0 million at December 31, 2001.
The new loan,  like the previous  loan,  is secured by our  Residuals in Finance
Receivables  Sold and certain  Finance  Receivables.  At December 31, 2001,  the
Company was not in compliance with the minimum capital base and minimum interest
coverage covenants of this facility,  and received a waiver from the lender. The
Company was in compliance with all other required covenants.

     As a condition  to the $35 million  senior  secured loan  agreement,  Verde
Investments,  Inc. ("Verde"), an affiliate of Mr. Garcia, was required to invest
$7 million in us through a subordinated loan. The funds were placed in escrow as
additional collateral for the $35 million senior secured loan. The funds were to
be released in July 2001 if, among other conditions, the Company had at least $7
million in pre-tax  income  through June of 2001 and, at that time,  Mr.  Garcia
would have guaranteed 33% of the $35 million facility.  The Company did not meet
this pre-tax income  requirement  for the first six months of 2001. Per the loan
agreement,  Mr. Garcia was entitled to receive warrants from the Company for 1.5
million shares of stock, vesting over a one-year period, at an exercise price of
$4.50  subject to certain  conditions.  However,  due to the  completion  of the
privatization and merger, the right to receive warrants ceases to exist. Also as
consideration  for the loan,  the Company  released all options to purchase real
estate that were then owned by Verde and leased to the Company.  We also granted
Verde the option to purchase,  at book value,  any or all  properties  currently
owned by the  Company,  or  acquired  by the  Company  prior to the  earlier  of
December  31,  2001,  or the date the loan is repaid.  Verde agreed to lease the
properties back to the Company,  on terms similar to our current  leases,  if it
exercised its option to purchase any of the properties.  In December 2001, Verde
exercised  its right to  purchase  from,  and  lease  back to the  Company,  six
properties having a net book value of approximately $6.7 million.  This purchase
and leaseback  transaction closed in January, 2002 for six properties located in
Texas, Virginia and California.

     The $7  million  subordinated  loan  from  Verde  is  secured  by  residual
interests in the Company's securitization transactions but is subordinate to the
senior secured loan facility.  The loan requires  quarterly interest payments at
LIBOR plus 600 basis  points and is  subject to pro rata  reductions  if certain
conditions are met. An independent committee of the Company's board reviewed and
negotiated the terms of this  subordinated loan and the Company also received an
opinion from an investment  banker,  which deemed the loan fair from a financial
point of view both to the Company's shareholders and the Company. The balance of
the note with Verde was $5.4 million at December 31, 2001.

     Sale-Leaseback  of Real  Property.  In March 1998, we executed an agreement
with an unrelated  investment  company for the sale and leaseback of up to $37.0
million in real  property.  We sold  certain  real  property  to the  investment
company for its original cost and leased back the properties for an initial term

<PAGE>

of twenty years.  We have the right to extend the leases for up to an additional
20 years.  We pay monthly rents of  approximately  one-twelfth  of 10.75% of the
purchase  price plus all  occupancy  costs and taxes.  The  agreement  calls for
annual  increases  in monthly  rent to 11.0% of the  purchase  price in 1999 and
thereafter  in  accordance  with  increases in the Consumer  Price Index.  As of
December 31, 2000, we had sold 17 properties for a total price of  approximately
$27.4 million under this arrangement.  For the reason discussed in the following
paragraph,  we do not anticipate closing any additional  transactions under this
agreement.  We used substantially all of the proceeds from the sales to pay down
debt.

     In December 1999, Verde acquired at a 10% discount,  all 17  sale-leaseback
properties  sold to the  unrelated  investment  company in 1998. We acquired the
option to purchase these properties at Verde's purchase price at anytime through
December 31, 2000.  Under the terms of the sale of Cygnet Dealer to an affiliate
of Mr. Garcia in December  1999, the term of the option was extended and the new
option was  scheduled  to expire  simultaneously  with our receipt of payment in
full of the $12 million note  receivable  arising from the sale of Cygnet Dealer
or December 31, 2000, whichever comes later. We relinquished this option as part
of the  consideration  for the $7 million  Verde  loan  described  above.  As of
December 31, 2001, the note receivable balance remains at $12 million.

     In May 2001, Verde purchased one of the Company  properties in Atlanta,  GA
at its book value of approximately  $1.7 million.  Verde has leased the property
back to the Company under a 20-year lease,  which expires May 2021. The lease is
on terms consistent with the other sale-leaseback leases.

     1998  Exchange   Offer.   In  the  fourth  quarter  of  1998,  we  acquired
approximately   2.7  million   shares  of  our  common  stock  in  exchange  for
approximately $17.5 million of subordinated debentures. We issued the debentures
at a premium of  approximately  $3.9 million over the market value of the shares
of our common stock that were  exchanged for the  debentures.  Accordingly,  the
debt was  recorded at $13.6  million on our balance  sheet.  The premium will be
amortized  over the life of the  debentures  and results in an effective  annual
interest  rate of  approximately  18.8%.  The  debentures  are unsecured and are
subordinate to all of our existing and future indebtedness. We must pay interest
on the  debentures  twice a year at 12% per  year.  We are  required  to pay the
principal  amount of the  debentures  on October 23, 2003.  We can redeem all or
part of the debentures at any time. In June 2001, we repurchased $3.6 million of
principal of the debentures.

     2000 Exchange Offer. In April 2000, we completed an exchange offer in which
we acquired approximately 1.1 million shares of our common stock in exchange for
$11.9 million of subordinated debentures.  We issued the debentures at a premium
of  approximately  $3.9 million over the market value of the exchanged shares of
our common  stock.  Accordingly,  the debt was  recorded  at $8.0  million.  The
premium  will be  amortized  over the life of the  debentures  and results in an
effective  annual  interest rate of  approximately  19.9%.  The  debentures  are
unsecured and are subordinate to all of our existing and future indebtedness. We
must pay interest on the debentures  biannually at 11% per year. We are required
to pay the principal  amount of the  debentures on April 15, 2007. We can redeem
all or part of the debentures at any time.
<PAGE>

     Debt Shelf  Registration.  In 1997, we registered up to $200 million of our
debt securities under the Securities Act of 1933. There can be no assurance that
we will be able to use this registration  statement to sell debt securities,  or
successfully register and sell other debt securities in the future.

Capital Expenditures and Commitments

     On November 9, 2000, Verde Investments, Inc. ("Verde"), an affiliate of Mr.
Ernest Garcia II, our Chairman, purchased a certain property located in Phoenix,
Arizona  and  simultaneously  leased the  property to us pursuant to among other
terms the following:  20 year term which expires December 31, 2020; rent payable
monthly  with 5% annual  rent  adjustments;  triple  net lease;  four  five-year
options to renew;  and an option to purchase the property  upon prior notice and
at Verde's  cost.  Subsequently,  we  surrendered  this option as part of the $7
million  subordinated loan with Verde. We moved our corporate  headquarters into
this location in August 2001. We amended this lease in March 2002 to shorten the
term to ten years and increase the rent payable under the lease.

     Common  Stock  Repurchase  Program.  In April 1999,  our Board of Directors
authorized  a stock  repurchase  program  allowing  us to  repurchase  up to 2.5
million  shares of our  common  stock from time to time.  Purchases  may be made
depending on market conditions,  share price, lender approval and other factors.
During July 2000, we repurchased  approximately 1.5 million shares at an average
price of $7.21 pursuant to the stock repurchase program.  Since inception of the
program,  we have  repurchased  approximately  1.6  million  shares  under  this
program,  which all repurchase  transactions occured in the year ending December
31, 2000.
<PAGE>

     In  October  2001,  our  Board  of  Directors,   acting  on  the  unanimous
recommendation  of the  independent  directors,  authorized a new stock and debt
repurchase program. Under this program, the Board authorized us to repurchase up
to $10 million of our outstanding  common stock, our 11% debentures due 2007 and
our 12%  debentures due 2003 from time to time in one or more  transactions,  on
the open  market or  otherwise.  This plan was  subject to  several  conditions,
including  a cap on stock  repurchases,  repurchases  of the  debt at a  certain
discount  of 5% or more and  receipt of lender  approval.  The  approval  of the
independent  directors and the board was based on their  determination  that the
program was fair to and in the best interests of the  unaffiliated  stockholders
of the  company.  We have not yet  attempted  to seek lender  approval  for this
program.

     Since January 1, 1998, we have  repurchased  a total of  approximately  3.8
million  shares of our common stock under our stock  repurchase  program and the
exchange offers  described above at an average cost of  approximately  $5.40 per
share.

     In October  1997,  our Board of  Directors  authorized  a stock  repurchase
program,  allowing us to purchase up to one million  shares of our common  stock
from time to time.  Purchases may be made depending on market conditions,  share
price and other factors.  Our Board of Directors  extended the stock  repurchase
program in  February  1999,  to December  31,  1999.  During  1999 and 1998,  we
repurchased 1,004,000 and 75,000 shares, respectively,  of common stock pursuant
to the stock repurchase program.

     In September  1997,  our Board of Directors  approved a director and senior
officer stock purchase loan program.  We may make loans of up to $1.0 million in
total  to the  directors  and  senior  officers  under  the  program  to  assist
directors'  and  officers'  purchases of common stock on the open market.  These
unsecured  loans bear  interest at 10% per year.  Since 1997, we have made loans
under similar terms and conditions to senior officers  totaling $893,000 for the
purchase  of 90,000  shares  of our  common  stock.  During  2001 and  2000,  no
additional loans under this program were made to senior officers.

Inflation

     Increases in inflation  generally  result in higher interest rates.  Higher
interest  rates  on our  borrowings  would  decrease  the  profitability  of our
existing portfolio.  To date,  inflation has not had a significant impact on our
operations. We seek to limit this risk:

     o    through  our  securitization  program,  which  allows  us to  fix  our
          borrowing costs,
     o    by increasing  the interest  rate charged for loans  originated at our
          dealerships (if allowed under applicable law), or
     o    by increasing the profit margin on the cars sold.
<PAGE>

Accounting Matters

Critical Accounting Policies

     The  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America.  The preparation of these financial statements require
management to make estimates and judgments  that affect the reported  amounts of
assets and  liabilities,  revenues  and  expenses,  and related  disclosures  of
contingent  assets  and  liabilities  at the date of our  financial  statements.
Actual results may differ from these estimates under  difference  assumptions or
conditions.

     Certain accounting policies involve  significant  judgments and assumptions
by management,  which have a material impact on the carrying value of assets and
liabilities  and the  recognition of income and expenses;  management  considers
these accounting  policies to be a critical accounting  policies.  The judgments
and assumptions used by management are based on historical  experience and other
factors,  which  are  believed  to be  reasonable  under the  circumstances. The
following are the Company's critical accounting policies.

     Revenue  Recognition  - Revenue  from the sales of used cars is  recognized
     upon delivery,  when the sales contract is signed and the agreed-upon  down
     payment has been received. Interest income is recognized using the interest
     method.  Direct  loan  origination  costs  related to loans  originated  at
     Company  dealerships  are deferred and charged  against finance income over
     the life of the related  installment  sales loan using the interest method.
     The accrual of interest for accounting  purposes is suspended if collection
     becomes doubtful,  generally 90 days past due, and is resumed when the loan
     becomes  current.  Interest  income also  includes  income on the Company's
     residual interests from its securitization program

     Allowance for Loan Losses - An allowance  for credit losses is  established
     by charging the provision for credit losses and the  allocation of acquired
     allowances.  The evaluation of the adequacy of the allowance considers such
     factors  as the  performance  of  each  dealership's  loan  portfolio,  the
     Company's  historical  credit  losses,  the overall  portfolio  quality and
     delinquency  status,  the  value  of  underlying  collateral,  and  current
     economic conditions that may affect the borrowers' ability to pay. Based on

<PAGE>

     these  factors,  management  provides for the  estimated  net credit losses
     anticipated  to be  charged-off  on  existing  receivables  over the twelve
     months following the balance sheet date. This estimate of existing probable
     and estimatable  losses is primarily based on static pool analyses prepared
     for various segments of the portfolio utilizing historical loss experience,
     adjusted  for the  estimated  impact of the current  environmental  factors
     outlined above.

     Valuation of Inventory - Inventory consists of used vehicles held for sale,
     which is valued at the lower of cost or market,  and repossessed  vehicles,
     which  are  valued  at  market  value.  Vehicle  reconditioning  costs  are
     capitalized  as a component of inventory  cost.  The cost of used  vehicles
     sold is determined on a specific identification basis.

     Accounting for  Securitizations  - Under the current legal structure of the
     securitization  program,  the Company  sells loans to Company  subsidiaries
     that then securitize the loans by transferring them to separate trusts that
     issue  several  classes  of notes and  certificates  collateralized  by the
     loans.  The  securitization   subsidiaries  then  sell  Class  A  notes  or
     certificates  (Class A obligations) to investors,  and subordinate  classes
     are  retained  by  the  Company.  The  Company  continues  to  service  the
     securitized  loans.  The Class A  obligations  have  historically  received
     investment  grade  ratings and are recorded as Notes Payable - Portfolio by
     the Company.  Additionally, a cash "reserve" account is established for the
     benefit  of the Class A  obligations  holders.  The  reserve  accounts  are
     classified in the financial statements as Investments Held in Trust and are
     a component of Finance  Receivables,  Net. For securitization  transactions
     closed during the third quarter of 1998 and prior years, gains on sale were
     computed  based upon the  difference  between  the sales  proceeds  for the
     portion of finance  receivables sold and the Company's recorded  investment
     in the  finance  receivables  sold.  The  Company  allocated  the  recorded
     investment  in the finance  receivables  between the portion of the finance
     receivables sold and the portion retained based on the relative fair values
     on the date of sale.  The  retained  portion is  reported as  Residuals  in
     Finance Receivables Sold and is a component of Finance Receivables, Net.

     Accounting  for Income Taxes - The  provision  for income taxes is based on
     income  reported  for  financial  statement  purposes  and differs from the
     amount of taxes currently  payable,  since certain income and expense items
     are reported for  financial  statement  purposes in different  periods than
     those for tax  reporting  purposes.  The Company  accounts for income taxes
     using  the asset  and  liability  approach,  the  objective  of which is to
     establish deferred tax assets and liabilities for the temporary differences
     between the  financial  reporting  basis and the tax basis of the Company's
     assets and  liabilities  at enacted tax rates expected to be in effect when
     such amounts are realized or settled. A valuation  allowance is established
     for deferred tax assets if, based on the weight of available  evidence,  it
     is more likely than not that some portion or all of the deferred tax assets
     will not be realized. A valuation allowance is established, when necessary,
     to reduce the  deferred  tax assets to the amount  that is more likely than
     not to be realized.

Recent Accounting Pronouncements

     In August  2001,  the  Financial  Accounting  Standards  Board  issued FASB
Statement  No. 144,  Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement  121) and the accounting  and reporting  provisions of APB Opinion
No. 30, Reporting the Results of  Operations--Reporting  the Effects of Disposal
of  a  Segment  of a  Business,  and  Extraordinary,  Unusual  and  Infrequently
Occurring Events and Transactions (Opinion 30), for the disposal of a segment of
a business (as previously  defined in that  Opinion).  Statement No. 144 retains
the  fundamental  provisions in Statement No. 121 for  recognizing and measuring
impairment  losses on long-lived assets held for use and long-lived assets to be
disposed of by sale,  while also  resolving  significant  implementation  issues
associated  with  Statement  No. 121.  For example,  Statement  No. 144 provides
guidance  on how a  long-lived  asset that is used as part of a group  should be
evaluated for impairment,  establishes  criteria for when a long-lived  asset is
held for sale, and prescribes the accounting for a long-lived asset that will be
disposed of other than by sale.  Statement No. 144 retains the basic  provisions
of Opinion 30 on how to present discontinued  operations in the income statement
but broadens that  presentation to include a component of an entity (rather than
a segment of a business).  Unlike  Statement No. 121, an  impairment  assessment
under  Statement No. 144 will never result in a write-down of goodwill.  Rather,
goodwill is evaluated for impairment under Statement No. 142, Goodwill and Other
Intangible Assets.

     The Company is required to adopt  Statement  No. 144 no later than the year
beginning  after  December 15, 2001,  and plans to adopt its  provisions for the
quarter  ending  March 31,  2002.  Management  does not expect the  adoption  of
Statement No. 144 for long-lived  assets held for use to have a material  impact
on the Company's  financial  statements because the impairment  assessment under
Statement 144 is largely unchanged from Statement No. 121. The provisions of the
Statement for assets held for sale or other  disposal  generally are required to
be applied  prospectively  after the adoption date to newly  initiated  disposal
activities.  Therefore,  management  cannot determine the potential effects that
adoption of Statement No. 144 will have on the Company's financial statements.

     In June 2001,  the FASB  issued  Statement  No. 143,  Accounting  for Asset
Retirement Obligations, which requires that the fair value of a liability for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs would be  capitalized  as part of the  carrying  amount of the
long-lived  asset and depreciated  over the life of the asset.  The liability is
accreted at the end of each period through charges to operating expense.  If the

<PAGE>

obligation is settled for other than the carrying  amount of the liability,  the
Company will recognize a gain or loss on settlement. The provisions of Statement
No. 143 are  effective  for fiscal  years  beginning  after June 15,  2002.  The
Company has not yet determined the impact,  if any, of adoption of Statement No.
143.

     In June 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June  30,  2001  as  well  as  all  purchase  method  business
combinations  completed  after  June 30,  2001.  Statement  141  also  specifies
criteria  intangible  assets acquired in a purchase method business  combination
must meet to be recognized and reported  apart from goodwill.  Statement No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized,  but instead  tested for  impairment  at least  annually in
accordance with the provisions of Statement No. 142. Statement No. 142 will also
require that  intangible  assets with  definite  useful lives be amortized  over
their respective  estimated useful lives to their estimated residual values, and
reviewed for impairment.

     The Company is required to adopt the  provisions of Statement No. 141 as of
July 1, 2001,  and  Statement 142 effective  January 1, 2002.  Furthermore,  any
goodwill and any intangible asset  determined to have an indefinite  useful life
that are acquired in a purchase  business  combination  completed after June 30,
2001 will not be amortized,  but will continue to be evaluated for impairment in
accordance with the  appropriate  pre-Statement  No. 142 accounting  literature.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before  July 1, 2001 will  continue  to be  amortized  prior to the  adoption of
Statement No. 142 on January 1, 2002.


     Statement  No. 141 required  upon  adoption of Statement  No. 142, that the
Company evaluate its existing  intangible assets and goodwill that were acquired
in  a  prior   purchase   business   combination,   and   make   any   necessary
reclassifications in order to conform with the new criteria in Statement No. 141
for  recognition  apart from  goodwill.  Upon adoption of Statement No. 142, the
Company was required to reassess  the useful  lives and  residual  values of all
intangible  assets  acquired in  purchase  business  combinations,  and make any
necessary amortization period adjustments by the end of the first interim period
after adoption.  In addition, to the extent an intangible asset is identified as
having an  indefinite  useful  life,  the  Company  will be required to test the
intangible  asset for impairment in accordance  with the provisions of Statement
No. 142.  Any  impairment  loss will be measured as of the date of adoption  and
recognized as the cumulative  effect of a change in accounting  principle in the
first interim period.

     As  of  January  1,  2002,   the  Company  has   unamortized   goodwill  of
approximately $11.6 million and no unamortized  identifiable  intangible assets.
The goodwill will be subject to the transition  provisions of Statements No. 141
and 142. Amortization expense related to goodwill was approximately $1.0 million
for each of the years ended  December  31, 2001,  2000 and 1999.  Because of the
extensive  effort needed to comply with adopting  Statements No. 141 and 142, it
is  not  practicable  to  reasonably  estimate  the  impact  of  adopting  these
Statements  on the  Company's  financial  statements at the date of this report,
including  whether  any  transitional  impairment  losses will be required to be
recognized  as a result of the  cumulative  effect of this change in  accounting
principle.

Risk Factors

     There are various risks in purchasing  our  securities and investing in our
business,  including those described below. You should carefully  consider these
risk factors together with all other information included in this Form 10-K.

     We make  forward-looking  statements.  This Report includes statements that
constitute  forward-looking  statements  within the  meaning of the safe  harbor
provisions of the Private and Securities Litigation Reform Act of 1995. We claim
the  protection  of  the   safe-harbor  for  our   forward-looking   statements.
Forward-looking   statements  are  often   characterized  by  the  words  "may,"
"anticipates,"   "believes,"   "estimates,"  "projects,"  "expects"  or  similar
expressions and do not reflect historical facts.  Forward-looking  statements in
this report relate, among other matters,  to: economic  conditions;  anticipated
financial  results,  such as  sales,  profitability,  other  revenues  and  loan
portfolios,  improvements in underwriting including credit scoring,  adequacy of
the  allowance  for credit  losses,  and  improvements  in  recoveries  and loan
performance,  including  delinquencies and charge offs;  retaining the warehouse
and  inventory  lines of credit;  the success of cost  savings  initiatives  and
restructurings;  improvements in inventory and inventory mix; release of trapped
cash;  repurchase of securitization  trusts;  continued  servicing in connection
with securitization trusts which hit termination events;  continuing to complete
securitization  transactions;  renewing the term credit  facility;  and internet
generated sales related growth and loan performance.  Forward looking statements
include  risks,  uncertainties  and other  factors  which  may cause our  actual
results,  performance  or  achievements  to be materially  different  from those
expressed or implied by such forward looking statements, some of which we cannot
predict  or  quantify.  Factors  that  could  affect  our  results  and cause or
contribute to differences from these forward-looking statements include, but are
not limited to: any decline in consumer  acceptance of our car sales  strategies
or marketing  campaigns;  any inability to finance our  operations in light of a
tight  credit  market  for the  sub-prime  industry  and our  current  financial
circumstances;  any  deterioration in the used car finance industry or increased
competition in the used car sales and finance industry; any inability to monitor
and improve our underwriting and collection processes;  any changes in estimates
and  assumptions  in, and the  ongoing  adequacy  of, our  allowance  for credit
losses;  any inability to continue to reduce operating  expenses as a percentage
of sales; increases in interest rates; the failure to efficiently and profitably
manage acquisitions and/or new car dealerships; adverse economic conditions; any

<PAGE>

material litigation against us or material,  unexpected developments in existing
litigation;  and any new or  revised  accounting,  tax or  legal  guidance  that
adversely  affect used car sales or financing and  developments  with respect to
the going private transaction.  Forward-looking  statements speak only as of the
date the  statement  was made.  Future  events and actual  results  could differ
materially  from  the   forward-looking   statements.   When   considering  each
forward-looking  statement,  you  should  keep  in mind  the  risk  factors  and
cautionary  statements found  throughout this Form 10-K and  specifically  those
found  below.  We are not  obligated  to  publicly  update or revise any forward
looking  statements,  whether as a result of new information,  future events, or
for any other reason.  References to Ugly  Duckling  Corporation  as the largest
chain of  buy-here  pay-here  used  car  dealerships  in the  United  States  is
management's  belief  based upon the  knowledge  of the  industry and not on any
current independent third party study.

     Our majority  stockholder  can control  substantially  all matters put to a
vote  of  stockholders.  As a  result  of  the  closing  of  the  going  private
transaction on March 4, 2002, Ernest C. Garcia II, our Chairman,  and Gregory B.
Sullivan,  our Chief Executive Officer and President,  are the beneficial owners
of all our outstanding  common stock. They control the election of our directors
or the  approval of any merger,  reorganization  or other  business  combination
transaction. They could vote to approve such a transaction on terms, which might
be considered more favorable to them than to unaffiliated debtholders.

     Future losses could impair our ability to raise capital or borrow money and
consequently  affect our stock price. While we have been profitable in the past,
we were  not  profitable  in  2001  and we  cannot  assure  you  that we will be
profitable in future periods.  Losses in future periods could impair our ability
to raise additional capital or borrow money as needed.

     We may not be able to continue to obtain the  financing we need to fund our
operations and, as a result, our business and profitability  could be materially
adversely  affected.  Our operations  require large amounts of capital.  We have
borrowed,  and  will  continue  to  borrow,  substantial  amounts  to  fund  our
operations.  If we cannot  obtain the financing we need on a timely basis and on
favorable terms, our business and  profitability  could be materially  adversely
affected.  We have recently  experienced a less favorable borrowing  environment
than in the past. We currently obtain financing through four primary sources:

o    a warehouse  facility  with  Greenwich  Capital  Financial  Products,  Inc.
     ("Greenwich");
o    an inventory facility with Automotive Finance Corporation ("AFC")
o    securitization transactions; and
o    loans from other sources.

     Warehouse  Facility with  Greenwich.  When our prior warehouse  lender,  GE
Capital  Corporation,  announced  that it was  exiting  the  automobile  finance
market,  we had to replace our GE credit  facility with a new facility.  Our new
warehouse  facility  with  Greenwich  is now our  primary  source  of  operating
capital. We have pledged  substantially all of our assets to Greenwich to secure
the borrowings we make under this facility.  The warehouse facility recently was
renewed until March 2003. Under our  securitizations,  we are required to have a
credit facility reasonably acceptable to the insurer on April 30th of each year.
Failure to maintain such a facility  would  constitute an event of default under
our  securitizations  and if that  occurred,  our liquidity  would be materially
adversely affected.

     Inventory Line of Credit with Automotive  Finance  Corporation.  We entered
into a $36 million  inventory  line of credit with AFC in August of 2001,  which
matures  in June of 2003.  If we are unable to  maintain  an  inventory  line of
credit, our liquidity would be materially adversely affected.

     Securitization  Transactions.  We  restore  capacity  under  the  warehouse
facility from time to time by  securitizing  portfolios of finance  receivables.
Our ability to successfully  and  efficiently  complete  securitizations  may be
affected by several factors, including:

o    the condition of securities markets generally;
o    conditions in the asset-backed securities markets specifically;
o    the credit quality of our loan portfolio; and
o    the performance of our servicing operations.

     In past periods,  we experienced a tightening of the restrictive  covenants
in  our  securitization   transactions  as  well  as  increases  in  the  credit
enhancements required to close our securitizations.  High delinquency levels and
charge offs or other  events,  such as our failure to have a warehouse  facility
acceptable to the insurer of our  securitization  transactions in place on April
30 of each year, can also cause a "termination  event" under our  securitization
transactions.  Four of our  securitizations  experienced  termination  events as
previously  discussed  in  "Management's  Discussion  and  Analysis of Financial
Condition  and  Results  of  Operations--Securitizations".   The  occurrence  of
termination  events could result in the trapping of cash in the Reserve  Account
up to the  amount  of the A bond for  those  securitizations,  and/or  our being
replaced as servicer under those securitizations or in a liquidation and sale of
the securitized portfolios.  In addition,  these types of occurrences could also
cause a "portfolio  performance event," which could result in all cash flow from
the securitized  receivables  otherwise  distributable on the junior obligations
held by us  being  retained  in the  trust as  additional  security  for  senior
securities until the event has been cured. One of our securitizations, 2000A, is

<PAGE>

currently  experiencing such an event, although we expect that to be remedied in
2002.  The  continuance  of  termination  events or the occurrence of additional
termination  or  portfolio  events could have a material  adverse  effect on our
ability to access the securitization  market and/or our business,  liquidity and
financial condition.

     Contractual  Restrictions.  The warehouse  facility,  the inventory line of
credit,  the  securitization  program,  and our other credit facilities  contain
various restrictive covenants, including financial tests. Failure to satisfy the
covenants in our credit facilities or our securitization program could result in
a default (and could  preclude us from  further  borrowing  under the  defaulted
facility),  could cause cross  defaults to our other debt,  and could prevent us
from securing alternate sources of funds necessary to operate our business.  Any
of these events would have a material adverse effect on our business,  liquidity
and financial condition. From time to time, we incur technical or other breaches
under our material  credit  facilities,  and we have  obtained  waivers from the
applicable  lenders.  There can be no  assurance  we will  continue  to  receive
waivers and our  inability to obtain these  waivers may cause cross  defaults to
our other  debt and have a  material  impact on our  ability to obtain or retain
operating capital.

     We have a high risk of credit losses  because of the poor  creditworthiness
of our  borrowers.  Substantially  all of the sales  financing we extend and the
loans  that we  service  are with  "sub-prime"  borrowers.  Sub-prime  borrowers
generally cannot borrow money from  traditional  lending  institutions,  such as
banks,  savings and loans, credit unions, and captive finance companies owned by
automobile  manufacturers,  because of their poor  credit  histories  and/or low
incomes.  Loans to sub-prime  borrowers are difficult to collect and are subject
to a high risk of loss.  We have  established  an allowance for credit losses to
cover our anticipated credit losses over a twelve-month  period. We periodically
review and may make upward or downward  adjustments to the allowance  based upon
whether we believe the  allowance  is adequate to cover our  anticipated  credit
losses.  However, our allowance may not be sufficient to cover our credit losses
and we may need to  increase  our  provision  or  allowance  if certain  adverse
factors  arise,  including  adverse  economic  events or material  increases  in
delinquencies  or  charge-offs.  A  significant  variation  in the  timing of or
increase in credit  losses in our  portfolio  or a  substantial  increase in our
allowance or  provision  for credit  losses would have,  and in 2001 did have, a
material adverse effect on our net earnings.

     We could  have a system  failure  if our  current  contingency  plan is not
adequate,  which  could  adversely  affect  our  ability to collect on loans and
comply  with  statutory  requirements.  We  depend  on our  loan  servicing  and
collection facilities and on long-distance and local  telecommunications  access
to transmit  and process  information  among our  various  facilities.  We use a
standard  program to prepare and store off-site  backup tapes of our main system
applications  and  data  files on a  routine  basis.  We  regularly  revise  our
contingency plan. However, the plan as revised may not prevent a systems failure
or allow us to timely resolve any systems  failures.  Also, a natural  disaster,
calamity,  or other  significant  event that causes  long-term  damage to any of
these facilities or that interrupts our telecommunications networks could have a
material adverse effect on our operation, profitability and cash flows.

     We have slowed our  growth,  which  negatively  affects  our  earnings  and
profitability.  Since 1999,  we have slowed our growth.  Our ability to continue
our growth is limited by our access to capital. We are also committed to slowing
our  growth  until we  improve  our loan loss  experience,  which  appears to be
occurring.  As additional capital is secured, we will consider whether to resume
or accelerate our expansion  plans or use the capital for other purposes such as
repurchasing our debt. This slowdown in growth has adversely  impacted  earnings
in 2001 and will affect our earnings and/or  profitability  in future periods as
well.

     Even if we make  acquisitions,  such  acquisitions  may be  unsuccessful or
strain or divert our resources from more profitable operations. Although we have
decided to slow our growth during the foreseeable  future, we intend to consider
additional  acquisitions,  alliances, and transactions involving other companies
that could  complement  our existing  business if we can do so with little or no
capital or if we can raise capital sufficient for any such transaction. However,
we may not be able to  identify  suitable  acquisition  parties,  joint  venture
candidates,  or transaction  counter parties.  Even if we can identify  suitable
parties,  we may not be able to consummate  these  transactions on terms that we
find favorable or obtain required consents or approvals.

     We may also not be able to  successfully  integrate any businesses  that we
acquire into our existing  operations.  If we cannot successfully  integrate any
future acquisitions, our operating expenses may increase, which would affect our
net earnings and/or cash flows. Moreover, these types of transactions may result
in the incurrence of additional  debt and  amortization  of expenses  related to
goodwill  and  intangible  assets,  all of  which  could  adversely  affect  our
profitability  and/or cash flows. These transactions also involve numerous other
risks,  including  the  diversion of management  attention  from other  business
concerns, entry into markets in which we have had no or only limited experience,
and the potential loss of key employees of acquired companies. Occurrence of any
of these risks could have a material adverse effect on us.

    We are considering opening a new car dealership or dealerships. If we do so,
it will also require additional capital and would entail the same types of risks
noted above for acquisitions.
<PAGE>

     Interest  rates  affect  our  profitability  and  cash  flows.  Much of our
financing  income results from the difference  between the rate of interest that
we pay on the funds we borrow and the rate of interest that we earn on the loans
in our  portfolio.  While we earn  interest  on the loans that we own at a fixed
rate, we pay interest on our borrowings under our warehouse facility and certain
other debt at a floating  rate.  When  interest  rates  increase,  our  interest
expense  increases  and our net  interest  margins  decrease.  Increases  in our
interest  expense that we cannot  offset by  increases  in interest  income will
lower our profitability and cash flows.

     Laws that limit the interest rates that we can charge can adversely  affect
our  profitability  and cash flows. We operate in many states that impose limits
on the interest rate that a lender may charge. When a state limits the amount of
interest that we can charge on our  installment  sales loans, we may not be able
to offset any increased  interest  expense  caused by rising  interest  rates or
greater  levels of  borrowings  under our credit  facilities.  Therefore,  these
interest rate limitations can adversely affect our profitability and cash flows.

     Government  regulations  may limit  our  ability  to  recover  and  enforce
receivables  or to  repossess  and sell  collateral.  We are  subject to ongoing
regulation,  supervision,  and licensing under various federal, state, and local
statutes,  ordinances, and regulations.  If we do not comply with these laws, we
could be fined or certain of our  operations  could be interrupted or shut down.
Failure  to comply  could,  therefore,  have a  material  adverse  effect on our
operations.

     We  believe  that we are  currently  in  substantial  compliance  with  all
applicable material federal, state, and local laws and regulations.  We may not,
however,  be able to remain in  compliance  with such  laws.  In  addition,  the
adoption of additional  statutes and regulations,  changes in the interpretation
of existing statutes and regulations,  or our entry into jurisdictions with more
stringent  regulatory  requirements could also have a material adverse effect on
our operations.

     We are  subject to  pending  actions  and  investigations  relating  to our
compliance  with  various  laws and  regulations.  While we do not believe  that
ultimate resolution of these matters will result in a material adverse effect on
our business or financial  condition  (such as fines,  injunctions  or damages),
there can be no assurance in this regard.

     Increased competition could adversely affect our operations,  profitability
and cash flows. Our primary competitors are the numerous small buy-here/pay-here
used car dealers  that  operate in the  sub-prime  segment of the used car sales
industry and the banks and/or finance  companies  that purchase their loans.  We
attempt to distinguish  ourselves from our competitors  through name recognition
and other factors. However, the advertising and infrastructure required by these
efforts  increase our  operating  expenses.  There is no  assurance  that we can
successfully distinguish ourselves and compete in this industry. In addition, in
recent years, a number of larger companies with significant  financial and other
resources  have  entered or  announced  plans to enter the used car sales and/or
finance  industry.  There has also been an increase in dealerships  guaranteeing
financing or loan approvals.  Although these companies may not currently compete
with us in our portion of the sub-prime segment of the market, they compete with
us in the segment of sub-prime  we would like to target for a larger  portion of
our sales and loans, and they compete with us indirectly as well, such as in the
purchase of inventory,  which can result in increased  wholesale  costs for used
cars and lower margins. They could also enter into direct competition with us at
any time at the lower end of the sub-prime market.

     Increased  competition  may cause  downward  pressure on the interest rates
that we charge on loans originated by our dealerships.  Either change could have
a material effect on our earnings and cash flows.

     The success of our operations depends on certain key personnel.  We believe
that our ability to successfully  implement our business strategy and to operate
profitably  depends on the continued  employment of our senior  management team.
The unexpected  loss of the services of any of our key  management  personnel or
our inability to attract new  management  when  necessary  could have a material
adverse effect on our operations.  We do not currently  maintain key person life
insurance on any member of our executive  management  team other than Gregory B.
Sullivan, our President and Chief Executive Officer.

     We have undergone layoffs and restructurings  over the past several months.
While we believe we have done so in a manner  that should not  adversely  impact
our operating  performance or internal controls,  there can be no assurance that
did not occur. If it did occur,  problems may not arise until some indeterminate
time in the future and they may or may not be material.
<PAGE>


      ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

     We are exposed to market risk on our financial  instruments from changes in
interest rates. We do not use financial  instruments for trading  purposes or to
manage  interest rate risk. Our earnings are  substantially  affected by our net
interest  income,   which  is  the  difference  between  the  income  earned  on
interest-bearing assets and the interest paid on interest bearing notes payable.
Increases   in  market   interest   rates  could  have  an  adverse   effect  on
profitability.

     Our  financial   instruments   consist  primarily  of  fixed  rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
fixed rate Notes  Receivable,  and  variable and fixed rate Notes  Payable.  Our
finance  receivables  are  classified  as  sub-prime  loans and  generally  bear
interest at the lower of 29.9% or the maximum  interest  rate  allowed in states
that impose interest rate limits. At December 31, 2001, the scheduled maturities
on our finance receivables ranged from one to 48 months, with a weighted average
maturity of 23.6 months.  The interest  rates we charge our customers on finance
receivables  has not  changed  as a result of  fluctuations  in market  interest
rates,  although we may increase  the interest  rates we charge in the future if
market  interest rates  increase.  A large component of our debt at December 31,
2001 is the Collateralized  Notes Payable (Class A obligations) issued under our
securitization  program.  Issuing debt through our securitization program allows
us to mitigate  our  interest  rate risk by reducing the balance of the variable
revolving  line of credit and replacing it with a lower fixed rate note payable.
We are subject to interest  rate risk on fixed rate Notes  Payable to the extent
that future  interest  rates are lower than the  interest  rates on our existing
Notes Payable.

     The table  below  illustrates  the  impact  that  hypothetical  changes  in
interest  rates  could  have  on  our  earnings   before  income  taxes  over  a
twelve-month  period at  December  31,  2001 and 2000.  We compute the impact on
earnings for the period by first  computing the baseline net interest  income on
our financial  instruments  with interest rate risk, which are the variable rate
revolving  credit lines and the variable rate notes  payable.  We then determine
the net interest  income based on each of the interest rate changes listed below
and compare the results to the  baseline net  interest  income to determine  the
estimated change in pretax earnings. The table does not give effect to our fixed
rate receivables and borrowings.
<TABLE>
<CAPTION>

                                              December 31, 2001                   December 31, 2000
<S>   <C>                                 <C>                                 <C>
      Change in Interest Rates              Change in Pretax Loss             Change in Pretax Earnings
      ------------------------            -------------------------           -------------------------
                                               ($ in thousands)                    ($ in thousands)

                + 2%                             $    (1,711)                        $    (2,020)
                + 1%                             $      (855)                        $    (1,010)
                - 1%                             $        855                        $      1,010
                - 2%                             $      1,711                        $      2,020
</TABLE>

     In computing the effect of hypothetical  changes in interest rates, we have
assumed that:

o    interest rates used for the baseline and  hypothetical  net interest income
     amounts are in effect for the entire twelve month period,
o    interest  for the period is  calculated  on financial  instruments  held at
     December  31,  2001 and 2000  less  contractually  scheduled  payments  and
     maturities, and
o    there is no change in  prepayment  rates as a result of the  interest  rate
     changes.

     Our sensitivity to interest rate changes could be  significantly  different
if actual experience differs from the assumptions used to compute the estimates.


<PAGE>


       ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>             <C>                                                                                   <C>
                Independent Auditors' Report.....................................................     35
                Consolidated Financial Statements:
                    Consolidated Balance Sheets as of December 31, 2001 and 2000.................     36
                    Consolidated Statements of Operations for the years ended
                    December 31, 2001, 2000 and 1999.............................................     37
                    Consolidated Statements of Stockholders' Equity for the years ended
                       December 31, 2001, 2000 and 1999..........................................     38
                    Consolidated Statements of Cash Flows for the years ended
                       December 31, 2001, 2000 and 1999..........................................     39
                Notes to Consolidated Financial Statements.......................................     40
</TABLE>




<PAGE>



                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Ugly Duckling Corporation:

     We have  audited  the  accompanying  consolidated  balance  sheets  of Ugly
Duckling  Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the years in the  three-year  period ended  December 31, 2001.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position  of Ugly
Duckling  Corporation and subsidiaries as of December 31, 2001 and 2000, and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  December  31,  2001  in  accordance  with  accounting
principles generally accepted in the United States of America.

                               /s/  KPMG LLP

Phoenix, Arizona
February 20, 2002,
 except for Note 17 to the Consolidated Financial Statements,
 which is as of March 19, 2002.


<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                -------------------------------------
                                                                                      2001               2000
                                                                                -----------------  ------------------
      <S>                                                                       <C>                <C>
      ASSETS
      Cash and Cash Equivalents                                                 $       8,572      $        8,805
      Finance Receivables, Net                                                        495,254             500,469
      Note Receivable from Related Party                                               12,000              12,000
      Inventory                                                                        58,618              63,742
      Property and Equipment, Net                                                      37,739              38,679
      Intangible Assets, Net of Accumulated Amortization of $5.2
           million and $4.2 million, respectively                                      11,569              12,527
      Other Assets                                                                     20,006              11,724
      Net Assets of Discontinued Operations                                             3,899               4,175
                                                                                -----------------  ------------------
                                                                                $     647,657      $      652,121
                                                                                =================  ==================

      LIABILITIES AND STOCKHOLDERS' EQUITY
      Liabilities:
         Accounts Payable                                                       $       2,850      $        2,239
         Accrued Expenses and Other Liabilities                                        38,250              36,830
         Notes Payable - Portfolio                                                    377,305             406,551
         Other Notes Payable                                                           52,510              16,579
         Subordinated Notes Payable                                                    31,259              34,522
                                                                                -----------------  ------------------
           Total Liabilities                                                          502,174             496,721
                                                                                -----------------  ------------------
      Stockholders' Equity:
         Preferred Stock $.001 par value, 10,000 shares authorized,
                none issued and outstanding                                                -                  -
         Common Stock $.001 par value, 100,000 shares authorized,
                18,774 and 18,764 issued, and 12,275
                and 12,292 outstanding, respectively                                       19                  19
         Additional Paid-in Capital                                                   173,741             173,723
         Retained Earnings                                                             12,074              21,772
         Treasury Stock, at cost                                                     (40,351)            (40,114)
                                                                                -----------------  ------------------
           Total Stockholders' Equity                                                 145,483             155,400
                                                                                -----------------  ------------------
                                                                                $     647,657      $      652,121
                                                                                =================  ==================
</TABLE>

          See accompanying notes to Consolidated Financial Statements.

<PAGE>


                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                   ---------------------------------------------
                                                                        2001          2000           1999
                                                                   ---------------------------------------------

<S>                                                                <C>             <C>             <C>
Sales of Used Cars                                                 $       434,360 $     483,282   $     389,908
Less:
   Cost of Used Cars Sold                                                  247,999       268,248         219,037
   Provision for Credit Losses                                             151,071       141,971         102,955
                                                                   ---------------------------------------------
                                                                            35,290        73,063          67,916
                                                                   ---------------------------------------------
Other Income (Expense):
   Interest Income                                                         137,018       119,719          68,574
   Portfolio Interest Expense                                             (30,457)      (26,698)        (14,597)
                                                                   ---------------------------------------------
      Net Interest Income                                                  106,561        93,021          53,977
                                                                   ---------------------------------------------

Income before Operating Expenses                                           141,851       166,084         121,893

Operating Expenses:
   Selling and Marketing                                                    25,134        28,756          23,132
   General and Administrative                                              109,159       103,532          74,098
   Depreciation and Amortization                                             9,512         9,065           6,948
                                                                   ---------------------------------------------
       Operating Expenses                                                  143,805       141,353         104,178
                                                                   ---------------------------------------------

Income (Loss) before Other Interest Expense                                (1,954)        24,731          17,715
Other Interest Expense                                                      11,175         9,463           3,028
                                                                   ---------------------------------------------

Earnings (Loss) before Income Taxes                                       (13,129)        15,268          14,687
Income Taxes (Benefit)                                                     (3,087)         6,205           6,000
                                                                   ---------------------------------------------

Earnings (Loss) from Continuing Operations
     before Extraordinary Item                                            (10,042)         9,063           8,687
      Extraordinary Item - Gain on early extinguishment of debt, net           344            -               -
      Earnings from Operations of Discontinued Operations, net                  -             -              248
      Earnings from Disposal of Discontinued Operations, net                    -             -              325
                                                                   ---------------------------------------------
          Net Earnings (Loss)                                      $       (9,698) $       9,063   $       9,260
                                                                   =============================================

Earnings (Loss) per Common Share from Continuing
   Operations before Extraordinary Item
      Basic                                                        $        (0.82) $        0.67   $        0.58
                                                                   =============================================
      Diluted                                                      $        (0.82) $        0.67   $        0.57
                                                                   =============================================
Net Earnings (Loss) per Common Share
      Basic                                                        $        (0.79) $        0.67   $        0.61
                                                                   =============================================
      Diluted                                                      $        (0.79) $        0.67   $        0.60
                                                                   =============================================
Shares Used in Computation:
      Basic Weighted Average Shares Outstanding                             12,286        13,481          15,093
                                                                   =============================================
      Diluted Weighted Average Shares Outstanding                           12,286        13,627          15,329
                                                                   =============================================
</TABLE>

          See accompanying notes to Consolidated Financial Statements.


<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 2001, 2000, and 1999
                                 (In thousands)
<TABLE>
<CAPTION>


                                            Number of Shares
                                      ------------------------------                                                  Total
                                                                                       Retained                    Stockholders'
                                          Common        Treasury         Common        Earnings       Treasury         Equity
                                      ------------------------------ -------------------------------------------------------------
<S>                                   <C>              <C>           <C>            <C>             <C>            <C>
Balances at December 31, 1998         $     18,605         (2,764)   $   173,828    $        3,449  $    (14,510)  $       162,767
                                      ------------------------------ -------------------------------------------------------------
Issuance of Common Stock for Cash               51             -             364                -              -               364
Issuance of Common Stock Warrants               -              -           (900)                -              -             (900)
Purchase of Treasury Stock for Cash             -          (1,004)            -                 -         (5,811)          (5,811)
Net Earnings for the Year                       -              -              -              9,260             -             9,260
                                      ------------------------------ -------------------------------------------------------------
Balances at December 31, 1999               18,656         (3,768)       173,292            12,709       (20,321)          165,680
Issuance of Common Stock for Cash              108             -             450                -              -               450
Purchase of Treasury Stock for Cash             -          (1,619)            -                 -        (11,788)         (11,788)
Acquisition of Treasury Stock for
      Subordinated Debentures                   -          (1,085)            -                 -         (8,005)          (8,005)
Net Earnings for the Year                       -              -              -              9,063            -              9,063
                                      ------------------------------ -------------------------------------------------------------
Balances at December 31, 2000               18,764         (6,472)       173,742            21,772       (40,114)         155,400
Issuance of Common Stock for Cash               10             -              18                -             -                18
Acquisition of Treasury Stock
  In Conjunction with
  Severance Agreements                          -             (27)            -                 -           (237)            (237)
Net Loss for the Year                           -              -              -            (9,698)            -            (9,698)
                                      ------------------------------ -------------------------------------------------------------
Balances at December 31, 2001               18,774         (6,499)   $   173,760    $       12,074  $    (40,351)  $       145,483
                                      ============================== =============================================================
</TABLE>


          See accompanying notes to Consolidated Financial Statements.


<PAGE>


                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                            ---------------------------------------------------
                                                                            ---------------------------------------------------
                                                                                  2001             2000              1999
                                                                            ----------------- ----------------  ---------------
<S>                                                                         <C>               <C>               <C>
Cash Flows from Operating Activities:
     Net Earnings (Loss)                                                    $       (9,698)   $        9,063    $        9,260
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided
     by Operating Activities:
     Provision for Credit Losses                                                    151,071          141,971           102,955
     Depreciation and Amortization                                                   14,373           14,244             7,579
     Loss from Disposal of Property and Equipment                                       755               14                43
     Gain from Discontinued Operations                                                   -                -              (573)
     Increase (Decrease) in Deferred Income Taxes                                   (1,110)            3,844             1,479
     Collections from Residuals in Finance Receivables Sold                           1,136           15,551            15,949
     Increase in Goodwill from Acquisitions                                              -                -            (1,217)
     (Increase) Decrease in Inventory                                                 3,935          (1,277)          (18,720)
     Write-down of Inventory                                                          1,189              400                -
     (Increase) Decrease in Other Assets                                            (1,867)          (4,753)             1,415
     Increase (Decrease) in A/P, Accrued Expenses and Other Liabilities             (3,831)           16,653             7,751
     Increase (Decrease) in Income Taxes Payable                                      7,320          (6,253)             2,215
                                                                            ----------------- ----------------  ---------------
         Net Cash Provided by Operating Activities                                  163,273          189,457           128,136
                                                                            ----------------- ----------------  ---------------
Cash Flows Used in Investing Activities:
     Increase in Finance Receivables                                              (391,732)        (490,301)         (403,742)
     Collections on Finance Receivables                                             243,597          212,319            81,572
     (Increase) Decrease in Investments Held in Trust
       on Finance Receivables Sold                                                    1,398            8,996          (10,393)
     Advances under Notes Receivable                                                     -                -           (12,000)
     Repayments of Notes Receivables                                                     -                -               763
     Proceeds from Disposal of Property and Equipment                                 2,590            3,772                77
     Purchase of Property and Equipment                                            (10,961)         (17,390)           (8,974)
     Increase in Intangible Assets from Acquisitions                                     -                -              (169)
                                                                            ----------------- ----------------  ---------------
         Net Cash Used in Investing Activities                                    (155,108)        (282,604)         (352,866)
                                                                            ----------------- ----------------  ---------------
Cash Flows from Financing Activities:
     Initial Deposits at Securitization into Investments Held in Trust             (10,628)         (20,610)          (21,427)
     Additional Deposits into Investments Held in Trust                            (61,242)         (51,320)          (22,701)
     Collections from Investments Held in Trust                                      71,615           48,511            18,369
     Additions to Notes Payable Portfolio                                           652,672          791,606           751,070
     Repayment of Notes Payable Portfolio                                         (685,186)        (663,285)         (577,028)
     Additions to Other Notes Payable                                               102,332            5,674            59,180
     Repayment of Other Notes Payable                                              (67,322)         (25,960)          (38,523)
     Repayment of Subordinated Notes Payable                                       (10,933)          (3,456)          (10,000)
     Proceeds from Issuance of Common Stock                                              18              450               364
     Acquisition of Treasury Stock                                                       -          (11,788)           (5,811)
     Other, Net                                                                          -                -            (1,324)
                                                                            ----------------- ----------------  ---------------
         Net Cash (Used in) Provided by Financing Activities                        (8,674)           69,822           152,169
                                                                            ----------------- ----------------  ---------------
Net Cash Provided by Discontinued Operations                                            276           28,447            73,700
                                                                            ----------------- ----------------  ---------------
Net Increase (Decrease) in Cash and Cash Equivalents                                  (233)            5,122             1,139
Cash and Cash Equivalents at Beginning of Period                                      8,805            3,683             2,544
                                                                            ----------------- ----------------  ---------------
Cash and Cash Equivalents at End of Period                                  $         8,572   $        8,805    $        3,683
                                                                            ================= ================  ===============
Supplemental Statement of Cash Flows Information:
     Interest Paid                                                          $        38,675   $       31,796    $       17,850
                                                                            ================= ================  ===============
     Income Taxes Paid                                                      $      (10,904)   $       13,698    $        2,154
                                                                            ================= ================  ===============
     Acquisition of Treasury Stock with Subordinated Debt                   $            -    $        8,005    $          -
                                                                            ================= ================  ===============
     Acquisition of Treasury Stock in Conjunction with Severance Agreement  $           237   $           -     $           -
                                                                            ================= ================  ===============
     Repurchase of Warrants for Subordinated Note Payable                   $            -    $           -     $        (900)
                                                                            ================= ================  ===============
</TABLE>

          See accompanying notes to Consolidated Financial Statements.


<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(1) Organization, Operations and Acquisitions

     Ugly  Duckling  Corporation,  a Delaware  corporation  (the  Company),  was
incorporated  in April 1996 as the  successor to Ugly  Duckling  Holdings,  Inc.
(UDH), an Arizona corporation formed in 1992.

     The Company, through wholly owned subsidiaries,  operates 76 used car sales
dealerships,  13 inspection  centers, 2 servicing centers and two loan-servicing
facilities.   Three  additional  wholly  owned  special  purpose  securitization
subsidiaries  are  Ugly  Duckling  Receivables  Corporation  II,  Ugly  Duckling
Receivables  Corporation  III  and  IV,  all of  which  are  "bankruptcy  remote
subsidiaries".  Their assets at December 31, 2001 included continuing  residuals
in finance  receivables  sold and investments  held in trust and at December 31,
2000, included both continuing and discontinued residuals in finance receivables
sold and  investments  held in trust in the  amounts of $70.0  million and $72.3
million,  respectively. The assets of these three special purpose securitization
subsidiaries  generally would not be available to satisfy claims of creditors of
the Company.

     As part of our  restructuring  and cost reduction plan implemented in 2001,
we closed our Clearwater,  Florida,  and Tucson,  Arizona loan servicing centers
and consolidated  their operations into our Gilbert,  Arizona and Dallas,  Texas
loan servicing centers.  In addition we closed two service centers,  one located
in California and the other in Texas, and one dealership  located in Arizona and
consolidated its business with another one of our stores.

     During  1999 and 1997 the Company  completed a total of five  acquisitions.
These  acquisitions  were recorded in accordance  with the "purchase  method" of
accounting,  and,  accordingly,  the  purchase  price has been  allocated to the
assets  purchased and the  liabilities  assumed  based upon the  estimated  fair
values at the date of  acquisition.  The excess of the  purchase  price over the
fair values of the net assets  acquired has been recorded as goodwill,  which is
being amortized over periods  ranging from fifteen to twenty years.  The results
of  operations of the acquired  entities have been included in the  accompanying
statements of operations from the respective acquisition dates.

     During 1999, the Company  completed two  acquisitions of two portfolios and
nine car sales locations.  In August,  1999, the Company acquired certain assets
of DCT of Ocala Corporation,  including four dealerships in Orlando, Florida and
a loan  portfolio of  approximately  $15 million in exchange  for  approximately
$12.1 million in cash. In November 1999, the Company  acquired certain assets of
Virginia Auto Mart, including five dealerships in Richmond,  Virginia and a loan
portfolio  of  approximately  $6.8 million in exchange  for  approximately  $3.9
million  in cash and $2.7  million in debt  provided  by the  sellers.  The debt
balance was zero as of December 31, 2001.  The excess of the purchase price over
the fair values of the net assets acquired was approximately $1.1 million.

(2) Discontinued Operations

     During the first  quarter of 1998,  the  Company  closed its branch  office
network  (the  "Branch  Offices")  through  which the Company  purchased  retail
installment  loans,  and exited  this line of  business.  The  Company  plans to
complete servicing its existing portfolio. The Company recorded a pre-tax charge
to discontinued  operations of $15.1 million (approximately $9.2 million, net of
income  taxes) in 1998 for branch  closing  costs,  loan losses and related loan
servicing  expenses.  Loan losses and related loan servicing  expenses  exceeded
amounts  originally  provided for such  activities  and in the fourth quarter of
1999 the Company recorded an additional charge of $2.5 million ($1.5 million net
of income tax) for costs and loan losses associated with the remaining portfolio
servicing activities. The Company has reclassified the accompanying consolidated
balance sheets and  consolidated  statements of operations of the Branch Offices
to Discontinued Operations.

     The Company's  Cygnet Dealer  program  provided  qualified used car dealers
with  warehouse  purchase  facilities  and revolving  lines of credit  primarily
secured by the dealers'  finance  receivable  portfolios.  In December 1999, the
Company sold its Cygnet Dealer Finance (CDF) subsidiary to an entity  controlled
by Ernest C. Garcia II, Chairman and principal  shareholder of the Company,  for
approximately  $37.5  million,   the  estimated  book  value  of  the  Company's
investment  in CDF.  As a  result  of the  sale,  CDF has been  reclassified  as
discontinued operations for 1999 and all preceding years.

     The purchase  price of CDF was paid through the  assumption by the buyer of
approximately  $8.0  million of  outstanding  debt owed by the  Company to Verde
Investments Inc. (Verde), an affiliate of Mr. Garcia, a $12 million, and 10-year
promissory  note from the buyer to the Company that is guaranteed by Verde,  and
the remainder in cash. The note is subordinate to the initial financing obtained
by Cygnet Dealer.
<PAGE>

     Effective  December 31, 1999, the Company  adopted a formal plan to abandon
any effort for its third party dealer  operations  to acquire loans or servicing
rights to additional portfolios. Accordingly, the Company's Cygnet Servicing and
the  associated  Cygnet  Corporate  segment also are reported as  components  of
discontinued operations.  The Company plans to complete servicing the portfolios
that it currently services.

     No gain or loss has been  recorded on the  disposal of Cygnet  Servicing as
the Company anticipates that over the servicing period, expected to be 18 months
remaining from December 31, 2001, it will realize a net gain.

     The components of Net Assets of Discontinued  Operations as of December 31,
     2001 and December 31, 2000 follow ($ in thousands):
<TABLE>
<CAPTION>

                                                                          December 31,
                                                                   ---------------------------
                                                                       2001          2000
                                                                   ------------- -------------
<S>                                                                <C>             <C>
Finance Receivables, net                                                 $    -        $4,386
Residuals in Finance Receivables Sold                                         -           922
Property and Equipment, net                                                   -           364
Servicing Receivable                                                      3,856         3,666
Other Assets, net of Accounts Payable and Accrued Liabilities                43       (5,163)
                                                                   ------------- -------------
Net Assets of Discontinued Operations                                    $3,899        $4,175
                                                                   ============= =============
</TABLE>

    Following is a summary of the operating results of the Discontinued
Operations for the years ended December 31, 2001, 2000, and 1999 ($ in
thousands):
<TABLE>
<CAPTION>

                                                                    December 31,
                                                       ----------------------------------------
                                                           2001          2000         1999
                                                       ----------------------------------------

<S>                                                    <C>            <C>         <C>
Revenues                                                   $   690      $ 11,161    $ 46,705
Operating Expenses                                             275        10,113      38,056
Interest Expense                                               415         1,048       7,673
                                                       ----------------------------------------
Gain before Income Tax                                          -             -          976
Income Tax                                                      -             -          403
                                                       ----------------------------------------
Earnings from Discontinued Operations                      $    -        $    -      $   573
                                                       ========================================
</TABLE>

     The Company  allocates  interest  expense to  Discontinued  Operations on a
monthly basis,  based on the net assets at the prior  month-end and at an annual
rate of 10% or .83% per month.

(3) Summary of Significant Accounting Policies

Principles of Consolidation

     The Consolidated  Financial  Statements include the accounts of the Company
and its  subsidiaries.  All significant  intercompany  accounts and transactions
have been eliminated in consolidation.

Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions  that affect the reported amount of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Concentration of Credit Risk

     The Company provides sales finance services in connection with the sales of
used cars to individuals  residing in numerous  metropolitan  areas. The Company
operated a total of 76, 77, and 72 used car dealerships (Company dealerships) at
December 31, 2001, 2000, and 1999,  respectively in eleven metropolitan  markets
in 2001, 2000 and 1999.
<PAGE>

     Periodically  during the year,  the  Company  maintains  cash in  financial
institutions in excess of the amounts insured by the federal government.

Cash Equivalents

     The Company  considers all highly liquid debt  instruments  purchased  with
maturities  of three  months or less to be cash  equivalents.  Cash  equivalents
generally consist of interest-bearing money market accounts.

Revenue Recognition

     Revenue from the sales of used cars is recognized  upon delivery,  when the
sales contract is signed and the agreed-upon down payment has been received.

     Interest  income is  recognized  using the  interest  method.  Direct  loan
origination  costs  related  to loans  originated  at  Company  dealerships  are
deferred  and  charged  against  finance  income  over the  life of the  related
installment  sales loan using the interest  method.  The accrual of interest for
accounting  purposes is suspended if collection  becomes doubtful,  generally 90
days past due,  and is resumed when the loan becomes  current.  Interest  income
also includes income on the Company's residual interests from its securitization
program.

Residuals in Finance  Receivables  Sold,  Investments Held in Trust, and Gain on
Sale of Loans

     Under the  current  legal  structure  of the  securitization  program,  the
Company sells loans to Company  subsidiaries  that then  securitize the loans by
transferring  them to separate  trusts that issue  several  classes of notes and
certificates  collateralized by the loans. The securitization  subsidiaries then
sell Class A notes or  certificates  (Class A  obligations)  to  investors,  and
subordinate  classes are  retained by the  Company.  The  Company  continues  to
service the securitized loans.

     The  Class  A  obligations  have  historically  received  investment  grade
ratings.  To secure the payment of the Class A obligations,  the  securitization
subsidiaries have obtained an insurance policies from MBIA Insurance Corporation
that  guarantees  payment of amounts to the holders of the Class A  obligations.
Additionally,  a cash "reserve"  account is  established  for the benefit of the
Class  A  obligations  holders.  The  reserve  accounts  are  classified  in the
financial statements as Investments Held in Trust and are a component of Finance
Receivables, Net.

     For securitization transactions closed during the third quarter of 1998 and
prior years,  gains on sale were computed based upon the difference  between the
sales  proceeds for the portion of finance  receivables  sold and the  Company's
recorded  investment in the finance  receivables sold. The Company allocated the
recorded  investment  in the  finance  receivables  between  the  portion of the
finance  receivables  sold and the portion  retained  based on the relative fair
values on the date of sale.  The  retained  portion is reported as  Residuals in
Finance Receivables Sold and is a component of Finance Receivables, Net.

     Residuals  in Finance  Receivables  Sold  represents  the present  value of
future cash flows from the underlying  trust  portfolios.  These  securitization
transactions were discounted with a rate of 12% using the "cash out method".  To
the  extent  that  actual  cash  flows on a  securitization  are below  original
estimates and differ  materially  from the original  securitization  assumptions
and, in the opinion of  management,  those  differences  appear to be other than
temporary in nature, the Company's residual will be adjusted, with corresponding
charges  against  income in the  period in which the  adjustment  is made.  Such
evaluations  are performed on a  security-by-security  basis,  for each residual
interest retained by the Company.

     Residuals  in Finance  Receivables  are  classified  as  "held-to-maturity"
securities in accordance with Statement No. 115.

     Securitization  transactions  closed  subsequent to September 30, 1998 have
been accounted for as a  collateralized  borrowing in accordance  with Statement
No. 125,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments of Liabilities"  (Statement No. 125), as superseded by Statement
No.  140.  The loan  contracts  included  in the  transaction  remain in Finance
Receivables and the Class A obligations are reflected in Notes Payable.
<PAGE>

Servicing Income

     Under servicing agreements for all Company securitizations,  servicing fees
are earned and paid  monthly.  Servicing  Income is  recognized  when earned for
securitization  transactions  structured  as sales.  Servicing  Income earned on
securitization   transactions   structured   as   borrowings  is  eliminated  in
consolidation.  All servicing  costs are charged to expense as incurred.  In the
event  delinquencies  and/or losses on any portfolio  serviced exceed  specified
levels,  the Company may be required to transfer the  servicing of the portfolio
to another servicer.

Finance Receivables and Allowance for Credit Losses

     Finance  Receivables  consist  of  contractually  scheduled  payments  from
installment  sales  contracts  (loans) net of  unearned  finance  charges,  plus
accrued interest receivable, direct loan origination costs, residuals in finance
receivables sold, investments held in trust, and allowance for credit losses.

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards No. 91,  "Accounting for Nonrefundable  Fees and Costs Associated with
Originating or Acquiring  Loans and Initial Direct Costs of Leases." Direct loan
origination  costs  represent the  unamortized  balance of costs incurred in the
origination of loans.

     An allowance for credit losses  (allowance)  is established by charging the
provision for credit losses and the allocation of acquired allowances. For loans
generated by the Company's dealerships, the allowance is established by charging
the provision for credit losses.  To the extent that the allowance is considered
insufficient  to  absorb  anticipated  credit  losses  over the next 12  months,
additions to the allowance are established through a charge to the provision for
credit  losses.  The  evaluation of the allowance  considers such factors as the
performance of each dealership's loan portfolio, the Company's historical credit
losses,  the overall  portfolio  quality and  delinquency  status,  the value of
underlying  collateral,  and  current  economic  conditions  that may affect the
borrowers' ability to pay.

Inventory

     Inventory  consists of used vehicles held for sale,  which is valued at the
lower of cost or market,  and repossessed  vehicles,  which are valued at market
value. Vehicle  reconditioning costs are capitalized as a component of inventory
cost. The cost of used vehicles sold is determined on a specific  identification
basis.

Property and Equipment

     Property and Equipment are stated at cost.  Depreciation  is computed using
the  straight-line  method over the estimated useful lives of the assets,  which
range from three to ten years for  equipment  and  thirty  years for  buildings.
Leasehold and land  improvements  are amortized using the  straight-line  method
over the shorter of the lease term or the estimated  useful lives of the related
improvements.

     The Company has  capitalized  costs related to the  development of software
products for internal use. Capitalization of costs begins during the development
stage and ends when the software is available for general use.  Amortization  is
computed  using the  straight-line  method over the  estimated  economic life of
seven  years.  During 2001,  the Company  made a change in the economic  life of
software  developed for internal use. In prior years, the Company  amortized the
software straight-line over 5 years. In 2001, the economic life was changed to 7
years as we  continue to make  enhancements  to the  software  that will allow a
longer  economic  life.  The  impact  of the  change  in  economic  life was not
material.

Goodwill

     Goodwill,  which represents the excess of purchase price over fair value of
net assets  acquired,  is amortized on a  straight-line  basis over the expected
periods to be benefited, generally fifteen to twenty years. Effective January 1,
2002 the Company adopted the provisions of Statement No. 142, Goodwill and Other
Intangible  Assets,  which  required  that goodwill and  intangible  assets with
indefinite  useful  lives  no  longer  be  amortized,  but  instead  tested  for
impairment at least annually.

Post-Sale Customer Support Programs

     A liability for the estimated cost of post sale customer support, including
car repairs and the  Company's  down payment back and credit card  programs,  is
established at the time the used car is sold by charging Cost of Used Cars Sold.
The  liability is  evaluated  for  adequacy  through a separate  analysis of the
various programs' historical  performance.  Effective August 1, 2001, the credit
card program was eliminated.
<PAGE>

Advertising

     All costs related to production and  advertising are expensed in the period
incurred.  The Company had no advertising  costs  capitalized as of December 31,
2001 and 2000.  Total  production  and  advertising  costs  for the years  ended
December  31, 2001,  2000 and 1999 were $10.0  million,  $11.5  million and $9.9
million respectively.

Interest Expense

     The  Company  allocates  interest  expense to  discontinued  operations  in
accordance   with  guidance  under  EITF  87-24:   "Allocation  of  Interest  to
Discontinued Operations." Interest expense charged to discontinued operations is
limited to the total of interest on debt assumed by the discontinued  operations
and  an  allocation  of  other  consolidated   interest  that  is  not  directly
attributable to other continuing  operations of the Company.  Other consolidated
interest  that cannot be  allocated  to  operations  of the Company is allocated
based on a uniform ratio of consolidated debt to equity.

Income Taxes

     The Company  utilizes  the asset and  liability  method of  accounting  for
income  taxes.  Under the asset and  liability  method,  deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment  date. A valuation  allowance is  established to the extent that it is
not "more likely than not" that deferred tax assets will be realized.

Stock Option Plan

     The  Company  accounts  for its stock  option plan in  accordance  with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees,  and related  interpretations.  As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock  exceeded  the  exercise  price.  The  Company has adopted the
disclosure   provisions  of  Statement  No.  123,  "Accounting  for  Stock-Based
Compensation",  which permits entities to provide pro forma net earnings and pro
forma  earnings per share  disclosures  for employee stock option grants made in
1995 and  subsequent  years as if the  fair-value-based  method  as  defined  in
Statement No. 123 had been applied.

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

Earnings Per Share

     Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted  earnings per share reflects the potential  dilution that could
occur if  securities  or  contracts  to issue  common  stock were  exercised  or
converted  into common  stock or resulted in the  issuance of common  stock that
then shared in the earnings of the Company.

Impairment of Long-Lived Assets

     Long-Lived  Assets and certain  identifiable  intangibles  are reviewed for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount of an asset may not be recoverable.  Recoverability  of assets to be held
and used is  measured  by a  comparison  of the  carrying  amount of an asset to
future  undiscounted  net cash flows  expected to be generated by the asset.  If
such assets are  considered to be impaired,  the  impairment to be recognized is
measured by the amount by which the  carrying  amount of the assets  exceeds the
fair value of the assets.  Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
<PAGE>

Reclassifications

     Certain  reclassifications  have been made to the prior years' consolidated
financial statement amounts to conform to the current year presentation.

(4) Finance Receivables, Net

    A summary of Finance Receivables, Net follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                  December 31,
                                                  -----------------------------------------
                                                         2001                  2000
                                                  --------------------   ------------------
<S>                                               <C>                    <C>
Contractually Scheduled Payments..................         $  694,572            $ 696,220
Unearned Interest Income..........................          (179,873)            (181,274)
                                                  --------------------   ------------------
Principal Balances, net...........................            514,699              514,946
Accrued Interest..................................              5,824                5,655
Loan Origination Costs............................              6,635               7,293
                                                  --------------------   ------------------
Principal Balances, net...........................            527,158              527,894
Investments Held in Trust.........................             69,996               71,139
Residuals in Finance Receivables Sold.............                  -                1,136
                                                  --------------------   ------------------
Finance Receivables...............................            597,154              600,169
Allowance for Credit Losses.......................          (101,900)             (99,700)
                                                  --------------------   ------------------
Finance Receivables, net..........................         $  495,254            $ 500,469
                                                  ====================   ==================
Allowance as % of Ending Principal Balances, net               19.8%                 19.4%
                                                  ====================   ==================
</TABLE>

     The  following  table  reflects the change in year-end  principal  balances
retained on our balance sheet  measured in terms of the  principal  amount ($ in
thousands) and the number of loans outstanding.
<TABLE>
<CAPTION>

                                                              Managed Loans Outstanding - December 31,
                                              --------------------------------------------------------------------------
                                                      Principal Balances                     Number of Loans
                                              ------------------------------------ -------------------------------------
                                                     2001              2000               2001              2000
                                              ------------------------------------ -------------------------------------
<S>                                            <C>                 <C>                <C>               <C>
Principal Balances - Managed...................$      514,699      $     519,005           82,254            84,864
Less:  Principal - Securitized and Sold........            -               4,059               -              2,266
                                              ------------------------------------ -------------------------------------
Principal Balances - Retained..................$      514,699      $     514,946           82,254            82,598
                                              ==================================== =====================================
</TABLE>

     Residuals in Finance Receivables Sold represent the Company's  subordinated
interest in loans sold under the gain on sale  method.  The  decrease in 2001 is
attributable to no additional loans  securitized  under the gain on sale method,
as well as the runoff of portfolios securitized and sold during prior periods.

A summary of Residuals in Finance Receivables Sold follows ($ in thousands):

                                                                  December 31,
                                                                      2000
                                                                 -------------
Retained Interest in Subordinated Securities (B Certificates)... $       1,097
Net Interest Spreads, less Present Value Discount............              114
Reduction for Estimated Credit Loss..........................              (75)
                                                                 -------------
Residuals in Finance Receivables Sold........................    $       1,136
                                                                 =============

Securitized Principal Balances Outstanding...................    $       4,059
                                                                 =============
Estimated Credit Losses as a % of
    Securitized Principal Balances Outstanding...............             1.8%
                                                                 =============

     As of December  31, 2001,  there were no  residuals in finance  receivables
sold.
<PAGE>

     A summary of activity for the Residuals in Finance Receivables Sold follows
($ in thousands):
<TABLE>
<CAPTION>

                                                                              December 31,
                                                                 ------------------------------------
                                                                     2001         2000         1999
                                                                 -----------  -----------  ----------
<S>                                                              <C>          <C>          <C>
Balance, Beginning of Year...................................    $     1,136  $    17,382  $   33,331
Amortization and write-down..................................        (1,136)     (16,246)    (15,949)
                                                                 ----------   ----------   ----------
Balance, End of Year.........................................    $       -    $     1,136  $   17,382
                                                                 ==========    ==========  ==========
</TABLE>

     A  summary  of  activity  for  Investments  Held  in  Trust  follows  ($ in
thousands):
<TABLE>
<CAPTION>

                                                          December 31,
                                             ----------------------------------------
                                                 2001         2000         1999
                                             ----------------------------------------
<S>                                           <C>                       <C>
Balance, Beginning of Year                   $   71,139    $    56,716  $    20,564
Initial Deposits at Securitization               10,628         20,610       21,427
Additional Deposits from Trust Collections       37,578         27,574        7,217
Collections in Transit                           23,664         23,746       15,484
Disbursements to the Company                   (73,013)       (57,507)      (7,976)
                                             ----------------------------------------
Balance, End of Year                         $   69,996    $    71,139  $    56,716
                                             ========================================
</TABLE>

     In connection with its securitization transactions,  the Company provides a
credit  enhancement to the investor.  The Company makes an initial cash deposit,
ranging from 3% to 6% of the initial  underlying finance  receivables  principal
balance,  into an account held by the trustee (reserve account) and pledges this
cash to the trust to which the finance receivables were transferred.  Additional
deposits  from the  residual  cash flow  (through  the  trustee) are made to the
reserve  account as necessary  to attain and  maintain the reserve  account at a
specified  percentage,  ranging from 8.0% to 11.0%,  of the  underlying  finance
receivables principal balances.

     Due to the impact of the  recession,  the events of September  11th and the
poor auction recovery market at year end 2001, three of our trusts, 2000B, 2000C
and  2001A,  reached  charge-off  levels  for the  month of  December  2001 that
triggered an acceleration  of rights for MBIA under the Insurance  Agreements of
the respective trusts. These rights include,  among other things, the ability to
transition servicing on the trusts to a third party and accelerate the cash flow
to the A  bondholders  until they have been paid in full.  These trusts  reached
these  levels only for the month  indicated  and have  dropped  back below these
levels in  January  2002.  These  trusts  continue  to trap cash in the  reserve
accounts related to these breaches in charge-off levels.

     During 2001, the Company made initial  reserve  account  deposits  totaling
approximately  $10.6  million  at the  time  of  securitizations.  The  required
aggregate  reserve  balance for all oustanding  securitizations,  based upon the
original targeted  percentages  excluding trapped cash, was approximately  $39.4
million at December 31, 2001. Actual balances in the reserve accounts, including
trapped cash, totaled $45.3 million at December 31, 2001.

(5) Allowance for Credit Losses

     A summary of the activity for the  allowance  for credit  losses on finance
receivables follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                                              ------------------------------------
<S>                                                                   <C>              <C>
Allowance Activity:                                                   2001             2000
                                                              ------------------------------------
Balance, Beginning of Period.........................            $        99,700  $         76,150
Provision for Credit Losses..........................                    151,071           141,971
 Other Allowance Activity.............................                     (133)           (2,666)
Net Charge Offs......................................                  (148,738)         (115,755)
                                                              ------------------------------------
Balance, End of Period...............................            $       101,900  $         99,700
                                                              ====================================
</TABLE>
<PAGE>

(6)  Related Party Transactions

     In January 2001, the Company entered into a $35 million senior secured loan
facility as a renewal for a $38 million  senior loan facility  originated in May
1999. As a condition to the $35 million  senior  secured loan  agreement,  Verde
Investments, Inc., an affiliate of Mr. Garcia, was required to invest $7 million
in the Company  through a subordinated  loan. The funds were placed in escrow as
additional collateral for the $35 million senior secured loan. The funds were to
be released in July 2001 if, among other conditions, the Company had at least $7
million in pre-tax  income  through June of 2001 and, at that time,  Mr.  Garcia
would have guaranteed 33% of the $35 million facility.  The Company did not meet
this pre-tax income  requirement  for the first six months of 2001. Per the loan
agreement,  Mr. Garcia was entitled to receive warrants from the Company for 1.5
million shares of stock, vesting over a one-year period, at an exercise price of
$4.50 subject to certain  conditions.  Also as  consideration  for the loan, the
Company  released  all options to  purchase  real estate that were then owned by
Verde and leased to the Company.  The Company  also granted  Verde the option to
purchase,  at book value, any or all properties  currently owned by the Company,
or acquired by the Company  prior to the earlier of December  31,  2001,  or the
date the loan is  repaid.  Verde  agreed  to lease  the  properties  back to the
Company,  on terms similar to our current leases,  if it exercises its option to
purchase any of the properties.  In December 2001,  Verde exercised its right to
purchase from, and lease back to the Company,  six properties  having a net book
value of  approximately  $6.7 million.  This purchase and lease back transaction
closed  in  January  2002.  The loan is  secured  by a  portion  of the  finance
receivables in the Company's  securitization  transactions but is subordinate to
the senior secured loan facility.  The loan requires quarterly interest payments
at LIBOR plus 600 basis points and is subject to pro rata  reductions if certain
conditions are met. An independent committee of the Company's board reviewed and
negotiated the terms of this  subordinated loan and the Company also received an
opinion from an investment  banker,  which deemed the loan fair from a financial
point of view both to the Company's shareholders and the Company. The balance of
the note with Verde was $5.4 million at December 31, 2001.

     In May 2001,  Verde  purchased one of the Company's  properties in Atlanta,
Georgia, pursuant to the Verde option discussed above. The property's book value
was  approximately  $1.7 million.  The lease is on terms  consistent  with other
sale-leasebacks.  Verde has  leased the  property  back to the  Company  under a
20-year lease, which expires May 2021.

     The Note Receivable - Related Party originated from the Company's  December
1999 sale of its Cygnet Dealer Finance subsidiary to Cygnet Capital Corporation,
an entity controlled by Ernest C. Garcia II, Chairman and principal  shareholder
of the Company.  The $12.0 million note from Cygnet  Capital  Corporation  has a
10-year term, with interest payable quarterly at 9%, due December 2009. The note
is secured by the capital stock of Cygnet Capital  Corporation and guaranteed by
Verde Investments,  Inc. ("Verde"),  an affiliate of Mr. Garcia. Under the terms
of the agreement,  Mr. Garcia is allowed to reduce the principal balance up to a
maximum of $8.0 million by  surrendering  to the Company shares of Ugly Duckling
common stock (valued at 98% of the average of the closing prices of the stock on
NASDAQ for the ten trading days prior to the surrender) as long as Mr.  Garcia's
ownership  interest of the Company  voting stock does not fall below 15% and the
acceptance  of such  stock by the  Company  does  not  result  in a breach  of a
covenant.  As a  result  of the  going  private  transaction,  this  ability  to
surrender stock for a note reduction was terminated at that time. The balance of
this loan at December 31, 2001 and 2000 was $12.0 million.

(7)   Property and Equipment, net

A summary of Property and  Equipment as of December 31, 2001 and 2000 follows ($
in thousands):

<TABLE>
<CAPTION>

                                                                            December 31,
                                                                     ---------------------------
                                                                            2001        2000
                                                                     -------------- ------------
<S>                                                                  <C>            <C>
    Land.........................................................    $     4,649    $     6,010
    Buildings and Leasehold Improvements.........................         26,713         19,979
    Furniture and Equipment......................................         34,714         31,920
    Construction in Process......................................             85          2,897
                                                                     -----------    -----------
                                                                          66,161         60,806
    Less Accumulated Depreciation and Amortization...............        28,422)       (22,127)
                                                                     -----------    -----------
    Property and Equipment, Net..................................    $    37,739    $    38,679
                                                                     ===========    ===========
</TABLE>

     The Company has commitments under capital leases,  consisting  primarily of
software and other  computer  equipment  classified in Furniture and  Equipment,
included in the above table. The assets under capital leases have a cost of $3.3
million for years ended  December 31, 2001 and 2000, and $2.0 for the year ended
December 31, 1999.  Further,  the accumulated  depreciation on the capital lease
assets was $2.5  million,  $2.0  million and $1.7  million at December 31, 2001,
2000 and 1999, respectively.
<PAGE>
     The unamortized  costs related to the development of software  products for
internal use was $5.2 million,  $5.4  million,  and $5.3 million at December 31,
2001, 2000 and 1999, respectively. In addition, the amortization expense related
to the  internally  developed  software was $1.4 million,  $1.4 million and $1.3
million for the years ended December 31, 2001, 2000 and 1999, respectively.

(8)   Notes Payable

    Notes Payable, Portfolio
A summary of Notes  Payable,  Portfolio at December 31, 2001 and 2000 follows ($
in thousands):
<TABLE>
<CAPTION>

                                                                                                            December 31,
                                                                                                -----------------------------------
                                                                                                        2001              2000
                                                                                                -----------------  ----------------
<S>                                                                                             <C>                <C>
Revolving Facility for $125.0 million with GE Capital, secured by substantially all
     assets of the Company, terminated April 2001                                               $            -          $ 53,326
Revolving Facility for $75.0 - $100.0 million with Greenwich Capital Financial Products,
     Inc, secured by substantially all assets of the Company, not otherwise pledged                      38,249                -
Class A obligations issued pursuant to the Company's Securitization Program,
     secured by underlying pools of finance receivables and
     investments held in trust totaling $515.2 million and $541.6
     million at December 31, 2001, and December 31, 2000, respectively                                  341,812          355,972
                                                                                                -----------------  ----------------
     Subtotal                                                                                           380,061          409,298
     Less:  Unamortized Loan Fees                                                                         2,756            2,747
                                                                                                -----------------  ----------------
     Total                                                                                      $       377,305        $ 406,551
                                                                                                =================  ================
</TABLE>

     The  revolving  facility  note payable at December  31, 2000,  has interest
payable  daily at 30 day LIBOR plus 3.15%  (9.78% at  December  31,  2000).  The
revolving   facility   agreement  contains  various  reporting  and  performance
covenants,   including  the  maintenance  of  certain  ratios,   limitations  on
additional  borrowings  from other sources,  restrictions  on certain  operating
activities,  and a  restriction  on  the  payment  of  dividends  under  certain
circumstances.

     Effective  April  2001,  the Company  replaced  the  warehouse  receivables
portion of the GE Capital  facility.  The new  warehouse has  subsequently  been
renewed  in March of 2002 for  another  364-day  term  and  allows  for  maximum
borrowings  of $100 million.  The borrowing  base is calculated as a discount to
the net  securitization  rate and as of  December  31,  2001,  was  64.3% of the
principal  balance of eligible loans  originated from the sale of used cars. The
lender  maintains  an option to adjust the  advance  rate to reflect  changes in
market conditions or portfolio performance. The interest rate on the facility is
LIBOR plus 2.80% (4.72% at December 31, 2001). At December 31, 2001, the Company
was not in compliance with the interest  coverage  ratio,  debt to EBITDA ratio,
and the gross margin ratio covenants of this facility and received a waiver from
the lender. The Company was in compliance with all other required covenants.

     Class A  obligations  have interest  payable  monthly at rates ranging from
3.4%  to  5.1%.  Monthly  principal   reductions  on  the  Class  A  obligations
approximate  70% of the principal  reductions on the underlying  pool of finance
receivable loans.

    Other Notes Payable
A summary of Other  Notes  Payable at December  31, 2001 and 2000  follows ($ in
thousands):
<TABLE>
<CAPTION>

                                                                                                       December 31,
                                                                                            -----------------------------------
                                                                                                  2001              2000
                                                                                            ----------------- -----------------
<S>                                                                                         <C>               <C>
Senior note payable with certain lenders, secured by the capital stock of UDRC II,
     UDRC III, UDRC IV, and certain other receivables                                            $  26,000         $  11,141
Revolving Facility for $36.0 million with Automotive Finance Corporation, secured by the
     Company's automobile inventory                                                                 20,963                 -
Other notes payable bearing interest at rates ranging from 7.5% to 11% due through
     October 2015, secured by certain real property and certain property and equipment               6,133             5,637
                                                                                            ----------------- -----------------
     Subtotal                                                                                       53,096            16,778
     Less:  Unamortized Loan Fees                                                                      586               199
                                                                                            ----------------- -----------------
     Total                                                                                       $  52,510         $  16,579
                                                                                            ================= =================
</TABLE>

     In January 2001, the Company entered into a $35 million senior secured loan
facility with certain  lenders as a renewal for the $38 million  senior  secured
loan facility  originated in May 1999. The new facility has a term of 25 months.
Per the agreement,  the Company must make principal payments of $1.0 million per
month from April 2001 through September 2003.  Thereafter through maturity,  the
agreement  requires minimum payments of the greater of $3.0 million per month or
50% of the cash flows from classes of notes issued through  securitization  that
are subordinate to the Class A bonds.  Interest is payable monthly at LIBOR plus
600 basis points  (7.90% at December 31,  2001).  In 2000,  interest was payable
monthly at LIBOR plus 550 basis  points  (6.64% at December 31,  2000).  The new

<PAGE>

loan, like the previous loan, is secured by our Residuals in Finance Receivables
Sold and certain Finance Receivables.  At December 31, 2001, the Company was not
in  compliance  with the  minimum  capital  base and minimum  interest  coverage
covenants of this facility,  and received a waiver from the lender.  The Company
was in compliance with all other required covenants.

     Effective  August 31,  2001,  the Company  replaced the  inventory  line of
credit portion of the GE Capital facility.  The new revolving inventory facility
is for $36 million, an $11 million increase from the prior facility, and expires
in June of 2003.  The borrowing base is calculated on advance rates on inventory
purchased,  ranging from 80% to 100% of the purchase price. The interest rate on
the facility is Prime plus 6.0% (10.75% at December 31,  2001).  The facility is
secured with the  Company's  automobile  inventory.  At December  31, 2001,  the
Company  was not in  compliance  with the  interest  coverage  ratio  and was in
default due to the  charge-off  levels for three trusts in the month of December
2001,  and  received  a waiver  from the  lender for both.  The  Company  was in
compliance with all other required covenants.

    Subordinated Notes Payable
    A summary of Subordinated Notes Payable at December 31, 2001 and 2000
follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                                                       December 31,
                                                                                            -----------------------------------
                                                                                                  2001              2000
                                                                                            ----------------- -----------------
<S>                                                                                         <C>               <C>
$13.5 million senior subordinated notes payable to unrelated parties, bearing
     interest at 15% per annum payable quarterly, principal due February 2003
     and is senior to subordinated debentures                                                    $   5,000         $  11,500
$17.5 million subordinated debentures, interest at 12% per annum
     (approximately 18.8% effective rate) payable semi-annually, principal
     balance due October 23, 2003                                                                   13,839            17,479
$11.9 million subordinated debentures, interest at 11% per annum
     (approximately 19.7% effective rate) payable semi-annually, principal
     balance due April 15, 2007                                                                     11,940            11,940
$7.0 million senior subordinated note payable to a related party, bearing
     interest at LIBOR plus 6% per annum payable quarterly, principal due
     December 2003                                                                                   5,400                -
                                                                                            ----------------- -----------------
     Subtotal                                                                                       36,179            40,919
     Less:  Unamortized Loan Fees                                                                        -               915
            Unamortized Discount - subordinated debentures                                           4,920             5,482
                                                                                            ----------------- -----------------
     Total                                                                                       $  31,259         $  34,522
                                                                                            ================= =================
</TABLE>

     In January 2001, the Company  issued a  subordinated  note payable to Verde
Investments,  Inc.,  an  affiliate of Mr.  Garcia.  The loan,  which  matures in
December  2003,  is  secured  by a portion  of the  finance  receivables  in the
Company's  securitization  transactions but is subordinate to the senior secured
loan facility.  The loan requires  quarterly interest payments at LIBOR plus 600
basis points and is subject to pro rata  reductions  if certain  conditions  are
met. For a full description of all of the terms of the loan transaction see Note
(6) - Related Party Transactions.

     In June 2001,  the  Company  repurchased  in the open  market  and  retired
approximately  $3.6 million of the $17.5 million in subordinated  debentures for
approximately $2.6 million. The after tax impact, net the associated unamortized
discount,  of the  transaction  was a gain from  extinguishment  of debt of $0.3
million.  The gain has been  classified as  "Extraordinary  Item - Gain on Early
Extinguishment of Debt" on the Consolidated Statement of Operations.

     In connection with the 1998 issuance of the $15 million senior subordinated
notes  payable,  the  Company  issued  warrants to the lenders to purchase up to
500,000  shares of the  Company's  common  stock.  The  warrants  were valued at
approximately  $900,000,  had an  exercise  price of  $10.00  per share and were
exercisable  at any time until the later of February  2001,  or such time as the
notes have been paid in full. In September  2000, the Loan  Agreement,  Warrants
and Warrant  Agreements  between the Company and certain lenders under this Loan
Agreement were amended to: reduce the  outstanding  principal  balance under the
Loan Agreement from $15 million to $13.5 million;  require us to take out one of
the lenders in the facility by paying off that  lender's  $1.5 million  share of
the loan  (which  occurred),  and  cancel  the  number of  outstanding  warrants
attributable  to that portion of the loan;  increase the interest rate under the
Loan  Agreement  to 15%;  extend the term of the Loan  Agreement to February 12,
2003; and provide for the repayment of principal and the corresponding reduction
of warrants under certain terms and conditions.

     During 2000 the Company issued $11.9 million of subordinated  debentures in
exchange for 1.1 million  shares of Company  common stock valued at $8.0 million
("Exchange  Offer"),  and $114,000 of costs incurred for the Exchange Offer. The
debentures are subordinate to all other Company indebtedness and contain certain
call  provisions at the option of the Company.  The debentures  were issued at a
premium of  approximately  $3.9  million  in excess of the  market  value of the

<PAGE>

shares  tendered,  which will be amortized as interest  expense over the life of
the debentures.  In connection with this exchange offer, Mr. Garcia and entities
affiliated  with Mr.  Garcia  exchanged  294,500  shares and owns  approximately
$3,020,000 in 2000 Exchange Debt.

     During 1998 the Company issued $17.5 million of subordinated  debentures in
exchange for 2.7 million  shares of Company common stock valued at $14.0 million
("Exchange Offer"), including $370,000 of costs incurred for the Exchange Offer.
The debentures are  subordinate  to all other Company  indebtedness  and contain
certain call provisions at the option of the Company. The debentures were issued
at a premium of approximately  $3.9 million in excess of the market value of the
shares  tendered,  which will be amortized as interest  expense over the life of
the debentures.

     Interest expense related to the $14.0 million  subordinated note payable to
Verde that was  assumed by Cygnet  Dealer  Finance  Inc.  ("CDF") as part of the
December 1999 sale of CDF,  totaled zero,  zero and $.9 million during the years
ended December 31, 2001, 2000, and 1999,  respectively.  Since the $14.0 million
Verde  note  was  assumed  by CDF,  interest  expense  for all  three  years  is
reclassified  as a component of interest  expense  within  operating  results of
Discontinued   Operations.   Interest   expense  related  to  the  $7.0  million
subordinated  note payable to Verde,  originated in January  2001,  totaled $0.4
million for the year ended December 31, 2001.

     Future Minimum Principal Payments
     Future  minimum  principal  payments  required  under  all  notes  payable,
excluding  securitizations and capital leases,  secured by certain real property
and certain property and equipment are summarized as follows ($ in thousands):


                                       Total
                               ----------------------
     2002                      $           86,806
     2003                                  23,070
     2004                                   1,305
     2005                                   1,398
     2006                                     203
     Thereafter                            14,068
                               ----------------------
               Total           $          126,850
                               ======================

     Capital Lease  commitments for years ending December 31, 2002 and 2003, are
$0.4 million and $0.2 million; respectively, and zero thereafter

(9) Income Taxes

     Income taxes (benefit) from continuing  operations  totaled ($3.1) million,
$6.2 million, and $6.0 million for years ended December 31, 2001, 2000 and 1999,
respectively (an effective tax rate of 23.5%,  40.6%, and 40.9%,  respectively).
Reconciliation  between taxes computed at the federal  statutory rate of 35% for
2001,  2000 and 1999  respectively  at the effective tax rate on earnings before
income taxes are as follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                      -----------------------------------------
                                                                           2001         2000         1999
                                                                      -----------------------------------------
<S>                                                                   <C>           <C>           <C>
Computed "Expected" Income Tax...........................             $   (4,595)   $    5,344    $       5,140
State Income Taxes, Net of Federal Effect...................                (520)          758              785
Change in Estimate for Tax Deficiencies.....................                2,060           -                -
Other, Net........................................................           (32)          103               75
                                                                      -----------------------------------------
                                                                      $   (3,087)   $    6,205    $       6,000
                                                                      =========================================
</TABLE>
<PAGE>

     Components of income taxes (benefit) for the years ended December 31, 2001,
2000 and 1999 follow ($ in thousands):
<TABLE>
<CAPTION>

                                                                Current            Deferred           Total
                                                           ------------------   ----------------  ---------------
<S>                                                        <C>                  <C>               <C>
2001:
   Federal                                                    $      (2,177)    $         (107)   $      (2,284)
   State                                                                 200            (1,003)            (803)
                                                           ------------------   ----------------  ---------------
                                                              $      (1,977)    $       (1,110)   $      (3,087)
                                                            ==================   ================  ===============

2000:
   Federal                                                    $        (744)    $         5,783   $        5,039
   State                                                                 290                876            1,166
                                                           ------------------   ----------------  ---------------
                                                                       (454)              6,659            6,205
    Discontinued Operations                                            (583)                583               -
                                                           ------------------   ----------------  ---------------
                                                              $      (1,037)    $         7,242   $        6,205
                                                           ==================   ================  ===============
1999:
   Federal                                                    $        2,839    $         1,953   $        4,792
   State                                                               1,403              (195)            1,208
                                                           ------------------   ----------------  ---------------
                                                                       4,242              1,758            6,000
    Discontinued Operations                                              683              (280)              403
                                                           ------------------   ----------------  ---------------
                                                              $        4,925    $         1,478   $        6,403
                                                           ==================   ================  ===============
</TABLE>

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax  liabilities as of December
31, 2001 and 2000 are presented below ($ in thousands):
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                   ----------------------------
                                                                                        2001          2000
                                                                                   ----------------------------
<S>                                                                                <C>             <C>
Deferred Tax Assets:
    Inventory                                                                      $        1,177  $        691
    Federal and State Income Tax Net Operating Loss Carryforwards                           1,818         1,818
    Accrued Post Sale Support                                                                 846         1,359
    Deferred Rent                                                                             781           600
    Other                                                                                   2,930         1,772
                                                                                   ----------------------------
    Total Gross Deferred Tax Assets                                                         7,552         6,240
    Less:  Valuation Allowance                                                            (1,000)       (1,000)
                                                                                   ----------------------------
         Net Deferred Tax Assets                                                            6,552         5,240
                                                                                   ----------------------------
Deferred Tax Liabilities:
    Finance Receivables, Principally Due to the Allowance for Credit Losses        $      (6,834)  $    (7,197)
    Fixed Assets, including Software Development Costs                                      (561)           171
    401K                                                                                    (449)         (449)
    Other                                                                                   (295)         (462)
                                                                                   ----------------------------
       Total Gross Deferred Tax Liabilities                                               (8,139)       (7,937)
                                                                                   ----------------------------
       Net Deferred Tax Asset (Liability)                                          $      (1,587)  $    (2,697)
                                                                                   ============================
</TABLE>
     At December 31, 2001,  the Company had net  operating  loss of $1.6 million
for US federal tax purposes.  Utilization of net operating loss, which begins to
expire at various times starting in 2011, may be subject to certain  limitations
under Section 382 of the Internal Revenue Code.

     There was an  increase of $.3 million in the  Valuation  Allowance  for the
year ended  December 31, 2000.  In assessing the ability to realize the Deferred
Tax Assets,  management considers whether it is "more likely than not" that some
portion or all of the  Deferred  Tax Assets will not be  realized.  The ultimate
realization  of  Deferred  Tax Assets is  dependent  upon  generation  of future
taxable income during the periods in which those  temporary  differences  become
deductible.  Management  considers  the  reversal of Deferred  Tax  Liabilities,
projected  future  taxable  income,  and tax planning  strategies in making this
assessment.  Based upon the level of historical  taxable income and  projections
for future  taxable income over the periods in which the Deferred Tax Assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of these  deductible  differences,  net of the  established
valuation allowance at December 31, 2001.
<PAGE>


(10) Lease Commitments

     The  Company  leases used car sales  facilities,  loan  servicing  centers,
offices,  and certain office equipment from unrelated and related entities under
various  operating  leases that expire through December 2020. The leases require
monthly  rental  payments and contain  various  renewal  options from one to ten
years. In certain  instances,  the Company is also responsible for occupancy and
maintenance costs,  including real estate taxes,  insurance,  and utility costs.
Rent expense  totaled  $12.9  million,  $14.2  million and $13.0 million for the
years ended December 31, 2001, 2000, and 1999, respectively.

     A summary of future  minimum lease payments  required under  non-cancelable
operating leases with remaining lease terms in excess of one year as of December
31, 2001 follows ($ in thousands):

<TABLE>
<CAPTION>

                      Related Party         Non-Related Party           Total

                   ---------------------   ---------------------  ------------------

<S>                <C>                     <C>                    <C>
2002               $            3,582      $            7,541     $       11,123
2003                            3,689                   5,697              9,386
2004                            3,800                   4,041              7,841
2005                            3,914                   2,346              6,260
2006                            4,031                   1,788              5,819
Thereafter                     58,924                   5,487             64,411
                   =====================   =====================  ==================
         Total     $           77,940      $           26,900     $      104,840
                   =====================   =====================  ==================
</TABLE>


     In 1998 the Company sold 17 properties to an unrelated  investment  company
under a  sale-leaseback  agreement.  In December  1999,  Verde acquired these 17
properties at a 10.0% discount for approximately $24.6 million. In addition, the
Company  sold to Verde one  property  in 2001 and six  properties  in 2002 under
sale-leaseback  agreements. The total amount paid to Verde under these leases in
2001 and 2000 was approximately $3.7 million and $3.3 million, respectively. The
Company had  previously  acquired  the option to purchase  these  properties  at
Verde's purchase price under certain  conditions.  As  consideration  for the $7
million  subordinated  loan from Verde,  the  Company  released  these  purchase
options and also granted Verde the option to purchase, at book value, any or all
properties  currently owned by the Company,  or acquired by the Company prior to
the earlier of December 31, 2001,  or the date the loan is repaid.  Verde agreed
to lease the  properties  back to the Company,  on terms  similar to our current
leases, if it exercises its option to purchase any of the properties.

(11) Stockholders' Equity

     In January 2001, as  consideration  for the $7 million loan from Verde, the
Company agreed to issue to Verde, the right to acquire warrants on July 25, 2001
subject to certain  conditions.  The warrants would allow for the purchase of up
to  1,500,000  shares of the  Company's  common  stock.  The  warrants  would be
exercisable at $4.50 per share through July 25, 2011.

     During 2001,  the Company  recorded  the  acquisition  of 27,000  shares of
Treasury Stock in conjunction with employee severance agreements.

     During  2000,  the Company  acquired  approximately  1.6 million  shares of
Treasury  Stock for  approximately  $11.0  million  under  its Stock  Repurchase
Program.  During 2000, the Company acquired  approximately 1.1 million shares of
Company Common Stock with a value of approximately  $8.0 million in the Exchange
Offer.

     During  1999,  the Company  acquired  approximately  1.0 million  shares of
Treasury  Stock for  approximately  $5.8  million  under  its  Stock  Repurchase
Program.

     During  1998,  the  Company  issued  50,000  warrants  to a third  party to
purchase Company common stock at $12.50 per share. The warrants expired February
2001.

     During 1998, the Company issued warrants, valued at approximately $900,000,
to  purchase  500,000  shares  of  Company  common  stock  at $10 per  share  in
connection with senior  subordinated note payable  agreements.  The warrants are
exercisable  at any time until the later of (1) February  2001,  or (2) when the
notes are paid in full.

     During  1998,  the  Company  issued  325,000  warrants  to a third party to
purchase Company common stock at $20.00 per share. The warrants expired April 1,
2001.
<PAGE>

     During 1997, the Company issued warrants for the right to purchase  389,800
shares of the Company's  common stock for $20.00 per share  exercisable  through
February  2000.  The  warrants  were  valued at  approximately  $612,000.  These
warrants  remained  outstanding  at  December  31,  1998 but  were  subsequently
repurchased during 1999. In addition,  warrants to acquire 121,023 shares of the
Company's  common stock at $6.75 per share and 174,000  shares of the  Company's
common stock at $9.45 per share were outstanding at December 31, 2000.


 (12) Earnings (Loss) Per Share

     The Company  paid no  dividends  in 2001,  2000,  or 1999. A summary of the
reconciliation  from basic earnings (loss) per share to diluted  earnings (loss)
per share for the years ended  December 31, 2001,  2000,  and 1999 follows ($ in
thousands, except for per share amounts):
<TABLE>
<CAPTION>

                                                                ------------------------------------------------
                                                                     2001            2000             1999
                                                                ---------------  --------------  ---------------

<S>                                                              <C>              <C>             <C>
Net Earnings (Loss) from Continuing Operations
   before Extraordinary Item                                     $    (10,042)    $      9,063    $       8,687
                                                                ===============  ==============  ===============
Net Earnings (Loss)                                              $     (9,698)    $      9,063    $       9,260
                                                                ===============  ==============  ===============
Basic Earnings (Loss) Per Share from Continuing Operations
   before Extraordinary Item                                     $      (0.82)    $       0.67    $        0.58
                                                                ===============  ==============  ===============
Diluted Earnings (Loss) Per Share from Continuing Operations
   before Extraordinary Item                                     $      (0.82)    $       0.67    $        0.57
                                                                ===============  ==============  ===============

Basic Net Earnings (Loss) Per Share                              $      (0.79)    $       0.67    $        0.61
                                                                ===============  ==============  ===============
Diluted Net Earnings (Loss) Per Share                            $      (0.79)    $       0.67    $        0.60
                                                                ===============  ==============  ===============
Basic EPS-Weighted Average Shares Outstanding                           12,286          13,481           15,093
Effect of Diluted Securities:
   Stock Options                                                            -               -                 7
   Warrants                                                                 -              146              229
                                                                ---------------  --------------  ---------------
Dilutive EPS-Weighted Average Shares Outstanding                        12,286          13,627           15,329
                                                                ===============  ==============  ===============
Warrants Not Included in Diluted EPS Since Antidilutive                    313           1,245            1,049
                                                                ===============  ==============  ===============
Stock Options Not Included in Diluted EPS Since Antidilutive             1,449             843              610
                                                                ===============  ==============  ===============
</TABLE>

(13) Stock Option Plan

     In June 1995, the Company adopted a long-term  incentive plan (Stock Option
Plan)  under  which it has set aside  1,800,000  shares  of  common  stock to be
granted to employees.  Options are to vest over a period to be determined by the
Board of Directors upon grant and will generally  expire 6 to 10 years after the
date of grant. The options generally vest over a period of 5 years.

     In August 1998, the Company's  stockholders approved an executive incentive
stock option plan (Executive  Plan).  The Company has reserved 800,000 shares of
its common stock for issuance.  Options  granted under the plan expire ten years
after  the  grant  date and vest 20% per year  upon  completion  of each year of
service after the date of grant  (beginning 1 year after the grant date) subject
to meeting additional vesting hurdles that are based on the trading price of the
Company's stock and/or the achievement of certain internal performance measures.
Even if these  additional  vesting  hurdles are not met,  the options will fully
vest 7 years after the date of grant.
<PAGE>

     A summary of the  aforementioned  stock plan activity  including the number
and weighted average price per share (Average Price) follows:
<TABLE>
<CAPTION>

                                                      Stock Option Plan                           Executive Plan
                                            ---------------------------------------   ----------------------------------------
                                                                    Average                                     Average
                                                  Number             Price                   Number              Price
                                            ---------------------------------------   ----------------------------------------
<S>                                         <C>                 <C>                   <C>                     <C>
Balances at December 31, 1999                     1,137,000                 6.33               680,000                 7.22
Granted                                             113,000                 6.35                    -                    -
Forfeited                                         (174,000)                 6.73              (70,000)                 8.25
Exercised                                         (108,000)                 4.20                    -                    -
                                            ---------------------------------------   ----------------------------------------
Balances at December 31, 2000                       968,000     $           6.50               610,000        $        7.10
                                            ---------------------------------------   ----------------------------------------
Granted                                              20,000                 4.03                    -                    -
Forfeited                                          (97,000)                 7.04                    -                    -
Exercised                                          (11,000)                 1.72                    -                    -
                                            ---------------------------------------   ----------------------------------------
Balances at December 31, 2001                       880,000                 6.44               610,000        $        7.10
                                            ==================================================================================
Number of shares exercisable                        557,000                                    180,000
                                            ===================                       =====================
</TABLE>

     At December 31,  2001,  there were  920,000 and 190,000  additional  shares
available   for  grant  under  the  Stock  Option  Plan  and   Executive   Plan,
respectively. The per share weighted-average fair value of stock options granted
during 2001, 2000 and 1999 was $2.73, $3.09 and $3.88, respectively, on the date
of grant using the  Black-Scholes  option-pricing  model.  The following are the
weighted-average  assumptions:  2001--  expected  dividend  yield 0%,  risk-free
interest rate of 4.19%,  expected volatility of 82.3%, and an expected life of 5
years;  2000 -- expected  dividend yield 0%,  risk-free  interest rate of 4.64%,
expected  volatility of 48.9%, and an expected life of 5 years; 1999 -- expected
dividend  yield 0%,  risk-free  interest rate of 5.67%,  expected  volatility of
41.2%, and an expected life of 5 years.

     During 1998, the Board of Directors  approved separate plans to reprice the
Company's  outstanding stock options under the Stock Option Plan, one in January
1998 and a second in November  1998. The forfeited  options had exercise  prices
ranging from $9.75 to $20.75 and were repriced at $9.75 or $5.13 per share,  the
fair  market  value  on the  date of the  respective  repricings.  Approximately
391,000 options were issued under the repricing program.  The vesting period was
not affected for the options  repriced  under the January 1998  repricing  plan.
However,  the vesting  period started over on the repricing date for the options
issued under the November 1998 repricing plan.
<PAGE>

     The  Company  applies  APB  Opinion 25 in  accounting  for its  Plans,  and
accordingly,  no compensation  cost has been recognized for its stock options in
the consolidated financial statements.  Had the Company determined  compensation
cost  based on the fair  value at the  grant  date for its stock  options  under
Statement  No. 123, the Company's  net earnings  (loss) and earnings  (loss) per
share would have been  reduced to the pro forma  amounts  indicated  below ($ in
thousands, except per share data):
<TABLE>
<CAPTION>

                                                                             2001              2000           1999
                                                                        ---------------    -------------  -------------

<S>                                                                      <C>               <C>            <C>
Pro Forma Earnings (Loss) from Continuing Operations                     $(   10,364)        $   8,345     $    7,603
Pro Forma Net Earnings (Loss)                                            $   (10,364)        $   8,345     $    8,176
Earnings (Loss) per Share - Basic:
     Continuing Operations before Extraordinary Items Pro Forma          $     (0.84)        $    0.62     $     0.50
     Net Earnings (Loss) Pro Forma                                       $     (0.84)        $    0.62     $     0.54
Earnings (Loss) per Share - Diluted:
     Continuing Operations before Extraordinary Item Pro Forma           $     (0.84)        $    0.61     $     0.50
     Net Earnings (Loss) Pro Forma                                       $     (0.84)        $    0.61     $     0.53
</TABLE>
<PAGE>

    A summary of stock options granted at December 31, 2001 follows:
<TABLE>
<CAPTION>

                                               Options Outstanding                           Options Exercisable
                             ---------------------------------------------------------------------------------------------
                                   Number         Weighted-Avg       Weighted-Avg         Number         Weighted-Avg
    Range of                    Outstanding         Remaining          Exercise        Exercisable         Exercise
    Exercise Prices             at 12/31/01     Contractual Life        Price          at 12/31/01           Price
    ------------------------ ---------------------------------------------------------------------------------------------
    <S>                        <C>               <C>                <C>              <C>               <C>

     $1.72 to $5.56                    663,781       5.68 years     $       4.86           300,479      $             4.12
     $6.28 to $8.19                    162,900       5.47 years             7.50           108,440                    7.21
     $8.25 to $8.25                    624,800       6.04 years             8.25           304,880                    8.25
     $8.44 to $18.63                    38,200       5.78 years            10.42            23,600                   11.15
                             -------------------                  --------------------------------------------------------
                                     1,489,681                      $       6.71           737,399      $             6.51
                             ===================                  ========================================================
</TABLE>

 (14) Commitments and Contingencies

     In connection with its securitization transactions,  the Company provides a
credit enhancement to the investor.  The Company maintains reserve accounts at a
specified  percentage,  ranging from 8.0% to 11.0%,  of the  underlying  finance
receivables'  principal  balance.  In the event that the cash flows generated by
the  finance  receivables  are  insufficient  to pay  obligations  of the trust,
including  principal or interest due to  certificate  holders or expenses of the
trust,  the trustee will draw funds from the reserve account as necessary to pay
the  obligations  of the trust.  The reserve  account  must be  maintained  at a
specified  percentage of the principal balances of the finance  receivables held
by the trust, which can be increased in the event delinquencies or losses exceed
specified levels. If the reserve account exceeds the specified  percentage,  the
trustee  will  release the excess cash to the Company  from the pledged  reserve
account.  Except for releases in this manner, the cash in the reserve account is
restricted  from use by the  Company.  Due to the impact of the  recession,  the
events of September 11th and the poor auction  recovery market at year end 2001,
three of our trusts,  2000B, 2000C and 2001A,  reached charge-off levels for the
month of December 2001 that triggered an  acceleration  of rights for MBIA under
the Insurance Agreements of the respective trusts.  These rights include,  among
other things, the ability to transition servicing on the trusts to a third party
and accelerate  the cash flow to the A bondholders  until they have been paid in
full.  These trusts  reached these levels only for the month  indicated and have
dropped back below these levels in January 2002.  These trusts  continue to trap
cash in the reserve accounts related to these breaches in charge-off levels.

     On July 18, 1997, the Company filed a Form S-3  registration  statement for
the purpose of registering  up to $200 million of its debt  securities in one or
more  series at prices and on terms to be  determined  at the time of sale.  The
registration  statement  has  been  declared  effective  by the  Securities  and
Exchange Commission and may be available for future debt offerings. There can be
no assurance,  however,  that the Company will be able to use this  registration
statement to sell debt or other securities.

     The  Company is  involved  in various  claims  and  actions  arising in the
ordinary course of business. In the opinion of management, based on consultation
with legal  counsel,  the ultimate  disposition of these matters will not have a
material  adverse  effect  on the  Company.  No  provision  has been made in the
accompanying  consolidated  financial statements for losses, if any, which might
result from the ultimate disposition of these matters.

 (15)  Retirement Plan

     The Company has  established  qualified  401(k)  retirement  plan  (defined
contribution  plan) which  became  effective  on October 1, 1995.  The plan,  as
amended,  covers  substantially  all  employees  having  no less than 90 days of
service,  have  attained  the age of 18, and work at least 1,000 hours per year.
Participants  may  voluntarily  contribute to the plan up to the maximum  limits
established by Internal Revenue Service regulations.

     Prior to January 1, 2002, the 401(k) plan provided a matching  contribution
of Ugly Duckling  common stock of up to 50% for up to the first six percent of a
participant's  pre-tax  contributions.  The  matching  contribution  vesting and
percentage  match were based upon  years of  service  with one  hundred  percent
vesting  and  fifty  percent  matching  at five  years.  After an  analysis  and
determination of what was in the best interests of the plan participants, all of
the shares of our stock in the 401(k) plan were  tendered in the amended  tender
offer.   Beginning  January  1,  2002,  the  Company  no  longer  does  matching
contributions   with  Ugly  Duckling  stock  and  instead  provides  a  matching
contribution  of cash in the  amount of 35% of the  first 6% of each  employee's
deferrals. Compensation expense related to this plan totaled $678,000, $566,000,
and  $194,000  during  the  years  ended  December  31,  2001,  2000,  and 1999,
respectively.
<PAGE>

(16)  Disclosures About Fair Value of Financial Instruments

     Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about
Fair  Value  of  Financial  Instruments",  requires  that the  Company  disclose
estimated  fair values for its  financial  instruments.  The  following  summary
presents a description of the  methodologies  and assumptions  used to determine
such amounts.

     Limitations - Fair value estimates are made at a specific point in time and
are based on relevant market  information  and  information  about the financial
instrument; they are subjective in nature and involve uncertainties,  matters of
judgment and, therefore, cannot be determined with precision. These estimates do
not reflect any premium or discount  that could result from offering for sale at
one time the Company's  entire holdings of a particular  instrument.  Changes in
assumptions could significantly affect these estimates.

     Since the fair value is  estimated  as of December  31, 2001 and 2000,  the
amounts that will actually be realized or paid in settlement of the  instruments
could be significantly different.

     Cash and Cash Equivalents - The carrying amount is estimated to be the fair
value due to the liquidity of these instruments.

     Finance  Receivables,  Residuals in Finance  Receivables Sold,  Investments
Held in Trust, and Notes Receivable - The carrying amount is estimated to be the
fair value due to the  relatively  short  maturity  and  repayment  terms of the
portfolio as compared to similar instruments.

     Accounts Payable, Accrued Expenses, and Notes Payable - The carrying amount
approximates fair value because of the short maturity of these instruments.  The
terms of the Company's  notes payable  approximate the terms in the market place
at which they could be replaced.  Therefore,  the fair market value approximates
the carrying value of these financial instruments.

     Subordinated Notes Payable - The terms of the Company's  subordinated notes
payable  approximate  the  terms in the  market  place at  which  they  could be
replaced.  Therefore,  the fair value  approximates  the carrying value of these
financial instruments.

(17) Subsequent Events

     On January 4, 2002, Verde Investments,  Inc. ("Verde"), an affiliate of Mr.
Ernest Garcia II, the Company's  chairman,  purchased six properties  located in
Dallas,  Texas,   Richmond,   Virginia,   and  Los  Angeles,   California,   and
simultaneously  leased the  properties  to the  Company on terms  similar to the
Company's  current  leases.  This purchase was pursuant to an option  granted to
Verde in partial  consideration  for Verde making a $7.0 million  investment  in
subordinated debt of the Company in January 2001.

     In January 2002,  the Company  completed a second  reduction in work force.
The estimated restructuring charge is approximately $0.8 million.

     On January 16, 2002, UDC Acquisition  Corp.,  an entity  controlled by Ugly
Duckling's Chairman, Mr. Ernest C. Garcia III, and Ugly Duckling's President and
Chief Executive Officer Gregory B. Sullivan,  successfully completed its amended
tender offer for the common stock of Ugly Duckling not owned by Mr. Garcia,  Mr.
Sullivan or their affiliates. As of the expiration of the offer, UDC Acquisition
Corp.  owned or  controlled  over 92% of the Company's  outstanding  shares when
combined with the shares  already owned by Mr.  Garcia,  Mr.  Sullivan and their
affiliates.  Because UDC Acquisition Corp. had more than 90% of the common stock
of Ugly  Duckling;  it  completed on March 4, 2002, a short form merger with and
into Ugly Duckling without any further action by Ugly Duckling shareholders.  At
the time of the merger,  the  Company's  stock was  delisted  from  Nasdaq.  All
warrants  previously  issued and not expired as of the closing date of the going
private transaction,  March 4, 2002, were terminated upon closing. Additionally,
upon the closing of the going private transaction,  all outstanding options were
terminated.

     On March 18, 2002, the Company  extended its revolving  warehouse  facility
with  Greenwich  Capital  Financial  Products,  Inc. for an additional  364 days
maturing March 17, 2003. The maximum  borrowing  under the extended  facility is
$100  million for the entire  term and the 65% cap rate on the advance  rate was
removed  and  the  calculation  of the  warehouse  advance  relative  to the net
securitization  advance was improved by 2% of the balance of eligible loans from
the sale of used cars.


(18)  Business Segments

     Operating  results and other financial data are presented for the principal
business  segments of the Company for the years ended  December 31, 2001,  2000,
and 1999, respectively.  The Company has three distinct business segments. These
consist of retail car sales operations (Retail Operations), the income generated
from the finance receivables  originated at the Company  dealerships  (Portfolio
Operations),  and  corporate and other  operations  (Corporate  Operations).  In
computing  operating  profit by  business  segment,  the  following  items  were

<PAGE>

considered  in the Corporate  Operations  category:  portions of  administrative
expenses,  interest  expense and other  items not  considered  direct  operating
expenses.  Identifiable assets by business segment are those assets used in each
segment of Company operations.

     A summary of operating results and other information,  by business segment,
for years ended December 31, 2001, 2000 and 1999 follows ($ in thousands):
<TABLE>
<CAPTION>

                                                       Retail        Portfolio      Corporate        Total
                                                       ------        ---------      ---------        -----
<S>                                                <C>            <C>             <C>           <C>
December 31, 2001:
Sales of Used Cars                                  $  434,360      $       -      $        -      $ 434,360
Less: Cost of Cars Sold                                247,999              -               -        247,999
      Provision for Credit Losses                       90,563          60,508              -        151,071
                                                    ----------     -----------    ------------- ---------------
                                                        95,798        (60,508)              -         35,290
Net Interest Income                                         -          106,431             130       106,561
                                                   -------------- --------------- ------------- ---------------
Income before Operating Expenses                        95,798          45,923             130       141,851
                                                   -----------     -------------- ------------- ---------------
Operating Expenses:
Selling and Marketing                                   25,134              -               -         25,134
General and Administrative                              54,848          31,822          22,489       109,159
Depreciation and Amortization                            5,518             970           3,024         9,512
                                                   -----------     -------------- ------------- ---------------
                                                        85,500          32,792          25,513       143,805
                                                   -----------     -------------- ------------- ---------------
Income (loss) before Other Interest Expense         $   10,298      $   13,131     $  (25,383)     $ (1,954)
                                                   ============== =============== ============= ===============

Capital Expenditures                                $    3,581      $      770     $     6,610     $  10,961
                                                   ============== =============== ============= ===============
Identifiable Assets                                 $   94,668      $  481,421     $    67,669     $ 643,758
                                                   ============== =============== ============= ===============


<PAGE>
<CAPTION>



                                                       Retail        Portfolio      Corporate        Total
                                                       ------        ---------      ---------        -----
<S>                                                <C>            <C>             <C>           <C>
December 31, 2000:
Sales of Used Cars                                  $  483,282      $       -      $        -      $ 483,282
Less: Cost of Cars Sold                                268,248              -               -        268,248
      Provision for Credit Losses                       99,356          42,615              -        141,971
                                                   -------------- --------------- ------------- ---------------
                                                       115,678        (42,615)              -         73,063
Net Interest Income                                         -           92,587             434        93,021
Income before Operating Expenses                       115,678          49,972             434       166,084
                                                   -------------- --------------- ------------- ---------------
Operating Expenses:
Selling and Marketing                                   28,756              -               -         28,756
General and Administrative                              56,373          27,005          20,154       103,532
Depreciation and Amortization                            4,677           1,128           3,260         9,065
                                                   -------------- --------------- ------------- ---------------
                                                        89,806          28,133          23,414       141,353
                                                   -------------- --------------- ------------- ---------------
Income (loss) before Other Interest Expense         $   25,872      $   21,839     $  (22,890)     $  24,731
                                                   ============== =============== ============= ===============

Capital Expenditures                                $   10,225      $    1,229     $     5,936     $  17,390
                                                   ============== =============== ============= ===============
Identifiable Assets                                 $  104,743      $  514,614    $     28,589     $ 647,946
                                                   ============== =============== ============= ===============

                                                       Retail        Portfolio      Corporate        Total
                                                       ------        ---------      ---------        -----
December 31, 1999:
Sales of Used Cars                                  $  389,908      $       -      $        -      $ 389,908
Less: Cost of Cars Sold                                219,037              -               -        219,037
      Provision for Credit Losses                       80,627          22,328              -        102,955
                                                   -------------- --------------- ------------- ---------------
                                                        90,244        (22,328)              -         67,916
Net Interest Income                                         -           53,521             456        53,977
Income before Operating Expenses                        90,244          31,193             456       121,893
                                                   -------------- --------------- ------------- ---------------
Operating Expenses:
Selling and Marketing                                   23,132              -               -         23,132
General and Administrative                              44,770          12,337          16,991        74,098
Depreciation and Amortization                            3,588           1,141           2,219         6,948
                                                   -------------- --------------- ------------- ---------------
                                                        71,490          13,478          19,210       104,178
                                                   -------------- --------------- ------------- ---------------
Income (Loss) before Other Interest Expense         $   18,754      $   17,715     $  (18,754)     $  17,715
                                                   ============== =============== ============= ===============

Capital Expenditures                                $    5,175             897           2,902         8,974
                                                   ============== =============== =============  ==============
Identifiable Assets                                 $  100,183      $  398,437    $      4,211     $ 502,831
                                                   ============== =============== =============  ==============
</TABLE>

 (19) Quarterly Financial Data -- unaudited

     A summary of the quarterly  data for the years ended December 31, 2001, and
2000 follows ($ in thousands):
<TABLE>
<CAPTION>

                                                           First         Second         Third          Fourth
                                                          Quarter       Quarter        Quarter        Quarter          Total
                                                       ------------ ------------- -------------- --------------- -------------------
<S>                                                    <C>           <C>           <C>            <C>             <C>
2001:
Total Revenue                                              164,030       140,819        145,237         121,292         571,378
                                                       ============ ============= ============== =============== ===================
Income before Operating Expenses                            43,650        40,478         26,371          31,352         141,851
                                                       ============ ============= ============== =============== ===================
Operating Expenses                                          37,471        35,887         35,230         35,217          143,805
                                                       ============ ============= ============== =============== ===================
Income (Loss) before Interest Expense                        6,179         4,591        (8,859)         (3,865)         (1,954)
                                                       ============ ============= ============== =============== ===================
Earnings (Loss) before Extraordinary Item              $     1,822   $     1,020   $    (6,817)   $     (6,067)   $    (10,042)
                                                       ============ ============= ============== =============== ===================
Extraordinary Item                                              -            344            -               -               344
                                                       ============ ============= ============== =============== ===================
Net Earnings (Loss)                                    $     1,822   $     1,364   $    (6,817)   $     (6,067)   $     (9,698)
                                                       ============ ============= ============== =============== ===================

Basic Earnings Per Share before Extraordinary Item     $      0.15   $      0.08   $     (0.56)   $      (0.49)   $      (0.82)
                                                       ============ ============= ============== =============== ===================
Diluted Earnings Per Share before Extraordinary Item   $      0.15   $      0.08   $     (0.56)   $      (0.49)   $      (0.82)
                                                       ============ ============= ============== =============== ===================
Basic Earnings (Loss) Per Share                        $      0.15   $      0.11   $     (0.56)   $      (0.49)   $      (0.79)
                                                       ============ ============= ============== =============== ===================
Diluted Earnings (Loss) Per Share                      $      0.15   $      0.11   $     (0.56)   $      (0.49)   $      (0.79)
                                                       ============ ============= ============== =============== ===================
<PAGE>

                                                           First         Second         Third          Fourth
                                                          Quarter       Quarter        Quarter         Quarter         Total
                                                       ------------ ------------- -------------- -----------------------------------
2000:
Total Revenue                                          $   158,317   $   151,398   $    158,072   $     135,214   $     603,001
                                                       ============ ============= ============== =============== ===================
Income before Operating Expenses                            45,773        44,772         43,902          31,637         166,084
                                                       ============ ============= ============== =============== ===================
Operating Expenses                                          35,881        34,849         36,995          33,628         141,353
                                                       ============ ============= ============== =============== ===================
Income (Loss) before Interest Expense                        9,892         9,923          6,907         (1,991)          24,731
                                                       ============ ============= ============== =============== ===================
Earnings (Loss) before Extraordinary Item              $     4,483   $     4,348   $      2,683   $     (2,451)   $       9,063
                                                       ============ ============= ============== =============== ===================
Extraordinary Item                                              -             -             -               -               -
                                                       ============ ============= ============== =============== ===================
Net Earnings (Loss)                                    $     4,483   $     4,348   $      2,683   $     (2,451)   $       9,063
                                                       ============ ============= ============== =============== ===================
Basic Earnings Per Share before Extraordinary Item     $      0.30   $      0.31   $       0.21   $      (0.20)   $        0.67
                                                       ============ ============= ============== =============== ===================
Diluted Earnings Per Share before Extraordinary Item   $      0.30   $      0.31   $       0.21   $      (0.20)   $        0.67
                                                       ============ ============= ============== =============== ===================
Basic Earnings (Loss) Per Share                        $      0.30   $      0.31   $       0.21   $      (0.20)   $        0.67
                                                       ============ ============= ============== =============== ===================
Diluted Earnings (Loss) Per Share                      $      0.30   $      0.31   $       0.21   $      (0.20)   $        0.67
                                                       ============ ============= ============== =============== ===================
</TABLE>


             ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURES

     The Company has had no disagreements with its independent  certified public
accountants in regard to accounting and financial disclosure and has not changed
its independent accountants during the two most recent fiscal years.
<PAGE>


                                    PART III

          ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  required by this Item pertaining to the Executive  Officers of
Ugly  Duckling  is set  forth in Part 1 of this Form  10-K  under  the  caption,
"Executive  Officers of the  Registrant,"  and is incorporated by reference into
this Item.  Information  concerning  the current  Director of the  Registrant is
included in the  following  table.  The  following  table  gives the name,  age,
principal  occupation  and business  experience  of our director as of March 27,
2002,  who is a U.S.  citizen.  Also,  included  for the director is the year in
which he became a director,  his offices with us,  family  relationships,  other
directorships and certain other biographical information.

<TABLE>
<CAPTION>

---------------------------------- -------- --------------------------------------------------------------- -----------
<S>                                <C>      <C>                                                             <C>
Name                               Age      Business Experience                                             Director
                                                                                                            Since
---------------------------------- -------- --------------------------------------------------------------- -----------
Ernest C. Garcia II                44       Chairman of the Board of Ugly Duckling since its founding in    1996
                                            1992. Mr. Garcia also served as Chief Executive Officer until
                                            July 1999 and as President from 1992 to 1996. Since 1991, Mr.
                                            Garcia has served as President of Verde Investments, Inc., a
                                            real estate investment corporation wholly owned by Mr.
                                            Garcia.  See  "Security Ownership of Certain Beneficial
                                            Owners and Management," and "Certain Relationships and
                                            Related Transactions."
---------------------------------- -------- --------------------------------------------------------------- -----------
</TABLE>


                        ITEM 11 -- EXECUTIVE COMPENSATION

     The table below sets forth information  concerning the annual and long-term
compensation  for services  rendered in all  capacities  for us during the three
fiscal years ended  December 31, 2001 of  individuals  serving as our  Executive
Officers.
<TABLE>
<CAPTION>
<PAGE>

--------------------------------- ------- ---------------------------------- ------------------------ ----------------
                                          Annual Compensation                Long-Term Compensation
                                          ---------- ---------- ------------ ------------------------
                                                                                Awards
                                                                             ----------- ------------

                                                                Other        Restricted  Securities   All Other
                                                                Annual       Stock       Under-       Compensation
Name And Principal                Year    Salary     Bonus      Compen-      Award(s)    Lying        ($)(2)
Position                                  ($)                   sation       ($)         Options
                                                                ($)                      (#)(1)
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
<S>                               <C>     <C>        <C>        <C>     <C>  <C>         <C>          <C>
Gregory B. Sullivan               2001     $250,000  $16,275    $12,028 (3)      --               --           $5,019
President and Chief               ------- ---------- ---------- ------------ ----------- ------------ ----------------
Executive Officer                 ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  2000     $250,000  $74,589     $8,896 (3)      --               --           $2,124
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  1999     $200,000  $60,000     $4,850 (3)      --          125,000             $688
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
Steven T. Darak                   2001     $215,000  $28,196     $6,525 (4)      --               --               --
  Senior Vice President, and      ------- ---------- ---------- ------------ ----------- ------------ ----------------
  Chief Financial Officer         ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  2000     $197,308  $52,294     $4,141 (4)      --               --               --
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  1999     $175,000  $49,950       $870 (4)      --           35,000               --
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
C. Robert Fulton                  2001     $150,000  --          $1,505 (5)      --               --           $2,371
 Vice President, and Treasurer    ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  2000      $40,385  $20,000                     --           20,000             $733
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
Steven A. Tesdahl (6)             2001     $223,825  $21,612     $4,000 (6)      --               --           $2,549
 Senior Vice President            ------- ---------- ---------- ------------ ----------- ------------ ----------------
  and    Chief     Information    ------- ---------- ---------- ------------ ----------- ------------ ----------------
  Officer                         2000     $226,816  $18,536             --      --               --           $1,438
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  1999     $198,941   $11,658            --      --               --             $220

                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
Jon Ehlinger                      2001     $160,000  $17,298     $1,679 (7)      --               --           $2,649
Vice President,                   ------- ---------- ---------- ------------ ----------- ------------ ----------------
 General Counsel and Secretary    ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  2000     $147,462  $33,363             --      --               --           $1,879
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  ------- ---------- ---------- ------------ ----------- ------------ ----------------
                                  1999     $135,076  $17,081             --      --           10,000               --
--------------------------------- ------- ---------- ---------- ------------ ----------- ------------ ----------------
</TABLE>


     (1)  The  amounts  shown in this column  represent  stock  options  granted
          either  pursuant to the Incentive Plan or the Executive  Plan. For the
          Incentive Plan, options generally vest over a 5-year period,  with 20%
          of the options becoming exercisable on each successive  anniversary of
          the date of grant. For the Executive Plan,  options vest over a 5-year
          period, with 20% becoming  exercisable on each successive  anniversary
          of the date of grant, but subject to additional  vesting hurdles based
          on the market  price of our  common  stock as traded on Nasdaq and /or
          internal financial  performance  targets.  Regardless of the preceding
          vesting  schedule  being  met for the  Executive  Plan  options,  such
          options  also  fully vest at a set date in the  future  (i.e.,  "cliff
          vest"). See "Compensation of Executive Officers,  Benefits and Related
          Matters for a discussion  of the Incentive  Plan and  Executive  Plan,
          respectively.
     (2)  The amounts  shown in this column  include the dollar  value of 401(k)
          plan  contributions  in Ugly Duckling  common stock made by us for the
          benefit of our Named Executive Officers.  The stock related portion of
          this amount only includes vested stock as of December 31, 2001 and the
          value is calculated with a share price of $3.45,  the closing price of
          the stock as of December 31, 2001 (as reported by Nasdaq).
     (3)  These amounts  include  $12,028 for Mr.  Sullivan's  personal use of a
          company car for 2001, $8,896 for 2000 and $4,850 for 1999.
     (4)  These amounts  include $6,525 for Mr. Darak's  personal use of an auto
          for 2001, $4,141 for 2000 and $870 for a car allowance in 1999.
     (5)  This amount, $1,505, is for the personal use of an auto for 2001.
     (6)  This amount, $4,000, is for a car allowance in 2001.
     (7)  This amount,  $1,679, is for the personal use of an auto for a portion
          of 2001.

Option Grants in Last Fiscal Year

     There were no option grants for the fiscal year ended  December 31, 2001 to
any of our Executive Officers.  Our outside directors as of February 2001
each received a grant of 5,000 options.
<PAGE>

Aggregated  Option  Exercises  in Last  Fiscal Year and Fiscal  Year-End  Option
Values

     The table below sets forth information with respect to option exercises and
the number and value of options  outstanding  at  December  31, 2001 held by our
Executive Officers. Generally, we have not issued any other forms of stock based
awards.
<TABLE>
<CAPTION>

---------------------- -------------- ------------- ------------------------------- --------------------------------
                                                    Number of Securities            Value Of Unexercised
                                                    Underlying Options At           In-The-Money Options At
                                                    Fiscal Year End (#)(1)          Fiscal Year End ($)(2)
                                                    ------------------------------- --------------------------------
        Name              Shares         Value       Exercisable    Unexercisable     Exercisable    Unexercisable
                        Acquired On   Realized ($)
                       Exercise (#)
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
<S>                    <C>            <C>           <C>             <C>             <C>              <C>
Ernest C. Garcia II    --             --                   40,000          60,000   --               --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
Gregory B. Sullivan    --             --                  391,000         375,000   $99,760          --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
Steven T. Darak        --             --                   38,999          71,002   --               --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
Steven A. Tesdahl      --                                  40,000          35,000   --               --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
Jon D. Ehlinger        --             --                   10,000          10,000   --               --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
Bob Fulton             --             --                    4,000          16,000   --               --
---------------------- -------------- ------------- --------------- --------------- ---------------- ---------------
</TABLE>


(1)  For the Incentive Plan,  generally options vest over a 5-year period,  with
     20% of the options becoming  exercisable on each successive  anniversary of
     the date of grant.  Under the  Executive  Plan,  options vest over a 5-year
     period,  with 20% of the options  becoming  exercisable on each  successive
     anniversary of the date of grant, but subject to additional vesting hurdles
     based on the market  price of our common  stock as traded on Nasdaq  and/or
     certain internal target financial  performance measures. In any event, such
     options  fully  vest on January  15,  2005 or March 2, 2006  (i.e.,  "cliff
     vesting"),  depending  upon  their  issuance  date.  See  "Compensation  of
     Executive Officers, Benefits and Related Matters for additional information
     on the Incentive Plan and Executive Plan, respectively.
(2)  In-the-money  options are options for which the option  exercise price (the
     fair market  value on the date of grant) was lower than the market price of
     our common stock on December 31, 2001. The market price of our common stock
     on December 31, 2001 was $3.45 per share based on the closing  price of our
     stock on that  date as  reported  by  Nasdaq.  The  values  in the last two
     columns  have  not  been,  and may  never  be,  received  by the  Executive
     Officers.  Actual  gains,  if any, on option  exercises  will depend on the
     value of the common stock on the exercise dates. Accordingly,  there can be
     no  assurance  that  the  values  shown in the  last  two  columns  will be
     realized.


Long Term Incentive Plan and 1998 Executive Incentive Plan

     As part of the  going  private  transaction  described  in  "Item 3 - Legal
Proceedings" and "Item 13 - Certain Relationships and Related Transactions," all
options  under both of these plans were 100% vested and then,  on March 4, 2002,
automatically  terminated  upon the  closing  of the back end  merger.  Only two
employees exercised options in connection with the going private transaction and
both  exercises  were  in  nominal  amounts.  Neither  of the  employees  was an
Executive  Officer or a Director  now or at the time.  With Ugly  Duckling now a
private company, we do not currently anticipate issuing any options under either
of these plans.

     We have also implemented for 2002 an executive long-term incentive plan for
certain senior executives of the Company.  The plan's guiding principles include
a focus on short and long term business goals, a reasonable  return to ownership
and   affordability.   The  plan's  purpose  includes   encouraging   continuous
improvement in the Company's performance,  attracting and retaining high quality
executive personnel, motivating executives to successfully execute the Company's
business  strategy and providing an opportunity for executive  participation  in
our  financial  success.  The plan  provides  for two tiers of  executives  with
rewards  earned based upon corporate  performance.  The award pool is based upon
pre-established  fixed dollar  payouts for each tier. The program has a one-year
performance cycle with a three-year  payout deferral or cliff-vesting  schedule.
We anticipate that certain deferred compensation and/or retirement vehicles will
be available.

401(k) Plans

     The Company has  established  qualified  401(k)  retirement  plans (defined
contribution  plans) which became  effective  on October 1, 1995.  The plan,  as
amended,  covers  substantially all eligible employees after 90 days of service,
have  attained  the  age  of 18,  and  work  at  least  1,000  hours  per  year.
Participants  may  voluntarily  contribute to the plan up to the maximum  limits
established  by Internal  Revenue  Service  regulations.  Under our 401(k) plan,
eligible employees may direct that we withhold a portion of their  compensation,
up to a  legally  established  maximum,  and  contribute  this  amount  to their
accounts.  We place all 401(k)  plan  contributions  in our 401(k)  plan  funds.
Participants may direct the investment of their account balances among mutual or
investment  funds available under the plan. Prior to January 1, 2002, the 401(k)
plan provided a matching contribution of Ugly Duckling common stock of up to 50%
for up to the first six percent of a participant's  pre-tax  contributions.  The
matching  contribution  vesting  and  percentage  match were based upon years of
service  with one hundred  percent  vesting and fifty  percent  matching at five
years.  After an analysis and determination of what was in the best interests of
the plan  participants,  all of the shares of our stock in the 401(k)  plan were
tendered in the amended tender offer described in "Item 3-Legal Proceedings" and
"Item 13-Certain Relationships and Related Transactions."

     Beginning   January  1,  2002,   the  Company  no  longer   does   matching
contributions   with  Ugly  Duckling  stock  and  instead  provides  a  matching
contribution  of cash in the  amount of 35% of the  first 6% of each  employee's
deferrals.  Participants  are  immediately  vested in the amount of their direct
contributions  and the  employee  matching  contributions  vest over a five-year
period.  Amounts  contributed to participant  accounts under the 401(k) plan and
any earnings or interest  accrued on the participant  accounts are generally not

<PAGE>

subject to federal income tax until  distributed to the participant  and, except
in limited  cases,  the  participant  may not withdraw such amounts until death,
retirement or termination of employment.  Compensation  expense  related to this
plan totaled  $678,000,  $566,000,  and $194,000 during the years ended December
31, 2001, 2000, and 1999, respectively.

Contracts With Directors and Executive Officers and Severance Arrangements

Steven T. Darak

     In  February   2002,   Mr.  Darak   discontinued   being  our  Senior  Vice
President/Chief Financial Officer, but will continue to be employed by us as our
Senior Vice  President-Director  of Special Projects through September 30, 2002.
Mr.  Darak  will  receive  a  monthly   salary  of  $11,200  and  certain  other
compensation  and  benefits.  All company  advances  and loans to Mr. Darak were
transferred  to a third party.  The agreement  also  contains a  confidentiality
covenant.

Steven A. Tesdahl

     On August 6, 1997, we entered into an employment agreement with Mr. Tesdahl
that was amended on May 21, 1998 and March 1, 2001.  On January  31,  2002,  Mr.
Tesdahl  discontinued  his  employment  with Ugly  Duckling  as its Senior  Vice
President and Chief Information  Officer.  As part of a severance agreement with
Mr.  Tesdahl,  we will pay Mr.  Tesdahl  an  annual  salary  of  $215,000  for a
fifteen-month  period and provide certain other  compensation and benefits.  The
Company stock purchase loan was transferred to a third party. The agreement also
contains confidentiality and non-compete covenants.

Compensation Committee Interlocks and Insider Participation

    As of March 31, 2002, Ugly Duckling no longer has a compensation committee.

Compensation of Our Directors and the Director Incentive Plan

    During 2001, we paid our independent directors:

o    An annual retainer of $20,000 per year;
o    $2,000 for  physical  attendance  at  meetings  of the board and $1,000 for
     physical attendance at meetings of committees of the board, and
o    $1,000 for their  attendance by telephone at meetings of the board and $500
     for telephonic attendance at committee meetings.

     We also reimburse these directors for reasonable  travel expenses for their
attendance at meetings.

     Under Ugly Ducklings'  Director  Incentive Plan (Director Plan), and except
as described below,  upon initial  appointment or initial election to the board,
each of our independent directors has received Ugly Duckling common stock valued
at $30,000 (Director Stock). Director Stock generally vests in increments of 1/3
over a three-year  period.  In 2000 and 2001, each of our independent  directors
was also granted 5,000 options under the Long Term Incentive Plan. These options
were 100% vested upon issuance.

     We do not  compensate Mr. Garcia or directors who are also officers of Ugly
Duckling for their service as directors  and such  directors are not eligible to
participate  in our Director  Plan. As of March 31, 2002, Mr. Garcia is the sole
director of the Company.

     ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table gives  information as of March 28, 2002, unless another
date is indicated,  concerning:  o each beneficial  owner of more than 5% of our
common stock;

o    beneficial  ownership  by all of our  directors  and  all of our  executive
     officers; and
o    beneficial  ownership by all of our directors  and executive  officers as a
     group.

     The number of shares beneficially owned by each entity, person, director or
executive  officer is  determined  under rules of the  Securities  and  Exchange
Commission,  and  the  information  does  not  necessarily  indicate  beneficial
ownership  for any  other  purpose.  Under  these  rules,  beneficial  ownership
includes  any shares as to which the  individual  has the sole or shared  voting
power or investment power and also any shares which the individual has the right
to  acquire  as of May 27,  2002 (60 days  after  March 28,  2002)  through  the
exercise  of  any  stock  option,  warrant  or  other  right.  Unless  otherwise
indicated,  each person has sole  investment  and voting  power (or shares these
powers with his spouse)  with  respect to the shares set forth in the  following
table. Other than as set forth below, there are no other 5% owners of our common
stock as of March 28, 2002.
<PAGE>
<TABLE>
<CAPTION>

Beneficial Ownership Table
------------ ----------------------------------------------------------- ---------------------------- -----------------

<S>          <C>                                                         <C>                          <C>
Title of     Name of Beneficial Owner, Address and Other Information(1)  Amount and Nature of         Percent of
---------    ----------------------------------------------------------  Beneficial Ownership         Ownership
Class
------------ ----------------------------------------------------------- ---------------------------- -----------------
Common       Ernest C. Garcia II, Chairman of the Board, Sole Director
Stock        and 90% Owner as a result of recent amended tender offer
             and back end merger closed March 4, 2002; ownership held
             indirectly through ownership of UDC Holdings, Inc., a
             Delaware corporation which owns 100% of Ugly Duckling and
             which is 100% owned by Mr. Garcia (90%) and Mr. Sullivan                                       90%
             (10%).                                                           90 Shares
------------ ----------------------------------------------------------- ---------------------------- -----------------
Common       Gregory B. Sullivan, President and Chief Executive Officer       10 Shares                     10%
Stock
------------ ----------------------------------------------------------- ---------------------------- -----------------
             All directors and executive officers as a group (5               100 Shares                    100%
             persons)
------------ ----------------------------------------------------------- ---------------------------- -----------------
</TABLE>
(1)  Unless otherwise noted, the address of each of the listed beneficial owners
     of our common  stock is 4020 East  Indian  School  Road,  Phoenix,  Arizona
     85018.

All other executive officers did not own any  of our common stock.

     Each  of our  executive  officers  and  directors  is a U.S.  citizen.  Our
officers  hold office until their  successors  are chosen and qualified or until
their earlier retirement,  resignation,  or removal. Except as summarized above,
there is no family relationship among any of our officers and directors.


            ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In  the  two  most  recent  fiscal  years,  we  have  maintained   business
relationships and engaged in certain  transactions with the affiliated companies
and  parties   described  below.  Our  plan  is  that  any  significant   future
transactions  between  us  and  our  affiliated  entities,  executive  officers,
directors, or stockholders will receive approval of our directors,  will be fair
and generally will be on terms no less favorable to us than we could obtain from
non-affiliated parties. Prior to the completion of the going private transaction
on March 4,  2002,  all  affiliated  party  transactions  were  approved  by our
independent directors.

     On December 30, 1999, we sold our Cygnet Dealer  Finance  division (CDF) to
an entity  controlled  by Mr.  Garcia,  for an amount equal to the book value of
CDF,  approximately  $37.5  million.  This  transaction  occurred  after several
attempts by us to sell or finance CDF, including the retention and efforts of an
investment  banking firm to sell CDF in the first quarter of 1999.  The purchase
price of CDF was paid through the  assumption by the buyer of  approximately  $8
million  of  outstanding  debt  owed by us to  Verde;  a $12  million,  ten-year
promissory  note  from the  buyer to us that is  guaranteed  by  Verde;  and the
remainder in cash. We also  received  warrants to acquire up to 50% of the buyer
for $1, exercisable  beginning two years from close through five years after the
note is paid in full.  The warrants would be forfeited in the event that the $12
million  note is repaid in full  within one year.  The  percentage  of the buyer
purchasable  under the warrants  would be reduced to 25% if the note was reduced
to $4 million  within  two years and to 10% if the note was paid in full  within
two years.  As part of the  transaction,  our board of directors  requested  and
received a fairness opinion from an investment  banking firm and the transaction
was reviewed by the Special Transaction Committee of our board.

     In April of 2000, we completed an exchange  offer under which we offered to
our  shareholders  the exchange of our 11%  Subordinated  Debentures due in 2007
(2000  Exchange  Debt) for common  stock at $11 per share (our common  stock was
trading at or around $7.37 per share on the closing date of the exchange  offer,
April 13, 2000).  In  connection  with this  exchange  offer,  Mr. Garcia made a
commitment to us to exchange a minimum number of his shares for the subordinated
debt  issued  by  us.  The  following   entities   affiliated  with  Mr.  Garcia
participated  in the exchange  offer and received 2000 Exchange Debt: The Garcia
Family  Foundation  tendered 136,500 shares and owns $1,501,500 of 2000 Exchange
Debt and Verde Investments,  Inc. tendered 158,000 shares and owns $1,738,000 of
2000 Exchange Debt.

     In April 1999, our board of directors authorized a stock repurchase program
allowing us to repurchase up to 2.5 million shares of our common stock from time
to time. Under the repurchase  program, we are permitted to make purchases based
on market conditions,  share price, lender approval and other factors. Since its
inception, we have repurchased 1,685,425 shares under this program,  although we
have not repurchased any shares since July of 2000.

     Beginning  in March of 1998,  we sold 17  properties  for a total  price of
approximately $27.4 million to an unrelated  investment company, and leased back
the properties for an additional  term of 20 years.  We have the right to extend
the leases for up to an additional 20 years. In December of 1999, Verde acquired
these properties at a 10% discount  (approximately $24.6 million).  With respect
to this transaction,  an unaffiliated third party contacted Mr. Garcia regarding
the sale of certain  properties.  Mr. Garcia  informed us of the  opportunity to
purchase these properties.  Our board decided not to purchase the properties for
various  reasons,  including  lack of  available  funds.  Mr.  Garcia  then  had
discussions  with us regarding  the purchase of the  properties  by an entity he
beneficially  owned.  Mr. Garcia  received the approval of our board to purchase
the  properties,  subject to the condition that Mr. Garcia give us the option to
purchase  such  properties  at the purchase  price that Mr.  Garcia paid. We pay

<PAGE>

monthly rents of approximately one-twelfth of 11% of the purchase price plus all
occupancy costs and taxes.  The agreement calls for annual  increases in monthly
rent in accordance with increases in the Consumer Price Index. In November 2000,
Verde purchased a certain property located in Phoenix, Arizona for approximately
$2.25 million,  and  simultaneously  leased the property to us pursuant to among
other terms the following:  20 year term which expires  December 31, 2020;  rent
payable  monthly  with 5% annual rent  adjustments;  triple net lease;  and four
five-year  options to renew. We have built and now occupy a new  headquarters at
this  location.  We amended  this lease in March 2002 to shorten the term to ten
years and increase the rent  payable  under the lease.  The total amount paid to
Verde under all these leases in 2001 was approximately $3.6 million. Although we
originally had the right to repurchase  these properties from Verde at its cost,
we relinquished this right as part of the consideration for the $7 million Verde
loan to us described below.

     In January  2001,  Verde made a $7 million  loan to us pursuant  to,  among
other terms, the following: loan matures on December 31, 2003; interest at LIBOR
plus 600 basis  points;  issuance  of  1,500,000  warrants  subject  to  certain
conditions  and a vesting  schedule;  secured by a second  lien  position on our
residual interests in our securitizations;  grant of options to purchase certain
of our real estate;  and the release of our options to buy real estate leased to
us by Verde. As a result of the going private  transaction  described below, the
warrants have been terminated.

     In May 2001, Verde purchased one of the Company  properties in Atlanta,  GA
at its book value of approximately  $1.7 million.  Verde has leased the property
back to the Company under a 20-year  lease,  which  expires May 2021.  The lease
otherwise  has  substantially  the same terms and  conditions  as the other sale
leaseback leases.

     In  October  2001,  our  board  of  directors,   acting  on  the  unanimous
recommendation  of the  independent  directors,  authorized a new stock and debt
repurchase program. Under this program, the board authorized us to repurchase up
to $10 million of our outstanding  common stock, our 11% debentures due 2007 and
our 12%  debentures due 2003 from time to time in one or more  transactions,  on
the open  market or  otherwise.  This plan was  subject to  several  conditions,
including  a cap on stock  repurchases,  repurchases  of the  debt at a  certain
discount  of 5% or more and  receipt of lender  approval.  The  approval  of the
independent  directors and the board was based on their  determination  that the
program was fair to and in the best interests of the  unaffiliated  stockholders
of the  Company.  We have not yet  attempted  to seek lender  approval  for this
program. For a more detailed discussion of the program, see our 2001 Proxy.

     From January 1, 2000, until December 31, 2001, Mr. Garcia purchased, either
himself or  through  affiliated  parties,  2,942,200  shares of our  outstanding
common stock at prices ranging from $2.51 to $5.50.

     In the fourth quarter of 2001, the Audit Committee approved terminating our
20-year  lease of a Tucson,  Arizona  property of which Verde is the lessor.  At
that  time,   the  remaining  rent  payable  and  term  under  this  lease  were
approximately  $2.6  million  and 16 years,  respectively.  This  lease  will be
terminated  prior to April 2002; we will pay a termination fee of  approximately
$350,000

     In December  2001,  Verde  exercised its right to purchase  from, and lease
back to us,  six  properties  having a net  book  value  of  approximately  $6.7
million.   This   transaction   was   provided   for  under  the  terms  of  the
above-described  $7 million Verde loan agreement that we entered into in January
2001. This purchase and lease-back transaction closed in January, 2002.

     Prior to December of 2001, Mr. Garcia, our Chairman,  made two unsuccessful
attempts to take the Company private. In October 2000 and April 2001, Mr. Garcia
initiated an offer to purchase all of the  outstanding  stock of the Company not
owned by him and in October 2000 and September 2001 Mr. Garcia  confirmed to the
Board  of  Directors  the  withdrawal  of each of  these  offers,  respectively.
However,  as previously noted, on December 9, 2001, Mr. Garcia and Mr. Sullivan,
our President and Chief Executive Officer,  through an affiliated  company,  UDC
Acquisition  Corp.,  entered into an agreement with our board of directors under
which Mr. Garcia agreed to amend an existing tender offer and offer shareholders
$3.53/share to be followed by a back end merger. (See Merger Agreement,  Exhibit
10.33, to this report). On January 16, 2002, the amended tender offer closed and
UDC Acquisition  Corp. then owned  approximately  92% of the outstanding  common
stock of the Company.  On March 4, 2002, a short form merger was  completed  and
the transaction  closed. The going private transaction was reviewed by a special
transaction   committee  of  independent   directors.   The  committee  retained
independent legal counsel and, an investment banker, US Bancorp Piper Jaffray to
advise it, and US Bancorp Piper Jaffray  issued a fairness  opinion  finding the
transaction  was  fair  from a  financial  point  of view to  shareholders.  The
committee and the board  recommended the transaction to the  shareholders of the
Company.

     The table that follows  provides  information on  outstanding  loans to our
current executive officers as of December 31, 2001.
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------ -------------------- --------------- -------------------------- --------------
<S>                                        <C>                  <C>             <C>                        <C>
Name & title of executive officer          Nature of debt       Date debt       Principal Balance Of       Number of
                                                                incurred        Debt At December 31, 2001  Shares
                                                                                                           Purchased
------------------------------------------ -------------------- --------------- -------------------------- --------------
Gregory B. Sullivan, CEO, President, &     D&O Stock Purchase   11/97 & 5/98           $198,126               20,000
Director                                   Program
------------------------------------------ -------------------- --------------- -------------------------- --------------
</TABLE>

Involvement in Certain Legal Proceedings

     None of our  executive  officers or directors  was  convicted in a criminal
proceeding during the past five years (excluding  traffic  violations or similar
misdemeanors) or was a party to any judicial or administrative proceeding during
the past five years (except for matters that were dismissed  without sanction or
settlement) or resulted in a judgment,  decree or final order enjoining him from
future  violations  of, or prohibiting  activities  subject to, federal or state
securities  laws, or a finding of any  violation of federal or state  securities
laws.


        ITEM 14 -- EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,
                             AND REPORTS ON FORM 8-K

(a)  Consolidated Financial Statements.

     The   following   consolidated   financial   statements  of  Ugly  Duckling
Corporation are filed as part of this Form 10-K.
<TABLE>
<CAPTION>

                                                                                                  Page
        <S>                                                                                       <C>
        Independent Auditors' Report........................................................        35
        Consolidated Financial Statements and Notes thereto of Ugly Duckling Corporation:
        Consolidated Balance Sheets-- December 31, 2001 and 2000............................        36
        Consolidated Statements of Operations-- for the years ended  December 31, 2001, 2000,
            and 1999........................................................................        37
        Consolidated Statements of Stockholders' Equity-- for the years ended  December 31,
            2001, 2000, and 1999............................................................        38
        Consolidated Statements of Cash Flows-- for the years ended December 31, 2001, 2000,
            and 1999........................................................................        39
        Notes to Consolidated Financial Statements..........................................        40
        All schedules have been omitted because they are not applicable, not required, or the
        information has been disclosed in the consolidated financial statements and related
        notes thereto or otherwise in this Form 10-K Report.
</TABLE>

(b)  Reports on Form 8-K.

     During the fourth  quarter of 2001,  the Company  filed two reports on Form
8-K. The first report on Form 8-K, dated and filed October 25, 2001, filed as an
exhibit to the Form 8-K a press release  dated  October 25, 2001 entitled  "Ugly
Duckling  Reports Third Quarter and Nine Months  Results".  The second report on
Form 8-K dated and filed  December 4, 2001,  reported  the Company and Ernest C.
Garcia II issued a joint  press with  respect to Mr.  Garcia's  tender  offer to
acquire all of the Company's  outstanding  common stock.  Filed as an exhibit to
the Form 8-K was a press release dated  December 4, 2001 entitled "Ugly Duckling
Corporation Special Committee to Review Garcia Tender Offer".
<PAGE>
(c) Exhibits.
EXHIBIT
NUMBER                     DESCRIPTION

3.1  Certificate of Incorporation  of the Registrant  Amended and Restated as of
     May 15, 1997(11)
3.2  Bylaws of the Registrant (20)
4.1  Certificate of Incorporation of the Registrant (filed as Exhibit 3.1)
4.2  Form of Certificate representing Common Stock (1)
4.3  Form of Warrant issued to Cruttenden Roth Incorporated as Representative of
     the several underwriters (1)
4.4  Form of Warrant issued to SunAmerica Life Insurance Company (1)
4.5  Form of 12% Senior  Subordinated Note between Registrant and Kayne Anderson
     related entities, each as a lender, executed in February 1998 (7)
4.6  Warrant Agreement dated as of February 12, 1998 between Registrant and each
     of the Kayne Anderson related lenders named therein (7)
4.7  Form of  Warrant  issued  to Kayne  Anderson  related  entities  issued  in
     February 1998 (7)
4.7(a) Form of  Amendment  to Warrant  Agreement  dated June 5, 2000 and Warrant
     Agreements between the Registrant and Foremost  Insurance Company,  Glacier
     Water Services,  Inc., Kayne Anderson  Non-Traditional  Investments,  L.P.,
     dated as of June 5, 2000, (w/ form of warrant agreement attached as Exhibit
     A, thereto) (23)
4.7(b) Second  Amendment to Warrant  Agreement  dated  February 12, 1998 between
     Registrant  and each of the Kayne Anderson  related  lenders named therein,
     dated as of September 30, 2000. (24)
4.8  Warrant   Agreement   between  the  Registrant   and  Reliance   Acceptance
     Corporation and Harris Trust Company of California, as warrant agent, dated
     as of  February 9, 1998  (w/form of warrant  attached as Exhibit A thereto)
     (10)
4.9  Certificate  of  Designation  of the  Preferred  Stock (par value $.001 per
     share) (filed as part of Exhibit 3.1) (11)
4.10 Indenture dated as of October 15, 1998 between  Registrant and Harris Trust
     and Savings Bank, as Trustee ("Harris") ("Indenture") (13)
4.10(a) First  Supplemental  Indenture  dated as of  October  15,  1998  between
     Registrant and Harris (13)
4.10(b) Form of 12% Subordinated Debenture due 2003 (14)
4.10(c) Second  Supplemental  Indenture dated April 15, 2000 between  Registrant
     and Harris (26)
4.10(d) Form of 11%  Subordinated  Debenture due  2007.(filed as part of Exhibit
     4.10(c)
4.11 Form of Warrant  Agreement  between the Registrant  and Verde  Investments,
     Inc., in relation to the $7 million Loan  Agreement  between the Registrant
     and Verde Investments Inc., dated as of January 11, 2001. (26)
10.1 Amended and Restated Motor Vehicle  Installment  Contract Loan and Security
     Agreement  between  Registrant  and General  Electric  Capital  Corporation
     ("GECC") (5)
10.1(a) Assumption and Amendment Agreement between the Registrant and GECC (2)
10.1(b)  Amendment  No. 1 to Amended  and  Restated  Motor  Vehicle  Installment
     Contract  Loan and Security  Agreement  between  Registrant  and GECC dated
     December 22, 1997 (8)
10.1(c) Letter  Agreement  to amend  the  Amended  and  Restated  Motor  Vehicle
     Installment  Contract Loan and Security  Agreement  between  Registrant and
     GECC dated as of October 20, 1997(10)
10.1(d) Letter  agreement  to amend  the  Amended  and  Restated  Motor  Vehicle
     Installment  Contract Loan and Security  Agreement  between  Registrant and
     GECC, dated as of March 25, 1998 (10)
10.1(e)  Amendment  No. 2 to Amended  and  Restated  Motor  Vehicle  Installment
     Contract Loan and Security Agreement between Registrant and GECC (12)
10.1(f)  Amendment  No. 3 to Amended  and  Restated  Motor  Vehicle  Installment
     Contract Loan and Security Agreement between Registrant and GECC (14)
10.1(g) Amendment to the Amended and Restated Motor Vehicle Installment Contract
     Loan and Security  Agreement  between GECC and  Registrant  dated March 25,
     1999 regarding Year 2000 Date Change (15)
10.1(h) Amendment No. 4 to the Amended and Restated  Motor  Vehicle  Installment
     Contract Loan and Security Agreement between GECC and Registrant dated June
     30, 1999 (17)
10.1(i) Amendment No. 5 to the Amended and Restated  Motor  Vehicle  Installment
     Contract  Loan and Security  Agreement  between GECC and  Registrant  dated
     August 16, 1999 (18)
10.1(j) Amendment No. 6 to the Amended and Restated  Motor  Vehicle  Installment
     Contract  Loan and Security  Agreement  between GECC and  Registrant  dated
     August 27, 1999 (18)
10.1(k) Amendment No. 7 to the Amended and Restated  Motor  Vehicle  Installment
     Contract Loan and Security  Agreement  between GECC and Registrant dated as
     of November 30, 1999 (21)
10.1(l) Amendment No. 8 to the Amended and Restated  Motor  Vehicle  Installment
     Contract Loan and Security  Agreement  between GECC and Registrant dated as
     of December 7, 1999 (21)
10.1(m) Amendment No. 9 to the Amended and Restated  Motor  Vehicle  Installment
     Contract Loan and Security  Agreement  between GECC and Registrant dated as
     of December 8, 1999 (21)
10.1(n) Amendment No. 10 to the Amended and Restated  Motor Vehicle  Installment
     Contract Loan and Security  Agreement  between GECC and Registrant dated as
     of March 6, 2000 (21)
10.1(o) Amendment No. 11 to the Amended and Restated  Motor Vehicle  Installment
     Contract Loan and Security  Agreement between GECC and the Registrant dated
     as of June 30, 2000. (26)
10.1(p) Amendment No. 12 to the Amended and Restated  Motor Vehicle  Installment
     Contract Loan and Security  Agreement  between GECC and Registrant dated as
     of April 13, 2001. (26)
<PAGE>
10.2 Note  Purchase   Agreement  between  the  Registrant  and  SunAmerica  Life
     Insurance Company (1)
10.2(a) First  Amendment to Note Purchase  Agreement  between the Registrant and
     SunAmerica Life Insurance Company (1)
10.2(b) Second Amendment to Note Purchase  Agreement  between the Registrant and
     SunAmerica Life Insurance Company (1)
10.2(c) Third  Amendment to Note Purchase  Agreement  between the Registrant and
     SunAmerica Life Insurance Company (1)
10.2(d) Fourth Amendment to Note Purchase  Agreement  between the Registrant and
     SunAmerica Life Insurance Company (1)
10.2(e) Commitment  Letter  entered into between the  Registrant  and SunAmerica
     Life Insurance Company (1)
10.2(f) Letter  Agreement  regarding Note Conversion  between the Registrant and
     SunAmerica Life Insurance Company (1)
10.3 Amended and Restated  Registration  Rights Agreement between the Registrant
     and SunAmerica Life Insurance Company(1)
10.4*Restated  (as of  March  14,  1997)  Ugly  Duckling  Corporation  Long-Term
     Incentive Plan (3)
10.4(a)* Amended and Restated Long Term  Incentive Plan (as of January 15, 1998)
     (12)
10.5* Employment Agreement between the Registrant and Ernest C. Garcia II (1)
10.5(a)* Amendment to Employment  Agreement between the Registrant and Ernest C.
     Garcia II (14)
10.6* Employment Agreement between the Registrant and Steven A. Tesdahl (5)
10.6(a)*  Modification of Terms of Employment  between  Registrant and Steven A.
     Tesdahl (11)
10.7 Form of Indemnity  Agreement  between the  Registrant and its directors and
     officers (16)
10.8* Ugly Duckling Corporation 1996 Director Incentive Plan (1)
10.9 Portfolio Servicing Agreement among Registrant,  Kars-Yes Financial,  inc.,
     and certain other parties, dated as of September 15, 1997 (4)
10.9(a) Subservicing Agreement among Registrant,  Kars-Yes Financial,  Inc., and
     certain other parties, dated as of September 15, 1997 (4)
10.10Binding  Agreement to Propose and Support  Modified Plan Agreement dated as
     of December 15, 1997 among the Registrant,  FMAC and the Official Committee
     of Unsecured Creditors of FMAC (6)
10.11FMAC  Guaranty  and Stock  Pledge  Agreement  among  FMAC,  Registrant  and
     certain banks (9))
10.12 Contribution Agreement between Registrant and FMAC (8)
10.13 Indemnification Agreement between the Company and FMAC (9))
10.14Loan  Agreement  dated as of February 12, 1998 between the  Registrant  and
     each of the Kayne Anderson related Lenders named therein (7)
10.14(a)  Amendment to Loan  Agreement  between the  Registrant  and each of the
     Kayne Anderson related lenders named therein, dated September 30, 1999 (18)
10.15Credit  and  Security  Agreement  between  Registrant  and First  Merchants
     Acceptance Corp., dated as of July 17, 1997 (10)
10.15(a) First Amendment to Credit and Security Agreement between Registrant and
     FMAC, dated as of January 21, 1998 (10)
10.15(b) Second Amendment to Credit and Security  Agreement  between  Registrant
     and FMAC, dated as of April 1, 1998 (10)
10.15(c) Third Amendment to Credit and Security Agreement between Registrant and
     FMAC, dated as of August 2, 1999 (18)
10.16Service Agreement among Reliance Acceptance Corporation,  Registrant,  Bank
     America  Business  Credit,  Inc.  and  certain  other  parties  dated as of
     February 9, 1998 (12)
10.17Agreement of Understanding  among Reliance Acceptance Group, Inc., Reliance
     Acceptance Corporation and Registrant, dated as of February 9, 1998 (12)
10.18Purchase  and  Sale-Leaseback   Agreement  and  Joint  Escrow  Instructions
     between Champion  Acceptance  Corporation,  Ugly Duckling Car Sales,  Inc.,
     Ugly Duckling Car Sales New Mexico,  Inc., Ugly Duckling Car Sales Florida,
     Inc. and Ugly Duckling Car Sales Texas, LLP, date as of May 13, 1998 (11)
10.19Agreement of Purchase  and Sale of Assets made as of July 31, 1998,  by and
     among  Cygnet  Financial  Services,   Inc.  and  Mountain  Parks  Financial
     Services, Inc. (12)
10.20* 1998 Executive Incentive Plan (12)
10.21$38 Million Senior Secured Loan  Agreement  between CIBC Inc.,  SunAmerica,
     etc.  and the  Registrant  dated May 14, 1999  (w/form of note and guaranty
     attached) (16)
10.21(a) First  Amendment to $38 million Senior  Secured Loan Agreement  between
     CIBC Inc.,  SunAmerica,  etc. and the  Registrant  dated November 12, 1999.
     (22)
10.21(b) Second  Amendment to $38 million Senior Secured Loan Agreement  between
     CIBC Inc.,  SunAmerica,  etc. and the  Registrant  dated February 15, 2000.
     (22)
10.21(c) Amendment and waiver letter  agreement to Senior Secured Loan Agreement
     dated May 14, 1999 between CIBC Inc.,  SunAmerica,  etc. and the Registrant
     dated October 12, 2000. (24)
10.21(d) Stock Pledge Agreement among certain lenders, Harris and the Registrant
     dated May 14, 1999 (16)
10.22Stock  Purchase  Agreement,  by and among Ugly Duckling Car Sales & Finance
     Corporation,  Ugly Duckling  Finance  Corporation  ("UDFC"),  Cygnet Dealer
     Finance,  Inc.("CDF"),  and Cygnet Capital Corporation ("CCC"), dated as of
     December 30, 1999 (19)
10.22(a) Promissory Note dated December 30, 1999 from CCC to UDFC (19)
10.22(b) Pledge Agreement dated December 30, 1999 from CCC to UDFC (19)
10.22(c) Verde Guaranty dated December 30, 1999 (19)
<PAGE>

10.22(d) CDF Guaranty dated December 30, 1999 (19)
10.22(e) Warrant dated December 30, 1999 from CCC to UDFC (19)
10.23Letter agreement between the beneficiaries  and/or  representatives  of the
     estate of Don Addink and the  Registrant  dated as of  September  14, 2000.
     (24)
10.24Property   lease   agreement,   by  and  among  the  Registrant  and  Verde
     Investments, Inc., dated as of November 2000.
10.24(a)  Form of  Lease  Agreement,  by and  among  the  Registrant  and  Verde
     Investments, Inc.(25) (26)
10.24(b) Schedule of Lease  Agreements,  by and among the  Registrant  and Verde
     Investments, Inc. (26)
10.25Options  agreement  for purchase and sale of  commercial  property,  by and
     among the Registrant and Verde Investments,  Inc., dated as of November XX,
     2000. (26)
10.26$35 million Senior  Secured Loan  Agreement  between the Registrant and BNY
     Midwest Trust Company, dated as of January 11, 2001. (26)
10.26(a) Cash Collateral  Agreement between the Registrant and BYN Midwest Trust
     Company, dated as of January 11, 2001.(26)
10.26(b) $7 million Loan Agreement  between the Registrant and Verde Investments
     Inc., dated as of January 11, 2001. (26)
10.26(c) $7 million Promissory Note between the Registrant and Verde Investments
     Inc., dated as of January 11, 2001. (26)
10.26(d)  Subordination and Standstill  Agreement between the Registrant,  Verde
     Investments  Inc., and BYN Midwest Trust  Company,  dated as of January 11,
     2001.(26)
10.26(e) Stock Pledge  Agreement  between the Registrant and Verde  Investments,
     Inc., dated as of January 11, 2001.(26)
10.26(f) Stock Pledge  Agreement  between the  Registrant  and BNY Midwest Trust
     Company, dated as of January 11, 2001.(26)
10.27Offer Letter to Purchase All Registrant  Outstanding Stock by Ernest Garcia
     II, dated as of April 16, 2001.(26)
10.28Master Loan and Security  Agreement  between the  Registrant  and Greenwich
     Capital Financial Products, Inc., dated as of April 13, 2001. (26)
10.28(a)  Intercreditor  Agreement  between the  Registrant,  Greenwich  Capital
     Financial Products, Inc. and General Electric Capital Corporation, dated as
     of April 13, 2001. (26)
10.28(b)  Custodial  Agreement  between the  Registrant  and  Greenwich  Capital
     Financial Products, Inc., dated as of April 13, 2001. (26)
10.29Loan and  Security  Agreement  dated as of  August  24,  2001  between  the
     Registrant and Automotive Finance Corporation (27)
10.30Covenant  Waiver Letter dated  November 1, 2001 between the  Registrant and
     Automotive Finance Corporation
(27) 10.31 Covenant  Waiver Letter dated November 9, 2001 between the Registrant
     and Greenwich Capital Financial Products, Incorporated (27)
10.32Covenant  Waiver Letter dated  November 9, 2001 between the  Registrant and
     Sun America Life Insurance Company (27)
10.33Agreement  and Plan of Merger,  dated as of December 10, 2001, by and among
     Ugly Duckling Corporation,  UDC Acquisition Corp., Ernest C. Garcia, II and
     Gregory B. Sullivan (28)
10.34Covenant  Waiver Letter dated  March 28, 2002 between the  Registrant and
     Automotive Finance Corporation **
10.35Covenant  Waiver Letter dated  February 11, 2002 between the Registrant and
     Greenwich Capital Financial Products, Incorporated **
10.36Covenant  Waiver Letter dated  March 20, 2002 between the Registrant and
     Sun America Life Insurance Company **
10.37Stipulation  and  Agreement of  Compromise,  Settlement  and Release  dated
     February  4, 2002  between  the  Registrant  and the  Shareholders  of Ugly
     Duckling Corporation**
10.37(a)  Scheduling  Order for Approval of Settlement  of Class and  Derivative
     Action dated March _, 2002**
10.37(b) Notice of Pendency of Class and Derivative Action to all Record Holders
     and Beneficial  Owners of Common Stock of the Registrant  dated February _,
     2002**
10.37(c) Order and Final Judgment in Re Ugly Duckling  Corporation  Shareholders
     Derivative and Class Litigation**
10.38(a)Severance  Agreement  effective January 31, 2002 between Steven T. Darak
     and the Registrant**
10.38(b)Re:  Severance Agreement dated February 11, 2002 between Steven T. Darak
     and the Registrant**
10.39Severance  Agreement  effective  January 31, 2002 between Steven A. Tesdahl
     and the Registrant**
10.40Notice  of  Exercise  of  Option  from  Verde  Investments  Inc.,  and  the
     Registrant, dated as of December 27, 2001**
11   Earnings (Loss) per Share Computation (see Note 12 to Notes to Consolidated
     Financial Statements)
21   List of Subsidiaries (filed as Schedule 4 to Exhibit 10.28)
23   Consent of KPMG LLP**
24.1 Special Power of Attorney for Ernest C. Garcia II (26)
24.2 Special Power of Attorney for C. Jennings (26)
24.3 Special Power of Attorney for J. MacDonough (26)
24.4 Special Power of Attorney for F. Willey (26)
24.5 Special Power of Attorney for Gregory Sullivan (26)
24.6 Special Power of Attorney for Gregory S. Kilfoyle (26)
27   Financial  Data   Schedules  for  the  year  ending   December  31,  2001**
---------------------------
*    Management contract or compensatory plan, contract or arrangement.
**   Filed with this Form 10-K.
(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1 (Registration No. 333-3998), effective June 18, 1996.
<PAGE>

(2)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1 (Registration No. 333-13755), effective October 30, 1996.
(3)  Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed August 14, 1997.
(4)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed October 3, 1997.
(5)  Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed November 14, 1997.
(6)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed January 2, 1998.
(7)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed February 20, 1998.
(8)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1 (Registration No. 333-42973) effective February 11, 1998.
(9)  Incorporated  by reference  to the  Company's  Annual  Report on Form 10-K,
     filed March 31, 1998.
(10) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed May 15, 1998.
(11) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed August 10, 1998.
(12) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed November 13, 1998.
(13) Incorporated  by  reference  to the  Company's  Form  T-3  Application  for
     Qualification  of Indenture  under the Trust  Indenture Act of 1939,  filed
     November 20, 1998 (File No. 022-22415) effective December 21, 1998.
(14) Incorporated  by reference  to the  Company's  Annual  Report on Form 10-K,
     filed March 30, 1999.
(15) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed May 14, 1999.
(16) Incorporated by reference to the Company's  Post-Effective  Amendment No. 1
     to Registration  Statement on Form S-1  (Registration  No. 333-42973) filed
     July 9, 1999, effective August 2, 1999.
(17) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed August 16, 1999.
(18) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed November 15, 1999.
(19) Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed January 5, 2000.
(20) Incorporated  by  reference  to the  Company's  Form  T-3  Application  for
     Qualification  of Indenture  under the Trust  Indenture Act of 1939,  filed
     February 23, 2000 (File No. 022-22463).
(21) Incorporated  by reference  to the  Company's  Annual  Report on Form 10-K,
     filed April 3, 2000.
(22) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed May 12, 2000.
(23) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed August 14, 2000.
(24) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed November 14, 2000.
(25) Ugly  Duckling  has  entered  into  17  sale  and  leaseback   transactions
     substantially  in the form of Exhibit  10.24(a),  but with differing terms,
     including  property  description,  dates of execution,  purchase amount and
     rental  payment  amount.  Schedule  1 to Exhibit  10.24(b)  lists the major
     transactions and the principal differing terms of each such transaction.
(26) Incorporated  by reference  to the  Company's  Annual  Report on Form 10-K,
     filed April 17, 2000.
(27) Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q,
     filed November 14, 2001.
(28) Incorporated  by  reference  to the  Company's  Solicitation/Recommendation
     Statement on Form 14D-9/A, filed December 10, 2001.



<PAGE>


       SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                     UGLY DUCKLING CORPORATION,
                     a Delaware corporation

                     By:   /s/ GREGORY B. SULLIVAN
                     -----------------------
                     Gregory B. Sullivan
                     Its: Chief Executive Officer

Date: April 1, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
     has been signed below by the following  persons on behalf of the registrant
     and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

        Name and Signature                               Title                            Date

<S>                                        <C>                                       <C>
/s/ ERNEST C. GARCIA II                    Chairman of the Board of Directors        March 28, 2002
----------------------------------
Ernest C. Garcia II

/s/ GREGORY B. SULLIVAN                    President, Chief Executive Officer
----------------------------------
Gregory B. Sullivan                        (Principal Executive Officer)             March 28, 2002

/s/ MARK G. SAUDER                         Chief Financial Officer (Principal        March 28, 2002
----------------------------------
Mark. G. Sauder                            Financial and Accounting Officer)
</TABLE>