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




                       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: March 31, 2002

                        Commission File Number 000-20841

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

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

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


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

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

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



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


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<PAGE>

<TABLE>
<CAPTION>


                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS

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

  Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS             11
  Item 3.            MARKET RISK                                                                                       29

                     Part II -- OTHER INFORMATION
  Item 1.            LEGAL PROCEEDINGS                                                                                 30
  Item 2.            CHANGES IN SECURITIES                                                                             32
  Item 3.            DEFAULTS UPON SENIOR SECURITIES                                                                   32
  Item 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                               32
  Item 5.            OTHER INFORMATION                                                                                 32
  Item 6.            EXHIBITS AND REPORTS ON FORM 8-K                                                                  32
                     SIGNATURES                                                                                        33


</TABLE>


<PAGE>






                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           March 31,            December 31,
                                                                             2002                   2001
                                                                      --------------------    ------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
ASSETS
Cash and Cash Equivalents                                                      $    8,858            $    8,572
Finance Receivables, net                                                          514,329               495,254
Note Receivable from Related Party                                                 12,000                12,000
Inventory                                                                          39,471                58,618
Property and Equipment, net                                                        30,137                37,739
Goodwill                                                                           11,569                11,569
Other Assets                                                                       21,032                20,006
Net Assets of Discontinued Operations                                                   -                 3,899
                                                                      --------------------    ------------------
                                                                               $  637,396            $  647,657
                                                                      ====================    ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Accounts Payable                                                            $    4,110            $    2,850
   Accrued Expenses and Other Liabilities                                          47,336                38,250
   Notes Payable - Portfolio                                                      381,208               377,305
   Other Notes Payable                                                             29,753                52,510
   Subordinated Notes Payable                                                      28,130                31,259
                                                                      --------------------    ------------------
     Total Liabilities                                                            490,537               502,174
                                                                      --------------------    ------------------
Stockholders' Equity:
     Preferred Stock $.001 par value, 10,000,000 shares
          authorized, and none issued and outstanding                                   -                     -
     Common Stock $.001 par value, 100,000,000 shares
          authorized, 100 and 18,774,000 issued, respectively,
          and 100 and 12,275,000 outstanding, respectively                              -                    19
   Additional Paid-in Capital                                                     133,415               173,741
   Retained Earnings                                                               13,444                12,074
   Treasury Stock, at cost                                                              -              (40,351)
                                                                      --------------------    ------------------
     Total Stockholders' Equity                                                   146,859               145,483
                                                                      --------------------    ------------------
                                                                               $  637,396            $  647,657
                                                                      ====================    ==================

</TABLE>


     See accompanying notes to Condensed Consolidated Financial Statements.



<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   Three Months Ended March 31, 2002 and 2001
                    (In thousands, except cars sold amounts)
                                   (unaudited)
<TABLE>
<CAPTION>

                                             Three Months Ended
                                                 March 31,
                                        -----------------------------
                                             2002          2001
                                        -----------------------------
<S>                                      <C>           <C>
Cars Sold                                     15,300           14,851
                                        =============================

Total Revenues                          $    175,064    $     164,030
                                        =============================

Sales of Used Cars                      $    142,234    $     130,186
Less:
   Cost of Used Cars Sold                     83,017           72,841
   Provision for Credit Losses                45,367           39,020
                                        -----------------------------
                                              13,850           18,325
                                        -----------------------------
Other Income (Expense):
   Interest Income                            32,830           33,844
   Portfolio Interest Expense                (6,143)          (8,519)
                                        -----------------------------
      Net Interest Income                     26,687           25,325
                                        -----------------------------

Income before Operating Expenses              40,537           43,650
Operating Expenses:
     Selling and Marketing                     7,613            7,626
     General and Administrative               25,782           27,438
     Depreciation and Amortization             2,108            2,407
                                        -----------------------------
       Operating Expenses                     35,503           37,471
                                        -----------------------------

Income before Other Interest Expense           5,034            6,179
Other Interest Expense                         2,306            3,091
                                        -----------------------------

Earnings before Income Taxes                   2,728            3,088
Income Taxes                                   1,358            1,266
                                        -----------------------------
Net Earnings                            $      1,370    $       1,822
                                        =============================
</TABLE>



     See accompanying notes to Condensed Consolidated Financial Statements.

<PAGE>



                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Three Months Ended March 31, 2002 and 2001
                                 (In thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                             Three Months Ended
                                                                                                  March 31,
                                                                                              2002            2001
                                                                                      ----------------------------------
<S>                                                                                   <C>                <C>
Cash Flows from Operating Activities:
     Net Earnings                                                                           $     1,370     $      1,822
Adjustments to Reconcile Net Earnings to Net Cash Provided
     by Operating Activities:
      Provision for Credit Losses                                                                45,367           39,020
      Depreciation and Amortization                                                               3,415            3,564
      Loss from Disposal of Property and Equipment                                                   65              423
      Deferred Income Taxes                                                                       (160)               -
      Collections from Residuals in Finance Receivables Sold                                         -             1,136
      Decrease in Inventory                                                                      20,066           20,443
      (Decrease) of Inventory Allowance                                                           (919)            (135)
      (Increase) Decrease in Other Assets                                                       (2,660)              945
      Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Liabilities             8,233          (7,866)
      Increase in Income Taxes Payable                                                            3,907              179
                                                                                      ----------------------------------
          Net Cash Provided by Operating Activities                                              78,684           59,531
                                                                                      ----------------------------------
Cash Flows Used in Investing Activities:
     Increase in Finance Receivables                                                          (133,554)        (119,405)
      Collections on Finance Receivables                                                         64,443           62,726
      Proceeds from Disposal of Property and Equipment                                            2,887               46
      Purchase of Property and Equipment                                                        (1,409)          (3,173)
                                                                                      ----------------------------------
         Net Cash Used in Investing Activities                                                 (67,633)         (59,806)
                                                                                      ----------------------------------
Cash Flows from Financing Activities:
     Initial Deposits at Securitization into Investments Held in Trust                               -           (3,532)
     Additional Deposits into Investments Held in Trust                                        (10,054)         (12,918)
     Collections from Investments Held in Trust                                                  14,723            9,151
     Decrease in Investments Held in Trust on Finance Receivables Sold                               -             1,398
     Additions to Notes Payable Portfolio                                                       111,650          161,691
     Repayment of Notes Payable Portfolio                                                     (108,578)        (178,288)
     Additions to Other Notes Payable                                                            17,600           22,792
     Repayment of Other Notes Payable                                                          (36,611)            (138)
     Repayment of Subordinated Notes Payable                                                    (3,400)          (1,000)
     Proceeds from Issuance of Common Stock                                                           6               -
                                                                                      ----------------------------------
         Net Cash Used in Financing Activities                                                 (14,664)            (844)
                                                                                      ----------------------------------
Net Cash Provided by Discontinued Operations                                                      3,899              893
                                                                                      ----------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                                286            (226)
Cash and Cash Equivalents at Beginning of Period                                                  8,572            8,805
                                                                                      ----------------------------------
Cash and Cash Equivalents at End of Period                                                  $     8,858     $      8,579
                                                                                      ==================================
Supplemental Statement of Cash Flows Information:
     Interest Paid                                                                          $     5,912     $      9,795
                                                                                      ==================================
     Income Taxes Paid (Received)                                                           $   (2,784)     $      1,445
                                                                                      ==================================
Supplemental Statement of Non-Cash Investing and Financing Activities:
     Other Notes Payable Assumed by Leasor in Sale Leaseback Transaction                    $     4,070     $         -
                                                                                      ==================================
</TABLE>


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




                            UGLY DUCKLING CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

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

Note 2.  Summary of Finance Receivables

    A summary of Finance Receivables, net, follows:
<TABLE>
<CAPTION>

                                                       March 31,            December 31,
                                                          2002                  2001
                                                   -------------------    ------------------
<S>                                                 <C>                   <C>
Contractually Scheduled Payments                   $           740,879    $          694,572
Unearned Finance Charges                                     (197,037)             (179,873)
                                                   -------------------    ------------------
Principal Balances, net                                        543,842               514,699
Accrued Interest                                                 5,479                 5,824
Loan Origination Costs                                           7,281                 6,635
                                                   -------------------    ------------------
Loan Receivables                                               556,602               527,158
Investments Held in Trust                                       65,327                69,996
                                                   -------------------    ------------------
Finance Receivables                                            621,929               597,154
Allowance for Credit Losses                                  (107,600)             (101,900)
                                                   -------------------    ------------------
Finance Receivables, net                           $           514,329    $          495,254
                                                   ===================    ==================
Allowance as % of Principal Balances, net                        19.8%                 19.8%
                                                   ===================    ==================
</TABLE>

     Investments Held in Trust represent funds held by trustees on behalf of our
securitization   bondholders  and  consists  of  reserve  accounts,  as  further
described,  plus collections in transit.  In connection with its  securitization
transactions,  the Company  provides a credit  enhancement to the investor.  The
Company  makes an initial  cash  deposit,  ranging  from 3% to 6% of the initial
underlying finance  receivables  principal balance,  into an account held by the
trustee  (reserve  account)  and  pledges  this  cash to the  trust to which the
finance receivables were transferred. Additional deposits from the residual cash
flow  (through  the  trustee)  are made to the reserve  account as  necessary to
attain and maintain the reserve account at a specified percentage,  ranging from
8.0% to 11.0%, of the underlying finance receivables principal balances.

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

Note 3.  Related Party Transactions

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

     Pursuant to the option  discussed  above,  in December 2001 Verde exercised
its right to purchase from, and lease back to the Company, six properties having
a net book value of  approximately  $6.7  million.  This purchase and lease back
transaction  closed in January 2002. Verde assumed all of the obligations of the
notes  payable  secured by the six  properties.  The  Company has  notified  the
lenders on these six properties and the Company has not yet been released as the
borrower  under the notes payable.  The six  properties  were leased back to the
Company on terms  consistent  with  other  sale-leasebacks,  15 year  triple net
leases, expiring December 2015.

     The Note Receivable - Related Party originated from the Company's  December
1999 sale of its Cygnet Dealer Finance subsidiary to Cygnet Capital Corporation,
an entity  controlled by Mr. Garcia.  The $12.0 million note from Cygnet Capital
Corporation  has a 10-year  term,  with  interest  payable  quarterly at 9%, due
December  2009.  The note is  secured  by the  capital  stock of Cygnet  Capital
Corporation and guaranteed by Verde Investments, Inc. ("Verde"), an affiliate of
Mr. Garcia. The balance of this loan at March 31, 2002 was $12.0 million.

     On November 26, 2001,  Mr. Garcia  initiated a Tender Offer to purchase all
of the  outstanding  shares of the  Company's  common stock not owned by him for
$2.51 per share. On December 10, 2001, the Company entered into an Agreement and
Plan  of  Merger  with  Mr.  Garcia,   Mr.  Sullivan,   UDC  Acquisition   Corp.
("Acquisition"),  an entity  controlled by Mr. Garcia and Mr. Sullivan,  and UDC
Holdings  Corp.  The Merger  Agreement  provided  for  Acquisition  to amend the
pending Tender Offer to purchase all of the outstanding shares of the Company by
increasing  the offer  from  $2.51 per  share to $3.53 per share  (the  "Amended
Tender Offer"). The Merger Agreement also provided for a second step merger (the
"Merger") at the same price of $3.53 per share (the Amended Tender Offer and the
Merger together are the  "Transaction").  The Merger Agreement  further provided
that the  Transaction  could be  consummated  only if a majority of the minority
shareholders  of the Company,  in the aggregate,  tendered in the Amended Tender
Offer or (if Acquisition did not own 90% or more of the shares after the Amended
Tender Offer) voted in favor of the Merger.  At that time,  there were 4,771,749
shares of the Company's stock not held by the buyout group.  The Transaction was
entered  into  after  review by a special  transaction  committee  comprised  of
independent  members  of the board of  directors;  the  committee  and the board
consulted with and obtained a fairness opinion from an investment  banking firm,
U.S. Bancorp Piper Jaffray. The special committee recommended the Transaction to
the full board and the board  recommended the Transaction to the shareholders of
the Company.  On December 14, 2001,  the Company  commenced  the Amended  Tender
Offer. The Company's  shareholders  overwhelmingly  supported the Amended Tender
Offer, which closed on January 16, 2002.  Shareholders tendered 3,806,800 shares
of the Company's  common stock  representing  approximately  79% of the minority
shares.  Upon completion of the Amended Tender Offer and Acquisition  paying the
tendering  shareholders,  Acquisition  owned  approximately  92% of the Company.
Acquisition  received its funding for these payments from UDC Holdings,  Inc. On
March 4,  2002  Acquisition  completed  a short  form  merger  with and into the
Company. The Company was the surviving  corporation under the short form merger.
As of March 31, 2002,  the Company has a receivable  from UDC Holdings,  Inc. of
approximately $1.7 million which is classifed in Other Assets.
<PAGE>

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


Note 4.  Notes Payable

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

                                                                                         March 31,           December 31,
                                                                                            2002                 2001
                                                                                     -------------------  -------------------
<S>                                                                                  <C>                  <C>
Revolving Facility for $100.0 million with Greenwich Capital Financial
     Products, Inc, secured by substantially all assets of the Company not
     otherwise pledged                                                                   $       113,230      $        38,249
Class A obligations issued pursuant to the Company's securitization program,
     secured by underlying pools of finance receivables and investments held in
     trust totaling $547.9 million and $515.2 million at March 31, 2002 and
     December 31, 2001, respectively                                                             270,183              341,812
                                                                                     -------------------  -------------------
     Subtotal                                                                                    383,413              380,061
     Less:  Unamortized Loan Fees                                                                  2,205                2,756
                                                                                     -------------------  -------------------
     Total                                                                               $       381,208      $       377,305
                                                                                     ===================  ===================
</TABLE>

     In March 2002, the Company  renewed its revolving  warehouse  facility with
Greenwich  Capital  Financial  Products,  Inc.  for an  additional  364-day term
through March 2003. The facility  allows for maximum  borrowings of $100 million
during the entire renewed term, as compared to $75 million during the period May
1, 2001 through November 30, 2001,  increasing to $100 million during the period
December 1, 2001 through  April 30, 2002,  under the initial  term. In addition,
the 65% cap on the advance rate was removed and the calculation of the warehouse
advance  relative  to the net  securitization  advance  was  improved by 2%. The
lender  maintains  an option to adjust the  advance  rate to reflect  changes in
market conditions or portfolio performance. The interest rate on the facility is
LIBOR plus  2.80%  (4.70% as of March 31,  2002,  and 4.72% as of  December  31,
2001). The facility is secured with  substantially  all Company assets. At March
31, 2002, due to the timing of the first securitization of 2002, the Company was
not in  compliance  with the debt to EBITDA ratio  covenant of this facility and
received a waiver from the lender.  The Company was in compliance with all other
required covenants.

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

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

                                                                                         March 31,          December 31,
                                                                                           2002                 2001
                                                                                    -------------------- -------------------
<S>                                                                                 <C>                  <C>
Senior note payable with certain lenders, secured by the capital stock of
    UDRC II, UDRC III, UDRC IV, and certain other receivables                       $             23,000  $           26,000
Revolving Facility for $36.0 million with Automotive Finance Corporation,
     secured by the Company's automobile inventory                                                 5,062              20,963
Other notes payable bearing interest at rates ranging from 7.5% to 11%
     due through October 2015, secured by certain real
     property, and certain property and equipment                                                  1,941               6,133
                                                                                    -------------------- -------------------
     Subtotal                                                                                     30,003              53,096
     Less:  Unamortized Loan Fees                                                                    250                 586
                                                                                    -------------------- -------------------
     Total                                                                          $             29,753  $           52,510
                                                                                    ==================== ===================
</TABLE>

     The Company  entered into a $35 million  senior  secured loan facility with
certain lenders in January 2001. The facility has a term of 25 months.  Pursuant
to the credit  agreement,  the  Company  must make  principal  payments  of $1.0
million per month  during the period  from April 2001  through  September  2002.

<PAGE>

Thereafter  through maturity,  the credit agreement requires minimum payments of
the greater of $3.0  million per month or 50% of the cash flows from  classes of
notes issued through  securitization  that are subordinate to the Class A bonds.
Interest is payable  monthly at LIBOR plus 600 basis  points  (7.90% as of March
31,  2002,  and 7.90% as of December 31,  2001).  The loan is secured by certain
Finance  Receivables.  At  March  31,  2002,  due to  the  timing  of the  first
securitization  of 2002, the Company was not in compliance  with the senior debt
to total  capitalization  covenant of this facility,  and received a waiver from
the lender. The Company was in compliance with all other required covenants.

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

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

                                                                                         March 31,          December 31,
                                                                                           2002                 2001
                                                                                    -------------------- -------------------
<S>                                                                                 <C>                  <C>
$13.5 million senior subordinated notes payable to unrelated parties, bearing
     interest at 15% per annum payable quarterly, principal due February 2003
      and is senior to subordinated debentures                                      $            5,000   $          5,000
$17.5 million subordinated debentures, interest at 12% per annum
     (approximately 18.8% effective rate) payable semi-annually, principal
     balance due October 23, 2003                                                               13,839             13,839
$11.9 million subordinated debentures, interest at 11% per annum
     (approximately 19.7% effective rate) payable semi-annually, principal
     balance due April 15, 2007                                                                 11,940             11,940
$7.0 million senior subordinated note payable to a related party, bearing
interest
     at LIBOR plus 6% per annum payable quarterly, principal due December 2003                   2,000              5,400
                                                                                    -------------------- -------------------
     Subtotal                                                                                   32,779             36,179
     Less:          Unamortized Discount - subordinated debentures                               4,649              4,920
                                                                                    -------------------- -------------------
     Total                                                                          $           28,130   $         31,259
                                                                                    ==================== ===================
</TABLE>

Note 5.  Stockholders' Equity

     On November 16, 2001,  Mr.  Ernest  Garcia II, the  Company's  Chairman and
majority  shareholder,  announced  his  intention  to initiate a tender offer to
purchase all of the outstanding common stock of the Company not owned by him for
$2.51 per share. On December 10, 2001, the Company entered into an Agreement and
Plan of  Merger  (the  "Merger  Agreement")  with Mr.  Garcia,  Mr.  Gregory  B.
Sullivan,  the  President  and CEO of the  Company,  UDC  Holdings  Corp.  ("UDC
Holdings"),  an  entity  controlled  by Mr.  Garcia  and Mr.  Sullivan,  and UDC
Acquisition  Corp. ("UDC  Acquisition"),  an entity wholly owned by UDC Holdings
(collectively,  the "Buyout  Group").  The Merger  Agreement  provided  that the
pending tender offer would be amended to, among other things, increase the offer
price from $2.51 per share to $3.53 per share (the "Amended Tender Offer").  The
Merger  Agreement  also  provided  for a second step merger at the same price of
$3.53 per share (the "Merger," and together with the Amended  Tender Offer,  the
"Transaction"). The Merger Agreement further provided that the Transaction could
be consummated  only if a majority of the minority  shareholders  of the Company
either  tendered  their shares in the Amended  Tender Offer or voted in favor of
the Merger. At that time, there were 4,771,749 shares of the Company's stock not
held by the Buyout Group.

     On December 14, 2001, the Buyout Group  commenced the Amended Tender Offer.
In the Amended  Tender  Offer  materials,  the Buyout  Group  disclosed  that it
intended  to  cause  the  Merger  to  become  effective  without  a  meeting  of
shareholders,  pursuant to Delaware law, if the Amended Tender Offer resulted in
UDC Acquisition  holding at least 90% of the Company's  outstanding  shares. The
Company and the board also sent materials to its  shareholders  at the same time
recommending  that  shareholders  tender  their  shares  pursuant to the Amended
Tender Offer.

     The Company's  shareholders  overwhelmingly  supported  the Amended  Tender
Offer, which expired on January 16, 2002. Shareholders tendered 3,806,800 shares
of the Company's  common stock  representing  approximately  79% of the minority
shares.  Upon  completion of the Amended  Tender Offer,  UDC  Acquisition  owned
approximately 92% of the Company.
<PAGE>

     On March 4, 2002,  the Merger was  consummated.  In the  Merger,  which was
consummated  without a  shareholder  vote in  accordance  with Delaware law, UDC
Acquisition  was merged with and into the Company,  with the Company  surviving.
Upon  consummation  of the  Merger  and  pursuant  to the  terms  of the  Merger
Agreement and Delaware law:

o    All shares of outstanding common stock not held in treasury or owned by the
     Buyout  Group  were  cancelled,  retired  and  converted  into the right to
     receive either (a) $3.53 per share in cash,  without interest or (b) if the
     holder  properly  exercised  appraisal  rights under Delaware law, the fair
     value of the shares as determined by the Court in appraisal proceedings;

o    All treasury  shares and shares held by the Buyout Group were cancelled and
     retired without any consideration; and

o    All shares of UDC Acquisition common stock outstanding immediately prior to
     the effective date of the Merger were converted into shares of common stock
     of the Company.

     As a result of the Merger, the only remaining  outstanding shares of common
stock of the Company are the 100 shares of common stock  issued upon  conversion
of the shares UDC Acquisition  common stock. All of these shares are held by UDC
Holdings.

     Shortly  after the  expiration  of the Amended  Tender  Offer,  the Company
mailed to the  shareholders  who did not tender their shares a notice  outlining
the  procedures  they were required to follow if they wished to dissent from the
Merger  and  seek   appraisal  of  their  shares.   Under  Delaware  law,  these
shareholders  had 20 days from the date of the  mailing  of the notice to notify
the Company of their  intention to assert  appraisal  rights.  If such notice is
timely made,  dissenting  shareholders must file a petition for appraisal in the
Delaware Court of Chancery  within 120 days of the effective date of the Merger,
or all appraisal rights will be lost and dissenters will only be entitled to the
merger  consideration  of $3.53 per share. In the event a petition for appraisal
is filed, the court then determines which shareholders are entitled to appraisal
rights and appraises the shares of such shareholders.

     Although  several  shareholders  provided the Company with timely notice of
their  intention to assert  appraisal  rights,  to the Company's  knowledge,  no
petition for  appraisal  has been filed in the Delaware  Court of Chancery as of
the date of filing of this  quarterly  report.  The  deadline  for filing such a
petition is on or about July 2, 2002. In the event such a petition is filed, UDC
Holdings has agreed to fund the payment to the dissenting shareholders.

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.
<PAGE>

   A summary of operating activity by business segment for the three months
ended March 31, 2002 and 2001 follows:
<TABLE>
<CAPTION>

Three months ended March 31, 2002:                       Retail         Portfolio       Corporate         Total
                                                         ------         ---------       ---------         -----
<S>                                                   <C>               <C>             <C>             <C>
Sales of Used Cars                                    $   142,234       $        -      $       -       $  142,234
Less: Cost of Cars Sold                                    83,017                -              -           83,017
    Provision for Credit Losses                            30,057           15,310              -           45,367
                                                     ---------------  --------------  --------------  ---------------
                                                           29,160         (15,310)              -           13,850
Net Interest Income                                             -           26,687              -           26,687
                                                     ---------------  --------------  --------------  ---------------
Income before Operating Expenses                           29,160           11,377              -           40,537
                                                     ---------------  --------------  --------------  ---------------
Operating Expenses:
Selling and Marketing                                       7,613                -              -            7,613
General and Administrative                                 13,449            6,542          5,791           25,782
Depreciation and Amortization                               1,111              252            745            2,108
                                                     ---------------  --------------  --------------  ---------------
                                                           22,173            6,794          6,536           35,503
                                                     ---------------  --------------  --------------  ---------------
Income (Loss) before Other Interest Expense           $     6,987       $    4,583      $ (6,536)       $    5,034
                                                     ===============  ==============  ==============  ===============

Capital Expenditures                                  $       447       $       95      $     867       $    1,409
                                                     ===============  ==============  ==============  ===============
Identifiable Assets                                   $    68,203       $  538,619      $  30,574       $  637,396
                                                     ===============  ==============  ==============  ===============


Three months ended March 31, 2001:                       Retail         Portfolio       Corporate          Total
                                                         ------         ---------       ---------          -----
Sales of Used Cars                                    $   130,186       $        -      $       -       $  130,186
Less: Cost of Cars Sold                                    72,841                -              -           72,841
    Provision for Credit Losses                            26,652           12,368              -           39,020
                                                     ---------------  --------------  --------------  ---------------
                                                           30,693         (12,368)              -           18,325
Net Interest Income                                             -           25,195            130           25,325
                                                     ---------------  --------------  --------------  ---------------
Income before Operating Expenses                           30,693           12,827            130           43,650
                                                     ---------------  --------------  --------------  ---------------
Operating Expenses:
Selling and Marketing                                       7,626                -              -            7,626
General and Administrative                                 14,658            8,008          4,772           27,438
Depreciation and Amortization                               1,326              264            817            2,407
                                                     ---------------  --------------  --------------  ---------------
                                                           23,610            8,272          5,589           37,471
                                                     ---------------  --------------  --------------  ---------------
Income (loss) before Other Interest Expense           $     7,083       $    4,555      $ (5,459)       $    6,179
                                                     ===============  ==============  ==============  ===============
Capital Expenditures                                  $     2,087       $      229      $     857       $    3,173
                                                     ===============  ==============  ==============  ===============
Identifiable Assets, Excluding
     Net Assets of Discontinued Operations            $    85,204       $  549,682      $  21,302       $  656,188
                                                     ===============  ==============  ==============  ===============
</TABLE>

Note 7.  Use of Estimates

     The preparation of our condensed consolidated financial statements requires
us to make estimates and  assumptions  that affect the reported amount of assets
and liabilities and disclosure of contingent  assets and liabilities at the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting period. Actual results could differ from our estimates.

Note 8.  Reclassifications

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

Note 9.  Recent Accounting Pronouncements

     The Company adopted the provisions of Statement No. 141 as of July 1, 2001,
and  Statement 142  effective  January 1, 2002.  Statement No. 141 required upon
adoption of Statement No. 142, that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business combination,
and make any  necessary  reclassifications  in  order  to  conform  with the new
criteria  in  Statement  No.  141  for  recognition  apart  from  goodwill.   In
conjunction  with the  adoption  fo the  Statement  No.  142,  the  Company  has
allocated the entire goodwill balance to the Retail Operations  Segment.  During

<PAGE>

the second  quarter of 2002,  the Company  expects to finalize the first step of
the  required  impairment  tests of goodwill as of January 1, 2002.  The Company
does not expect the effect of these tests to be material to the  earnings or the
financial  position of the Company.  In addition,  upon adoption we discontinued
amortizing goodwill.  For the three months ended March 31, 2001, the Company had
approximately  $0.2 million in amortization  expense.  As of March 31, 2002, the
Company has  unamortized  goodwill of  approximately  $11.6  million  within the
retail segment and no unamortized  identifiable  intangible assets. (For further
discussion on SFAS No. 141 and 142, see Management's  Discussion and Analysis of
Financial Condition- Recent Accounting Pronouncements.)


    Note 10.  Subsequent Events

     On April 1, 2002, the Company completed its 22nd securitization, consisting
of  approximately  $170.4  million in  principal  balances  and the  issuance of
approximately $121.0 million in Class A bonds,  including a pre-funded amount of
approximately $16.3 million.  The coupon rate on the Class A bonds is 4.16%, the
initial  deposit  into the  reserve  account  was 6.0% and the  reserve  account
maximum  is  10.0%.  As a  condition  for  MBIA  providing  insurance  for  this
securitization,  the Company  deposited an additional  $2.3 million in an escrow
account  to  protect  MBIA from any  potential  losses on any  currently  active
trusts.

     On  April  1,  2002,  Verde  Investments   transferred  to  Cygnet  Capital
Corporation  ("CCC"),  an  affiliate  of Verde  and Mr.  Ernest C.  Garcia,  the
remaining  $2.0 million  balance of the $7.0 million  note  payable.  All future
principal reductions and interest payments will be made to CCC.

     On February 4, 2002, the parties  entered into a Stipulation  and Agreement
of  Compromise,  Settlement  and  Release  documenting  the  settlement  of  the
shareholder  derivative  complaint  filed on March 20, 2001 and  providing for a
final hearing for court review and approval of the settlement (see  Management's
Discussion  and Analysis of Financial  Condition - Part II Other  Information  -
Item  1.  Legal  Proceedings).  A  mailing  was  sent  to  the  shareholders  in
mid-February  and this  hearing was held on April 17, 2002.  On April 18th,  the
court entered its final  decision  approving the settlement and finding it fair,
reasonable  and in the best  interests  of the class,  certifying  the class for
purposes of the settlement, compromising and releasing all claims with prejudice
on the merits and awarding  attorneys'  fees and costs to the plaintiffs' in the
amount  of  $1,050,000.   A  notice  of  appeal  was  filed  by  two  dissenting
shareholders,  acting pro se (without legal counsel), prior to the expiration of
the appeal period. A motion to dismiss will be filed  challenging the appeal and
the Company intends on vigorously  defending the court order and the settlement.
The Company  also has reached an agreement  with its  directors'  and  officers'
liability  insurance  carrier to  reimburse  the  Company for the payment of the
plaintiffs'  fees and costs (assuming the court order becomes final),  and it is
in the process of documenting that agreement.



<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 March 31, 2002,  we operated 76  dealerships  located in
eleven metropolitan areas in eight states. We have one primary line of business:
to sell and finance  quality used vehicles to customers  within what is referred
to as the  sub-prime  segment of the used car market.  The  sub-prime  market is
comprised of customers who typically have limited credit histories,  low incomes
or past credit problems.  References to Ugly Duckling Corporation as the largest
chain of  buy-here  pay-here  used  car  dealerships  in the  United  States  is
management's  belief  based upon the  knowledge  of the  industry and not on any
current independent third party study.

     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 bi-weekly, often coinciding with the 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 certain
underwriting  standards and the discretion of our dealership or sales  managers,
potential customers must meet our formal underwriting  guidelines before we will
agree to finance the purchase of a vehicle. Our employees analyze and verify the
customer credit  application  information and subsequently  make a determination
whether to provide financing to the customer.

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

     In the  following  discussion  and  analysis,  we  explain  the  results of
operations   and  general   financial   condition  of  Ugly   Duckling  and  its
subsidiaries.  In particular,  we analyze and explain the changes in the results
of operations of our business  segments for the three-month  periods ended March
31, 2002 and 2001.  All amounts are  presented in thousands  except per unit and
per car data, unless otherwise noted.

During the first quarter of 2002 we:

o    Became a  privately  held  company  on March 4, 2002  when UDC  Acquisition
     Corp., an entity controlled by Ugly Duckling's Chairman,  Mr. Ernest Garcia
     II, completed its short form merger with and into Ugly Duckling,
o    Experienced  significant improvement in delinquencies with accounts greater
     than 30 days delinquent falling from 9.3% at December 31, 2001 down to 5.7%
     at March 31, 2002, a 39% improvement,
o    Increased  revenues  to $175  million in the first  quarter  of 2002,  a 7%
     increase  over the first 3 months of 2001,  o Took steps to further  reduce
     expenses  through a second  reduction  in work force to save  approximately
     $1.7 million annually in salary, wages and benefits,
o    Renewed our warehouse  credit  facility with  Greenwich  Capital  Financial
     Products,  Inc.,  increasing  the  maximum  borrowings  and  improving  the
     effective advance rate,
o    Launched  a pilot  interest  rate  program  in the  Phoenix  market  called
     RateAdvantage  that  offers  interest  rates  ranging  from  9.9% to  29.9%
     depending  upon  the  customer's  credit  grade  and the  size of the  down
     payment, and
o    We continued to make improvements to our business model, respositioning the
     Company  to  focus  on  providing  our  customers  with  innovative  credit
     solutions, quality vehicles, and outstanding customer service.



<PAGE>

<TABLE>
<CAPTION>


                                                    ---------------------------------------------------------------------------
Selected Consolidated Financial Data                                       For the Three Months Ending,
                                                    ---------------------------------------------------------------------------
($ in thousands, except per car sold amounts)             March 31,   December 31, September 30,       June 30,      March 31,
                                                            2002           2001          2001           2001            2001
                                                    ---------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>            <C>            <C>
Operating Data:
Total Revenues                                           $  175,064     $  121,292    $  145,237     $  140,819     $  164,030
Sales of Used Cars                                       $  142,234     $   88,018    $  110,237     $  105,919     $  130,186
Earnings before Interest, Taxes, Depr. & Amort.          $   13,285     $    5,423    $     969      $   14,518     $   17,105
E-Commerce Revenue as Percent of Sales of Used Cars           13.8%          13.8%         14.2%          14.4%          11.6%

Number Dealerships in Operation                                  76             76            76             77             77

Average Sales per Dealership per Month                           67             41            52             50             64

Number of Used Cars Sold                                     15,300          9,353        11,907         11,607         14,851
Sales Price - Per Car Sold                               $    9,296     $    9,411    $    9,258     $    9,125     $    8,766
Cost of Sales - Per Car Sold                             $    5,426     $    5,549    $    5,259     $    5,224     $    4,905
Gross Margin - Per Car Sold                              $    3,870     $    3,862    $    3,999     $    3,901     $    3,861
Provision - Per Car Sold                                 $    2,965     $    3,324    $    4,095     $    2,775     $    2,627
Total Operating Expense - Per Car Sold                   $    2,320     $    3,765    $    2,959     $    3,092     $    2,523
Total Operating Income (Loss) - Per Car Sold             $      329     $    (413)    $    (744)     $     396      $     416
Total Operating Income (Loss)                            $    5,034     $  (3,865)    $  (8,859)     $    4,591     $    6,179
Earnings before Income Taxes                             $    2,728     $  (6,392)    $ (11,554)     $    1,729     $    3,088
Cost of Used Cars as Percent of Sales                         58.4%          59.0%         56.8%          57.3%          56.0%
Gross Margin as Percent of Sales                              41.6%          41.0%         43.2%          42.7%          44.0%
Provision - % of Originations                                 32.3%          35.5%         44.7%          31.1%          31.0%
Total Operating Expense - % of Total Revenues                 20.3%          29.0%         24.3%          25.5%          22.8%
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold                  $    1,449     $    1,932    $    1,795     $    1,934     $    1,590
Retail Operating Expense-% of Used Car Sales                  15.6%          20.5%         19.4%          21.2%          18.1%
Corporate/Other Expense - Per Car Sold                   $      427     $     828     $     532      $     503      $      376
Corporate/Other Expense - % of Total Revenue                   3.7%           6.4%          4.4%           4.1%           3.4%
Portfolio Exp. Annualized - % of End of Period
Principal                                                      5.0%           7.3%          5.6%           5.8%           6.2%
Balance Sheet Data:
Finance Receivables, net                                 $  514,329     $  495,254    $  501,048     $  544,585     $  522,893
Inventory                                                $   39,471     $   58,618    $   47,414     $   40,772     $   43,434
Total Assets                                             $  637,396     $  647,657    $  657,740     $  678,950     $  659,470
Portfolio Notes Payable                                  $  381,208     $  377,305    $  386,572     $  415,877     $  390,615
Subordinated Notes Payable                               $   28,130     $   31,259    $   32,600     $   34,951     $   40,807
Other Notes Payable                                      $   29,753     $   52,510    $   41,646     $   42,495     $   39,444
Total Debt                                               $  439,091     $  461,074    $  460,818     $  493,323     $  470,866
Total Stockholders' Equity                               $  146,859     $  145,483    $  151,550     $  158,604     $  157,222

Total Debt to Equity                                            3.0            3.2           3.0            3.1            3.0
Loan Portfolio Data:
Interest Income                                          $   32,830     $   33,274    $   35,000     $   34,900     $   33,844
Average Yield on Portfolio                                    25.9%          25.8%         26.5%          26.7%          26.3%

Portfolio Interest Expense                                    6,143          6,957         7,489          7,492          8,519
Average Portfolio Borrowing Cost                               7.0%           7.5%          8.0%           8.3%           8.9%
Principal Balances Originated                            $  140,455     $   87,452    $  109,139     $  103,615     $  126,015
Principal Balances Originated as % of Sales                   98.7%          99.4%         99.0%          97.8%          96.8%

Number of Loans Originated                                   15,225          9,283        11,844         11,558         14,776
Average Original Amount Financed                         $    9,225     $    9,421    $    9,215     $    8,965      $   8,528
Number of Loans Originated as % of Units Sold                 99.5%          99.3%         99.5%          99.6%          99.5%
Portfolio Delinquencies:
     Current                                                  72.4%          64.5%         67.4%          76.4%          78.6%
     1 to 30 days                                             21.9%          26.2%         24.0%          16.8%          15.7%
     31 to 60 days                                             3.3%           5.6%          5.3%           4.1%           3.3%
     Over 60 days                                              2.4%           3.7%          3.3%           2.7%           2.4%
Principal Outstanding , net                              $  543,842     $  514,699    $  537,946     $  534,766     $  535,039

Number of Loans Outstanding                                  84,821         82,254        85,961         86,446         87,033
</TABLE>
<PAGE>

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

                                     Three Months Ended
                                         March 31,
                                -----------------------------  Percentage
                                     2002          2001          Change
                                ----------------------------- --------------

<S>                             <C>           <C>             <C>
Number of Used Cars Sold
                                      15,300          14,851            3.0%
                                =============================

Sales of Used Cars              $    142,234  $      130,186            9.3%
Cost of Used Cars Sold           83,017               72,841           14.0%
                                -----------------------------
Gross Margin                    $     59,217  $       57,345            3.3%
                                =============================

Gross Margin %                         41.6%           44.0%

Per Car Sold:
Sales                           $      9,296  $        8,766            6.0%
Cost of Used Cars Sold                 5,426          4,905            10.6%
                                -----------------------------
Gross Margin                    $      3,870  $        3,861            0.2%
                                =============================
</TABLE>

     For the  three-month  period ended March 31, 2002,  the number of cars sold
increased  to  15,300  units,  a 3.0% over the same  period  of the prior  year.
Through our analysis of the primary factors that influence loan performance,  we
determined that a higher cost and better quality vehicle  positively affects the
gross loan loss rate across all credit grades. We made a decision to upgrade the
quality of our vehicle inventory  throughout 2001 and have continued to increase
the  quality of our  vehicles  in the first  quarter of 2002.  As a result,  the
average sales price  increased  6.0% and the cost of a vehicle  increased  10.6%
compared to the first quarter of 2001.  The average  dollar gross margin per car
remained fairly constant between  periods.  We calculate our vehicle sales price
using a fixed dollar margin and not as a percentage of cost; therefore,  when we
increased the quality and related cost of vehicles,  the margin  decreased  from
44.0% down to 41.6%.  We foresee  this trend  continuing  throughout  2002 as we
continue to move toward better quality inventory.

     Our Internet site continues to be a valuable tool  generating a steady flow
of credit  applications,  which lead to the closing of sales at our dealerships.
We accept credit applications from potential customers via our website,  located
at www.uglyduckling.com  and www.duckloans.com.  Our employees review the credit
applications  received  over the web and then contact the customers and schedule
appointments at our dealerships.  During the first quarter of 2002, applications
received via our internet  site  generated  2,104 cars sold and $19.7 million in
revenue,  up from 1,773 cars sold and $15.0  million in revenue  during the same
period of the prior year.

     We finance  substantially all of our used car sales. The percentage of cars
sold  financed has  remained  constant for the three months ended March 31, 2002
versus the comparable  period of 2001. We have  experienced a slight increase in
the  percentage  of sales  revenue  financed  as a result of an  increase in the
average sales price per car sold due to our focus on better  quality  cars.  The
following table indicates the percentage of sales units and revenue financed:

                                              Three Months Ended
                                                  March 31,
                                            -----------------------
                                               2002        2001
                                            -----------------------
Percentage of used cars sold financed          99.5%       99.5%
                                            =======================

Percentage of sales revenue financed           98.7%       96.8%
                                            =======================
<PAGE>

Provision for Credit Losses

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

                                                 Three Months Ended
                                                      March 31,
                                              --------------------------   Percentage
                                                   2002         2001         Change
                                              -------------------------- -------------

<S>                                           <C>            <C>           <C>
Provision for Credit Losses                        $45,367      $39,020         16.3%
                                              ==========================
Provision per loan originated                       $2,980       $2,641         12.8%
                                              ==========================
Provision as a percentage of
  principal balances originated                      32.3%        31.0%
                                              ==========================
</TABLE>

     The Provision for Credit Losses  increased to $45.4 million or 32.3% of the
total  amount  financed  for the  quarter  ended March 31,  2002,  up from $39.0
million or 31.0% of the total amount  financed  for the quarter  ended March 31,
2001. Company policy is to maintain an Allowance for Credit Losses ("Allowance")
for all loans in its portfolio to cover  estimated net  charge-offs for the next
12 months. The Company began to improve the underlying credit quality mix of its
originations  due to improved  credit  standards  and the  introduction  of loan
grading in 2001. As a result,  2001 and 2002  originations are performing better
to date than loans originated in prior periods.  Offsetting  these  improvements
are the effects of the recession and the performance of loans  originated  prior
to 2001 that do not have the benefit of the new higher credit  standards and are
emerging at loss levels higher than previously estimated.  In addition,  the net
principal  balance of loans  outstanding  increased from $535.0 million at March
31, 2001 to $543.8  million at March 31, 2002.  The net result is an increase in
the Provision for Credit Losses both in total dollars and as a percentage of the
amount  financed in the first quarter of 2002.  The Allowance as a percentage of
loan  principal is 19.8% at December 31, 2001 and March 31, 2002,  up from 19.1%
as of March 31, 2001.

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

Net Interest Income
<TABLE>
<CAPTION>

                               Three Months Ended
                                   March 31,            Percentage
                            -------------------------
                                2002        2001          Change
                            -------------------------  -------------


<S>                         <C>          <C>           <C>
Interest Income             $    32,830  $     33,844         (3.0%)
Portfolio Interest Expense      (6,143)       (8,519)        (27.9%)
                            -------------------------
Net Interest Income         $    26,687  $     25,325           5.4%
                            =========================
                            -------------------------

Average Effective Yield           25.9%         26.3%
Average Borrowing Cost             7.0%          8.9%
</TABLE>

     Interest  Income  consists  primarily  of  interest  on finance  receivable
principal  balances  retained on our balance  sheet,  plus interest  income from
investments  held in trust. The average  effective yield on finance  receivables
remained fairly constant at 25.9% and 26.3% for the three months ended March 31,
2002 and 2001,  respectively.  Offsetting  the slight  decrease  in yield was an
increase in the average  retained  principal  balances to $528.0 million for the
first quarter of 2002, up from $525.5 million for the first quarter of 2001. The
decrease in interest income consisted primarily of a decrease in interest earned
on  investments  held in trust from $1.0 million for the quarter ended March 31,
2001 to $0.3  million for the quarter  ended March 31, 2002.  This  decrease was
primarily related to lower money market rates during the first quarter of 2002.

     Portfolio  interest expense consists primarily of interest on our revolving
warehouse  facility  and the Class A  obligations  issued in our  securitization
transactions  from the  collateralized  borrowings  on the  retained  portfolio.
Portfolio  interest expense decreased to $6.1 million for the three-month period
ending  March 31,  2002,  compared  to $8.5  million  for the same period of the
previous  year.  The decrease is due to lower  borrowing  costs as a result of a
decline  in  LIBOR,  and due to  borrowing  less  under the  combination  of the
warehouse line and securitizations as a result of securing the inventory line in
August of 2001, which is included in other interest expense.
<PAGE>

Income before Operating Expenses

     Income before  Operating  Expenses  decreased 7.1% to $40.5 million for the
three-month  period ended March 31, 2002,  as compared to $43.7  million for the
three-month  period ended March 31, 2001. The decrease resulted from an increase
in the amount charged to current operations for the provision for credit losses,
partially  offset  by an  increase  in gross  margin on used cars sold due to an
increase in the number of units sold,  and an  increase in net  interest  income
primarily due to a decrease in portfolio interest expense.
<TABLE>
<CAPTION>

Operating Expenses

                                  Three Months Ended
                                      March 31,
                          --------------------------------   Percentage
                                 2002           2001            Change
                          -------------------------------- --------------
   <S>                     <C>           <C>               <C>
   Operating Expenses      $     35,503    $       37,471          (5.3%)
                          ================================

   Per Car Sold            $      2,320    $        2,523          (8.0%)
                          ================================

   As % of Total Revenue          20.3%             22.8%
                          ================================
</TABLE>

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

Other Interest Expense

     Other Interest  Expense,  which consists of interest on Other Notes Payable
and Subordinated Notes Payable,  totaled $2.3 million for the three months ended
March 31, 2002, versus $3.1 million for the comparable period of the prior year.
The average  outstanding  balance for Other Notes  Payable was $41.1 million and
$33.7 million for the three months ended March 31, 2002 and 2001,  respectively.
The  increase  is  primarily  attributable  to  borrowings  under the  revolving
inventory facility,  partially offset by scheduled principal  reductions made on
the senior secured loan facility and a reduction in mortgage interest related to
the sale of  certain  dealerships  to Verde  Investments  in January  2002.  The
average  outstanding  balance of Subordinated  Notes Payable  decreased to $29.0
million  from $41.4  million for the three months ended March 31, 2002 and 2001,
respectively.  The decrease related primarily to scheduled principal  reductions
on the senior  subordinated  note payable,  the  repurchase in June 2001 of $3.6
million  in  principal  of the  subordinated  debentures  due in 2003 and a $5.0
million  reduction in the subordinated  debt payable to Verde  Investments.  See
Note (4) of the Notes to the Condensed  Consolidated  Financial  Statements  for
further discussion.

   Income Taxes

     Income taxes  totaled $1.4 million for the  three-month  period ended March
31, 2002, versus $1.3 for same equivalent period in 2001. Our effective tax rate
was 41% for the period  ended  March 31,  2002,  and 41% for the same  period in
2001.  In addition,  the income taxes for the three months ended March 31, 2002,
include  approximately  $0.2  million  change for a change in  estimate  for tax
deficiencies.

   Net Earnings

     Net  Earnings  totaled  $1.4  million for the three  months ended March 31,
2002, as compared  with $1.8 million for the same period of the prior year.  The
decrease  was due  primarily  to the  increase  in  provision  for loan  losses,
partially  offset by an increase in the number of vehicles  sold, an increase in
net interest income due primarily to a reduction in portfolio  interest expense,
a decrease in operating expenses due to numerous cost savings  initiatives and a
decrease in other interest expense due to a reduction in borrowings.
<PAGE>

Business Segment Information

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

     Operating Expenses for our business  segments,  along with a description of
the included  activities,  for the three -month  period ended March 31, 2002 and
2001 are as follows:

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

                                                    Three Months Ended
                                                        March 31,
                                              -------------------------------
                                                   2002            2001
                                              ---------------  --------------
     <S>                                      <C>              <C>
     Retail Operations:
       Selling and Marketing                  $         7,613  $        7,626
       General and Administrative                      13,449          14,658
       Depreciation and Amortization                    1,111           1,326
                                              ---------------  --------------
          Retail Expense                      $        22,173  $       23,610
                                              ===============  ==============
   Per Car Sold:
       Selling and Marketing                  $           497  $          514
       General and Administrative                         879             987
       Depreciation and Amortization                       73              89
                                              ---------------  --------------
          Total                               $         1,449  $        1,590
                                              ===============  ==============

   As % of Used Cars Sold Revenue:
       Selling and Marketing                             5.4%            5.9%
       General and Administrative                        9.4%           11.3%
       Depreciation and Amortization                     0.8%            1.0%
                                              ---------------  --------------
          Total                                         15.6%           18.2%
                                              ===============  ==============
</TABLE>

     Total Selling and Marketing  expenses remained fairly constant quarter over
quarter;  however, due to an increase in the number of cars sold, these expenses
decreased slightly on a per car sold basis. Selling and Marketing decreased as a
percentage of car sales  revenues due to the increase in the number of cars sold
and combined with an increase in sales price per vehicle.

     General and Administrative  expenses  decreased in total dollars,  on a per
car sold basis and as a percentage of cars sales  revenue  related for the three
months  ended March 31, 2002,  principally  due to a reduction in work force and
other general cost saving initiatives.

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

<TABLE>
<CAPTION>

                                                                Three Months Ended
                                                                    March 31,
                                                          -------------------------------
                                                                2002           2001
                                                          -------------------------------
     <S>                                                     <C>             <C>
     Portfolio Expense:
       General and Administrative                            $     6,542     $     8,008
       Depreciation and Amortization                                   252           264
                                                          -------------------------------
          Portfolio Expense                                  $     6,794     $     8,272
                                                          ===============================

                                                          -------------------------------
   Average Expense per Month per Loan Serviced               $     27.00     $     31.68
                                                          ===============================
   Annualized Expense as % of  EOP  Managed               -------------------------------
       Principal Balances                                           5.0%            6.2%
                                                          ===============================
</TABLE>

     The  decrease in  portfolio  expenses and in the expense per month per loan
serviced for the  three-month  period ended March 31, 2002  compared to the same
period in 2001 for our Portfolio  segment is primarily a result of  efficiencies
gained with the closing of the collection and loan administration  facilities in
Florida and Texas during the first quarter of 2001 and other general cost saving
initiatives.  The three months ended March 31, 2001 include a $0.6 restructuring
related to the closure of those facilities.

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

                                                               Three Months Ended
                                                                   March 31,
                                                        ---------------------------------
                                                              2002             2001
                                                        -----------------  --------------
     <S>                                                   <C>              <C>
     Corporate Expense:
       General and Administrative                          $     5,791      $      4,772
       Depreciation and Amortization                               745               817
                                                        -----------------  --------------
          Corporate Expense                                $     6,536      $      5,589
                                                        -----------------  --------------

   Per Car Sold                                            $       427      $        376
                                                        =================  ==============
   As % of Total Revenues                                         3.7%              3.4%
                                                        =================  ==============
</TABLE>

     Corporate  operating  expenses  as a  percent  of  total  revenue  remained
relatively consistent for the three months ended March 31, 2002, versus the same
period of 2001. However,  corporate expenses increased in total and on a per car
sold basis,  as compared to the same period of the previous year,  primarily due
to the $0.8 million restructuring charge in January 2002 as result of the second
reduction in work force.
<PAGE>

Financial Position

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

                                               March 31,        December 31,      Percentage
                                                 2002              2001             Change
                                           -----------------  ----------------  ---------------
<S>                                           <C>             <C>                 <C>
Total Assets                                  $     637,396   $       647,657           (1.6%)


Finance Receivables, net                            514,329           495,254             3.9%
Inventory                                            39,471            58,618          (32.7%)
Property and Equipment, net                          30,137            37,739          (20.1%)

Net Assets of Discontinued Operations                     -             3,899              N/A


Total Debt                                          439,091           461,074           (4.8%)

Notes Payable - Portfolio                           381,208           377,305             1.0%

Other Notes Payable                                  29,753            52,510          (43.3%)

Subordinated Notes Payable                           28,130            31,259          (10.0%)
Stockholders' Equity                          $     146,859   $       145,483             0.9%
</TABLE>

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

     Inventory. Inventory represents the acquisition and reconditioning costs of
used cars located at our dealerships and our inspection  centers.  The change in
inventory  from  December  31,  2001 to March  31,  2002 is due to  management's
decision to increase  inventory levels at the end of the year in preparation for
the strong  seasonal  sale periods  during the first and second  quarters of the
year.  We  generally  acquired  our  used  car  inventory  from  three  sources:
approximately  55%  from  auctions,  40%  from  wholesalers  and 5% from new car
dealerships  for the first quarter of 2002. In future  periods the percentage of
vehicles  acquired from auctions is anticipated to increase  dramatically  as we
are  implementing  changes to our  inventory  acquisition  strategy  to focus on
auctions  and to limit  purchases  from  wholesalers.  We believe this will help
enable us to achieve our goal of purchasing  higher quality  inventory at better
prices.

     Property and Equipment,  net. Net Property and Equipment  decreased by $7.6
million  during the quarter  ended March 31, 2002.  The  decrease was  primarily
related to the January 2002 sale and  leaseback of six  dealerships,  with a net
book value of $6.7 million,  to Verde  Investments,  Inc. pursuant to the option
agreement  granted  in 2001  as  partial  consideration  for  the  $7.0  million
subordinated loan made by Verde Investments,  Inc. See Note (3) to the Condensed
Consolidated Financial Statements.

     Finance Receivables,  net. Net Finance Receivables grew by $19.1 million or
3.9% during the quarter ended March 31, 2002.  New  originations  in the quarter
exceeded the portfolio runoff, consisting of regular principal payments, payoffs
and  charge-offs,  by $29.1  million.  Partially  offsetting  the growth in loan
principal  balances was a $4.7 million decrease in Investments Held in Trust and
the $5.7 million  increase in the Allowance for Credit  Losses.  The decrease in
Investments  Held in Trust was primarily due to the Company  purchasing back the
remaining  balance  on the  1999C  securitization,  resulting  in a  release  of
approximately $4.4 million in cash to the Company. See Note (2) to the Condensed
Consolidated   Financial   Statements  for  the  detail  components  of  Finance
Receivables, net.
<PAGE>

     The following  table reflects  activity in the Allowance for Credit Losses,
as well as information regarding charge-off activity, for the three months ended
March 31, 2002 and 2001 ($ in thousands):
<TABLE>
<CAPTION>

                                                        Three Months Ended March 31,
Allowance Activity:                                       2002               2001
                                                   --------------------------------------
<S>                                                   <C>                  <C>
Balance, Beginning of Period                          $   101,900          $     99,700
Provision for Credit Losses                                45,367                39,020
Other Allowance Activity                                       -                     42
Net Charge Offs                                          (39,667)              (36,762)
                                                   --------------------------------------
Balance, End of Period                                $   107,600          $    102,000
                                                   ======================================

Charge off Activity:
Principal Balances                                    $  (47,031)          $   (47,156)
Recoveries, Net                                             7,364               10,394
                                                   --------------------------------------
Net Charge Offs                                       $  (39,667)          $   (36,762)
                                                   ======================================
</TABLE>


     The  Allowance as a percentage  of loan  principal is 19.8% at December 31,
2001 and March 31, 2002,  up from 19.1% as of March 31, 2001.  The Allowance for
Credit Losses was $102.0  million as of March 31, 2001 and $107.6  million as of
March 31, 2002. Of the $5.6 million increase in the allowance for credit losses,
$1.7  million  related to the  increase in loan  principal  balance  from $535.0
million  as of March  31,  2001 to $543.8  million  as of March  31,  2002.  The
remainder of the increase related  primarily to originations  prior to 2001 that
are  emerging at higher loss levels  than  previously  estimated  and due to the
effects  of  the  recession.   Offsetting  these  higher  loss  rates  on  older
originations  are new  originations  since  the 1st  quarter  of 2001  that  are
performing  better than prior years due to the  implementation  of higher credit
standards.

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

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

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

     Notes  Payable -  Portfolio.  Notes  Payable -  Portfolio  consists  of our
warehouse line and  securitizations.  The amount outstanding under the warehouse
line  increased by $75.0 million  during the quarter  ended March 31, 2002.  The
increase  was used to fund new  originations  during the  quarter,  pending  the
securitization  of these  loans  which  was  completed  in April  2002  upon the
issuance  of  $121.0  million  in  Class A  bonds.  The  amount  of  obligations
outstanding  pursuant to the Company's  securitization  program  decreased $71.6
million in the first  quarter of 2002  primarily  due to no new  securitizations
during  the  quarter  combined  with  normal  runoff  of the  portfolio  and the
repurchase of the 1999C trust by the Company.

     Other Notes Payable - The decrease in Other Notes Payable was primarily due
to a  decrease  in the  inventory  line of $15.9  million  related  to  seasonal
reductions  in our vehicle  inventory.  In addition,  on January 4, 2002,  Verde
Investments, Inc. ("Verde"), an affiliate of Mr. Ernest Garcia II, the Company's
chairman,  purchased six properties located in Texas,  Virginia, and California,
and simultaneously  leased the properties to the Company on terms similar to the
Company's current leases, 15 year triple net leases, expiring December 2017.

     In conjunction with this sale, Verde assumed responsibility for payments on
approximately  $4.1  million  of  principal   mortgage  balances.   For  further
discussion,  see  Notes  (3)  and (4) of  Notes  to the  Condensed  Consolidated
Financial Statements.
<PAGE>

     Subordinated Notes Payable - The decrease in Subordinated Notes Payable was
primarily  due to the  pay  down  on the  subordinated  note  payable  to  Verde
Investments,  Inc.,  an affiliate of Mr.  Garcia,  entered into in January 2001,
which was reduced  from $5.4  million  outstanding  at December 31, 2001 to $2.0
million  outstanding  at  March  31,  2002.  Other  decreases  are  due  to  the
amortization of capitalized loan fees. See Notes (3) and (4) of the Notes to the
Condensed Consolidated Financial Statements.


Static Pool Analysis

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

     Currently  reported  cumulative  losses  may  vary  from  those  previously
reported due to ongoing  collection  efforts on  charged-off  accounts,  and the
difference  between final proceeds on the sale of repossessed  collateral versus
our  estimates of the sale  proceeds.  Management,  however,  believes that such
variation will not be material.

     The following  table sets forth as of April 30, 2002,  the  cumulative  net
charge-offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed by customers  before  charge-off.  The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).


<PAGE>

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

                                Monthly Payments Completed by Customer Before Charge-Off
                                --------------------------------------------------------
                          Orig.          0         3         6        12        18        24      TLI       Reduced
                          ------         -         -         -        --        --        --      -----     -------
   <S>                  <C>          <C>      <C>       <C>       <C>       <C>       <C>       <C>         <C>
   1993                 $ 12,984      8.8%     21.4%     27.6%     32.8%     34.8%     35.3%     36.8%       100.0%
   1994                 $ 23,589      5.3%     14.6%     19.6%     25.2%     27.5%     28.2%     28.8%       100.0%
   1995                 $ 36,569      1.9%      8.1%     13.1%     19.0%     22.1%     23.4%     24.1%       100.0%
   1996                 $ 48,996      1.5%      8.1%     13.9%     22.1%     26.2%     27.9%     28.9%       100.0%
   1997
   1st Quarter          $ 16,279      2.1%     10.7%     18.2%     24.8%     29.8%     32.0%     33.5%       100.0%
   2nd Quarter          $ 25,875      1.5%      9.9%     15.8%     22.7%     27.3%     29.4%     30.6%       100.0%
   3rd Quarter          $ 32,147      1.4%      8.3%     13.2%     22.4%     26.9%     29.1%     30.6%       100.0%
   4th Quarter          $ 42,529      1.4%      6.8%     12.6%     21.8%     26.0%     28.7%     29.9%       100.0%
   1998
   1st Quarter          $ 69,708      0.9%      6.9%     13.4%     20.8%     26.3%     28.7%     29.9%       100.0%
   2nd Quarter          $ 66,908      1.1%      8.0%     14.2%     21.7%     27.2%     29.1%     30.1%       100.0%
   3rd Quarter          $ 71,027      1.0%      7.9%     13.2%     22.9%     27.6%     30.1%     30.9%       100.0%
   4th Quarter          $ 69,583      0.9%      6.6%     13.0%     24.2%     28.9%     31.2%     32.2%        99.9%
   1999
   1st Quarter          $103,068      0.8%      7.4%     15.0%     23.4%     29.3%     31.5%     32.8%        99.6%
   2nd Quarter          $ 95,768      1.1%      9.8%     16.6%     25.2%     31.3%     33.6%     34.7%        98.7%
   3rd Quarter          $102,585      1.0%      8.2%     14.1%     25.2%     30.7%     33.5%     34.6%        96.5%
   4th Quarter           $80,641      0.7%      5.9%     12.6%     23.5%     28.9%     32.0%     32.7%        93.2%
   2000
   1st Quarter          $128,123      0.3%      6.5%     14.5%     24.1%     30.3%         x      32.7%       88.6%
   2nd Quarter          $118,778      0.6%      8.5%     15.9%     25.9%     32.6%         -      33.8%       82.7%
   3rd Quarter          $124,367      0.7%      7.7%     14.3%     25.8%         x         -      31.8%       75.4%
   4th Quarter          $100,823      0.6%      6.6%     13.6%     25.8%         -         -      28.3%       66.7%
   2001
   1st Quarter          $126,013      0.4%      6.4%     14.1%         x         -         -      23.6%       57.2%
   2nd Quarter          $103,521      0.5%      6.3%     13.0%         -         -         -      16.4%       43.9%
   3rd Quarter          $109,037      0.7%      5.4%         x         -         -         -       9.1%       28.0%
   4th Quarter          $ 87,355      0.7%         x         -         -         -         -       4.2%       12.4%
   2002
   1st Quarter          $140,178         x         -         -         -         -         -       0.5%        6.3%
</TABLE>



<PAGE>



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

                                                       March 31,        December 31,
Days Delinquent:                                         2002               2001
                                                   -----------------  -----------------
<S>                                                <C>                <C>
Current                                                       72.4%              64.5%
1-30 Days                                                     21.9%              26.2%
31-60 Days                                                     3.3%               5.6%
61-90 Days                                                     2.4%               3.7%
                                                   -----------------  -----------------
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 March 31, 2002.

     Current  accounts  increased from 64.5% as of December 31, 2001 to 72.4% as
of March 31, 2002 and accounts  greater than 30 days  delinquent  decreased from
9.3% to 5.7% during the same  period,  a 39%  improvement.  The  improvement  in
delinquencies  is a  combination  of (i) the  positive  effect of higher  credit
standards and the improved  credit quality mix of  originations  since the first
quarter  of  2001,   (ii)  the  transition  of  1-60  day  collectors  into  our
dealerships,  (iii)  the  easing  of the  effects  of the  recession,  and  (iv)
seasonality and the positive impact of income tax refunds.

     Although  delinquencies have improved  dramatically in the first quarter of
2002 and loan losses on recently  originated  loan pools indicate  improved loan
performance  compared to those loans originated prior to 2001, the Provision for
Credit Losses  increased to $45.4 million or 32.3% of the total amount  financed
for the quarter  ended  March 31,  2002,  up from $39.0  million or 31.0% of the
total amount financed for the quarter ended March 31, 2001. Company policy is to
maintain  an  Allowance  for Credit  Losses  ("Allowance")  for all loans in its
portfolio to cover estimated net charge-offs for the next 12 months. The Company
began to improve the underlying  credit quality mix of its  originations  due to
improved  credit  standards and the  introduction  of loan grading in 2001. As a
result,  2001 and 2002  originations  are  performing  better to date than loans
originated in prior periods.  Offsetting  these  improvements are the effects of
the recession and the performance of loans  originated prior to 2001 that do not
have the benefit of the new higher  credit  standards  and are  emerging at loss
levels higher than previously  estimated.  The Allowance as a percentage of loan
principal is 19.8% at December 31, 2001 and March 31, 2002,  up from 19.1% as of
March 31, 2001.

Securitizations

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

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

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

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

     Due to the impact of the  recession,  the events of September  11th and the
poor auction recovery market at year end 2001, three of our trusts, 2000B, 2000C
and 2001A, reached termination event charge-off levels for the month of December
2001, and one trust,  1999C,  reached a termination  event  delinquency level in
January  2002,  that  triggered  an  acceleration  of rights  for MBIA under the
Insurance Agreements of the respective trusts. These rights include, among other
things, the ability to transition servicing on these trusts to a third party and
accelerate the cash flow to the A bondholders until they have been paid in full.
These trusts  reached  these levels only for the month  indicated  and have been
under these levels since then.  In March 2002,  we  repurchased  the 1999C trust
resulting  in a release of $4.4  million in cash held in the reserve  account to
the  Company.  We continue  to trap cash in the  reserve  accounts of the 2000B,
2000C and 2001A trusts related to these December breaches in charge-off  levels.
MBIA has  reserved  their rights with  respect to these  breaches,  but based on
discussions  with MBIA,  we believe the Company will continue to function as the
servicer for these  trusts.  Further,  based on our  discussions  with MBIA,  we
believe  that when  these  trusts  are below the  performance  triggers  for two
consecutive  months, MBIA will allow us to begin releasing cash in excess of the
greater  of  a  reserve  account  level  of  20%  of  the  outstanding   Finance
Receivables'  principal  balance  or 4% of  the  original  Finance  Receivables'
principal  balance.  The  2000B,  2000C  and  2001A  trusts  were all  below the
portfolio  triggers  in April 2002 and based on current  performance  we believe
they will begin to release cash in the 2nd quarter of 2002.

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

     In April 2002, we completed our first  securitization  of this year, 2002A,
with  MBIA  providing  the  insurance  in the  transaction.  This  was the  22nd
securitization  in our history,  consisting of  approximately  $170.4 million in
principal  balances and the issuance of approximately  $121.0 million in Class A
bonds.  The coupon rate on the Class A bonds is 4.16%,  the initial deposit into
the  reserve  account was 6.0% and the reserve  account  maximum is 10.0%.  As a
condition  for MBIA  providing  insurance for this  securitization,  the Company
deposited an additional  $2.3 million in an escrow  account to protect MBIA from
any potential losses on any currently active trusts.

     We have mutually agreed with MBIA to further diversify our lending sources,
a process that we initiated in 2001 with our  inventory  and  warehouse  lending
facilities, and as a result we expect that our next securitization,  2002B, will
not be insured or we will engage a different  insurer for that  transaction.  We
are  currently  undergoing  due  diligence by potential  insurers and are in the
process of  negotiating  terms for future  securitizations.  We believe that our
next securitization will be in the third quarter of this year.

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

Liquidity and Capital Resources

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

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

    We fund our capital requirements primarily through:

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

</TABLE>

     For 2002,  we believe we will have adequate  liquidity for our  operations,
notwithstanding the termination events under the four securitizations  discussed
above. We closed our first securitization  transaction of 2002, insured by MBIA,
in April and believe we will  continue to be able to  securitize  our loan pools
throughout  the year.  We expect that our second  securitization  in 2002 either
will not be  insured  or we will  engage  an  insurer  other  than MBIA for that
transaction. We are currently undergoing due diligence by potential insurers and

<PAGE>

are in the process of negotiating terms for future securitizations.  In March of
2002, we renewed our $100 million  warehouse  credit  facility for an additional
364 day period. In addition,  we have negotiated a term sheet and have begun the
process of  documenting  the  renewal of our $35  million  senior  secured  loan
facility.  We believe the facility will be renewed  during the second quarter of
2002;  however,  we do not have a binding  commitment from the lender.  This $35
million  facility,  which has been reduced to $23.0  million  outstanding  as of
March 31, 2002, matures in February 2003. If it is not renewed, then starting in
October 2002, the regular  principal  reductions  increase from the current $1.0
million per month up to the greater of $3.0 million per month or 50% of the cash
flows from classes of notes issued through  securitizations that are subordinate
to Class A bonds. Our inventory facility does not expire until June of 2003.

     As a result of the termination  events and portfolio event described above,
residual  cash  otherwise  available to us is being  trapped for four of our six
securitization  trusts. In March 2002 we repurchased the 1999C trust,  which was
one of the four trusts that hit a termination  event,  resulting in a release of
$4.4  million  in cash held in the  reserve  account  to the  Company.  The cash
reserve  levels for the  remaining  three  trusts  that hit  termination  events
(2000B,  2000C and 2001A) are  expected to  increase  $4.7  million,  from $10.8
million at March 31, 2002, to approximately  $15.5 million in the second quarter
of 2002, and then begin releasing cash. In addition,  we expect that the reserve
accounts for 2000B,  2000C and 2001A will either  return to normal levels in the
3rd and 4th quarters of 2002 or the trusts will be bought back by us,  resulting
in the  release of these cash  reserves  and  generating  additional  cash flow.
Furthermore,  the portfolio event trust,  2000A, had trapped  sufficient cash so
that it began  releasing  excess  cash in  January  2002.  As a result  of these
events, and as previously discussed, as a condition for MBIA providing insurance
for the 2002A  securitization that closed in April 2002, we funded an additional
$2.3 million  deposit into an escrow  account as additional  collateral  for any
current  securitizations insured by MBIA. We do not expect the cumulative effect
of these  events and the  trapping of cash to  materially  impact our ability to
adequately fund our operations in 2002. However, if we experience adverse trends
in  delinquencies  or charge-offs,  or we are unable to renew our senior secured
term  facility  or are  unable to  securitize  our loan  pools,  it could have a
material adverse impact on our liquidity.

     For a  discussion  of certain  risks that could  affect our  liquidity  and
capital resources, see Exhibit 99 to this form 10-Q.

Cash Flow

     Net cash provided by operating  activities increased $19.2 million to $78.7
million in the three months ended March 31, 2002, up from $59.5 million net cash
provided  by  operating  activities  in the first  three  months  of 2001.  This
increase is primarily  due to an increase in  provision  for credit  losses,  an
increase in accounts  payable,  accrued expenses and other  liabilities,  and an
increase in income taxes payable.  Partially  offsetting these increases to cash
flow from operations  were a decrease in inventory  allowance and an increase in
other assets.

     Net cash used in  investing  activities  increased  $7.8  million  to $67.6
million  during the three  months  ended  March 31,  2002 as  compared  to $59.8
million  used  during  the same  period of 2001.  The  increase  in cash used in
investing  activities  is the  result  of an  increase  in  finance  receivables
originated  due to  increased  sales  price and volume,  partially  offset by an
increase  in  collections  on finance  receivables,  proceeds  from  disposal of
property and equipment related to the sale of six dealership properties to Verde
Investments and a reduction in purchases of property and equipment.

     Net cash used in  financing  activities  increased  $13.9  million to $14.7
million for the three months  ended March 31, 2002,  as compared to $0.8 million
net cash used  during  the same  period of 2001.  The  increase  in cash used is
primarily  due to a decrease in additions  to notes  payable  portfolio  because
there were no new securitizations during the quarter, a decrease to additions to
other notes payable, an increase in repayments of other notes payable related to
the pay down of the inventory line and an increase in repayment of  subordinated
notes payable.  Partially offsetting these increases in cash used were decreases
in initial deposits at securitization, additional deposits into investments held
in trust and repayment of notes  payable-portfolio,  all primarily because there
were no new securitizations  during the quarter, plus an increase in collections
from  investments  held in trust due to the  buyback of the 1999C  trust and the
related release of cash held in the reserve account.
<PAGE>

Financing Resources

     Revolving  Warehouse  Facility.  In March  2002,  the  Company  renewed its
revolving warehouse facility with Greenwich Capital Financial Products, Inc. for
an additional  364-day term through March 2003. The facility  allows for maximum
borrowings  of $100 million  during the entire  renewed term, as compared to $75
million  during the period May 1 through  November 30 increasing to $100 million
during  the  period  December  1 through  April 30 under the  initial  term.  In
addition, the 65% cap on the advance rate was removed and the calculation of the
warehouse advance relative to the net securitization advance was improved by 2%.
The lender  maintains an option to adjust the advance rate to reflect changes in
market conditions or portfolio performance. The interest rate on the facility is
LIBOR plus 2.80%  (4.70% and 4.72% at March 31,  2002,  and  December  31, 2001,
respectively). The facility is secured with substantially all Company assets. At
March 31, 2002, the Company was not in compliance  with the debt to EBITDA ratio
covenant of this facility and received a waiver from the lender. The Company was
in compliance with all other required covenants.

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

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

Supplemental Borrowings

     Senior Secured Note Payable.  In January 2001 we entered into a $35 million
senior secured loan facility with certain  lenders that has a term of 25 months.
Per the agreement,  the Company must make principal payments of $1.0 million per
month during months from April 2001 through September 2002.  Thereafter  through
maturity, the agreement requires minimum payments of the greater of $3.0 million
per  month  or 50% of the cash  flows  from  classes  of  notes  issued  through
securitization  that are  subordinate to the Class A bonds.  Interest is payable
monthly  at LIBOR  plus 600  basis  points  (7.90 % at March  31,  2002,  and at
December 31, 2001). The balance of the note was $23.0 million at March 31, 2002.
The loan is secured by  certain  Finance  Receivables.  At March 31,  2002,  the
Company  was not in  compliance  with the  senior  debt to total  capitalization
covenant of this  facility,  and received a waiver from the lender.  The Company
was in compliance  with all other  required  covenants.  We believe the facility
will be renewed  during the second  quarter of 2002;  however,  we do not have a
binding commitment from the lender.

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

     Senior  Subordinated  Notes. In February 1998, we borrowed a total of $15.0
million of subordinated debt from unrelated third parties for a three-year term.
We issued  warrants to the lenders of this debt to purchase up to 500,000 shares
of our common stock at an exercise price of $10.00 per share, exercisable at any
time  until the later of  February  2001,  or when the debt is paid in full.  On
September 30, 2000, the Loan Agreement,  Warrants and Warrant Agreements between
us and certain  Lenders under this Loan  Agreement,  were amended to: reduce the
outstanding principal balance under the Loan Agreement from $15 million to $13.5
million; require us to take out one of the lenders in the facility by paying off
that lender's $1.5 million  share of the loan (which  occurred),  and cancel the
number  of  outstanding  warrants  attributable  to that  portion  of the  loan;
increase the interest rate under the Loan  Agreement to 15%;  extend the term of
the Loan  Agreement  to February  12,  2003;  and provide for the  repayment  of
principal and the  corresponding  reduction of warrants  under certain terms and
conditions.  This debt is senior to the  subordinated  debentures  issued in our
exchange offers (described below),  subordinate to our other  indebtedness,  and
had a $5.0  million  balance at March 31,  2002.  With the  closing of the going
private transaction, the warrants were terminated.

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

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

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


Capital Expenditures and Commitments

     On March 4, 2002, UDC  Acquisition  Corp.  ("UDC  Acquisition"),  an entity
wholly  owned by UDC Holdings  Corp.,  controlled  by Ernest  Garcia II and Greg
Sullivan,  completed a short form merger with and into the Company.  The Company
was the  surviving  corporation  under  the  short  form  merger.  UDC  Holdings
capitalized  UDC  Acquisition  with a combination  of cash,  common stock of the
Company and a receivable from UDC Holdings representing a commitment to fund the
final  payment to  dissenting  shareholders.  See  Management's  Discussion  and
Analysis  of  Financial  Condition - Part II Other  Information  - Item 1. Legal
Proceedings).


Accounting Matters

Critical Accounting Policies

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

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

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

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

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

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

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

Recent Accounting Pronouncements

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

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

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

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

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

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


We Make Forward Looking Statements

     This Report includes statements that constitute  forward-looking statements
within the meaning of the safe harbor  provisions of the Private and  Securities
Litigation  Reform Act of 1995. We claim the protection of the  safe-harbor  for
our   forward-looking   statements.   Forward-looking   statements   are   often
characterized  by  the  words  "may,"  "anticipates,"  "believes,"  "estimates,"
"projects,"  "expects"  or similar  expressions  and do not  reflect  historical
facts.  Forward-looking  statements in this report relate,  among other matters,
to:  economic  conditions;   anticipated   financial  results,  such  as  sales,
profitability, other revenues and loan portfolios,  improvements in underwriting
including  credit  scoring,  adequacy of the  allowance for credit  losses,  and
improvements in recoveries and loan  performance,  including  delinquencies  and
charge offs;  retaining the warehouse and inventory lines of credit; the success
of cost savings  initiatives and  restructurings;  improvements in inventory and
inventory mix;  release of trapped cash;  repurchase of  securitization  trusts;
continued  servicing  in  connection  with   securitization   trusts  which  hit
termination events; continuing to complete securitization transactions; renewing
the  term  credit  facility;  and  internet  generated  sales  growth  and  loan
performance.  Forward looking statements include risks,  uncertainties and other
factors which may cause our actual  results,  performance or  achievements to be
materially  different  from those  expressed or implied by such forward  looking
statements,  some of which we cannot  predict or  quantify.  Factors  that could
affect  our  results  and  cause  or  contribute  to   differences   from  these
forward-looking  statements  include,  but are not  limited  to: any  decline in
consumer  acceptance  of our car sales  strategies or marketing  campaigns;  any
inability to finance our  operations  in light of a tight credit  market for the
sub-prime industry and our current financial circumstances; any deterioration in
the used car finance industry or increased competition in the used car sales and
finance  industry;  any  inability to monitor and improve our  underwriting  and
collection  processes;  any changes in  estimates  and  assumptions  in, and the
ongoing adequacy of, our allowance for credit losses;  any inability to continue
to reduce  operating  expenses as a percentage  of sales;  increases in interest
rates;  generally maintaining liquidity levels and cash flows sufficient to fund
our  ongoing  operations;  the  failure to  efficiently  and  profitably  manage
acquisitions  and/or  new car  dealerships;  adverse  economic  conditions;  any
material litigation against us or material,  unexpected developments in existing
litigation;  and any new or  revised  accounting,  tax or  legal  guidance  that
adversely  affect used car sales or financing and  developments  with respect to
the going private transaction.  Forward-looking  statements speak only as of the
date the  statement  was made.  Future  events and actual  results  could differ
materially  from  the   forward-looking   statements.   When   considering  each
forward-looking  statement,  you  should  keep  in mind  the  risk  factors  and
cautionary  statements  found throughout this Form 10-Q and (including those set
forth in Exhibit 99 hereto),  in addition to those risks discussed above. We are
not  obligated  to  publicly  update or revise any forward  looking  statements,
whether as a result of new information,  future events, or for any other reason.
References  to Ugly  Duckling  Corporation  as the  largest  chain  of  buy-here
pay-here used car dealerships in the United States is management's  belief based
upon the  knowledge  of the industry  and not on any current  independent  third
party study.

                                     ITEM 3.

                                   Market Risk

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

     Our  financial   instruments   consist  primarily  of  fixed  rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
fixed rate notes  receivable,  and  variable and fixed rate notes  payable.  Our
finance  receivables  are  classified  as  sub-prime  loans and  generally  bear
interest at the lower of 29.9% or the maximum  interest  rate  allowed in states
that impose interest rate limits. At March 31, 2002, the scheduled maturities on
our finance  receivables  ranged from one to 48 months,  with a weighted average
maturity of 24.3 months. In March 2002 we launched a pilot interest rate program
in the Phoenix market called  RateAdvantage  that offers  interest rates ranging
from 9.9% to 29.9%  depending upon the  customer's  credit grade and the size of
the down payment. Depending upon the success of the program, we are anticipating
offering the  RateAdvantage  interest rate program at all of our  dealerships in
either the 2nd or 3rd  quarters of 2002.  This will  impact the overall  average
interest rate of our finance receivable portfolio.  The interest rates we charge
our customers on finance receivables has not changed as a result of fluctuations
in market interest rates,  although we may increase the interest rates we charge
in the future if market interest rates  increase.  A large component of our debt
at March 31, 2002, is the  Collateralized  Notes Payable  (Class A  obligations)
issued under our securitization program. Issuing debt through our securitization
program  allows us to mitigate our interest rate risk by reducing the balance of
the variable  revolving  line of credit and replacing it with a lower fixed rate
note  payable.  We are subject to interest rate risk on fixed rate Notes Payable
to the extent that future  interest  rates are lower than the interest  rates on
our existing Notes Payable.

     We believe that our market risk information has not changed materially from
December 31, 2001.

<PAGE>


PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings.

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

     The Company  was  recently  served in Texas as a  defendant  in a purported
class action lawsuit  captioned  Felix Rather III, et. al vs. Dallas  Automotive
Sale and Service,  et. al  (including  Ugly Duckling Car Sales and Ugly Duckling
Credit Corporation),  192nd Judicial District, Dallas County, Texas (state court
case). It is our  understanding  that a group of law firms in Texas have sued 61
Dallas  county auto dealers  (including  Ugly  Duckling) and 19 San Antonio auto
dealers  alleging the auto dealers have charged  customers  interest on deferred
sales taxes.  More  lawsuits  are expected to be filed in other Texas  counties.
Under  Texas law, a dealer who sells  vehicles  on credit may elect to pay sales
taxes on the  installment  basis  (what  the  plaintiffs  call  "deferred  sales
taxes"); that is, they pay the sales taxes as their installment basis and did or
are  adding  the  entire  amount  of the sales tax to the  amount  financed  and
charging  interest on it. They allege this is not allowed  under Texas law. Ugly
Duckling  does not and has not paid sales  taxes on an  installment  basis.  The
Company  has  notified  plaintiffs'  counsel of this fact and  provided  to them
information  intended  to  establish  the  fact.  We hope to  have  the  lawsuit
dismissed  shortly,  but there is no guarantee we will be successful  with these
efforts.  However, we believe the claims against us are without merit and intend
to vigorously defend them.

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

     Following  Mr.  Garcia's  offer in April 2001 to purchase  all  outstanding
shares of the  Company's  common  stock (for $2.00  cash,  $5.00  debenture  per
share),  five  additional  and  separate  purported   shareholder  class  action
complaints  were  filed  between  April 17,  and April 25,  2001 in the Court of
Chancery  for the State of Delaware in New Castle  County.  They were  captioned
Turberg v. Ugly Duckling Corp.,  et al., No.  18828NC,  Brecher v. Ugly Duckling
Corp., et al., No. 18829NC,  Suprina v. Ugly Duckling  Corporation,  et al., No.
18830NC,  Benton v. Ugly Duckling  Corp.,  et al., No.  18838NC,  and Don Hankey
Living Trust v. Ugly Duckling Corporation,  et al., No. 18843NC.  These lawsuits
were very  similar  to the  lawsuits  that  were  filed in  connection  with Mr.
Garcia's  offer to take the Company  private in early  October of 2000 (offer of
$2.00 cash,  $6.50  debenture per share).  Mr. Garcia withdrew his offer to take
the Company private in the latter part of October 2000, and in March of 2001 all
of the outstanding lawsuits filed in connection with that offer were voluntarily
dismissed by the plaintiffs.

     With respect to the lawsuits filed in April of 2001, each complaint alleged
that the Company,  and its directors,  breached  fiduciary  duties in connection
with the proposed  acquisition by Mr. Garcia of all of the outstanding shares of
common  stock not owned by him.  The  complaints  sought to enjoin the  proposed
acquisition  by Mr.  Garcia and to recover  compensatory  damages  caused by the
proposed  acquisition and the alleged breach of fiduciary  duties.  All of these
cases were consolidated June 5, 2001.
<PAGE>

     In  September  of 2001,  Mr.  Garcia  withdrew  his April 2001  proposal to
purchase the outstanding common stock due to the economic uncertainty  resulting
from the events following the September 11th terrorist  attack.  On November 16,
2001,  Mr.  Garcia  announced  his  intention  of  initiating  a tender offer to
purchase all of the outstanding  shares of common stock of the Company not owned
by him.  That  same day,  the  plaintiffs'  amended  the  consolidated  cases to
re-allege  the  derivative  claims and replaced the class claims  related to the
April 2001  proposal  with class  claims  challenging  and seeking to enjoin Mr.
Garcia's  tender  offer.  The  amended  complaint  alleged  that the  defendants
breached  or aided and  abetted in the  breach of their  fiduciary  duties,  and
sought to void the transactions  challenged in the derivative claims and recover
compensatory  damages  on behalf of the  purported  class  and the  Company.  On
November 26, 2001,  Mr.  Garcia  initiated a tender offer to purchase all of the
outstanding  shares of the Company's common stock not owned by him for $2.51 per
share.

     On December 10,  2001,  the Company  entered into an Agreement  and Plan of
Merger (the "Merger  Agreement") with Mr. Garcia,  Mr. Gregory B. Sullivan,  the
President and CEO of the Company, UDC Holdings Corp. ("UDC Holdings"), an entity
controlled by Mr.  Garcia and Mr.  Sullivan,  and UDC  Acquisition  Corp.  ("UDC
Acquisition"), an entity wholly owned by UDC Holdings (collectively, the "Buyout
Group").  The Merger  Agreement  provided that the pending tender offer would be
amended to, among other things, increase the offer price from $2.51 per share to
$3.53 per share (the "Amended Tender Offer"). The Merger Agreement also provided
for a second step merger at the same price of $3.53 per share (the "Merger," and
together with the Amended Tender Offer, the "Transaction"). The Merger Agreement
further provided that the Transaction could be consummated only if a majority of
the minority  shareholders  of the Company  either  tendered their shares in the
Amended Tender Offer or voted in favor of the Merger.  At that time,  there were
4,771,749 shares of the Company's stock not held by the Buyout Group.

     The  Transaction  was entered  into after  review by a special  transaction
committee  comprised  of  independent  members  of the board of  directors;  the
committee and the board  consulted with and obtained a fairness  opinion from an
investment  banking firm,  U.S.  Bancorp Piper  Jaffray.  The special  committee
recommended  the  Transaction  to the full board and the board  recommended  the
Transaction to the shareholders of the Company.

     The Company also entered into a  Memorandum  of  Understanding  on December
10th with counsel for the plaintiffs' on the ultimate resolution of the Delaware
litigation  related to the Transaction.  Under this Memorandum of Understanding,
the  plaintiffs'  litigation was to be settled,  subject to certain  conditions,
including  entering  into  a  mutually   agreeable   stipulation  of  settlement
consistent  with  the  memorandum  of   understanding,   completion  of  certain
confirmatory discovery,  certification of the class and a court order dismissing
the litigation, and the completion of the Merger.

     On December 14, 2001, the Buyout Group  commenced the Amended Tender Offer.
In the Amended  Tender  Offer  materials,  the Buyout  Group  disclosed  that it
intended  to  cause  the  Merger  to  become  effective  without  a  meeting  of
shareholders,  pursuant to Delaware law, if the Amended Tender Offer resulted in
UDC Acquisition  holding at least 90% of the Company's  outstanding  shares. The
Company and the board also sent materials to its  shareholders  at the same time
recommending  that  shareholders  tender  their  shares  pursuant to the Amended
Tender Offer.

     The Company's  shareholders  overwhelmingly  supported  the Amended  Tender
Offer, which expired on January 16, 2002. Shareholders tendered 3,806,800 shares
of the Company's  common stock  representing  approximately  79% of the minority
shares.  Upon  completion of the Amended  Tender Offer,  UDC  Acquisition  owned
approximately 92% of the Company.

     On February 4, 2002,  the  parties  also  entered  into a  Stipulation  and
Agreement of Compromise,  Settlement and Release  documenting  the settlement of
the Delaware  litigation  and providing for a final hearing for court review and
approval  of  the  settlement.  A  mailing  was  sent  to  the  shareholders  in
mid-February  and this  hearing was held on April 17, 2002.  On April 18th,  the
court entered its final  decision  approving the settlement and finding it fair,
reasonable  and in the best  interests  of the class,  certifying  the class for
purposes of the settlement, compromising and releasing all claims with prejudice
on the merits and awarding  attorneys'  fees and costs to the plaintiffs' in the
amount of $1,050,000.  The settlement is final thirty days after the final court
order. However, as discussed in Note 9 to the Condensed  Consolidated  Financial
Statements, a notice of appeal was filed by two dissenting shareholders prior to
the  expiration  date. The Company also reached an agreement with its directors'
and  officers'  liability  insurance  carrier to  reimburse  the Company for the
payment of the plaintiffs'  fees and costs (assuming final court approval of the
settlement), and it is in the process of documenting that agreement.

     On March 4, 2002,  the Merger was  consummated.  In the  Merger,  which was
consummated  without a  shareholder  vote in  accordance  with Delaware law, UDC
Acquisition  was merged with and into the Company,  with the Company  surviving.
Upon  consummation  of the  Merger  and  pursuant  to the  terms  of the  Merger
Agreement and Delaware law:

o    All shares of outstanding common stock not held in treasury or owned by the
     Buyout  Group  were  cancelled,  retired  and  converted  into the right to
     receive either (a) $3.53 per share in cash,  without interest or (b) if the
     holder  properly  exercised  appraisal  rights under Delaware law, the fair
     value of the shares as determined by the Court in appraisal proceedings;

o    All treasury  shares and shares held by the Buyout Group were cancelled and
     retired without any consideration; and

o    All shares of UDC Acquisition common stock outstanding immediately prior to
     the effective date of the Merger were converted into shares of common stock
     of the Company.

     As a result of the Merger, the only remaining  outstanding shares of common
stock of the Company are the 100 shares of common stock  issued upon  conversion
of the shares UDC Acquisition  common stock. All of these shares are held by UDC
Holdings.

     Shortly  after the  expiration  of the Amended  Tender  Offer,  the Company
mailed to the  shareholders  who did not tender their shares a notice  outlining
the  procedures  they were required to follow if they wished to dissent from the
Merger  and  seek   appraisal  of  their  shares.   Under  Delaware  law,  these
shareholders  had 20 days from the date of the  mailing  of the notice to notify
the Company of their  intention to assert  appraisal  rights.  If such notice is
timely made,  dissenting  shareholders must file a petition for appraisal in the
Delaware Court of Chancery  within 120 days of the effective date of the Merger,
or all appraisal rights will be lost and dissenters will only be entitled to the
merger  consideration  of $3.53 per share. In the event a petition for appraisal
is filed, the court then determines which shareholders are entitled to appraisal
rights and appraises the shares of such shareholders.

     Although  several  shareholders  provided the Company with timely notice of
their  intention to assert  appraisal  rights,  to the Company's  knowledge,  no
petition for  appraisal  has been filed in the Delaware  Court of Chancery as of
the date of filing of this  quarterly  report.  The  deadline  for filing such a
petition is on or about July 2, 2002. In the event such a petition is filed, UDC
Holdings  has  agreed  to fund the  payment  of the  final  appraisal  amount to
dissenting shareholders.

Item 2.  Changes in Securities and Use of Proceeds.

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

Item 3.  Defaults Upon Senior Securities.

     We recently  obtained waiver letters for financial ratio covenant  breaches
under our revolving  credit  facility and our senior secured loan facility.  See
Note (4) of the Notes to the Condensed Consolidated Financial Statements.

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

     None

Item 5.  Other Information.

            None

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

     (a)  Exhibits

Exhibit 10.1 - Covenant  Waiver dated March 31, 2002 between the  Registrant and
               Greenwich Capital Financial Products, Inc.
Exhibit 99   - Statement Regarding Forward Looking Statements and Risk Factors
<PAGE>

(b)      Reports on Form 8-K.

     During the first  quarter of 2002,  the  Company  filed two reports on Form
8-K. The first report on Form 8-K, dated and filed  February 15, 2002,  reported
Ugly  Duckling's  announcement  of Mark G.  Sauder  as the new  Chief  Financial
Officer.  A press release dated  February 15, 2002 and entitled  "Ugly  Duckling
Announces Appointment of New Chief Financial Officer" was filed as an exhibit to
this 8-K. The second report on Form 8-K, dated and filed March 4, 2002, reported
the fourth  quarter and twelve months  earnings of 2001,  and the closing of the
transaction  pursuant  to which an  affiliate  of Mr.  Ernest C. Garcia II, Ugly
Duckling's  Chairman and largest  stockholder,  acquired all of the  outstanding
shares of common stock of Ugly Duckling. A press release dated March 4, 2002 and
entitled  "Ugly Duckling  Reports  Fourth Quarter and Twelve Month Results,  and
Closing of Going Private Transaction" was filed as an exhibit to this 8-K.


SIGNATURE

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

         UGLY DUCKLING CORPORATION

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

Date:  May 14, 2002


<PAGE>





EXHIBIT INDEX

     Exhibit
     Number                         Description
     -------                        -----------
     10.1 Covenant  Waiver  dated March 31,  2002  between  the  Registrant  and
          Greenwich Capital Financial Products, Inc.

     99   Statement Regarding Forward Looking Statements and Risk Factors