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


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 10-Q

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

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

                  For the quarterly period ended: June 30, 2002

                        Commission File Number 000-20841

                            UGLY DUCKLING CORPORATION
             (Exact name of registrant as specified in its charter)

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

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


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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 [X] Yes [ ] No
                                 ---------------



     This  document  serves both as a resource for analysts,  bond holders,  and
other  interested  persons,  and as the  quarterly  report  on Form 10-Q of Ugly
Duckling  Corporation (Ugly Duckling) to the Securities and Exchange Commission,
which has taken no action to approve or  disapprove  the report or pass upon its
accuracy or adequacy.  Additionally,  this document is to be read in conjunction
with the consolidated financial statements and notes included in Ugly Duckling's
Annual Report on Form 10-K, for the year ended December 31, 2001.

<PAGE>

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                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                       Page
                     Part I - FINANCIAL STATEMENTS
  <S>                <C>                                                                                               <C>
  Item 1.            FINANCIAL STATEMENTS
                     Condensed Consolidated Balance Sheets-- June 30, 2002 and December 31, 2001                       1
                     Condensed Consolidated Statements of Operations-- Three and Six Months Ended
                           June 30, 2002 and 2001                                                                      2
                     Condensed Consolidated Statements of Cash Flows-- Six Months Ended
                           June 30, 2002 and 2001                                                                      3
                     Notes to Condensed Consolidated Financial Statements                                              4

  Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS             12
  Item 3.            MARKET RISK                                                                                       33

                     Part II -- OTHER INFORMATION
  Item 1.            LEGAL PROCEEDINGS                                                                                 34
  Item 2.            CHANGES IN SECURITIES                                                                             35
  Item 3.            DEFAULTS UPON SENIOR SECURITIES                                                                   35
  Item 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                               35
  Item 5.            OTHER INFORMATION                                                                                 35
  Item 6.            EXHIBITS AND REPORTS ON FORM 8-K                                                                  35
                     SIGNATURES                                                                                        36
</TABLE>




<PAGE>


                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         June 30,          December 31,
                                                                           2002                2001
                                                                     -----------------    ----------------
      <S>                                                            <C>                  <C>
      ASSETS
      Cash and Cash Equivalents                                            $   10,003           $   8,572
      Finance Receivables, Net                                                531,928             495,254
      Note Receivable from Related Party                                       12,000              12,000
      Inventory                                                                38,148              58,618
      Property and Equipment, Net                                              30,331              37,739
      Goodwill                                                                 11,569              11,569
      Other Assets                                                             10,972              20,006
      Net Assets of Discontinued Operations                                         -               3,899
                                                                     -----------------    ----------------
                                                                          $   644,951          $  647,657
                                                                     =================    ================
      LIABILITIES AND STOCKHOLDERS' EQUITY
      Liabilities:
         Accounts Payable                                                  $    3,955           $   2,850
         Accrued Expenses and Other Liabilities                                41,863              38,250
         Notes Payable - Portfolio                                            398,640             377,305
         Other Notes Payable                                                   25,690              52,510
         Subordinated Notes Payable                                            25,813              31,259
                                                                     -----------------    ----------------
           Total Liabilities                                                  495,961             502,174
                                                                     -----------------    ----------------
      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, 100 and 18,774,000 issued, respectively,
                and 100 and 12,275,000 outstanding, respectively                    -                  19
         Additional Paid-in Capital                                           133,418             173,741
         Retained Earnings                                                     15,572              12,074
         Treasury Stock, at cost                                                    -            (40,351)
                                                                     -----------------    ----------------
           Total Stockholders' Equity                                         148,990             145,483
                                                                     -----------------    ----------------
                                                                          $   644,951          $  647,657
                                                                     =================    ================
</TABLE>


     See accompanying notes to Condensed Consolidated Financial Statements.


<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                Three and Six Months Ended June 30, 2002 and 2001
                    (In thousands, except cars sold amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                       Three Months Ended             Six Months Ended
                                                                            June 30,                      June 30,
                                                                  ----------------------------- -----------------------------
                                                                       2002          2001            2002          2001
                                                                  ----------------------------- -----------------------------
<S>                                                               <C>             <C>           <C>             <C>
Cars Sold                                                                 12,068         11,607         27,368         26,458
                                                                  ============================= =============================

Total Revenues                                                    $      155,986  $     140,819 $      331,050  $     304,849
                                                                  ============================= =============================

Sales of Used Cars                                                $      120,247  $     105,919 $      262,481  $     236,105
Less:
   Cost of Used Cars Sold                                                 71,337         60,639        154,354        133,480
   Provision for Credit Losses                                            38,395         32,210         83,762         71,230
                                                                  ----------------------------- -----------------------------
                                                                          10,515         13,070         24,365         31,395
                                                                  ----------------------------- -----------------------------
Other Income (Expense):
   Interest Income                                                        35,739         34,900         68,569         68,744
   Portfolio Interest Expense                                            (6,251)        (7,492)       (12,394)       (16,011)
                                                                  ----------------------------- -----------------------------
      Net Interest Income                                                 29,488         27,408         56,175         52,733
                                                                  ----------------------------- -----------------------------

Income before Operating Expenses                                          40,003         40,478         80,540         84,128
Operating Expenses:
     Selling and Marketing                                                 6,137          6,235         13,750         13,861
     General and Administrative                                           25,561         27,217         51,343         54,655
     Depreciation and Amortization                                         2,058          2,435          4,166          4,842
                                                                  ----------------------------- -----------------------------
       Operating Expenses                                                 33,756         35,887         69,259         73,358
                                                                  ----------------------------- -----------------------------

Income before Other Interest Expense                                       6,247          4,591         11,281         10,770
Other Interest Expense                                                     2,328          2,862          4,634          5,953
                                                                  ----------------------------- -----------------------------

Earnings before Income Taxes                                               3,919          1,729          6,647          4,817
Income Taxes                                                               1,791            709          3,149          1,975
                                                                  ----------------------------- -----------------------------

Earnings before Extraordinary Item                                         2,128          1,020          3,498          2,842
Extraordinary Item - Gain on early extinguishment of debt, net                -             344             -             344
                                                                  ----------------------------- -----------------------------
Net Earnings                                                      $        2,128          1,364          3,498          3,186
                                                                  ============================= =============================

</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.

<PAGE>




                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Six Months Ended June 30, 2002 and 2001
                                 (In thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                      -----------------------------
                                                                                           2002          2001
                                                                                      -----------------------------
<S>                                                                                   <C>             <C>
Cash Flows from Operating Activities:
     Net Earnings                                                                     $        3,498  $       3,186
Adjustments to Reconcile Net Earnings to Net Cash Provided
     by Operating Activities:
     Provision for Credit Losses                                                              83,762         71,230
     Depreciation and Amortization                                                             6,698          6,912
     Loss from Disposal of Property and Equipment                                                107            399
     Deferred Income Taxes                                                                       291             -
     Collections from Residuals in Finance Receivables Sold                                       -           1,136
     Decrease in Inventory                                                                    21,425         22,970
     (Decrease) of Inventory Allowance                                                         (955)             -
     (Increase) Decrease in Other Assets                                                       7,400            250
     Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Liabilities           3,060       (10,033)
     Increase (Decrease) in Income Taxes Payable                                               3,001        (2,013)
                                                                                      -----------------------------
         Net Cash Provided by Operating Activities                                           128,287         94,037
                                                                                      -----------------------------
Cash Flows from Investing Activities:
     Increase in Finance Receivables                                                       (247,202)      (213,732)
     Collections on Finance Receivables                                                      126,299        124,646
     Decrease in Investments Held in Trust on Finance Receivables Sold                            -           1,398
     Proceeds from Disposal of Property and Equipment                                          2,952          1,760
     Purchase of Property and Equipment                                                      (3,768)        (8,122)
                                                                                      -----------------------------
         Net Cash Used in Investing Activities                                             (121,719)       (94,050)
                                                                                      -----------------------------
Cash Flows from Financing Activities:
     Initial Deposits at Securitization into Investments Held in Trust                       (8,846)        (6,407)
     Additional Deposits into Investments Held in Trust                                     (38,623)       (69,358)
     Collections from Investments Held in Trust                                               47,936         46,972
     Additions to Notes Payable Portfolio                                                    334,245        349,350
     Repayment of Notes Payable Portfolio                                                  (314,478)      (341,464)
     Additions to Other Notes Payable                                                         73,627         37,168
     Repayment of Other Notes Payable                                                       (96,906)       (11,720)
     Repayment of Subordinated Notes Payable                                                 (6,000)        (6,733)
     Proceeds from Additional Paid in Capital                                                      3             -
     Proceeds from Issuance of Common Stock                                                        6             18
                                                                                      -----------------------------
         Net Cash Used in Financing Activities                                               (9,036)        (2,174)
                                                                                      -----------------------------
Net Cash Provided by Discontinued Operations                                                   3,899            441
                                                                                      -----------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                           1,431        (1,746)
Cash and Cash Equivalents at Beginning of Period                                               8,572         8,805
                                                                                      -----------------------------
Cash and Cash Equivalents at End of Period                                            $       10,003  $       7,059
                                                                                      =============================
Supplemental Statement of Cash Flows Information:
     Interest Paid                                                                    $       15,324  $      20,130
                                                                                      =============================
     Income Taxes Paid (Received)                                                     $        (212)  $      12,071
                                                                                      =============================
Supplemental Statement of Non-Cash Investing and Financing Activities:
     Other Notes Payable Assumed by Leasor in Sale Leaseback Transaction              $        4,070  $          -
                                                                                      =============================
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

     Our accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to rules
and regulations of the Securities and Exchange Commission.  Accordingly, they do
not include all of the  information  and footnotes  required by such  accounting
principles  generally  accepted  in the United  States of America for a complete
financial  statement  presentation.  In  our  opinion,  such  unaudited  interim
financial  information  reflects  all  adjustments,  consisting  only of  normal
recurring  adjustments,  necessary to present our financial position and results
of operations for the periods  presented.  Our results of operations for interim
periods are not necessarily  indicative of the results to be expected for a full
fiscal year.  Our condensed  consolidated  balance sheet as of December 31, 2001
was derived from our audited consolidated  financial statements as of that date,
but does not include all the  information  and footnotes  required by accounting
principles  generally  accepted in the United States of America.  For a complete
financial statement  presentation,  we suggest that these condensed consolidated
financial  statements  be read in  conjunction  with  the  audited  consolidated
financial  statements  included in our Annual Report on Form 10-K,  for the year
ended  December 31, 2001. All amounts are in thousands with the exception of per
unit and per car data, unless otherwise noted.

Note 2.  Summary of Finance Receivables

   A summary of Finance Receivables, net, follows:

                                            June 30,       December 31,
                                              2002             2001
                                      ----------------------------------
Contractually Scheduled Payments            $  774,680       $  694,572
Unearned Finance Charges                     (209,298)        (179,873)
                                      ----------------------------------
Principal Balances, net                        565,382          514,699
Accrued Interest                                 5,857            5,824
Loan Origination Costs                           7,360            6,635
                                      ----------------------------------
Loan Receivables                               578,599          527,158

Investments Held in Trust                       69,529           69,996
                                      ----------------------------------
Finance Receivables                            648,128          597,154
Allowance for Credit Losses                  (116,200)        (101,900)
                                      ----------------------------------
Finance Receivables, net                    $  531,928       $  495,254
                                      ==================================

     Investments Held in Trust represent funds held by trustees on behalf of our
securitization   bondholders  and  consists  of  reserve  accounts,  as  further
described,  plus collections in transit.  In connection with its  securitization
transactions,  the Company  provides a credit  enhancement to the investor.  The
Company makes an initial cash deposit, historically ranging from 2.3% to 7.3% 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,
currently  ranging from 8.0% to 11.5%,  of the  underlying  finance  receivables
principal balances.

     The Company  previously  reported in its Annual Report on Form 10-K for the
year ended  December 31, 2001 and in its  Quarterly  Report on Form 10-Q for the
three month  period  ended March 31, 2002 that four of its  securitizations  had
reached  Termination  Events (as defined in the  securitizations)  triggering an
acceleration  of rights for the insurer under the Insurance  Agreements  for the
respective securitizations.  As reported, the Termination Events occurred on the
charge-off  triggers  for 2000B,  2000C,  and 2001A in December  2001 and on the
delinquency  trigger for 1999C in January 2002. As a result,  all cash flow from
these trusts otherwise distributable to the Company was deposited into a reserve
account  for these  securitizations.  In June  2002,  as  reported  on Form 8-K,
revised  calculations  indicated  that no  Termination  Events  in fact had been
triggered on the net charge-off trigger for 2000B,  2000C, and 2001A in December
2001.  However,  the revised  calculations  did confirm  the  Termination  Event
occurred  on the  delinquency  trigger  for  1999C  in  January,  an  additional
Termination  Event  occurred  on the  delinquency  trigger for 1999C in February
2002, and a Termination Event occurred on the delinquency  trigger for 2000A, in
February, March and April 2002. Both the 1999C and 2000A trusts have been

<PAGE>
repurchased  by the Company in April and July,  respectively,  and are no longer
required to be tested by the  performance  targets set by the trust  insurer and
all  cash  has  been  released.  In  addition,  upon  review  of  these  revised
calculations  for the 2000B,  2000C and 2001A  trusts,  trapped  cash related to
these trusts was released and  distributed to the Company in June of 2002. As of
August 1, 2002, no cash is being held above the required reserve levels.

Note 3.  Related Party Transactions

     In January 2001, the Company entered into a $35 million senior secured loan
facility as a renewal for a $38 million  senior loan facility  originated in May
1999. As a condition to the $35 million  senior  secured loan  agreement,  Verde
Investments,  Inc. ("Verde"),  an affiliate of Ernest C. Garcia II, Chairman and
the then principal shareholder of the Company, was required to invest $7 million
in the Company  through a subordinated  loan. The funds were placed in escrow as
additional collateral for the $35 million senior secured loan. The funds were to
be released in July 2001 if, among other conditions, the Company had at least $7
million in pre-tax  income  through June of 2001 and, at that time,  Mr.  Garcia
would have guaranteed 33% of the $35 million facility.  The Company did not meet
this pre-tax income  requirement  for the first six months of 2001. Per the loan
agreement,  Mr. Garcia was entitled to receive warrants from the Company for 1.5
million shares of stock, vesting over a one-year period, at an exercise price of
$4.50 subject to certain  conditions.  Also as  consideration  for the loan, the
Company  released  all options to  purchase  real estate that were then owned by
Verde and leased to the Company.  The Company  also granted  Verde the option to
purchase,  at book value, any or all properties  currently owned by the Company,
or acquired by the Company  prior to the earlier of December  31,  2001,  or the
date the loan is  repaid.  Verde  agreed  to lease  the  properties  back to the
Company,  on terms similar to our current leases,  if it exercised its option to
purchase any of the properties.  The loan is secured by a portion of the finance
receivables in the Company's  securitization  transactions but is subordinate to
the senior secured loan facility.  The loan requires quarterly interest payments
at one-month  LIBOR plus 600 basis points and is subject to pro rata  reductions
if certain  conditions are met. An independent  committee of the Company's board
reviewed and negotiated the terms of this subordinated loan and the Company also
received an opinion from an investment banker, which deemed the loan fair from a
financial point of view both to the Company and its shareholders. As a result of
the going private  transaction,  the warrants have been terminated.  On April 1,
2002, Verde Investments  transferred to Cygnet Capital  Corporation  ("CCC"), an
affiliate of Verde and Mr. Ernest C. Garcia,  the remaining $2.0 million balance
of the $7.0 million note payable.  All future principal  reductions and interest
payments  will be made to CCC. As of June 30, 2002,  the balance of the note due
to CCC was $1.4 million.

     Pursuant to the option  discussed  above,  in December 2001 Verde exercised
its right to purchase from, and lease back to the Company, six properties having
a net  book  value of  approximately  $6.7  million.  This  sale  and  leaseback
transaction  closed in January 2002. Verde assumed all of the obligations of the
notes  payable  secured by the six  properties.  The  Company has  notified  the
lenders on these six properties that Verde assumed all of the obligations of the
notes  payable  on these  six  properties;  however,  the  Company  has not been
released as the borrower under the notes payable. The six properties were leased
back to the  Company on terms  consistent  with other  sale-leasebacks,  15-year
triple net leases, expiring December 2017.

     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 Mr.  Garcia.  The $12.0  million  note from CCC has a
10-year term, with interest payable quarterly at 9%, due December 2009. The note
is secured by the capital stock of CCC and  guaranteed by Verde.  The balance of
this loan at June 30, 2002 was $12.0 million.

     On November 26, 2001,  Mr. Garcia  initiated a Tender Offer to purchase all
of the outstanding  shares of the Company's  common stock, not owned by him, for
$2.51 per share. On December 10, 2001, the Company entered into an Agreement and
Plan of  Merger  with  Mr.  Garcia,  Mr.  Sullivan,  and UDC  Acquisition  Corp.
("Acquisition"),  a wholly owned  subsidiary  of UDC Holdings  Corp.  The Merger
Agreement provided for Acquisition to amend the pending Tender Offer to purchase
all of the outstanding  shares of the Company by increasing the offer from $2.51
per share to $3.53 per share (the "Amended Tender Offer").  The Merger Agreement
also provided for a second step merger (the "Merger") at the same price of $3.53
per  share  (the  Amended   Tender  Offer  and  the  Merger   together  are  the
"Transaction"). The Merger Agreement further provided that the Transaction could
be consummated  only if a majority of the minority  shareholders of the Company,
in the aggregate,  tendered in the Amended Tender Offer or (if  Acquisition  did
not own 90% or more of the shares after the Amended Tender Offer) voted in favor
of the Merger.  At that time, there were 4,771,749 shares of the Company's stock
not held by the buyout group. The Transaction was entered into after review by a
special  transaction  committee comprised of independent members of the board of
directors.  The committee and the board  consulted  with and obtained a fairness
opinion from an investment banking firm, U.S. Bancorp Piper Jaffray. The special
committee   recommended  the  Transaction  to  the  full  board  and  the  board
recommended the Transaction to the shareholders of the Company.  On December 14,
2001, Acquisition commenced the Amended Tender Offer. The Company's shareholders
overwhelmingly  supported the Amended Tender Offer,  which closed on January 16,
2002.  Shareholders  tendered  3,806,800  shares of the  Company's  common stock
representing  approximately  79% of the minority shares.  Upon completion of the
Amended  Tender  Offer  and  Acquisition  paying  the  tendering   shareholders,
Acquisition  owned  approximately 92% of the Company.  Acquisition  received its
<PAGE>

funding for these payments from UDC Holdings Corp. On March 4, 2002, Acquisition
completed  a short form merger  with and into the  Company.  The Company was the
surviving corporation in the short form merger. As of June 30, 2002, the Company
has a receivable from UDC Holdings Corp. of approximately  $1.7 million which is
classified  in Other  Assets.  Ray Fidel,  Ugly  Ducking  Car Sales and  Finance
Corporation's  executive vice president and chief operating officer, now holds a
minority  interest in UDC Holdings Corp.,  along with Mr.  Sullivan.  Mr. Garcia
holds a majority interest in UDC Holdings Corp.

     In  March  and  April  of  2002,  Cygnet  Capital  Corporation,  a  company
affiliated with the Company's Chairman, Mr. Garcia, purchased on the open market
$0.3 million face value of the Company's  2003  debentures and $1.7 million face
value of the  Company's  2007  debentures.  As of May 1, 2002,  Mr.  Garcia,  or
entities  affiliated with Mr. Garcia,  own approximately $2.6 million face value
of the Company's 2003  debentures and  approximately  $4.9 million face value of
the Company's 2007 debentures.

     On April 1, 2002, the Company entered into an Aircraft Lease Agreement with
Verde Investments,  Inc. to lease a Raytheon Hawker 125-700A aircraft. The lease
expires on March 31, 2003 and provides for monthly lease payments of $100,000 to
Verde,  plus an  initial  security  deposit  of  $100,000.  The  Company is also
responsible  to pay all costs and  expenses  relating  to the  Aircraft  and its
operations.  During the first six months of 2002,  the Company paid $0.5 million
to Verde for the aircraft  lease and  reimbursement  of various travel costs and
other expenses incurred by Verde on behalf of the Company.

     On June 30, 2002, Cygnet Capital Corporation, a company affiliated with the
Company's  Chairman and principal  shareholder,  Mr.  Garcia,  purchased from an
unrelated  party the entire $3.0 million  outstanding  balance of the  Company's
senior  subordinated  notes payable  bearing  interest at 15% per annum and with
principal due February 2003. The senior subordinated notes have been modified to
extend the  principal  maturity  date to  February  12,  2005 and to provide for
earlier payment of principal out of the retained earnings of the Company,  up to
a maximum of $1.0  million  per  quarter,  to the extent  that the Company is in
compliance with the covenant requirements of its various lenders.


Note 4.  Notes Payable

     Notes Payable, Portfolio
     A summary of Notes Payable, Portfolio at June 30, 2002 and December 31,
2001 follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                                     June 30,             December 31,
                                                                                       2002                   2001
                                                                                --------------------  --------------------
<S>                                                                             <C>                   <C>
Revolving Facility for $100.0 million with Greenwich Capital Financial
     Products, Inc, secured by substantially all assets of the Company not
     otherwise pledged                                                             $       83,896        $       38,249
Class A obligations issued pursuant to the Company's securitization program,
     secured by underlying pools of finance receivables and investments held in
     trust totaling $446.6 million and $515.2 million at June 30, 2002 and
     December 31, 2001, respectively                                                      317,116               341,812
                                                                                --------------------  --------------------
     Subtotal                                                                             401,012               380,061
     Less:  Unamortized Loan Fees                                                           2,372                 2,756
                                                                                --------------------  --------------------
     Total                                                                            $   398,640           $   377,305
                                                                                ====================  ====================
</TABLE>

     In March 2002, the Company  renewed its revolving  warehouse  facility with
Greenwich  Capital  Financial  Products,  Inc.  for an  additional  364-day term
through March 2003. The facility  allows for maximum  borrowings of $100 million
during the entire renewed term, as compared to $75 million during the period May
1, 2001, through November 30, 2001, increasing to $100 million during the period
December 1, 2001 through  April 30, 2002,  under the initial  term. In addition,
the 65% cap on the advance rate was removed and the calculation of the warehouse
advance  relative  to the net  securitization  advance  was  improved by 2%. The
lender  maintains  an option to adjust the  advance  rate to reflect  changes in
market conditions or portfolio performance. The interest rate on the facility is
one-month  LIBOR plus 2.80% (4.64% as of June 30, 2002, and 4.72% as of December
31, 2001).  The facility is secured with  substantially  all Company assets.  At
June 30, 2002, the Company was in compliance with all required covenants.
<PAGE>

     Class A  obligations  have interest  payable  monthly at rates ranging from
3.4%  to  8.3%.  Monthly  principal   reductions  on  the  Class  A  obligations
approximate  71% of the principal  reductions on the underlying  pool of finance
receivable loans.

    Other Notes Payable
    A summary of Other Notes Payable at June 30, 2002 and December 31, 2001
follows ($ in thousands):
<TABLE>
<CAPTION>

                                                                                      June 30,           December 31,
                                                                                        2002                 2001
                                                                                 -------------------- --------------------
<S>                                                                              <C>                  <C>
Senior note payable with certain lenders, secured by the capital stock of
    UDRC II, UDRC III, UDRC IV, and certain other receivables                          $    15,236          $    26,000
Revolving Facility for $36.0 million with Automotive Finance Corporation,
     secured by the Company's automobile inventory                                           8,681               20,963
Other notes payable bearing interest at rates ranging from 7.5% to 11%
     due through October 2015, secured by certain real
     property, and certain property and equipment                                            1,817                6,133
                                                                                 -------------------- --------------------
     Subtotal                                                                               25,734               53,096
     Less:  Unamortized Loan Fees                                                               44                  586
                                                                                 -------------------- --------------------
     Total                                                                             $    25,690          $    52,510
                                                                                 ==================== ====================
</TABLE>

     The Company  entered into a $35 million  senior  secured loan facility with
certain lenders in January 2001. The facility has a term of 25 months.  Pursuant
to the credit  agreement,  the  Company  must make  principal  payments  of $1.0
million per month  during the period  from April 2001  through  September  2002.
Thereafter  through maturity,  the credit agreement requires minimum payments of
the greater of $3.0  million per month or 50% of the cash flows from  classes of
notes issued through  securitization  that are subordinate to the Class A bonds.
Interest is payable  monthly at one-month LIBOR plus 600 basis points (7.84 % as
of June 30,  2002,  and 7.90% as of December 31,  2001).  The loan is secured by
certain  Finance  Receivables.  At June 30, 2002,  the Company was in compliance
with all required covenants.

     On August 31,  2001,  the  Company  entered  into a $36  million  revolving
inventory facility with Automotive  Finance  Corporation that expires in June of
2003. The borrowing base is calculated on advance rates on inventory  purchased,
ranging  from  80% to 100%  of the  purchase  price.  The  interest  rate on the
facility  is Prime  plus 6.0%  (10.75%  as of June 30,  2002,  and  10.75% as of
December  31,  2001).  The  facility is secured  with the  Company's  automobile
inventory.  At June 30, 2002,  the Company was in  compliance  with all required
covenants.

    Subordinated Notes Payable
    A summary of Subordinated Notes Payable at June 30, 2002 and December 31,
2001 follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                          June 30,          December 31,
                                                                                            2002                2001
                                                                                     ------------------- -------------------
<S>                                                                                  <C>                 <C>
$13.5 million senior subordinated notes payable to related parties, bearing
      interest at 15% per annum payable quarterly, principal balance due
      February 12, 2005 and is senior to subordinated debentures                           $     3,000         $     5,000
$17.5 million subordinated debentures, interest at 12% per annum
      (approximately 18.8% effective rate) payable semi-annually, principal
      balance due October 23, 2003                                                              13,839              13,839
$11.9 million subordinated debentures, interest at 11% per annum
      (approximately 19.7% effective rate) payable semi-annually, principal
      balance due April 15, 2007                                                                11,940              11,940
$7.0  million senior subordinated note payable to a related party, bearing
      interest at LIBOR plus 6% per annum payable quarterly, principal
      due December 2003                                                                          1,400               5,400
                                                                                     ------------------- -------------------
      Subtotal                                                                                  30,179              36,179
      Less:          Unamortized Discount - subordinated debentures                              4,366               4,920
                                                                                     ------------------- -------------------
      Total                                                                                $    25,813         $    31,259
                                                                                     =================== ===================
</TABLE>
<PAGE>
Note 5.  Stockholders' Equity

     On December 14,  2001,  Acquisition  commenced  an amended  tender offer to
purchase all of the  Company's  outstanding  shares of common stock not owned by
Mr.  Garcia,  Mr.  Sullivan or  affiliated  entities.  As of March 4, 2002,  the
Company and  Acquisition  effected a statutory  merger under  Section 253 of the
Delaware General  Corporation Law. The Company was the surviving  corporation in
the  merger,  and  following  the  merger  UDC  Holding  Corp.  held  all of the
outstanding shares of the common stock of the Company.  As a result, the Company
became a  privately  held  company and its shares  were  deregistered  under the
Exchange Act.  Therefore,  no public trading  market exists for its shares.  The
Company  expects to continue to file certain  reports under the Exchange Act due
to the listing of certain debt securities listed on the American Stock Exchange.
On May 31,  2002,  UDC  Holding  Corp.  conveyed  all of the  stock of UDC to DT
Holdings Corp., a 100% owned subsidiary of UDC Holdings Corp.

     Shortly  after the  expiration  of the Amended  Tender  Offer,  the Company
mailed to the  shareholders  who did not tender their shares a notice  outlining
the  procedures  they were required to follow if they wished to dissent from the
merger  and  seek   appraisal  of  their  shares.   Under  Delaware  law,  these
shareholders  had 20 days from the date of the  mailing  of the notice to notify
the Company of their  intention to assert  appraisal  rights.  If such notice is
timely made,  dissenting  shareholders must file a petition for appraisal in the
Delaware Court of Chancery  within 120 days of the effective date of the Merger,
or all appraisal rights will be lost and dissenters will only be entitled to the
merger  consideration of $3.53 per share. Two appraisal rights actions have been
filed in Delaware  requesting a valuation of the shareholders'  UDC shares.  The
court now determines  which  shareholders  are entitled to appraisal  rights and
appraises the shares of such  shareholders.  UDC Holdings has agreed to fund the
payment  of the final  appraisal  amount to  dissenting  shareholders.  The only
remaining  outstanding  shares of common stock of the Company are the 100 shares
of common stock issued upon  conversion of the shares of UDC  Acquisition  Corp.
common stock.  All of these shares are held by DT Holdings  Corp.,  a 100% owned
subsidiary of UDC Holdings Corp.


Note 6.  Business Segments

     The Company has three distinct business  segments.  These consist of retail
car sales operations (Retail Operations),  the income resulting 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.

     A summary of operating  activity by business  segment for the three and six
months ended June 30, 2002 and 2001 follows:
<TABLE>
<CAPTION>

                                                        Retail        Portfolio       Corporate       Total
                                                  -------------- --------------- -------------- ----------------
<S>                                               <C>            <C>             <C>            <C>
Three months ended June 30, 2002:
Sales of Used Cars                                    $  120,247   $          -    $         -     $     120,247
Less: Cost of Cars Sold                                   71,337              -              -            71,337
    Provision for Credit Losses                           25,891          12,504             -            38,395
                                                 -------------- --------------- -------------- ----------------
                                                          23,019        (12,504)             -            10,515
Net Interest Income                                           -           29,488             -            29,488
                                                  -------------- --------------- -------------- ----------------
Income before Operating Expenses                          23,019          16,984             -            40,003
                                                  -------------- --------------- -------------- ----------------
Operating Expenses:
    Selling and Marketing                                  6,137              -              -             6,137
    General and Administrative                            12,996           7,095          5,470           25,561
    Depreciation and Amortization                          1,090             240            728            2,058
                                                  -------------- --------------- -------------- ----------------
                                                          20,223           7,335          6,198           33,756
                                                  -------------- --------------- -------------- ----------------
Operating Income (Loss) before Other Interest
Expense                                              $     2,796   $       9,649   $    (6,198)    $       6,247
                                                  ============== =============== ============== ================
Capital Expenditures                                 $       757   $         199   $      1,403    $       2,359
                                                  ============== =============== ============== ================
Identifiable Assets, Excluding Net Assets
      of Discontinued Operations                     $    66,545   $     551,064   $     27,342    $     644,951
                                                  ============== =============== ============== ================

                                                        Retail        Portfolio       Corporate         Total
                                                  -------------- --------------- -------------- ----------------
Three months ended June 30, 2001:
Sales of Used Cars                                   $   105,919   $          -    $         -     $     105,919
Less: Cost of Cars Sold                                   60,639              -              -            60,639
    Provision for Credit Losses                           21,898          10,312             -            32,210
                                                  -------------- --------------- -------------- ----------------
<PAGE>
                                                          23,382        (10,312)             -            13,070
Net Interest Income                                           -           27,408             -            27,408
                                                  -------------- --------------- -------------- ----------------
Income before Operating Expenses                          23,382          17,096             -            40,478
                                                  -------------- --------------- -------------- ----------------
Operating Expenses:
    Selling and Marketing                                  6,235              -              -             6,235
    General and Administrative                            14,855           7,359          5,003           27,217
    Depreciation and Amortization                          1,363             232            840            2,435
                                                  -------------- --------------- -------------- ----------------
                                                          22,453           7,591          5,843           35,887
                                                  -------------- --------------- -------------- ----------------
Income (loss) before Other Interest Expense          $       929   $       9,505   $    (5,843)    $       4,591
                                                  ============== =============== ============== ================

Capital Expenditures                                 $     1,157   $         358   $      3,434    $       4,949
                                                  ============== =============== ============== ================
Identifiable Assets, Excluding Net Assets
      of Discontinued Operations                     $    79,837   $     538,393   $     56,986    $     675,216
                                                  ============== =============== ============== ================

                                                        Retail        Portfolio       Corporate         Total
                                                  -------------- --------------- -------------- ----------------
Six Months Ended June 30, 2002:
Sales of Used Cars                                   $   262,481   $          -    $         -     $     262,481
Less: Cost of Cars Sold                                  154,354              -              -           154,354
    Provision for Credit Losses                           55,948          27,814             -            83,762
                                                  -------------- --------------- -------------- ----------------
                                                          52,179        (27,814)             -            24,365
Net Interest Income                                           -           56,175             -            56,175
                                                  -------------- --------------- -------------- ----------------
Income before Operating Expenses                          52,179          28,361             -            80,540
                                                  -------------- ------------------------------ ----------------
Operating Expenses:
    Selling and Marketing                                 13,750              -              -            13,750
    General and Administrative                            26,445          13,637         11,261           51,343
    Depreciation and Amortization                          2,201             492          1,473            4,166
                                                  -------------- --------------- -------------- ----------------
                                                          42,396          14,129         12,734           69,259
                                                  -------------- --------------- -------------- ----------------
Income (loss) before Other Interest Expense          $     9,783   $      14,232   $   (12,734)    $      11,281
                                                  ============== =============== ============== ================

Capital Expenditures                                 $     1,204   $         294   $      2,270    $       3,768
                                                  ============== =============== ============== ================
Identifiable Assets, Excluding Net Assets
      of Discontinued Operations                     $    66,545   $     551,064   $     27,342    $     644,951
                                                  ============== =============== ============== ================

                                                        Retail        Portfolio       Corporate         Total
                                                  -------------- --------------- -------------- ----------------
Six Months Ended June 30, 2001:
Sales of Used Cars                                   $   236,105   $          -    $         -     $     236,105
Less: Cost of Cars Sold                                  133,480              -              -           133,480
    Provision for Credit Losses                           48,550          22,680             -            71,230
                                                  -------------- --------------- -------------- ----------------
                                                          54,075        (22,680)             -            31,395
Net Interest Income                                           -           52,603            130           52,733
                                                  -------------- --------------- -------------- ----------------
Income before Operating Expenses                          54,075          29,923            130           84,128
                                                  -------------- --------------- -------------- ----------------
Operating Expenses:
    Selling and Marketing                                 13,861              -              -            13,861
    General and Administrative                            29,513          15,367          9,775           54,655
    Depreciation and Amortization                          2,689             496          1,657            4,842
                                                  -------------- --------------- -------------- ----------------
                                                          46,063          15,863         11,432           73,358
                                                  -------------- --------------- -------------- ----------------
Income (loss) before Other Interest Expense          $     8,012   $      14,060   $   (11,302)    $      10,770
                                                  ============== =============== ============== ================

Capital Expenditures                                 $     3,244   $         587   $      4,291    $       8,122
                                                  ============== =============== ============== ================
Identifiable Assets, Excluding Net Assets
       of Discontinued Operations                    $    79,837   $     538,393   $     56,986    $     675,216
                                                  ============== =============== ============== ================
</TABLE>
<PAGE>
Note 7.  Use of Estimates

     The preparation of our condensed consolidated financial statements requires
us 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 our estimates.

Note 8.  Reclassifications

     We have made certain  reclassifications  to previously reported information
to conform to the current presentation.

Note 9.  Recent Accounting Pronouncements

     The Company adopted the provisions of Statement No. 141 as of July 1, 2001,
and Statement 142 effective  January 1, 2002.  Statement No. 141 required,  upon
adoption of Statement No. 142, that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business combination,
and make any  necessary  reclassifications  in  order  to  conform  with the new
criteria  in  Statement  No.  141  for  recognition  apart  from  goodwill.   In
conjunction  with the adoption of Statement  No. 142, the Company has  allocated
the entire goodwill balance to the Retail Operations Segment.  During the second
quarter of 2002, the Company finalized the required impairment tests of goodwill
as of January 1, 2002. The Company does not have an impairment of goodwill as of
the date of  adoption.  In addition,  upon  adoption,  the Company  discontinued
amortizing  goodwill.  For the three and six  months  ended June 30,  2001,  the
Company had  approximately  $0.2  million  and $0.5  million,  respectively,  in
amortization  expense. As of June 30, 2002, the Company has unamortized goodwill
of  approximately  $11.6  million  within  the  retail  segment.   (For  further
discussion on SFAS No. 141 and 142, see Management's  Discussion and Analysis of
Financial Condition- Recent Accounting Pronouncements.)

Note 10. Subsequent Events

     On July 16, 2002,  the Company made a principal  reduction  payment of $0.2
million on the  Subordinated  Note Payable to Cygnet Capital Corp.  reducing the
outstanding  balance to $1.2 million. On July 26, 2002, the Company paid off the
remaining $1.2 million balance. For further discussion of this note payable, see
Note (3) to Notes of Condensed Consolidated Financial Statements.

     On July 19, 2002, the Company renewed its senior secured loan facility with
certain  lenders.  The loan  facility  was  increased  from a $35  million  loan
facility to $45 million.  Interest is payable at one-month  LIBOR plus 500 basis
points,  with a minimum  LIBOR of  2.125%,  and has a term of  approximately  30
months.  The loan  discount at funding was 5% or $2.25  million and there are no
prepayment  penalties.  The  facility  is  secured  by  the  Company's  retained
interests in the residuals from its securitization transactions.

     On July 30, 2002, the Company priced its 23rd securitization,  2002B, which
is  scheduled  to close on August 15,  2002.  If this  securitization  closes as
expected it will consist of approximately  $211.3 million in principal  balances
and the issuance of approximately  $150.0 million in Class A bonds,  including a
pre-funded amount of approximately $27.5 million. The coupon rate on the Class A
bonds is 2.99%,  the initial  deposit into the reserve  account is 7.25% and the
reserve account  maximum is 11.5%,  subject to adjustment upon the occurrence of
specified  Termination Events or Portfolio Performance Events. The Class A bonds
will be insured by XL Capital Assurance, resulting in AAA by Standard and Poor's
and Aaa by Moody's ratings.

<PAGE>
                                     ITEM 2.

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

Introduction

     We operate the largest chain of buy-here  pay-here used car  dealerships in
the United  States.  At June 30,  2002,  we operated 76  dealerships  located in
eleven metropolitan areas in eight states. We have one primary line of business:
to sell and finance  quality used vehicles to customers  within what is referred
to as the  sub-prime  segment of the used car market.  The  sub-prime  market is
comprised of customers who typically have limited credit histories,  low incomes
or past credit problems.  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.

     On  September  1,  2002,  we intend to change  the  Company  name from Ugly
Duckling to DriveTime. The goal of the name change is to attract a higher volume
of our better  customers,  reduce loan losses and improve  profitability.  After
extensive name and brand development  research,  the name DriveTime was selected
because it  represented  the new image and direction of the Company.  Our vision
for the Company is to be the auto  dealership and finance  company of choice for
people with credit issues,  large and small.  DriveTime means Innovative  Credit
Solutions, Quality Vehicles, and Outstanding Customer Service.

   Consistent with our new name and the vision for the Company, we are making
improvements to the way we do business and the product we provide to our
customers. Some of the changes include:

     o    Inventory - a wider variety of higher quality, late model vehicles,
     o    DriveCare - a standard 90-day,  3,000 mile limited  warranty  covering
          major mechanical items and air conditioning,
     o    RateAdvantage  - a new  interest  rate  program  offering  lower rates
          depending  on the  customer's  credit  history  and  size of the  down
          payment,
     o    VIP  Program - existing  customers  with good  payment  histories  are
          eligible to finance their next vehicle with lower  interest  rates and
          down payments,
     o    Customer  Service - we are  committed  to provide a  straight-forward,
          professional and friendly experience for our customers,
     o    Advertising - a new aspirational advertising campaign is scheduled for
          launch on September  1st that targets  customers  with small and large
          credit problems, and
     o    Facilities - all of our 76  dealerships  are receiving a new facelift,
          including  new signage,  flooring,  furniture,  paint,  wallpaper  and
          awnings, totaling approximately $6.3 million.

     Our overall  target  customer  population  and our business  model have not
significantly  changed.  However,  through risk  management and analysis we have
been able to credit grade our customer base and as part of DriveTime,  we intend
to shift the mix of our loans within our  sub-prime  target  market toward those
grades  with lower loss rates.  In  addition,  we have  improved  our  inventory
because we determined that  historically  our credit losses are lower for better
vehicles across all our credit grades. The goals for DriveCare and RateAdvantage
are to increase volume while at the same time reducing loan losses through lower
vehicle repair costs and lower loan payment amounts for our customers.

     We believe  the  changes we are  making in  conjunction  with the change to
DriveTime  will have  long-term  benefits to the  Company,  including  enhancing
volume, lowering credit losses and improving profitability.  However,  launching
DriveTime may negatively impact earnings during the remainder of 2002 due to the
write-off of certain property and equipment and other launch related expenses of
approximately  $0.5 million,  plus depreciation on the estimated $6.3 million of
dealership  improvements.  We  estimate  the overall  impact on interest  income
related to lower rates offered under  RateAdvantage  and the VIP Program will be
to lower the portfolio's  weighted  average  contract APR by  approximately  100
basis points.

   As a buy-here pay-here dealer, we offer the customer certain advantages over
more traditional financing sources including:

     o    expanded credit  solutions,
     o    standard limited warranty on virtually every vehicle,
     o    flexible payment terms,  including  structuring loan payment due dates
          as weekly or bi-weekly,  often coinciding with the customer's  payday,
          and
     o    the ability to make payments in person at the dealerships.  This is an
          important  feature  to many  sub-prime  borrowers  who  may  not  have
          checking  accounts or are otherwise unable to make payments by the due
          date through use of the mail due to the timing of paydays.
<PAGE>

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

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


     We  finance  substantially  all  of the  used  cars  that  we  sell  at our
dealerships  through  retail  installment  loan  contracts.  Subject  to certain
underwriting  standards and 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 vehicle. Our employees analyze and verify the
customer credit  application  information and subsequently  make a determination
whether to provide financing to the customer.

     Our business is divided into three operating  segments:  Retail,  Portfolio
and Corporate  Operations.  Information  regarding our operating segments can be
found in Note (6) of the Notes to Condensed  Consolidated  Financial  Statements
contained   herein.   Operating   segment   information   is  also  included  in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Business Segment Information" found below.

     In the  following  discussion  and  analysis,  we  explain  the  results of
operations and general financial condition of Ugly Duckling  Corporation and its
subsidiaries.  In particular,  we analyze and explain the changes in the results
of operations  of our business  segments for the three and six months ended June
30, 2002 and 2001.  All amounts are  presented in thousands  except per unit and
per car data, unless otherwise noted.

During the second quarter of 2002 we:

     o    Increased revenues to $156.0 million,  an 11% increase over the second
          quarter of 2001,
     o    Closed  our  22nd  Securitization  with  loan  principal  balances  of
          approximately  $170.4  million  and  Class A bonds  issued  of  $121.0
          million,
     o    Obtained a commitment from XL Capital Assurance to replace MBIA as the
          insurer for future securitizations,
     o    Determined  that an error  was  made in the  calculation  of  triggers
          related to the 2000B, 2000C and 2001A  securitization  trusts and that
          no  Termination  Events had in fact been triggered for these trusts in
          prior  periods,  resulting in the release of $13.0  million of trapped
          cash to the Company in June 2002,
     o    Launched the RateAdvantage  interest rate program in our Phoenix,  Los
          Angeles,  Richmond,  and  Atlanta  markets - that  offers  lower rates
          depending  on the  customer's  credit  history  and  size of the  down
          payment,
     o    Launched  the  DriveCare  limited  warranty  program,  in our  Phoenix
          market,  that offers a 90-day,  3,000 mile,  limited warranty on major
          mechanical items and air conditioning,
     o    Continued to make  improvements to our business  model,  repositioning
          the Company to focus on providing our customers with innovative credit
          solutions, quality vehicles, and outstanding customer service,
     o    Began  preparations for changing the Company's name and logo from Ugly
          Duckling Corporation to DriveTime effective on September 1, 2002, and
     o    Formulated  a $6.3  million  plan  for  refurbishing  all 76  existing
          dealerships  prior to the official launch of DriveTime on September 1,
          2002.


<PAGE>


<TABLE>
<CAPTION>

<S>                                                 <C>         <C>           <C>           <C>          <C>           <C>
Selected Consolidated Financial Data                                    At or For the Three Months Ended,
                                                    -----------------------------------------------------------------------------
($ in thousands, except per car sold amounts)         June 30,    March 31,      Dec 31,      Sept 30,     June 30,    March 31,
Operating Data:                                         2002         2002         2001          2001         2001         2001
                                                    ----------  -----------   ----------    ----------   ----------   -----------
Total Revenues                                      $  155,986  $   175,064   $  121,292    $  145,237   $  140,819    $  164,030
Sales of Used Cars                                  $  120,247  $   142,234   $   88,018    $  110,237   $  105,919    $  130,186
Earnings before Interest, Taxes, Depr. & Amort.     $   14,556  $    13,285   $    5,423    $      969   $   14,518    $   17,105
E-Commerce Revenue as Percent of Sales of Used Cars      14.1%        13.8%        13.8%         14.2%        14.4%         11.6%
Number Dealerships in Operation                             76           76           76            76           77            77
Average Sales per Dealership per Month                      53           67           41            52           50            64
Number of Used Cars Sold                                12,068       15,300        9,353        11,907       11,607        14,851
Sales Price - Per Car Sold                          $    9,964  $     9,296   $    9,411    $    9,258   $    9,125    $    8,766
Cost of Sales - Per Car Sold                        $    5,911  $     5,426   $    5,549    $    5,259   $    5,224    $    4,905
Gross Margin - Per Car Sold                         $    4,053  $     3,870   $    3,862    $    3,999   $    3,901    $    3,861
Provision - Per Car Sold                            $    3,182  $     2,965   $    3,324    $    4,095   $    2,775    $    2,627
Total Operating Expense - Per Car Sold              $    2,797  $     2,320   $    3,765    $    2,959   $    3,092    $    2,523
Total Operating Income (Loss) - Per Car Sold        $      518  $       329   $    (413)    $    (744)   $      396    $      416
Total Operating Income (Loss)                       $    6,247  $     5,034   $  (3,865)    $  (8,859)   $    4,591    $    6,179
Earnings before Income Taxes                        $    3,919  $     2,728   $  (6,392)    $ (11,554)   $    1,729    $    3,088
Cost of Used Cars as Percent of Sales                    59.3%        58.4%        59.0%         56.8%        57.3%         56.0%
Gross Margin as Percent of Sales                         40.7%        41.6%        41.0%         43.2%        42.7%         44.0%
Provision - % of Originations                            32.2%        32.3%        35.5%         44.7%        31.1%         31.0%
Total Operating Expense - % of Total Revenues            21.6%        20.3%        29.0%         24.3%        25.5%         22.8%
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold             $    1,676  $     1,449   $    1,932    $    1,795   $    1,934    $    1,590
Retail Operating Expense-% of Used Car Sales             16.8%        15.6%        20.5%         19.4%        21.2%         18.1%
Corporate/Other Expense - Per Car Sold              $      514  $       427   $      828    $      532   $      503    $      376
Corporate/Other Expense - % of Total Revenue              4.0%         3.7%         6.4%          4.4%         4.1%          3.4%
Portfolio Exp. Annualized -
       % of End of Period Principal Balance               5.2%         5.0%         7.3%          5.6%         5.8%          6.2%
Balance Sheet Data:
Finance Receivables, net                            $  531,928  $   514,329   $  495,254    $  501,048   $  544,585    $  522,893
Inventory                                           $   38,148  $    39,471   $   58,618    $   47,414   $   40,772    $   43,434
Total Assets                                        $  644,951  $   637,396   $  647,657    $  657,740   $  678,950    $  659,470
Portfolio Notes Payable                             $  398,640  $   381,208   $  377,305    $  386,572   $  415,877    $  390,615
Other Notes Payable                                 $   25,690  $    29,753   $   52,510    $   41,646   $   42,495    $   39,444
Subordinated Notes Payable                          $   25,813  $    28,130   $   31,259    $   32,600   $   34,951    $   40,807
Total Debt                                          $  450,143  $   439,091   $  461,074    $  460,818   $  493,323    $  470,866
Total Stockholders' Equity                          $  148,990  $   146,859   $  145,483    $  151,550   $  158,604    $  157,222
Total Debt to Equity                                       3.0          3.0          3.2           3.0          3.1           3.0
Loan Portfolio Data:
Interest Income                                     $   35,739  $    32,830   $   33,274    $   35,000   $   34,900    $   33,844
Average Yield on Portfolio                               26.6%        25.9%        25.8%         26.5%        26.7%         26.3%
Portfolio Interest Expense                               6,251        6,143        6,957         7,489        7,492         8,519
Average Borrowing Cost                                    7.1%         7.0%         7.5%          8.0%         8.3%          8.9%
Principal Balances Originated                       $  119,389  $   140,455   $   87,452    $  109,139   $  103,615    $  126,015
Principal Balances Originated as % of Sales              99.3%        98.7%        99.4%         99.0%        97.8%         96.8%
Number of Loans Originated                              12,016       15,225        9,283        11,844       11,558        14,776
Average Original Amount Financed                    $    9,936  $     9,225   $    9,421    $    9,215   $    8,965     $   8,528
Number of Loans Originated as % of Units Sold            99.6%        99.5%        99.3%         99.5%        99.6%         99.5%
Portfolio Delinquencies:
     Current                                             70.3%        72.4%        64.5%         67.4%        70.2%         73.0%
     1 to 30 days                                        23.1%        21.9%        26.2%         24.0%        23.0%         21.2%
     31 to 60 days                                        3.9%         3.3%         5.6%          5.3%         4.1%          3.3%
     Over 60 days                                         2.7%         2.4%         3.7%          3.3%         2.7%          2.5%
Principal Outstanding                               $  565,382  $   543,842   $  514,699    $  537,946   $  534,766    $  535,039
Number of Loans Outstanding                             86,037       84,821       82,254        85,961       86,446        87,033
</TABLE>
<PAGE>

Sales of Used  Cars and Cost of Used Cars Sold
<TABLE>
<CAPTION>

                                     Three Months Ended                                 Six Month Ended
                                          June 30,                                          June 30,
                                ------------------------------    Percentage    ------------------------------   Percentage
                                     2002           2001            Change           2002           2001           Change
                                ------------------------------  --------------- ------------------------------ ---------------

<S>                             <C>            <C>              <C>               <C>             <C>          <C>
Number of Used Cars Sold               12,068         11,607             4.0%          27,368           26,458          3.4%
                                ==============================                  ==============================
Sales of Used Cars              $     120,247  $       105,919          13.5%     $   262,481     $    236,105         11.2%
Cost of Used Cars Sold                 71,337           60,639          17.6%         154,354          133,480         15.6%
                                ------------------------------                  ------------------------------
Gross Margin                    $      48,910  $        45,280           8.0%     $   108,127     $    102,625          5.4%
                                ==============================                  ==============================

Gross Margin %                          40.7%           42.7%                           41.2%            43.5%

Per Car Sold:
Sales                           $       9,964  $         9,125           9.2%     $     9,591     $      8,924          7.5%
Cost of Used Cars Sold                  5,911            5,224          13.2%           5,640            5,045         11.8%
                                ------------------------------                  ------------------------------
Gross Margin                    $       4,053  $         3,901           3.9%     $     3,951     $      3,879          1.9%
                                ==============================                  ==============================
</TABLE>

     For the three and six months ended June 30,  2002,  the number of cars sold
increased 4.0% and 3.4%, respectively,  over the same periods of the prior year.
Revenues from Sales of Used Cars increased 13.5% and 11.2% for the three and six
months ended June 30, 2002, respectively,  compared to the same periods of 2001.
Through our analysis of the primary factors that influence loan performance,  we
determined that a higher cost and better quality vehicle  positively affects the
gross loan loss rate across all credit grades. We made a decision to upgrade the
quality of our vehicle inventory  throughout 2001 and have continued to increase
the quality of our vehicles in the six months ended June 30, 2002.  As a result,
the total Sales of Used Cars,  total Cost of Used Cars Sold,  the average  sales
price, and the average cost of used cars sold increased. The average sales price
increased 9.2% and the cost of a vehicle  increased 13.2% compared to the second
quarter of 2001.  The average  dollar gross  margin per car had a 3.9%  increase
between periods. We calculate our vehicle sales price using a gross fixed dollar
margin and not as a percentage of cost; therefore, when we increased the quality
and related cost of vehicles, the margin decreased from 42.7% to 40.7%.

     Our Internet site continues to be a valuable tool  generating a steady flow
of credit  applications,  which lead to the closing of sales at our dealerships.
We accept credit applications from potential customers via our website,  located
at www.uglyduckling.com  and www.duckloans.com.  Our employees review the credit
applications  received over the web, and then contact the customers and schedule
appointments at our dealerships. During the second quarter of 2002, applications
received via our internet  site  generated  1,712 cars sold and $16.9 million in
revenue,  up from 1,686 cars sold and $15.2  million in revenue  during the same
period of the prior  year.  For the six  months  ended June 30,  2002,  Internet
applications  generated  3,816 cars sold and $36.6  million in revenue,  up from
3,459 cars sold and $30.2 million in revenue for the same period 2001.

     We finance  substantially all of our used car sales. The percentage of used
cars sold financed has remained constant for the three and six months ended June
30, 2002 versus the comparable  periods of 2001. We have experienced an increase
in the percentage of sales revenue  financed because of a slight decrease in the
average  down  payment as a percentage  of the sales  price.  We determine  down
payment based upon credit grade of customer, and not based on the sales price of
the car sold; therefore,  as the average sales price of cars increase due to our
focus on better quality cars, the amount financed as a percentage of revenue has
correspondingly increased. The following table indicates the percentage of sales
units and revenue financed:
<TABLE>
<CAPTION>

                                                  Three Months Ended              Six Months Ended
                                                       June 30,                       June 30,
                                             ----------------------------- -------------------------------
                                                 2002           2001            2002           2001
                                             ----------------------------- -------------------------------
<S>                                          <C>             <C>           <C>              <C>
Percentage of used cars sold financed              99.6%          99.6%            99.5%           99.5%
                                             ============================= ===============================
Percentage of sales revenue financed               99.3%          97.8%            99.0%           97.3%
                                             ============================= ===============================
</TABLE>

<PAGE>

Provision for Credit Losses

    The following is a summary of the Provision for Credit Losses:
<TABLE>
<CAPTION>

                                       Three Months Ended                              Six Months Ended
                                           June 30,                                       June 30,
                                 ------------------------------   Percentage    ------------------------------   Percentage
                                      2002           2001           Change           2002           2001           Change
                                 ------------------------------ --------------- ------------------------------ ---------------
<S>                              <C>                <C>           <C>           <C>               <C>          <C>
Provision for Credit Losses      $       38,395     $    32,210         19.2%   $        83,762   $     71,230         17.6%
                                 ==============================                 ==============================
Provision per loan originated    $        3,195     $     2,787         14.6%   $         3,075   $      2,705         13.7%
                                 ==============================                 ==============================
Provision as a percentage of
  principal balances originated           32.2%           31.1%                           32.2%          31.0%
                                 ==============================                 ==============================
</TABLE>


     The  Provision  for Credit  Losses  increased  for the three and six months
ended June 30, 2002 over the same periods of the prior year.  Company  policy is
to maintain an Allowance  for Credit Losses  ("Allowance")  for all loans in its
portfolio to cover estimated net charge-offs for the next 12 months. The Company
began to improve the underlying  credit quality mix of its  originations  due to
improved  credit  standards and the  introduction  of loan grading in 2001. As a
result,  2001 and 2002  originations  are  performing  better to date than loans
originated in prior periods.  Offsetting  these  improvements are the effects of
the recession and the performance of loans  originated prior to 2001 that do not
have the benefit of the new higher  credit  standards  and are  emerging at loss
levels higher than previously  estimated.  In addition,  the amount financed per
loan originated  increased from $8,965 to $9,936 for the three months ended June
30, 2001 and 2002, respectively.  The net result is an increase in the Provision
for  Credit  Losses  both in total  dollars  and as a  percentage  of the amount
financed in the three and six months ended June 30, 2002.

     See "Static  Pool  Analysis"  below for further  Provision  for Credit Loss
discussion.

Net Interest Income
<TABLE>
<CAPTION>

                                 Three Months Ended                            Six Months Ended
                                      June 30,                                     June 30,
                            -----------------------------    Percentage   ---------------------------  Percentage
                                 2002          2001           Change          2002          2001         Change
                            ----------------------------- --------------- --------------------------- -------------


<S>                         <C>              <C>            <C>           <C>            <C>          <C>
Interest Income             $    35,739      $     34,900          2.4%   $      68,569  $     68,744      (0.3%)
Portfolio Interest Expense      (6,251)           (7,492)       (16.6%)        (12,394)      (16,011)     (22.6%)
                            -----------------------------                 ---------------------------
Net Interest Income         $    29,488      $     27,408          7.6%   $      56,175  $     52,733        6.5%
                            =============================                 ===========================

Average Effective Yield           26.6%             26.7%                         26.3%         26.5%
                            =============================                 ===========================
Average Borrowing Cost             7.1%              8.3%                          7.0%          8.6%
                            =============================                 ===========================
</TABLE>

     Interest  Income  consists  primarily  of  interest  on finance  receivable
principal  balances,  plus interest income from  investments  held in trust. The
increase in Net  Interest  Income is mostly  attributable  to an increase in the
average  principal  balances to $554.1  million and $540.7 million for the three
and six months  ended June 30, 2002,  respectively,  versus  $535.2  million and
$531.0  million for the same  periods of 2001.  The average  effective  yield on
finance  receivables  remained  fairly constant at 26.6% and 26.7% for the three
months ended June 30, 2002 and 2001,  respectively,  and 26.3% and 26.5% for the
six months ended June 30, 2002 and 2001, respectively. We experienced a decrease
in  interest  earned on  investments  held in trust from $0.8  million  and $1.8
million for the three and six months ended June 30, 2001, respectively,  to $0.4
million  and $0.7  million  for the three and six months  ended  June 30,  2002,
respectively.  This decrease was  primarily  related to lower money market rates
during the six months of 2002.
<PAGE>

     Portfolio  interest expense consists primarily of interest on our revolving
warehouse  facility  and the Class A  obligations  issued in our  securitization
transactions  from the  collateralized  borrowings on the  portfolio.  Portfolio
interest expense was $6.3 million and $12.4 million for the three and six months
ended June 30,  2002,  respectively,  a  decrease  from $7.5  million  and $16.0
million for the same periods of the previous  year. The decrease is due to lower
borrowing costs as a result of a decline in our benchmark  interest  rates,  and
due  to  borrowing  less  under  the  combination  of  the  warehouse  line  and
securitizations  as a result of securing the  inventory  line in August of 2001,
which is included in other interest expense.

Income before Operating Expenses

     Income before Operating Expenses remained relatively constant with a slight
decrease to $40.0  million for the three months ended June 30, 2002, as compared
to $40.5  million  for the three  months  ended  June 30,  2001.  Income  before
Operating Expenses decreased 4.3% to $80.5 million for the six months ended June
30, 2002 versus $84.1 million for the same period 2001.  The decreases in Income
before  Operating  Expenses  resulted from an increase in the amount  charged to
current  operations for the provision for credit losses,  partially offset by an
increase in used cars sold and an increase in net interest income  primarily due
to an increase in the average  principal  balances  and a decrease in  portfolio
interest expense.

Operating Expenses
<TABLE>
<CAPTION>

                                  Three Months                               Six Months Ended
                                    June 30,                                     June 30,
                          -----------------------------  Percentage    -----------------------------   Percentage
                               2002          2001          Change           2002          2001           Change
                          ----------------------------- -------------- -----------------------------  --------------

<S>                       <C>              <C>          <C>            <C>              <C>           <C>
Operating Expenses        $    33,756      $     35,887       (5.9%)   $    69,259      $     73,358        (5.6%)
                          =============================                =============================

Per Car Sold                    2,797             3,092       (9.5%)   $     2,531      $      2,773        (8.7%)
                          =============================                =============================

As % of Total Revenue           21.6%             25.5%                      20.9%             24.1%
                          =============================                =============================
</TABLE>

     Operating  expenses,  which  consist of  selling,  marketing,  general  and
administrative and  depreciation/amortization  expenses,  decreased quarter over
quarter  and as a  percentage  of total  revenues.  The  decrease  in  operating
expenses in 2002 was primarily due to numerous  cost savings  initiatives  taken
during 2001,  including  consolidating  collection and loan servicing centers by
closing two of our four  centralized  facilities  and  completing a reduction in
work  force of  primarily  corporate  staff in the fourth  quarter  of 2001.  In
January of 2002, we incurred a $0.8 million charge related to a second reduction
in work force to save an additional $1.7 million per annum in salary,  wages and
benefits.

Other Interest Expense

     Other Interest  Expense,  which consists of interest on Other Notes Payable
and  Subordinated  Notes Payable,  totaled $2.3 million and $4.6 million for the
three and six months ended June 30, 2002, respectively,  versus $2.9 million and
$6.0  million  for  the  comparable  periods  of the  prior  year.  The  average
outstanding  balance for Other Notes Payable was $35.4 million and $40.2 million
for the  three and six  months  ended  June 30,  2002,  respectively,  and $42.2
million and $37.8  million for the  comparable  periods of 2001.  The changes to
Other Notes Payable is primarily  attributable to borrowings under the revolving
inventory facility,  partially offset by scheduled principal  reductions made on
the senior secured loan facility and a reduction in mortgage interest related to
the sale of  certain  dealerships  to Verde  Investments  in January  2002.  The
monthly  average  outstanding  balance of  Subordinated  Notes Payable was $27.0
million  and $28.0  million  for the three and six months  ended June 30,  2002,
respectively,  and $38.5 million and $39.9 million for the comparable periods of
2001. The decrease related  primarily to scheduled  principal  reductions on the
senior subordinated note payable, the repurchase in June 2001 of $3.6 million in
principal  of the  subordinated  debentures  due  in  2003  and a  $5.6  million
reduction in the subordinated debt payable to affiliated companies. See Note (4)
of the Notes to the  Condensed  Consolidated  Financial  Statements  for further
discussion.

Income Taxes

     Income  taxes  totaled  $1.8 million and $3.1 million for the three and six
months  ended June 30,  2002,  versus $0.7 million and $2.0 million for the same
periods  in 2001.  Our  effective  tax rate was 41% for the three and six months
ended June 30, 2002 and 2001.  In  addition,  the income taxes for the three and
six months  ended June 30,  2002,  include  approximately  $0.2 and $0.4 million
charge for a change in estimate for tax deficiencies.
<PAGE>

Net Earnings

     Net  Earnings  totaled  $2.1  million and $3.5 million or the three and six
months ended June 30, 2002, respectively, as compared with $1.4 million and $3.2
million  for the three and six months  ended June 30,  2001,  respectively.  The
increase  was due  primarily to an increase in the number of vehicles  sold,  an
increase  in net  interest  income due  primarily  to a reduction  in  portfolio
interest  expense,  and a decrease in operating  expenses  due to numerous  cost
savings  initiatives,  partially  offset by the increase in  provision  for loan
losses.

Business Segment Information

     We report our operations based on three operating segments.  These segments
are reported as Retail, Portfolio and Corporate Operations.  See Note (6) to the
Condensed Consolidated Financial Statements.

     Operating Expenses for our business  segments,  along with a description of
the  included  activities,  for the three and six months ended June 30, 2002 and
2001 are as follows:

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

                                               Three Months Ended                             Six Months Ended
                                                    June 30,                                      June 30,
                                         -------------------------------       %       -------------------------------      %
                                               2002           2001          Change          2002            2001          Change
                                         ------------------------------- ------------- ---------------  -------------- -------------
     <S>                                 <C>                <C>          <C>           <C>              <C>            <C>
     Retail Operations:
       Selling and Marketing             $      6,137       $      6,235        (1.6%) $        13,750  $       13,861      (0.8%)
       General and Administrative              12,996             14,855       (12.5%)          26,445          29,513     (10.4%)
       Depreciation and Amortization            1,090              1,363       (20.0%)           2,201           2,689     (18.1%)
                                         -------------------------------               ---------------  --------------
            Retail Expense               $     20,223       $     22,453        (9.9%) $        42,396  $       46,063      (8.0%)
                                         ===============================               ===============  ==============
   Per Car Sold:
       Selling and Marketing             $        509       $        537        (5.3%) $           502  $          524      (4.1%)
       General and Administrative               1,077              1,280        (5.9%)             966           1,115     (13.4%)
       Depreciation and Amortization               90                117       (23.1%)              80             102     (21.6%)
                                         -------------------------------               ---------------  --------------
            Total                        $      1,676       $      1,934       (13.3%) $         1,548  $        1,741     (11.1%)
                                         ===============================               ===============  ==============

   As % of Sales of Used Cars:
       Selling and Marketing                     5.1%               5.9%                          5.2%            5.9%
       General and Administrative               10.8%              14.0%                         10.1%           12.5%
       Depreciation and Amortization             0.9%               1.3%                          0.8%            1.1%
                                         -------------------------------               ---------------  --------------
            Total                               16.8%              21.2%                         16.1%           19.5%
                                         ===============================               ===============  ==============
</TABLE>

     Total Selling and Marketing  expenses remained fairly constant quarter over
quarter;  however, due to an increase in the number of cars sold, these expenses
decreased slightly on a per car sold basis. Selling and Marketing decreased as a
percentage  of sales of used cars due to the increase in the number of cars sold
combined  with an  increase  in  sales  price  per  vehicle.  Based  on  current
estimates,  we  believe  that with the launch of the new  DriveTime  advertising
campaign in the 3rd quarter of 2002,  Selling and Marketing Expenses will remain
fairly consistent with the first six months of 2002.

     General and Administrative  expenses  decreased in total dollars,  on a per
car sold basis and as a  percentage  of sales of used cars for the three and six
months  ended June 30,  2002,  principally  due to a reduction in work force and
other general cost saving initiatives.

     Depreciation and Amortization expenses decreased in total dollars, on a per
car sold basis and as a percentage  of cars revenue for the three and six months
ended June 30, 2002,  primarily due to  discontinuation  of depreciation on $3.8
million original cost of buildings as a result of the sale of the six properties
to Verde investments and the  discontinuation  of goodwill  amortization in 2002
upon the  adoption  of SFAS No.  142.  See  Note (3) of the  Notes to  Condensed
Consolidated Financial Statements for further discussion.
<PAGE>

     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>

                                                        Three Months Ended                         Six Months Ended
                                                             June 30,                                  June 30,
                                                    ----------------------------       %       --------------------------     %
                                                        2002          2001          Change         2002         2001        Change
                                                    ----------------------------  ------------ -------------------------------------
     <S>                                            <C>             <C>           <C>          <C>            <C>         <C>
     Portfolio Expense:
       General and Administrative                   $       7,095   $      7,359      (3.6%)   $     13,637   $    15,367    (11.3%)
       Depreciation and Amortization                          240            232        3.4%            492           496     (0.8%)
                                                    ----------------------------               --------------------------
          Portfolio Expense                         $       7,335   $      7,591      (3.4%)   $     14,129   $    15,863    (10.9%)
                                                    ============================               ==========================

   Average Expense per Month per Loan Serviced      $       28.55   $      29.25               $      27.79   $     30.37
                                                    ============================               ==========================
   Annualized Expense as % of End of Period
       Principal Balances                                    5.2%           5.8%                       5.0%          6.0%
                                                    ============================               ==========================
</TABLE>

     The  decrease in  portfolio  expenses and in the expense per month per loan
serviced for the three and six months ended June 30, 2002,  compared to the same
periods in 2001, is primarily a result of  efficiencies  gained with the closing
of the collection and loan administration facilities in Florida and Texas during
the first  quarter of 2001 and other  general cost saving  initiatives.  The six
months ended June 30, 2001, include a $0.6 million  restructuring charge related
to the closure of those facilities.

     Corporate Operations.  Operating expenses for our Corporate segment consist
of costs to provide managerial oversight and reporting for the Company,  develop
and implement  policies and procedures,  and provide expertise to the Company 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>

                                          Three Months Ended                                Six Months Ended
                                               June 30,                                         June 30,
                                    --------------------------------       %         --------------------------------        %
                                         2002             2001           Change           2002             2001           Change
                                    ---------------  ---------------  -----------   ----------------  ---------------  -------------
  <S>                               <C>              <C>              <C>           <C>               <C>              <C>
  Corporate Expense:
    General and Administrative      $         5,470  $         5,003         9.3%   $         11,261  $         9,775          15.2%
    Depreciation and Amortization               728              840      (13.3%)              1,473            1,657        (11.1%)
                                    ---------------  ---------------                ----------------  ---------------
       Corporate Expense            $         6,198  $         5,843         6.1%   $         12,734  $        11,432          11.4%
                                    ---------------  ---------------                ----------------  ---------------

Per Car Sold                        $           514  $           503                $            465  $           432
                                    ===============  ===============                ================  ===============
As % of Total Revenues                         4.0%             4.1%                            3.8%             3.8%
                                    ===============  ===============                ================  ===============
</TABLE>

     Corporate  operating  expenses  as a  percent  of  total  revenue  remained
relatively  consistent for the three and six months ended June 30, 2002,  versus
the same periods of 2001. However,  corporate expenses increased in total and on
a per car sold  basis,  as compared to the same  periods of the  previous  year,
primarily due to the $0.8 million restructuring charge in January 2002 as result
of the second reduction in work force, plus during the first six months of 2002,
the Company paid $.5 million to Verde for the aircraft  lease and  reimbursement
of various  travel costs and other  expenses  incurred by Verde on behalf of the
Company. See Note (3) to the Condensed Consolidated Financial Statements.
<PAGE>

Financial Position

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

                                                June 30,       December 31,          %
                                                  2002             2001           Change
                                            ----------------- ---------------  --------------
<S>                                         <C>               <C>              <C>
Total Assets                                $       644,951   $      647,657           (0.4%)

Finance Receivables, Net                            531,928          495,254             7.4%
Inventory                                            38,148           58,618          (34.9%)
Property and Equipment, Net                          30,331           37,739          (19.6%)
Net Assets of Discontinued Operations                    -             3,899         (100.0%)


Total Debt                                          450,143          461,074           (2.4%)
Notes Payable - Portfolio                           398,640          377,305             5.7%
Other Notes Payable                                  25,690           52,510          (51.1%)
Subordinated Notes Payable                           25,813           31,259          (17.4%)
Stockholders' Equity                        $       148,990   $      145,483             2.4%
</TABLE>

     Total  Assets.  Total  assets  have  remained  relatively  constant  as the
decrease in Inventory and in Net Property and Equipment was partially  offset by
the increase in Finance Receivables, net.

     Inventory. Inventory represents the acquisition and reconditioning costs of
used cars located at our dealerships and our inspection  centers.  The change in
inventory  from  December 31, 2001,  to June 30,  2002,  is due to  management's
decision to increase  inventory levels at the end of the year in preparation for
the strong  seasonal  sale periods  during the first and second  quarters of the
year. We have implemented changes to our inventory acquisition strategy to focus
on auctions and to limit purchases from  wholesalers.  We believe this will help
enable us to achieve our goal of purchasing  higher quality  inventory at better
prices.  For the three  months  ended June 30,  2002,  we acquired  our used car
inventory from three sources:  80% from auctions,  15% from  wholesalers  and 5%
from new car dealerships.

     Property and  Equipment,  Net. Net Property and  Equipment  decreased  from
December 31, 2001, to June 30, 2002, by $7.4 million. The decrease was primarily
related to the January 2002 sale and  leaseback of six  dealerships,  with a net
book value of $6.7 million,  to Verde  Investments,  Inc. pursuant to the option
agreement  granted  in 2001,  as  partial  consideration  for the  $7.0  million
subordinated loan made by Verde Investments,  Inc. See Note (3) to the Condensed
Consolidated Financial Statements.

     Finance Receivables,  Net. Net Finance Receivables grew by $36.7 million or
7.4% during the six months ended June 30, 2002. New originations for this period
exceeded the portfolio runoff, consisting of regular principal payments, payoffs
and  charge-offs,  by $50.7  million.  Partially  offsetting  the growth in loan
principal  balances was the $14.3  million  increase in the Allowance for Credit
Losses. See Note (2) to the Condensed  Consolidated Financial Statements for the
detail components of Finance Receivables, net.
<PAGE>

     The following  table reflects  activity in the Allowance for Credit Losses,
as well as  information  regarding  charge-off  activity,  for the three and six
months ended June 30, 2002 and 2001 ($ in thousands):
<TABLE>
<CAPTION>

                                                Three Months Ended                    Six Months Ended
                                                     June 30,                             June 30,
                                        ------------------------------------ -------------------------------------
                                              2002               2001              2002               2001
                                        ------------------ ----------------- ------------------ ------------------
<S>                                     <C>                <C>               <C>                <C>
Allowance Activity:
Balance, Beginning of Period            $        107,600   $        102,000  $        101,900   $          99,700
Provision for Credit Losses                       38,395             32,210            83,762              71,230
Other Allowance Activity                              -                (48)                -                  (6)
Net Charge Offs                                 (29,795)           (32,573)          (69,462)            (69,335)
                                        ------------------ ----------------- ------------------ -----------------
Balance, End of Period                  $        116,200   $        101,589  $        116,200   $         101,589
                                        ================== ================= ================== =================

Charge off Activity:
Principal Balances                      $       (36,029)           (41,605)  $       (83,060)   $        (88,761)
Recoveries, Net                                    6,234              9,032            13,598              19,426
                                        ------------------ ----------------- ------------------ -----------------
Net Charge Offs                         $       (29,795)   $       (32,573)  $       (69,462)   $        (69,335)
                                        ================== ================= ================== =================
</TABLE>

     The  Allowance  for Credit  Losses was $116.2  million as of June 30, 2002,
compared to $101.6 million as of June 30, 2001. Of the $14.6 million increase in
the allowance for credit  losses,  $5.8 million  related to the increase in loan
principal  balance from $534.8 million as of June 30, 2001, to $565.4 million as
of  June  30,  2002.  The  remainder  of  the  increase  related   primarily  to
originations  prior to 2001,  that are  emerging  at  higher  loss  levels  than
previously  estimated and due to the effects of the recession.  Offsetting these
higher  loss  rates on older  originations  are new  originations  since the 1st
quarter  of  2001,  that are  performing  better  than  prior  years  due to the
implementation of higher credit standards. The Allowance as a percentage of loan
principal is 20.6% as of June 30,  2002,  up from 19.8% as of December 31, 2001,
and 19.0% as of June 30, 2001.

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

     Net Assets of Discontinued Operations. In December 1999, we sold the Cygnet
Dealer  Finance  ("CDF")  subsidiary  and also decided to abandon any efforts to
acquire  third  party  loans or  servicing  rights  to  additional  third  party
portfolios.  As a  result,  CDF,  Cygnet  Servicing  and the  associated  Cygnet
Corporate  segment  assets and  liabilities  were  classified as net assets from
discontinued operations.

     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 on our
warehouse line, additional securitizations and our inventory line of credit. See
"Management's  Discussion  and Analysis of Financial  Conditions and Operation -
Financing Resources" below.

     Notes  Payable -  Portfolio.  Notes  Payable -  Portfolio  consists  of our
warehouse line and  securitizations.  The amount outstanding under the warehouse
line  increased by $45.6 million  during the six months ended June 30, 2002. The
increase was used to fund new  originations  during the second  quarter of 2002,
pending the 2002B  securitization of these loans, which is scheduled to close on
August 15, 2002. The amount of obligations outstanding pursuant to the Company's
securitization  program decreased $24.7 million in the six months ended June 30,
2002,  primarily  due to  the  timing  of  the  securitizations.  Only  one  new
securitization,  2002A, was completed during the six months ended June 30, 2002,
combined with normal  runoff of the  portfolio  and the  repurchase of the 1999C
trust by the Company.

     Other Notes Payable - The decrease in Other Notes Payable was primarily due
to a pay down on the senior note payable of $10.8  million and a decrease in the
inventory  line of $12.3  million.  In  addition,  on  January  4,  2002,  Verde
Investments, Inc. ("Verde"), an affiliate of Mr. Ernest Garcia II, the Company's
chairman,  purchased six properties located in Texas,  Virginia, and California,
and simultaneously  leased the properties to the Company on terms similar to the
Company's current leases, 15 year triple net leases,  expiring December 2017. In
conjunction  with this  sale,  Verde  assumed  responsibility  for  payments  on
approximately $4.1 million of principal mortgage balances.  However, the Company
guarantees these loans with the lenders.  For further discussion,  see Notes (3)
and (4) of Notes to the Condensed Consolidated Financial Statements.
<PAGE>

     Subordinated Notes Payable - The decrease in Subordinated Notes Payable was
primarily due to the scheduled $2.0 million pay down of the senior  subordinated
notes payable during the second quarter of 2002 and a $4 million pay down on the
$7.0  million  subordinated  note  payable,  which was reduced from $5.4 million
outstanding at December 31, 2001, to $1.4 million  outstanding at June 30, 2002.
On April 1, 2002, Verde  Investments  transferred to Cygnet Capital  Corporation
("CCC"),  an affiliate of Verde and Mr. Ernest C. Garcia,  the remaining balance
of the $7.0  million  note  payable.  On May 31,  2002,  CCC  purchased  from an
unrelated  party  the  entire  outstanding   balance  of  the  Company's  senior
subordinated notes payable.  The outstanding  balance of the senior subordinated
notes  payable is $3.0  million at June 30,  2002.  See Notes (3) and (4) of the
Notes to the Condensed Consolidated Financial Statements.


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 due to 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  proceeds.  Management,  however,  believes that such
variation will not be material.

     The  following  table sets forth as of July 31, 2002,  the  cumulative  net
charge-offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed by customers  before  charge-off.  The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).


<PAGE>


<TABLE>
<CAPTION>

                                         Pool's Cumulative Net Losses as Percentage of Pool's Original
                                                        Aggregate Principal Balance
                                                              ($ in thousands)

                                        Monthly Payments Completed by Customer Before Charge-Off
                       Orig.           0          3           6          12          18         24         TLI       Reduced
                       -----           -          -           -          --          --         --         ---       -------
<S>                  <C>           <C>         <C>        <C>         <C>         <C>        <C>        <C>       <C>
   1993              $  12,984        8.8%      21.4%       27.6%       32.8%       34.8%      35.3%       36.8%      100.0%
   1994              $  23,589        5.3%      14.6%       19.6%       25.2%       27.5%      28.2%       28.8%      100.0%
   1995              $  36,569        1.9%       8.1%       13.1%       19.0%       22.1%      23.4%       24.1%      100.0%
   1996              $  48,996        1.5%       8.1%       13.9%       22.1%       26.2%      27.9%       28.9%      100.0%
   1997
   1st Quarter       $  16,279        2.1%      10.7%       18.2%       24.8%       29.8%      32.0%       33.5%      100.0%
   2nd Quarter       $  25,875        1.5%       9.9%       15.8%       22.7%       27.3%      29.4%       30.6%      100.0%
   3rd Quarter       $  32,147        1.4%       8.3%       13.2%       22.4%       26.9%      29.1%       30.6%      100.0%
   4th Quarter       $  42,529        1.4%       6.8%       12.6%       21.8%       26.0%      28.7%       29.9%      100.0%
   1998
   1st Quarter       $  69,708        0.9%       6.9%       13.4%       20.8%       26.3%      28.7%       29.9%      100.0%
   2nd Quarter       $  66,908        1.1%       8.0%       14.2%       21.7%       27.2%      29.1%       30.1%      100.0%
   3rd Quarter       $  71,027        1.0%       7.9%       13.2%       22.9%       27.6%      30.1%       30.9%      100.0%
   4th Quarter       $  69,583        0.9%       6.5%       13.0%       24.1%       28.8%      31.2%       32.0%      100.0%
   1999
   1st Quarter       $ 103,068        0.8%       7.4%       15.0%       23.4%       29.2%      31.4%       32.5%       99.9%
   2nd Quarter       $  95,768        1.1%       9.8%       16.6%       25.2%       31.2%      33.5%       34.6%       99.6%
   3rd Quarter       $ 102,585        1.0%       8.2%       14.1%       25.1%       30.6%      33.4%       34.5%       98.6%
   4th Quarter       $  80,641        0.7%       5.9%       12.6%       23.5%       28.9%      31.9%       32.7%       96.6%
   2000
   1st Quarter       $ 128,123        0.3%       6.5%       14.5%       24.0%       30.2%      33.0%       33.3%       93.1%
   2nd Quarter       $ 118,778        0.6%       8.5%       15.8%       25.8%       32.5%         x        34.6%       88.2%
   3rd Quarter       $ 124,367        0.7%       7.7%       14.3%       25.7%       32.2%         -        33.3%       82.2%
   4th Quarter       $ 100,823        0.6%       6.6%       13.5%       25.8%          x          -        30.8%       74.8%
   2001
   1st Quarter       $ 126,013        0.4%       6.3%       14.1%       24.3%          -          -        26.3%       66.3%
   2nd Quarter       $ 103,521        0.5%       6.2%       12.9%          x           -          -        19.9%       53.9%
   3rd Quarter       $ 109,037        0.7%       5.3%       10.6%          -           -          -        13.7%       39.2%
   4th Quarter       $  87,355        0.7%       5.1%          x           -           -          -         8.9%       24.1%
   2002
   1st Quarter       $ 140,178        0.5%         x           -           -           -          -         3.2%       16.2%
   2nd Quarter       $ 119,196          x          -           -           -           -          -         0.0%        3.8%
</TABLE>





<PAGE>



     The following table sets forth the principal  balances'  delinquency status
as a percentage of total outstanding contract principal balances from dealership
operations:
<TABLE>
<CAPTION>

                                             June 30,            June 30,         December 31,
Days Delinquent:                              2002                2001               2001
                                       ------------------  ------------------ ------------------
<S>                                    <C>                 <C>                <C>
Current                                            70.3%               70.2%              64.5%
1-30 Days                                          23.1%               23.0%              26.2%
31-60 Days                                          3.9%                4.1%               5.6%
61-90 Days                                          2.7%                2.7%               3.7%
                                       ------------------  ------------------ ------------------
Total Portfolio                                   100.0%              100.0%             100.0%
                                       ==================  ================== ==================
</TABLE>

     In accordance with our charge-off  policy,  there are no accounts more than
90 days delinquent as of June 30, 2002.

     Current accounts  increased from 64.5% as of December 31, 2001, to 70.3% as
of June 30, 2002, and accounts  greater than 30 days  delinquent  decreased from
9.3% to 6.6% during the same  period,  a 29%  improvement.  The  improvement  in
delinquencies  is  a  combination  of  the  positive  effect  of  higher  credit
standards,  the  improved  credit  quality mix of  originations  since the first
quarter of 2001 and seasonality.

     Although  delinquencies  have  improved  during  2002  and loan  losses  on
recently  originated loan pools indicate  improved loan performance  compared to
those loans  originated prior to 2001, the Provision for Credit Losses increased
to $38.4  million or 32.2% of the total amount  financed  for the quarter  ended
June 30, 2002, up from $32.2  million or 31.1% of the total amount  financed for
the quarter ended June 30, 2001.  Company policy is to maintain an Allowance for
Credit Losses  ("Allowance")  for all loans in its portfolio to cover  estimated
net  charge-offs  for the next 12  months.  The  Company  began to  improve  the
underlying  credit  quality  mix of its  originations  due  to  improved  credit
standards and the  introduction  of loan grading in 2001. As a result,  2001 and
2002  originations are performing  better to date than loans originated in prior
periods.  Offsetting these improvements are the effects of the recession and the
performance  of loans  originated  prior to 2001 that do not have the benefit of
the new higher  credit  standards  and are  emerging at loss levels  higher than
previously  estimated.  The Allowance as a percentage of loan principal is 20.6%
as of June 30, 2002, up from 19.8% as of December 31, 2001, and 19.0% as of June
30, 2001.

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 our  subsidiaries  or us. We continue to
service the securitized loans.

     The  Class  A  obligations  have  historically  received  investment  grade
ratings.  To secure the payment of the Class A obligations,  the  securitization
subsidiaries  have in prior  periods  obtained  an  insurance  policy  from MBIA
Insurance  Corporation that guarantees  payment of amounts to the holders of the
Class A obligations. Recently, we have entered into a commitment with XL Capital
Assurance to insure, at a minimum,  our next three  securitizations.  XL Capital
Assurance  is rated AAA by  Standard  and  Poor's  and Aaa by  Moody's  ratings.
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,  historically  ranging
from  2.3% to 7.3% 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,  currently  ranging from 8.0% to 11.5%,  of the  underlying  Finance
Receivables' principal balance. The trustee makes distributions to us when:

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

     The Company  previously  reported in its Annual Report on Form 10-K for the
year ended December 31, 2001,  and in its Quarterly  Report on Form 10-Q for the
three month period ended March 31, 2002,  that four of its  securitizations  had
reached  Termination  Events (as defined in the  securitizations)  triggering an
acceleration  of rights for the insurer under the Insurance  Agreements  for the
respective securitizations.  As reported, the Termination Events occurred on the
charge-off  triggers for 2000B,  2000C,  and 2001A in December  2001, and on the
delinquency  trigger for 1999C in January 2002. As a result,  all cash flow from
these trusts otherwise distributable to the Company was deposited into a reserve
account  for these  securitizations.  In June  2002,  as  reported  on Form 8-K,
revised  calculations  indicated  that no  Termination  Events  in fact had been
triggered on the net charge-off trigger for 2000B,  2000C, and 2001A in December
2001. However, the revised calculations did confirm the Termination Event on the
delinquency trigger for 1999C in January, an additional Termination Event on the
delinquency  trigger for 1999C in February 2002, and a Termination  Event on the
delinquency  trigger  for 2000A for the months of  February,  March and April in
2002.  Both the 1999C and 2000A trusts have been  repurchased  by the Company in
April and July,  respectively,  and are no longer  required  to be tested by the
performance targets set by the trust insurer and all cash has been released.  In
addition,  upon review of these revised  calculations  for the 2000B,  2000C and
2001A trusts,  trapped cash related to these trusts was released and distributed
to the Company in June of 2002.

     Although the 2000B,  2000C and 2001A trusts did not breach the  Termination
Tests as originally reported, they, along with other trusts, did reach Portfolio
Events (as defined in the  securitizations) and would have been required to trap
cash.  Since  October  2001  the  following  Portfolio  Events  occurred  in the
following trusts: For trust 1999C,  delinquency  triggers in October,  November,
and  December  of 2001;  and  January and  February  of 2002.  For trust  2000A,
delinquency  triggers in October,  November,  and December of 2001; and January,
February,  March,  April and May of 2002.  For 2000B,  delinquency  triggers  in
October,  November,  and December of 2001; January,  February and March of 2002;
and  charge-off   triggers  in  December  2001  and  January  2002.  For  2000C,
delinquency  triggers in November  and December of 2001;  January,  February and
March of 2002;  and charge-off  triggers in December 2001 and January,  February
and March of 2002. For 2001A,  delinquency  triggers in November and December of
2001;  January and February of 2002; and  charge-off  triggers in December 2001,
and January,  February and March of 2002. As of August 1, 2002, no cash is being
held above the required reserve levels on any trust

     As with a Termination Event,  breaching a Portfolio Performance test in the
trust will also cause the trust to not  distribute  cash to any other obligor of
the trust  below the A  bondholder.  Any excess cash is to be  deposited  in the
trust  reserve  account  to be used in the event of a cash  shortfall  in future
distribution periods. Each trust has a required reserve account balance and cash
deposited in excess of this required balance is considered  "trapped" cash. When
a Portfolio  Event is reached the reserve  balance  increases to a predetermined
amount  typically in a range of 16% to 20% (each trust has a specific  level) of
the  outstanding  portfolio  balance.  If a trust has only  breached a Portfolio
test,  once the  performance  level  drops  below  the test  level in a  monthly
reporting  period the Portfolio Event is deemed "cured" and the cash is released
to the original required reserve level. When a Termination Event is reached, the
reserve account level builds to a level equal to the outstanding  balance on the
A bonds or until  waived by the insurer.  If a trust has breached a  Termination
test, the event can only be cured by a waiver of the trust insurer.

     In April 2002, we completed our first  securitization  of this year, 2002A,
with  MBIA  providing  the  insurance  on the  transaction.  This  was the  22nd
securitization  in our history,  consisting of  approximately  $170.4 million in
principal  balances and the issuance of approximately  $121.0 million in Class A
bonds.  The coupon rate on the Class A bonds was 4.16%, the initial deposit into
the  reserve  account was 6.0% and the reserve  account  maximum is 10.0%.  As a
condition  for MBIA  providing  insurance for this  securitization,  the Company
deposited an additional  $2.3 million in an escrow  account to protect MBIA from
any potential losses on any active trusts they insure.  The Company is currently
trying  to  negotiate  the  release  of these  funds  in  light  of the  revised
calculations  indicating no Termination  Events had been triggered on any active
trusts.

     While completing  2002A, we mutually agreed with MBIA to further  diversify
our lending sources,  a process that we initiated in 2001 with our inventory and
warehouse lending  facilities.  As a result we engaged a different  insurer,  XL
Capital Assurance ("XL"), for our second securitization of this year, 2002B, and
for subsequent  securitizations.  On July 30, 2002, the Company priced the 2002B
securitization,  which is  scheduled  to  close  on  August  15,  2002.  If this
securitization  closes as  expected  it will  consist  of  approximately  $211.3
million in principal  balances and the issuance of approximately  $150.0 million
in Class A bonds,  including a pre-funded amount of approximately $27.5 million.
The coupon  rate on the Class A bonds is 2.99%,  the  initial  deposit  into the
reserve account is 7.25% and the reserve  account maximum is 11.5%.  The Class A
bonds will be insured by XL Capital Assurance,  resulting in AAA by Standard and
Poor's and Aaa by Moody's ratings.

     For discussion of certain risks related to our securitization transactions,
see "Securitization Transactions" set forth in Exhibit 99 to this Form 10-Q.
<PAGE>

Liquidity and Capital Resources

     In recent periods,  our needs for additional capital resources have leveled
as we slowed the growth of our  business.  In addition  to our normal  recurring
capital  requirements,  we are  currently  refurbishing  all of our  dealerships
related to the change of our corporate name from Ugly Duckling to DriveTime. The
total additional expenditures expected to be incurred in the 3rd quarter of 2002
related to the rollout of  DriveTime is  approximately  $6.3  million,  which we
anticipate  funding  through  our  existing  liquidity  or lease  financing.  In
general, we require capital for:
<TABLE>
<CAPTION>

<S>                                                      <C>
o    investment in our loan portfolio,                   o  the purchase of inventories, and
o    working capital and general corporate purposes,     o  the purchase of property and equipment.
</TABLE>

    We fund our capital requirements primarily through:
<TABLE>
<CAPTION>

<S>                                                      <C>
o    operating cash flow,                                o  our inventory line, and
o    securitization transactions,                        o  supplemental borrowings.
o    our revolving warehouse facility,
</TABLE>

     For 2002, we believe we will have adequate liquidity for our operations. We
closed our first  securitization  transaction  of 2002,  in April and believe we
will continue to be able to securitize  our loan pools  throughout  the year. We
have engaged XL Capital  Assurance to insure our second  securitization in 2002,
expected  to close on August 15,  2002.  In March of 2002,  we renewed  our $100
million warehouse credit facility for an additional  364-day period. On July 19,
2002, the Company  renewed its senior secured loan facility with certain lenders
and the facility was increased from $35 million to $45 million. In addition, our
$36 million dollar  revolving  inventory  facility does not expire until June of
2003.

     As previously reported,  cash flow from certain  securitizations during the
first half of 2002 was deposited into reserve accounts for these securitizations
because  those trusts hit  termination  and/or  portfolio  events.  Despite this
trapping of cash, we had sufficient liquidity to fund our ongoing operations and
repurchase  the 1999C and 2000A  trusts.  As of August 1, 2002, no cash is being
held above the required reserve levels.

     The IRS has completed its audits of the Company for 1997, 1998 and 1999 and
the IRS has also notified the Company that it intends to perform an  examination
of the  Company's  tax year 2000.  There can be no  assurance as to the ultimate
outcome of the year 2000  examination  and the Company  could become  liable for
current  tax  payments  related  to the timing of  certain  deductions  that may
materially impact the Company's liquidity.

     For a  discussion  of certain  risks that could  affect our  liquidity  and
capital resources, see Exhibit 99.1 to this form 10-Q.

Cash Flow

     Net cash provided by operating activities increased $34.3 million to $128.3
million in the six months  ended June 30, 2002,  up from $94.0  million net cash
provided by operating  activities  in the six months  ended June 30, 2001.  This
increase is primarily  due to an increase in  provision  for credit  losses,  an
increase in accounts  payable,  accrued expenses and other  liabilities,  and an
increase in income taxes payable.  Partially  offsetting these increases to cash
flow from operations was an increase in other assets.

     Net cash used in investing  activities  increased  $27.6  million to $121.7
million  during the six months ended June 30, 2002 as compared to $94.1  million
used during the same  period of 2001.  The  increase  in cash used in  investing
activities is the result of an increase in finance receivables originated due to
increased sales price and volume,  partially  offset by a reduction in purchases
of property and equipment.

     Net cash  used in  financing  activities  increased  $6.8  million  to $9.0
million for the six months ended June 30, 2002,  as compared to $2.2 million net
cash used during the same period of 2001. The increase in cash used is primarily
due to an increase in repayments of other notes payable related to the pay downs
of the senior  secured loan facility and the inventory  line,  and a decrease in
additions  to  notes   payable   portfolio   because  there  was  only  one  new
securitization  during the six months ended June 30,  2002,  compared to two new
securitizations  closed  in the  six  months  ended  June  30,  2001.  Primarily
offsetting  these  increases  in cash used was an increase in additions to other
notes payable  related to draws on the inventory  line, a decrease in additional
deposits   into   investments   held   in   trust   and   repayment   of   notes
payable-portfolio,  all primarily because there was only one new  securitization
during the six months ended June 30, 2002.
<PAGE>

Financing Resources

     Revolving  Warehouse  Facility.  In March  2002,  the  Company  renewed its
revolving warehouse facility with Greenwich Capital Financial Products, Inc. for
an additional  364-day term through March 2003. The facility  allows for maximum
borrowings  of $100 million  during the entire  renewed term, as compared to $75
million  during the period May 1 through  November 30 increasing to $100 million
during  the  period  December  1 through  April 30 under the  initial  term.  In
addition, the 65% cap on the advance rate was removed and the calculation of the
warehouse advance relative to the net securitization advance was improved by 2%.
The lender  maintains an option to adjust the advance rate to reflect changes in
market conditions or portfolio performance. The interest rate on the facility is
one-month  LIBOR plus 2.80% (4.64% and 4.72% at June 30, 2002,  and December 31,
2001,  respectively).  The  facility is secured with  substantially  all Company
assets.  At June 30,  2002,  the Company  was in  compliance  with all  required
covenants.

     Revolving Inventory Facility.  On August 31, 2001, the Company entered into
a $36 million revolving  inventory facility with Automotive Finance  Corporation
that expires in June of 2003.  The borrowing base is calculated on advance rates
on inventory  purchased,  ranging from 80% to 100% of the  purchase  price.  The
interest  rate on the facility is Prime plus 6.0% (10.75% at June 30, 2002,  and
at December 31,  2001).  The facility is secured with the  Company's  automobile
inventory.  At June 30, 2002,  the Company was in  compliance  with all required
covenants.

     Securitizations.  Our  securitization  program  is a primary  source of our
working  capital.  Securitizations  generate  cash  flow for us from the sale of
Class A obligations,  ongoing servicing fees, and excess cash flow distributions
from  collections  on the  loans  securitized  after  payments  on the  Class  A
obligations,  payment of fees,  expenses,  and insurance premiums,  and required
deposits to the reserve accounts. Securitizations also allows us to fix our cost
of funds for a given loan portfolio.  See "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations--Securitizations"  for a more
complete description of our securitization program.

Supplemental Borrowings

     Senior Secured Note Payable. In January 2001, we entered into a $35 million
senior secured loan facility with certain  lenders that had a term of 25 months.
Per the agreement,  the Company was required to make principal  payments of $1.0
million  per month  during  months  from  April  2001  through  September  2002.
Thereafter  through  maturity,  the agreement  required  minimum payments of the
greater of $3.0 million per month or 50% of the cash flows from classes of notes
issued  through  securitization  that  are  subordinate  to the  Class A  bonds.
Interest was payable monthly at one-month LIBOR plus 600 basis points (7.84 % at
June 30,  2002,  and 7.90% at December  31,  2001).  The balance of the note was
$15.2  million  at June 30,  2002.  The  loan was  secured  by  certain  Finance
Receivables.  At June 30, 2002, the Company was in compliance  with all required
covenants.  On July 19,  2002,  the  Company  renewed  its senior  secured  loan
facility  with  certain  lenders.  The loan  facility was  increased  from a $35
million  loan  facility to $45 million.  Interest is payable at one-month  LIBOR
plus  500  basis  points,  with a  minimum  LIBOR of  2.125%,  and has a term of
approximately  30 months.  The loan  discount at funding was 5% or $2.25 million
and there are no prepayment penalties.  The facility is secured by the Company's
retained interests in the residuals from its securitization transactions.
<PAGE>

     Senior Subordinated Secured Note. In January 2001, we borrowed $7.0 million
in a subordinated loan from Verde Investments,  Inc. ("Verde"),  an affiliate of
Mr.   Garcia,   that  is  secured  by  residual   interests  in  the   Company's
securitization  transactions  but is  subordinate  to the  senior  secured  note
payable.  The loan requires  quarterly interest payments at one-month LIBOR plus
600 basis points and is subject to pro rata reductions if certain conditions are
met. As a condition to the $35 million  senior  secured note payable,  Verde was
required to invest the $7.0 million in us through a subordinated loan. The funds
were  placed in escrow  as  additional  collateral  for the $35  million  senior
secured  loan.  The funds  were to be  released  in July  2001,  if among  other
conditions,  the Company had at least $7 million in pre-tax  income through June
of 2001 and,  at that time,  Mr.  Garcia  would have  guaranteed  33% of the $35
million facility.  The Company did not meet this pre-tax income  requirement for
the first six  months  of 2001.  As  consideration  for the  loan,  the  Company
released  all options to purchase  real estate that were then owned by Verde and
leased to the  Company.  We also granted  Verde the option to purchase,  at book
value, any or all properties  currently owned by the Company, or acquired by the
Company  prior to the  earlier of  December  31,  2001,  or the date the loan is
repaid.  Verde  agreed to lease the  properties  back to the  Company,  on terms
similar to our current leases, if it exercised its option to purchase any of the
properties.  In December 2001,  Verde  exercised its right to purchase from, and
lease  back  to  the  Company,  six  properties  having  a  net  book  value  of
approximately  $6.7  million.  This  sale and  leaseback  transaction  closed in
January 2002, for six properties located in Texas, Virginia and California. As a
result of the going private transaction,  the warrants have been terminated.  On
April 1, 2002,  Verde  Investments  transferred  to Cygnet  Capital  Corporation
("CCC"),  an affiliate of Verde and Mr.  Ernest C. Garcia,  the  remaining  $2.0
million  balance  of  the  $7.0  million  note  payable.  All  future  principal
reductions  and interest  payments will be made to CCC. As of June 30, 2002, the
balance of the note was $1.4 million.  Subsequently,  the remaining  balance was
paid off in full in July 2002.

     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),  and subordinate to our other  indebtedness.
With the closing of the going private transaction, the warrants were terminated.
On May 31,  2002,  Cygnet  Capital  Corporation,  an  affiliate of Verde and Mr.
Garcia,  purchased from an unrelated party the entire outstanding balance of the
Company's  senior  subordinated  notes payable.  The outstanding  balance of the
senior subordinated notes payable is $3.0 million at June 30, 2002.

     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  semi-annually  at 12% per year.  We are  required to pay the
principal  amount of the  debentures  on October 23, 2003.  We can redeem all or
part of the debentures at any time. In June 2001, we repurchased $3.6 million of
principal of the  debentures.  Mr. Garcia and affiliates own $2.6 million of the
debentures.

     2000 Exchange Offer. In April 2000, we completed an exchange offer in which
we acquired approximately 1.1 million shares of our common stock in exchange for
$11.9 million of subordinated debentures.  We issued the debentures at a premium
of  approximately  $3.9 million over the market value of the exchanged shares of
our common  stock.  Accordingly,  the debt was  recorded  at $8.0  million.  The
premium  will be  amortized  over the life of the  debentures  and results in an
effective  annual  interest rate of  approximately  19.9%.  The  debentures  are
unsecured and are subordinate to all of our existing and future indebtedness. We
must pay  interest  on the  debentures  semi-annually  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. Mr. Garcia and affiliates own
$4.9 million of the debentures.

     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.
<PAGE>


Capital Expenditures and Commitments

     On March 4, 2002, UDC Acquisition Corp.  ("Acquisition"),  an entity wholly
owned by UDC  Holdings  Corp.,  completed  a short form merger with and into the
Company. The Company was the surviving  corporation under the short form merger.
UDC Holdings capitalized Acquisition with a combination of cash, common stock of
the Company and a receivable from UDC Holdings representing a commitment to fund
the final  payment to dissenting  shareholders.  Since the  consummation  of the
Merger,  Ray Fidel,  Ugly Duckling Car Sales and Finance Corp.'s  executive vice
president and chief operating  officer,  has acquired a minority interest in UDC
Holdings Corp.,  along with Mr. Sullivan.  Mr. Garcia has a majority interest in
UDC  Holdings  Corp.  See  Management's  Discussion  and  Analysis of  Financial
Condition - Part II Other Information - Item 1. Legal Proceedings.

     In addition to our normal recurring capital expenditures,  we are currently
refurbishing all of our dealerships  related to the change of our corporate name
from Ugly Duckling to DriveTime.  The total additional  expenditures expected to
be  incurred  in the 3rd and 4th  quarter  of 2002  related  to the  rollout  of
DriveTime is approximately $6.3 million, which we anticipate funding through our
existing liquidity and/or lease financing.


Accounting Matters

Critical Accounting Policies

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

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

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

     Allowance for Loan Losses - An allowance  for credit losses is  established
     by charging the provision for credit losses and the  allocation of acquired
     allowances.  The evaluation of the adequacy of the allowance considers such
     factors  as the  performance  of  each  dealership's  loan  portfolio,  the
     portfolio  credit grade mix, the Company's  historical  credit losses,  the
     overall portfolio quality and delinquency  status,  the value of underlying
     collateral,  and current economic conditions that may affect the borrowers'
     ability  to pay.  Based  on  these  factors,  management  provides  for the
     estimated  net credit  losses  anticipated  to be  charged-off  on existing
     receivables  over the twelve months  following the balance sheet date. This
     estimate of existing probable and estimatable  losses is primarily based on
     static  pool  analyses  prepared  for  various  segments  of the  portfolio
     utilizing historical loss experience,  adjusted for the estimated impact of
     the current environmental factors outlined above.

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

     Accounting for  Securitizations  - Under the current legal structure of the
     securitization  program,  the Company  sells loans to Company  subsidiaries
     that then securitize the loans by transferring them to separate trusts that
     issue  several  classes  of notes and  certificates  collateralized  by the
     loans.  The  securitization   subsidiaries  then  sell  Class  A  notes  or
     certificates  (Class A obligations) to investors,  and subordinate  classes
     are  retained  by  the  Company.  The  Company  continues  to  service  the
     securitized  loans.  The Class A  obligations  have  historically  received
     investment  grade  ratings and are recorded as Notes Payable - Portfolio by

<PAGE>

     the Company.  Additionally, a cash "reserve" account is established for the
     benefit  of the Class A  obligations  holders.  The  reserve  accounts  are
     classified in the financial statements as Investments Held in Trust and are
     a component of Finance  Receivables,  Net. For securitization  transactions
     closed during the third quarter of 1998 and prior years, gains on sale were
     computed  based upon the  difference  between  the sales  proceeds  for the
     portion of finance  receivables sold and the Company's recorded  investment
     in the  finance  receivables  sold.  The  Company  allocated  the  recorded
     investment  in the finance  receivables  between the portion of the finance
     receivables sold and the portion retained based on the relative fair values
     on the date of sale.  The  retained  portion is  reported as  Residuals  in
     Finance Receivables Sold and is a component of Finance Receivables, Net.

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

Recent Accounting Pronouncements

     In  July  2002,  the  Financial  Accounting  Standards  Board  issued  FASB
Statement  No.  146,  "Accounting  for Costs  Associated  with Exit or  Disposal
Activities,"  which  revises  accounting  for  specified  employee  and contract
terminations  that are  part of  restructuring  activities.  Statement  No.  146
applies to costs associated with an exit activity  (including  restructuring) or
with a disposal of long-lived assets.  Those activities can include  eliminating
or reducing profit lines,  terminating  employees and contracts,  and relocating
plant facilities or personnel.  Under Statement No. 146, a company will record a
liability  for a cost  associated  with an exit or disposal  activity  when that
liability is incurred and can be measured at fair value. The new requirement can
shift  expense  recognition  from one  quarter or fiscal  year to  another.  The
provisions of Statement No. 146 are effective prospectively for exit or disposal
activities  initiated  after December 31, 2002.  Management  does not expect the
adoption of  Statement  No. 146 will have an effect on the  Company's  financial
statements.

     In April  2002,  the  Financial  Accounting  Standards  Board  issued  FASB
Statement  No. 145,  Rescission  of  Statement  No. 4, 44 and 64,  Amendment  of
Statement No. 13, and Technical  Corrections  (SFAS No. 145).  SFAS No. 145 will
rescind SFAS No. 4 which  required all gains and losses from  extinguishment  of
debt to be aggregated and, if material, classified as an extraordinary item, net
of related  income tax effect.  As a result of SFAS No. 145, the criteria in APB
Opinion No. 30,  Reporting the Results of  Operations,  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions  will now be used to classify those gains and
losses.  SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS
No. 4 has been rescinded.  The provisions of Statement No. 145 are effective for
fiscal years beginning after May 15, 2002. The Company has determined the impact
of  adoption of  Statement  No. 145 will  result in the  reclassification  of an
extraordinary item resulting from the gain from the early extinguishment of debt
that occurred in the three months ended June 30, 2001.

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

     The Company  adopted the  provisions  of Statement  No. 144 for the quarter
ended March 31, 2002.  The adoption of Statement No. 144 for  long-lived  assets
held  for  use  did  not  have a  material  impact  on the  Company's  financial
statements because the impairment  assessment under Statement No. 144 is largely
unchanged from Statement No. 121.

     In June 2001,  the FASB  issued  Statement  No. 143,  Accounting  for Asset
Retirement Obligations, which requires that the fair value of a liability for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs would be  capitalized  as part of the  carrying  amount of the
long-lived  asset and depreciated  over the life of the asset.  The liability is
accreted at the end of each period through charges to operating expense.  If the
obligation is settled for other than the carrying  amount of the liability,  the
Company will recognize a gain or loss on settlement. The provisions of Statement
No. 143 are  effective  for fiscal  years  beginning  after June 15,  2002.  The
Company has not yet determined the impact,  if any, of adoption of Statement No.
143.

     In June 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement  No. 142,  Goodwill and Other  Intangible  Assets.  Statement  No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated  after June 30,  2001,  as well as all  purchase  method
business  combinations  completed  after  June  30,  2001.  Statement  141  also
specifies  criteria  intangible  assets  acquired in a purchase  method business
combination  must  meet to be  recognized  and  reported  apart  from  goodwill.
Statement No. 142 requires that goodwill and intangible  assets with  indefinite
useful lives no longer be amortized,  but instead tested for impairment at least
annually in accordance  with the provisions of Statement No. 142.  Statement No.
142 also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment. The Company adopted the provisions of Statement No.
141 as of July 1, 2001, and Statement No. 142 effective January 1, 2002.

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

     The Company adopted the provisions of Statement No. 141 as of July 1, 2001,
and Statement No. 142 effective January 1, 2002. Statement No. 141 required upon
adoption of Statement No. 142, that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business combination,
and make any  necessary  reclassifications  in  order  to  conform  with the new
criteria  in  Statement  No.  141  for  recognition  apart  from  goodwill.   In
conjunction  with the adoption of Statement  No. 142, the Company has  allocated
the entire goodwill balance to the Retail Operations Segment.  During the second
quarter of 2002, the Company finalized the required impairment tests of goodwill
as of January 1, 2002. The Company does not have an impairment of goodwill as of
the date of adoption.  In addition,  upon  adoption we  discontinued  amortizing
goodwill.   For  the  three  months  ended  March  31,  2001,  the  Company  had
approximately  $0.2 million in  amortization  expense.  As of June 30, 2002, the
Company has  unamortized  goodwill of  approximately  $11.6  million  within the
retail  segment.   (For  further  discussion  on  SFAS  No.  141  and  142,  see
Management's  Discussion and Analysis of Financial  Condition- Recent Accounting
Pronouncements.)
<PAGE>

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: our name change to DriveTime and strategic operating changes,  including the
impacts of new  programs  such as DriveCare  and  RateAdvantage  (including  the
impact on our  portfolio  average  APR),  funding  for  DriveTime  improvements;
economic   conditions;   anticipated   financial   results,   such   as   sales,
profitability, other revenues and loan portfolios,  improvements in underwriting
including  credit  scoring,  adequacy of the  allowance for credit  losses,  and
improvements in recoveries and loan  performance,  including  delinquencies  and
charge offs; selling and marketing expenses remaining constant through year end;
retaining  the  warehouse  and  inventory  lines of credit;  the success of cost
savings  initiatives and  restructurings;  improvements in inventory,  inventory
acquisition,  and inventory mix,  including higher priced inventory and improved
loan  performance  on such  inventory;  release  of  deposits  held  in  escrow;
continuing to complete securitization transactions; and internet generated sales
growth  and  loan  performance.   Forward  looking   statements  include  risks,
uncertainties and other factors which may cause our actual results,  performance
or  achievements  to be materially  different from those expressed or implied by
such forward  looking  statements,  some of which we cannot predict or quantify.
Factors that could  affect our results and cause or  contribute  to  differences
from these  forward-looking  statements  include,  but are not  limited  to: any
decline  in  consumer  acceptance  of our  car  sales  strategies  or  marketing
campaigns;  any  inability to finance our  operations in light of a tight credit
market for the sub-prime industry and our current financial  circumstances;  any
deterioration in the used car finance  industry or increased  competition in the
used car sales and finance  industry;  any  inability to monitor and improve our
underwriting and collection processes;  any changes in estimates and assumptions
in, and the ongoing adequacy of, our allowance for credit losses;  any inability
to continue to reduce operating expenses as a percentage of sales;  increases in
interest rates; generally maintaining liquidity levels and cash flows sufficient
to fund our ongoing operations; the failure to efficiently and profitably manage
acquisitions  and/or  new car  dealerships;  adverse  economic  conditions;  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 and  developments  with respect to
the going private transaction.  Forward-looking  statements speak only as of the
date the  statement  was made.  Future  events and actual  results  could differ
materially  from  the   forward-looking   statements.   When   considering  each
forward-looking  statement,  you  should  keep  in mind  the  risk  factors  and
cautionary  statements  found throughout this Form 10-Q and (including those set
forth in Exhibit 99.1 hereto),  in addition to those risks  discussed  above. 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.

                                     ITEM 3.

                                   Market Risk

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

     Our  financial   instruments   consist  primarily  of  fixed  rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
fixed rate notes  receivable,  and  variable and fixed rate notes  payable.  Our
finance  receivables  are  classified  as  sub-prime  loans and  generally  bear
interest at the lower of 29.9% or the maximum  interest  rate  allowed in states
that impose interest rate limits. At June 30, 2002, the scheduled  maturities on
our finance  receivables  ranged from one to 48 months,  with a weighted average
maturity of 24.9  months.  In March  2002,  we  launched a pilot  interest  rate
program in the Phoenix market called  RateAdvantage  that offers  interest rates
ranging from 9.9% to 29.9%  depending upon the  customer's  credit grade and the
size of the down  payment.  By July 2002,  we began  offering the  RateAdvantage
interest  rate program at all of our  dealerships.  This will impact the overall
average interest rate of our finance receivable portfolio. 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 June 30, 2002,  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.
<PAGE>

     We believe that our market risk information has not changed materially from
December 31, 2001. See Exhibit 99.1 for further  information on Forward  Looking
Statements and Risk Factors.

PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings.

     The Company has historically sold our cars on an "as is" basis. It requires
all customers to acknowledge in writing on the date of sale that we disclaim any
obligation  for  vehicle-related  problems  that  subsequently  occur.  Although
management  believes 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,  the
Company  receives  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  the  Company  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.

     Beginning  in June 2002,  the  Company  launched a pilot  limited  warranty
program in the Phoenix market  offering 90 day/3,000  mile major  mechanical and
air  conditioning  coverage.  In July 2002, we rolled out this program to all of
our dealerships. We disclaim any obligation for vehicle related problems outside
the  scope of the  warranty.  However,  there  can be no  assurance  that  these
disclaimers  will be upheld in every instance.  Also,  under certain state laws,
implied or other warranties may now apply.

     Additionally,  in  the  ordinary  course  of  business,  the  Company  is a
defendant  in various  other types of legal  proceedings.  Although  the Company
cannot  determine  at this time the amount of the ultimate  exposure  from these
lawsuits,  if any, based on the advice of counsel management does not expect the
final outcome to have a material adverse effect on the Company.

     The Company  was  recently  served in Texas as a  defendant  in a purported
class action lawsuit  captioned  Felix Rather III, et. al vs. Dallas  Automotive
Sale and Service,  et. al  (including  Ugly Duckling Car Sales and Ugly Duckling
Credit Corporation),  192nd Judicial District, Dallas County, Texas (state court
case).  A group of law firms in Texas have sued a large number of Dallas  county
auto dealers  (including  Ugly Duckling)  alleging the auto dealers have charged
customers  interest on  deferred  sales  taxes and  overcharged  in the sale and
financing of customers. It is our understanding more lawsuits have been filed in
other Texas  counties.  We believe the claims  against us are without  merit and
intend to vigorously defend against them.

Going Private  Transaction and Related Actions. On March 20, 2001, a shareholder
derivative  complaint was filed,  purportedly  on behalf of the Company,  in the
court of  Chancery  for the State of Delaware  in New Castle  County,  captioned
Berger v. Garcia, et al., No. 18746NC.  The complaint alleges that the Company's
then current directors  breached  fiduciary duties owed to it in connection with
certain  transactions between the Company and Mr. Ernest Garcia II, its Chairman
and majority  stockholder,  and various entities  controlled by Mr. Garcia.  The
complaint  was amended on April 17, 2001,  to add a second  cause of action,  on
behalf of all persons who own Company  common  stock,  and their  successors  in
interest,  which  alleged that the  Company's  then current  directors  breached
fiduciary  duties in connection  with the proposed  acquisition by Mr. Garcia of
all of the outstanding  shares of common stock not owned by him. The Company was
named as a nominal defendant in the action.  The original cause of action sought
to void all  transactions  deemed to have been  approved in breach of directors'
fiduciary  duties and  recovery by the Company of alleged  compensatory  damages
sustained as a result of the transactions.  The second cause of action sought to
enjoin the Company from proceeding with the proposed  acquisition by Mr. Garcia,
or, in the alternative, awarding compensatory damages to the class.

     Following Mr.  Garcia's  offer in April 2001,  to purchase all  outstanding
shares of the  Company's  common  stock (for $2.00  cash,  $5.00  debenture  per
share),  five  additional  and  separate  purported   shareholder  class  action
complaints  were filed  between  April 17, and April 25,  2001,  in the Court of
Chancery for the State of Delaware in New Castle County. All of these cases were
consolidated June 5, 2001.

     In  September  of 2001,  Mr.  Garcia  withdrew  his April 2001  proposal to
purchase the outstanding common stock due to the economic uncertainty  resulting
from the events following the September 11th terrorist  attack.  On November 16,
2001,  Mr.  Garcia  announced  his  intention  of  initiating  a tender offer to
purchase all of the outstanding  shares of common stock of the Company not owned
by him.  That  same day,  the  plaintiffs'  amended  the  consolidated  cases to
re-allege  the  derivative  claims and replaced the class claims  related to the
April 2001  proposal  with class  claims  challenging  and seeking to enjoin Mr.
Garcia's  tender  offer.  The  amended  complaint  alleged  that the  defendants
breached  or aided and  abetted in the  breach of their  fiduciary  duties,  and
sought to void the transactions  challenged in the derivative claims and recover
compensatory damages on behalf of the purported class and the Company.
<PAGE>

     On December 4, 2001,  UDC  Acquisition,  a wholly owned  subsidiary  of UDC
Holdings  Corp.,  an entity then wholly  owned by Mr.  Garcia and Mr.  Sullivan,
commenced a tender offer to purchase all of UDC's  outstanding  shares of common
stock not owned by Mr. Garcia,  Mr.  Sullivan,  and affiliated  entities.  As of
March 4, 2002, UDC Acquisition and the Company effected a statutory merger under
Section 253 of the Delaware General Corporation Law.

     On February 4, 2002, the parties  entered into a Stipulation  and Agreement
of Compromise, Settlement and Release documenting the settlement of the Delaware
litigation  and  providing  for a final hearing for court review and approval of
the settlement.  A mailing was sent to the shareholders in mid-February and this
hearing was held on April 17, 2002.  On April 18th,  the court entered its final
decision  approving the  settlement  and finding it fair,  reasonable and in the
best  interests  of  the  class,  certifying  the  class  for  purposes  of  the
settlement,  compromising  and releasing all claims with prejudice on the merits
and  awarding  attorneys'  fees and costs to the  plaintiffs'  in the  amount of
$1,050,000. A notice of appeal was filed by two dissenting shareholders prior to
the expiration date. Plaintiffs' counsel is not entitled to their fees and costs
until the court order is final.  The Company also reached an agreement  with its
directors' and officers'  liability  insurance  carrier to reimburse the Company
for the payment of the plaintiffs' fees and costs (assuming final court approval
of the settlement), and it is in the process of documenting that agreement.

     Shortly  after the  expiration  of the Amended  Tender  Offer,  the Company
mailed to the  shareholders  who did not tender their shares a notice  outlining
the  procedures  they were required to follow if they wished to dissent from the
merger  and  seek   appraisal  of  their  shares.   Under  Delaware  law,  these
shareholders  had 20 days from the date of the  mailing  of the notice to notify
the Company of their  intention to assert  appraisal  rights.  If such notice is
timely  made,  dissenting  shareholders  were  required  to file a petition  for
appraisal in the  Delaware  Court of Chancery  within 120 days of the  effective
date of the  merger,  or  their  appraisal  rights  were  lost and they are only
entitled to receive the merger  consideration  of $3.53 per share. Two appraisal
rights actions were filed in Delaware in this 120 day period. The court will now
determine which  shareholders are entitled to appraisal rights and appraises the
shares of such shareholders.  UDC Holdings has agreed to fund the payment of the
final appraisal amount to dissenting shareholders.

Item 2.  Changes in Securities and Use of Proceeds.

     (a)  None
     (b)  None
     (c)  None
     (d)  Not Applicable

Item 3.  Defaults Upon Senior Securities.

     None

Item 4.  Submission of Matters to a Vote of Security Holders.

     None

Item 5.  Other Information.

     None

Item 6.  Exhibits and Reports on Form 8-K.

     (a)  Exhibits

Exhibit 3.1 - By-laws of Ugly Duckling Corporation effective March 4, 2002
Exhibit 10.1 -Third  Amendment to the Loan Agreement  between the Registrant and
              Cygnet Capital Corporation, dated June 30, 2002
Exhibit 10.2 -Aircraft  Lease  Agreement  between  the  Registrant  and  Verde
              Investments, Inc., dated April 1, 2002
Exhibit 99.1 -Statement Regarding Forward Looking Statements and Risk Factors
Exhibit 99.2 -Certification by Greg Sullivan, CEO, and Mark Sauder, CFO
<PAGE>

(b)      Reports on Form 8-K.

     During the second  quarter of 2002,  the Company  filed two reports on Form
8-K. The first report on Form 8-K, dated and filed April 25, 2002, reported Ugly
Duckling's  announcement of the approval of the Delaware  litigation  matter.  A
press release dated April 19, 2002, and entitled "Ugly Duckling  Announces Court
Approval of Settlement of Delaware  Litigation"  was filed as an exhibit to this
8-K. The second report on Form 8-K,  dated and filed May 20, 2002,  reported the
first quarter earnings of 2002. A press release dated May 15, 2002, and entitled
"Ugly  Duckling  Reports  First Quarter 2002 Results" was filed as an exhibit to
this 8-K.


SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

     UGLY DUCKLING CORPORATION

     /s/     MARK G. SAUDER
     ---------------------------------------------------------------------------
     Mark G. Sauder
     Vice President and
     Chief Financial Officer
     (Principal Financial and Accounting Officer)

Date:  August 13, 2002