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


                       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, 2000

                        Commission File Number 000-20841

                            UGLY DUCKLING CORPORATION

             (Exact name of registrant as specified in its charter)

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

                       2525 E. Camelback Road, Suite 500,

                             Phoenix, Arizona                   85016

                   (Address of principal executive offices)   (Zip Code)

                                 (602) 852-6600

              (Registrant's telephone number, including area code)

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

                                 [X] Yes [ ] No

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

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

                 At May 1, 2000, there were approximately 13,896,000
             shares of Common Stock, $0.001 par value, outstanding.

    This  document  serves both as a resource for  analysts,  shareholders,  and
other  interested  persons,  and as the  quarterly  report  on Form 10-Q of Ugly
Duckling  Corporation (Ugly Duckling) to the Securities and Exchange Commission,
which has taken no action to approve or  disapprove  the report or pass upon its
accuracy or adequacy.  Additionally,  this document is to be read in conjunction
with the  consolidated  financial  statements and notes thereto included in Ugly
Duckling's Annual Report on Form 10-K, for the year ended December 31, 1999.

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<PAGE>
 .........

<TABLE>
<CAPTION>

                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                                                                                Page

                          Part I - FINANCIAL STATEMENTS

  <S>                <C>                                                                                                         <C>
  Item 1.            FINANCIAL STATEMENTS
                     Condensed Consolidated Balance Sheets-- March 31, 2000 and December 31, 1999................................  1
                     Condensed Consolidated Statements of Operations-- Three Months Ended March 31, 2000 and
                        March 31, 1999...........................................................................................  2
                     Condensed Consolidated Statements of Cash Flows--Three Months Ended March 31, 2000 and
                        March 31, 1999...........................................................................................  3
                     Notes to Condensed Consolidated Financial Statements........................................................  4
  Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................  9
  Item 3.            MARKET RISK................................................................................................. 21

                          Part II. -- OTHER INFORMATION

  Item 1.            LEGAL PROCEEDINGS........................................................................................... 22
  Item 2.            CHANGES IN SECURITIES....................................................................................... 22
  Item 3.            DEFAULTS UPON SENIOR SECURITIES............................................................................. 22
  Item 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................... 22
  Item 5.            OTHER INFORMATION
  Item 6.            EXHIBITS AND REPORTS ON FORM 8-K............................................................................ 22
                     SIGNATURES.................................................................................................. 23


</TABLE>
<PAGE>
                                     Page 1
<TABLE>
<CAPTION>



                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

                                                                           March 31,           December 31,

                                                                              2000                 1999
                                                                        ----------------      ---------------
                                ASSETS
<S>                                                                     <C>                   <C>
Cash and Cash Equivalents.............................................  $      6,330          $       3,683
Finance Receivables, Net..............................................       407,267                365,586
Notes Receivable from Related Party...................................        12,000                 12,000
Inventory.............................................................        49,058                 62,865
Property and Equipment, Net...........................................        32,141                 31,752
Intangible Assets, Net................................................        14,359                 14,618
Other Assets..........................................................        12,636                 12,327
Net Assets of Discontinued Operations.................................        14,162                 33,880
                                                                        ------------          -------------
                                                                        $    547,953          $     536,711
                                                                        ============          =============


                 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Accounts Payable...................................................  $      2,928          $       3,185
   Accrued Expenses and Other Liabilities.............................        29,289                 26,905
   Notes Payable Portfolio............................................       282,865                275,774
   Other Notes Payable................................................        33,418                 36,556
   Subordinated Notes Payable.........................................        28,900                 28,611
                                                                        ------------          -------------
     Total Liabilities................................................       377,400                371,031
                                                                        ------------          -------------
Stockholders' Equity:
Common Stock..........................................................            19                     19
Additional Paid in Capital............................................       173,663                173,273
Retained Earnings.....................................................        17,192                 12,709
Treasury Stock........................................................       (20,321)               (20,321)
                                                                        ------------          -------------
    Total Stockholders' Equity........................................       170,553                165,680
                                                                        ------------          -------------
                                                                        $    547,953          $     536,711
                                                                        ============          =============





                                See accompanying notes to Condensed Consolidated Financial Statements.

</TABLE>
<PAGE>
                                     Page 2
<TABLE>
<CAPTION>


                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                   Three Months Ended March 31, 2000 and 1999

                (In thousands, except earnings per share amounts)

                                                                                      March 31,

                                                                             -----------------------------
                                                                                 2000                   1999
                                                                               ---------             ---------
          <S>                                                                <C>                 <C>
          Sales of Used Cars.............................................    $    132,786        $     106,443
          Less:
             Cost of Used Cars Sold......................................          72,942               60,088
             Provision for Credit Losses.................................          34,573               27,763
                                                                             ------------        -------------
                                                                                   25,271               18,592
          Other Income:
             Interest Income.............................................          25,531               10,373
             Portfolio Interest Expense..................................          (5,029)              (1,995)
             Servicing and Other Income..................................             807                2,899
                                                                             ------------        -------------
                                                                                      807
                                                                                   21,309               11,277
          Income before Operating Expenses...............................          46,580               29,869
                                                                             ------------        -------------
          Operating Expenses:
             Selling and Marketing.......................................           8,135                6,366
             General and Administrative..................................          26,345               21,009
             Depreciation and Amortization...............................           2,208                1,595
                                                                                   36,688               28,970
          Income before Other Interest Expense...........................           9,892                  899
          Other Interest Expense.........................................           2,292                   --
                                                                             ------------        -------------
          Earnings before Income Taxes...................................           7,600                  899
          Income Taxes...................................................           3,117                  355
                                                                             ------------        -------------
          Earnings from Continuing Operations............................           4,483                  544
          Loss from Discontinued Operations, net of income tax benefit
             of $75                                                                    --                (121)
                                                                             ------------        -------------
          Net Earnings...................................................    $     4,483         $         423
                                                                             ============        =============
          Earnings per Common Share - Continuing Operations:
             Basic.......................................................    $      0.30         $        0.04
                                                                             ============        =============
             Diluted.....................................................    $      0.30         $        0.04
                                                                             ============        =============
          Net Earnings per Common Share:
             Basic.......................................................    $      0.30         $        0.03
                                                                             ============        =============
             Diluted.....................................................    $      0.30         $        0.03
                                                                             ============        =============






                                See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
                                     Page 3
<TABLE>
<CAPTION>


                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                   Three Months Ended March 31, 2000 and 1999

                                 (In thousands)

                                                                                     2000                1999
                                                                                --------------      --------------
<S>                                                                             <C>                <C>
Cash Flows from Operating Activities:
     Net Earnings...........................................................    $        4,483     $           423
Adjustments to Reconcile Net Earnings to Net Cash Provided
     by Operating Activities:
    Provision for Credit Losses.............................................            34,573              27,763
    Depreciation and Amortization ..........................................             3,239               1,719
    Loss from Disposal of Property and Equipment............................                 3                  33
    Loss from Discontinued Operations.......................................                --                 121
    Deferred Income Taxes...................................................                --              (5,188)
    Collections of Finance Receivables......................................             3,994               4,851
    Decrease in Inventory...................................................            13,807               4,267
    (Increase) Decrease in Other Assets.....................................              (309)                911
    Increase in Accounts Payable, Accrued Expenses and Other Liabilities....             3,353               9,053
    Increase (Decrease) in Income Taxes Payable.............................            (1,208)              6,969
                                                                                --------------     ---------------
          Net Cash Provided by Operating Activities                                     61,935              50,922
                                                                                --------------     ---------------
Cash Flows from Investing Activities:
    Increase in Finance Receivables.........................................       (133,887)              (124,323)
    Collections of Finance Receivables......................................         49,974                 29,928
    (Increase) Decrease in Investments Held in Trust........................          3,665                 (2,114)
    Advances under Notes Receivable.........................................             --                   (600)
    Proceeds from Disposal of Property and Equipment........................          1,330                     65
    Purchase of Property and Equipment......................................         (2,278)                (2,279)
                                                                                --------------     ---------------
                                                                                --------------     ---------------
          Net Cash Used in Investing Activities                                     (81,196)               (99,323)
                                                                                --------------     ---------------
Cash Flows from Financing Activities:
    Additions to Notes Payable Portfolio....................................         96,700                 109,476
    Repayment of Notes Payable Portfolio....................................        (90,302)                (62,525)
    Additions to Other Notes Payable........................................             --                  18,349
    Repayment of Other Notes Payable........................................         (3,220)                (10,750)
    Net Issuance of Subordinated Notes Payable..............................             --                      75
    Proceeds from Issuance of Common Stock..................................            390                       8
    Acquisition of Treasury Stock...........................................             --                 (5,307)
                                                                                --------------     ---------------
          Net Cash Provided by Financing Activities                                   3,568                 49,326
                                                                                --------------     ---------------
Net Cash Provided by Discontinued Operations................................         18,340                    918
                                                                                --------------     ---------------
Net Increase in Cash and Cash Equivalents...................................          2,647                  1,843
Cash and Cash Equivalents at Beginning of Period............................          3,683                  2,544
                                                                                --------------     ---------------
Cash and Cash Equivalents at End of Period..................................      $   6,330        $         4,387
                                                                                ==============     ===============
Supplemental Statement of Cash Flows Information:
     Interest Paid..........................................................      $   7,140        $         3,072
                                                                                ==============     ===============
     Income Taxes Paid......................................................      $   4,325        $         1,504
                                                                                ==============     ===============


                                See accompanying notes to Condensed Consolidated Financial Statements.


</TABLE>
<PAGE>
                                     Page 4

                            UGLY DUCKLING CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

Note 1.  Basis of Presentation

    Our accompanying  unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information  and  pursuant to rules and  regulations  of the
Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by generally accepted  accounting  principles
for a complete financial statement presentation.  In our opinion, such unaudited
interim  information  reflects  all  adjustments,   consisting  only  of  normal
recurring  adjustments,  necessary to present our financial position and results
of operations for the periods  presented.  Our results of operations for interim
periods are not necessarily  indicative of the results to be expected for a full
fiscal year.  Our Condensed  Consolidated  Balance Sheet as of December 31, 1999
was derived from our audited  consolidated  financial statements as of that date
but does not include all the  information  and  footnotes  required by generally
accepted  accounting  principles.  We suggest that these condensed  consolidated
financial  statements  be read in  conjunction  with  the  audited  consolidated
financial  statements  included in our Annual Report on Form 10-K,  for the year
ended December 31, 1999.

Note 2.  Summary of Finance Receivables

    A summary of Finance Receivables, Net, follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                   March 31,           December 31,
                                                                                      2000                1999
                                                                                -----------------   -----------------
       <S>                                                                         <C>                <C>
       Contractually Scheduled Payments.....................................       $   574,664        $   492,937
       Unearned Finance Charges.............................................          (155,751)          (134,119)
                                                                                   -----------        -----------
       Principal - Retained on Balance                                                 418,913            358,818
          Sheet................................
       Accrued Interest Receivable..........................................             4,101              3,741
       Loan Origination Costs, Net..........................................             6,094              5,079
                                                                                   -----------        -----------
       Principal Balances, Net..............................................           429,108            367,638
       Investments Held in Trust............................................            53,051             56,716
       Residuals in Finance Receivables Sold................................            12,693             17,382
                                                                                   -----------        -----------
          Finance Receivables...............................................           494,852            441,736
       Allowance for Credit Losses..........................................           (87,585)           (76,150)
                                                                                   -----------        -----------
          Finance Receivables, Net..........................................       $   407,267        $   365,586
                                                                                   ===========        ===========
</TABLE>
    Investments  Held in Trust represent funds held by trustees on behalf of our
securitization  lenders.  The  balance  of  Investments  Held in Trust  remained
relatively  constant  from the fourth  quarter of 1999 as  compared to the first
quarter of 2000 as there were no  securitization  transactions  completed during
the first quarter of 2000.

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

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

<TABLE>
<CAPTION>
                                                                                    March 31,          December 31,
                                                                                      2000                 1999
                                                                                ------------------   ----------------
       <S>                                                                         <C>                <C>
       Retained interest in subordinated securities (B Certificates)........       $    13,279        $    17,335
       Net interest spreads, less present value discount....................             2,579              6,113
       Reduction for estimated credit losses................................            (3,165)            (6,066)
                                                                                   -----------        -----------
       Residuals in finance receivables sold................................       $    12,693        $    17,382
                                                                                   ============       ===========
       Securitized principal balances outstanding...........................       $    42,911    $        65,662
                                                                                   ============       ===========
       outstanding..........................................................               7.4%              9.2%
                                                                                   ============       ===========
</TABLE>
<PAGE>

                                     Page 5


Note 3.  Notes Receivable- Related Party

    The Note Receivable - Related Party  originated from the Company's  December
1999 sale of its Cygnet Dealer Finance subsidiary to Cygnet Capital Corporation,
an entity controlled by Ernest C. Garcia II, Chairman and principal  shareholder
of the Company.  The $12.0 million note from Cygnet Capital Corporation has a 10
year term, with interest payable quarterly at 9%, due December 2009. The note is
secured by the capital stock of Cygnet  Capital  Corporation  and  guaranteed by
Verde  Investments,  Inc.,  an affiliate of Mr.  Garcia.  Under the terms of the
agreement,  Mr. Garcia will be allowed to reduce the  principal  balance up to a
maximum of $8 million by  surrendering  to the Company  shares of Ugly  Duckling
common stock (valued at 98% of the average of the closing prices of the stock on
NASDAQ for the ten trading days prior to the surrender) as long as Mr.  Garcia's
ownership  interest of the Company  voting stock does not fall below 15% and the
acceptance  of such  stock in the  Company  does  not  result  in a breach  of a
covenant. Note 4. Notes Payable

    Notes Payable, Portfolio

     A summary of Notes  Payable,  Portfolio  at March 31, 2000 and December 31,
1999 follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                          March 31,     December 31,
                                                                                            2000           1999
                                                                                        ------------    ------------
<S>                                                                                     <C>               <C>
Revolving facility for $125.0 Million with GE Capital, secured by substantially
   all assets of the Company, including $172.7 million in finance receivables.....      $   89,122        $   41,717
Class A obligations issued pursuant to the Company's Securitization Program,
   secured by underlying pools of finance receivables and investments held in
   trust totaling $273.5 million at March 31, 2000................................         195,860           236,555
                                                                                        ----------        ----------
   Subtotal.......................................................................         284,982           278,272
   Less:  Unamortized Loan Fees...................................................           2,117             2,498
                                                                                        ----------        ----------
   Total..........................................................................      $  282,865        $  275,774
                                                                                        ===========       ==========
</TABLE>

    The  revolving  facility  note payable has interest  payable daily at 30 day
LIBOR plus 3.15% (9.04% at March 31,  2000)  through  June 2000.  The  revolving
facility is subject to a one-year  extension  provision  upon mutual  consent of
both parties.  The revolving  facility agreement also contains various reporting
and  performance  covenants,   including  the  maintenance  of  certain  ratios,
limitations on additional borrowings from other sources, restrictions on certain
operating  activities,  and a  restriction  on the  payment of  dividends  under
certain  circumstances.  The  Company  is  currently  in  compliance  with these
covenants.

    Class A obligations have interest payable monthly at rates ranging from 5.7%
to 6.8%. Monthly principal reductions on Class A obligations  approximate 70% of
the principal reductions on the underlying pool of finance receivable loans.

    Other Notes Payable

    A summary of Other  Notes  Payable at March 31, 2000 and  December  31, 1999
follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                       March 31,        December 31,
                                                                                         2000               1999
                                                                                   ----------------   ---------------
<S>                                                                                 <C>               <C>
Note payable, secured by the capital stock of UDRC and UDRC II..................    $      31,500     $       33,900
Other notes payable  bearing  interest at rates ranging from 7.5% to 11% due
through August 2001, secured by certain real property and certain property and
equipment.......................................................................            2,119              2,939
                                                                                    -------------     --------------
                                                                                           33,619             36,839
   Less:  Unamortized Loan Fees...............................................                201                283
                                                                                    -------------     --------------
   Total........................................................................    $      33,418     $       36,556
                                                                                    ==============    ==============



</TABLE>
<PAGE>
                                     Page 6


    Subordinated Notes Payable

    A summary of  Subordinated  Notes Payable at March 31, 2000 and December 31,
1999 follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                           March 31,         December 31,
                                                                                             2000                1999
                                                                                          -----------       -------------
     <S>                                                                                  <C>               <C>
     $15   million  senior  subordinated  notes  payable to  unrelated  parties,
           bearing  interest at 12% per annum payable  quarterly,  principal due
           February 2001 and senior to subordinated debentures..................          $     15,000      $     15,000
     $17.5 million subordinated debentures, interest at 12% per annum
           (approximately 18.8% effective rate) payable semi-annually, principal
           balance due October 23, 2003.........................................                17,479            17,479
                                                                                          ------------      ------------
            Subtotal............................................................                32,479            32,479
            Less:  Unamortized Loan Fees........................................                   464               605
                   Unamortized Premium - subordinated debentures................                 3,115             3,263
                                                                                          ------------      ------------
            Total...............................................................          $     28,900      $     28,611
                                                                                          ============      ============
</TABLE>



Note 5.  Common Stock Equivalents

    Net  Earnings per common  share  amounts are based on the  weighted  average
number of common shares and common stock equivalents outstanding for the periods
ended March 31, 2000, and 1999 as follows ($ in thousands,  except for per share
amounts): <TABLE>
<CAPTION>

                                                                                           March 31,          March 31,
                                                                                             2000               1999
                                                                                          -----------       -----------
     <S>                                                                                  <C>                <C>
     Earnings from Continuing Operations........................................          $     4,483        $      544
                                                                                          ===========        ==========
     Net Earnings...............................................................          $     4,483        $      423
                                                                                          ===========        ==========
     Basic Earnings Per Share From Continuing Operations........................          $      0.30        $     0.04
                                                                                          ===========        ==========
     Diluted Earnings Per Share From Continuing Operations......................          $      0.30        $     0.04
                                                                                          ===========        ==========
     Basic Earnings Per Share...................................................          $      0.30        $     0.03
                                                                                          ===========        ==========
     Diluted Earnings Per Share.................................................          $      0.30        $     0.03
                                                                                          ===========        ==========
     Basic EPS-Weighted Average Shares Outstanding..............................              14,905             15,650
     Effect of Diluted Securities:
        Warrants................................................................                   14                --
        Stock Options...........................................................                  234               135
                                                                                          -----------        ----------
     Dilutive EPS-Weighted Average Shares Outstanding...........................               15,153            15,785
                                                                                          ===========        ==========
     Warrants Not Included in Diluted EPS Since Antidilutive....................                1,156             1,556
                                                                                          ===========        ==========
           Stock Options Not Included in Diluted EPS Since Antidilutive.........                  875             1,153
                                                                                          ===========        ==========
</TABLE>


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>
                                     Page 7


    A summary of  operating  activity  by  business  segment for the three month
periods ended March 31, 2000 and 1999 follows ($ in thousands):
<TABLE>
<CAPTION>

                                                           Retail           Portfolio        Corporate           Total

  March 31, 2000:

  <S>                                                   <C>               <C>              <C>               <C>
  Sales of Used Cars.........................           $     132,786     $          --    $          --     $     132,786
  Less: Cost of Cars Sold....................                  72,942                --               --            72,942
         Provision for Credit Losses.........                  27,094             7,479               --            34,573
                                                        -------------     -------------    -------------     -------------
                                                               32,750            (7,479)              --            25,271
  Net Interest Income........................                      --            20,392              110            20,502
  Servicing and Other Income.................                      --               807               --               807
                                                        -------------     -------------    -------------     -------------
  Income before Operating Expenses...........                  32,750            13,720              110            46,580
                                                        -------------     -------------    -------------     -------------
  Operating Expenses:
  Selling and Marketing......................                   8,135                --               --             8,135
  General and Administrative.................                  14,190             6,884            5,271            26,345
  Depreciation and Amortization..............                   1,071               300              837             2,208
                                                        -------------     -------------    -------------     -------------
                                                               23,396             7,184            6,108            36,688
                                                        -------------     -------------    -------------     -------------
  Income (loss) before Other Interest Expense           $       9,354     $       6,536    $      (5,998)    $       9,892
                                                        =============     =============    =============     =============
  Capital Expenditures.......................           $       1,273     $          99    $         906     $       2,278
                                                        =============     =============    =============     =============
  Identifiable Assets........................           $      75,435     $     430,334    $      28,022     $     533,791
                                                        =============     =============    =============     =============

March 31, 1999:

  Sales of Used Cars.........................           $     106,443     $          --    $          --     $     106,443
  Less: Cost of Cars Sold....................                  60,088                --               --            60,088
         Provision for Credit Losses.........                  21,893             5,870               --            27,763
                                                        -------------     -------------    -------------     -------------
                                                               24,462            (5,870)              --            18,592
  Net Interest Income........................                      --             8,317               61             8,378
  Servicing and Other Income.................                      --             2,899               --             2,899
                                                        -------------     -------------    -------------     -------------
  Income before Operating Expenses...........                  24,462             5,346               61            29,869
                                                        -------------     -------------    -------------     -------------
  Operating Expenses:
  Selling and Marketing......................                   6,366                --               --             6,366
  General and Administrative.................                  11,094             4,601            5,314            21,009
  Depreciation and Amortization..............                     791               283              521             1,595
                                                        -------------     -------------    -------------     -------------
                                                               18,251             4,884            5,835            28,970
                                                        -------------     -------------    -------------     -------------
  Income (loss) before Other Interest Expense           $       6,211     $         462    $      (5,774)    $         899
                                                        =============     =============    =============     =============

  Capital Expenditures.......................           $       1,735     $         179    $         365     $       2,279
                                                        =============     =============    =============     =============

</TABLE>


Note 7.  Discontinued Operations

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

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

<PAGE>

                                     Page 8

    The components of Net Assets of Discontinued Operations as of March 31, 2000
and December 31, 1999 follow ($ in thousands):
<TABLE>
<CAPTION>

                                                              March 31,        December 31,
                                                                2000              1999
                                                           -------------       ----------
     <S>                                                   <C>               <C>
     Finance Receivables, Net...........................   $      9,558      $    14,837
     Residuals in Finance Receivables Sold..............          3,254            3,742
     Investments Held in Trust..........................          1,053            1,545
     Property and Equipment.............................            604            2,114
     Notes Receivable, net of Sub. Notes Payable........            919            6,697
     Servicing Receivable...............................          6,125            6,125
     Other Assets,  net of Accounts  Payable and Accrued
     Liabilities........................................         (7,351)          (1,180)
                                                           -------------     ------------
     Net Assets of Discontinued Operations..............   $     14,162      $    33,880
                                                           =============     ============
</TABLE>

Note 8.  Use of Estimates

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

Note 9.  Reclassifications

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

Note 10.  Subsequent Event

     On February 22, 2000,  we commenced an exchange  offer to acquire up to 2.5
million  shares of our common  stock.  The offer  expired  April 13, 2000 and on
April 20, 2000, we acquired approximately 1.1 million shares of our common stock
in  exchange  for  approximately   $11.9  million  of  seven  year  subordinated
debentures  bearing interest at 11% payable  bi-annually and principal due April
15, 2007. Under the terms of the offer, each share of stock was exchangeable for
$11.00 principal amount of debentures.  The debentures were issued at a premium,
which  will be  amortized  over the life of the  debentures  and  results  in an
effective annual interest rate of 19.3%.

<PAGE>
                                     Page 9


                                     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, 2000,  we operated 75  dealerships  located in
eleven metropolitan areas in eight states. We have one primary line of business:
to sell and finance  quality used vehicles to customers  within what is referred
to as the  sub-prime  segment of the used car market.  The  sub-prime  market is
comprised of customers who typically have limited credit histories,  low incomes
or past credit problems.

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

        o   expanded credit opportunities,
        o   flexible  payment  terms,  including  structuring  loan  payment
               due dates as weekly or  biweekly,  often  coinciding  with a
               customer's payday,
        o   the ability to make payments in person at the dealerships.  This is
               an important  feature to many sub-prime  borrowers who may not
               have checking  accounts or are otherwise  unable to make payments
               by the due date through use of the mail due to the timing of
               paydays.

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

<TABLE>
<CAPTION>

        <S>                                     <C>
        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.
</TABLE>

    We  finance  substantially  all  of  the  used  cars  that  we  sell  at our
dealerships through retail installment loan contracts. Subject to the discretion
of our dealership or sales  managers,  potential  customers must meet our formal
underwriting  guidelines  before we will  agree to  finance  the  purchase  of a
vehicle.  Our  employees  analyze  and verify the  customer  credit  application
information and subsequently  make a determination  whether to provide financing
to the customer.

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

    In December  1999, we sold the Cygnet Dealer  Finance (CDF)  subsidiary  and
also  decided to abandon any efforts to acquire  third party loans or  servicing
rights to additional third party portfolios.  As a result, CDF, Cygnet Servicing
and the  associated  Cygnet  Corporate  segment  activities  are  classified  as
discontinued  operations  for 1999.  We plan to complete  the  servicing  of the
portfolios that we currently service.

     In the  following  discussion  and  analysis,  we  explain  the  results of
operations   and  general   financial   condition  of  Ugly   Duckling  and  its
subsidiaries.  In particular,  we analyze and explain the changes in the results
of operations of our business  segments for the quarterly period ended March 31,
2000 compared to the quarterly period ended March 31,1999.

<PAGE>
                                    Page 10

SELECTED CONSOLIDATED FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
                                                               At or For the Three Months Ended:

                                          ------------------------------------------------------------------------------------------
                                                  March 31,       December 31,     September 30,    June 30,        March 31,
                                                    2000             1999             1999           1999             1999
                                                 ----------       ----------       ----------      ----------      ----------
Operating Data:                                                   ($ in thousands except per share amounts)
<S>                                              <C>             <C>             <C>             <C>             <C>
Total Revenues                                   $  159,124      $  105,429      $  124,883      $  115,927      $  119,715
Sales of Used Cars                               $  132,786      $   82,275      $  103,315      $   97,875      $  106,443
Number of Used Cars Sold                             15,802           9,731          12,219          11,416          12,754
Sales Price - Per Car Sold                       $    8,403      $    8,455      $    8,455      $    8,574      $    8,346
Cost of Sales - Per Car Sold                     $    4,616      $    4,690      $    4,727      $    4,865      $    4,712
Gross Margin Per Car Sold                        $    3,787      $    3,765      $    3,728      $    3,708      $    3,634
Provision - Per Car Sold                         $    2,188      $    2,245      $    2,256      $    2,259      $    2,177
Total Operating Expense - Per Car Sold           $    2,322      $    2,764      $    2,298      $    2,427      $    2,274
Cost of Used Cars as Percent of Sales                 54.9%           55.5%           55.9%           56.7%           56.5%
Gross Margin as Percent of Sales                      45.1%           44.5%           44.1%           43.3%           43.5%
Provision - % of Originations                         27.0%           27.0%           26.9%           26.8%           27.0%
Total Oper. Exp. - % of Total Revenues                23.1%           25.5%           22.5%           23.9%           24.2%
Segment Operating Expense Data:
Retail Expense - Per Car Sold                    $    1,481      $    1,775      $    1,484      $    1,562      $    1,431
Retail Exp. - % of Used Car Sales                     17.6%           21.0%           17.6%           18.2%           17.1%
Corp./Other Exp. - Per Car Sold                  $      387      $      357      $      399      $      440      $      458
Corp./Other Exp. - % of Total Revenue                  3.8%            3.3%            3.9%            4.3%            4.9%
Portfolio Exp. Annualized - % of End of
     Period Managed Principal                          6.2%            6.8%            4.7%            5.1%            5.7%
Balance Sheet Data:
Finance Receivables, Net                         $  407,267      $  365,586      $  321,739      $  256,085      $  190,063
Inventory                                        $   49,058      $   62,865      $   45,768      $   37,737      $   39,878
Total Assets                                     $  547,953      $  536,711      $  516,513      $  460,718      $  400,247
Notes Payable Portfolio                          $  282,865      $  275,774      $  244,363      $  195,244      $  171,543
Subordinated Notes Payable                       $   28,900      $   28,611      $   37,077      $   36,943      $   38,279
Total Debt                                       $  345,183      $  340,941      $  317,440      $  269,687      $  210,358
Common Stock                                     $  173,682      $  173,292      $  173,276      $  173,883      $  173,836
Treasury Stock                                   $  (20,321)     $ (20,321)      $  (20,321)     $  (19,824)     $ (19,817)
Total Stockholders' Equity                       $  170,553      $  165,680      $  162,477      $  159,398      $  157,890
Shares Outstanding - End of Period                   14,980          14,888          14,889          14,943          14,939
Book Value per Share                             $    11.39      $    11.13      $    10.91      $    10.67      $    10.57
Tangible Book Value per Share                    $    10.43      $    10.15      $     9.95      $     9.74      $     9.62
Total Debt to Equity                                    2.0             2.1             2.0             1.7             1.3
Loan Portfolio Data:
Interest Income                                  $   25,531      $   22,670      $   19,775      $   15,756      $   10,373
Average Yield on Portfolio                           26.17%          25.41%          25.90%          26.27%          26.19%
Principal Balances Originated                    $  128,123      $   80,900      $  102,599      $   96,098      $  102,733
Principal Balances Orig. as % of Sales                96.5%           98.3%           99.3%           98.2%           96.5%
Principal Balances Acquired                              --      $    6,811      $   14,596              --              --
Number of Loans Originated                           15,721           9,650          12,137          11,335          12,634
Average Original Amount Financed                 $    8,150      $    8,383      $    8,453      $    8,478      $    8,131
Number of Loan Orig. % of Units Sold                  99.5%           99.2%           99.3%           99.3%           99.1%
Number of Loans Acquired                                 --           2,586           2,543              --              --
Managed Portfolio Delinquencies:
     31 to 60 days                                     3.4%            5.7%            6.8%            4.7%            3.5%
     Over 60 days                                      1.9%            2.9%            3.5%            2.6%            1.9%
Principal Outstanding - Managed                  $  461,824      $  424,480      $  427,439      $  383,596      $  341,040
Principal Outstanding - Retained                 $  418,913      $  358,818      $  331,982      $  256,645      $  182,150
</TABLE>
<PAGE>
                                    Page 11

First Quarter highlights include:

        o   Net earnings from continuing operations totaled $4.5 million, or
               $0.30 per diluted share, the highest quarterly EPS ever for the
               Company, versus earnings from continuing operations of $0.5
               million or $0.04 per diluted share in the corresponding quarter
               of the prior year.
        o   Total revenues increased 33% to $159.1 million from $119.7 million
               in the corresponding quarter of the prior year.
        o   E-Commerce provided $5.9 million in revenue and 701 cars sold during
               the first quarter of 2000 versus $3.9  million in revenue and 415
               cars sold during the fourth quarter of 1999.
        o   On-balance sheet loan portfolio principal balance reached $418.9
               million, representing a 17% increase over the fourth quarter and
               a 130% rise over the year-ago quarter.
        o   New loan originations reached $128.1 million, a 25% increase over
               the same quarter of the prior year.
Sales of Used Cars and Cost of Used Cars Sold
<TABLE>
<CAPTION>

                                                                    March 31,
                                                        ----------------------------------    Percentage
                   ($ in thousands)                            2000            1999             Change
                                                           -----------      -----------       ----------
                 <S>                                       <C>              <C>                   <C>
                 Number of Used Cars Sold ...........           15,802           12,754           23.9%
                                                           ===========      ===========
                 Sales of Used Cars .................      $   132,786      $   106,443           24.7%
                 Cost of Used Cars Sold .............           72,942           60,088           21.4%
                                                           -----------      -----------
                 Gross Margin .......................      $    59,844      $    46,355           29.1%
                                                           ===========      ===========
                 Gross Margin %......................           45.1%             43.5%
                                                           ===========      ===========
                 Per Car Sold:
                 Sales ..............................      $     8,403      $     8,346            0.7%
                 Cost of Used Cars Sold .............            4,616            4,711           (2.0%)
                                                           -----------      -----------
                 Gross Margin .......................      $     3,787      $     3,635            4.2%
                                                           ===========      ===========
</TABLE>



    The  number of cars  sold  increased  by 23.9%  and Used Car Sales  revenues
increased  by 24.7%  for the three  months  ended  March 31,  2000 over the same
period in 1999.  The increase in both units sold and  revenues is primarily  the
result of an increase in the number of dealerships in operation  coupled with an
increase in E-commerce related business.

    We expanded  our  marketing  efforts  during 1999 to include  E-commerce  by
accepting credit applications from potential customers via our website,  located
at  http://www.uglyduckling.com.  Credit  inquiries  received  over  the web are
reviewed  by  our  employees,  who  then  contact  the  customers  and  schedule
appointments.  We  continue to monitor  and  enhance  our  internet  application
levels.  These  efforts  continue to provide an  increasing  number of used cars
sold.  During the first  quarter of 2000, we sold 701 cars totaling $5.9 million
in revenue,  up from 415 used cars sold and $3.9  million in revenue  during the
fourth quarter of 1999. We are also finding that the  E-commerce  customer group
is outperforming all other customers in terms of loan performance.

     Same store unit sales for the three months  ended March 31, 2000  decreased
approximately  3% from the first quarter of 1999. We anticipate  future  revenue
growth  will come from  increasing  the number of our  dealerships  and not from
higher sales volumes at existing dealerships.

    The Cost of Used Cars Sold  increased  by 21.4% for the three  months  ended
March 31, 2000 over the comparable period of the previous year. The increase for
this  period  reflects a rise in the volume of cars sold due to the  increase in
number of dealerships in operation and E-commerce related business as previously
mentioned.  The gross  margin on used car sales (Sales of Used Cars less Cost of
Used Cars Sold excluding Provision for Credit Losses) as a percentage of related
revenue  increased  to 45.1% for the three  months  ended  March 31, 2000 versus
43.5% for the same period of the  previous  year.  The gross margin per car sold
for the three months ended March 31, 2000  increased  4.2% over the three months
ended March 31, 1999.  The increase in both overall gross margin as well as on a
per car sold basis is the result of an increase in average  revenue per car sold
coupled with a decrease in average Cost per Used Car Sold.

<PAGE>
                                    Page 12

    The Company  finances  substantially  all of its sales.  The following table
indicates the percentage of sales units and revenue financed:
<TABLE>
<CAPTION>
                                                                           March 31,
                                                               -----------------------------------
                                                                     2000                1999
                                                                 ------------         ----------
<S>                                                              <C>                  <C>
Percentage of used cars sold financed.......................            99.5%               99.1%
                                                                 ============         ===========
Percentage of sales revenue financed........................            96.5%               96.5%
                                                                 ============         ===========
</TABLE>
Provision for Credit Losses

    The following is a summary of the Provision for Credit Losses:
<TABLE>
<CAPTION>
                                                                                               Percentage
                                                                          March 31,              Change
                                                                 ---------------------------- -------------
                                                                    2000            1999
                                                                  ---------       -------
          <S>                                                    <C>              <C>               <C>
          Provision for Credit Losses (in thousands)........     $   34,573       $   27,763        24.5%
                                                                 ==========       ==========
          Provision per loan originated ....................     $    2,199        $   2,198           --
                                                                 ==========       ==========
          Provision as % of principal balances originated...          27.0%            27.0%
                                                                 ==========       ==========
</TABLE>
         The  Provision  for  Credit  Losses is the  amount we charge to current
operations  on each car sold to establish an allowance  for credit  losses.  The
Provision for Credit Losses for the three months ended March 31, 2000  increased
24.5% over the  comparable  period of the prior year. The increase was primarily
due to an  increase  in the  volume  of loans  originated.  The  average  amount
financed  increased  slightly  to $8,150 per unit in the period  ended March 31,
2000 from $8,131 per unit in the quarter ended March 31, 1999.

Net Interest Income
<TABLE>
<CAPTION>
                                                                                                  Percentage
                                                                          March 31,                 Change
                                                                 ----------------------------    -------------
          ($ in thousands)                                           2000         1999
                                                                  ---------    -------
          <S>                                                     <C>          <C>                    <C>
          Interest Income...................................      $  25,531    $    10,373            146.1%
          Portfolio Interest Expense........................          5,029          1,995            152.1%
                                                                 ----------   ------------
          Net Interest Income...............................      $  20,502    $     8,378            144.7%
                                                                 ==========     ==========
          Average Effective Yield...........................          26.2%          25.3%              3.6%
                                                                 ==========     ==========        ==========
          Average Effective Borrowing Cost..................           8.0%           9.5%             10.1%
                                                                 ==========     ==========        ==========
</TABLE>
    Interest  Income  consists  primarily  of  interest  on  finance  receivable
principal  balances retained on our balance sheet.  Retained  principal balances
grew to $418.9  million at March 31, 2000 from $182.2  million at March 31, 1999
primarily as a result of the change in the way we structure our  securitizations
to the collateralized  borrowing method during the fourth quarter of 1998. Prior
to the fourth quarter of 1998,  securitized  loans were  transferred  off of our
balance  sheet  and a gain  on  sale  was  recorded.  Under  the  collateralized
borrowing  method,  the securitized  loans are retained on our balance sheet and
the income and associated costs are recorded over the life of the loan.

Servicing Income

    We generate  Servicing  Income  primarily  from servicing the remaining loan
portfolios  securitized  under the gain on sale  method.  A summary of Servicing
Income  follows  for the  three  months ended  March  31,  2000  and  1999 ($ in
thousands):
<TABLE>
<CAPTION>
                                                                                                Percentage
                                                                        March 31,                 Change
                                                                 -------------------------     --------------
                                                                   2000         1999
                                                                  -------      -------

          <S>                                                       <C>            <C>             <C>
          Servicing Income..................................        $   807        $ 2,899         (72.2%)
                                                                    =======        =======         =======
</TABLE>
<PAGE>
                                    Page 13

    We service loans for monthly fees ranging from .25% to .33% of the beginning
of month principal  balances (3.0% to 4.0% per year).  The decrease in Servicing
Income for the quarter  ended March 31, 2000 is due to the decrease in remaining
principal  balances  securitized and serviced under the gain on sale method from
$158.9 million at March 31, 1999 to $42.9 million at March 31, 2000.

Income before Operating Expenses

    Income  before  Operating  Expenses  grew by 55.9% to $46.6  million for the
three months ended March 31, 2000 from $29.9  million for the three months ended
March 31,1999. Growth in Sales of Used Cars, an increase in gross margins and an
increase in Interest Income were the primary contributors to the increase.

<TABLE>
<CAPTION>
Operating Expenses


                                                                 March 31,
                                                    ------------------------------------       Percentage
                                                          2000                 1999              Change
                                                    -------------       -------------         -----------
    <S>                                             <C>                 <C>                     <C>
    Operating Expenses (in thousands)...            $    36,688         $    28,970             26.6%
                                                    ===========         ===========
    Per Car Sold........................            $     2,322         $     2,271              2.2%
                                                    ===========         ===========
As % of Total Revenues..................                  23.1%               24.2%
                                                    ===========         ===========
</TABLE>

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

Interest Expense

    Interest  expense  arising from our  subordinated  debt totaled $2.3 million
for the three months ended March 31, 2000 versus none for the three months ended
March 31, 1999.  While the Company has additional  interest expense arising from
subordinated notes payable, a portion of this interest expense was attributed to
the financing of assets and activities reported as discontinued  operations.  As
the assets and activities of discontinued  operations diminish, the Company does
not  expect to retire  the  subordinated  notes  payable  but  rather  use these
borrowings to fund our growth.  Accordingly,  the Company would expect to have a
disproportionate increase in interest expense allocated to continuing operations
in future periods as existing  subordinated  debt is used to fund our growth and
the  allocation  of  this  interest  to   discontinued   operations   decreases.
Subordinated  debt carries interest rates generally higher than those charged on
borrowings collateralized by our finance receivables.

Income Taxes

    Income taxes totaled $3.1 million for the three months ended March 31, 2000,
and $.3 million for the three months ended March 31,1999. Our effective tax rate
was 41% for the three months ended March 31, 2000 and 40% for the  three  months
ended March 31,1999.

Earnings from Continuing Operations

    Earnings  from  continuing  operations  totaled  $4.5  million for the three
months ended March 31, 2000 versus $0.5 million for the same three months of the
previous  year.  The increase is  primarily  due to an increase in the volume of
used cars sold and growth in interest income.  The interest income is due to the
increase in our retained  portfolio  along with an increase in gross  margins on
used cars sold. These improvements were offset by a decrease in servicing income
resulting  from the decline in  remaining  principal  balances  securitized  and
serviced under the gain on sale method.

Discontinued Operations

    Discontinued  operations  provided  no income  or loss for the three  months
ended March 31, 2000 versus a loss, net of income tax benefits,  of $121,000 for
the three months ended March 31, 1999.  Effective December 31, 1999, the Company
adopted  a  formal  plan to  abandon  any  effort  for its  third  party  dealer
operations  to  acquire  loans or  servicing  rights to  additional  portfolios.
Accordingly,  our Cygnet Servicing and the associated  Cygnet Corporate  segment
are reported as  components  of  discontinued  operations.  The Company plans to
complete servicing the portfolios that it currently services.

<PAGE>
                                    Page 14

Business Segment Information

    The Company reports its operations based on three operating segments.  These
segments are reported herein as Retail, Portfolio and Corporate.  These segments
were previously reported as Company Dealership,  Company Dealership  Receivables
and Corporate and Other, respectively.

    Operating  Expenses for our business  segments,  along with a description of
the included  activities,  for the three month  periods ended March 31, 2000 and
1999 are as follows:

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

                                                       March 31,
                                            --------------------------------        Percentage
                                                  2000             1999               Change
                                            -------------    -------------        ------------
       <S>                                    <C>              <C>                    <C>
       Selling and Marketing.............     $     8,135      $     6,366            27.8%
       General and Administrative........          14,190           11,094            27.9%
       Depreciation and Amortization.....           1,071              791            35.4%
                                              -----------      -----------
                                              $    23,396      $    18,251            28.2%
                                              ===========      ===========
     Per Car Sold:
       Selling and Marketing.............     $       515      $       499             3.2%
       General and Administrative........             898              870             3.2%
       Depreciation and Amortization.....              68               62             9.7%
                                              -----------      -----------
                                              $     1,481      $     1,431             3.5%
                                              ===========      ===========
     As % of Used Cars Sold Revenue:
       Selling and Marketing.............          6.1%             6.0%
       General and Administrative........         10.7%            10.4%
       Depreciation and Amortization.....          0.8%             0.7%
                                               --------         --------
       Total.............................         17.6%            17.1%
                                               ========         ========
</TABLE>



   Selling and Marketing  expenses as a percentage of related  revenue  remained
relatively constant at 6% for the first quarter of 2000 as compared to the first
quarter of 1999. The additional revenue from internet based sales, as well as an
overall  increase in average  sales price per vehicle,  have allowed the Selling
and Marketing  expenses as a percentage of related  revenue to remain stable but
have increased slightly on a per car sold basis.

   General  and   Administrative   expenses   increased   quarter  over  quarter
principally as a result of increases in salary and benefits costs.

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

                                                       March 31,
                                             -------------------------------    Percentage
                                                   2000            1999           Change
                                             -------------   -------------      ---------
   <S>                                         <C>            <C>                 <C>
   General and Administrative................  $    6,884     $     4,601         49.6%
   Depreciation and Amortization.............         300             283          6.0%
                                               ----------     -----------
                                               $    7,184     $     4,884         47.1%
                                               ==========     ===========
   Expense per month per loan serviced.......  $    28.75      $    20.70
                                               ==========     ===========
   Annualized Expense as % of Managed
   Principal Balances........................        6.2%            5.7%
                                               ==========     ===========
</TABLE>

    The increase in  operating  expenses  from the first  quarter of 1999 to the
first  quarter of 2000 for our  portfolio  segment is  primarily a result of the
increased  number of loans in our  portfolio.  Also  attributing to the increase
were market  adjustments  made to  collection  staff wages and a decrease in the
number of  delinquent  accounts  serviced per  collector  due to loan  servicing

<PAGE>
                                    Page 15

inefficiencies  experienced  in the latter  half of 1999.  As of result of these
initiatives,  we have  seen a  significant  decline  in  delinquency  levels  as
discussed in the "Static Pool Analysis" section below.

    Corporate  Operations.  Operating expenses for our Corporate segment consist
of costs to provide managerial oversight and reporting for the Company,  develop
and implement  policies and procedures,  and provide expertise to the Company in
areas such as finance, legal, human resources and information technology.
<TABLE>
<CAPTION>
Operating Expenses
                                                                March 31,
                                                    ----------------------------------   Percentage
          ($ in thousands)                                2000             1999            Change
                                                    --------------   --------------     -----------
          <S>                                         <C>              <C>                   <C>
          General and Administrative.........         $      5,271     $      5,314          (0.8%)
          Depreciation and Amortization......                  837              521          60.7%
                                                      ------------     ------------
                                                      $      6,108     $      5,835           4.7%
                                                      ============     ============
          Per Car Sold.......................         $        387     $        458         (15.5%)
                                                      ============     ============
          As % of Total Revenues.............                 3.8%             4.9%
                                                      ============     ============

</TABLE>

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

Financial Position

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

                                                           March 31,     December 31,      Percentage

                                                              2000            1999           Change
                                                         --------------  --------------  -----------
          <S>                                            <C>             <C>                <C>
          Total Assets...............................    $    547,953    $    536,711         2.1%

          Inventory..................................          49,058          62,865       (22.0%)
          Finance Receivables, Net...................         407,267         365,586        11.4%
          Net Assets of Discontinued Operations......          14,162          33,880       (58.2%)

          Total Debt.................................         345,183         340,941         1.2%
          Notes Payable - Portfolio..................         282,865         275,774         2.6%
          Other Notes Payable........................          33,418          36,556        (8.6%)
          Subordinated Notes Payable.................          28,900          28,611         1.0%
          Stockholders' Equity.......................    $    170,553    $    165,680         2.9%
</TABLE>


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

    Inventory.  Inventory represents the acquisition and reconditioning costs of
used cars located at our dealerships and our inspection  centers.  The change in
inventory  from  December  31,  1999 to March  31,  2000 is due to  management's
decision to increase  inventory levels at the end of 1999 in preparation for the
strong seasonal sale periods,  which are typically the first and second quarters
of the year.  We generally  acquire our used car inventory  from three  sources;
approximately  50%  from  auctions,  30% from  wholesalers  and 20% from new car
dealerships.

    Growth in Finance Receivables,  Net. Due to the growth in the volume of cars
sold, Finance Receivables,  Net as of March 31, 2000 has increased approximately
11% from December 31, 1999. See Note 2 to the Condensed  Consolidated  Financial
Statements for detail of the components of Finance Receivables, Net.

<PAGE>
                                    Page 16

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

                                                                      Managed Loans Outstanding
                                                         Principal Balances                 Number of Loans

                                                      March 31,     December 31,        March 31,      December 31,
                                                        2000             1999              2000            1999
                                                  -------------   --------------    --------------    ------------
<S>                                                <C>              <C>               <C>             <C>
Principal - Managed........................        $    461,824     $    424,480            75,496          70,450
Less:  Principal - Securitized and Sold....              42,911           65,662            13,037          17,369
                                                   ------------     ------------      ------------    ------------
Principal - Retained on Balance Sheet......        $    418,913     $    358,818            62,459          53,081
                                                   ============     ============      ============    ============
</TABLE>

    The increase in Principal Balances - Retained on Balance Sheet was primarily
due to growth in loans  receivable  as a result of increased  used car sales and
financing,  partially offset by the principal balance runoff of loans originated
in prior periods.  Used Car Sales totaled 15,802 for the quarter ended March 31,
2000,  versus  sales of 9,731 used cars during the quarter  ended  December  31,
1999.

    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, 2000 and December 31, 1999 ($ in thousands):
<TABLE>
<CAPTION>

                                                      March 31,     December 31,
                                                        2000             1999
                                                  -------------   --------------
   Allowance Activity:
   <S>                                             <C>             <C>
   Balance, Beginning of Period..................  $     76,150    $     80,698
   Provision for Credit Losses...................        34,573          23,133
   Other Allowance Activity......................           104           1,245
   Net Charge Offs...............................       (23,242)        (28,926)
                                                   ------------    ------------
   Balance, End of Period........................  $     87,585    $     76,150
                                                   ============    ============
   Allowance as % Ending Principal Balances......         20.9%           21.2%
                                                   ============    ============
   Charge off Activity:
      Principal Balances.........................  $    (31,166)   $    (34,667)
      Recoveries, Net............................         7,924           5,741
                                                   ------------    ------------
   Net Charge Offs...............................  $    (23,242)   $    (28,926)
                                                   ============    ============
</TABLE>


    Even though a contract is charged off, we continue to attempt to collect the
contract.  Recoveries  as a percentage  of principal  balances  charged off from
retail  operations  averaged  25.4% for the three  months  ended  March 31, 2000
compared to 16.6% for the three months ended December 31, 1999. This increase is
due to the initiatives  taken to retain  qualified loan service staff and reduce
the number of delinquencies serviced per collector.

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

Static Pool Analysis

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

<PAGE>
                                    Page 17

    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, 2000,  the  cumulative  net
charge offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed  by customers  before  charge off. The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).
<TABLE>
<CAPTION>

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

                                                  Monthly Payments Completed by Customer Before Charge Off
                                      --------------------------------------------------------------------
                              Orig.       0         3         6         12        18        24        TLI      Reduced
                          ----------  --------  --------  --------   --------  --------  --------  --------   --------
    <S>                   <C>             <C>      <C>       <C>        <C>       <C>       <C>       <C>       <C>
    1993                  $   12,984      9.1%     22.1%     28.5%      33.8%     35.9%     36.5%     36.8%     100.0%
    1994                  $   23,589      5.3%     14.8%     19.9%      25.6%     28.0%     28.7%     28.8%     100.0%
    1995                  $   36,569      2.0%      8.1%     13.2%      19.2%     22.3%     23.6%     24.1%     100.0%
    1996:
       1st Quarter        $   13,635      1.6%      8.0%     13.7%      20.6%     24.7%     26.0%     27.2%     100.0%
       2nd Quarter        $   13,462      2.3%      9.3%     13.4%      22.0%     25.9%     27.6%     29.0%      99.9%
       3rd Quarter        $   11,082      1.7%      6.9%     12.6%      21.4%     25.5%     27.7%     28.8%      99.7%
       4th Quarter        $   10,817      0.7%      8.5%     15.9%      24.9%     29.3%     31.1%     32.2%      99.2%
    1997:
       1st Quarter        $   16,279      2.1%     10.8%     18.2%      24.9%     30.0%     32.3%     33.6%      98.1%
       2nd Quarter        $   25,875      1.5%      9.9%     15.9%      22.8%     27.6%     29.7%     30.7%      95.7%
       3rd Quarter        $   32,147      1.4%      8.4%     13.2%      22.6%     27.1%     29.4%     30.3%      93.5%
       4th Quarter        $   42,529      1.4%      6.9%     12.7%      22.0%     26.3%     29.1%     29.4%      90.6%
    1998:
       1st Quarter        $   69,708      1.0%      6.9%     13.5%      21.1%     26.8%      x        28.9%      87.4%
       2nd Quarter        $   66,908      1.1%      8.1%     14.3%      22.0%     27.7%      --       28.4%      81.5%
       3rd Quarter        $   71,027      1.0%      8.0%     13.5%      23.5%      x         --       27.7%      76.5%
       4th Quarter        $   69,583      0.9%      6.7%     13.3%      25.0%      --        --       26.6%      67.5%
    1999:
       1st Quarter        $  102,733      0.8%      7.6%     15.5%       x         --        --       22.9%      57.5%
       2nd Quarter        $   96,098      1.1%     10.2%     17.2%       --        --        --       20.3%      45.9%
       3rd Quarter        $  102,599      1.0%      8.5%      x          --        --        --       12.5%      32.0%
       4th Quarter        $   80,900      0.7%      x         --         --        --        --        4.5%      16.1%
    2000:
       1st Quarter        $  128,123      x      --        --         --        --        --        0.4%       6.6%




</TABLE>
<PAGE>
                                    Page 18


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

                                                                         March 31,          December 31,
                                                                    -----------------------------------------
                                                                            2000                 1999
                                                                      ----------------    ----------------
                     Days Delinquent:                                 31-60     61-90     31-60     61-90
                                                                      -----     -----     -----     -----
                     <S>                                               <C>       <C>       <C>       <C>
                     Retained on Balance Sheet.....................    3.3%      1.8%      5.3%      2.8%
                     Securitized - Gain on Sale....................    4.8%      2.8%      7.6%      3.7%
                                                                       ----   -------      ----   -------
                     Total Portfolio...............................    3.4%      1.9%      5.7%      2.9%
                                                                       ====   =======      ====   =======
</TABLE>

    In accordance with our charge off policy, there are no accounts more than 90
days delinquent as of March 31, 2000.

    Delinquencies have improved  dramatically as of the end of the first quarter
of 2000  versus  the  fourth  quarter  of 1999.  As a result  of loan  servicing
inefficiencies experienced in the second and third quarters of 1999, initiatives
were put into place to retain  qualified loan servicing  staff and to reduce the
number of delinquent  accounts  serviced per  collector.  As  exemplified in the
decline in  delinquency  levels,  the  initiatives  have proven to be effective.
However,  due to the first  quarter of the year  typically  being our  strongest
sales quarter,  finance receivables increased  significantly during this period.
As a result, delinquency levels appear lower due to the influx of receivables in
the  latter  months  of the first  quarter.  Consequently,  we cannot  expect to
maintain the current delinquency levels in future periods.

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 and
subordinate  classes  are  retained  by us or our  subsidiaries.  We continue to
service the securitized loans.

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

    Reserve Account Requirements. Under our current securitization structure, we
make an initial cash deposit into a reserve account,  generally equivalent to 4%
of the initial underlying Finance Receivables  principal balance and pledge this
cash to the reserve account agent. The trustee then makes additional deposits to
the  reserve  account  out of  collections  on the  securitized  receivables  as
necessary to fund the reserve  account to a specified  percentage,  ranging from
8.0% to 10.5%, of the underlying Finance  Receivables'  principal  balance.  The
trustee makes distributions to us when:

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

    During the second and third quarters of 1999, we experienced  loan servicing
inefficiencies that resulted in increased  delinquency and charge off levels. As
a result,  certain reserve account requirements were increased until delinquency
and charge off levels returned to  contractually  specified  percentages.  As of
March  31,  2000,  all  increases  in  reserve  account  requirements  have been
eliminated  and  we  met  the  targeted   reserve  account  balances  under  our
securitization agreements of $34.6 million.

    Certain Financial Information Regarding Our Securitizations

    We did not  enter  into any  securitization  transactions  during  the first
quarter of 2000 or 1999.

<PAGE>
                                    Page 19


Liquidity and Capital Resources

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

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

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

        <S> <C>                                                   <C> <C>
        o   operating cash flow,                                  o   our revolving facility with GE Capital, and
        o   securitization transactions,                          o   supplemental borrowings.
</TABLE>

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

Operating Cash Flow

    Net Cash Provided by Operating  Activities increased by $11.0 million in the
three months ended March 31, 2000 to $61.9 million compared to cash generated of
$50.9  million  for the three  months  ended  March  31,1999.  The  increase  is
primarily due to an increase in net earnings coupled with a significant decrease
in  inventory  from year end  1999,  resulting  from  management's  decision  to
increase  inventory  levels  at the  end of  1999 in  preparation  for the  high
seasonal sales, which typically occur in the first quarter of the year.

    Net cash used by investing  activities  decreased  to $81.2  million for the
quarter  ended March 31, 2000 versus  $99.3  million for the same quarter of the
previous year. The decrease is due a significant decrease in Investments Held in
Trust  due  to  the  decline  in  principal  balances  securitized,   offset  by
collections on finance receivables.

    Financing  activities generated $3.6 million for the quarter ended March 31,
2000 as  compared to $49.3  million  generated  for the quarter  ended March 31,
1999.  The  reason for the  decrease is primarily due to net repayment  of notes
payable.

Financing Resources

    Revolving Facility. Under our $125 million revolving facility, our borrowing
base  consists  of up to  65.0%  of the  principal  balance  of  eligible  loans
originated  from the sale of used cars and the  lesser of $25  million or 58% of
the direct vehicle costs for eligible vehicle inventory.  The revolving facility
expires in June 2000 and  includes a  provision  for a one year  extension  upon
agreement by both parties.  Although  there can be no assurance,  we expect this
agreement to be extended for an additional  year.  The  revolving  facility also
contains a provision  that  requires us to pay GE Capital a  termination  fee of
$200,000 if we terminate the revolving facility prior to the expiration date. We
secure the facility with substantially all of our assets.

    As of March 31, 2000, our borrowing  capacity  under the revolving  facility
was  $121.9  million,  the  aggregate  principal  amount  outstanding  under the
revolving facility was approximately $89.1 million,  and the amount available to
be borrowed under the facility was $32.8 million.  The revolving  facility bears
interest at the 30-day LIBOR plus 3.15%,  payable  daily (total rate of 9.04% as
of March 31, 2000).

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

    In addition, we are also required to maintain specified financial ratios. As
of March 31, 2000, we were were compliance with the covenants in this agreement.

<PAGE>
                                    Page 20

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

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

Supplemental Borrowings

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

    General Electric Capital  Corporation Lease. In March 2000, we  entered into
an  agreement  with  General  Electric  Capital  Corporation  to  provide  lease
financing in the  aggregate of $4.7 million.  The lease  provides for 36 monthly
payments  bearing  interest at 9.42%. The lease is being treated as an operating
lease for accounting purposes.

Capital Expenditures and Commitments

    During  the three  months  ended  March 31,  2000,  we  developed  three new
dealerships in existing markets. In the fourth quarter of 1999, we obtained five
dealerships,  including  inventory and a loan  portfolio of  approximately  $8.0
million from  Virginia  Auto Mart.  The direct cost of opening a  dealership  is
primarily a function of whether we lease a facility or  construct a facility.  A
leased  facility costs  approximately  $650,000 to develop,  while a facility we
construct costs approximately $1.7 million.  In addition,  we require capital to
finance  the  portfolio  that we carry on our balance  sheet for each store.  It
takes  approximately  $2.2 million in cash to support a typical stabilized store
portfolio   with  our   existing   65%  advance  rate  under  our  GE  facility.
Additionally,  it takes approximately 30 months for a store portfolio to reach a
stabilized level.

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

Accounting Matters

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

Risk Factors

    There are various risks in purchasing  our  securities  and investing in our
business.  We believe that our risk information has not changed  materially from
the risk  factors  described  in our Form 10-K for the year ended  December  31,
1999.

We Make Forward Looking Statements

    Our  Quarterly  Report  on Form 10-Q  includes  statements  that  constitute
forward-looking  statements  within the meaning of the safe harbor provisions of
the  Private  and  Securities  Litigation  Reform  Act of 1995.  Forward-looking
statements  are  often  characterized  by  the  words  "believes,"  "estimates,"
"projects," "expects" or similar expressions. Forward-looking statements in this
report relate, among other matters, to: anticipated  financial results,  such as
continuing growth sales, other revenues and loan portfolios, and improvements in
loan performance,  including  delinquencies;  growth in our dealerships  through
acquisitions and de novo dealership openings;  and e-commerce related growth and
loan  performance.  Factors that could cause or contribute to  differences  from
these forward-looking statements include, but are not limited to: any decline in
consumer  acceptance  of our car sales  strategies or marketing  campaigns;  any

<PAGE>
                                    Page 21

inability  of the Company to finance its  operations  in light of a tight credit
market for the sub-prime  industry;  any  deterioration  in the used car finance
industry or increased  competition  in the used car sales and finance  industry;
any  inability  of the  Company to monitor  and  improve  its  underwriting  and
collection  processes;  any changes in  estimates  and  assumptions  in, and the
ongoing  adequacy of, our  allowance  for credit  losses;  any  inability of the
Company to continue to reduce  operating  expenses as a percentage of sales; and
any new or revised accounting,  tax or legal guidance that adversely affect used
car sales or  financing.  Other  factors are detailed in the  sections  entitled
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -- Risk  Factors,"  "Factors  That May  Affect  Future  Results  and
Financial  Condition" and "Factors That May Affect Future Stock  Performance" in
our most  recent  reports  on Form 10-K and this  Quarterly  Report on Form 10-Q
(including  Exhibit 99 hereto),  and  elsewhere in our  Securities  and Exchange
Commission filings. By making these forward-looking  statements, we undertake no
obligation to update these statements for revisions or changes after the date of
this report.  References to Ugly Duckling Corporation as the largest and fastest
growing  operator of used car dealerships  focused  exclusively on the sub-prime
market is  management's  belief based upon the knowledge of the industry and not
on any current independent third party study.

                                     ITEM 3.

Market Risk

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

         Our  financial  instruments  consist  primarily  of fixed rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
short term variable rate revolving Notes Receivable, and variable and fixed rate
Notes  Payable.  Our finance  receivables  are  classified as subprime loans and
generally  bear  interest  at the lower of 29.9% or the  maximum  interest  rate
allowed in states that impose  interest  rate  limits.  At March 31,  2000,  the
scheduled maturities on our finance receivables range from one to 52 months with
a weighted  average  maturity of 31.3 months.  The interest  rates we charge our
customers on finance  receivables has not changed as a result of fluctuations in
market interest rates,  although we may increase the interest rates we charge in
the future if market interest rates  increase.  A large component of our debt at
March  31,  2000  is  the  Collateralized   Notes  Payable  (senior  and  junior
securities)  issued under our securitization  program.  Issuing debt through our
securitization  program allows us to mitigate our interest rate risk by reducing
the balance of the  variable  revolving  line of credit and  replacing it with a
lower fixed rate note  payable.  We are  subject to interest  rate risk on fixed
rate Notes Payable to the extent that future  interest rates are higher than the
interest rates on our existing Notes Payable.

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

<PAGE>
                                    Page 22


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 2.  Changes in Securities and Use of Proceeds.

    (a)      None
    (b)      None
    (c)      None

    (d)      Not Applicable

Item 3.  Defaults Upon Senior Securities.

    None.

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

    None

Item 5.  Other Information.

    None

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

    (a)  Exhibits
         Exhibit  10.1 -- First  Amendment  to $38 Million  Senior  Secured Loan
            Agreement between CIBC Inc., SunAmerica,  etc. and the Registrant
            dated November 12, 1999

         Exhibit 10.2 -- Second Amendement to $38 Million Senior Secured Loan
            Agreement between CIBC Inc., SunAmerica,  etc. and the Registrant
            dated February 15, 2000

         Exhibit 11 -- Statement regarding  computation of per share earnings
            (see note 5 of Notes to Condensed Consolidated Financial Statements)



         Exhibit 27 -- Financial Data Schedule

    (b)  Reports on Form 8-K.

    During the first  quarter of 2000,  the Company filed three  reports on Form
8-K. The first report on Form 8-K,  dated December 31, 1999 and filed January 5,
2000 pursuant to Item 2,  reported the sale of stock of Cygnet  Dealer  Finance,
Inc. to an entity  controlled  by Ernest C. Garcia II. The second report on Form
8-K,  dated  February  17,  2000 and filed  February  17,  2000,  reported  Ugly
Duckling's  financial results for 1999 and filed as an exhibit to the Form 8-K a
press release dated February 16, 2000 entitled "Ugly Duckling Reports  Financial
Results for 1999." The third  report on Form 8-K,  dated  February  22, 2000 and
filed on February 22, 2000,  announced the commencement of Ugly Duckling's offer
to exchange  subordinated debt for up to 2.5 million shares of its common stock.
The  Company  also filed a Form 8-K/A on March 14,  2000  amending  the Form 8-K
dated December 31, 1999 by adding the pro forma financial  information  relating
to the sale of the stock of Cygnet Dealer Finance,  Inc. to an entity controlled
by Ernest C. Garcia II.

<PAGE>
                                    Page 23


SIGNATURE

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

         UGLY DUCKLING CORPORATION

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

         (Principal Financial and Accounting Officer)

Date:  May 11, 2000


<PAGE>
                                    Page 24


EXHIBIT INDEX
<TABLE>
<CAPTION>

                     Exhibit
                     Number                                      Description
                    ---------                                   -------------
                     <S>          <C>
                     10.1         First Amendment to $38 Million Senior Secured Loan Agreement between CIBC Inc., SunAmerica, etc.
                                  and the Registrant dated November 12, 1999
                     10.2         Second Amendement to $38 Million Senior Secured Loan Agreement between CIBC Inc., SunAmerica, etc.
                                  and the Registrant dated February 15, 2000
                     11           Statement regarding  computation of per share earnings (see note 5 of Notes
                                  to Condensed Consolidated Financial Statements)
                     27           Financial Data Schedule

</TABLE>