================================================================================
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
--------------------------------------------------------------------------------

                                    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, 2000

                                       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 Identification No.)
    incorporation or organization)
   2525 E. Camelback Road, Suite 500,
        Phoenix, Arizona                                  85016
 (Address of principal executive offices)              (Zip Code)

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

<TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
                        Title of Class                                          Name of each Exchange on which registered
                        ------------------------------------                    -----------------------------------------
<S>                     <C>                                                     <C>
                        12% Subordinated Debentures Due 2003                    American Stock Exchange
                        11% Subordinated Debentures Due 2007                    American Stock Exchange
</TABLE>
<TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<CAPTION>
                        Title of Class                                          Name of each Exchange on which registered
                        ------------------------------------                    -----------------------------------------
<S>                     <C>                                                     <C>
                        Common Stock, $.001 par value                           The Nasdaq National Market
</TABLE>

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. [ ]

     The aggregate  market value of common stock held by  non-affiliates  of the
registrant  was  approximately  $18,025,000  as of March 30,  2001  based on the
closing market price of the Registrants common stock on Nasdaq on that date.

              Applicable Only to Registrants Involved in Bankruptcy
                  Proceedings During the Preceding Five Years:
     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [ ] No [ ]

                   (Applicable Only to Corporate Registrants)
     As of March 30, 2001,  there were 12,291,909  shares of common stock of the
Registrant outstanding.

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<PAGE>
<TABLE>
<CAPTION>
                                                      Ugly Duckling Corporation
                                                          TABLE OF CONTENTS
                                             For the fiscal year ended December 31, 2000
<S>          <C>          <C>                                                                                           <C>

  PART I                                                                                                                PAGE

             Item 1       Business.....................................................................................  1
             Item 2       Properties...................................................................................  5
             Item 3       Legal Proceedings............................................................................  5
             Item 4       Submission Of Matters To A Vote Of Security Holders..........................................  5
             Item 4A      Executive Officers Of The Registrant.........................................................  6
  PART II

             Item 5       Market For The Registrant's Common Equity Securities And Related
                          Stockholder Matters..........................................................................  7
             Item 6       Selected Consolidated Financial Data.........................................................  8
             Item 7       Management's Discussion And Analysis Of Financial Condition And
                          Results Of Operations........................................................................ 10
             Item 7A      Quantitative And Qualitative Disclosures About Market Risk................................... 29
             Item 8       Consolidated Financial Statements And Supplementary Data..................................... 30
             Item 9       Changes In And Disagreements With Accountants On Accounting And
                          Financial Disclosures........................................................................ 53
  PART III

             Item 10      Directors And Executive Officers Of The Registrant........................................... 54
             Item 11      Executive Compensation....................................................................... 55
             Item 12      Security Ownership Of Certain Beneficial Owners And Management............................... 60
             Item 13      Certain Relationships And Related Transactions............................................... 62
  PART IV

             Item 14      Exhibits, Consolidated Financial Statement Schedules, And Reports On
                          Form 8-K..................................................................................... 63
  Signatures........................................................................................................... 68


</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, 2000, we operated 77 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  (189)  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.


         Overview of Used Car Sales and Finance Industry <F1>

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
19,000 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
$136 billion in year 2001 retail sales. Of the C and D total market, independent
used car dealerships provide approximately $58 billion of total retail sales, or
42.6%.

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:

     expanded credit opportunities;

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

     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.

<F1>
The industry statistical  information presented in this section from information
provided to us by CNW Marketing/Research of Bandon, Oregon.

Page 1
<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. We have since decided
to slow our growth to allow us to integrate and build up the previously acquired
and constructed  dealerships.  In addition, we felt that our stock price did not
reflect the true value of our outstanding  common stock and that  repurchases of
our common  stock was a better use of our  capital  than  expansion,  so we used
excess  capital  to  repurchase  our  common  stock  in an  effort  to  increase
shareholder  value by  decreasing  dilution  of the stock.  See Note (12) of the
Notes to Consolidated Financial Statements for a further discussion of our stock
purchases.  Currently,  we are  limited  in our  ability  to  grow  or  purchase
additional  stock by capital  constraints.  As new capital is  secured,  we will
consider whether to resume our growth. 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:
<TABLE>
                                      Dealerships by Market
                              ------------------------------------
<CAPTION>
                               2000           1999           1998
                              ------         ------         ------
<S>                            <C>            <C>            <C>
Los Angeles.............       13             12              8
Phoenix.................        9              9              9
San Antonio.............        9              9              9
Atlanta.................        9              9              9
Tampa...................        9              9              8
Dallas..................        8              7              6
Richmond................        5              5             --
Orlando.................        7              4             --
Tucson..................        3              3              3
Albuquerque.............        3              3              3
Las Vegas...............        2              2              1
                              ------         ------         ------
                               77             72             56
                              ======         ======         ======
</TABLE>

Retail Car Sales

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

  dedication to customer service,        advertising and marketing programs,
  larger inventories  of used cars,      upgraded  facilities,  and
  network of  multiple locations,        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:

  underwriting and approval of sales and loan  originations,
  profitability of the dealership,
  hiring,  training, and performance of dealership employees,
  post-sale customer relations, and o inventory maintenance,
  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 4 to 9 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 generally delivered to
one of our 15 inspection centers, where they are inspected and reconditioned for
sale.

Page 2
<PAGE>
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  developed a risk  management  department,  which is currently
focusing on credit risk modeling techniques. As a result of the establishment of
this function, we have already begun to make 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 are planning to develop
and  implement our first  generation of  statistically  derived  scorecards.  We
believe the  development  and  implementation  of 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
permit 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.

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
automatically  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 automatically 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 customer 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.

Primarily as a result of acquisitions, for substantially all of 1998, we managed
our operations on four different computer systems. In September and October 1998
and February  1999, we converted  operations to our single  integrated  computer
system.

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 advertising, as well as
an Internet  site at  www.uglyduckling.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.

Page 3
<PAGE>
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. Credit inquiries received over the web are reviewed by our
employees,  who then  contact the  customers  and  schedule  appointments.  This
"clicks and mortar" approach has increased our internet sales dramatically since
inception in 1999,  with internet  based  applications  spawning  sales totaling
$36.9 million during 2000, up from $8.0 million in 1999.  Thus far in 2001, this
trend has  continued.  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 will increasingly 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 and our results of operations. 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 such efforts have been successful.

Employees

At February 28, 2001, we employed  approximately 2,600 persons,  with 1,750, 650
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 4
<PAGE>
Seasonality

Historically,  we have  experienced  higher same store revenues in the first two
quarters of the year than in the latter half 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, 2000, we leased substantially all of our facilities. 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 77 dealerships,  15 inspection  centers, 4 loan administration
and collection  facilities  that service our loan  portfolio,  and our corporate
office.  However,  by May 2001,  we expect to have  closed  two of our four loan
administration  and  collection  facilities.   See  Note  (18)of  the  Notes  to
Consolidated Financial Statements for further discussion of these closings. Our
corporate administrative office is located in Phoenix, Arizona.


                           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.

     On October 3, 2000,  Mr. Ernest C. Garcia II, made an offer to the board of
directors  to purchase  all of the  outstanding  shares of our common  stock not
already held by him. Our board of directors  established  a special  transaction
committee  to evaluate  and make a  recommendation  to the full  board.  Several
lawsuits  were  filed in  Delaware  against  us and the  members of our board of
directors  as a result of this  offer,  alleging  breach of  fiduciary  duty and
seeking an injunction  against  proceeding with the transaction.  On October 27,
2000,  Mr. Garcia  withdrew his offer.  These lawsuits have since been dismissed
without  prejudice.  In his filing with the Securities and Exchange  Commission,
Mr.  Garcia  has  expressed  a  continuing  interest  in  acquiring  all  of our
outstanding common stock.

     On March 20, 2001, a shareholder  derivative action 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 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.  We are named as a nominal defendant
in the action. The action seeks a recovery by us of alleged compensatory damages
sustained as a result of the  transactions.  The defendants intend to vigorously
defend the allegations and believe the action is without merit.


          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 2000.

Page 5
<PAGE>
                 ITEM 4A -- EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Information  Concerning our Chairman of the Board and our Executive Officers
as of March 2001.
<TABLE>
<CAPTION>
       Name                             Age   Position
       ----------------------------     ---   -----------------------------------
<S>    <C>                              <C>   <C>
       Ernest C. Garcia II.........     43    Chairman of the Board
       Gregory B. Sullivan.........     42    President, Chief Executive Officer  and Director
       Steven T. Darak.............     53    Senior Vice President and Chief Financial Officer
       Steven A. Tesdahl...........     41    Senior Vice President and Chief Information Officer
       Jon D. Ehlinger.............     43    Vice President, General Counsel and Secretary
       C. Robert Fulton............     35    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 also a significant  stockholder  of
Ugly Duckling, owning approximately 55.9% of our stock as of March 30, 2001. Mr.
Garcia is President of Verde Investments, Inc. (Verde), a real estate investment
corporation that is also an affiliate of ours. See below "Involvement in Certain
Legal Proceedings by Directors and Executive Officers."

     Gregory B. Sullivan was appointed Chief Executive Officer in July 1999. Mr.
Sullivan has served as our President since March 1996. 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.  Mr.  Sullivan's sister is
married to John N. MacDonough, another member of our Board of Directors.

     Steven T. Darak has served as our Senior Vice President and Chief Financial
Officer since February 1994.  From June 1993 through January 1994, Mr. Darak was
a  consultant  to us. From 1989 to January  1994,  Mr.  Darak owned and operated
Champion  Financial  Services,  Inc., a used car finance  company we acquired in
early 1994. Prior to 1989, Mr. Darak served in various  positions in the banking
industry and in public accounting.

     Steven  A.  Tesdahl  has  served as our  Senior  Vice  President  and Chief
Information  Officer since September of 1997. From 1993 to 1997, Mr. Tesdahl was
a partner  with  Andersen  Consulting,  a leading  global  provider  of business
integration  consulting  services.  Prior to 1993,  Mr. Tesdahl was an Associate
Partner with Andersen Consulting.

     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 at the first  meeting of our Board of
Directors  subsequent to our annual meeting of shareholders,  which we currently
expect to schedule for no later than July of this year. 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.

(b)  Involvement  in  Certain  Legal  Proceedings  by  Directors  and  Executive
Officers.

     Prior to 1992,  when he founded Ugly  Duckling,  Mr. Garcia was involved in
various  real  estate,  securities,  and  banking  ventures.  Arising out of two
transactions in 1987 between Lincoln  Savings and Loan  Association  ("Lincoln")
and entities  controlled by Mr. Garcia,  the Resolution  Trust  Corporation (the
"RTC"),  which  ultimately took over Lincoln,  asserted that Lincoln  improperly
accounted  for the  transactions  and that  Mr.  Garcia's  participation  in the
transactions  facilitated  the  improper  accounting.  Facing  severe  financial
pressures,  Mr. Garcia agreed to plead guilty to one count of bank fraud, but in
light of his cooperation  with authorities both before and after he was charged,
was sentenced to only three years  probation,  which has expired,  was fined $50
(the  minimum  fine the  court  could  assess),  and  during  the  period of his
probation, which ended in 1996, was banned from becoming an officer, director or
employee of any federally-insured  financial  institutions or a securities firms
without governmental  approval.  In separate actions arising out of this matter,
Mr. Garcia agreed not to violate the  securities  laws, and filed for bankruptcy
both  personally  and with  respect  to  certain  entities  he  controlled.  The
bankruptcies were discharged by 1993.

Page 6
<PAGE>
                                     PART II

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

     Our common stock trades 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>
                                                                                         Market Price
                                                                                ================================
<CAPTION>
                                                                                  High                    Low
                                                                                ========                ========
<S>     <C>                                                                     <C>                     <C>
        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

        Fiscal Year 1999:
        First Quarter...................................................        $ 6.50                  $ 4.25
        Second Quarter..................................................        $ 7.69                  $ 5.13
        Third Quarter...................................................        $ 9.00                  $ 6.88
        Fourth Quarter..................................................        $ 8.88                  $ 6.81
</TABLE>

     On March 30,  2001,  the last  reported  sale price of the common  stock on
NASDAQ was $3.50 per share.  On March 30,  2001,  there  were  approximately  75
record owners of our common  stock.  We estimate that as of such date there were
approximately 2,000 beneficial owners of our common stock.

     Dividend  Policy.  We have never paid  dividends on our common stock and do
not anticipate doing so in the foreseeable  future.  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 15, 2000, the debentures  became listed and
traded on the American Stock Exchange under the ticker symbol UGY.

Page 7
<PAGE>
                 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,
2000. The selected annual historical consolidated financial data for 2000, 1999,
1998,  1997,  and 1996 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.

<TABLE>
                                                    UGLY DUCKLING CORPORATION
                                                  Consolidated Operating Results
                                           ($ In thousands, except per share amounts)

                                                                                Years Ended December 31,
                                                        ----------------------------------------------------------------
                                                        ----------------------------------------------------------------
<CAPTION>
                                                           2000         1999         1998         1997         1996
                                                        ------------ ------------ ------------ ------------ ------------
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Cars Sold...................................               56,870       46,120       35,964       16,636        7,565
                                                        ============ ============ ============ ============ ============
Total Revenues .............................            $ 604,856    $ 465,954    $ 332,479    $ 155,419    $  68,827
                                                        ============ ============ ============ ============ ============
Sales of Used Cars..........................            $ 483,282    $ 389,908    $ 287,618    $ 123,814    $  53,768
Less: ......................................
Cost of Used Cars Sold .....................              268,248      219,037      165,262       72,358       29,890
Provision for Credit Losses ................              141,971      102,955       65,318       22,354        9,657
                                                        ------------ ------------ ------------ ------------ ------------
                                                           73,063       67,916       57,018       29,102       14,221
                                                        ------------ ------------ ------------ ------------ ------------

Other Income/Expense:
Interest Income ............................              119,719       68,574       17,287       12,559        8,597
Portfolio Interest Expense .................               26,698       14,597        2,860          175          -
                                                        ------------ ------------ ------------ ------------ ------------
Net Interest Income ........................               93,021       53,977       14,427       12,384        8,597
Gain on Sale of Loans ......................                  -            -         12,093        6,721        3,925
Servicing and Other Income .................                1,855        7,472       15,481       12,325        2,537
                                                        ------------ ------------ ------------ ------------ ------------
Total Other Income .........................               94,876       61,449       42,001       31,430       15,059
                                                        ------------ ------------ ------------ ------------ ------------
Income before Operating Expenses ...........              167,939      129,365       99,019       60,532       29,280

Operating Expenses:
Selling and Marketing ......................               28,756       23,123       18,246       10,538        3,585
General and Administrative .................              105,387       81,570       69,894       39,414       14,210
Depreciation and Amortization ..............                9,065        6,948        4,912        3,148        1,382
                                                        ------------ ------------ ------------ ------------ ------------
Operating Expenses .........................              143,208      111,650       93,052       53,100       19,177
                                                        ------------ ------------ ------------ ------------ ------------
Income before Other Interest Expense .......               24,731       17,715        5,967        7,432       10,103
Other Interest Expense .....................                9,463        3,028          161          531        2,429
                                                        ------------ ------------ ------------ ------------ ------------

Earnings before Income Taxes ...............               15,268       14,687        5,806        6,901        7,674
Income Taxes ...............................                6,205        6,000        2,351        2,820          694
                                                        ------------ ------------ ------------ ------------ ------------
Earnings from Continuing Operations ........            $   9,063    $   8,687    $   3,455    $   4,081    $   6,980
                                                        ============ ============ ============ ============ ============
Earnings per Common Share - Continuing Operations:
Basic ......................................            $    0.67    $    0.58    $    0.19    $    0.23    $    0.89
                                                        ============ ============ ============ ============ ============
Diluted ....................................            $    0.67    $    0.57    $    0.19    $    0.22    $    0.84
                                                        ============ ============ ============ ============ ============
Shares Used in Computation:
Basic Weighted Avg. Shares Outstanding .....               13,481       15,093       18,082       17,832        7,887
                                                        ============ ============ ============ ============ ============
Diluted Weighted Avg. Shares Outstanding....               13,627       15,329       18,405       18,234        8,298
                                                        ============ ============ ============ ============ ============

</TABLE>

Page 8
<PAGE>

<TABLE>
           ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA - Continued

                                                                                Years Ended December 31,
                                                        ----------------------------------------------------------------
                                                        ----------------------------------------------------------------
<CAPTION>
                                                           2000         1999         1998         1997         1996
                                                        ------------ ------------ ------------ ------------ ------------
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Other Operating Data:
Total Revenues...............................           $ 604,856    $ 465,954    $ 332,479    $ 155,419    $  68,827
Sales of Used Cars ..........................           $ 483,282    $ 389,908    $ 287,618    $ 123,814    $  53,768
Diluted Earnings per Share - Continuing Operations      $    0.67    $    0.57    $    0.19    $    0.22    $    0.84
EBITDA ......................................           $  60,494    $  39,260    $  13,739    $  10,755    $  11,485
E-Commerce Revenue as % of Used Car Sales....                 7.6%         2.1%         --           --           --
Number of Dealerships in Operation...........                  77           72           56           41            8
Average Sales per Dealership per Month.......                  62           64           63           79           78
Number of Used Cars Sold ....................              56,870       46,120       35,964       16,636        7,565
Sales price - Per Car Sold...................           $   8,498    $   8,454    $   7,997    $   7,443    $   7,107
Cost of Sales - Per Car Sold.................           $   4,717    $   4,749    $   4,595    $   4,349    $   3,951
Gross Margin - Per Car Sold..................           $   3,781    $   3,705    $   3,402    $   3,094    $   3,156
Provision - Per Car Sold.....................           $   2,496    $   2,232    $   1,816    $   1,344    $   1,276
Total Operating Expense - Per Car Sold.......           $   2,518    $   2,420    $   2,587    $   3,192    $   2,535
Total Operating Income - Per Car Sold........           $     435    $     384    $     166    $     447    $   1,335
Total Operating Income.......................           $  24,731    $  17,715    $   5,967    $   7,432    $  10,103
Earnings before Income Taxes.................           $  15,268    $  14,687    $   5,806    $   6,901    $   7,674
Cost of Used Cars as Percent of Sales........                55.5%        56.2%        57.5%        58.4%        55.6%
Gross Margin as Percent of Sales.............                44.5%        43.8%        42.5%        41.6%        44.4%
Provision as % of Originations...............                30.1%        26.9%        23.6%        19.1%        19.7%
Total Operating Exp. - % of Total Revenue....                23.7%        24.0%        28.0%        34.2%        27.9%
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold......           $   1,579    $   1,550    $   1,574    $   1,760    $   1,347
Retail Operating Expense - % of Used Car Sales               18.6%        18.3%        19.7%        23.7%        19.0%
Corporate/Other Expense - Per Car Sold.......           $     412    $     417    $     462    $     625    $     564
Corporate/Other Expense - % of Total Revenue.                 3.9%         4.1%         5.0%         6.7%         4.9%
Portfolio Expense Annualized - % Managed Principal            5.8%         4.9%         6.8%         4.6%         6.2%
Balance Sheet Data:
Finance Receivables, Net.....................           $ 500,469    $ 365,586    $ 126,168    $  60,778    $  14,186
Inventory....................................           $  63,742    $  62,865    $  44,145    $  32,372    $   5,464
Total Assets.................................           $ 652,121    $ 536,711    $ 337,281    $ 275,633    $ 117,629
Notes Payable - Portfolio....................           $ 406,551    $ 275,774    $ 101,732    $  65,171    $  12,904
Subordinated Notes Payable...................           $  34,522    $  28,611    $  37,980    $  12,000    $  14,000
Total Debt...................................           $ 457,652    $ 340,941    $ 155,611    $  77,171    $  26,904
Common Stock.................................           $ 173,742    $ 173,292    $ 173,828    $ 172,622    $  82,612
Treasury Stock...............................           $ (40,114)   $ (20,321)   $ (14,510)         --           --
Total Stockholders' Equity...................           $ 155,400    $ 165,680    $ 162,767    $ 181,774    $  82,319
Common Shares Outstanding - End of Year .....              12,292       14,888       15,841       18,521       13,327
Book Value per Share.........................           $   12.64    $   11.13    $   10.28    $    9.81    $    6.18
Tangible Book Value per Share................           $   11.62    $   10.17    $    9.35    $    8.93    $    6.02
Total Debt to Equity.........................                 2.9          2.1          1.0          0.4          0.3
Loan Portfolio Data:
Interest Income..............................           $ 119,719    $  68,574    $  17,287    $  12,559    $   8,597
Average Yield on Portfolio...................                26.3%        26.0%        25.8%        26.7%        29.2%
Principal Balances Originated................           $ 472,091    $ 382,335    $ 277,226    $ 116,830    $  48,996
Principal Balances Originated as % of Sales .                97.7%        98.1%        96.4%        94.4%        91.1%
Number of Loans Originated...................              56,666       45,756       35,560       16,001        6,929
Average Original Amount Financed.............           $   8,331    $   8,356    $   7,796    $   7,301    $   7,071
# of Loans Originated as % of Units Sold.....                99.6%        99.2%        98.9%        96.2%        91.6%
Managed Portfolio Delinquencies:
Current......................................                66.1%        63.2%        59.7%          *            *
1 to 30 days.................................                26.1%        27.8%        31.6%          *            *
31 to 60 days................................                 4.7%         5.9%         4.6%          *            *
Over 60 days.................................                 3.1%         3.1%         2.1%          *            *
Principal Outstanding - Managed..............           $ 519,005    $ 424,480    $ 292,683    $ 183,321    $  49,066
Principal Outstanding - Retained.............           $ 514,946    $ 358,818    $  93,936    $  55,965    $   7,068
Number of Loans Outstanding - Managed........              84,864       70,450       49,601       35,762        9,615
Number of Loans Outstanding - Retained.......              82,598       53,081       12,415        7,993        1,045

* Information not available

</TABLE>

Page 9
<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 ##, which contain our financial condition at December 31, 2000
and 1999 and the results of our  operations  for years ended  December 31, 2000,
1999, and 1998.

Overview

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

     During  1998 we:

     closed our branch office network,  resulting in two significant  charges to
     discontinued operations totaling $15.1 million, approximately $9.2 million,
     net of income  taxes (an  additional  charge of $1.5  million net of income
     taxes was taken in the fourth quarter of 1999),

     completed  the  conversion of our retail  operations  to a single  computer
     system,

     developed 15 new dealerships to increase our total number of dealerships in
     operation from 41 at December 31, 1997 to 56 at December 31, 1998, and

     completed an exchange offer whereby we issued $17.5 million in subordinated
     debentures and repurchased  approximately  2.7 million shares of our common
     stock.

    During 1999 we:

     completed the conversion of loan portfolio  administration,  accounting and
     financial reporting, and collections to a single computer system,

     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,

     completed  the sale of  Cygnet  Dealer  Finance,  Inc.  to  Cygnet  Capital
     Corporation, an affiliate of Mr. Garcia, and

     adopted aformal plan to discontinue the operations of our Cygnet  Servicing
     subsidiary operations.

    During 2000 we:

     implemented In Store collectors in all 77 dealerships,

     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,

     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,

     repurchased  an  additional  1.6 million  shares of our common  stock at an
     average price of $7.19 per share,

     increased the amount  charged to current  operations  for our provision for
     credit  losses to 29% of  originations,  beginning in the third  quarter of
     2000, an increase from the amount previously charged of 27%, and

     incurred  a $5.9  million  after tax charge to  earnings  during the fourth
     quarter  to  increase  our   effective   Allowance  for  Credit  Losses  to
     approximately 30% of loan originations.

     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  structure  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.

Page 10
<PAGE>
     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
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.

<TABLE>
Sales of Used Cars and Cost of Used Cars Sold
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
($ in thousands)                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Number of Used Cars Sold ...........                       56,870       46,120       35,964         23.3%        28.2%
                                                        ============ ============ ============ ============ ============

Sales of Used Cars .................                    $ 483,282    $ 389,908    $ 287,618         23.9%        35.6%
Cost of Used Cars Sold .............                    $ 268,248    $ 219,037    $ 165,282         22.5%        32.5%
                                                        ------------ ------------ ------------ ------------ ------------
Gross Margin .......................                    $ 215,034    $ 170,871    $ 122,336         25.8%        39.7%
                                                        ============ ============ ============ ============ ============

Gross Margin % .....................                         44.5%        43.8%        42.5%
Per Car Sold:
Sales ..............................                    $   8,498    $   8,454    $   7,997          0.5%         5.7%
Cost of Used Cars Sold .............                    $   4,717    $   4,749    $   4,595         -0.7%         3.4%
                                                        ------------ ------------ ------------ ------------ ------------
Gross Margin .......................                    $   3,781    $   3,705    $   3,402          2.1%         8.9%
                                                        ============ ============ ============ ============ ============

</TABLE>

     The  number of Used Cars Sold,  Sales of Used  Cars,  and Cost of Used Cars
Sold has steadily increased from 1998 through 2000. Same store revenues and unit
sales remained  comparable for the years ended December 31, 2000, 1999 and 1998.
However,  the  growth  from 56  dealerships  in  1998  to 77 in  2000  has had a
significant  impact on our revenues,  coupled with an increase year over year in
the sales price per car sold. The gross margin  percentage has also continued to
improve,  as we have been successful in increasing our sales prices by more than
the increase in the cost of used cars sold, along with initiatives in process to
more tightly  control the costs we are paying for our  vehicles.  We  anticipate
future revenue  streams to level off as we focus on improving the quality of the
loans we write and slow our dealership expansion efforts.

Page 11
<PAGE>
     The Company  finances  substantially  all of its sales.  The  percentage of
sales revenue  financed for 2000 has decreased as a result of initiatives put in
place to increase the minimum amount of down payment required from $500 to $600,
which began in May 2000.

     The following  table  indicates  the  percentage of sales units and revenue
financed:
<TABLE>
<CAPTION>
                                                           2000         1999         1998
                                                        ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>
Percentage of used cars sold financed.......                 99.6%        99.2%        98.9%
                                                        ============ ============ ============
Percentage of sales revenue financed........                 97.7%        98.1%        96.4%
                                                       ============= ============ ============
Provision for Credit Losses
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Provision for Credit Losses (in thousands)..            $ 141,971    $ 102,955    $  65,318         37.9%        57.6%
                                                        ============ ============ ============
Provision per loan originated...............            $   2,513    $   2,250    $   1,837         11.7%        22.5%
                                                        ============ ============ ============
Provision as a percentage of
principal balances originated...............                 30.1%        26.9%        23.6%
                                                        ============ ============ ============
</TABLE>

     Provision for Credit  Losses is the amount we charge to current  operations
on each car sold to establish an allowance for credit losses.  The Provision for
Credit  Losses in total,  per loan  originated  and as a  percent  of  principal
balances  originated  increased in both 2000 and 1999. The increases in 2000 can
be  attributed  to an  overall  increase  in the  provision  charged  to current
operations  increased from 27% of loans originated in 1999 to approximately  30%
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 and the charge
were the result of continued  review of the adequacy of the Allowance for Credit
Losses balance.  The additional  provision during 2000 is estimated to bring the
allowance  balance to a level anticipated to be adequate to cover the net charge
offs  for the  targeted  range  of 12 to 15  months.  The  increase  in 1999 was
primarily due to an increase in the average  amount  financed to $8,356 per unit
in the year  ended  December  31,  1999 from  $7,796  per unit in the year ended
December  31,  1998.  The  increase  from  1998 to 1999 was also a result of the
change in our securitization structure as discussed in the following paragraph.

     When  we  changed  the way we  structured  securitizations  for  accounting
purposes in the fourth  quarter of 1998,  we also changed the amount we provided
for credit losses. For periods prior to the fourth quarter of 1998, we generally
provided  a  Provision  for  Credit  Losses  of  approximately  20% of the  loan
principal  balance at the time of origination.  Upon  securitization,  using the
gain on sale  method,  losses  for the  life of the  loans  were  estimated  and
recorded as an element of the gain computation.  Beginning in the fourth quarter
of 1998,  we increased  the  provision  for credit  losses to 27% of the initial
amount financed and  subsequently to 29% beginning in the third quarter of 2000.
The  additional  charge  during the fourth  quarter  of 2000  brought  the total
provision to approximately 30% of loan originations.

<TABLE>
Net Interest Income
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
($ in thousands)                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Interest Income.......................                  $ 119,719    $  68,574    $  17,287         74.6%       296.7%
Portfolio Interest Expense............                     26,698       14,597        2,860         82.9%       410.4%
                                                        ------------ ------------ ------------
Net Interest Income.....................                $  93,021    $  53,977    $  14,427         72.3%       274.1%
                                                        ============ ============ ============
Average Effective Yield..............                        26.3%        26.0%        25.8%
                                                        ============ ============ ============
Average Borrowing Cost................                        8.7%         8.0%         9.5%
                                                        ============ ============ ============
</TABLE>

Page 12
<PAGE>
    Interest Income for 2000 and 1999 consists  primarily of interest on finance
receivable principal balances retained on our balance sheet.  Retained principal
balances  grew from $93.9  million at  December  31,  1998 to $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 in 1998  consists  primarily  of interest
income  from   Residuals  in  Finance   Receivables   Sold  retained  under  our
securitization  structure  using the gain on sale  method.  Residuals in Finance
Receivables Sold were $33.3 million  December 31, 1998. Both retained  principal
balances and  Residuals in Finance  Receivables  Sold are  components of Finance
Receivables, Net. See "Growth in Finance Receivables, Net" beginning on page ##.

     Interest  Expense for 2000 consists  primarily of interest on our revolving
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  year  over  year from 1998 to 2000 is in direct
correlation  to the increase in retained  principal  balances  noted above.  The
increase in average  borrowing cost from 1999 to 2000 is  attributable to a rise
in  interest  rates on our  variable  rate  debt,  additional  higher  rate debt
incurred in our  exchange  offers and an increase  in the  interest  rate on our
senior  subordinated  note payable.  Interest  expense in 1998 relates solely to
expense  on our  revolving  facility  for the  period  between  origination  and
securtization, which generally averaged three months.

Gain on Sale of Loans

     We recorded no gain on sale transactions in 2000 or 1999. Gains on the sale
of loans from securitization transactions were $12.1 million in 1998.

Servicing Income

     We generate  Servicing  Income  primarily from  servicing  loan  portfolios
securitized  under  the  gain on  sale  method.  As we have  had no gain on sale
transactions  since  the  fourth  quarter  of 1998,  our  Servicing  Income  has
decreased  significantly  year over year and was $1.9 million,  $7.5 million and
$15.5  million  for  the  years  ended   December  31,  2000,   1999  and  1998,
respectively.

     We  service  loans  for  monthly  fees  ranging  from  .25%  to .33% of the
beginning of month principal  balances (3.0% to 4.0% per year).  The decrease in
Servicing Income in 2000 and 1999 is due to the decrease in remaining  principal
balances  securitized  and  serviced  under the gain on sale  method  from $65.7
million at December 31, 1999 to $4.1 million at December 31, 2000.  The decrease
in 1999 from 1998 is due to the decrease in such principal  balances from $198.7
million at December 31, 1998 to $65.7 million at December 31, 1999. The decrease
in  Servicing  Income is expected to continue as principal  balances  associated
with loans securitized under the gain on sale method continue to decline.

<TABLE>
Income before Operating Expenses

     As a result of our growth,  Income before Operating Expenses grew from 1998 through 2000.
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Income before Operating Expenses..................      $ 167,939    $ 129,365    $  99,019         29.8%        30.6%
                                                        ============ ============ ============ ============ ============

     Growth of Sales of Used Cars and Net Interest Income, partially offset by a decrease  in Gain on Sale of Loans and Servicing
and Other Income,  were the primary contributors to year over year increases.
</TABLE>

<TABLE>
Operating Expenses
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Operating Expenses (in thousands).................      $ 143,208    $ 111,650    $  93,052         28.3%        20.0%
                                                        ============ ============ ============ ============ ============
Per Car Sold......................................      $   2,518    $   2,420    $   2,587          4.1%        (6.5)%
                                                        ============ ============ ============ ============ ============
As % of Total Revenue.............................           23.7%        24.0%        28.0%
                                                        ============ ============ ============
</TABLE>

Page 13
<PAGE>
     Operating  expenses,  which  consist of  selling,  marketing,  general  and
administrative and  depreciation/amortization  expenses increased due to overall
growth in the  operations of the Company.  Increases in operating  expenses on a
per car sold  basis is a result  of  increases  in  salary  and  salary  related
expenses.  See  additional  discussion  of  operating  expenses in the  Business
Segment section beginning on page ##.

Other Interest Expense

     Interest  expenses arising from our subordinated  debt totaled $9.5 million
and $3.0 million for the years ended  December 31, 2000 and 1999,  respectively.
The  increase is  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 loan facility that we
entered into midyear 1999.  While we have additional  interest  expenses arising
from  subordinated  notes  payable,  a  portion  of this  interest  expense  was
attributed to the financing of assets and  activities  reported as  discontinued
operations. As the assets and activities of discontinued operations diminish, we
do not  expect to retire the  subordinated  notes  payable  but rather use these
borrowings to fund our  operations.  Subordinated  debt carries  interest  rates
generally  higher  than  those  charged  on  our  collateralized  borrowings  or
unsecured  senior note.  Interest  expense for the year ended December 31, 1998,
other than interest  expense  associated with our retained  portfolios,  was not
material to results of operations.

Income Taxes

     Income taxes  totaled  $6.2  million for the year ended  December 31, 2000,
$6.0 million for the year ended December 31, 1999, and $2.4 million for the year
ended  December 31, 1998.  Our  effective  tax rate was 40.6% for the year ended
December 31, 2000,  40.9% for the year ended December 31, 1999 and 40.5% for the
year ended December 31, 1998.

Earnings from Continuing Operations

     Earnings from Continuing  Operations totaled $9.1 million, $8.7 million and
$3.5 million for 2000,  1999 and 1998,  respectively.  The increases in 2000 and
1999  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  from  27% in  1999  to  approximately  30%  in  2000  as  previously
mentioned.  The  increase  in 1999  over  1998 was also  partially  offset by an
increase in the  provision  charged for credit losses due to a change in the way
we recorded our securitization transactions, a reduction in servicing income and
the  elimination  of  gain on sale  income  in  1999.  In  1998,  securitization
transactions for the first  three-quarters were completed using the gain on sale
method,   with  the  fourth  quarter   transaction  being  completed  using  the
collateralized   borrowings  method,  thus  recording  no  gain.   Additionally,
beginning in the fourth  quarter of 1998,  the  provision  for credit losses was
increased to 27% of the original  amount financed from the 20% level used in the
first three-quarters of 1998.

Discontinued Operations

     Earnings from  Discontinued  Operations,  net of income tax  benefits,  was
break even in 2000,  $.6 million in 1999 and a loss of $9.2 million in 1998. 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.  These segments were previously
reported as Company Dealership, Company Dealership Receivables and Corporate and
Other, respectively.

     Operating Expenses for our business  segments,  along with a description of
the included  activities,  for the years ended December 31, 2000,  1999 and 1998
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):

Page 14
<PAGE>

<TABLE>
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Retail Operations......................
Selling and Marketing..................                 $  28,756    $  23,132    $  18,246         24.3%        26.8%
General and Administrative.............                    56,373       44,770       35,765         25.9%        25.2%
Depreciation and Amortization..........                     4,677        3,588        2,582         30.4%        39.0%
                                                        ------------ ------------ ------------ ------------ ------------
Retail Expense.........................                 $  89,806    $  71,490    $  56,593         25.6%        26.3%
                                                        ============ ============ ============ ============ ============
Per Car Sold:
Selling and Marketing..................                 $     506    $     502    $      50          0.8%         (.1)%
General and Administrative.............                       991          970           99          2.2%        (2.5)%
Depreciation and Amortization..........                        82           78            7          5.1%         8.3%
                                                        ------------ ------------ ------------ ------------ ------------
Total..................................                 $   1,579    $   1,550    $   1,574          1.9%        (1.5)%
                                                        ============ ============ ============ ============ ============
</TABLE>
     Selling  and  marketing  expenses  as a percent of revenue and on a per car
sold basis has remained relatively constant since 1998.  Additional  dealerships
in  existing  markets  have  increased  units sold and  revenues  to support the
increased selling and marketing costs.

     General and Administrative expenses increased year over year as a result of
our  growth in the number of  operating  dealerships.  On a per car sold  basis,
these  expenses  have  increased  primarily  due to a rise in salary and related
costs.  As a percent of used car sales  revenue,  2000,  1999 and 1998  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):
<TABLE>
<CAPTION>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Portfolio Expense:
General and Administrative.............                 $  28,860    $  19,809    $  18,519         45.7%         7.0%
Depreciation and Amortization..........                     1,128        1,141        1,333         (1.1)%      (14.4)%
                                                        ------------ ------------ ------------ ------------ ------------
Portfolio Expense......................                 $  29,988    $  20,950    $  19,852         43.1%         5.5%
                                                        ============ ============ ============ ============ ============
Expense per Month per Loan Serviced....                 $   28.72    $   21.70    $   20.34
                                                        ============ ============ ============
Annualized Expense as % of EOP Managed
Principal Balances.....................                       5.8%         4.8%         6.1%
                                                        ============ ============ ============
</TABLE>
     The increase in operating expenses for our portfolio segment year over year
is  primarily  a result  of the  increasing  number  of loans in our  portfolio.
Expenses per loan  serviced and as a percent of average  managed  portfolio  has
increased year over year. The increase in 2000 is attributable to the rollout of
many of our collectors from the collection  centers into the dealerships.  These
collectors focus on the 1-30 day delinquent  accounts and are now located in all
77 of our  dealerships.  The  increase  from 1998 to 1999 was  primarily  due to
personnel  related  issues.  In the  last  half of  1999,  we  experienced  loan
servicing  inefficiencies,  including the loss of a large number of  experienced
collectors  to other  financial  services  entities.  Our loan  servicing  costs
increased  significantly  in  the  fourth  quarter  of  1999.  As  part  of  our
resolution,  we made  market  adjustments  to  collection  staff  wages and also
decreased the number of delinquent accounts serviced per collector.

Page 15
<PAGE>
    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>
                                                           2000         1999         1998              % Change
                                                        ------------ ------------ ------------ -------------------------
                                                                                                  2000         1999
                                                        ------------ ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>
Corporate Expense:
General and Administrative........................      $  20,154    $  16,991    $  15,610         18.6%         8.9%
Depreciation and Amortization.....................          3,260        2,219          997         46.9%       122.6%
                                                        ------------ ------------ ------------ ------------ ------------
Corporate Expense.................................      $  23,414    $  19,210    $  16,607         21.9%        15.7%
                                                        ------------ ------------ ------------ ------------ ------------
Per Car Sold......................................      $     412    $     417    $     462
                                                        ============ ============ ============
As % of Total Revenues ........................               3.9%         4.1%         5.0%
                                                        ============ ============ ============
</TABLE>

     Operating  expenses related to our corporate  segment  remained  relatively
stable on both a per car sold basis and as a percent of total  revenue  for 2000
and  decreased  during  1999.  The  decrease in 1999 is primarily as a result of
various operating  efficiencies.  These efficiencies include those gained by the
consolidation of all accounting and management  information to a single computer
system in early 1999.  Further,  as new dealerships  opened in existing markets,
revenue and units sold increased while  expenditures  related to  infrastructure
deployment and support,  human  resources  activities and regulatory  compliance
increased at a lesser rate. Finally, as our retained portfolio increased,  there
is a  proportionate  increase  in  net  interest  income  thereby  significantly
improving the ratio of corporate expenses to total revenues.

<TABLE>
Financial Position

     The following table represents key components of our financial  position ($in thousands):
<CAPTION>
                                                               December 31,         % Change
                                                        ------------ ------------ ------------
                                                           2000         1999         2000
                                                        ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>
Total Assets.........................                   $ 652,121    $ 536,711         21.5%

Inventory............................                      63,742       62,865          1.4%
Finance Receivables, Net.............                     500,469      365,586         36.9%
Net Assets of Discontinued Operations                       4,175       33,880        -87.7%

Total Debt...........................                     457,652      340,941         34.2%
Notes Payable - Portfolio............                     406,551      275,774
Other Notes Payable..................                      16,579       36,556        (54.6)%
Subordinated Notes Payable...........                      34,522       28,611         20.7%
Stockholders' Equity.................                   $ 155,400    $ 165,680         -6.2%

</TABLE>

     Total  Assets.  The growth in total assets from 1999 to 2000 was  primarily
due to an  increase  in  Finance  Receivables,  Net and  Inventory,  offset by a
decrease in Net Assets of Discontinued Operations.

     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.  Management
estimates that for each car it has at a dealership location,  it must have a car
in the  reconditioning  process  at an  inspection  center to  maintain a stable
supply of cars for sale. We generally  acquire our used car inventory from three
sources:  approximately 50% from auctions, 30% from wholesalers and 20% from new
car dealerships.

Page 16
<PAGE>
     Growth in Finance Receivables,  Net. As a result of our expansion,  Finance
Receivables, Net increased significantly during the past two years.

<TABLE>
     Components of Finance Receivables, Net follows:
<CAPTION>
                                                               December 31,
                                                        ------------ ------------
                                                           2000         1999
                                                        ------------ ------------
<S>                                                     <C>          <C>
Contractually Scheduled Payments..................      $ 696,220    $ 492,937
Unearned Finance Charges..........................       (181,274)    (134,119)
                                                        ------------ ------------
Principal Balances, net...........................        514,946      358,818
Accrued Interest..................................          5,655        3,741
Loan Origination Costs............................          7,293        5,079
                                                        ------------ ------------
Principal Balances, net...........................        527,894      367,638
Investments Held in Trust.........................         71,139       56,716
Residuals in Finance Receivables Sold.............          1,136       17,382
                                                        ------------ ------------
Finance Receivables...............................        600,169      441,736
Allowance for Credit Losses.......................        (99,700)     (76,150)
                                                        ------------ ------------
Finance Receivables, net..........................      $ 500,469    $ 365,586
                                                        ============ ============
Allowance as % of Ending Principal Balances, net             19.4%        21.2%
                                                        ============ ============
</TABLE>

<TABLE>
     The  following  table  reflects the growth 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.
<CAPTION>
                                                           Managed Loans Outstanding - December 31,
                                                        ---------------------------------------------------
                                                            Principal Balances         Number of Loans
                                                        ------------------------- -------------------------
                                                           2000         1999         2000         1999
                                                        ------------ ------------ ------------ ------------
<S>                                                     <C>          <C>          <C>          <C>
Principal Balances - Managed...................         $ 519,005    $ 424,480    $  84,864    $  70,450
Less:  Principal - Securitized and Sold...........          4,059       65,662        2,266       17,369
                                                        ------------ ------------ ------------ ------------
Principal Balances - Retained..................         $ 514,946    $ 358,818    $  82,598    $  53,081
                                                        ============ ============ ============ ============
</TABLE>
     The  increase  in  Principal  Balances  -  Retained  on  Balance  Sheet was
primarily due to the growth of used car sales and  financing  from growth in the
number of dealerships, partially offset by the principal balance runoff of loans
originated in prior  periods.  Our dealership  network  increased from 56 at the
beginning of 1999 to 77 dealerships at December 31, 2000.

     Investments Held in Trust represent funds held by trustees on behalf of our
securitization  lenders.  The  increase in 2000 is  attributable  to  additional
securitizations closed during 2000.

     Residuals in Finance Receivables Sold represent the Company's  subordinated
interest in loans sold under the gain on sale  method.  The  decrease in 2000 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.

<TABLE>
     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, 2000 and 1999 ($ in thousands):
<CAPTION>
                                                        Years Ended December 31,
                                                        ------------ ------------
                                                           2000         1999
                                                        ------------ ------------
<S>                                                     <C>          <C>
Allowance Activity:
Balance, Beginning of Period......................      $  76,150    $  24,777
Provision for Credit Losses.......................        141,971      102,955
Other Allowance Activity..........................         (2,666)      (6,424)
Net Charge Offs...................................       (115,755)     (58,006)
                                                        ------------ ------------
Balance, End of Period............................      $  99,700    $  76,150
                                                        ============ ============
Allowance as % Ending Principal Balances..........           19.4%        21.2%
                                                        ============ ============
Charge off Activity:
Principal Balances................................      $(149,734)   $ (71,277)
Recoveries, Net...................................         33,979       13,271
                                                        ------------ ------------
Net Charge Offs...................................      $(115,755)   $ (58,006)
                                                    ============ ================
</TABLE>
Page 17
<PAGE>
     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  22.7% for the year  ended  December  31,  2000
compared to 18.6% for the year ended  December 31, 1999. The change from 1999 to
2000 can be attributed to inefficiencies  in our loan service  operations during
the  latter  half  of  1999,  as  previously  mentioned.  As we  focused  on the
resolution  of these  inefficiencies,  our  recovery  rate  returned to expected
levels.

     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 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) to the  Consolidated
Financial Statements included herein.

     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 line of credit and additional  securitizations,  represented by increases in
Notes Payable - Portfolio. The increase in Notes Payable - Portfolio in 2000 was
primarily  due to the  growth  in  our  finance  receivables,  which  result  in
additional  securitizations.  The  increase in  Subordinated  Notes  Payable was
primarily due to the issuance of  approximately  $11.9  million of  subordinated
debentures in connection  with a stock  exchange  offer  completed in the second
quarter  of 2000,  partially  offset by  principal  payments  made on our senior
subordinated  note  payable.  See  "Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations - Interest Expense."

     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:

     ongoing collection efforts on charged off accounts, and

     the difference between final proceeds on the sale of repossessed collateral
     versus our estimates of the sale of proceeds.

Page 18
<PAGE>
     The following  table sets forth as of March 31, 2001,  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).

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

<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>       <C>
    1993                  $   12,984      8.8%     22.1%     28.5%      33.8%     35.9%     36.5%     36.8%     100.0%
    1994                  $   23,589      5.3%     14.8%     19.9%      25.6%     28.0%     28.7%     28.8%     100.0%
    1995                  $   36,569      1.9%      8.1%     13.1%      19.0%     22.2%     23.5%     24.1%     100.0%
    1996:
       1st Quarter        $   13,635      1.6%      8.1%     13.8%      20.7%     24.8%     26.1%     27.0%     100.0%
       2nd Quarter        $   13,462      2.2%      9.2%     13.3%      21.8%     25.7%     27.4%     28.8%     100.0%
       3rd Quarter        $   11,082      1.7%      6.8%     12.5%      21.2%     25.3%     27.4%     28.5%     100.0%
       4th Quarter        $   10,817      0.7%      8.4%     15.9%      24.8%     29.0%     30.8%     31.9%     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%     27.4%     29.5%     30.6%      99.9%
       3rd Quarter        $   32,147      1.4%      8.3%     13.2%      22.4%     26.9%     29.1%     30.6%      99.7%
       4th Quarter        $   42,529      1.4%      6.8%     12.6%      21.8%     26.1%     28.8%     30.0%      99.3%
    1998:

       1st Quarter        $   69,708      0.9%      6.9%     13.4%      20.9%     26.4%     28.8%     29.9%      98.8%
       2nd Quarter        $   66,908      1.1%      8.1%     14.2%      21.7%     27.3%     29.2%     30.2%      97.7%
       3rd Quarter        $   71,027      1.0%      7.9%     13.3%      23.0%     27.8%     30.3%     30.9%      96.9%
       4th Quarter        $   69,583      0.9%      6.6%     13.1%      24.3%     29.1%       x       31.7%      92.8%
    1999:

       1st Quarter        $  103,068      0.8%      7.5%     15.1%      23.6%     29.6%      --       31.3%      87.3%
       2nd Quarter        $   95,768      1.1%      9.9%     16.7%      25.5%       x        --       32.1%      80.4%
       3rd Quarter        $  102,585      1.0%       8.3%    14.2%      25.4%      --        --       29.7%      73.0%
       4th Quarter        $   80,641      0.7%      5.9%     12.8%        x        --        --       25.0%      62.9%
    2000:

       1st Quarter        $  128,123      0.3%      6.6%     14.8%       --        --        --       22.0%      53.1%
       2nd Quarter        $  118,778      0.6%      8.6%       x         --        --        --       17.9%      41.1%
       3rd Quarter        $  124,367      0.7%       x        --         --        --        --       10.3%      26.6%
       4th Quarter        $  100,823       x        --        --         --        --        --        3.0%      12.2%

</TABLE>

Page 19
<PAGE>
<TABLE>
     The  following  table sets forth the  principal  balances  delinquent  as a percentage  of  total  outstanding  loan
principal   balances  from  dealership operations.
<CAPTION>
                                                        Years Ended December 31,
                                                        ------------ ------------
                                                            2000         1999
                                                        ------------ ------------
<S>      <C>                                                <C>          <C>
         Days Delinquent:

         Current................................            66.1%        63.2%
         1-30 Days..............................            26.1%        27.8%
         31-60 Days.............................             4.7%         5.9%
         61-90 Days.............................             3.1%         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, 2000 and 1999. As a result of our initiative
to put in store  collectors  in all of our  dealerships  servicing  our 1-30 day
delinquent accounts,  we continue to see improvements in our 0-30 day delinquent
account percentages. The accounts in this category have grown from 91.0% in 1999
to 92.2% in 2000. Due to this success,  we are in the process of adding in store
collectors to service our 1-60 day delinquent accounts at the dealerships.

     Although loan losses on recently  originated  loan pools indicate  improved
loan performance  over those loan pools  originated in prior years,  based on an
extensive  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 the third
quarter of 2000, to 29% of loan originations and took an additional  charge, net
of income tax, of $5.9 million during the fourth quarter of 2000. The additional
charge  increased the overall  provision as a percentage of originations to 30%.
The  additional  provision  was  primarily  necessary  as a result  of poor loan
performance of our loans originated in 1999. The increases  provide an allowance
for credit loss at December  31, 2000 that is  estimated to be adequate to cover
the targeted range for estimated net charge offs for the entire on balance sheet
portfolio  for the next 12 to 15 months.  We will  continue  to  monitor  the on
balance sheet loan  portfolio  performance  to evaluate the on going adequacy of
our provision for credit losses.

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  obtain 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,
ranging from 8.0% to 11.0%,  of the underlying  Finance  Receivables'  principal
balance. The trustee makes distributions to us when:

     the reserve account balance exceeds the specified percentage,

     the  required  periodic  payments  to the Class A  certificate  holders are
     current,  and

     the trustee, servicer and other administrative costs are current.

Page 20
<PAGE>
     During  2000,   we  made  initial   reserve   account   deposits   totaling
approximately  $20.6 million.  The required  aggregate reserve balance for these
accounts,  based upon the targeted percentages,  was approximately $55.9 million
at  December  31,  2000,  with  balances  in  the  reserve   accounts   totaling
approximately $50.6 million. As of December 31, 2000, the amount remaining to be
funded out of portfolio  collections to meet the required  aggregate balance was
approximately $5.3 million.

     Certain Financial Information Regarding Our Securitizations
<TABLE>
<CAPTION>
     The following table summarizes certain financial information and attributes
of our securitizations:

($ in thousands)                                                          2000               1999               1998
                                                                     --------------     --------------     --------------
<S>                                                                  <C>                <C>                <C>
  Number of Securitizations Completed                                        3                  3                  4
  Principal Balances Securitized - Retained by Company and
    Recorded as Finance Receivables..............................    $ 443,000          $ 359,700          $  69,300
  Class A Obligations Issued - Retained by Company and Recorded
    Recorded as Notes Payable....................................      314,500            257,800             50,600
  Principal Balances Securitized - Recorded as Sales,
    Transferred off Company Books Recognizing Gain on Sale.......          ---                ---            222,800
  Class A Obligations Issued - Transferred off Company Books
    Recognize Gain on Sale.......................................          ---                ---            161,100
  Subordinate Certificates - Retained by Company and Recorded
    Recorded as Residuals in Finance Receivables Sold............          ---                ---             61,700
  Weighted Average Yield of Class A Obligations .................          7.1%               6.3%               5.9%
  Range of Yields for Class A Obligations........................     6.8% - 7.3%        5.7% - 6.8%        5.6% - 6.1%
  Average Net Spreads (after fees and expenses)..................         16.9%              17.6%              17.6%
  Range of Net Spreads (after fees and expenses).................    16.7% - 17.1%      17.1% - 18.2%      17.0% - 18.1%

</TABLE>

Liquidity and Capital Resources

In recent periods,  our needs for additional capital resources have increased in
connection with the growth of our business. We require capital for:

          increases in our loan portfolio,
          common stock repurchases,
          expansion of our dealership network,
          the purchase of inventories, and
          working capital and general corporate purposes,
          the purchase of property and equipment.

We fund our capital requirements primarily through:

          operating cash flow,
          our revolving facility, and
          securitization transactions,
          supplemental borrowings.


Cash Flow

     Net Cash Provided by Operating Activities increased by $61.3 million in the
year ended  December 31, 2000 to $189.5  million from cash  provided in the year
ended  December  31,  1999 of  $128.1  million.  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 Provided by Operating  Activities increased by $105.6 million
in the year ended December 31, 1999 to $128.1 million from cash used in the year
ended December 31, 1998 of $22.5 million. The increase in 1999 was due primarily
to an increase in net  earnings,  an increase in the provision for credit losses
and  decreases  in  activity  associated  with the  elimination  of gain on sale
recognition of finance receivables, offset by an increase in inventory resulting
from  management's  decision  to  increase  inventory  levels  at  year  end  in
preparation  for strong  seasonal sales in the first and second  quarters of the
year.

Page 21
<PAGE>
     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  is  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 the  purchase  of
property  and  equipments.  Net Cash Used in Investing  Activities  increased by
$272.6 million to $352.9 million in the year ended December 31, 1999 compared to
$80.3  million in 1998.  The increase is primarily due to an increase in Finance
Receivables resulting from a change in the way we structured our securitizations
in late 1998, which allows the Finance Receivables to remain on balance sheet.

     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 is 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  additional
securitizations in 2000. Net Cash Provided by Financing  Activities increased by
$81.2 million to $152.2  million in the year ended December 31, 1999 compared to
$71.0  million in 1998.  The increase is due to  increases  in  Portfolio  Notes
Payable,  net of increases in repayments on Portfolio  Notes Payable,  resulting
from additional securitization transactions in 1999.

Financing Resources

     Revolving  Facility.  For 2000, under our $125 million  revolving  facility
with GE Capital,  our borrowing  base  consisted of up to 65.0% of the principal
balance of eligible loans  originated  from the sale of used cars and the lesser
of $25  million  or 58%  of  the  direct  vehicle  costs  for  eligible  vehicle
inventory. We secured the facility with substantially all of our assets.

     As of  December  31,  2000,  our  borrowing  capacity  under the  revolving
facility was $58.4 million, the aggregate principal amount outstanding under the
revolving facility was approximately $53.3 million,  and the amount available to
be borrowed  under the facility was $5.1 million.  The  revolving  facility bore
interest at the 30-day LIBOR plus 3.15%,  payable  daily (total rate of 9.78% as
of December 31, 2000).  As of December 31, 2000, we were in compliance  with the
covenants in this agreement.

     As previously reported, as part of a global decision to exit the automobile
finance  market,  GE  Capital  advised  us that it did not  intend  to renew our
existing  warehouse line,  which  terminates on June 30, 2001. In April 2001, we
replaced  the  warehouse  receivables  line of  credit  and we are  still in the
process of replacing the inventory line of credit.  However,  we did receive the
right to extend the  maturity  date of our current  inventory  line of credit to
December 31, 2001 subject to certain conditions including the payment of certain
fees and a 50 basis  point  increase  in the  interest  rate to LIBOR plus 3.65%
after June 30, 2001.

     Our  new  revolving  credit  facility  with  Greenwich   Capital  Financial
Products,  Inc.,  replaces the portion of the GE Capital facility lending on the
automobile  loan contracts.  The facility  allows for maximum  borrowings of $75
million  during the period from May 1 through  November 30 and increases to $100
million  during the  period  from  December 1 through  April 30. The term of the
facility  is 364  days  with a  renewal  option,  upon  mutual  consent,  for an
additional  364-day  period.  The  borrowing  base  consists of up to 65% of the
principal  balance  of  eligible  loans  originated  from the sale of used cars.
Greenwich  has an option to adjust the advance rate on the  principal 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 of
our  assets.  The  line is  subject  to  several  covenants,  including  certain
financial  and loan  portfolio  related  covenants.  The facility  also contains
certain  conditions that must be met if our chairman of the board is to purchase
the  remaining  outstanding  shares of our stock and take the  Company  private.
Additional  covenants  would apply were this  transaction to take place. We also
entered into a commitment  with  Greenwich  which  provides them with  exclusive
underwriting  rights  for the  term of the  revolving  credit  facility  for all
receivables financed, whether originated or acquired by us, with certain limited
exceptions.

     We will remain with our current  lender on our inventory  credit line until
the facility expires at the end of December 2001 or until a new inventory lender
can be found.  We are  currently  in the process of  evaluating  proposals  from
inventory  lenders and believe that a replacement  lender will be found prior to
the expiration date of our current line of credit.

     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 account.

     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.

Page 22
<PAGE>
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 $11.5 million balance at December 31, 2000.

     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.  This loan  agreement was replaced in January  2001.  The new
agreement has a $35 million  principal  due February 2003 with interest  payable
monthly at LIBOR plus 600 basis points. The new loan, like the previous loan, is
secured  by our  Residuals  in  Finance  Receivables  Sold and  certain  Finance
Receivables.

     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 us through a subordinated loan. The funds were placed in escrow as additional
collateral  for the $35 million  senior secured loan. The funds will be released
in July 2001 if, among other conditions,  we have at least $7 million in pre-tax
income  through June of 2001 and, at that time, Mr. Garcia  guarantees  33.3% of
the $35 million  facility.  If the loan with Verde and the  guarantee of the $35
million  senior  secured loan are not removed by July 25, 2001,  Mr. Garcia will
receive  warrants  from us for 1.5  million  shares  of  stock,  vesting  over a
one-year period,  at an exercise price of $4.50.  Also as consideration  for the
loan, we released all options to purchase real estate that is currently owned by
Verde and leased to us. We also granted  Verde the option to  purchase,  at book
value,  any or all properties  currently owned by us, or acquired by us prior to
the earlier of December 31, 2001,  or the date the loan is repaid.  Verde agreed
to lease the properties back to us, on terms similar to our current  leases,  if
it exercises its option to purchase any of the  properties.  The loan is secured
by residual interests in our  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  our  board  reviewed  and
negotiated terms of this  subordinated loan and we also received an opinion from
an investment  banker which deemed the loan fair from a financial  point of view
both to our shareholders and us.

     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
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.

Page 23
<PAGE>
     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. We relinquished  this option as part of the consideration for
the $7 million  Verde loan  described  under  "Supplemental  Borrowings - Senior
Subordination Notes" above.

     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.

     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.

     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. We intend to build a new headquarters at this location over the
next several months. Subsequently,  we surrendered this option as part of the $7
million subordinated loan with Verde.

     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 teh
program,  we have  repurchased  approximately  1.6  million  shares  under  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  2000 and  1999,  no
additional loans under this program were made to senior officers.

Page 24
<PAGE>
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:

          through  our  securitization  program,  which  allows  us to  fix  our
          borrowing costs,

          by increasing  the interest  rate charged for loans  originated at our
          dealerships (if allowed under applicable law), or

          by increasing the profit margin on the cars sold.

Accounting Matters

     In  September  2000,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities" (SFAS No.
140).  SFAS No.  140  replaces  SFAS  No.  125 and  revises  the  standards  for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral. This statement is effective for transfers and servicing of financial
assets and  extinguishments of liabilities  occurring after March 31, 2001. This
statement is effective for  recognition and  reclassification  of collateral and
for  disclosures  relating to  securitization  transactions  and  collateral for
fiscal  years ending after  December  15, 2000.  Management  does not expect the
adoption of SFAS No. 140 to have a material impact on us.

     In June 2000, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 138,  "Accounting  for Certain  Derivative
Instruments and Certain Hedging  Activities" (SFAS No. 138). SFAS No. 138 amends
a limited number of issues causing implementation difficulties for entities that
apply SFAS No. 133. SFAS No. 138 is effective for fiscal years  beginning  after
June 15, 2000.  Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative  Instruments and Hedging  Activities" (SFAS No. 133) required all
derivatives  to be recorded on the balance  sheet at fair value and  establishes
new accounting  rules for hedging  instruments.  The adoption of SFAS No. 138 or
No. 133 will not have a material effect on us.

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: anticipated financial results, such
as continuing growth of sales, other revenues and loan portfolios,  improvements
in underwriting adequacy of the allowance for credit losses, and improvements in
loan  performance,   including   delinquencies  and  charge  offs;  roll-out  of
collectors  to our  dealerships;  anticipated  repurchases  of our stock and the
level of growth in our dealerships  through  acquisitions and de novo dealership
openings;  and e-commerce  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;  any  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.
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.

Page 25
<PAGE>
     Our majority  stockholder  can control  substantially  all matters put to a
vote of stockholders. Ernest C. Garcia II, our Chairman, is the beneficial owner
of a majority of our outstanding  common stock.  Mr. Garcia is now in a position
to  control  the  election  of our  directors  or the  approval  of any  merger,
reorganization or other business combination  transaction submitted to a vote of
our shareholders or other  extraordinary  transaction.  Mr. Garcia could vote to
approve such a transaction on terms, which might be considered more favorable to
Mr. Garcia than to unaffiliated stockholders.  The terms of any such transaction
could require  stockholders  other than Mr. Garcia to dispose of their shares of
common  stock for cash or other  consideration  even if the  stockholders  would
prefer to continue to hold their shares of our common stock for investment.  Any
such  transaction  could  also  result in Ugly  Duckling's  common  stock  being
delisted from the Nasdaq  National  Market or being held of record by fewer than
300 persons and, therefore, eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of 1934.

     Our majority  stockholder  can control  substantially  all matters put to a
vote of stockholders. Ernest C. Garcia II, our Chairman, is the beneficial owner
of a majority of our outstanding common stock. The remaining shareholders of our
common stock are already  minority  holders and cannot,  as a collective  group,
vote more shares of common stock than Mr. Garcia  beneficially  owns. Mr. Garcia
is now in a position to control the election of our directors or the approval of
any merger,  reorganization or other business combination  transaction submitted
to a vote of our  shareholders or other  extraordinary  transaction.  Mr. Garcia
could vote to approve such a  transaction  on terms,  which might be  considered
more favorable to Mr. Garcia than to unaffiliated stockholders. The terms of any
such transaction could require  stockholders other than Mr. Garcia to dispose of
their  shares  of  common  stock  for  cash or other  consideration  even if the
stockholders  would  prefer to continue to hold their shares of our common stock
for investment. Any such transaction could also result in Ugly Duckling's common
stock being delisted from the Nasdaq  National Market or being held of record by
fewer than 300 persons and, therefore,  eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities  Exchange Act of 1934. In filings
with the Security  Exchange  Commission,  Mr.  Garcia has expressed a continuing
interest in taking us private.  For a  description  of his most recent  offer to
purchase  our  outstanding   common  stock,   see  Footnote  (18)  of  Notes  to
Consolidated Financial statements included herein.

     Future losses could impair our ability to raise capital or borrow money and
consequently  affect  our  stock  price.  Although  we  recorded  earnings  from
continuing  operations of $9.1 million for the twelve months ended  December 31,
2000,  $8.7  million  for the twelve  months  ended  December  31, 1999 and $3.5
million  in 1998,  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 and could affect our stock price.

     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. As a result of our primary lender, GE Capital Corporation, exiting the
automobile finance business, our portfolio performance, and a general tightening
in the credit markets,  we have recently  experienced a less favorable borrowing
environment  than in the past.  We  currently  obtain  financing  through  three
primary sources:

          a warehouse facility with Greenwich Capital Financial  Products,  Inc.
          ("Greenwich");

          securitization transactions; and

          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.  This facility  contains numerous  restrictive  covenants and financial
tests. Failure to satisfy these could result in a default,  which could preclude
us from  further  borrowing  under the  warehouse  facility;  could  cause cross
defaults  to our  other  debt and  securitizations,  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  and
profitability.

     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:

          the condition of securities markets generally;

          conditions in the asset-backed securities markets specifically;

          the credit quality of our loan portfolio; and

          the performance of our servicing operations.
Page 26
<PAGE>
     In recent  periods,  we have  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,  which could result in our being  replaced as servicer under those
securitizations  or in a  liquidation  and sale of the  securitized  portfolios.
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.  Any of these consequences could
have a material adverse effect on our business and financial condition.

     Recent  Waivers.  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 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 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. 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.  Based upon such
review,  and due to worse  than  expected  loan  performance,  we have  taken an
additional  charge,  net of income tax effect,  of  approximately  $5.9  million
during the fourth quarter of 2000. With the charge, the effective  provision for
credit losses for 2000 as a percentage  of  originations  was 30.0%.  We believe
this charge will  increase  the  allowance  balance as of December 31, 2000 to a
level that we  estimate  to be adequate to cover net charge offs for the next 12
to 15 months.  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 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 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 operations and profitability.

     We have slowed our growth, which,  eventually,  could negatively affect our
earnings and profitability. Since 1999, we have slowed our growth in favor of an
accelerated  stock buy back  program.  Our ability to continue our growth is now
limited by our access to capital.  We are also  committed  to slowing our growth
until we improve our loan loss experience.  As additional capital is secured, we
will consider whether to resume or accelerate our expansion plans or to continue
repurchasing  our  stock.  We do not expect a  slowdown  in growth to  adversely
impact  revenues or earnings  in 2001.  Thereafter,  we expect that a failure to
grow could eventually affect our earnings and/or profitability.

     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  counterparties.  Even if we can identify  suitable
parties,  we may not be able to consummate  these  transactions on terms that we
find favorable.

     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. 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.  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.

Page 27
<PAGE>
     We have continuing risks relating to the First Merchants  transactions.  We
have entered into several  transactions  in the bankruptcy  proceedings of First
Merchants  Acceptance  Corporation.  We have the right to 17.5% of recoveries on
First Merchants'  residual interests in certain securitized loan pools and other
loans.  However, if we lose our right to service these loans, our share of these
residual interests could be reduced or eliminated.  This could affect our future
cash flow and profitability.

     Interest  rates  affect our  profitability.  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 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.

     Laws that limit the interest rates that we can charge can adversely  affect
our profitability.  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.

     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  and
profitability.  Our primary  competitors are the numerous small buy-her pay-here
used car dealers  that  operate in the  sub-prime  segment of the used car sales
industry.  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 industry. Although these companies do not currently compete with us in
the  sub-prime  segment of the market,  they  compete with us in the purchase of
inventory, which can result in increased wholesale costs for used cars and lower
margins. They could also enter the sub-prime segment of the market at any time.

     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 the value of our securities.

     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  senior  management  team other than  Gregory B.
Sullivan, our President and Chief Executive Officer.

Page 28
<PAGE>
     We may issue stock in the future that will dilute the value of our existing
stock.  We have the ability to issue common stock or securities  exercisable for
or convertible  into common stock,  which may dilute the securities our existing
stockholders  now hold. In particular,  issuance of none or all of the following
securities may dilute the value of the securities that our existing stockholders
now hold:

          we have  granted  warrants  to purchase a total of  approximately  1.2
          million shares of our common stock to various  parties,  with exercise
          prices ranging from $6.75 to $20.00 per share;

          we  may  issue   additional   warrants  in   connection   with  future
          transactions;

          we may issue common stock under our various stock option plans; and

          we may  issue  common  stock in the  First  Merchants  transaction  in
          exchange for an increased  share of  collections on certain loans that
          we service for First Merchants.

     There is a potential anti-takeover or dilutive effect if we issue preferred
stock.  Our  certificate of  incorporation  authorizes us to issue "blank check"
preferred  stock. Our board of directors may fix or change from time to time the
designation,  number, voting powers, preferences, and rights of this stock. Such
issuances  could  make it more  difficult  for a third  party to  acquire  us by
reducing the voting  power or other  rights of the holders of our common  stock.
Preferred stock can also reduce the market value of the common stock.

     There may be adverse  consequences  from issuing  blank check common stock,
including a potential  anti-takeover  or dilutive  effect.  Our  certificate  of
incorporation authorizes us to issue additional series of common stock, which we
refer to as "blank check"  common  stock.  Our board of directors may create new
series of common  stock from time to time in  addition  to the  existing  common
stock and may fix:

          the designation, voting powers, liquidation rights, conversion rights,
          redemption  rights,  dividends  and  distributions,   preferences  and
          relative,  participating,  optional and other rights,  if any, of each
          such series;

          the qualifications,  limitations or restrictions, if any, of each such
          series; and

          the number of shares constituting each such series.

Blank check common stock could also:

          negatively affect  shareholder rights and the value of existing common
          stock;

          have rights that are  preferential  or superior to the existing common
          stock;

          track the performance of certain assets, groups of assets,  businesses
          or subsidiaries of the company;

          increase  the  complexity  and  administrative  costs  of our  capital
          structure,  which could negatively impact our financial  condition and
          the value of our common stock;

          create  potential  conflicts  of interest  and our board of  directors
          could make  decisions  that  adversely  affect holders of our existing
          common stock; and/or

          give rise to  occasions  when the  interests  of holders of one series
          might  diverge or appear to diverge  from the  interests of holders of
          another series.

     Blank  check  common  stock also may be viewed as being an  "anti-takeover"
device.  Our board could create and issue series of common stock with terms that
could make a takeover  attempt by a third party more  difficult  to complete and
such stock may also be used in  connection  with the  issuance of a  stockholder
rights plan, sometimes called a "poison pill."


      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.

Page 29
<PAGE>
     Our  financial   instruments   consist  primarily  of  fixed  rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
short term variable rate revolving Notes Receivable, and variable and fixed rate
Notes  Payable.  Our finance  receivables  are  classified as subprime 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, 2000,  the
scheduled  maturities on our finance  receivables  ranged from one to 48 months,
with a weighted  average  maturity of 18.1 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, 2000 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.  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>
                          Change in Interest Rates            Change in Pretax Earnings
                                                                   ($ in thousands)
                          ------------------------            -------------------------
<S>                                 <C>                               <C>
                                    + 2%                              $ (2,020)
                                    + 1%                              $ (1,010)
                                    - 1%                              $  2,020
                                    - 2%                              $  1,010

</TABLE>

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

          interest  rates used for the  baseline and  hypothetical  net interest
          income amounts are in effect for the entire twelve month period,

          interest for the period is calculated on financial instruments held at
          December   31,  2000  less   contractually   scheduled   payments  and
          maturities, and

          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.


       ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report................................................ 31
Consolidated Financial Statements:
  Consolidated Balance Sheets as of December 31, 2000 and 1999.............. 32
  Consolidated Statements of Operations for the years ended
    December 31, 2000, 1999 and 1998........................................ 33
  Consolidated Statements of Stockholders' Equity for the years ended
    December 31, 2000, 1999 and 1998........................................ 34
  Consolidated Statements of Cash Flows for the years ended
    December 31, 2000, 1999, 1998........................................... 35
  Notes to Consolidated Financial Statements................................ 36

Page 30
<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, 2000 and 1999, 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, 2000.
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, 2000 and 1999, and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  December  31,  2000  in  accordance  with  accounting
principles generally accepted in the United States of America.

                                    KPMG LLP

Phoenix,  Arizona
February 16, 2001,  except as to the third and fourth paragraphs of Note (8) and
the second  paragraph  of Note (18) to the  Consolidated  Financial  Statements,
which are as of April 12, 2001.

Page 31
<PAGE>
                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    ($ in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                        ------------------------------------
                                                                               2000               1999
                                                                        -----------------  -----------------
                                     ASSETS
<S>   <C>                                                               <C>                <C>
      Cash and Cash Equivalents                                         $   8,805          $   3,683
      Finance Receivables, Net                                            500,469            365,586
      Note Receivable from Related Party                                   12,000             12,000
      Inventory                                                            63,742             62,865
      Property and Equipment, Net                                          38,679             31,752
      Intangible Assets, Net                                               12,527             14,618
      Other Assets                                                         11,724             12,327
      Net Assets of Discontinued Operations                                 4,175             33,880
                                                                        -----------------  -----------------
                                                                        $ 652,121          $ 536,711
                                                                        =================  =================

      LIABILITIES AND STOCKHOLDERS' EQUITY
      Liabilities:

         Accounts Payable                                               $   2,239          $   3,185
         Accrued Expenses and Other Liabilities                            36,830             26,905
         Notes Payable - Portfolio                                        406,551            275,774
         Other Notes Payable                                               16,579             36,556
         Subordinated Notes Payable                                        34,522             28,611
                                                                        -----------------  -----------------
           Total Liabilities                                              496,721            371,031
                                                                        -----------------  -----------------
      Stockholders' Equity:
         Preferred Stock $.001 par value, 10,000,000 shares authorized
           none issued and outstanding
         Common Stock $.001 par value, 100,000,000 shares authorized,
           18,764,000 and 18,656,000 issued, respectively, and
           12,292,000 and 14,888,000 outstanding, respectively                 19                 19
         Additional Paid-in Capital                                       173,273            173,273
         Retained Earnings                                                 21,772             12,709
         Treasury Stock, at cost                                          (40,114)           (20,321)
                                                                        -----------------  ------------------
           Total Stockholders' Equity                                     155,400            165,680
         Commitments and Contingencies                                          -                  -
                                                                        -----------------  ------------------
                                                                        $ 652,121          $ 536,711
                                                                        =================  ==================

          See accompanying notes to Consolidated Financial Statements.

</TABLE>

Page 32
<PAGE>
<TABLE>
                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                     ($ in thousands, except share amounts)
<CAPTION>
                                                                                               December 31,
                                                                        -------------------------------------------------------
                                                                               2000               1999              1998
                                                                        -----------------  -----------------  -----------------
<S>   <C>                                                               <C>                <C>                <C>
Sales of Used Cars                                                      $ 483,282          $ 389,908          $ 287,618
Less:
   Cost of Used Cars Sold                                                 268,248            219,037            165,282
   Provision for Credit Losses                                            141,971            102,955             63,318
                                                                        -----------------  -----------------  -----------------
                                                                           73,063             67,916             57,018
                                                                        -----------------  -----------------  -----------------
Other Income/Expense:
   Interest Income                                                        119,719             68,574             17,287
   Portfolio Interest Expense                                              26,698             14,597              2,860
                                                                        -----------------  -----------------  -----------------
     Net Interest Income                                                   93,021             53,977             14,427
   Gain on Sale of Loans                                                      -                  -               12,093
   Servicing and Other Income                                               1,855              7,472             15,481
                                                                        -----------------  -----------------  -----------------
     Total Other Income                                                    94,876             61,449             42,001
                                                                        -----------------  -----------------  -----------------

Income before Operating Expenses                                          167,939            129,365             99,019

Operating Expenses:
   Selling and Marketing                                                   28,756             23,132             18,246
   General and Administrative                                             105,387             81,570             69,894
   Depreciation and Amortization                                            9,065              6,948              4,912
                                                                        -----------------  -----------------  -----------------
     Operating Expenses                                                   143,208            111,650             93,052
                                                                        -----------------  -----------------  -----------------

Income before Other Interest Expense                                       24,731             17,715              5,967

Other Interest Expense                                                      9,463              3,028                161
                                                                        -----------------  -----------------  -----------------
Earnings before Income Taxes                                               15,268             14,687              5,806
Income Taxes                                                                6,205              6,000              2,351
                                                                        -----------------  -----------------  -----------------
Earnings from Continuing Operations                                         9,063              8,687              3,455
                                                                        -----------------  -----------------  -----------------
Discontinued Operations:
Earnings (Loss) from Operations of Discontinued Operations, net                 -                248               (703)
Earnings (Loss) from Disposal of Discontinued Operations, net                   -                325             (8,455)
                                                                        -----------------  -----------------  -----------------
Net Earnings (Loss)                                                     $   9,063          $   9,260          $  (5,703)
                                                                        =================  =================  =================
Earnings per Common Share - Continuing Operations:
   Basic                                                                $    0.67          $    0.58          $    0.19
                                                                        =================  =================  =================
   Diluted                                                              $    0.67          $    0.57          $    0.19
                                                                        =================  =================  =================
Net Earnings (Loss) per Common Share:
   Basic                                                                $    0.67          $    0.61          $   (0.32)
                                                                        =================  =================  =================
   Diluted                                                              $    0.67          $    0.60          $   (0.31)
                                                                        =================  =================  =================
Shares Used in Computation:
   Basic Weighted Avg. Shares Outstanding                                  13,481             15,093             18,082
                                                                        =================  =================  =================

   Diluted Weighted Avg. Shares Outstanding                                13,627             15,329             18,405
                                                                        =================  =================  =================

          See accompanying notes to Consolidated Financial Statements.
</TABLE>

Page 33
<PAGE>
<TABLE>
                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 2000, 1999, and 1998
                                 (in thousands)
<CAPTION>
                                                                                                                         Total
                                                 Number of Shares                        Retained                 Stockholders'
                                              Common       Treasury          Common      Earnings      Treasury         Equity
                                              -------      --------       ---------     ---------     ---------     ----------
<S>                                           <C>          <C>            <C>           <C>           <C>           <C>
Balances at December 31, 1997...........       18,521            --       $ 172,622     $   9,152     $      --     $  181,774
Issuance of Common Stock for  Cash......           84            --             306            --            --            306
Issuance of Common Stock  Warrants......           --            --             900            --            --            900
Purchase of Treasury Stock for Cash.....           --           (75)             --            --          (535)          (535)
Acquisition of Treasury  Stock  for
Net Loss for the Year...................           --            --              --        (5,703)          --          (5,703)
                                              -------      --------       ---------     ---------     ---------     ----------
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
Repurchase 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                      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
                                              =======      ========       =========     =========     =========     ==========

          See accompanying notes to Consolidated Financial Statements.
</TABLE>

Page 34
<PAGE>
<TABLE>
                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                ($ in thousands)
<CAPTION>
                                                                                               December 31,
                                                                        -------------------------------------------------------
                                                                               2000               1999              1998
                                                                        -----------------  -----------------  -----------------
<S>   <C>                                                               <C>                <C>                <C>
Cash Flows from Operating Activities:
  Net Earnings (Loss)                                                   $   9,063          $   9,260          $  (5,703)
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided
     by Operating Activities:
     Provision for Credit Losses                                          141,971            102,955             65,318
     Gain on Sale of Loans                                                    -                  -              (12,093)
     Purchase of Finance Receivables for Sale                                 -                  -             (207,085)
     Proceeds from Sale of Finance Receivables                                -                  -              159,498
     Depreciation and Amortization                                         14,244              7,579              5,071
     Loss from Disposal of Property and Equipment
     (Gain) Loss from Discontinued Operations                                  14                 43                903
     Deferred Income Taxes                                                  5,356             (3,078)            (2,759)
     Collections from Residuals in Finance Receivables Sold                15,551             15,949             22,000
     Increase in Goodwill from Acquisitions                                   -               (1,217)              (528)
     Increase in Inventory                                                   (877)           (18,720)           (11,773)
     (Increase) Decrease in Other Assets                                   (4,753)             1,415               (967)
     Increase in Accounts Payable, Accrued Expenses and Other liabilities  16,653              7,751              2,715
     Increase (Decrease) in Income Taxes Payable                           (7,765)             6,772             (1,233)
                                                                        ----------------   -----------------  -----------------
       Net Cash Provided by Operating Activities                          189,457            128,136             22,522
                                                                        ----------------   -----------------  -----------------
Cash Flows Used in Investing Activities:
     Increase in Finance Receivables                                     (490,301)          (403,742)          (111,467)
     Collections on Finance Receivables                                   212,319             81,572             40,112
     (Increase) Decrease in Investments Held in Trust on Finance            8,996            (10,393)           (14,864)
     Advances under Notes Receivable                                          -              (12,000)               -
     Repayments of Notes Receivable                                           -                  763                149
     Proceeds from Disposal of Property and Equipment                       3,772                 77             28,563
     Purchase of Property and Equipment                                   (17,390)            (8,974)           (22,825)
     Increase in Intangible Assets from Acquisitions                          -                 (169)               -
                                                                        ----------------   -----------------  -----------------
       Net Cash Used in Investing Activities                             (282,604)          (352,866)           (80,332)
                                                                        ----------------   -----------------  -----------------
Cash Flows from Financing Activities:
     Initial Deposits at Securitization into Investments Held in Trust    (20,610)           (21,427)           (13,071)
     Additional Deposits into Investments Held in Trust                   (35,463)           (22,701)            (9,473)
     Collections from Investments Held in Trust                            32,654             18,369             28,481
     Additions to Notes Payable Portfolio                                 791,606            751,070             49,967
     Repayment of Notes Payable Portfolio                                (663,285)          (577,028)            (5,185)
     Additions to Other Notes Payable                                       5,674             59,180             21,825
     Repayment of Other Notes Payable                                     (25,960)           (38,523)           (13,502)
     Issuance of Subordinated Notes Payable                                   -                  -               15,000
     Repayment of Subordinated Notes Payable                               (3,456)           (10,000)            (2,000)
     Proceeds from Issuance of Common Stock                                   450                364                306
     Acquisition of Treasury Stock                                        (11,788)            (5,811)              (535)
     Other, Net                                                               -               (1,324)              (862)
                                                                        ----------------   -----------------  -----------------
       Net Cash Provided by Financing Activities                           69,822            152,169             70,951
                                                                        ----------------   -----------------  -----------------
     Net Cash Provided by Discontinued Operations                          28,447             73,700            (14,134)
                                                                        ----------------   -----------------  -----------------
     Net Increase (Decrease) in Cash and Cash Equivalents                   5,122              1,139               (993)
     Cash and Cash Equivalents at Beginning of Year                         3,683              2,544              3,537
                                                                        ----------------   -----------------  -----------------
     Cash and Cash Equivalents at End of Year                           $   8,805          $   3,683          $   2,544
                                                                        ================   =================  =================
Supplemental Statement of Cash Flows Information:
     Interest Paid                                                      $  31,796          $  17,580          $  10,483
                                                                        ================   =================  =================
     Income Taxes Paid                                                  $  13,968          $   2,154          $   1,633
                                                                        ================   =================  =================
     Acquisition of Treasury Stock with Subordinated Debt               $   8,005          $     -            $  13,975
                                                                        ================   =================  =================
     Purchase of Property and Equipment with Note Payable               $     -            $     -            $     825
                                                                        ================   =================  =================
     Repurchase of Warrants for Subordinated Note Payable               $     -            $    (900)         $     900
                                                                        ================   =================  =================

          See accompanying notes to Consolidated Financial Statements.
</TABLE>

Page 35
<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 77 used car sales
dealerships,  15 inspection centers, and four loan-servicing  facilities (two of
which will be closed in May 2001). Three additional wholly owned special purpose
securitization  subsidiaries  are Ugly Duckling  Receivables  Corporation,  Ugly
Duckling Receivables Corporation II and III, all of which are "bankruptcy remote
subsidiaries".  Their  assets  at  December  31,  2000  and  1999  include  both
continuing  and   discontinued   residuals  in  finance   receivables  sold  and
investments  held in trust in the amounts of $72.3  million  and $76.4  million,
respectively.   The  assets  of  these  two   special   purpose   securitization
subsidiaries  generally would not be available to satisfy claims of creditors of
the Company.

     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, 2000.  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.

     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
approximately 30 months, it will realize a net gain.

Page 36
<PAGE>
<TABLE>
     The components of Net Assets of  Discontinued  Operations as of December31,
2000 and December 31, 1999 follow ($ in thousands): December 31,
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
Finance Receivables, net...........................................             $   4,386    $  14,837
Residuals in Finance Receivables Sold..............................                   922        3,742
Investments Held in Trust..........................................                   -          1,545
Property and Equipment.............................................                   364        2,114
Notes Receivable, net of Subordinated Notes Payable................                   -          6,697
Servicing Receivable...............................................                 3,666        6,125
Other Assets, net of Accounts Payable and Accrued Liabilities......                (5,163)      (1,180)
                                                                                -------------------------
Net Assets of Discontinued Operations..............................             $   4,175    $  33,880
                                                                                =========================

</TABLE>
<TABLE>

     Following  is a  summary  of the  operating  results  of  the  Discontinued
Operations  for  the  years  ended  December  31,  2000,  1999,  and  1998 ($ in
thousands):
<CAPTION>
                                                                                        December 31,
                                                                                --------------------------------------
                                                                                   2000         1999          1998
                                                                                ------------ ------------ ------------
<S>                                                                             <C>          <C>
Revenues.............................................................           $  11,161    $  46,705    $  33,193
Operating Expenses...................................................              10,113       38,056       40,508
Interest Expense.....................................................               1,048        7,673        7,676
                                                                                ------------ ------------ ------------
Gain (Loss) before Income Tax (Benefit)..............................                 -            976      (14,991)
Income Tax (Benefit).................................................                 -            403       (5,833)
                                                                                ------------ ------------ ------------
Earnings (Loss) from Discontinued Operations.........................           $     -      $     573    $  (9,158)
                                                                                ============ ============ ============
</TABLE>

(3) Summary of Significant Accounting Policies

Principles of Consolidation

     The Consolidated  Financial  Statements include the accounts of the Company
and its subsidiaries.  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 77, 72, and 56 used car dealerships (Company dealerships) at
December 31, 2000, 1999, and 1998,  respectively in eleven metropolitan  markets
in 2000 and 1999 and nine metropolitan markets in 1998.

     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.

Page 37
<PAGE>
     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 as an adjustment  of yield.  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  obtain an insurance  policy 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,  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 SFAS No. 115.

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

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.

Page 38
<PAGE>
     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  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, 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
straight-line  and  accelerated  methods 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 straight-line and
accelerated  methods 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 when  technological
feasibility  has been  established  and ends when the software is available  for
general use.  Amortization is computed using the  straight-line  method over the
estimated economic life of five years.

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.

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.

Advertising

     All costs related to production and  advertising are expensed in the period
incurred.  The company had no advertising  sosts  capitalized as of December 31,
2000 and 1999.

Interest Expense

     The  Company  allocates  interest  expense to  discontinued  operations  in
accordance   with  guidance  under  EITF  87-24:   "Allocation  of  Interest  to
Discontinued  Operations." Thereunder,  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.

Page 39
<PAGE>
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  SFAS  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 SFAS
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.

Reclassifications

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

Page 40
<PAGE>
(4) Finance Receivables, Net
<TABLE>
     A summary of Finance Receivables, Net follows ($ in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
     Contractually Scheduled Payments..................                         $ 696,220    $ 492,937
     Unearned Interest Income..........................                          (181,274)    (134,119)
                                                                                ------------ ------------
     Principal Balances, net...........................                           514,946      358,818
     Accrued Interest..................................                             5,655        3,741
     Loan Origination Costs............................                             7,293        5,079
                                                                                ------------ ------------
     Principal Balances, net...........................                           527,894      367,638
     Investments Held in Trust.........................                            71,139       56,716
     Residuals in Finance Receivables Sold.............                             1,136       17,382
                                                                                ------------ ------------
     Finance Receivables...............................                           600,169      441,736
     Allowance for Credit Losses.......................                           (99,700)     (76,150)
                                                                                ------------ ------------
     Finance Receivables, net..........................                         $ 500,469    $ 365,586
                                                                                ============ ============
     Allowance as % of Ending Principal Balances, net                                19.4%        21.2%
                                                                                ============ ============
</TABLE>
<TABLE>
     A  summary  of  Residuals  in  Finance   Receivables  Sold  follows  ($  in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
     Retained Interest in Subordinated Securities (B Certificates)              $   1,097    $  17,335
     Net Interest Spreads, less Present Value Discount............                    114        6,113
     Reduction for Estimated Credit Loss..........................                    (75)      (6,066)
                                                                                ------------ ------------
     Residuals in Finance Receivables Sold........................              $   1,136    $  17,382
                                                                                ============ ============
     Securitized Principal Balances Outstanding...................              $   4,059    $  65,662
                                                                                ============ ============
     Estimated Credit Losses as a % of
         Securitized Principal Balances Outstanding...............                    1.8%        10.2%
                                                                                ============ ============
</TABLE>
<TABLE>
     A summary of activity for the Residuals in Finance Receivables Sold follows ($ in thousands):
<CAPTION>
                                                                                              December 31,
                                                                                --------------------------------------
                                                                                   2000          1999         1998
                                                                                ------------ ------------ ------------
<S>                                                                             <C>          <C>          <C>
     Balance, Beginning of Year...................................              $ 17,382     $ 33,331     $ 13,277
     Additions....................................................                   --           --        35,435
     Amortization and write-down..................................               (16,246)     (15,949)     (15,381)
                                                                                ------------ ------------ ------------
     Balance, End of Year.........................................              $  1,136     $ 17,382     $ 33,331
                                                                                ============ ============ ============
</TABLE>

     For  securitization  transactions  completed  during the nine month  period
ended  September  30,  1998,  net losses were  estimated  using  total  expected
cumulative net losses at loan origination of approximately  29.0%,  adjusted for
actual  cumulative  net losses prior to  securitization.  Prepayment  rates were
estimated to be 1% per month of the beginning of month balance.
<TABLE>
     A  summary  of  activity  for  Investments  Held  in  Trust  follows  ($ in thousands):
<CAPTION>
                                                                                              December 31,
                                                                                --------------------------------------
                                                                                   2000          1999         1998
                                                                                ------------ ------------ ------------
<S>                                                                             <C>          <C>          <C>
     Balance, Beginning of Year...................................              $  56,716    $  20,564    $  11,637
     Initial Deposits at Securitization...........................                 20,610       21,427       13,071
     Additional Deposits from Trust collections...................                 11,717        7,217        5,879
     Collections in                                                                23,746       15,484        3,594
     Disbursements to the Company.................................                (41,650)      (7,976)     (13,617)
                                                                                ------------ ------------ ------------
     Balance, End of Year.........................................              $  71,139    $  56,716    $  20,564
                                                                                ============ ============ ============

</TABLE>

Page 41
<PAGE>
     In connection with its securitization transactions,  the Company provides a
credit  enhancement to the investor.  The Company makes an initial cash deposit,
generally 4% 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.

     During  2000,   we  made  initial   reserve   account   deposits   totaling
approximately  $20.6 million.  The required  aggregate  reserve account balance,
based upon the targeted percentages, was approximately $55.9 million at December
31, 2000, with balances in the reserve  accounts  totaling  approximately  $50.6
million.  As of December 31, 2000, the amount remaining to be funded to meet the
required aggregate balance was approximately $5.3 million.

(5) Allowance for Credit Losses

<TABLE>
     A summary of the activity for the  allowance  for credit  losses on finance receivables follows ($ in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
Allowance Activity:
Balance, Beginning of Period.........................                           $  76,150    $  24,777
Provision for Credit Losses..........................                             141,971      102,955
Other Allowance Activity.............................                              (2,666)       6,424
Net Charge Offs......................................                            (115,755)     (58,006)
                                                                                ------------ ------------
Balance, End of Period...............................                           $ 99,700     $  76,150
                                                                                ============ ============

</TABLE>

(6) Note Receivable - Related Party

     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, is secured
by capital stock of Cygnet Capital Corporation and is guaranteed by Verde. Under
the terms of the agreement, Mr. Garcia will be allowed to pay down the principal
balance up to a maximum of $8 million  through the  redemption  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 redemption) as long as Mr. Garcia's
ownership interest of voting stock does not fall below 15% or result in a breach
of a covenant.  The balance of this loan at December 31, 2000 and 1999 was $12.0
million.

(7)   Property and Equipment

<TABLE>
     A summary of  Property  and  Equipment  as of  December  31,  2000 and 1999 follows ($ in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
    Land.........................................................               $   6,010    $   5,431
    Buildings and Leasehold Improvements.........................                  19,979       14,751
    Furniture and Equipment......................................                  31,920       24,086
    Construction in Process......................................                   2,897          538
                                                                                ------------ ------------
                                                                                   60,806       44,806
    Less Accumulated Depreciation and Amortization...............                 (22,127)     (13,054)
                                                                                ------------ ------------
    Property and Equipment, Net..................................               $  38,679    $  31,752
                                                                                ============ ============
</TABLE>

Page 42
<PAGE>
(8) Notes Payable

     Notes Payable, Portfolio

<TABLE>
     A summary of Notes Payable, Portfolio at December 31, 2000 and 1999 follows ($ in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
                                                                                   2000         1999
                                                                                ------------ ------------
<S>                                                                             <C>          <C>
Revolving  Facility  for  $125.0  million  with  GE  Capital,   secured  by
     substantially  all assets of the  Company,  including  $48.3  million in
     finance receivables                                                        $  53,326    $  41,717

Class A obligations  issued  pursuant to the Company's  Securitization  Program,
     secured by underlying pools of finance receivables and investments held in
     trust totaling $538.9 million at December 31, 2000                           355,972      236,555
                                                                                ------------ ------------
         Subtotal                                                                 409,298      278,272
         Less:  Unamortized Loan Fees                                               2,747        2,498
                                                                                ------------ ------------
         Total                                                                  $ 406,551    $ 275,774
                                                                                ============ ============

</TABLE>

     The revolving  facility  note payable has interest  payable daily at 30 day
LIBOR plus 3.15% (9.78% at December 31, 2000)  through June 2001.  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.  At
December 31, 2000, the Company was in compliance with these covenants.

     As part of a global  decision to exit the automobile  finance  market,  the
lender  supporting  this  revolving  facility  does  not  intend  to  renew  the
agreement,  which  terminates  June 30,  2001.  The  Company  has  replaced  the
warehouse  receivables  portion of this  facility and has  received  non-binding
proposals for alternative financing for the inventory line of credit.

     The new  revolving  facility  allows for maximum  borrowings of $75 million
during the period May 1 through November 30 and increases to $100 million during
the period  December 1 through  April 30. The term of the  facility  is 364 days
with a renewal option,  upon mutual consent,  for an additional  364-day period.
The borrowing  base  consists of up to 65% of the principal  balance of eligible
loans  originated from the sale of used cars. The lender  maintains an option to
adjust the advance rate on the principal 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.  The line is
subject to several  covenants,  including  certain  financial and loan portfolio
related covenants.

     Class A  obligations  have interest  payable  monthly at rates ranging from
5.7% to 7.3%.  Monthly principal  reductions on Class A obligations  approximate
70% of the principal  reductions on the  underlying  pool of finance  receivable
loans.

     Other Notes Payable
<TABLE>
     A summary of Other Notes  Payable at December  31, 2000 and 1999 follows ($ in thousands):
<CAPTION>
                                                                                                December 31,
                                                                                        -------------------------
                                                                                            2000         1999
                                                                                        ------------ ------------
<S>                                                                                     <C>          <C>
     Note payable,  secured by the capital stock of UDRC and UDRC II and certain
          other receivables                                                               11,141       33,900

     Othernotes payable  bearing  interest at rates ranging from 7.5% to 11% due
          through  July 2003,  secured  by certain  real  property  and  certain
          property and equipment.                                                          5,637        2,939
                                                                                        ------------ ------------
     Subtotal                                                                             16,778       36,839
     Less: Unamortized Loan Fees                                                             199          283
                                                                                        ------------ ------------
     Total                                                                              $ 16,579     $ 36,556
                                                                                        ============ ============
</TABLE>

Page 43
<PAGE>
     In 1999, the Company borrowed approximately $38.0 million from an unrelated
party for a term of two years. The note called for monthly principal payments of
not less than  $800,000  through May 2000 and $1.7 million per month  thereafter
plus  interest at a rate equal to LIBOR  (6.64% at December  31,  2000) plus 550
basis  points.  The balance of this loan was $11.1 million at December 31, 2000.
This loan  agreement  was replaced in January  2001.  The new  agreement has $35
million in principal due February 2003 with  interest  payable  monthly at LIBOR
plus 600 basis  points and is secured by our  Residuals  in Finance  Receivables
Sold and certain  Finance  Receivables.  As a condition to this  agreement,  Mr.
Garcia was required to invest $7 million in the Company  through a  subordinated
loan,  which was placed in escrow as additional  collateral  for the $35 million
senior secured loan. The $7 million is subject to pro rata reductions if certain
conditions are met. Future minimum  principal  payments required under this note
payable  are $9.0  million in 2001 and $18.0  million in 2002 and the  remaining
$8.0 million in 2003.

     Future  minimum  principal  payments  required  under other  notes  payable
secured by certain real  property and certain  property and  equipment  are $0.6
million in 2001 and 2002,  $0.4  million  in 2003,  $0.2  million in 2004,  $1.5
million in 2004 and $2.4 million thereafter.

     Subordinated Notes Payable

<TABLE>
     A summary of Subordinated Notes Payable at December 31, 2000 and 1999 follows ($ in thousands):
<CAPTION>
                                                                                                December 31,
                                                                                        -------------------------
                                                                                            2000         1999
                                                                                        ------------ ------------
<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                                      $  11,500    $15,000

$17.5 million subordinated  debentures, interest at 12% per annum (approximately
     18.8% effective rate) payable semi-annually,  principal balance due October
     23, 2003                                                                              17,479     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        -
                                                                                        ------------ -----------
     Subtotal                                                                              40,919     32,479
     Less:  Unamortized Loan Fees                                                             915        605
            Unamortized Discount - subordinated debentures                                  5,482      3,263
                                                                                        ------------ -----------
     Total                                                                              $  34,522    $28,611
                                                                                        ============ ===========
</TABLE>

     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,  have an  exercise  price of  $10.00  per share and are
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
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.

Page 44
<PAGE>
     Interest  expense  related  to the  subordinated  note  payable  with Verde
totaled zero,  $.9 million and $1.1 million  during the years ended December 31,
2000,  1999 and  1998,  respectively.  As the  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.

(9) Income Taxes

     Income taxes from continuing operations totaled $6.2 million, $6.0 million,
and $2.4 million for years ended December 31, 2000, 1999 and 1998,  respectively
(an effective tax rate of 40.6%, 40.9%, and 40.5%, respectively). Reconciliation
between taxes  computed at the federal  statutory  rate of 35% for 2000 and 1999
and 34% in 1998 respectively at the effective tax rate on earnings before income
taxes are as follows ($ in thousands):
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                          ----------------------------------
                                                                            2000         1999         1998
                                                                          --------     --------     --------
<S> <C>                                                                   <C>          <C>          <C>
    Computed "Expected" Income Taxes ...............................      $  5,344     $  5,140     $  1,974
    State Income Taxes, Net of Federal Effect.......................           758          785          385
    Other, Net......................................................           103           75           (8)
                                                                          --------     --------     --------
                                                                          $  6,205     $  6,000     $  2,351
                                                                          ========     ========     ========
</TABLE>

<TABLE>
    Components of income taxes (benefit) for the years ended December 31, 2000, 1999 and 1998 follow ($ in thousands):

<CAPTION>
                                                                          Current    Deferred        Total
<S>                                                                       <C>        <C>             <C>
    2000:
       Federal.....................................................       $  4,979   $     40       $  5,039
       State.......................................................            990        176          1,166
                                                                          --------   --------       --------
                                                                             5,969        216          6,205
       Discontinued operations.....................................           (583)       583            --
                                                                          ---------  --------       --------
                                                                          $  5,406   $    799       $  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
                                                                          =========  ========       ========
    1998:
       Federal.....................................................       $   (188)  $  1,955       $  1,767
       State.......................................................             29        555            584
                                                                          --------   --------       --------
                                                                              (159)     2,510          2,351
       Discontinued operations.....................................             21     (5,854)        (5,833)
                                                                          --------   --------       --------
                                                                          $   (138)  $ (3,344)      $ (3,482)
                                                                          ========   ========       ========
</TABLE>

Page 45
<PAGE>
<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, 2000 and 1999 are presented below ($ in thousands):

<CAPTION>
                                                                                              December 31,
                                                                                        -------------------------
                                                                                            2000         1999
                                                                                        ------------ ------------
<S>     <C>                                                                                <C>          <C>
Deferred Tax Assets:
        Finance Receivables, Principally Due to the Allowance for Credit Losses..       $  4,981     $  2,655
        Inventory................................................................         (1,922)       1,413
        Federal and State Income Tax Net Operating Loss Carryforwards............          1,244          979
        Discontinued Operations Liability........................................            --           583
        Accrued Post Sale Support................................................            864          949
        Deferred Rent............................................................            600          312
        Other....................................................................          1,527          741
                                                                                        --------     --------
        Total Gross Deferred Tax Assets..........................................          7,294        7,632
        Less: Valuation Allowance................................................         (1,000)        (735)
                                                                                        --------     --------
           Net Deferred Tax Assets...............................................          6,294        6,897
                                                                                        --------     --------
Deferred Tax Liabilities:
        Software Development Costs...............................................         (2,218)      (2,607)
        Loan Origination Fees....................................................         (2,979)      (2,075)
        401K.....................................................................           (449)        (449)
        Other....................................................................           (300)        (619)
                                                                                        --------     --------
        Total Gross Deferred Tax Liabilities..........,..........................         (5,946)      (5,750)
                                                                                        --------     --------
           Net Deferred Tax Asset (Liability)....................................       $    348     $  1,147
                                                                                        ========     ========

</TABLE>

     There was an increase of $265,000 in the  Valuation  Allowance for the year
ended  December  31, 2000 and no change for 1999.  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, 2000.

Page 46
<PAGE>
(10) Servicing

     Pursuant to the Company's  securitization  program that began in 1996,  the
Company  securitizes  loan  portfolios  with  servicing  retained.  The  Company
services the securitized  portfolios for a monthly fee ranging from .25% to .33%
(generally,  3.0% to 4.0% per annum) of the beginning of month principal balance
of the serviced  portfolios.  The Company  recognized  servicing  income of $1.9
million,  $7.5 million,  and $15.5 million in the years ended December 31, 2000,
1999 and 1998, respectively.

     Servicing   income  is  primarily  a  result  of  fees  earned  on  Company
securitizations  where the loan portfolios were sold with servicing retained. As
the Company currently structures its securitization  transactions as borrowings,
it is expected that servicing income will reduce to zero in future periods.

     The Company has not  established  any servicing  assets or  liabilities  in
connection with its securitizations as the revenues from contractually specified
servicing fees and other ancillary sources have been just adequate to compensate
the Company  for its  servicing  responsibilities.  Pursuant to the terms of the
various  servicing  agreements,  the serviced  portfolios are subject to certain
performance  criteria.  In the event the serviced portfolios do not satisfy such
criteria,  the servicing agreements contain various remedies up to and including
the removal of servicing rights from the Company.

(11) Lease Commitments

     The  Company  leases used car sales  facilities,  loan  servicing  centers,
offices,  and certain office equipment  generally from unrelated  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  $14.2  million,  $13.0  million and $11.4 million for the
years ended December 31, 2000, 1999, and 1998, respectively.

     A summary of future  minimum lease payments  required  under  noncancelable
operating leases with remaining lease terms in excess of one year as of December
31, 2000 follows ($ in thousands):
                                                                Total

                     2000.......................................$11,972
                     2001.........................................9,548
                     2002.........................................7,686
                     2003.........................................6,091
                     2004.........................................5,284
                     Thereafter..................................48,583
                                                                -------
                     Total......................................$89,164
                                                                =======

     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. The total amount
paid to Verde  under  these  leases in 2000 was $3.3  million.  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.

(12) 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 are exercisable
at $4.50 per share through July 25, 2011.

     During  2000,  the Company  acquired  approximately  1.5 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 acquired  approximately 2.7 million shares of
Company Common Stock with a value of approximately $14.0 million in the Exchange
Offer.   The  Company  also  acquired   75,000  shares  of  Treasury  Stock  for
approximately $535,000 under its Stock Repurchase Program.

Page 47
<PAGE>
     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.

     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.

    During 1997, the Company  completed a private  placement of 5,075,500 shares
of common stock for a total of  approximately  $88.7 million cash,  net of stock
issuance costs. The registration of the shares sold in the private placement was
effective in April 1997. During 1996, the Company completed two public offerings
in which it issued a total of 7,245,000 shares of common stock for approximately
$79.4 million cash, net of stock issuance costs.

(13) Earnings (Loss) Per Share

<TABLE>
     The Company paid no  preferred  stock  dividends  in 2000,  1999 or 1998. A summary of the  reconciliation  from basic earnings
(loss) per share to diluted earnings (loss) per share for the years ended December 31, 2000,  1999, and 1998 follows ($ in thousands
except for per share amounts):
<CAPTION>
                                                                          ----------------------------------
                                                                            2000         1999         1998
                                                                          --------     --------     --------
<S> <C>                                                                   <C>          <C>          <C>
Earnings from Continuing Operations                                       $ 9,063      $ 8,687      $ 3,455
                                                                          ========     ========     ========
Net Earnings (Loss)                                                         9,063        9,260       (5,703)
                                                                          ========     ========     ========
Basic Earnings Per Share From Continuing Operations                          0.67         0.58         0.19
                                                                          ========     ========     ========
Diluted Earnings Per Share From Continuing Operations                        0.67         0.57         0.19
                                                                          ========     ========     ========
Basic Earnings (Loss) Per Share                                              0.67         0.61        (0.32)
                                                                          ========     ========     ========
Diluted Earnings (Loss) Per Share                                            0.67         0.60        (0.31)
                                                                          ========     ========     ========

Basic EPS-Weighted Average Shares Outstanding                              13,481       15,093       18,082
Effect of Diluted Securities:
   Warrants                                                                   -              7           41
   Stock Options                                                              146          229          282
                                                                          --------     --------     --------
Dilutive EPS-Weighted Average Shares Outstanding                           13,627       15,329       18,405
                                                                          ========     ========     ========
Warrants Not Included in Diluted EPS Since Antidilutive                     1,245        1,049        1,389
                                                                          ========     ========     ========
Stock Options Not Included in Diluted EPS Since Antidilutive                  843          610        1,470
                                                                          ========     ========     ========
</TABLE>

(14) 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 48
<PAGE>
<TABLE>
A summary of the aforementioned stock plan activity including the number and weighted average price per share(Average Price)follows:

<CAPTION>
                                                   Stock Option Plan                  Executive Plan
                                                =========================================================
                                                               Average                       Average
                                                Number         Price          Number         Price
                                                ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>
Balance, December 31, 1998.............         1,075,000      $  6.80         500,000       $  8.25
   Granted.............................           312,000         6.81         300,000          5.56
   Forfeited...........................          (178,000)        9.25        (120,000)         7.35
   Exercised...........................           (50,000)        1.56             --             --
                                                ------------   ------------   ------------   ------------
Balance, December 31, 1999.............         1,159,000         6.56         680,000          7.22
                                                ------------   ------------   ------------   ------------
   Granted.............................           113,000         6.35             --             --
   Forfeited...........................          (196,000)        6.73         (70,000)         8.25
   Exercised...........................          (108,000)        4.20             --             --
                                                ------------   ------------   ------------   ------------
Balance, December 31, 2000.............           968,000      $  6.50         610,000       $  7.10
                                                ============   ============   ============   ============
Number of shares exercisable...........           454,000                      160,000
                                                ============   ============   ============   ============
</TABLE>

     At December 31,  2000,  there were  439,000 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 2000, 1999 and 1998 was $3.09, $3.88 and $3.22, respectively, on the date
of grant using the  Black-Scholes  option-pricing  model.  The following are the
weighted-average  assumptions:  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; 1998 -- expected
dividend  yield 0%,  risk-free  interest rate of 5.25%,  expected  volatility of
50.0%, 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.

<TABLE>

     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 SFAS 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):

<CAPTION>
                                                                2000           1999           1998
                                                             ----------     ----------     ----------
<S>  <C>                                                     <C>            <C>            <C>
     Pro Forma Earnings from Continuing Operations
        Available to Common Stockholders................     $    8,345     $    7,603     $    2,468
     Pro forma Net Earnings  (Loss) Available to
     Earnings (Loss) per Share-- Basic:
        Continuing Operations Pro Forma.................     $     0.62     $     0.50     $     0.14
        Net Earnings (Loss) Pro Forma...................     $     0.62     $     0.54     $    (0.37)
     Earnings (Loss) per Share-- Diluted:
        Continuing Operations Pro Forma.................     $     0.61     $     0.50     $     0.14
        Net Earnings (Loss) Pro Forma...................     $     0.61     $     0.53     $    (0.36)

</TABLE>

Page 49
<PAGE>
<TABLE>
     A summary of stock options granted at December 31, 2000 follows:

<CAPTION>
                                             Options Outstanding                                   Options Exercisable
                                      =========================================================================================
                                        Number           Weighted-Avg       Weighted-Avg          Number           Weighted-Avg
Range of                              Outstanding         Remaining           Exercise          Exercisable          Exercise
Exercise Prices                       at 12/31/00      Contractual Life        Price            at 12/31/00           Price
------------------------------        -----------      ----------------     ------------        -----------        ------------
<S>                                   <C>              <C>                  <C>                 <C>                <C>
$1.72 to $4.94................          159,000        2.1 years            $     2.94           141,000           $    2.69
$5.00 to $6.75................          613,000        6.9 years                  5.61           162,000                5.90
$7.25 to $8.25................          757,000        7.3 years                  8.21           290,000                8.20
$8.44 to $18.63...............           49,000        6.9 years                 10.18            21,000               11.16
------------------------------        -----------      ----------------     ------------        -----------        ------------
                                      1,578,000                             $     6.73           614,000           $    6.43
                                      ===========                           ============        ===========        ============
</TABLE>


(15) 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.

     The  Company's   discontinued   operations   have  entered  into  servicing
agreements  with two  companies  that have filed and  subsequently  emerged from
bankruptcy and continue to operate under their approved plans of reorganization.
Under the terms of the  respective  servicing  agreements  and approved plans of
reorganization,  once certain creditors of the bankrupt companies have been paid
in full, the Company is entitled to certain incentive  compensation in excess of
the servicing fees earned to date. Under the terms of one of the agreements, the
Company  is  scheduled  to  receive  17.5% of all  collections  of the  serviced
portfolio once the specified  creditors have been paid in full.  Under the terms
of the second  agreement,  the Company is  scheduled  to receive the first $3.25
million in collections  once the specified  creditors have been paid in full and
15% thereafter.  The Company is required to issue up to 150,000  warrants to the
extent the Company  receives the $3.25  million and in addition will be required
to issue 75,000  warrants  for each $1.0  million in incentive  fee income after
collection of the $3.25 million. As of December 31, 2000,  management  estimates
that the  incentive  compensation  could range from $7.0 to $8.0  million  under
these  agreements.  For the year ended December 31, 2000,  results of operations
for  discontinued  operations  include $6.1 million in fee income with regard to
these incentives.

     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, that might
result from the ultimate disposition of these matters.

(16) Retirement Plan

     The Company has  established  qualified  401(k)  retirement  plans (defined
contribution  plans) which became  effective on October 1, 1995.  The plans,  as
amended,  cover  substantially all employees having no less than three months of
service,  have  attained  the age of 21, 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.

Page 50
<PAGE>
     The Company will match from 10% to 25% of the  participants'  contributions
with Company common stock.  Participants are immediately vested in the amount of
their direct  contributions  and vest over a five-year period, as defined by the
plan, with respect to the Company's  contribution.  Compensation expense related
to these plans totaled $566,000,  $194,000,  and $121,000 during the years ended
December 31, 2000, 1999, and 1998, respectively.

(17) 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, 2000 and 1999,  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.

(18) Subsequent Events

     Subsequent to year-end,  the Company decided to close two of its collection
centers in an effort to reduce operating  expenses and improve the effectiveness
of the  collection  process.  As part of this  move,  the 31-60  day  collection
process,  previously located at the collection  centers,  will be transferred to
the dealerships. The cost of payroll and severance related expenses is estimated
to be  approximately  $600,000.  Additional costs related to the remaining lease
obligations of the properties is estimated be between $500,000 and $1 million.

     On April 11, 2001, as previously announced,  Mr. Ernest Garcia, II, made an
offer to the board of directors to purchase all of the outstanding shares of the
Company's  common stock not already  held by him.  Under the terms of the offer,
the holders of the  outstanding  shares of common stock would  receive $7.00 per
share,  $2.00 in cash and $5.00 in  subordinated  debentures  from the acquiring
company.  The  subordinated  debentures  would  have  interest  payable  at 10%,
interest  only payments  semiannually  until  maturity and a ten year term.  Mr.
Garcia's  offer also  states that Greg  Sullivan,  chief  executive  officer and
president of the Company,  would receive an option to purchase a 20% interest in
the acquiring company.  The Company anticipates that the board of directors will
establish a special transaction committee,  composed of disinterested directors,
to evaluate and make a recommendation to the full board.

(19) Business Segments

     Operating  results and other financial data are presented for the principal
business  segments of the Company for the years ended  December 31, 2000,  1999,
and 1998, respectively.  The Company has three distinct business segments. These
consist of retail car sales operations (Retail Operations), the income generated
from the finance  receivables  generated at the Company  dealerships  (Portfolio
Operations),  and  corporate and other  operations  (Corporate  Operations).  In
computing  operating  profit by  business  segment,  the  following  items  were
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.

Page 51
<PAGE>
<TABLE>

   A summary of operating results and other  information,  by business segment,
for years ended December 31, 2000, 1999 and 1998 follows ($ in thousands):

<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
Servicing and Other Income                            -              1,855            -             1,855
Income before Operating Expenses                  115,678           51,827            434         167,939
Operating Expenses:
Selling and Marketing                              28,756              -              -            28,756
General and Administrative                         56,373           28,860         20,154         105,387
Depreciation and Amortization                       4,677            1,128          3,260           9,065
                                                ---------       ----------      ---------       ---------
                                                   89,806           29,988         23,414         143,208
                                                ---------       ----------      ---------       ---------
Income (loss) before Other Interest Expense     $  25,872       $   21,839      $ (22,980)      $  24,731
                                                =========       ==========      =========       =========
Capital Expenditures                            $   9,751       $    1,227      $   8,663       $  19,641
Identifiable Assets                             $ 104,743       $  514,614      $  28,589       $ 647,946


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
Servicing and Other Income                            -              7,472            -             7,472
                                                ---------       ----------      ---------       ---------
Income before Operating Expenses                   90,244           38,665            456         129,365
                                                ---------       ----------      ---------       ---------
Operating Expenses:
Selling and Marketing                              23,132              -              -            23,132
General and Administrative                         44,770           19,809         16,991          81,570
Depreciation and Amortization                       3,588            1,141          2,219           6,948
                                                ---------       ----------      ---------       ---------
                                                   71,490           20,950         19,210         111,650
                                                ---------       ----------      ---------       ---------
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

December 31, 1998:
Sales of Used Cars                              $ 287,618       $      -        $     -         $ 287,618
Less: Cost of Cars Sold                          165,282               -              -           165,282
    Provision for Credit Losses                    59,770            5,548            -            65,318
                                                ---------       ----------      ---------       ---------
                                                   62,566           (5,548            -            57,018
                                                ---------       ----------      ---------       ---------
Net Interest Income                                   -             14,086            341          14,427
Gain on Sale of Loans                                 -             12,093            -            12,093
Servicing and Other Income                            -             15,481            -            15,481
Income before Operating Expenses                   62,566           36,112            341          99,019
Operating Expenses:
Selling and Marketing                              18,246              -              -            18,246
General and Administrative                         35,765           18,519         15,610          69,894
Depreciation and Amortization                       2,582            1,333            997           4,912
                                                ---------       ----------      ---------       ---------
                                                   56,593           19,852         16,607          93,052
                                                ---------       ----------      ---------       ---------
Income (loss) before Other Interest Expense     $   5,973       $   16,260        (16,266)      $   5,967
                                                =========       ==========      =========       =========

Capital Expenditures                            $  19,176       $    1,297      $   2,352       $  22,825
Identifiable Assets                             $  75,366       $  145,880      $   9,038       $ 230,284

</TABLE>

Page 52
<PAGE>
(19) Quarterly Financial Data -- unaudited

<TABLE>

     A summary of the quarterly  data for the years ended December 31, 2000, and 1999 follows ($ in thousands):

<CAPTION>
                                                     First           Second          Third           Fourth
                                                     Quarter         Quarter         Quarter         Quarter         Total
                                                     --------------- --------------- --------------- --------------- ---------------
2000:
<S>                                                  <C>             <C>             <C>             <C>             <C>
Total Revenue                                        $ 159,124       $ 151,984       $ 158,380       $ 135,368       $ 604,856
                                                     =========       =========       =========       =========       =========
Income before Operating Expenses                        46,580          45,358          44,210          31,791         167,939
                                                     =========       =========       =========       =========       =========
Operating Expenses                                      36,688          35,435          37,303          33,782         143,208
                                                     =========       =========       =========       =========       =========
Income (Loss) before Other Interest Expense              9,892           9,923           6,907          (1,991)         24,731
                                                     =========       =========       =========       =========       =========
Earnings (Loss) from Continuing Operations           $   4,483       $   4,348       $   2,683       $  (2,451)      $   9,063
                                                     =========       =========       =========       =========       =========
Net Earnings (Loss)                                  $   4,483       $   4,348       $   2,683       $  (2,451)      $   9,063
                                                     =========       =========       =========       =========       =========
Basic Earnings (Loss) Per Share from Continuing
     Operations                                      $    0.30       $    0.31       $    0.21       $   (0.20)      $    0.67
                                                     =========       =========       =========       =========       =========
Diluted Earnings (Loss) Per Share from Continuing
     Operations                                      $    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
                                                     =========       =========       =========       =========       =========
1999:
Total Revenue                                        $ 119,715       $ 115,927       $ 124,883       $ 105,429       $ 465,954
                                                     =========       =========       =========       =========       =========
Income before Operating Expenses                        29,869          31,377          35,516          32,603         129,365
                                                     =========       =========       =========       =========       =========
Operating Expenses                                      28,970          27,708          28,080          26,892         111,650
                                                     =========       =========       =========       =========       =========
Income before Other Interest Expense                       899           3,669                           7,436           5,711
                                                     =========       =========       =========       =========       =========
Earnings from Continuing Operations                  $     619       $   1,792       $   3,657       $   2,619       $   8,687
                                                     =========       =========       =========       =========       =========
Earnings (Loss) from Discontinued
Operations                                                (196)           (324)            525             568             573
                                                     =========       =========       =========       =========       =========
Net Earnings                                         $     423       $   1,468       $   4,182       $   3,187       $   9,260
                                                     =========       =========       =========       =========       =========
Basic Earnings Per Share from Continuing
     Operations                                      $    0.04       $    0.12       $    0.24       $    0.18       $    0.58
                                                     =========       =========       =========       =========       =========
Diluted Earnings Per Share from Continuing
     Operations                                      $    0.04       $    0.12       $    0.24       $    0.17       $    0.57
                                                     =========       =========       =========       =========       =========
Basic Earnings Per Share                             $    0.03       $    0.10       $    0.28       $    0.21       $    0.61
                                                     =========       =========       =========       =========       =========
Diluted Earnings Per Share                           $    0.03       $    0.10       $    0.28       $    0.21       $    0.60
                                                     =========       =========       =========       =========       =========

</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 53
<PAGE>
<TABLE>
                                    PART III
          ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  required by this Item pertaining to executive officers of Ugly Duckling  is set  forth  above in Part I of this
Form  10-K  under the  caption, "Executive  Officers of the  Registrant,"  and is incorporated by reference into this Item.
Information  concerning  directors  of the  registrant  and  persons nominated to become  directors  is included in the following
table.  The table gives the name, age, principal occupation and  business experience of our directors.  Also, included for each
director is the year in which he became a director for us, his positions and offices with us, family relationships,  other
directorships and certain other biographical information.

==========================================================================================================================
<CAPTION>
                                                                                                               Director
Name                               Age      Business Experience                                                Since
---------------------------------- -------- ------------------------------------------------------------------ -----------
<S>                                <C>      <C>                                                                <C>
Ernest C. Garcia II                43       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.
                                            (Verde), a real estate investment corporation wholly owned by
                                            Mr. Garcia.  See "Change of Control Arrangements," and
                                            "Certain Relationships and Related Transactions."
---------------------------------- -------- ------------------------------------------------------------------ -----------
Christopher D. Jennings            47       Co-Chief Executive Officer of GlobalEuroNet Group, Inc., a          1996
                                            company focused on investment and merchant banking
                                            opportunities in technology, life sciences and other
                                            knowledge based industries, beginning in May 2000.  From
                                            April 1998 until May 2000, he was a Managing Director of
                                            Friedman, Billings, Ramsey & Co., Inc., an investment banking
                                            firm. Mr. Jennings served as a Managing Director of
                                            Cruttenden Roth Incorporated (Cruttenden Roth), also an
                                            investment banking firm, from 1995 to April 1998. From 1992
                                            to 1994, Mr. Jennings served as a Managing Director at the
                                            investment banking firm, Sutro & Co. From 1989 to 1992, Mr.
                                            Jennings served as a Senior Managing Director at Maiden Lane
                                            Associates, Ltd., a private equity fund. Prior to 1989, Mr.
                                            Jennings served in various positions with, among others, Dean
                                            Witter Reynolds, Inc. and Warburg Paribas Becker, Inc., both
                                            of which are investment banking firms. Mr. Jennings is also a
                                            director of Global Netfinancial.com, Inc.  Mr. Jennings is a
                                            member of the Compensation and Audit Committees of the
                                            board.  See "Certain Relationships and Related Transactions"
                                            and "Security Ownership of Certain Beneficial Owners and
                                            Management."
---------------------------------- -------- ----------------------------------------------------------------- -----------
John N. MacDonough                 57       Former Chairman and Chief Executive Officer of Miller Brewing      1996
                                            Company, a brewer and marketer of beer, from 1993 until April
                                            of 1999. Mr. MacDonough previously served from 1992 to 1993
                                            as Miller Brewing's President and Chief Operating Officer.
                                            Prior to 1992, he was employed in various positions at
                                            Anheuser Busch, Inc., also a brewer and marketer of beer. Mr.
                                            MacDonough is a director of FSbuy.com, a company offering an
                                            e-commerce solution for the foodservice industry.  Mr.
                                            MacDonough is also a director of Marshall & Ilsley Bank.  He
                                            is married to the sister of Mr. Sullivan.
---------------------------------- -------- ----------------------------------------------------------------- -----------
Gregory B. Sullivan                42       Ugly Duckling Corporation's President since March 1996 and         1998
                                            Chief Executive Officer since July 1999. From 1995 through
                                            February 1996, Mr. Sullivan was a consultant for us. He is an
                                            inactive member of the State Bar of Arizona. Mr. Sullivan's
                                            sister is married to Mr. MacDonough.
---------------------------------- -------- ----------------------------------------------------------------- -----------
Frank P. Willey                    47       President of Fidelity National Financial, Inc., a title            1996
                                            insurance underwriter, since 1995. From 1984 to 1995, Mr.
                                            Willey served as the Executive Vice President and General
                                            Counsel of Fidelity National Title. Mr. Willey is also a
                                            director of Fidelity National Financial, Inc. and CKE
                                            Restaurants, Inc., an operator of various quick-service
                                            restaurant chains. He is a member of the Compensation and
                                            Audit Committees of the board.
---------------------------------- -------- ----------------------------------------------------------------- -----------
Gregory S. Kilfoyle                54       Founder and Managing Member of Kilfoyle, Bruner & Kettell,         2001
                                            LLC (dba KBK Real Estate Advisors), a real estate brokerage
                                            and consulting firm, since 1996.  From 1986 to 1996, Mr.
                                            Kilfoyle was a Senior Vice President of Marketing at Colliers
                                            Iliff Thorn, a commercial real estate brokerage firm.  Prior
                                            to his real estate career, Mr. Kilfoyle also spent ten (10)
                                            years in the computer industry as a financial and sales
                                            executive managing a closely held corporation based in
                                            California.  He is a member of the Audit Committee of the
                                            board.
=========================================================================================================================
</TABLE>
Page 54
<PAGE>
                        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, 2000 of  individuals  serving as our  Executive
Officers during 2000.

<TABLE>
<CAPTION>
=============================================================================================================================
                                                   Annual Compensation                  Long-Term Compensation
                                                                                                Awards
                                                                                        ------------ ------------
                                                                                                     Securities
                                                                           Other        Restricted   Under-
                                                                           Annual       Stock        Lying        All Other
                                          Year     Salary      Bonus       Compensation Award(s)     Options      Compensation
Name and Principal Position                        ($)                     ($)          ($)          (#)(1)       ($)(2)
========================================= ======== =========== =========== ============ ============ ============ ==========
<S>                                       <C>      <C>         <C>         <C>          <C>          <C>          <C>
Gregory B. Sullivan                       2000     $250,000    $74,580     $8,896 (3)   --           --           $2,124
  Presiden and Chief Executive Officer    -------- ----------- ----------- ------------ ------------ ------------ ----------
                                          1999     $200,000    $60,000     $4,850 (3)   --           125,000      $688
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
                                          1998     $208,308    --          $1,156 (3)   --           500,000      $833
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
----------------------------------------- -------- ----------- ----------- ------------ ------------ ------------ ----------
Steven T. Darak                           2000     $197,308    $52,294     $4,141 (4)   --           --           --
  Senior Vice President, and              -------- ----------- ----------- ------------ ------------ ------------ ----------
  Chief Financial Officer                 1999     $175,000    $49,950     $870   (4)   --           35,000       --
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
                                          1998     $180,961    --          $1,750 (4)   --           65,001(5)    --
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
----------------------------------------- -------- ----------- ----------- ------------ ------------ ------------ ----------
Steven A. Tesdahl (6)                     2000     $226,816    $18,536     --           --           --           $1,438
  Senior Vice President, and              -------- ----------- ----------- ------------ ------------ ------------ ----------
  Chief Information Officer               1999     $198,941    $11,658     --           --           --           $220
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
                                          1998     $187,115    --          --           --           75,000 (7)   $1,000
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
----------------------------------------- -------- ----------- ----------- ------------ ------------ ------------ ----------
Jon Ehlinger                              2000     $147,462    $33,363     --           --           --           $1,879
  Vice President,                         -------- ----------- ----------- ------------ ------------ ------------ ----------
  General Counsel and Secretary           1999     $135,076    $17,081     --           --           10,000       $172
                                          -------- ----------- ----------- ------------ ------------ ------------ ----------
                                          1998     $56,307     --          --           --           10,000       --
============================================================================================================================
<FN>

(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 - Long Term  Incentive  Plan" and " --- 1998
     Executive  Incentive  Plan"  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 Ugly Duckling for the
     benefit of our Named Executive Officers.  The stock related portion of this
     amount only includes  vested stock as of December 31, 2000 and the value is
     calculated  with a share price of $3.94,  the closing price of the stock as
     of December 31, 2000 (as reported by Nasdaq).

(3)  These amounts include $8,896 for Mr.  Sullivan's  personal use of a company
     car for 2000, $4,850 for 1999 and $1,156 for a portion of 1998.

(4)  These amounts include an $4,141 for Mr. Darak's personal use of an auto for
     2000,  $870 for car  allowance  in 1999 and a $1,750 car  allowance  during
     1998.


Page 55
<PAGE>

(5)  Includes  15,001  options that were  cancelled and reissued on November 17,
     1998.

(6)  Mr. Tesdahl received a grant of restricted stock upon his initial hiring in
     September 1997. The grant was pursuant to his employment  agreement with us
     and was made outside of the  Incentive  Plan and the  Executive  Plan.  The
     award was for approximately  7,692 shares at $13.00 per share (based on the
     closing price of our stock on the grant date as reported by Nasdaq).  Under
     Mr.  Tesdahl's  employment  agreement,  these shares vested 100% in January
     1998.  At December 31, 2000,  Mr.  Tesdahl  retained  4,565 shares from the
     restricted  stock award,  valued at $31,407 (based on the December 31, 2000
     closing price of our stock of $3.94 per share as reported by Nasdaq).

(7)  Includes  50,000  options that were  cancelled and reissued on November 17,
     1998.

</FN>
</TABLE>


                        OPTION GRANTS IN LAST FISCAL YEAR

     There were no option grants for the fiscal year ended  December 31, 2000 to
any of our Named Executive Officers.


                          RECENT OPTION GRANTS IN 2001

     On February 19, 2001, the Board and Compensation Committee approved a grant
of 5,000 options under the Long Term Incentive Plan to each independent director
at an exercise price of $4.03 per share.


                 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, 2000 held by our
Named 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 ($)(2)
                                                               ---------------------------------- ----------------------------------
                                                               ----------------- ---------------- ----------------- ----------------
                            Shares
                            Acquired On      Value
Name                        Exercise (#)     Realized ($)      Exercisable       Unexercisable    Exercisable       Unexercisable
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
<S>                         <C>              <C>               <C>               <C>              <C>               <C>
Ernest C. Garcia II         --               --                20,000            80,000           --                --
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Gregory B. Sullivan         --               --                336,000           430,000          $156,600.00       --
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Steven T. Darak             --               --                33,998            76,003           --                --
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Jon D. Ehlinger             --               --                6,000             14,000           --                --
--------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Steven A. Tesdahl           --               --                30,000            45,000           --                --
=========================== ================ ================= ================= ================ ================= ================

Page 56
<PAGE>

<FN>
(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- Long Term Incentive Plan"
     and " --- 1998 Executive Incentive Plan" 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, 2000. The market price of our common stock
     on December 31, 2000 was $3.94 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 Named  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.  The  closing  price of our  common  stock on March 30,  2001 was
     $43.50 per share.
</FN>
</TABLE>

                            LONG TERM INCENTIVE PLAN

     In June  1995,  our  stockholders  approved  the Long Term  Incentive  Plan
(Incentive  Plan).  We believe that our Incentive  Plan promotes the success and
enhances  the value of Ugly  Duckling by (1) linking the  personal  interests of
participants to those of our stockholders,  and (2) providing  participants with
an incentive for outstanding performance. Under the Incentive Plan, we may grant
various types of awards to our employees, consultants and advisors, including:

          incentive stock options (ISOs),

          nonqualified stock options (NQSOs),

          performance shares,

          restricted stock, and

          performance-based awards.

     The Incentive Plan is administered by our board or a board committee (i.e.,
Compensation  Committee),  whose members qualify as  non-employee  directors and
outside  directors.  The Compensation  Committee has the authority to administer
the plan, including the power to determine -

          eligibility,

          type and number of awards to be granted, and

          terms and  conditions  of any award  granted,  including the price and
          timing of awards,  vesting and acceleration of such awards (other than
          performance-based awards).

     Thus far, we have only granted  ISOs and NQSOs under this plan.  Generally,
these stock options have been subject to vesting over a 5-year period,  with 20%
of the options becoming exercisable by the holder on each successive anniversary
date of the grant.  The options  generally expire 10 years after the grant date.
The total number of shares of our common stock  initially  available  for awards
under the  Incentive  Plan was  1,800,000.  The  exercise  price of all  options
granted under the plan in the past has equaled or exceeded the fair market value
of our common  stock on the date of grant.  The plan has a "change  of  control"
provision that is summarized  below. See  "Compensation  of Executive  Officers,
Benefits and Related Matters -- Change of Control Arrangements."

     In 2000, the Compensation Committee granted, subject to certain conditions,
approximately 113,000 options under the Incentive Plan.

     At March 15,  2001,  we had  granted  options  under  the plan to  purchase
approximately  1,381,624  shares of our common stock (net of canceled and lapsed
grants)  to  several  of our  employees,  advisors  and  consultants,  of  which
approximately  967,721  were  outstanding.  Also at March 15,  2001,  there were
approximately  468,376 of our shares that remained available for grant under the
plan.

Page 57
<PAGE>
                         1998 EXECUTIVE INCENTIVE PLAN

     The 1998  Executive  Incentive  Plan  (Executive  Plan) was approved by our
stockholders at our 1998 annual meeting. The plan became effective as of January
1998.  Under the  Executive  Plan,  Ugly Duckling may grant ISOs,  NQSOs,  SARs,
performance  shares,  restricted  stock,  and  performance-based  awards  to its
employees,  consultants  and advisors.  Although the Executive Plan allows broad
based  awards to be  granted  and thus is  similar  to the  Incentive  Plan,  we
currently  intend to utilize the Executive Plan primarily for  performance-based
awards to our executives and key employees as noted previously. The total number
of shares of our common stock initially available for awards under the Executive
Plan was 800,000.  The exercise price of all options granted under the Executive
Plan in the past has been equal to the fair market  value of our common stock on
the date of grant.  The plan is administered by the  Compensation  Committee and
has a "change of control"  provision that is summarized below. See "-- Change of
Control Arrangements."

     At March 15,  2001,  we had  granted  options  under  the plan to  purchase
610,000  shares of our common  stock  (net of  canceled  and  lapsed  grants) to
various officers of Ugly Duckling, of which 610,000 are still outstanding. There
were 190,000 shares that remained available for grant under the plan as of March
15, 2001.

     Other than as summarized and noted above,  the Executive Plan is similar to
the Incentive Plan as described herein.

                                  401 (K) PLANS

     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. The
401(k) plan provides a matching contribution of Ugly Duckling 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 are based  upon years of
service  with one hundred  percent  vesting and fifty  percent  matching at five
years. Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest  accrued on the  participant  accounts  are  generally  not
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.

                CONTRACTS WITH DIRECTORS AND EXECUTIVE OFFICERS
                           AND SEVERANCE ARRANGEMENTS

Steven A. Tesdahl

     On August 6, 1997, we entered into an employment agreement with Mr. Tesdahl
that was  amended as of May 21,  1998 and March 1, 2001.  Mr.  Tesdahl is Senior
Vice President and Chief Information Officer of Ugly Duckling. The agreement, as
amended,  provides  for no minimum or maximum  term of  employment.  But it does
provide for: (1)  beginning in 2001, an annual base salary of $215,000 per year,
subject to annual review by our Chief  Executive  Officer;  (2)  eligibility for
bonuses each year as determined  by our Chief  Executive  Officer/President  and
subject to Compensation  Committee  approval,  but beginning in 2001 in no event
will the  bonus be less than  $20,000;  (3) an  initial  stock  option  grant to
acquire  100,000 shares of our common stock under the Incentive Plan, with terms
and  conditions  consistent  with  the  plan's  general  terms;  (3) a grant  of
restricted  stock valued at $100,000 on the  approximate  effective  date of Mr.
Tesdahl's employment with us, which fully vested as of January 15, 1998; and (4)
certain other benefits.  The agreement has a "change of control"  provision that
provides  for  certain  rights and  benefits to Mr.  Tesdahl  upon such an event
occurring and either:

          he terminates his employment with us within 12 months after the change
          of control; or

          we terminate  him without  cause within 90 days prior to the change of
          control or within 12 months after the event.

     If these events occur,  Mr. Tesdahl will receive a termination fee equal to
200% of his then current salary,  and at the time of the change of control,  his
initial  option will fully  vest.  The  agreement  adopts the  Incentive  Plan's
definition  of a "change of control"  and adds an  additional  change of control
event if neither Ernest C. Garcia II nor Gregory B. Sullivan is Chief  Executive
Officer of Ugly Duckling. See " -- Change of Control Arrangements."

Page 58
<PAGE>
                         CHANGE OF CONTROL ARRANGEMENTS

Long Term Incentive Plan

     The term  "change  of  control"  is defined  in the  Incentive  Plan and is
summarized in the next paragraph.  Upon a change of control of Ugly Duckling the
Compensation Committee, in its discretion, will either --

          cause  all  outstanding  options  and  awards to be fully  vested  and
          exercisable and all restrictions to lapse,  allowing  participants the
          right to  exercise  options  and  awards  before the change of control
          occurs (which event would otherwise  terminate  participants'  options
          and awards); or

          cause  all  outstanding  options  and  awards  to  terminate,  if  the
          surviving  or resulting  corporation  agrees to assume the options and
          awards on terms that substantially preserve the rights and benefits of
          outstanding options and awards.

     Under the  Incentive  Plan,  a "change of  control"  occurs upon any of the
following events:

          a merger or  consolidation  of Ugly Duckling with another  corporation
          where we are not the  surviving  entity or where  our  stock  would be
          converted into cash, securities or other property, other than a merger
          in  which  our   stockholders   before  the   merger   have  the  same
          proportionate ownership after the merger;

          with certain  exceptions,  any sale,  lease, or other transfer of more
          than 40% of our assets or our earning power;

          our   stockholders   approve  a  plan  of  complete   liquidation   or
          dissolution;

          any person (other than a current  stockholder or any employee  benefit
          plan)  becoming  the  beneficial  owner  of 20% or more of our  common
          stock; or

          during  any 2-year  period,  the  persons  who are on our board at the
          beginning  of such  period  and  any  new  person  whose  election  or
          nomination  was  approved by  two-thirds  of such  directors  cease to
          constitute a majority of the persons serving on our board.

1998 Executive Incentive Plan

     The  Executive  Plan provides that in the event of a "change of control" of
Ugly  Duckling,  all  outstanding  options and awards  will be fully  vested and
exercisable  and all  restrictions  will lapse unless the surviving or resulting
corporation  agrees to assume the options and awards on terms that substantially
preserve  the rights  and  benefits  of  outstanding  options  and  awards.  The
Executive  Plan and the  Incentive  Plan have the same  definition  for the term
"change of control."

          COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     There are no  compensation  committee  interlocks  and no officer or former
officer of ours has ever been a member of our  board's  Compensation  Committee.
See "Certain Relationships and Related Transactions."

         COMPENSATION OF OUR DIRECTORS AND THE DIRECTOR INCENTIVE PLAN

     During 2000, we paid our independent directors:

          an annual retainer of $7,500 per year;

          beginning with the April 2000 meeting,  $2,000 for physical attendance
          at  meetings  of the board  and  $1,000  for  physical  attendance  at
          meetings of committees of the board, and

          beginning with the April 2000 meeting,  $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 these meetings.

     In addition, under Ugly Ducklings' Director Incentive Plan (Director Plan),
upon  initial  appointment  or  initial  election  to  the  board,  each  of our
independent  directors  receives  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. The board's  compensation will remain the same
in 2001, except for an increase in the annual retainer to $20,000.

Page 59
<PAGE>

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

     Information  concerning ownership of common stock of the Company by certain
beneficial  owners and management is incorporated in the table below.  The table
gives  information  as of March 15,  2001,  unless  another  date is  indicated,
concerning:

          each beneficial owner of more than 5% of our common stock;

          beneficial  ownership by all our directors and all our Named Executive
          Officers; and

          beneficial  ownership by all 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 30,  2001 (60 days  after  March 30,  2001)  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, we know of no other 5% owner of our common
stock as of March 30, 2001.

<TABLE>
BENEFICIAL OWNERSHIP TABLE
==================================================================================================================================
<CAPTION>
                                                                                  Amount and    Nature of             Percent of
Title of Class     Name of Beneficial Owner, Address and Other Information(1)     Beneficial    Ownership(#)(2)(3)(4) Class(2)(3)(4)
------------------ -------------------------------------------------------------- --------------------------------  --------------
<S>                <C>                                                            <C>           <C>                    <C>
Common Stock       Ernest C. Garcia II, Chairman of the Board and 5% Owner,        4,500,000    Direct
                   indirect ownerships consists of 2,003,500 shares held by        2,367,100    Indirect
                   Verde, 18,800 shares held by Verde Reinsurance Corporation,        40,000    Vested Options
                   and 344,800 shares held by Cygnet Capital Corporation, all     ----------
                   corporations wholly owned by Mr. Garcia.                        6,907,100    Total                  56.01%
------------------ -------------------------------------------------------------- --------------------------------  --------------
 Common Stock      Dimensional Fund Advisors, Inc., 5% owner based on a              903,900    Direct
                   schedule 13G filing made February 2, 2001.  According to                0    Indirect
                   this schedule 13G, Dimensional has sole voting and                      0    Vested Options
                   dispositive power over 903,900 shares of our common stock.     ----------
                       1299 Ocean Avenue, 11th Floor                                 903,300    Total                  7.35%
                       Santa Monica, CA 90401
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Gregory B. Sullivan, Director, President and Chief Executive       59,800    Direct
                   Officer                                                                 0    Indirect
                                                                                     386,000    Vested Options         3.52%
                                                                                  ----------
                                                                                     445,800    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Steven T. Darak, Senior Vice President and Chief Financial        140,000    Direct
                   Officer                                                                 0    Indirect
                                                                                      33,998    Vested Options         1.41%
                                                                                  ----------
                                                                                     173,998    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Steven A. Tesdahl, Senior Vice President and Chief                 14,565    Direct
                   Information Officer                                                     0    Indirect
                                                                                      30,000    Vested Options         *
                                                                                  ----------
                                                                                      44,565    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Christopher D. Jennings, (5) Director, indirect ownership           6,444    Direct
                   consists of a warrant to purchase 19,833 shares of our             19,833    Indirect
                   common stock held on behalf of Mr. Jennings by Cruttenden          15,000    Vested Options         *
                   Roth, an investment banking firm and previous employer of      ----------
                   Mr. Jennings. The warrants are convertible into our common         41,277    Total
                   stock at any time through June 21, 2001 at an exercise price
                   of $9.45 per share and are fully vested
------------------ -------------------------------------------------------------- --------------------------------  --------------
Page 60
<PAGE>
Common Stock       John N. MacDonough, (5) Director, indirect ownership                4,444    Direct
                   consists of shares of our common stock acquired by Mr.                100    Indirect
                   MacDonough's son.                                                  15,000    Vested Options         *
                                                                                  ----------
                                                                                      19,544    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Frank P. Willey, (5)(6) Director                                   27,144    Direct
                                                                                           0    Indirect
                                                                                      15,000    Vested Options         1.54%
                                                                                  ----------
                                                                                      42,144    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Jon D. Ehlinger, Vice President, Secretary and General              2,000    Direct
                   Counsel                                                                 0    Indirect
                                                                                       7,500    Vested Options         *
                                                                                  ----------
                                                                                       9,500    Total

------------------ -------------------------------------------------------------- --------------------------------  --------------
Common Stock       Gregory Kilfoyle, Director, indirect ownership consists of              0    Direct
                   shares held in the G.S. Kilfoyle P.C. Defined Benefit                 600    Indirect
                   Pension Plan, Mr. and Mrs. Kilfoyle, co-trustees.                   5,000    Vested Options         *
                                                                                  ----------
                                                                                       5,600    Total
------------------ -------------------------------------------------------------- --------------------------------  --------------
------------------ -------------------------------------------------------------- --------------------------------  --------------
                   All directors and executive officers as a group
                   (9 persons)                                                     7,689,528                           62.56%
==================================================================================================================================

<FN>
* Represents less than one percent of the outstanding common stock.

(1)  Unless otherwise noted, the address of each of the listed beneficial owners
     of our  common  stock is 2525 East  Camelback  Road,  Suite  500,  Phoenix,
     Arizona 85016.
(2)  "Vested  Options"  are options  that the holder can  exercise as of May 30,
     2001.  These  options were issued under  either the  Incentive  Plan or the
     Executive Plan and their related terms and  conditions,  including  vesting
     schedules.  See "Compensation of Executive  Officers,  Benefits and Related
     Matters - Long Term Incentive Plan" and " - 1998 Executive Incentive Plan."
(3)  Shares of our common  stock that are subject to options,  warrants or other
     rights which are currently exercisable or exercisable within 60 days (i.e.,
     as of May 30,  2001) are treated as  outstanding  for purposes of computing
     the  percentage of the person  holding the option,  warrant or other right,
     but are not treated as  outstanding  for  computing  the  percentage of any
     other  person.  Except as indicated in footnote (4) below,  the amounts and
     percentages  are  based  upon   12,291,909   shares  of  our  common  stock
     outstanding as of March 30, 2001, net of shares we hold in our treasury.
(4)  Information  in the table that is described as based on Schedule 13G and/or
     amendment  filings was provided to us by the beneficial  owner effective as
     of December  31,  2000,  including  the amount of  securities  beneficially
     owned,  but  not  including  the  percentage  of  class,   which  has  been
     recalculated  based on the  number  of shares  outstanding  as of March 30,
     2001. We make no  representation  as to the accuracy or completeness of the
     information  provided  in these  Schedule  13Gs  and/or  amendments  or the
     information in the beneficial ownership table, which is based solely on the
     filings.
(5)  The total and direct ownership for these independent board members includes
     4,444 shares of our common stock that we granted  under the Director  Plan.
     We granted and issued shares having a value of $30,000 on or about the date
     of grant (i.e., 4,444 shares of our common stock) to each independent board
     member upon his  appointment  or election to our board in June 1996.  Under
     the Director Plan,  these shares  generally vest over a 3-year period at an
     annual rate of 33%, beginning on the first anniversary date after the grant
     date (June 1996).
(6)  Possible  indirect  ownership of shares of Ugly  Duckling  acquired by
     Fidelity National Financial, Inc. Mr. Willey disclaims beneficial ownership
     of such shares.
</FN>
</TABLE>

Page 61
<PAGE>
CHAIRMAN'S INTEREST IN TAKING US PRIVATE

     On October 3, 2000, our chairman, Mr. Garcia, made an offer to the board of
directors  to purchase  all of the  outstanding  shares of our common  stock not
already  held  by  him.  Under  the  terms  of the  offer,  the  holders  of our
outstanding shares of common stock would have received $8.50 per share, $2.50 in
cash and $6.00 in  subordinated  indebtedness  of the  acquiring  company.  Greg
Sullivan, our Chief Executive Officer and President, had an arrangement with Mr.
Garcia  under  which he would  purchase  or receive an option to  purchase a 20%
interest in the acquiring  company.  On October 27th, after discussions with us,
our board of directors and the special  transaction  committee of the board, Mr.
Garcia  withdrew his offer.  In his  subsequent  filings with the Securities and
Exchange Commission, Mr. Garcia has expressed a continuing interest in acquiring
all of our  outstanding  common  stock.  On April 16, 2001,  Mr.  Garcia made an
additional offer to purchase our outstanding  common stock. See Footnote (18) of
Notes to Consolidated  Financial  Statements included herin for a description of
this offer.  Since November 1, 2000,  Mr.  Garcia,  or affiliates of Mr. Garcia,
have  purchased  2,367,100  shares of our common stock and now Mr.  Garcia owns,
directly and indirectly, over 56% of our outstanding shares of common stock.

            ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In the most recent fiscal year, 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 significant
stockholders  will receive approval of a majority of our independent  directors,
will be fair and  generally  will be on terms  no less  favorable  to us than we
could obtain from non-affiliated parties.

     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 effort 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 were reduced
to $4  million  within  two  years and to 10% if the  warrant  were 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. As
of the date hereof, the full $12 million note is still outstanding.

     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 $1,518,000 of
2000 Exchange Debt.

     Beginning  in  March  of  1998,  we sold 17  properties  for a total  price
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). We pay 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 intend  to build a new  headquarters  at this
location  over the next several  months,  and obtain  permanent  financing  upon
completion of construction. The total amount paid to Verde under these leases in
2000 was  $3,271,089.  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.

Page 62
<PAGE>
     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.

     In addition,  see the discussion on page __ relative to Mr.  Garcia's offer
to take us  private  in 2000 and his  continuing  interest  in doing  so.  Since
November of 2000, Mr. Garcia has acquired indirectly through affiliated entities
2,367,100 shares of our outstanding common stock and now holds approximately 56%
of our outstanding common stock.

     We believe  that it is  important  for our  directors  and  officers  to be
stakeholders  in Ugly Duckling.  With this in mind, in September 1997, our board
approved a directors' and officers' stock repurchase program (D&O Stock Purchase
Program).  The  program  provided  loans of up to $1.0  million  in total to our
directors and senior  officers to assist them in purchasing  our common stock on
the open market from  time-to-time.  The D&O Stock Purchase Program provides for
unsecured  loans,  with  interest at 10% per year,  and interest  and  principal
payments due at the end of each loan term. These loans were amended to make them
due on demand by Ugly Duckling  effective in 1999.  During 1997, senior officers
purchased  50,000  shares of common  stock  under the  program  and we  advanced
$500,000  for  these  purchases.  During  1998,  senior  officers  purchased  an
additional  40,000  shares of common  stock  under the  program  and we advanced
approximately  $400,000 for these purchases.  Through March 30, 2001, there were
no additional  purchases of common stock under the program.  In addition,  there
have been no  principal  payments  or  minimal  interest  payments  made to Ugly
Duckling since the program  began.  The table that follows  provides  additional
information on the D&O Stock Purchase Program for each of our executive officers
through March 30, 2001.

     During  December 2000 and January  2001,  we made loans to Mr.  Darak,  our
Senior Vice  President  and Chief  Financial  Officer.  The loans were  employee
advances.  The indebtedness is secured by Mr. Darak's Ugly Duckling  Corporation
common stock, with interest at 10% per year, and principal and interest due upon
demand.  There have been no principal or interest  payments made by Mr. Darak to
us since the inception of these loans, or on the August 1999,  September 1998 or
October 1998 loans made to Mr. Darak. The table that follows provides additional
information on outstanding loans to our Named Executive Officers.

<TABLE>
=============================================== ==================== ============= =========================== ================
<CAPTION>
                                                                     Date debt     Principal Balance Of Debt   Number of Shares
Name & Title of Executive Officer               Nature of Debt       incurred      At 12/31/00                 Purchased (#)
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
<S>                                             <C>                  <C>           <C>                         <C>
Gregory B. Sullivan, CEO, President,            D&O Stock Purchase   11/97 & 5/98  $198,126                    20,000
& Director                                      Program
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
Steven T. Darak, Sr. VP & CFO                   D&O Stock Purchase   11/97         $100,000                    10,000
                                                Program
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
Steven A. Tesdahl, Sr. VP & CIO of Ugly         D&O Stock Purchase   5/98          $98,126                     10,000
Duckling                                        Program
  Car Sales
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
TOTAL for D&O Stock Purchase Program            D&O Stock Purchase   11/97 & 5/98  $696,252                    70,000
                                                Program
----------------------------------------------- -------------------- ------------- --------------------------- ----------------
Steven T. Darak, Sr. VP & CFO                   Employee Advances    9/98, 10/98   $747,940                    --
                                                                     8/99, 12/00,
                                                                     01/01
=============================================== ==================== ============= =========================== ================

</TABLE>

     From April 1998 to May 2000,  Mr.  Jennings,  one of our  directors,  was a
managing  director of  Friedman,  Billings,  Ramsey & Co.,  Inc.,  which makes a
market in our common stock and from time to time may provide  investment banking
and other services to us.

                                     PART IV

        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. Page

Independent Auditors' Report................................................. 31
Consolidated Financial Statements and Notes thereto of
  Ugly Duckling Corporation:  Consolidated Balance Sheets
  December 31, 2000 and 1999................................................. 32
Consolidated Statements of Operations-- for the years ended
  December 31, 2000, 1999, 1998.............................................. 33
Consolidated Statements of Stockholders' Equity-- for the years ended
  December 31, 2000, 1999 and 1998........................................... 34
Consolidated Statements of Cash Flows-- for the years ended
  December 31, 2000, 1999 and 1998........................................... 35
Notes to Consolidated Financial Statements................................... 36
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.

(b)  Reports on Form 8-K.

     During the fourth  quarter of 2000,  the Company  filed two reports on Form
     8-K. The first report on Form 8-K,  dated October 5, 2000 and filed October
     10, 2000,  reported  Ugly  Duckling's  receipt of the offer to purchase the
     Company by Mr.  Ernest C.  Garcia II, the  Company's  Chairman  and largest
     shareholder  and filed as an exhibit to the Form 8-K, a press release dated
     October  5, 2000  entitled  "Ugly  Duckling  Confirms  Receipt  of Offer to
     Purchase Company from Chairman/Largest  Shareholder".  The second report on
     Form 8-K dated and filed October 30, 2000,  reported the  withdrawal of the
     offer to purchase the Company from Mr. Ernest C. Garcia,  II, the Company's
     Chairman and largest shareholder. Filed as an exhibit to the Form 8-K was a
     press  release  dated  October 27, 2000  entitled  "Ugly  Duckling  Reports
     Withdrawal of the Chairman's Offer to Purchase Outstanding Common Stock".

(c)  Exhibits.

<PAGE>

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 Servies, 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**
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.**
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 Registrant dated
        as of June 30, 2000.**
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.**
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)
10.10   Binding 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)
10.11   FMAC 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))
10.14   Loan 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)
10.15   Credit 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)
10.16   Service Agreement among Reliance Acceptance Corporation, Registrant,
        Bank America Business Credit, Inc. and certain other parties dated as
        of February 9, 1998 (12)
10.17   Agreement of Understanding among Reliance Acceptance Group, Inc.,
        Reliance Acceptance Corporation and Registrant, dated as of
        February 9, 1998 (12)
10.18   Purchase 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)
10.19   Agreement 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)
10.22   Stock 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)
10.22(d)CDF Guaranty dated December 30, 1999 (19)
10.22(e)Warrant dated December 30, 1999 from CCC to UDFC (19)
10.23   Letter agreement between the beneficiaries and/or representatives of the
        estate of Don Addink and the Registrant dated as of
        September 14, 2000. (24)
10.24   Property 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)**
10.24(b)Schedule of Lease Agreements, by and among the Registrant and Verde
        Investments, Inc.**
10.25   Options agreement for purchase and sale of commercial property, by and
        among the Registrant and Verde Investments, Inc., dated as of
        November XX, 2000.**
10.26   $35 million Senior Secured Loan Agreement between the Registrant and
        BNY Midwest Trust Company, dated as of January 11, 2001.**
10.26(a)Cash Collateral Agreement between the Registrant and BYN Midwest Trust
        Company, dated as of January 11, 2001.**
10.26(b)$7 million Loan Agreement between the Registrant and Verde Investments
        Inc., dated as of January 11, 2001.**
10.26(c)$7 million Promissory Note between the Registrant and Verde Investments
        Inc., dated as of January 11, 2001.**
10.26(d)Subordination and Standstill Agreement between the Registrant, Verde
        Investments Inc., and BYN Midwest Trust Company, dated as of
        January 11, 2001.**
10.26(e)Stock Pledge Agreement between the Registrant and Verde Investments, Inc
        dated as of January 11, 2001.**
10.26(f)Stock Pledge Agreement between the Registrant and BNY Midwest Trust
        Company dated as of January 11, 2001.**
10.27   Offer Letter to Purchase All Registrant Outstanding Stock by
        Ernest Garcia II, dated as of April 16, 2001.**
10.28   Master Loan and Security Agreement between the Registrant and Greenwich
        Capital Financial Products, Inc., dated as of April 13, 2001.**
10.28(a)Intercreditor Agreement between the Registrant, Greenwich Capital
        Financial Products, Inc. and General Electric Capital Corporation,
        dated as of April 13, 2001.**
10.28(b)Custodial Agreement between the Registrant and Greenwich Capital
        Financial Products, Inc., dated as of April 13, 2001.**
11      Earnings (Loss) per Share Computation (see Note 13 to Notes to
        Consolidated Financial Statements)
21      List of Subsidiaries (Filed as Schedule 4 to Exhibit 10.28)
23.1    Consent of KPMG LLP**
24.1    Special Power of Attorney for Ernest C. Garcia II **
24.2    Special Power of Attorney for C. Jennings**
24.3    Special Power of Attorney for J. MacDonough**
24.4    Special Power of Attorney for F. Willey**
24.5    Special Power of Attorney for Gregory Sullivan**
24.6    Special Power of Attorney for Gregory S. Kilfoyle**
27      Financial Data Schedules for the year ending December 31, 2000**


---------------------------
[FN]
*          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.
(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.

</FN>

<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: March 29, 2001

     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.

NAME AND SIGNATURE            TITLE                               DATE

/s/ ERNEST C. GARCIA II       Chairman of the Board of Directors  April 16, 2001
-----------------------------

/s/ GREGORY B. SULLIVAN       President, Chief Executive Officer  April 16, 2001
----------------------------- and Director (Principal Executive
Gregory B. Sullivan           Officer and Director)

/s/ STEVEN T. DARAK           Senior Vice President and Chief     April 16, 2001
----------------------------- Financial Officer (Principal
Steven T. Darak               Financial and Accounting Officer)

                *             Director                            April 16, 2001
-----------------------------
Christopher D. Jennings

                *             Director                            April 16, 2001
-----------------------------
John N. MacDonough

                *             Director                            April 16, 2001
-----------------------------
Frank P. Willey

                *             Director                            April 16, 2001
-----------------------------
Gregory S. Kilfoyle


 *By: /s/ JON D. EHLINGER
      -------------------
         Jon D. Ehlinger
         Attorney-in-Fact