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


                       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, 2000

                        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)       Identificationn no.)

             2525 E. Camelback Road, Suite 500,
                      Phoenix, Arizona                       85016
            (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

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

    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

    At August 10, 2000, there were approximately
12,377,000 shares of Common Stock, $0.001 par value, outstanding.

    This  document  serves both as a resource for  analysts,  shareholders,  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 thereto included in Ugly
Duckling's Annual Report on Form 10-K, for the year ended December 31, 1999.
================================================================================
<PAGE>
                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

<TABLE>
<CAPTION>                               TABLE OF CONTENTS
                                                                                                                          Page

                          Part I - FINANCIAL STATEMENTS


  <S>                <C>                                                                                                   <C>
  Item 1.            FINANCIAL STATEMENTS
                     Condensed Consolidated Balance Sheets-- June 30, 2000 and December 31, 1999............................1
                     Condensed Consolidated Statements of Operations-- Three and Six Months Ended June 30,
                       2000 and 1999........................................................................................2
                     Condensed Consolidated Statements of Cash Flows-- Six Months Ended June 30, 2000 and
                       1999.................................................................................................3
                     Notes to Condensed Consolidated Financial Statements...................................................4
  Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS...............................................................................10
  Item 3.            MARKET RISK...........................................................................................23

                          Part II. -- OTHER INFORMATION

  Item 1.            LEGAL PROCEEDINGS.....................................................................................24
  Item 2.            CHANGES IN SECURITIES.................................................................................24
  Item 3.            DEFAULTS UPON SENIOR SECURITIES.......................................................................24
  Item 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................24
  Item 5.            OTHER INFORMATION.....................................................................................24
  Item 6.            EXHIBITS AND REPORTS ON FORM 8-K......................................................................24
                     SIGNATURES............................................................................................25
</TABLE>
















<PAGE>

                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>


                                                                      June 30,       December 31,
                                                                        2000             1999
                                                                    (unaudited)
                                                                   ---------------  ----------------
<S>                                                                <C>               <C>
ASSETS
Cash and Cash Equivalents                                                $  4,127          $  3,683
Finance Receivables, net                                                  451,238           365,586
Notes Receivable from Related Party                                        12,000            12,000
Inventory                                                                  45,865            62,865
Property and Equipment, net                                                33,870            31,752
Intangible Assets, Net                                                     13,671            14,618
Other Assets                                                               12,011            12,327
Net Assets of Discontinued Operations                                       4,702            33,880
                                                                   ---------------  ----------------
                                                                        $ 577,484         $ 536,711
                                                                   ===============  ================
</TABLE>


<TABLE>
<CAPTION>

                   LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                       <C>             <C>
Liabilities:
  Accounts Payable                                                        $   772         $  3,185
  Accrued Expenses and Other Liabilities                                   28,910           26,905
  Notes Payable - Portfolio                                               315,952          275,774
  Other Notes Payable                                                      27,759           36,556
  Subordinated Notes Payable                                               37,260           28,611
                                                                   ---------------  ----------------
   Total Liabilities:                                                     410,653          371,031
                                                                   ---------------  ----------------
Stockholders' Equity:
Common Stock                                                                   19               19
Additional Paid in Capital                                                173,712          173,273
Retained Earnings                                                          21,540           12,709
Treasury Stock                                                            28,440)         (20,321)
    Total Stockholders' Equity                                     ---------------  ----------------
                                                                          166,831          165,680
                                                                   ---------------  ----------------
                                                                        $ 577,484        $ 536,711
                                                                   ===============  ================
</TABLE>
                                     Page 1


     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, 2000 and 1999
                (In thousands, except earnings per share amounts)
                                   (unaudited)


<TABLE>
<CAPTION>

                                                        Three Months Ended                 Six Months Ended
                                                             June 30,                          June 30,

                                                   ------------------------------   -------------------------------
<S>                                                    <C>             <C>              <C>              <C>
                                                       2000            1999             2000             1999
                                                   --------------  --------------   -------------   ---------------


Sales of Used Cars                                     $ 121,527        $ 97,876       $ 254,313        $  204,319
Less:
   Cost of Used Cars Sold                                 68,417          55,543         141,359           115,631
   Provision for Credit Losses                            32,212          25,789          66,785            53,552
                                                   --------------  --------------   -------------   ---------------
                                                          20,898          16,544          46,169            35,136
Other Income (Expense):
   Interest Income                                        29,871          15,756          55,402            26,129
   Portfolio Interest Expense                            (5,997)         (3,218)        (11,026)           (5,213)
   Servicing and Other Income                                586           2,295           1,393             5,194
                                                   --------------  --------------   -------------   ---------------
                                                          24,460          14,833          45,769            26,110
                                                   --------------  --------------   -------------   ---------------
Income before Operating Expenses                          45,358          31,377          91,938            61,246
Operating Expenses:
   Selling and Marketing                                   7,426           5,570          15,561            11,936
   General and Administrative                             25,778          20,460          52,123            41,469
   Depreciation and Amortization                           2,231           1,678           4,439             3,273
                                                   --------------  --------------   -------------   ---------------
                                                          35,435          27,708          72,123            56,678
                                                   --------------  --------------   -------------   ---------------
Operating Income                                           9,923           3,669          19,815             4,568
Interest Expense, Other                                    2,585             859           4,877               859
                                                   --------------  --------------   -------------   ---------------

Earnings before Income Taxes                               7,338           2,810          14,938             3,709
Income Taxes                                               2,990           1,018           6,107             1,298
                                                   --------------  --------------   -------------   ---------------
Earnings from Continuing Operations                        4,348           1,792           8,831             2,411
Loss from Discontinued Operations, net                         -           (324)               -             (520)
                                                   --------------  --------------   -------------   ---------------
Net Earnings                                            $  4,348         $ 1,468        $  8,831         $   1,891
                                                   ==============  ==============   =============   ===============

Earnings per Common Share from Continuing Operations:
   Basic                                                $   0.31         $  0.12        $   0.61         $    0.16
                                                   ==============  ==============   =============   ===============
   Diluted                                              $   0.31         $  0.12        $   0.60         $    0.16
                                                   ==============  ==============   =============   ===============
Net Earnings per Common Share:
   Basic                                                $   0.31         $  0.10        $   0.61         $    0.12
                                                   ==============  ==============   =============   ===============
   Diluted                                              $   0.31         $  0.10        $   0.60         $    0.12
                                                   ==============  ==============   =============   ===============
Shares Used in Computation:
Basic                                                     14,052          14,940          14,479            15,292
                                                   ==============  ==============   =============   ===============
Diluted                                                   14,248          15,210          14,700            15,495
                                                   ==============  ==============   =============   ===============
</TABLE>


                                     Page 2


     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, 2000 and 1999
                                 (In thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
             <S>                                                                  <C>           <C>
                                                                                  2000          1999
                                                                              ------------- --------------
             Cash Flows from Operating Activities:
               Net Earnings                                                        $ 8,831        $ 1,891
             Adjustments to Reconcile Net Earnings to Net Cash Provided
               by Operating Activities:
               Provision for Credit Losses                                           66,785         53,552
               Depreciation and Amortization                                          6,459          3,961
               Loss from Disposal of Property and Equipment                               3             24
               Loss from Discontinued Operations                                          -            520
               Deferred Income Taxes                                                      -        (5,188)
               Collections from Residuals in Finance Receivables Sold                 8,743         10,772
               Decrease in Inventory                                                 17,000          6,408
               Decrease in Other Assets                                                 316          1,844
               Increase in Accounts Payable, Accrued Expenses and Other
                 liabilities                                                          1,860         17,325
               Increase (Decrease) in Income Taxes Payable                          (2,300)          4,664
                                                                              ------------- --------------
                   Net Cash Provided by Operating Activities                        107,697         95,773
                                                                              ------------- --------------
          Cash Flows Used in Investing Activities:
               Increase in Finance Receivables                                    (261,882)      (241,069)
               Collections of Finance Receivables                                   102,059         62,844
               Decrease in Investments Held in Trust on Finance Receivables Sold      5,937          2,335
               Advances under Notes Receivable                                            -          (688)
               Proceeds from Disposal of Property and Equipment                       1,766             69
               Purchase of Property and Equipment                                   (6,511)        (4,488)
                                                                              ------------- --------------
                   Net Cash Used in Investing Activities                          (158,631)      (180,997)
                                                                              ------------- --------------
          Cash Flows from Financing Activities:
               Initial Deposits at Securitization into Investments
               Held in Trust                                                       (14,619)        (5,983)
               Additional Deposits into Investments Held in Trust                   (3,767)       (13,629)
               Collections from Investments Held in Trust                            11,526          1,260
               Additions to Notes Payable Portfolio                                 314,456        333,941
               Repayment of Notes Payable Portfolio                               (275,483)      (240,097)
               Additions to Other Notes - Payable                                       881         55,943
               Repayment of Other Notes - Payable                                   (9,854)       (34,636)
               Net Repayment of Subordinated Notes Payable                                -        (1,778)
               Proceeds from Issuance of Common Stock                                   432             55
               Acquisition of Treasury Stock                                          (114)        (5,314)
                                                                              ------------- --------------
            Net Cash Provided by Financing Activities                                23,458         89,762
                                                                              ------------- --------------
          Net Cash Provided by (used in) Discontinued Operations                     27,920        (1,377)
                                                                              ------------- --------------
          Net Increase in Cash and Cash Equivalents                                     444          3,161
          Cash and Cash Equivalents at Beginning of Period                            3,683          2,544
                                                                              ------------- --------------
          Cash and Cash Equivalents at End of Period                               $  4,127       $  5,705
                                                                              ============= ==============
          Supplemental Statement of Cash Flows Information:
               Interest Paid                                                       $ 15,678      $  10,336
                                                                              ============= ==============
               Income Taxes Paid                                                   $  8,405      $   3,315
                                                                              ============= ==============
               Acquisition of Treasury Stock with Subordinated Debt                $  8,005              -
                                                                              ============= ==============
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.


                                     Page 3
<PAGE>

                            UGLY DUCKLING CORPORATION

              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 generally  accepted  accounting  principles 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 generally accepted  accounting  principles
for a complete financial statement presentation.  In our opinion, such unaudited
interim  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, 1999
was derived from our audited  consolidated  financial statements as of that date
but does not include all the  information  and  footnotes  required by generally
accepted  accounting  principles.  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, 1999.

Note 2.  Summary of Finance Receivables

    A summary of Finance Receivables, net, follows ($ in thousands):
<TABLE>
<CAPTION>
       <S>                                                 <C>             <C>
                                                           June 30,        December 31,
                                                             2000              1999
                                                         -------------    ----------------

       Contractually Scheduled Payments                     $ 645,485         $   492,937
       Unearned Finance Charges                             (173,174)           (134,119)
                                                         -------------    ----------------
       Principal Balances, net                                472,311             358,818
       Accrued Interest                                         4,952               3,741
       Loan Origination Costs                                   6,925               5,079
                                                         -------------    ----------------
         Principal Balances, net                              484,188             367,638
       Residuals in Finance Receivables Sold                    7,944              17,382
       Investments Held in Trust                               57,639              56,716
                                                         -------------    ----------------
       Finance Receivables                                    549,771             441,736
       Allowance for Credit Losses                           (98,533)            (76,150)
                                                         -------------    ----------------
       Finance Receivables, net                             $ 451,238         $   365,586
                                                         =============    ================
</TABLE>

    Investments  Held in Trust represent funds held by trustees on behalf of our
securitization  lenders.  The  balance of  Investments  Held in Trust  increased
slightly from December 31, 1999 due to an additional  securitization  during the
second quarter of 2000, partially offset by the runoff of portfolios securitized
during prior periods.

    Residuals in Finance Receivables Sold represent our subordinated interest in
loans sold through securitizations.  The decrease from December 31, 1999 to June
30, 2000 is attributable to no additional loans sold through securitization with
servicing  retained,  amortization and release of cash, as well as the runoff of
portfolios securitized and sold during prior periods.

    A summary of Residuals in Finance Receivables Sold follows ($ in thousands):
<TABLE>
<CAPTION>
       <S>                                                                         <C>              <C>
                                                                                    June 30,         December 31,
                                                                                      2000               1999
                                                                                ------------------ ------------------
       Retained interest in subordinated securities (B Certificates)............   $   7,645        $      17,335
       Net interest spreads, less present value discount........................       1,849                6,113
       Reduction for estimated credit losses....................................     (1,550)              (6,066)
                                                                                 ------------        --------------
       Residuals in finance receivables sold....................................       7,944         $     17,382
                                                                                     ========      ================
       Securitized principal balances outstanding...............................      27,721         $     65,662
                                                                                     ========      ================
       Estimated credit losses as a % of securitized principal balances.........
       outstanding..............................................................        5.6%                 9.2%
                                                                                     ========      ================
</TABLE>


                                     Page 4
<PAGE>


Note 3.  Notes Receivable- Related Party

    The Note Receivable - Related Party  originated from the Company's  December
1999 sale of its Cygnet Dealer Finance subsidiary to Cygnet Capital Corporation,
an entity controlled by Ernest C. Garcia II, Chairman and principal  shareholder
of the Company.  The $12.0 million note from Cygnet Capital Corporation has a 10
year term, with interest payable quarterly at 9%, due December 2009. The note is
secured by the capital stock of Cygnet  Capital  Corporation  and  guaranteed by
Verde  Investments,  Inc.,  an affiliate of Mr.  Garcia.  Under the terms of the
agreement,  Mr. Garcia will be allowed to reduce the  principal  balance up to a
maximum of $8 million by  surrendering  to the Company  shares of Ugly  Duckling
common stock (valued at 98% of the average of the closing prices of the stock on
NASDAQ for the ten trading days prior to the surrender) as long as Mr.  Garcia's
ownership  interest of the Company  voting stock does not fall below 15% and the
acceptance  of such  stock by the  Company  does  not  result  in a breach  of a
covenant.

Note 4.  Notes Payable

    Notes Payable, Portfolio
     A summary of Notes  Payable,  Portfolio  at June 30, 2000 and  December 31,
1999 follows ($ in thousands):
<TABLE>
<CAPTION>
       <S>                                                                                     <C>             <C>

                                                                                                  June 30,     December 31,
                                                                                                    2000          1999
                                                                                               --------------  ------------
       Revolving facility for $125.0 million with GE Capital, secured by substantially all
          assets of the Company, including $139.5 million in finance receivables.........      $   60,711    $       41,717
       Class A obligations issued pursuant to the Company's Securitization Program, secured
          by underlying pools of finance receivables and investments held in trust totaling
          $340.4 million at June 30, 2000................................................         255,397           236,555
                                                                                               ----------    --------------
          Subtotal.......................................................................         316,108           278,272
          Less:  Unamortized Loan Fees...................................................             156             2,498
                                                                                               ----------    --------------
          Total..........................................................................      $  315,952    $      275,774
                                                                                               ===========   ==============
</TABLE>

    The  revolving  facility  note payable has interest  payable daily at 30 day
LIBOR plus 3.15%  (9.69% at June 30,  2000)  through  June 2001.  The  revolving
facility  agreement  contains  various  reporting  and  performance   covenants,
including  the  maintenance  of  certain   ratios,   limitations  on  additional
borrowings from other sources, restrictions on certain operating activities, and
a  restriction  on the payment of dividends  under  certain  circumstances.  The
Company is currently in compliance with these covenants.

    Class A obligations have interest payable monthly at rates ranging from 5.7%
to 7.2%. Monthly principal reductions on Class A obligations  approximate 70% of
the principal reductions on the underlying pool of finance receivable loans.

    Other Notes Payable
    A summary of Other  Notes  Payable at June 30,  2000 and  December  31, 1999
follows ($ in thousands):
<TABLE>
<CAPTION>
        <S>                                                                                 <C>              <C>
                                                                                                 June 30,      December 31,
                                                                                                   2000            1999
                                                                                              ---------------  ------------
       Note  payable,  secured by the capital  stock of UDRC and UDRC II and certain other
            receivables..................................................................   $      25,710    $       33,900
       Other notes payable bearing  interest at rates ranging from 7.5% to 11% due through
          August 2001, secured by certain real property and certain property and
          equipment......................................................................           2,180             2,939
                                                                                            -------------    --------------
                                                                                                   27,890            36,839
          Less:  Unamortized Loan Fees..................................................              131               283
                                                                                            -------------    --------------
          Total.........................................................................    $      27,759    $       36,556
                                                                                            ==============   ==============
</TABLE>



                                     Page 5
<PAGE>





    Subordinated Notes Payable
    A summary of  Subordinated  Notes  Payable at June 30, 2000 and December 31,
1999 follows ($ in thousands):
<TABLE>
<CAPTION>
     <S>                                                                                <C>               <C>
                                                                                            June 30,      December 31,
                                                                                              2000            1999
                                                                                         --------------   -------------
     $15   million  senior  subordinated  notes  payable to  unrelated  parties,
           bearing  interest at 12% per annum payable  quarterly,  principal due
           February 2001 and senior to subordinated debentures..................         $     15,000      $     15,000
     $17.5 million subordinated debentures, interest at 12% per annum (approximately
           18.8% effective rate) payable semi-annually, principal balance due October
           23, 2003.............................................................               17,479            17,479
     $11.9 million subordinated debentures, interest at 11% per annum
          (approximately 19.7% effective rate) payable semi-annually, principal
          balance due April 15, 2007............................................               11,940
                                                                                         --------------
            Subtotal...................................................................        44,419            32,479
            Less:  Unamortized Loan Fees...............................................           322               605
                   Unamortized Discount - subordinated debentures...................            6,837             3,263
                                                                                          ------------      ------------
            Total......................................................................   $    37,260      $     28,611
                                                                                          ============      ============
</TABLE>



Note 5.  Common Stock Equivalents

    Net  Earnings per common  share  amounts are based on the  weighted  average
number of common shares and common stock  equivalents  outstanding for the three
and six-month  periods ended June 30, 2000, and 1999 as follows ($ and shares in
thousands, except for per share amounts):
<TABLE>
<CAPTION>


                                                                         Three Months Ended               Six Months Ended
                                                                              June 30,                        June 30,
                                                                    ------------------------------  ------------------------------
                                                                         2000           1999             2000           1999
                                                                    --------------- --------------  --------------- --------------
     <S>                                                            <C>             <C>             <C>             <C>

     Earnings from Continuing Operations                                 $   4,348      $   1,792        $   8,831      $   2,411
                                                                    =============== ==============  =============== ==============

     Net Earnings                                                        $   4,348      $   1,468        $   8,831      $   1,891
                                                                    =============== ==============  =============== ==============

     Basic Earnings Per Share From Continuing Operations                 $    0.31      $    0.12        $    0.61      $    0.16
                                                                    =============== ==============  =============== ==============
     Diluted Earnings Per Share From Continuing Operations               $    0.31      $    0.12        $    0.60      $    0.16
                                                                    =============== ==============  =============== ==============
     Basic Earnings Per Share                                            $    0.31      $    0.10        $    0.61      $    0.12
                                                                    =============== ==============  =============== ==============
     Diluted Earnings Per Share                                          $    0.31      $    0.10        $    0.60      $    0.12
                                                                    =============== ==============  =============== ==============

     Basic EPS-Weighted Average Shares Outstanding                          14,052         14,940           14,479         15,292
     Effect of Diluted Securities:
     Warrants                                                                   12              -               13              -
     Stock Options                                                             184            270              208            203
                                                                    --------------- --------------  --------------- --------------
     Dilutive EPS-Weighted Average Shares Outstanding                       14,248         15,210           14,700         15,495
                                                                    =============== ==============  =============== ==============
     Warrants Not Included in Diluted EPS Since Antidilutive                 1,124          1,439            1,124          1,510
                                                                    =============== ==============  =============== ==============
     Stock Options Not Included in Diluted EPS Since Antidilutive              846            905              864          1,035
                                                                    =============== ==============  =============== ==============
</TABLE>



                                     Page 6
<PAGE>




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
month periods ended June 30, 2000 and 1999 follows ($ in thousands):
<TABLE>
<CAPTION>
     <S>                                        <C>             <C>              <C>               <C>

                                                   Retail         Portfolio       Corporate          Total

     Three Months Ended June 30, 2000:
     Sales of Used Cars                         $  121,527      $         -      $        -        $  121,527
     Less: Cost of Cars Sold                        68,417                -               -            68,417
       Provision for Credit Losses                  24,738             7,474              -            32,212
                                                ----------        ----------       --------        ----------
                                                    28,372           (7,474)              -            20,898
     Net Interest Income                                -             23,764            110            23,874
     Servicing and Other Income                         -                586              -               586
                                                ----------        ----------       --------        ----------
     Income before Operating Expenses               28,372            16,876            110            45,358
                                                ----------        ----------       --------        ----------
     Operating Expenses:
     Selling and Marketing                           7,426                 -              -             7,426
     General and Administrative                     14,593             6,002          5,183            25,778
     Depreciation and Amortization                   1,133               280            818             2,231
                                                 ---------           -------       --------        ----------
                                                    23,152             6,282          6,001            35,435
                                                 ---------           -------       --------        ----------
     Operating Income                           $    5,220       $    10,594     $  (5,891)        $    9,923
                                                ==========       ===========     ==========        ==========

     Capital Expenditures                       $   2,220        $       195     $    1,818        $    4,233
                                                ==========       ===========     ==========        ==========
     Identifiable Assets                        $  73,038        $   471,431     $   28,313        $  572,782
                                                ==========       ===========     ==========        ==========

     Three Months Ended June 30, 1999:
     Sales of Used Cars                         $  97,876        $         -     $        -        $   97,876
     Less: Cost of Cars Sold                    $  55,543                  -              -            55,543
       Provision for Credit Losses                 20,131              5,658              -            25,789
                                                ---------        -----------     ----------         ---------
                                                   22,202            (5,658)              -            16,544
     Net Interest Income                               -              12,429            109            12,538
     Servicing and Other Income                        -               2,295              -             2,295
                                                ---------        -----------     ----------         ---------
     Income before Operating Expenses              22,202              9,066            109            31,377
                                                ---------        -----------     ----------         ---------
     Operating Expenses:
     Selling and Marketing                          5,570                  -              -             5,570
     General and Administrative                    11,404              4,566          4,490            20,460
     Depreciation and Amortization                    861                280            537             1,678
                                                ---------         ----------     ----------         ---------
                                                   17,835              4,846          5,027            27,708
                                                ---------         ----------     ----------         ---------
     Operating Income                           $   4,367          $   4,220     $  (4,918)        $    3,669
                                                =========         ==========     ==========         =========
     Capital Expenditures                       $   1,780          $     149     $     280         $    2,209
                                                =========         ==========     ==========         =========

</TABLE>


                                     Page 7
<PAGE>


<TABLE>
<CAPTION>




                                                  Retail          Portfolio       Corporate          Total
     <S>                                         <C>            <C>              <C>                 <C>

     Six Months Ended June 30, 2000

     Sales of Used Cars                          $254,313       $          -     $        -          $254,313
     Less: Cost of Cars Sold                      141,359                  -              -           141,359
     Provision for Credit Losses                   51,832             14,953              -            66,785
                                                ---------         ----------     ----------         ---------
                                                   61,122           (14,953)              -            46,169
     Net Interest Income                                -             44,156            220            44,376
     Servicing and Other Income                         -              1,393              -             1,393
                                                ---------         ----------     ----------         ---------
     Income before Operating Expenses              61,122             30,596            220            91,938
                                                ---------         ----------     ----------         ---------
     Operating Expenses:
     Selling and Marketing                         15,561                  -              -            15,561
     General and Administrative                    28,783             12,886         10,454            52,123
     Depreciation and Amortization                  2,204                580          1,655             4,439
                                                ---------         ----------     ----------         ---------
                                                   46,548             13,466         12,109            72,123
                                                ---------         ----------     ----------         ---------
     Operating Income                            $ 14,574        $    17,130     $ (11,889)         $  19,815
                                                =========         ==========     ==========         =========
     Capital Expenditures                        $  3,493        $       294     $    2,724         $   6,511
     Identifiable Assets                         $ 73,038        $   471,431     $   28,313         $ 572,782
                                                =========         ==========     ==========         =========

     Six Months Ended June 30, 1999:
     Sales of Used Cars                          $204,319        $         -     $        -         $ 204,319
     Less: Cost of Cars Sold                      115,631                  -              -           115,631
     Provision for Credit Losses                   42,024             11,528              -            53,552
                                                ---------         ----------     ----------         ---------
                                                   46,664           (11,528)              -            35,136
     Net Interest Income                                -             20,746            170            20,916
     Servicing and Other Income                         -              5,194              -             5,194
                                                ---------         ----------     ----------         ---------
     Income before Operating Expenses              46,664             14,412            170            61,246
                                                ---------         ----------     ----------         ---------
     Operating Expenses:
     Selling and Marketing                         11,936                  -              -            11,936
     General and Administrative                    22,498              9,167          9,804            41,469
     Depreciation and Amortization                  1,652                563          1,058             3,273
                                                ---------         ----------     ----------         ---------
                                                   36,086              9,730         10,862            56,678
                                                ---------         ----------     ----------         ---------
     Operating Income                           $  10,578         $    4,682     $ (10,692)         $   4,568
                                                =========         ==========     ==========         =========
     Capital Expenditures                           3,515         $      328     $      645         $   4,488
                                                =========         ==========     ==========         =========
</TABLE>


Note 7.  Discontinued Operations

    In February  1998,  we announced  our  intention to close our branch  office
network,  through which we purchased  retail  installment  contracts  from third
party  dealers,  and exit this line of business.  We completed the branch office
closure as of March 31, 1998. As a result of the branch office network  closure,
we  reclassified  the results of operations of the branch office  network in the
accompanying  condensed  consolidated balance sheets and condensed  consolidated
statements of operations to discontinued operations.

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



                                     Page 8
<PAGE>





The components of Net Assets of Discontinued  Operations as of June 30, 2000
and December 31, 1999 follow ($ in thousands):

<TABLE>
<CAPTION>
                                                                 June 30,        December 31,
                                                                   2000              1999
                                                               --------------  -----------------
    <S>                                                          <C>             <C>
    Finance Receivables, net                                     $  11,103       $    14,837
    Residuals in Finance Receivables Sold                            2,467             3,742
    Investments Held in Trust                                            -             1,545
    Property and Equipment                                             570             2,114
    Notes Receivable, net of Sub. Notes Payable                          -             6,697
    Servicing Receivable                                             5,795             6,125
    Other Assets, net of Accounts Payable and Accrued
    Liabilities                                                   (15,233)           (1,180)
                                                               --------------  -----------------
    Net Assets of Discontinued Operations                        $   4,702       $    33,880
                                                               ==============  =================
</TABLE>


Note 8.  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 9.  Reclassifications

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



                                     Page 9
<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,  2000,  we operated 77  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.

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

    o   expanded credit opportunities,
    o   flexible  payment  terms,  including  structuring  loan  payment
        due dates as weekly or  biweekly,  often  coinciding  with a
        customer's payday,
    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.

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

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


    We  finance  substantially  all  of  the  used  cars  that  we  sell  at our
dealerships through retail installment loan contracts. Subject to the discretion
of our dealership or sales  managers,  potential  customers must meet our formal
underwriting  guidelines  before we will  agree to  finance  the  purchase  of a
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. 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 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  activities  are  classified  as
discontinued  operations  for 1999.  We plan to complete  the  servicing  of the
portfolios that we currently service.

     In the  following  discussion  and  analysis,  we  explain  the  results of
operations   and  general   financial   condition  of  Ugly   Duckling  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 month periods ended
June 30, 2000 and June 30,1999.



                                    Page 10
<PAGE>




SELECTED CONSOLIDATED FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>

                                                                  At or For for the Three Months Ended

                                              --------------------------------------------------------------------------------------
Selected Consolidated Financial Data             June 30,      March 31,     December 31,   September 30,     June 30,     March 31,
                                                   2000           2000           1999            1999           1999          1999
                                              --------------------------------------------------------------------------------------
                                                            ($ and shares in thousands, except per share and per car data)
                                                                                     (anaudited)
<S>                                          <C>            <C>             <C>            <C>             <C>            <C>
Operating Data:
Total Revenues                               $  151,984     $  159,124      $  105,429     $  124,883      $  115,927     $  119,715
Sales of Used Cars                           $  121,527     $  132,786      $   82,275     $  103,315      $   97,876     $  106,443
Dealerships                                          77             75              72             67              59             58
Average Sales per Dealership per Month       $       62     $       70      $       45     $       61      $       64     $       70
Number of Used Cars Sold                         14,369         15,802           9,731         12,219          11,416         12,754
Sales Price - Per Car Sold                   $    8,458     $    8,403      $    8,455     $    8,455      $    8,574     $    8,346
Cost of Sales - Per Car Sold                 $    4,761     $    4,616      $    4,690     $    4,727      $    4,865     $    4,712
Gross Margin Per Car Sold                    $    3,696     $    3,787      $    3,765     $    3,728      $    3,708     $    3,634
Provision - Per Car Sold                     $    2,242     $    2,188      $    2,245     $    2,256      $    2,259     $    2,177
Total Operating Expense - Per Car Sold       $    2,466     $    2,322      $    2,763     $    2,298      $    2,427     $    2,274
Total Operating Income - Per Car Sold        $      691     $      626      $      587     $      608      $      321     $       70
Cost of Used Cars as Percent of Sales             56.3%          54.9%           55.5%          55.9%           56.7%          56.5%
Gross Margin as Percent of Sales                  43.7%          45.1%           44.5%          44.1%           43.3%          43.5%
Provision - % of Originations                     27.1%          27.0%           27.0%          26.9%           26.8%          27.0%
Total Operating Expense - % of Total              23.3%          23.1%           25.5%          22.5%           23.9%          24.2%
Revenues
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold      $    1,611     $    1,481      $    1,775     $    1,484      $    1,562     $    1,431
Retail Operating Expense-% of Used Car Sales      19.1%          17.6%           21.0%          17.6%           18.2%          17.1%
Corporate/Other Expense - Per Car Sold       $      418     $      387      $      357     $      399      $      440     $      458
Corporate/Other Expense - % of Total Revenue       4.0%           3.8%            3.3%           3.9%            4.3%           4.9%
Portfolio Exp. Annualized - % of End of Period
Managed Principal                                  5.0%           6.2%            6.8%           4.7%            5.1%           5.7%
Balance Sheet Data:
Finance Receivables, net                     $  451,238     $  407,267      $  365,586     $  321,739      $  254,753     $  190,063
Inventory                                    $   45,865     $   49,058      $   62,865     $   45,768      $   37,737     $   39,878
Total Assets                                 $  577,484     $  547,953      $  536,711     $  516,513      $  467,048     $  400,247
Notes Payable - Portfolio                    $  315,952     $  282,865      $  275,774     $  244,363      $  195,244     $  171,543
Subordinated Notes Payable                   $   37,260     $   28,900      $   28,611     $   37,077      $   36,943     $   38,279
Total Debt                                   $  380,971     $  345,183      $  340,941     $  317,440      $  269,687     $  210,358
Common Stock                                 $  173,731     $  173,682      $  173,292     $  173,276      $  173,883     $  173,836
Treasury Stock                               $ (28,440)     $ (20,321)      $ (20,321)     $ (20,321)      $ (19,824)     $ (19,817)
Total Stockholders' Equity                   $  166,831     $  170,553      $  165,680     $  162,477      $  159,398     $  157,890
Common Shares Outstanding - End of Period    $   13,899     $   14,980      $   14,888     $   14,889      $   14,943     $   14,939
Book Value per Share                         $    12.00     $    11.39      $    11.13     $    10.91      $    10.67     $    10.57
Tangible Book Value per Share                $    11.02     $    10.43      $    10.15     $     9.95      $     9.73     $     9.62
Total Debt to Equity                                2.3            2.0             2.1            2.0             1.7            1.3
Loan Portfolio Data:
Interest Income                              $   29,871     $   25,531      $   22,670     $   19,775      $   15,756     $   10,373
Average Yield on Portfolio                        26.8%          26.2%           25.4%          25.9%           26.3%          26.2%
Principal Balances Originated                $  118,778     $  128,123      $   80,905     $  102,599      $   96,098     $  102,733
Principal Balances Originated as % of Sales       97.7%          96.5%           98.3%          99.3%           98.2%          96.5%
Principal Balances Acquired                  $        -     $        -      $    6,811     $   14,596      $        -     $        -
Number of Loans Originated                       14,291         15,721           9,650         12,137          11,335         12,634
Average Original Amount Financed             $    8,311     $    8,150      $    8,384     $    8,453      $    8,478     $    8,131
Number of Loans Originated as % of Units Sold     99.5%          99.5%           99.2%          99.3%           99.3%          99.1%
Number of Loans Acquired                              -              -           2,586          2,543               -              -
Managed Portfolio Delinquencies:
     31 to 60 days                                 4.5%           3.4%            5.7%           6.8%            4.7%           3.5%
     Over 60 days                                  2.7%           1.9%            2.9%           3.5%            2.6%           1.9%
Principal Outstanding - Managed              $  500,032    $   461,824     $   424,480    $   427,439     $   383,596    $   341,040
Principal Outstanding - Retained             $  472,311    $   418,913     $   358,818    $   331,982     $   256,645    $   182,150
Number of Loans Outstanding - Managed            81,407         75,496          70,450         68,420          61,661         56,333
Number of Loans Outstanding - Retained           71,518         62,459          53,081         45,874          34,065         27,924
</TABLE>





                                    Page 11
<PAGE>



Second Quarter highlights include:

        o Earnings from continuing operations totaled $4.3 million, or $0.31 per
          diluted share, our highest quarterly EPS ever, versus earnings from
          continuing operations of $1.8 million or $0.12 per diluted share in
          the corresponding quarter of the prior year.
        o Total revenues increased 31% to $152.0 million from $115.9 million in
          the same quarter of the prior year.
        o E-Commerce provided $6.5 million in revenue and 763 cars sold during
          the second quarter of 2000 versus $4.7  million in revenue and 561
          cars sold during the first quarter of 2000.
        o On-balance  sheet loan portfolio  principal  balance  reached  $472.3
          million, representing a 13% sequential increase over the first quarter
          of 2000 and an 84% rise over the year-ago quarter.
        o New loan originations reached $118.8 million, a 24% increase over the
          same quarter of the prior year.
        o Through the date of this  report,  the Company has acquired over 2.6
          million shares of its common stock since March 31, 2000.

Sales of Used Cars and Cost of Used Cars Sold

<TABLE>
<CAPTION>

                       Three Months Ended Six Months Ended

                                             June 30,           Percentage            June 30,            Percentage
                                     -------------------------                -------------------------
                                        2000         1999         Change         2000          1999         Change
                                     -----------  ------------  ------------  ------------  -----------  -------------
($ in thousands)
<S>                                  <C>          <C>                  <C>    <C>           <C>                  <C>

Number of Used Cars Sold                  14,369       11,416          25.9%        30,171       24,170          24.8%
                                     ===========  ============                ============  ===========
Sales of Used Cars                    $  121,527      $ 97,876         24.2%     $ 254,313    $ 204,319          24.5%
Cost of Used Cars Sold                    68,417        55,543         23.2%       141,359      115,631          22.3%
                                     -----------  ------------                ------------  -----------
Gross Margin                            $ 53,110      $ 42,333         25.5%     $ 112,954     $ 88,688          27.4%
                                     ===========  ============                ============  ===========
Gross Margin %                             43.7%         43.3%                       44.4%        43.4%
Per Car Sold:
Sales                                    $ 8,458       $ 8,574         1.4)%       $ 8,429      $ 8,453         (0.3)%
Cost of Used Cars Sold                     4,761         4,865        (2.1)%         4,685        4,784         (2.1)%
                                     -----------  ------------                ------------  -----------
Gross Margin                          $    3,696      $  3,708        (0.3)%       $ 3,744      $ 3,669           2.0%
                                     ===========  ============                ============  ===========
</TABLE>



    For the three and six-month  periods ended June 30, 2000, the number of cars
sold increased by 25.9% and 24.8% and Used Car Sales revenues increased by 24.2%
and 24.5%,  respectively,  over the same  periods in 1999.  The increase in both
units sold and revenues is primarily  the result of an increase in the number of
dealerships  in  operation  coupled  with  an  increase  in  E-commerce  related
business.

    During 1999,  we expanded our  marketing  efforts to include  E-commerce  by
accepting credit applications from potential customers via our website,  located
at  http://www.uglyduckling.com.  Credit  inquiries  received  over  the web are
reviewed  by  our  employees,  who  then  contact  the  customers  and  schedule
appointments.  We  continue to monitor  and  enhance  our  internet  application
levels.  These  efforts  continue to provide an  increasing  number of used cars
sold.  During the second quarter of 2000, we sold 763 cars totaling $6.5 million
in revenue,  up from 561 cars sold and $4.7 million in revenue  during the first
quarter  of 2000.  We  continue  to find  that  the  E-commerce  customer  group
outperforms all other customers in terms of loan performance.

     Same  store unit  sales for the three and six  months  ended June 30,  2000
decreased  approximately  3% from the same three and six month  periods of 1999.
The decrease is primarily  due to the  increased  emphasis on  underwriting  and
obtaining higher quality loans.

    The Cost of Used Cars Sold for the three and six month  periods  ended  June
30,  2000,  increased  by 23.2% and  22.3%,  respectively,  over the  comparable
periods of the previous year. The increases for these periods  reflect a rise in
the  volume  of cars  sold due to the  increase  in  number  of  dealerships  in
operation and E-commerce related business as previously  mentioned.  The Cost of
Used Cars Sold on a per car basis  decreased  2.1% for the three and six  months
ended June 30, 2000  versus the  corresponding  periods of the prior year,  thus
improving the overall gross  margins.  The gross margin on used car sales (Sales
of Used Cars less Cost of Used Cars Sold excluding  Provision for Credit Losses)
as a percentage of related revenue was 43.7% for the three months ended June 30,
2000,  which is relatively  constant with the same period of the previous  year,
but  increased 1% for the

                                    Page 12
<PAGE>


six month  period  ended June 30, 2000,  to 44.4% from
43.4% for the same  period of the prior  year.  On a per car sold  basis,  gross
margin remained relatively constant at $3,696 per car for the three month period
ended June 30,  2000 as compared to the same  quarter of the  previous  year and
rose 2.0% to $3,744  per car for the six month  period  ended  June 30,  2000 as
compared to the corresponding period of 1999. The increase in both overall gross
margin as well as on a per car sold basis for the six months ended June 30, 2000
is attributable to a decrease in the cost of used cars sold, partially offset by
a decrease in average revenue per car sold .

    We finance substantially all of our sales. The following table indicates the
percentage of sales units and revenue financed:
<TABLE>
<CAPTION>


                                                    Three Months Ended            Six Months Ended
                                                         June 30,                     June 30,
                                                  -----------------------      ------------------------
   <S>                                             <C>           <C>             <C>           <C>
                                                    2000         1999            2000          1999
                                                  ---------    ----------      ----------    ----------
   Percentage of used cars sold financed           99.5%         99.3%           99.5%         99.2%
                                                   =====         =====           =====         =====
   Percentage of sales revenue financed            97.7%         98.2%           97.1%         97.3%
                                                   =====         =====           =====         =====
</TABLE>

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,            Percentage          June 30,            Percentage
                                             --------------------------              --------------------------    Change
<S>                                              <C>           <C>         <C>            <C>           <C>           <C>
                                                 2000          1999        Change         2000          1999
                                             ------------ ------------- ------------ ------------ ------------- -------------

Provision for Credit Losses (in thousands)       $32,212       $25,789        24.9%      $66,785       $53,552         24.7%
                                             ============ =============              ============ =============
Provision per loan originated                     $2,254        $2,275       (0.9)%       $2,225        $2,234        (0.4)%
                                             ============ =============              ============ =============
Provision as a percentage of
  principal balances originated                    27.1%         26.8%                     27.0%         26.9%
                                             ============ =============              ============ =============
</TABLE>

         The  Provision  for  Credit  Losses is the  amount we charge to current
operations  on each car sold to establish an allowance  for credit  losses.  The
Provision  for Credit  Losses for the three and six month periods ended June 30,
2000 increased 24.9% and 24.7%, respectively,  over the comparable period of the
prior year. The increase was primarily due to an increase in the volume of loans
originated.  The average  amount  financed for the three month period ended June
30, 2000 decreased $167 to $8,311 per unit. The average amount  financed for the
six month  period  ended June 30,  2000  decreased  $89 to $8,206 per unit.  The
decrease is primarily due to an overall  decrease in average sales price per car
sold  coupled  with a change in the  required  minimum down payment from $500 to
$600, effective May 1, 2000. See Management's Discussion and Analysis - "Static
Pool Analysis" for further Provision for Credit Loss discussion.

Net Interest Income
<TABLE>
<CAPTION>
                                   Three Months Ended                           Six Months Ended
                                        June 30,             Percentage             June 30,            Percentage
                                --------------------------                 --------------------------
   <S>                             <C>          <C>            <C>            <C>            <C>          <C>
                                   2000          1999          Change         2000           1999         Change
                                -----------  ------------   ------------   ------------  -------------  ------------

   ($ in thousands)
   Interest Income                 $ 29,871     $  15,756          89.6%     $  55,402      $  26,129        112.0%
   Portfolio Interest Expense         5,997         3,218          86.4%        11,026          5,213        111.5%
                                -----------  ------------                 -----------   -------------
   Net Interest Income             $ 23,874     $  12,538          90.4%     $  44,376      $  20,916        112.2%
                                ============  ============                 ============  ============

   Average Effective Yield            26.8%         26.3%           1.9%         26.5%          26.3%          0.6%
   Average Borrowing Cost              9.7%         10.4%         (6.4)%          9.4%          10.0%        (6.5)%
</TABLE>
    Interest  Income  consists  primarily  of  interest  on  finance  receivable
principal  balances retained on our balance sheet.  Retained  principal balances
grew to $472.3  million at June 30,  2000 from  $256.6  million at June 30, 1999
primarily as a result of the change in the way we structure our  securitizations
to the collateralized  borrowing method during the fourth quarter of 1998. Prior
to the fourth quarter of 1998,  securitized  loans were  transferred  off of our
balance  sheet  and a gain  on  sale  was  recorded.  Under  the

                                    Page 13

<PAGE>

collateralized borrowing  method,  the securitized  loans are retained on our
balance sheet and the income and associated costs are recognized over the life
of the loan.

Servicing Income

    We generate  Servicing  Income  primarily  from servicing the remaining loan
portfolios  securitized  under the gain on sale  method.  A summary of Servicing
Income  follows for the three and six months  ended June 30, 2000 and 1999 ($ in
thousands):
<TABLE>
<CAPTION>
                                  Three Months Ended     Percentage       Six Months Ended       Percentage
                                       June 30,            Change             June 30,             Change

                               -----------------------   -------------  ----------------------  --------------
    <S>                        <C>         <C>             <C>           <C>         <C>           <C>
                                 2000         1999                        2000        1999
                               ----------  -----------                  ----------  ----------
    Servicing Income           $  586      $  2,295        (74.5)%       $ 1,393     $ 5,194       (73.2)%
                               ==========  ===========   ============== ==========  ==========  ==============
</TABLE>

    We service loans for monthly fees ranging from .25% to .33% of the beginning
of month principal  balances (3.0% to 4.0% per year).  The decrease in Servicing
Income for the three and six month  periods  ended  June 30,  2000 is due to the
decrease in remaining principal balances securitized and serviced under the gain
on sale method from $126.9 million at June 30, 1999 to $27.7 million at June 30,
2000.

Income before Operating Expenses

    Income  before  Operating  Expenses  grew by 44.6% to $45.4  million for the
three month period ended June 30, 2000 and increased  50.1% to $91.9 million for
six month period ended June 30, 2000.  Income before Operating  Expenses for the
three and six month  periods  ended June 30,  1999 was $31.4  million  and $61.2
million,  respectively.  Growth  in Sales of Used  Cars,  an  increase  in gross
margins and an increase in Interest Income were the primary  contributors to the
increase.

Operating Expenses
<TABLE>
<CAPTION>

                                              Three Months Ended      Percentage         Six Months Ended         Percentage
                                                   June 30,             Change               June 30,               Change
                                           ------------------------- -------------- ---------------------------- -------------
                                                2000        1999                        2000           1999
                                              ---------   ---------                   ---------       -------
    <S>                                     <C>         <C>             <C>         <C>            <C>             <C>
    Operating Expenses (in thousands).......$ 35,435    $  27,708       27.9%       $  72,123      $  56,678       27.3%
    Per Car Sold............................   2,466        2,427       1.6%            2,391          2,345        2.0%
                                            --------   ------------                ------------   ----------
    As % of Total Revenues..................     23.3%       23.9%                       23.2%          24.1%
                                            ==========  ==========                  ==========     ==========
</TABLE>

    Operating  expenses,  which  consist  of  selling,  marketing,  general  and
administrative and depreciation/amortization  expenses, increased as a result of
overall  growth in our  operations.  The  decrease  in  operating  expenses as a
percentage of total  revenues is primarily the result of increased  economies of
scale  related to marketing  efforts with the  addition of more  dealerships  in
existing  markets,  efficiencies  gained from  enhanced  management  information
systems and an increase in interest income.

Interest Expense

    Interest expense arising from our subordinated debt totaled $2.6 million for
the three  months  ended June 30, 2000 versus $0.9  million for the three months
ended June 30,  1999.  For the six month  periods  ended June 30, 2000 and 1999,
interest expense was $4.9 million and $0.9 million, respectively.  While we have
additional  interest expense arising from subordinated  notes payable, a portion
of  this  interest  expense  was  attributed  to the  financing  of  assets  and
activities reported as discontinued operations.  As the assets and activities of
discontinued  operations  diminish,  we do not expect to retire the subordinated
notes payable but rather use these  borrowings to fund our growth.  Accordingly,
we  would  expect  to  have a  disproportionate  increase  in  interest  expense
allocated to continuing  operations in future  periods as existing  subordinated
debt  is used to  fund  our  growth  and  the  allocation  of this  interest  to
discontinued  operations  decreases.  Subordinated  debt carries  interest rates
generally higher than those charged on borrowings  collateralized by our finance
receivables.



                                    Page 14
<PAGE>



Income Taxes

    Income  taxes  totaled  $3.0  million and $6.1 million for the three and six
month  periods  ended June 30,  2000,  respectively,  and $1.0  million and $1.3
million for the three and six months ended June 30, 1999. Our effective tax rate
was 41% for the three and six months  ended June 30, 2000 versus 36% and 35% for
the three and six months ended June 30, 1999, respectively.

Earnings from Continuing Operations

    Earnings from  continuing  operations  totaled $4.3 million and $8.8 million
for the three and six months  ended June 30,  2000,  respectively,  versus  $1.8
million and $2.4 million, respectively, for the same three and six month periods
of the previous year. The increase is primarily due to an increase in the volume
of used cars sold,  increases in gross margin and growth in interest income. The
interest  income  is due to  the  increase  in  our  retained  portfolio.  These
improvements  were offset by a decrease in servicing  income  resulting from the
decline in remaining principal balances  securitized and serviced under the gain
on sale method.

Discontinued Operations

    Discontinued  operations  provided  no  income or loss for the three and six
months  ended  June 30,  2000  versus a loss,  net of income  tax  benefits,  of
$324,000  and  $520,000  for the  three  and six  months  ended  June 30,  1999.
Effective  December 31, 1999, we adopted a formal plan to abandon any effort for
our third  party  dealer  operations  to acquire  loans or  servicing  rights to
additional  portfolios.  Accordingly,  our Cygnet  Servicing and the  associated
Cygnet Corporate segment are reported as components of discontinued  operations.
We plan to complete servicing the portfolios that we currently service.

Business Segment Information

    We report our operations based on three operating  segments.  These segments
are reported as Retail, Portfolio and Corporate.  These segments were previously
reported as Company Dealership, Company Dealership Receivables and Corporate and
Other, respectively.

    Operating  Expenses for our business  segments,  along with a description of
the included activities, for the three and six month periods ended June 30, 2000
and 1999 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   oversight  of  used  car
acquisition,  reconditioning and sales activities. A summary of retail operating
expenses follows ($ in thousands except per car sold data):
<TABLE>
<CAPTION>

                                          Three Months Ended                          Six Months Ended
                                               June 30,             Percentage            June 30,            Percentage
                                       --------------------------                 --------------------------
                                          2000          1999          Change         2000          1999         Change
                                       ------------  ------------  -------------  -----------   ------------ --------------
  <S>                                      <C>           <C>          <C>           <C>            <C>           <C>
  Retail Operations:
    Selling and Marketing                  $ 7,426       $ 5,570      33.3%         $ 15,561       $ 11,936      30.4%
    General and Administrative              14,593        11,404      28.0%           28,783         22,498      27.9%
    Depreciation and Amortization            1,133           861      31.6%            2,204          1,652      33.4%
                                       ------------  ------------                 ------------  ------------
                                           $23,152       $17,835      29.8%         $ 46,548       $ 36,086      29.0%
                                       ============  ============                 ===========   ============
Per Car Sold:
    Selling and Marketing                   $  517        $  488       5.9%           $  516         $  494      4.5%
    General and Administrative               1,016           999       1.7%              954            931      2.5%
    Depreciation and Amortization               79            75       5.3%               73             68      7.4%
                                       ------------  ------------                 -----------   ------------
                                           $ 1,611       $ 1,562       3.1%          $ 1,543        $ 1,493      3.3%
                                       ============  ============                 ===========   ============
As % of Used Cars Sold Revenue:
    Selling and Marketing                     6.1%          5.7%                        6.1%           5.8%
    General and Administrative               12.0%         11.7%                       11.3%          11.0%
    Depreciation and Amortization             0.9%          0.9%                        0.9%           0.8%
                                       ------------  ------------                 -----------   ------------
                                             19.1%         18.2%                       18.3%          17.7%
                                       ============  ============                 ===========   ============
</TABLE>

                                    Page 15
<PAGE>

   Selling and Marketing  expenses as a percentage of related revenue  increased
slightly to 6.1% for the three and six month periods  ended June 30, 2000,  from
5.7% and 5.8%,  respectively,  over the same periods of 1999. Economies of scale
gained  from  additional  dealerships  in existing  markets  and the  additional
revenue  from  internet  based sales have  allowed  the  Selling  and  Marketing
expenses as a percentage of related revenue to remain relatively stable but have
increased  on a per car sold  basis  primarily  resulting  from an  increase  in
commission related expenses.

   General and  Administrative  expenses  increased slightly for the quarter and
six month periods ended June 30, 2000,  principally  as a result of increases in
salary and benefit costs.

    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 ($ in thousands except expense per month per loan serviced).
<TABLE>
<CAPTION>

                                           Three Months Ended                        Six Months Ended
                                                June 30,           Percentage            June 30,            Percentage
                                         -----------------------                  ------------------------
  <S>                                        <C>         <C>           <C>            <C>         <C>           <C>
                                            2000        1999         Change          2000         1999         Change
                                         ----------- -----------  --------------  ------------ -----------  -------------
  Portfolio Expense:
    General and Administrative               $ 6,002     $ 4,566       31.4%           $12,886     $ 9,167      40.6%
    Depreciation and Amortization                280         280        0.0%               580         563       3.0%
                                         ----------- -----------  --------------  ------------ -----------
       Portfolio Expense                     $ 6,282     $ 4,846       29.6%           $13,466     $ 9,730      38.4%
                                         =========== ===========  ==============  ============ ===========

Expense per Month per Loan Serviced          $ 24.06     $ 20.22                       $ 26.36     $ 20.46
                                         =========== ===========                  ============ ===========
Annualized Expense as % of Managed
     Principal Balances                         5.0%        4.7%                          5.3%        4.7%
                                         =========== ===========                  ============ ===========
</TABLE>

    The increase in operating expenses as well as the expense per month per loan
serviced for the three and six  month  periods  ended  June 30,  2000 for our
Portfolio  segment is primarily a result of the increased number of loans in our
portfolio.  Also attributing to the increase were costs incurred  resulting from
the deployment of collectors out to our dealerships,  market adjustments made to
collection  staff  wages and a  decrease  in the number of  delinquent  accounts
serviced  per  collector.  We expect the  portfolio  expense and the expense per
month per loan serviced to increase as we continue the  deployment of collectors
to our  dealerships,  which is  scheduled  to be  completed  prior to year  end.
However,  we believe the  increase in expense  will be more than offset by lower
delinquencies and ultimately lower loan losses.

    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.

<TABLE>
<CAPTION>

                                           Three Months Ended                         Six Months Ended
                                                June 30,           Percentage             June 30,            Percentage
                                         ------------------------                 -------------------------
<S>                                     <C>          <C>          <C>            <C>          <C>           <C>
($ in thousands except per car sold        2000         1999         Change          2000         1999          Change
data)                                   ----------  ------------  ------------   -----------  ------------  -------------
  Corporate Expense:
     General and Administrative            $ 5,183       $ 4,490      15.4%          $10,454       $ 9,804       6.6%
     Depreciation and Amortization             818           537      52.3%            1,655         1,058      56.4%
                                         ----------  ------------                 -----------  ------------
     Corporate Expense                     $ 6,001       $ 5,027      19.4%          $12,109       $10,862      11.5%
                                         ==========  ============                 ===========  ============

Per Car Sold                                 $ 418         $ 440                       $ 401         $ 449
                                         ==========  ============                 ===========  ============
As % of Total Revenues                        4.0%          4.3%                        3.9%          4.6%
                                         ==========  ============                 ===========  ============
</TABLE>
    Operating  expenses related to our Corporate  segment decreased both on a
per car sold basis and as a percent of total  revenue  primarily  as a result of
various operating  efficiencies.  These efficiencies include those gained by the
consolidation of all accounting and management  information to a single computer
system in early 1999.  Further,  as new dealerships  opened in existing markets,
revenue and units sold  increased  while  related  expenditures  increased  at a
lesser  rate.  Finally,  as  our  retained  portfolio  increased,   there  is  a
proportionate  increase in net interest income thereby  significantly  improving
the ratio of corporate expenses to total revenues.

                                    Page 16
<PAGE>



Financial Position

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

<TABLE>
<CAPTION>

                                               June 30,          December 31,          Percentage
                                                 2000                1999                Change

                                           -----------------   ------------------   ------------------
<S>                                             <C>                  <C>                 <C>
Total Assets                                    $   577,484          $   536,711            7.6%
Inventory                                            45,865               62,865         (27.0)%
Finance Receivables, net                            451,238              365,586           23.4%
Net Assets of Discontinued Operations                 4,702               33,880         (86.1)%
Total Debt                                          380,971              340,941           11.7%
Notes Payable - Portfolio                           315,952              275,774           14.6%
Other Notes Payable                                  27,759               36,556         (24.1)%
Subordinated Notes Payable                           37,260               28,611           30.2%
Stockholders' Equity                            $   166,831         $    165,680            0.7%
</TABLE>


    Total Assets. The increase in total assets is primarily due to the growth in
Finance Receivables,  Net, offset by the decrease in Inventory and Net Assets of
Discontinued Operations.

    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,  1999 to  June  30,  2000 is due to  management's
decision to increase  inventory levels at the end of 1999 in preparation for the
strong seasonal sale periods,  which are typically the first and second quarters
of the year.  We generally  acquire our used car inventory  from three  sources;
approximately  50%  from  auctions,  30% from  wholesalers  and 20% from new car
dealerships.

    Growth in Finance Receivables,  net. Due to the growth in the volume of cars
sold, Finance Receivables, net as of June 30, 2000 increased 23.4% from December
31, 1999. See Note (2) to the Condensed  Consolidated  Financial  Statements for
detail of the components of Finance Receivables, net.

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

                                                                  Managed Loans Outstanding

                                                ---------------------------------------------------------------
                                                     Principal Balances                  Number of Loans
                                                ------------------------------     ----------------------------
                                                ------------------------------     ----------------------------
                                                  June 30,     December 31,         June 30,    December 31,
                                                    2000           1999               2000          1999
                                                ------------------------------     ----------------------------
<S>                                              <C>                <C>              <C>                 <C>
Principal - Managed..............................$  500,032         $  424,480       81,407              70,450
Less:  Principal - Securitized and Sold.......       27,721             65,662        9,889              17,369
                                                ------------------------------     ----------------------------
Principal - Retained on Balance Sheet.......     $  472,311         $  358,818       71,518              53,081
                                                ==============================     ============================
</TABLE>

    The increase in Principal Balances - Retained on Balance Sheet was primarily
due to growth in finance receivables as a result of increased used car sales and
financing,  partially offset by the principal balance runoff of loans originated
in prior  periods.  Used Car Sales totaled 14,369 for the quarter ended June 30,
2000,  versus  sales of 11,416  used cars  during the same  quarter of the prior
year.  Used Car Sales for the six  months  ended  June 30,  2000 were  30,171 as
compared to sales of 24,170 for the six months ended June 30, 1999.



                                    Page 17
<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, 2000 and 1999 ($ in thousands):
<TABLE>
<CAPTION>

                                                         Three Months Ended           Six Months Ended
                                                               June 30,                    June 30,
                                                      ------------------------    ------------------------
                                                         2000         1999           2000         1999
                                                      -----------   ----------    -----------   ----------
<S>                                                   <C>          <C>            <C>           <C>
Allowance Activity:
Balance, Beginning of Period                            $ 87,585     $  48,628      $  76,150     $ 24,777
Provision for Credit Losses                               32,212        25,789         66,785       53,552
Other Allowance Activity                                 (1,104)            33        (1,000)           97
Net Charge Offs                                         (20,160)       (7,545)       (43,402)     (11,521)
                                                      -----------   ----------    -----------   ----------
Balance, End of Period                                  $ 98,533     $  66,905        $98,533     $ 66,905
                                                      ===========   ==========    ===========   ==========
Allowance as a Percent of Period End Balances              20.9%         26.1%          20.9%        26.1%
                                                      ===========   ===========   ===========   ==========
Charge off Activity:
Principal Balances                                     $(25,976)     $ (9,570)      $(57,142)    $(14,580)
Recoveries, net                                            5,816         2,025         13,740        3,059
                                                      -----------   ----------    -----------   ----------
Net Charge Offs                                        $(20,160)     $ (7,545)      $(43,402)    $(11,521)
                                                      ===========   ==========    ===========   ==========
</TABLE>


    Even though a contract is charged off, we continue to attempt to collect the
contract.  Recoveries  as a percentage  of principal  balances  charged off from
retail operations averaged 22.4% for the three months ended June 30, 2000 versus
21.2% for the same  period of 1999.  Recoveries  as a  percentage  of  principal
balances  charged off from retail  operations  averaged 24.1% for the six months
ended June 30, 2000 versus 21.0% for the same period of 1999. The increase is
due to the initiatives taken to retain qualified loan service staff and reduce
the number of delinquencies serviced per collector.

    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.  See  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  - Static  Pool
Analysis" below.

    Stockholder's Equity. During June 2000, we issued 75,000 warrants to a group
of unrelated third parties to purchase Company common stock for $10.81 per share
exercisable through April 12, 2001.

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.



                                    Page 18
<PAGE>


    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,  2000,  the  cumulative  net
charge offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed  by customers  before  charge off. The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).
<TABLE>
<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      9.1%     22.1%     28.5%      33.8%     35.9%     36.5%     36.8%     100.0%
    1994                  $   23,589      5.3%     14.8%     19.9%      25.6%     28.0%     28.7%     28.8%     100.0%
    1995                  $   36,569      2.0%      8.1%     13.2%      19.2%     22.3%     23.6%     24.1%     100.0%
    1996:
       1st Quarter        $   13,635      1.7%      8.1%     13.8%      20.8%     24.8%     26.1%     27.1%     100.0%
       2nd Quarter        $   13,462      2.3%      9.3%     13.4%      22.0%     25.9%     27.6%     29.0%     100.0%
       3rd Quarter        $   11,082      1.7%      6.9%     12.5%      21.3%     25.4%     27.6%     28.7%      99.9%
       4th Quarter        $   10,817      0.7%      8.4%     15.9%      24.9%     29.2%     31.0%     32.1%      99.7%
    1997:
       1st Quarter        $   16,279      2.1%     10.8%     18.2%      24.9%     30.0%     32.3%     33.6%      99.2%
       2nd Quarter        $   25,875      1.5%      9.9%     15.8%      22.8%     27.5%     29.6%     30.6%      97.6%
       3rd Quarter        $   32,147      1.4%      8.4%     13.2%      22.5%     27.0%     29.3%     30.4%      96.3%
       4th Quarter        $   42,529      1.4%      6.9%     12.6%      21.9%     26.2%     28.9%     29.7%      94.3%
    1998:
       1st Quarter        $   69,708      0.9%      6.9%     13.5%      21.0%     26.6%     29.0%     29.3%      92.0%
       2nd Quarter        $   66,908      1.1%      8.1%     14.3%      21.9%     27.4%     x         29.0%      87.3%
       3rd Quarter        $   71,027      1.0%      8.0%     13.4%      23.2%     28.0%      --       28.9%      83.9%
       4th Quarter        $   69,583      0.9%      6.6%     13.2%      24.5%     x          --       28.6%      76.0%
    1999:
       1st Quarter        $  102,733      0.8%      7.5%     15.2%      23.8%      --        --       25.6%      66.8%
       2nd Quarter        $   96,098      1.1%     10.0%     16.8%      x          --        --       23.9%      56.2%
       3rd Quarter        $  102,599      1.0%      8.3%     14.3%       --        --        --       17.8%      44.1%
       4th Quarter        $   80,900      0.7%      6.0%      x          --        --        --       10.4%      29.3%
    2000:
       1st Quarter        $  128,123      0.3%      x         --         --        --        --        3.7%      17.0%
       2nd Quarter        $  118,778      x         --        --         --        --        --        0.4%       5.2%
</TABLE>




                                    Page 19
<PAGE>




    The  following  table  sets  forth  the  principal  balances  31 to 60  days
delinquent,  and 61 to 90 days  delinquent as a percentage of total  outstanding
contract principal balances from dealership operations.
<TABLE>
<CAPTION>

                                                         June 30,        December 31,

                                                           2000              1999
                                                       -------------    ----------------
     Days Delinquent:
     <S>                                               <C>              <C>
     Current                                                  71.9%               63.2%
     1-30 Days                                                20.9%               27.8%
     31-60 Days                                                4.5%                5.9%
     61-90 Days                                                2.7%                3.1%
                                                       -------------    ----------------
     Total Portfolio                                         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, 2000.

    Delinquencies  have  improved  as of the end of the  second  quarter of 2000
versus the fourth quarter of 1999. The primary reason for the improvement is the
success of moving  collectors out to our dealerships  along with initiatives put
into place to retain  qualified loan servicing staff and to reduce the number of
delinquent  accounts  serviced  per  collector.  As  indicated by the decline in
delinquency  levels, the initiatives seem to be effective.  However,  due to the
first and  second  quarters  of the year  typically  being our  strongest  sales
quarters,  finance receivables increased  significantly during this period. As a
result,  delinquency  levels  appear  lower due to the  influx  of  receivables.
Consequently,  we cannot  expect to maintain the current  delinquency  levels in
future periods.

    Based on current loan loss trends, we believe that our current allowance for
credit losses, which has been established through the 27% provision charged to
operations, will be sufficient to cover inherent losses in our current
portfolio. However, if we were to experience increased charge-offs above levels
presently estimated, it may be necessary to increase the provision percentage
charged to operations in future quarters.

Securitizations

    Under the current legal  structure of our  securitization  program,  we sell
loans to our bankruptcy  remote  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 and subordinate classes are retained by 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  obtain an insurance  policy from MBIA Insurance  Corporation  that
guarantees  payment  of  amounts  to the  holders  of the  Class A  obligations.
Additionally,  we also establish a cash "reserve" account for the benefit of the
Class A obligation holders. The reserve accounts are classified in our condensed
consolidated  financial  statements  as  Investments  Held  in  Trust  and are a
component of Finance Receivables, net.

    Reserve Account Requirements. Under our current securitization structure, we
make an initial cash deposit into a reserve account,  generally equivalent to 4%
of the initial underlying Finance Receivables  principal balance and pledge this
cash to the reserve account agent. The trustee then makes additional deposits to
the  reserve  account  out of  collections  on the  securitized  receivables  as
necessary to fund the reserve  account to a specified  percentage,  ranging from
8.0% to 12.0%, of the underlying Finance  Receivables'  principal  balance.  The
trustee makes distributions to us when:

o the reserve account balance exceeds the specified percentage,
o the required periodic payments to the Class A certificate holders are current,
  and
o the trustee, servicer and other administrative costs are current.

    During the second and third quarters of 1999, we experienced  loan servicing
inefficiencies that resulted in increased  delinquency and charge off levels. As
a result,  certain reserve account requirements were increased until delinquency
and charge off levels returned to  contractually  specified  percentages.  As of
June  30,  2000,  all  increases  in  reserve  account  requirements  have  been
eliminated  and  we  met  the  targeted   reserve  account  balances  under  our
securitization agreements of $36.3 million.

                                    Page 20
<PAGE>

    Certain Financial Information Regarding Our Securitizations

    During April 2000, we closed a securitized borrowing transaction in which we
securitized  $145.5  million  of  loans,  issuing  $103.3  million  in  Class  A
certificates with an annual interest rate of 7.1%.

Liquidity and Capital Resources

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

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

    We fund our capital requirements primarily through:

o operating cash flow,             o our revolving facility with GE Capital, and
o securitization transactions,     o supplemental borrowings.

    While to date we have met our liquidity requirements as needed, there can be
no assurance that we will be able to continue to do so in the future.

Operating Cash Flow

    Net Cash Provided by Operating  Activities increased by $11.9 million in the
six months ended June 30, 2000 to $107.7  million  compared to cash generated of
$95.8 million for the six months ended June  30,1999.  The increase is primarily
due to an  increase  in net  earnings  coupled  with a  significant  decrease in
inventory from year end 1999,  resulting from management's  decision to increase
inventory  levels at the end of 1999 in preparation for the high seasonal sales,
which  typically  occur in the first  quarter of the year,  partially  offset by
decrease in income taxes payable.

    Net cash used by investing  activities  decreased to $158.6  million for the
six months ended June 30, 2000 versus $181.0  million for the same period of the
previous year. The decrease is due to a significant decrease in Investments Held
in Trust  due to the  decline  in  principal  balances  securitized under the
gain on sale method, offset by collections on finance receivables.

    Financing  activities  generated $23.5 million for the six months ended June
30, 2000 as compared to $89.8 million generated for the corresponding period of
1999.  The reason for the  decrease is primarily  due to net  repayment of notes
payable.

Financing Resources

    Revolving Facility. Under our $125 million revolving facility, our borrowing
base  consists  of up to  65.0%  of the  principal  balance  of  eligible  loans
originated  from the sale of used cars and the  lesser of $25  million or 58% of
the direct vehicle costs for eligible vehicle inventory.  The revolving facility
expires in June 2001 if not renewed or extended  by a mutual  agreement  by both
parties.  The revolving facility contains a provision that requires us to pay GE
Capital a termination  fee of $200,000 if we terminate  the  revolving  facility
prior to the expiration date. We secure the facility with  substantially  all of
our assets.

    As of June 30, 2000, our borrowing capacity under the revolving facility was
$122.0 million,  the aggregate  principal amount outstanding under the revolving
facility  was  approximately  $60.7  million,  and the  amount  available  to be
borrowed  under the facility was $61.3  million.  The revolving  facility  bears
interest at the 30-day LIBOR plus 3.15%,  payable  daily (total rate of 9.69% as
of June 30, 2000).

    The revolving  facility contains  covenants that, among other things,  limit
our ability to take  certain  actions  without GE Capital's  consent,  including
incur additional indebtedness, make any change in our capital structure, declare
or pay dividends,  and make certain  investments and capital  expenditures.  The
revolving  facility  also  provides  that an event of default  will occur if Mr.
Ernest C. Garcia II owns less than 15.0% of our voting  stock.  Mr. Garcia owned
approximately 32.2% of our common stock at June 30, 2000 and owns approximately
36.5% as of July 31, 2000.

    In addition, we are also required to maintain specified financial ratios. As
of June 30, 2000, we were compliance with the covenants in this agreement.

                                    Page 21
<PAGE>


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

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

Supplemental Borrowings

    2000 Exchange Offer. On February 22, 2000, we commenced a new exchange offer
to acquire up to 2.5  million  shares of our common  stock.  This offer  expired
April 13, 2000 and we acquired  approximately  1.1 million  shares of our common
stock in exchange for  approximately  $11.9  million of seven year  subordinated
debentures due April 15, 2007. Under the terms of the offer, each share of stock
was exchangeable for $11.00 principal amount of debentures.  The debentures were
issued at a premium, which will be amortized over the life of the debentures and
results in an  effective  annual  interest  rate of 19.3%.  We must pay interest
bi-annually at 11% per year.

Capital Expenditures and Commitments

    During the six months ended June 30, 2000, we developed five new dealerships
in existing  markets,  three in the first quarter and two in the second quarter.
In the fourth quarter of 1999, we obtained five  dealerships,  including vehicle
inventory and a loan portfolio of approximately $8.0 million, from Virginia Auto
Mart. The direct cost of opening a dealership is primarily a function of whether
we  lease  a  facility  or  construct  a  facility.   A  leased  facility  costs
approximately   $650,000  to  develop,  while  a  facility  we  construct  costs
approximately  $1.7  million.  In  addition,  we require  capital to finance the
portfolio  that  we  carry  on our  balance  sheet  for  each  store.  It  takes
approximately  $2.2  million  in cash to  support  a  typical  stabilized  store
portfolio   with  our   existing   65%  advance  rate  under  our  GE  facility.
Additionally,  it takes approximately 34 months for a store portfolio to reach a
stabilized level.

    We intend to finance the construction of new dealerships  through  operating
cash flows and supplemental  borrowings,  including  amounts available under the
revolving facility and the securitization program.

    In April 1999, our Board of Directors  authorized a stock repurchase program
allowing us to repurchase up to 2.5 million shares of our common stock from time
to time.  Purchases  may be made  depending on market  conditions,  share price,
lender   approval  and  other   factors.   During  July  2000,  we   repurchased
approximately 1.5 million shares pursuant to the stock repurchase program.

    We believe that the repurchase of our stock is currently a better investment
of our  capital  than new stores and, as a result,  have  accelerated  our stock
buyback program.  As additional capital is secured,  we will consider whether to
resume or accelerate our expansion plans or to continue  repurchasing our stock.
At this time,  we will not commit to growth  prior to  securing  the  capital to
support it, unless the  acquisition  would require little to no capital.  We are
currently  attempting to secure capital for further  growth.  We do not expect a
slow down in growth to  adversely  impact  revenues  or earnings in 2001 and any
impact on  subsequent  years  will  depend  upon the number and timing of future
acquisitions.

Accounting Matters

    In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" (SFAS No. 138). SFAS No. 138 amends
a limited number of issues causing implementation difficulties for entities that
apply SFAS No. 133. SFAS No. 138 is effective for fiscal years beginning after
June 15,2000, and is not expected to have a material effect on the Company.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation (an interpretation of APB Opinion No. 25). This interpretation
provides guidance regarding the application of APB Opinion 25 to Stock
Compensation involving employees. This interpretation is effective June 1, 2000
and is not expected to have a material effect on the Company.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" (SFAS No. 133). The adoption of SFAS No. 133 was delayed
by the issuance of SFAS 137. The statement  requires all  derivatives to be
recorded on the balance sheet at fair value and  establishes  new  accounting
rules for hedging  instruments.  In June 1999,  the FASB  deferred the effective
date of SFAS No. 133 for one year until fiscal years  beginning after June 15,
2000.  Management does not expect the adoption of SFAS No.133 to have a material
impact on the Company.

                                    Page 22
<PAGE>


We Make Forward Looking Statements

    Our  Quarterly  Report  on Form 10-Q  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.  Forward-looking
statements  are  often  characterized  by  the  words  "believes,"  "estimates,"
"projects," "expects" or similar expressions. Forward-looking statements in this
report relate, among other matters, to: anticipated  financial results,  such as
continuing growth of sales, other revenues and loan portfolios, and improvements
in loan performance, including delinquencies; anticipated roll-out of collectors
to the Company's dealerships,  anticipated  repurchases of Company stock and the
level of growth in our dealerships  through  acquisitions and de novo dealership
openings; and e-commerce related growth and loan performance. Factors that could
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 of the Company to finance
its operations in light of a tight credit market for the sub-prime industry; any
deterioration in the used car finance  industry or increased  competition in the
used car sales and finance industry; any inability of the Company to monitor and
improve its underwriting and collection processes;  any changes in estimates and
assumptions  in, and the ongoing  adequacy of, our allowance for credit  losses;
any  inability  of the  Company to continue  to reduce  operating  expenses as a
percentage of sales;  and any new or revised  accounting,  tax or legal guidance
that adversely affect used car sales or financing. Other factors are detailed in
the  sections  entitled  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Risk  Factors,"  "Factors That May Affect
Future  Results and  Financial  Condition"  and "Factors  That May Affect Future
Stock  Performance"  in our most recent  reports on Form 10-K, in Exhibit 99
attached to this Quarterly Report  on Form  10-Q, and  elsewhere  in our
Securities  and Exchange  Commission  filings.By making these forward-looking
statements,  we undertake no obligation to update these statements for revisions
or  changes  after  the  date  of  this report. 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 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,
short term variable rate revolving Notes Receivable, and variable and fixed rate
Notes  Payable.  Our finance  receivables  are  classified as subprime loans and
generally  bear  interest  at the lower of 29.9% or the  maximum  interest  rate
allowed in states  that impose  interest  rate  limits.  At June 30,  2000,  the
scheduled maturities on our finance receivables range from one to 52 months with
a weighted  average  maturity of 31.3 months.  The interest  rates we charge our
customers on finance  receivables has not changed as a result of fluctuations in
market interest rates,  although we may increase the interest rates we charge in
the future if market interest rates  increase.  A large component of our debt at
June 30, 2000 is the Collateralized Notes Payable (senior and junior securities)
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 higher than the interest rates on
our existing Notes Payable.

         We believe that our market risk information has not changed  materially
from December 31, 1999.

                                    Page 23
<PAGE>


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 2.  Changes in Securities and Use of Proceeds.

(a)      None
(b)      None

(c) On June 5, 2000, we issued warrants to purchase up to 75,000 shares of our
common  stock  at  $10.81  per  share  to a group  of our  existing  lenders  in
consideration  for their prior consent in connection with the sale of our Cygnet
Dealer  subsidiary.  The warrants are  exercisable  through April 12, 2001.  The
warrants  were  issued in  reliance on the  private  placement  exemption  under
Section 4(2) of the Securities Act of 1933.

(d)      Not Applicable

Item 3.  Defaults Upon Senior Securities.

None.

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

    We held our annual meeting on July 27, 2000. The meeting was rescheduled and
adjourned until July 31, 2000. Two items were on the ballot for the meeting: the
election  of  directors,  with the  current  slate  of  directors  standing  for
re-election,  and the approval and adoption of Amendment 2 to our Certificate of
Incorporation  which  authorizes the creation of "Blank Check" common stock. The
shareholders  approved  both items on the ballot:  Election  of  directors - all
directors  received  votes in excess of 85% of the votes cast; and "Blank Check"
common stock proposal received 51.8% in favor.

Item 5.  Other Information.

None

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

    (a)  Exhibits

         Exhibit 4.1 -- Form of Amendment to Warrant Agreement dated June 5,
                        2000 and Warrant Agreements between the Registrant and
                        Formost Insurance Company, Glacier Water Services, Inc.,
                        Kayne Anderson Non-Traditional Investments, L.P., Kayne
                        Anderson Off-Shore Limited, TOPA Insurance Company and
                        ARBCO Associates, L.P., dated as of June 5, 2000, (w/
                        form of warrant agreement attached as Exhibit A,
                        thereto)

         Exhibit 10.1 --Amendment No. 11 to Amended and Restated Motor Vehicle
                        Installment Contract Loan and Security Agreement
                        between Registrant and General Electric Capital
                        Corporation

         Exhibit 27  -- Financial Data Schedule

         Exhibit 99  -- Statement Regarding Forward Looking Statements and Risk
                        Factors

    (b)  Reports on Form 8-K.

    During the second quarter of 2000, the Company filed two reports on Form
8-K. The first report on Form 8-K, dated and filed April 14, 2000, reported
Ugly Duckling's completion of exchange offer and filed as an exhibit to the
Form 8-K a press release dated April 14, 2000 entitled "Ugly Duckling Announces
Successful Completion of Exchange Offer". The second report on Form 8-K dated
April 20,2000 and filed May 3, 2000 pursuant to Item 5, reported the completion
of the exchange offer which 1,085,415 shares of Common Stock were tendered in
exchange for $11,939,565 in subordinated debentures.


                                    Page 24
<PAGE>






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/     STEVEN T. DARAK
         -----------------------
         Steven T. Darak
         Senior Vice President and
         Chief Financial Officer

         (Principal Financial and Accounting Officer)

Date:  August 10, 2000




                                    Page 25
<PAGE>





<TABLE>
<CAPTION>


EXHIBIT INDEX

<S>                           <C>
Exhibit
Number                          Description
----------                    ----------------

4.1  Form of Amendment to Warrant Agreement dated June 5,2000 and Warrant  Agreements  between the Registrant and Foremost Insurance
     Company, Glacier Water Services, Inc., Kayne Anderson Non-Traditional Investments, L.P., Kayne Anderson Off-Shore Limited, TOPA
     Insurance Company and ARBCO  Associates,  L.P., dated as of June 5, 2000,  (w/form of warrant  agreement  attached as Exibit A,
     thereto)
10.1 Amendment No. 11 to Amended and Restated Motor Vehicle Installment  Contract Loan and Security Agreement between Registrant and
     General Electric Capital Corporation
27   Financial Data Schedule
99   Statement Regarding Forward Looking Statements and Risk Factors
</TABLE>




                                    Page 26

<PAGE>