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

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

                                    FORM 10-Q

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

                                       or

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

                  For the quarterly period ended: June 30, 2001

                        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 August 13, 2001, there were  approximately  12,302,000  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, 2000.
================================================================================


<PAGE>



                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                                        Page
                          Part I - FINANCIAL STATEMENTS

  <S>                <C>                                                                                                <C>
  Item 1.            FINANCIAL STATEMENTS
                     Condensed Consolidated Balance Sheets-- June 30, 2001 and December 31, 2000..........................1
                     Condensed Consolidated Statements of Operations-- Three and Six Months Ended
                           June 30, 2001 and 2000.........................................................................2
                     Condensed Consolidated Statements of Cash Flows-- Six Months Ended
                         June 30, 2001 and 2000...........................................................................3

                     Notes to Condensed Consolidated Financial Statements.................................................4

  Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............10
  Item 3.            MARKET RISK.........................................................................................24

                     Part II.-- OTHER INFORMATION
  Item 1.            LEGAL PROCEEDINGS...................................................................................25
  Item 2.            CHANGES IN SECURITIES...............................................................................25
  Item 3.            DEFAULTS UPON SENIOR SECURITIES.....................................................................25
  Item 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................25
  Item 5.            OTHER INFORMATION...................................................................................25
  Item 6.            EXHIBITS AND REPORTS ON FORM 8-K....................................................................26
                     SIGNATURES..........................................................................................27
</TABLE>











<PAGE>








                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

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


                                                                            June 30,
                                                                              2001               December 31,
                                                                          (unaudited)                2000
                                                                        -----------------     -------------------
                                                                        -----------------     -------------------
                               ASSETS

<S>                                                                     <C>                    <C>
Cash and Cash Equivalents                                               $           7,059     $             8,805
Finance Receivables, Net                                                          544,585                 500,469
Note Receivable from Related Party                                                 12,000                  12,000
Inventory                                                                          40,772                  63,742
Property and Equipment, Net                                                        40,278                  38,679
Intangible Assets, Net                                                             12,048                  12,527
Other Assets                                                                       18,474                  11,724
Net Assets of Discontinued Operations                                               3,734                   4,175
                                                                        -----------------     -------------------
                                                                        $         678,950     $           652,121
                                                                        =================     ===================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:

  Accounts Payable                                                      $           1,498     $             2,239
  Accrued Expenses and Other Liabilities                                           25,525                  36,830
  Notes Payable - Portfolio                                                       415,877                 406,551
  Other Notes Payable                                                              42,495                  16,579
  Subordinated Notes Payable                                                       34,951                  34,522
                                                                        -----------------     -------------------
     Total Liabilities                                                            520,346                 496,721
                                                                        -----------------     -------------------
Stockholders' Equity:
    Preferred Stock $.001 par value, 10,000 shares authorized
     none issued and outstanding                                                       -                      -
    Common Stock $.001 par value, 100,000 shares authorized,
     18,764 issued and 12,302 and 12,292 outstanding                                   19                      19
   Additional Paid-in Capital                                                     173,741                 173,723
   Retained Earnings                                                               24,958                  21,772
   Treasury Stock, at cost                                                       (40,114)                (40,114)
                                                                        -----------------     -------------------
     Total Stockholders' Equity                                                   158,604                 155,400
   Commitments and Contingencies                                                       -                       -
                                                                        -----------------     -------------------
                                                                        $         678,950     $           652,121
                                                                        =================     ===================
</TABLE>




     See accompanying notes to Condensed Consolidated Financial Statements.



                                       1
<PAGE>




                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                Three and Six Months Ended June 30, 2001 and 2000
                (In thousands, except earnings per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                        Three Months Ended          Six Months Ended
                                                                             June 30,                   June 30,
                                                                     ------------------------------------------------------
                                                                         2001        2000          2001          2000
                                                                     ------------------------------------------------------


<S>                                                                  <C>          <C>           <C>            <C>
Cars Sold                                                                  11,607        14,369        26,458        30,171
                                                                     ======================================================
Total Revenues                                                       $    140,819 $     151,398 $     304,849  $    309,715
                                                                     ======================================================
Sales of Used Cars                                                   $    105,919 $     121,527 $     236,105  $    254,313
Less: Cost of Used Cars Sold                                               60,639        68,417       133,480       141,359
    Provision for Credit Losses                                            32,210        32,212        71,230        66,785
                                                                     ------------------------------------------------------
                                                                           13,070        20,898        31,395        46,169
                                                                     ------------------------------------------------------
Other Income (Expense):
   Interest Income                                                         34,900        29,871        68,744        55,402
   Portfolio Interest Expense                                             (7,492)       (5,997)      (16,011)      (11,026)
                                                                     ------------------------------------------------------
      Net Interest Income                                                  27,408        23,874        52,733        44,376
                                                                     ------------------------------------------------------

Income before Operating Expenses                                           40,478        44,772        84,128        90,545
Operating Expenses:
   Selling and Marketing                                                    6,235         7,426        13,861        15,561
   General and Administrative                                              27,217        25,192        54,655        50,730
   Depreciation and Amortization                                            2,435         2,231         4,842         4,439
                                                                     ------------------------------------------------------
        Operating Expenses                                                 35,887        34,849        73,358        70,730
                                                                     ------------------------------------------------------

Operating Income                                                            4,591         9,923        10,770        19,815
      Other Interest Expense                                                2,862         2,585         5,953         4,877
                                                                     ------------------------------------------------------

Earnings before Income Taxes                                                1,729         7,338         4,817        14,938
      Income Taxes                                                            709         2,990         1,975         6,107
                                                                     ------------------------------------------------------

Earnings before Extraordinary Item                                          1,020         4,348         2,842         8,831
Extraordinary Item - Gain on Early Extinguishment of Debt, net                344            -            344            -
                                                                     ------------------------------------------------------
Net Earnings                                                         $      1,364 $       4,348 $       3,186  $      8,831
                                                                     ======================================================

Earnings per Common Share before Extraordinary Item:
   Basic                                                             $       0.08 $        0.31 $        0.23  $       0.61
                                                                     ======================================================
   Diluted                                                           $       0.08 $        0.31 $        0.23  $       0.60
                                                                     ======================================================
Net Earnings per Common Share:
   Basic                                                             $       0.11 $        0.31 $        0.26  $       0.61
                                                                     ======================================================
   Diluted                                                           $       0.11 $        0.31 $        0.26  $       0.60
                                                                     ======================================================
Shares Used in Computation:
   Basic Weighted Average Shares Outstanding                               12,299        14,052        12,296        14,479
                                                                     ======================================================
   Diluted Weighted Average Shares Outstanding                             12,330        14,248        12,328        14,700
                                                                     ======================================================
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.


                                       2

<PAGE>





                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Six Months ended June 30, 2001 and 2000
                                 (In thousands)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                     -----------------------------------
                                                                                            2001             2000
                                                                                     ----------------   ----------------
Cash Flows from Operating Activities:

     <S>                                                                                   <C>               <C>
     Net Earnings                                                                    $          3,186   $          8,831
Adjustments to Reconcile Net Earnings to Net Cash Provided
     by Operating Activities:
     Provision for Credit Losses                                                               71,230             66,785
     Depreciation and Amortization                                                              6,912              6,459
     Loss from Disposal of Property and Equipment                                                 399                  3
     Collections from Residuals in Finance Receivables Sold                                     1,136              8,743
     Decrease in Inventory                                                                     22,970             17,000
     Increase in Other Assets                                                                     250                316
     Increase (Decrease) in Accounts Payable, Accrued Expenses and Other liabilities         (10,033)              1,860
     Decrease in Income Taxes Payable                                                         (2,013)            (2,300)
                                                                                     ----------------   ----------------
         Net Cash Provided by Operating Activities                                             94,037            107,697
                                                                                     ----------------   ----------------
Cash Flows Used in Investing Activities:
     Increase in Finance Receivables                                                        (213,732)          (261,882)
     Collections on Finance Receivables                                                       124,646            102,059
     Decrease in Investments Held in Trust on Finance Receivables Sold                          1,398              5,937
     Proceeds from Sale of Property and Equipment                                               1,760              1,766
     Purchase of Property and Equipment                                                       (8,122)            (6,511)
                                                                                     ----------------   ----------------
         Net Cash Used in Investing Activities                                               (94,050)          (158,631)
                                                                                     ----------------   ----------------
Cash Flows from Financing Activities:
     Initial Deposits at Securitization into Investments Held in Trust                        (6,407)           (14,619)
     Additional Deposits into Investments Held in Trust                                      (69,358)            (3,767)
     Release of Investments Held in Trust                                                      46,972             11,526
     Additions to Notes Payable Portfolio                                                     349,350            314,456
     Repayment of Notes Payable Portfolio                                                   (341,464)          (275,483)
     Additions to Other Notes Payable                                                          37,168                881
     Repayment of Other Notes Payable                                                        (11,720)            (9,854)
     Repayment/Extinguishment of Subordinated Notes Payable                                   (6,733)   -

     Proceeds from Issuance of Common Stock                                                        18                432
     Acquisition of Treasury Stock                                                                 -               (114)
                                                                                     ----------------   ----------------
         Net Cash Provided (Used)  by Financing Activities                                    (2,174)             23,458
                                                                                     ----------------   ----------------
Net Cash Provided by Discontinued Operations                                                      441             27,920
                                                                                     ----------------   ----------------
Net Increase (Decrease) in Cash and Cash Equivalents                                          (1,746)                444
Cash and Cash Equivalents at Beginning of Period                                                8,805              3,683
                                                                                     ----------------   ----------------
Cash and Cash Equivalents at End of Period                                           $          7,059   $          4,127
                                                                                     ================   ================
Supplemental Statement of Cash Flows Information:
     Interest Paid                                                                   $         20,130   $         15,678
                                                                                     ================   ================
     Income Taxes Paid                                                               $         12,071   $          8,405
                                                                                     ================   ================
     Acquisition of Treasury Stock with Subordinated Debt                            $             -    $          8,005
                                                                                     ================   ================
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>


                            UGLY DUCKLING CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

     Our accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to rules
and regulations of the Securities and Exchange Commission.  Accordingly, they do
not include all of the  information  and footnotes  required by such  accounting
principles  generally  accepted  in the United  States of America for a complete
financial  statement  presentation.  In  our  opinion,  such  unaudited  interim
information  reflects  all  adjustments,  consisting  only of  normal  recurring
adjustments,  necessary  to  present  our  financial  position  and  results  of
operations  for the periods  presented.  Our results of  operations  for interim
periods are not necessarily  indicative of the results to be expected for a full
fiscal year.  Our Condensed  Consolidated  Balance Sheet as of December 31, 2000
was derived from our audited  consolidated  financial statements as of that date
but does not include all the  information  and footnotes  required by accounting
principles  generally  accepted in the United States of America.  For a complete
financial statement  presentation,  we suggest that these condensed consolidated
financial  statements  be read in  conjunction  with  the  audited  consolidated
financial  statements  included in our Annual Report on Form 10-K,  for the year
ended  December 31, 2000. All amounts are in thousands with the exception of per
share, per unit and per car data, unless otherwise noted.

Note 2.  Summary of Finance Receivables

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

                                                         June 30,            December 31,
                                                           2001                  2000
                                                     -----------------     -----------------


<S>                                                  <C>                   <C>
Contractually Scheduled Payments                     $         723,882     $         696,220
Unearned Finance Charges                                     (189,116)             (181,274)
                                                     -----------------     -----------------
Principal Balances                                             534,766               514,946
Accrued Interest                                                 5,463                 5,655
Loan Origination Costs                                           7,411                 7,293
                                                     -----------------     -----------------
     Principal Balances, net                                   547,640               527,894
Investments Held in Trust                                       98,534                71,139
Residuals in Finance Receivables Sold                               -                  1,136
                                                     -----------------     -----------------
Finance Receivables                                            646,174               600,169
Allowance for Credit Losses                                  (101,589)              (99,700)
                                                     -----------------     -----------------
Finance Receivables, net                             $         544,585     $         500,469
                                                     =================     =================
Allowance as a % of Ending Principal Balances                    19.0%                 19.4%
                                                     =================     =================
</TABLE>

     Investments Held in Trust represent funds held by trustees on behalf of our
securitization bond holders.  The balance of Investments Held in Trust increased
from December 31, 2000 due to deposits into the trust  accounts  arising from an
additional  securitization  completed  during the first and second  quarters  of
2001,  including a pre-funded  amount of approximately  $25.2 million related to
the  securitization  completed in the second  quarter of 2001.  The increase was
partially  offset  by the  distribution  of  funds  associated  with  portfolios
securitized during prior periods.


Note 3.  Related Party Transactions

     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. ("Verde"),  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 $8.0  million by  surrendering  to the  Company  shares of Ugly
Duckling common stock (valued at 98% of the average of the closing prices of the
stock on NASDAQ for the ten trading days prior to the  surrender) as long as Mr.
Garcia's  ownership interest of the Company voting stock does not fall below 15%
and the acceptance of such stock by the Company does not result in a breach of a
covenant.

                                       4
<PAGE>


     In  May  2001,  Verde  purchased  one  of  the  Company  properties  at its
approximate book value of $1,650,000.  Verde has leased the property back to the
Company under a 20-year lease, which expires May 2021. The lease is a triple net
lease  with  an  increase  of  approximately  2% in  year  two  and  annual  CPI
adjustments thereafter.

     Verde is expected to purchase another property, with a scheduled close date
of August 2001. The purchase price is $800,000  which  approximates  book value.
The Company  currently sublets this property thus there will not be a subsequent
leaseback with Verde.


Note 4.  Notes Payable

     Notes Payable, Portfolio

A summary of Notes Payable, Portfolio at June 30, 2001 and December 31, 2000:
<TABLE>
<CAPTION>
                                                                                                June 30,        December 31,
                                                                                                  2001              2000
                                                                                            ----------------- -----------------
<S>                                                                                         <C>               <C>
Revolving Warehouse Facility with GE Capital, secured by substantially                      $              -  $          53,326
      all assets of the Company, terminated April 2001

Revolving Warehouse Facility with Greenwich Capital Financial Products, Inc,
secured by substantially all assets of the Company                                                     17,620                -

Class A obligations issued pursuant to the Company's Securitization Program,
     secured by underlying pools of finance receivables and investments held in trust
     totaling $592.1 million at June 30, 2001                                                         401,854           355,972
                                                                                            ----------------- -----------------
     Subtotal                                                                                         419,474           409,298
     Less:  Unamortized Loan Fees                                                                       3,597             2,747
                                                                                            ----------------- -----------------
     Total                                                                                  $         415,877 $         406,551
                                                                                            ================= =================
</TABLE>


     Effective  April  2001,  the Company  replaced  the  warehouse  receivables
portion of the GE Capital  facility.  The new  warehouse  receivables  revolving
facility  allows for maximum  borrowings of $75 million  during the period May 1
through  November 30 and increases to $100 million during the period  December 1
through  April 30. The term of the  facility is 364 days with a renewal  option,
upon mutual  consent,  for an additional  364-day  period.  The  borrowing  base
consists of up to 65% of the principal balance of eligible loans originated from
the sale of used cars. The lender maintains an option to adjust the advance rate
on  the  principal  to  reflect  changes  in  market   conditions  or  portfolio
performance.  The  interest  rate on the  facility is LIBOR plus 2.80% (6.96% at
June 30, 2001). The facility is secured with  substantially  all Company assets.
The line is subject to several  covenants,  including certain financial and loan
portfolio  related  covenants.  At June 30, 2001,  the Company was in compliance
with all required covenants.

     Class A  obligations  have interest  payable  monthly at rates ranging from
4.74% to 7.26%. Monthly principal reductions on Class A obligations  approximate
70% of the principal  reductions on the  underlying  pool of finance  receivable
loans.  See  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations - Securitizations"  for further information on the Class A
bonds.

    Other Notes Payable
A summary of Other Notes Payable at June 30, 2001 and December 31, 2000 follows:
<TABLE>
<CAPTION>
                                                                                                June 30,        December 31,
                                                                                                  2001              2000
                                                                                            ----------------- -----------------
<S>                                                                                         <C>               <C>
Note payable, secured by the capital stock of UDRC and UDRC II and certain other
      receivables                                                                           $          32,000 $          11,141
Other notes payable bearing interest at rates ranging from 7.5% to 11% due through
     July 2003, secured by certain real property and certain property and equipment                     6,491             5,637

Revolving Inventory Facility for $25.0 million with GE Capital, secured by
     substantially all Company assets                                                                   5,000                -
                                                                                            ----------------- -----------------
     Subtotal                                                                                          43,491            16,778
     Less:  Unamortized Loan Fees                                                                         996               199
                                                                                            ----------------- -----------------
     Total                                                                                  $          42,495 $          16,579
                                                                                            ================= =================
</TABLE>

                                       5
<PAGE>


     Effective  April  2001,  the  Company  secured  an option to extend the $25
million  inventory  line of credit  portion of the facility with GE Capital from
June 30, 2001 until  December 31, 2001.  The extension on the inventory  line of
credit  with  GE  Capital  requires  the  payment  of a fee for  each  quarterly
extension  after June 30, 2001,  and,  after June 30, 2001, the interest rate on
the line increases by 50 basis points to LIBOR plus 3.65%.  The interest rate in
effect on this line was 7.31% at June 30, 2001. The facility  agreement contains
various  reporting  and  performance  covenants,  including the  maintenance  of
certain ratios and limitations on additional  borrowings from other sources.  At
June 30,  2001,  the Company was in  compliance  with these  covenants  with the
exception  of interest  coverage  ratios,  for which the Company has  obtained a
waiver.

     As of the date of this  report,  the Company has signed a term sheet with a
lender for a replacement to the inventory line of credit and expects to close on
the final documents by August 31, 2001.


    Subordinated Notes Payable
A summary of Subordinated Notes Payable at June 30, 2001 and December 31, 2000
follows:
<TABLE>
<CAPTION>
                                                                                                June 30,        December 31,
                                                                                                  2001              2000

                                                                                         ----------------- -----------------
<S>                                                                                      <C>               <C>
$13.5 million senior subordinated notes payable to unrelated parties, bearing            $           8,000 $          11,500
     interest at 15% per annum payable quarterly, principal due February 2003
     and senior to subordinated debentures
$7.0 million senior subordinated note payable to a related party, bearing
     interest at LIBOR plus 6% per annum payable quarterly, principal due February 2010              6,600                -
$17.5 million subordinated debentures, interest at 12% per annum
(approximately 18.8% effective rate) payable semi-annually, principal
     balance due October 23, 2003                                                                   13,839            17,479
$11.9 million subordinated debentures, interest at 11% per annum
     (approximately 19.7% effective rate) payable semi-annually, principal
     balance due April 15, 2007                                                                     11,940            11,940
                                                                                         ----------------- -----------------
     Subtotal                                                                                       40,379            40,919
     Less:  Unamortized Loan Fees                                                                       -                 31
                Unamortized Discount - subordinated debentures                                       5,428             6,366
                                                                                         ----------------- -----------------
     Total                                                                               $          34,951 $          34,522
                                                                                         ================= =================
</TABLE>


     In June 2001,  the  Company  repurchased  in the open  market  and  retired
approximately  $3.6 million of the $17.5 million in subordinated  debentures for
approximately  $2.6 million.  The after tax impact of the transaction was a gain
from  extinguishment  of debt of $0.3 million.  The gain has been  classified as
"Extraordinary  Item - Gain on Early  Extinguishment  of Debt" on the  Condensed
Consolidated Statement of Operations.



                                       6

<PAGE>



Note 5.  Common Stock Equivalents

     Net  Earnings per common  share  amounts are based on the weighted  average
number of common shares and common stock  equivalents  outstanding for the three
and six-month periods ended June 30, 2001, and 2000.

    Net earnings per common share are as follows:
<TABLE>
<CAPTION>

                                                                      Three Months Ended                 Six Months Ended
                                                                           June 30,                          June 30,
                                                                 ------------------------------      --------------------------
                                                                      2001           2000                2001         2000
                                                                 ------------------------------      --------------------------

<S>                                                              <C>            <C>                  <C>          <C>
Earnings before Extraordinary Item
                                                                 $        1,020 $         4,348      $      2,842  $      8,831
Net Earnings
                                                                 $        1,364 $         4,348      $      3,186  $      8,831
                                                                 ==============================      ==========================
Basic Earnings Per Share before Extraordinary Item               $         0.08 $          0.31      $       0.23  $       0.61
                                                                 ==============================      ==========================
                                                                 ==============================      ==========================
Diluted Earnings Per Share before Extraordinary Item             $         0.08 $          0.31      $       0.23  $       0.60
                                                                 ==============================      ==========================
                                                                 ==============================      ==========================

Basic Net Earnings Per Share                                     $         0.11 $          0.31      $       0.26  $       0.61
                                                                 ==============================      ==========================
Diluted Net Earnings Per Share                                   $         0.11 $          0.31      $       0.26  $       0.60
                                                                 ==============================      ==========================

Basic EPS-Weighted Average Shares Outstanding                            12,299          14,052            12,296        14,479
Effect of Dilutive Securities:
   Warrants                                                                  31              12                32            13
   Stock Options                                                             -              184                -            208
                                                                 ------------------------------      --------------------------
Diluted EPS-Weighted Average Shares Outstanding                          12,330          14,248            12,328        14,700
                                                                 ==============================      ==========================
Warrants Not Included in Diluted EPS Since Antidilutive                     795           1,124               795         1,124
                                                                 ==============================      ==========================
Stock Options Not Included in Diluted EPS Since Antidilutive              1,423             846             1,434           864
                                                                 ==============================      ==========================
</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.

                                       7

<PAGE>



     A summary of  operating  activity  by  business  segment  for the three and
six-month periods ended June 30, 2001 and 2000 follows:
<TABLE>
<CAPTION>

                                                 Retail           Portfolio         Corporate            Total
                                                 ------           ---------         ---------            -----
<S>                                          <C>                 <C>              <C>                <C>
Three Months Ended June 30, 2001
Sales of Used Cars                           $     105,919       $          -     $           -      $      105,919
Less: Cost of Cars Sold                             60,639                  -                 -              60,639
    Provision for Credit Losses                     21,898              10,312                -              32,210
                                             -------------       -------------    --------------     --------------
                                                    23,382            (10,312)                -              13,070
Net Interest Income                                     -               27,408                -              27,408
                                             -------------       -------------    --------------     --------------
Income before Operating Expenses                    23,382              17,096                -              40,478
                                             -------------       -------------    --------------     --------------
Operating Expenses:
Selling and Marketing                                6,235                  -                 -               6,235
General and Administrative                          14,855               7,359             5,003             27,217
Depreciation and Amortization                        1,363                 232               840              2,435
                                             -------------       -------------    --------------     --------------
                                                    22,453               7,591             5,843             35,887
                                             -------------       -------------    --------------     --------------
Operating Income (Loss)                      $         929       $       9,505    $      (5,843)     $        4,591
                                             =============       =============    ==============     ==============
Capital Expenditures                         $       1,157       $         358    $        3,434     $        4,949
                                             =============       =============    ==============     =============
Identifiable Assets                          $      79,837       $     538,393    $       56,986     $      675,216
                                             =============       =============    ==============     ==============


Three Months Ended June 30, 2000                 Retail           Portfolio         Corporate            Total
                                                 ------           ---------         ---------            -----

Sales of Used Cars                           $     121,527       $          -     $           -      $      121,527
Less: Cost of Cars Sold                             68,417                  -                 -              68,417
    Provision for Credit Losses                     24,738               7,474                -              32,212
                                             -------------       -------------    --------------     --------------
                                                    28,372             (7,474)                -              20,898
Net Interest Income                                     -               23,764               110             23,874
                                             -------------       -------------    --------------     --------------
Income before Operating Expenses                    28,372              16,290               110             44,772
                                             -------------       -------------    --------------     --------------
Operating Expenses:
Selling and Marketing                                7,426                  -                 -               7,426
General and Administrative                          14,593               5,416             5,183             25,192
Depreciation and Amortization                        1,133                 280               818              2,231
                                             -------------       -------------    --------------     --------------
                                                    23,152               5,696             6,001             34,849
                                             -------------       -------------    --------------     --------------
Operating Income (Loss)                      $       5,220       $      10,594    $      (5,891)     $        9,923
                                             =============       =============    ==============     ==============
Capital Expenditures                         $       2,220       $         195    $        1,818     $        4,233
                                             =============       =============    ==============     ==============

Six Months Ended June 30, 2001                   Retail           Portfolio         Corporate            Total
                                                 ------           ---------         ---------            -----

Sales of Used Cars                           $     236,105       $          -     $           -      $      236,105
Less: Cost of Cars Sold                            133,480                  -                 -             133,480
    Provision for Credit Losses                     48,550              22,680                -              71,230
                                             -------------       -------------    --------------     --------------
                                                    54,075            (22,680)               -               31,395
Net Interest Income                                     -               52,603               130             52,733
                                             -------------       -------------    --------------     --------------
Income before Operating Expenses                    54,075              29,923               130             84,128
                                             -------------       -------------    --------------     --------------
Operating Expenses:
Selling and Marketing                               13,861                  -                 -              13,861
General and Administrative                          29,513              15,367             9,775             54,655
Depreciation and Amortization                        2,689                 496             1,657              4,842
                                             -------------       -------------    --------------     --------------
                                                    46,063              15,863            11,432             73,358
                                             -------------       -------------    --------------     --------------
Operating Income (Loss)                      $       8,012       $      14,060    $     (11,302)     $       10,770
                                             =============       =============    ==============     ==============
Capital Expenditures                         $       3,244       $         587    $        4,291     $        8,122
                                             =============       =============    ==============     ==============
Identifiable Assets                          $      79,837       $     538,393    $       56,986     $      675,216
                                             =============       =============    ==============     ==============
                                       8
<PAGE>


Six Months Ended June 30, 2000                   Retail           Portfolio         Corporate            Total
                                                 ------           ---------         ---------            -----

Sales of Used Cars                           $     254,313       $          -     $           -      $      254,313
Less: Cost of Cars Sold                            141,359                  -                 -             141,359
    Provision for Credit Losses                     51,832              14,953                -              66,785
                                             -------------       -------------    --------------     --------------
                                                    61,122            (14,953)                -              46,169
Net Interest Income                                     -               44,156               220             44,376
                                             -------------       -------------    --------------     --------------
Income before Operating Expenses                    61,122              29,203               220             90,545
                                             -------------       -------------    --------------     --------------
Operating Expenses:
Selling and Marketing                               15,561                  -                 -              15,561
General and Administrative                          28,783              11,493            10,454             50,730
Depreciation and Amortization                        2,204                 580             1,655              4,439
                                             -------------       -------------    --------------     --------------
                                                    46,548              12,073            12,109             70,730
                                             -------------       -------------    --------------     --------------
Operating Income (Loss)                      $      14,574       $      17,130    $     (11,889)     $       19,815
                                             =============       =============    ==============     ==============
Capital Expenditures                         $       3,493       $         294    $        2,724     $        6,511
                                             =============       =============    ==============     ==============
</TABLE>



Note 7.  Use of Estimates

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

Note 8.  Reclassifications

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

                                       9

<PAGE>



                                     ITEM 2.

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


Introduction

     We operate the largest chain of buy here-pay here used car  dealerships  in
the United  States.  At June 30,  2001,  we operated 77  dealerships  located in
eleven metropolitan areas in eight states. We have one primary line of business:
to sell and finance  quality used vehicles to customers  within what is referred
to as the  sub-prime  segment of the used car market.  The  sub-prime  market is
comprised of customers who typically have limited credit histories,  low incomes
or past credit problems.  References to Ugly Duckling Corporation as the largest
chain of  buy-here  pay-here  used  car  dealerships  in the  United  States  is
management's  belief  based upon the  knowledge  of the  industry and not on any
current independent third party study.


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

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

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

<TABLE>
<CAPTION>


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

     Our business is divided into three operating  segments;  retail,  portfolio
and corporate. 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  assets  and  liabilities  are
classified as net assets from discontinued  operations.  We plan to complete the
servicing of the portfolios that we currently service.

     In the  following  discussion  and  analysis,  we  explain  the  results of
operations   and  general   financial   condition  of  Ugly   Duckling  and  its
subsidiaries.  In particular,  we analyze and explain the changes in the results
of operations of our business segments for the three and six-month periods ended
June 30, 2001 and 2000. All amounts are presented in thousands except per share,
per unit and per car data, unless otherwise noted.

                                       10
<PAGE>






                            UGLY DUCKLING CORPORATION
                      SELECTED CONSOLIDATED FINANCIAL DATA
             (Amounts in millions, except per share, per unit data,
                        share and number of loans data)
<TABLE>
<CAPTION>
                                                                (Unaudited)
                                                                                   At or For the Three Months Ended
                                                    --------------------------------------------------------------------------------
Operating Data:                                       June 2001     Mar 2001     Dec 2000    Sept 2000    June 2000      Mar 2000
                                                      ---------     --------     --------    ---------    ----------     --------
<S>                                                   <C>           <C>          <C>         <C>          <C>            <C>
Total Revenues                                        $   140.8     $  164.0     $  135.2    $   158.1    $    151.4     $  158.3
Sales of Used Cars                                    $   105.9     $  130.2     $  102.3    $   126.6    $    121.5     $  132.8
Net Earnings per Share                                $    0.11     $   0.15     $ (0.20)    $    0.21    $     0.31     $   0.30
EBITDA                                                $    14.5     $   17.1     $    8.7    $    16.5    $     18.2     $   17.1
E-Commerce Revenue as Percent of Sales of Used Cars       14.4%        11.6%        13.6%         9.5%          5.3%         4.3%
Number Dealerships in Operation                              77           77           77           77            77           75
Average Sales per Dealership per Month                       50           64           51           64            62           70
Number of Used Cars Sold                                 11,607       14,851       11,874       14,825        14,369       15,802
Sales Price - Per Car Sold                            $   9,125     $  8,766     $  8,618    $   8,542    $    8,458     $  8,403
Cost of Sales - Per Car Sold                          $   5,224     $  4,905     $  4,727    $   4,773    $    4,761     $  4,616
Gross Margin - Per Car Sold                           $   3,901     $  3,861     $  3,891    $   3,769    $    3,696     $  3,787
Provision - Per Car Sold                              $   2,775     $  2,627     $  3,292    $   2,435    $    2,242     $  2,188
Total Operating Expense - Per Car Sold                $   3,092     $  2,523     $  2,832    $   2,495    $    2,425     $  2,271
Total Operating Income - Per Car Sold                 $     396     $    416     $  (168)    $     466    $      691     $    626
Total Operating Income                                $     4.6     $    6.2     $  (2.0)    $     6.9    $      9.9     $    9.9
Earnings before Income Taxes                          $     1.7     $    3.1     $  (4.2)    $     4.5    $      7.3     $    7.6
Cost of Used Cars as Percent of Sales                     57.3%        56.0%        54.8%        55.9%         56.3%        54.9%
Gross Margin as Percent of Sales                          42.7%        44.0%        45.2%        44.1%         43.7%        45.1%
Provision - % of Originations                             31.1%        31.0%        38.8%        29.0%         27.1%        27.0%
Total Operating Expense - % of Total Revenues             25.5%        22.8%        24.9%        23.4%         23.0%        22.7%
Segment Operating Expense Data:
Retail Operating Expense - Per Car Sold               $   1,934     $  1,590     $  1,710    $   1,549    $    1,611     $  1,481
Retail Operating Expense-% of Used Car Sales              21.2%        18.1%        19.8%        18.1%         19.1%        17.6%
Corporate/Other Expense - Per Car Sold                $     503     $    376     $    417    $     428    $      418     $    387
Corporate/Other Expense - % of Total Revenue               4.1%         3.4%         3.7%         4.0%          4.0%         3.9%
Portfolio Exp. Annualized - % of End of Period Managed
Principal                                                  5.8%         6.2%         6.7%         6.1%          5.0%         5.5%
Balance Sheet Data:
Finance Receivables, net                              $   544.6     $  522.9     $  500.5    $   491.9    $    451.2     $  407.3
Inventory                                             $    40.8     $   43.4     $   63.7    $    43.7    $     45.9     $   49.1
Total Assets                                          $   679.0     $  659.5     $  652.1    $   618.5    $    577.5     $  548.0
Portfolio Notes Payable                               $   415.9     $  390.6     $  406.6    $   362.3    $    316.0     $  282.9
Subordinated Notes Payable                            $    35.0     $   40.8     $   34.5    $    36.1    $     37.3     $   28.9
Total Debt                                            $   493.3     $  470.9     $  457.7    $   416.3    $    381.0     $  345.2
Total Stockholder's Equity                            $   158.6     $  157.2     $  155.4    $   158.5    $    166.8     $  170.6
Common Shares Outstanding - End of Period                12,302       12,292       12,292       12,378        13,899       14,980
Book Value per Share                                  $   12.89     $  12.79     $  12.64    $   12.81    $    12.00     $  11.39
Tangible Book Value per Share                         $   11.91     $  11.79     $  11.62    $   11.78    $    11.02     $  10.43
Total Debt to Equity                                        3.1          3.0          2.9          2.6           2.3          2.0
Loan Portfolio Data:
Interest Income                                       $    34.9     $   33.8     $   32.9    $    31.4    $     29.9     $   25.5
Average Yield on Portfolio                                26.7%        26.3%        26.1%        26.1%         26.8%        26.2%

Portfolio Interest Expense                                7,492        8,519        8,354        7,318         5,997        5,029
Average Borrowing Cost                                     8.3%         8.9%         8.7%        10.7%          8.6%         8.0%
Principal Balances Originated                         $   103.6     $  126.0     $  100.8    $   124.4    $    118.8     $  128.1
Principal Balances Originated as % of Sales               97.8%        96.8%        98.5%        98.2%         97.7%        96.5%
Number of Loans Originated                               11,558       14,776       11,906       14,748        14,291       15,721
Average Original Amount Financed                      $   8,965     $  8,528     $  8,468    $   8,433    $    8,311     $  8,150
Number of Loans Originated as % of Units Sold             99.6%        99.5%       100.3%        99.5%         99.5%        99.5%
Portfolio Delinquencies:
     Current                                              76.4%        78.6%        66.1%        72.4%         71.9%        74.8%
     1 to 30 days                                         16.8%        15.7%        26.1%        19.3%         20.9%        19.9%
     31 to 60 days                                         4.1%         3.3%         4.7%         4.9%          4.5%         3.4%
     Over 60 days                                          2.7%         2.4%         3.1%         3.4%          2.7%         1.9%
Principal Outstanding - Retained                      $   534.8     $  535.0     $  514.9    $   512.8    $    472.3     $  418.9
Number of Loans Outstanding - Retained                   86,446       87,033       82,598       79,848        71,518       62,459
</TABLE>
                                       11
<PAGE>


Second Quarter highlights include:

o        Total revenues were $140.8 million
o        E-Commerce generated $15.2 million in revenues and 1,686 cars sold
         during the second quarter of 2001 as compared to $15.1 million in
         revenues and 1,725 cars sold during the first quarter of 2001
o        Loan portfolio principal balance was $534.8 million, representing a 13%
         increase over the year-ago quarter
o        New loan originations were $103.6 million, a 13% decrease from the
         year ago quarter
o        Closed 20th Securitization with loan principal balances of
         approximately $142.3 million and Class A bonds issued of $100.8 million
o        Our Chairman of the Board and largest shareholder, Ernest C. Garcia II,
         made an offer to purchase all of our outstanding stock


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

                                     Three Months Ended                                Six Months Ended
                                          June 30,                                         June 30,
                                -----------------------------   Percentage     ------------------------------   Percentage
                                     2001          2000          Change             2001          2000            Change
                                ----------------------------- --------------   ------------------------------  --------------

<S>                             <C>            <C>            <C>              <C>              <C>            <C>
Number of Used Cars Sold               11,607         14,369         (19.2%)          26,458           30,171         (12.3%)
                                =============================                  ==============================

Sales of Used Cars              $     105,919  $     121,527         (12.8%)   $     236,105    $     254,313          (7.2%)
Cost of Used Cars Sold                 60,639         68,417         (11.4%)         133,480          141,359          (5.6%)
                                -----------------------------                  ------------------------------
Gross Margin                    $      45,280  $      53,110         (14.7%)   $     102,625    $     112,954          (9.1%)
                                =============================                  ==============================

Gross Margin %                          42.7%          43.7%                           43.5%            44.4%

Per Car Sold:
Sales                           $       9,125  $       8,458            7.9%   $       8,924    $       8,429  $         5.9%
Cost of Used Cars Sold
                                        5,224          4,761            9.7%           5,045            4,684            7.7%
                                -----------------------------                  ------------------------------
Gross Margin                            3,901          3,696            5.5%           3,879            3,744            3.6%
                                =============================                  ==============================
</TABLE>

     For the three and six-month periods ended June 30, 2001, the number of cars
sold  decreased by 19.2% and 12.3%,  respectively,  over the same periods of the
prior year and Used Car Sales revenues  decreased 12.8% and 7.2%,  respectively,
over the same  periods in 2000.  During the latter half of 2000,  we developed a
risk management department,  which is currently focusing on credit risk modeling
techniques. We believe the decrease in both units sold and revenues is primarily
the result of  initiatives  which have put more  stringent  guidelines  in place
regarding income  qualifications  and down payment  requirements in an effort to
improve the quality of loans  generated from used car sales. To a lesser extent,
we believe a general softening of the economy has led to reduced retail activity
in the sub-prime market.

     Our Internet site continues to be a valuable tool  generating a steady flow
of credit  applications and sales. We accept 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.  Internet  applications  continue to
provide  an  increasing  amount of Used Cars Sold  revenues.  During  the second
quarter of 2001,  through our internet site, we sold 1,686 cars generating $15.2
million in revenue  versus 1,725 cars totaling  $15.1 million in revenue  during
the first  quarter  of 2001 and up from  1,553  cars sold and $13.7  million  in
revenue  during  the  fourth  quarter  of 2000.  We  continue  to find  that the
E-commerce customer group generally outperforms other customers in terms of loan
performance.  Accordingly,  we continue  to monitor  and  enhance  our  Internet
application levels.

     The Cost of Used Cars Sold for the three and  six-month  periods ended June
30, 2001 decreased 11.4% and 5.6%, respectively,  over the comparable periods of
the previous  year.  The decrease is due to a decline in the number of used cars
sold, partially offset by an increase in the Cost of Used Cars Sold. The Cost of
Used  Cars  Sold on a per car  basis  increased  9.7% and 7.7% for the three and
six-month  periods ended June 30, 2001,  respectively,  over the same periods of
the prior year.  The  increase is due to an effort to  purchase  higher  quality
vehicles as a result of research  completed by our risk  management  department,
which indicated  better loan performance on the loans associated with the higher
cost  inventory.  This  increase  was offset by an  increase  in the sales price
                                       12
<PAGE>

earned per car. 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  decreased to 42.7% and 43.5% for the three and six-months ended
June 30, 2001 versus 43.7% and 44.4% for the three and  six-month  periods ended
June 30,  2000.  The  decrease  is due to the cost of used cars sold rising at a
higher pace than the related revenues.  For the three months ended June 30, 2001
as compared with the three months ended June 30, 2000, gross margin on a per car
sold basis increased $205 to $3,901 per car and increased $135 to $3,879 for the
six month period  ended June 30, 2001 from $3,744  during the same period of the
previous year. This increase is due to an increase in the overall revenue earned
per car,  partially  offset  by the  increase  in the per unit cost of used cars
sold.

     We finance  substantially all of our used car sales. The percentage of cars
sold  financed  and the  percentage  of  sales  revenue  financed  has  remained
relatively constant for both the three and six-month periods ended June 30, 2001
versus the  comparable  periods  of 2000.  The  following  table  indicates  the
percentage of sales units and revenue financed:
<TABLE>
<CAPTION>

                                                                Three Months Ended         Six Months Ended
                                                                     June 30,                  June 30,
                                                              ------------------------  -----------------------
                                                                 2001        2000          2001        2000
                                                              ------------------------  -----------------------
                 <S>                                          <C>         <C>           <C>         <C>
                 Percentage of used cars sold financed              99.6%        99.5%        99.5%       99.5%
                                                              ========================  =======================

                 Percentage of sales revenue financed               97.8%        97.7%        97.3%       97.1%
                                                              ========================  =======================
</TABLE>
<TABLE>
<CAPTION>

Provision for Credit Losses


    The following is a summary of the Provision for Credit Losses:

                                              Three Months Ended                          Six Months Ended
                                                   June 30,            Percentage             June 30,           Percentage
                                           --------------------------                 --------------------------
                                               2001         2000          Change          2001         2000         Change
                                           --------------------------  -------------- -------------------------- --------------
<S>                                        <C>          <C>            <C>            <C>          <C>           <C>
Provision for Credit Losses                $     32,210 $      32,212            0.0% $     71,230 $      66,785           6.7%
                                           ==========================                 ==========================
Provision per loan originated              $      2,787 $       2,254           23.6% $      2,705 $       2,225          21.6%
                                           ==========================                 ==========================
Provision as a percentage of
  principal balances originated                   31.1%         27.1%                        31.0%         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.
Measured for financial  analysis purposes as a percentage of loan  originations,
the  Provision  for Credit  Losses  has  increased  for the three and  six-month
periods  ended  June 30,  2001  over the same  periods  of the prior  year.  The
increase was primarily due to an increase in the overall  provision charged from
27% of loans  originated  during the three and six-months ended June 30, 2000 to
31% of loans  originated  during the same  periods  of 2001.  The  increase  was
necessary to establish an adequate  allowance for the finance  receivables.  The
provision  per loan  originated  increased  23.6%  and  21.6%  for the three and
six-month  periods  ended June 30,  2001 over the same  periods of the  previous
year. The rise is due to the increase in the overall provision  mentioned above,
coupled  with an  increase  of  $654  in the  average  amount  financed  for the
three-month  period ended June 30, 2001 to $8,965 per unit versus  $8,311 during
the same period of the previous  year.  For the six-month  period ended June 30,
2001, the average amount financed  increased $493 to $8,720 from $8,227 financed
in the equivalent period of the previous year.

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

                                       13

<PAGE>

<TABLE>
<CAPTION>

Net Interest Income
                                           Three Months Ended                       Six Months Ended
                                        --------------------------               ------------------------
                                                June 30,            Percentage          June 30,           Percentage
                                        --------------------------               ------------------------
                                            2001         2000         Change        2001        2000         Change
                                        -------------------------- ------------- ------------------------ -------------

<S>                                     <C>          <C>            <C>           <C>        <C>          <C>
Interest Income                         $     34,900 $      29,871         16.8% $    68,744 $     55,402 $       24.1%
Portfolio Interest Expense                   (7,492)       (5,997)         24.9%    (16,011)     (11,026)         45.2%
                                        --------------------------               ------------------------
Net Interest Income                     $     27,408 $      23,874         14.8% $    52,733 $     44,376         18.8%
                                        ==========================               ========================

Average Effective Yield                        26.7%         26.8%                      26.5%       26.5%
Average Borrowing Cost                          8.3%          9.7%                       8.6%        9.4%
</TABLE>

     Interest  Income  consists  primarily  of  interest  on finance  receivable
principal balances retained on our balance sheet.  Retained principal  balances,
net grew to $544.6  million  at June 30,  2001 from  $451.2  million at June 30,
2000. The growth in retained  principal  balances is primarily due to the change
in the way we structure  our  securitizations  to the  collateralized  borrowing
method during the fourth quarter of 1998. Since that time, all securitized loans
are retained on our balance sheet and the income is recognized  over the life of
the loan.

     Portfolio  interest expense increased to $7.5 million and $16.0 million for
the three and six-month periods ending June 30, 2001, respectively,  versus $6.0
million and $11.0  million,  respectively,  for the same periods of the previous
year.  The  increase is due to the increase in Portfolio  Notes  Payable,  which
consist of our Class A obligations related to our securitization  program, along
with our revolving  warehouse  facility.  This  increase in interest  expense is
offset by the  additional  interest  income  earned  from the  growth in finance
receivables retained on our balance sheet.

Income before Operating Expenses

     Income before  Operating  Expenses  decreased 9.6% to $40.5 million for the
three-month  period ended June 30, 2001 and decreased  7.1% to $84.1 million for
the six-month  period ended June 30, 2001 as compared to $44.8 million and $90.5
million for the three and six-month  periods ended June 30, 2000,  respectively.
The decrease  resulted  from a decrease in Used Car Sales and an increase in the
amount  charged to current  operations  for the provision for credit losses from
27% during  2000 to 31% in the first half of 2001,  and an  increase in interest
expense resulting from additional  portfolio notes payable,  partially offset by
an  increase in  interest  income due to the growth in the  finance  receivables
portfolio.

Operating Expenses
<TABLE>
<CAPTION>

                                    Three Months Ended                     Six Months Ended
                                         June 30,          Percentage          June 30,           Percentage
                                 -------------------------              ------------------------
                                      2001       2000        Change        2001        2000         Change
                                 -------------------------------------- ------------------------ -------------

<S>                              <C>           <C>         <C>           <C>         <C>         <C>
Operating Expenses               $     35,887  $    34,849       3.0%   $    73,358  $    70,730          3.7%
                                 =========================              ========================

Per Car Sold                     $      3,092  $     2,425      27.5%   $     2,773  $     2,344         18.3%
                                 =========================              ========================

As % of Total Revenue                   25.5%        23.0%                    24.1%        22.8%
                                 =========================              ========================
</TABLE>

     Operating  expenses,  which  consist of  selling,  marketing,  general  and
administrative  and   depreciation/amortization   expenses,  increased  slightly
quarter  over quarter and for the six months ended June 30, 2001 versus 2000 but
remained  relatively  constant as a percentage  of total  revenues.  Included in
these expenses for the six-month period ended June 30, 2001, is a pre-tax charge
of  approximately  $600,000,  taken  during the first  quarter of 2001,  for the
closing of the collection and loan administration  centers in Florida and Texas.
During the first quarter of 2001,  we initiated a plan to close our  collections
and loan  administration  operations in Clearwater,  Florida,  Plano,  Texas and
Dallas, Texas and move them to our stores or to our Gilbert,  Arizona collection
facility.  As a  result  of  these  closings,  we took an after  tax  charge  of
approximately $368,000 to cover payroll,  severance and certain property related
expenses.  We had  estimated  to take  additional  restructuring  charges in the
second quarter related to costs of abandoned assets still in use with a carrying
value  of  approximately  $500,000.  We have  taken a  charge  of  approximately
                                       14
<PAGE>

$230,000  related  to the cost of  abandoned  assets  in Plano,  Texas  with the
remaining  charge for the  Clearwater  facility  expected to be taken during the
third  quarter  of 2001.  The  impact  resulting  from  the  shut  down of these
operations,  including  the impact of future  charges,  is estimated to be break
even over the  remainder  of 2001 and to  decrease  operating  expenses  by $1.5
million annually beginning in 2002.


Other Interest Expense

     Interest  expense arising from our other,  non-portfolio  debt totaled $2.9
million and $6.0  million for the three and  six-months  periods  ended June 30,
2001 versus  $2.6  million and $4.9  million for the  comparable  periods of the
prior year. The increase is primarily  attributable to interest  expense arising
from our exchange debt on the exchange offer completed in April 2000.

Income Taxes

     Income  taxes  totaled  $0.7  million  and $2.0  million  for the three and
six-month  periods  ended June 30, 2001,  respectively,  versus $3.0 million and
$6.1 million,  respectively,  for same equivalent periods in 2000. Our effective
tax rate was 41% for all periods presented.

Earnings before Extraordinary Item

     Earnings  before  Extraordinary  Item totaled $1.0 million and $2.8 million
for the three and six-month  periods ended June 30, 2001,  respectively,  versus
$4.3  million  and  $8.8  million,  respectively,  for the same  periods  of the
previous  year.  The  decrease  is  primarily  a result of the  increase  in the
Provision  for Credit  Loss from 27% to 31% of  originations  and an increase in
portfolio interest expense, partially offset by an increase in interest income.

Gain on Early Extinguishment of Debt

     During the  three-months  ended June 30, 2001, we  repurchased  in the open
market and retired  approximately  $3.2 million of our  exchange  offer debt due
October  2003,  for  approximately  $2.6  million.  The after tax  impact of the
purchase was a gain from extinguishment of debt of $0.3 million.

Net Earnings

     Net  Earnings  totaled  $1.4  million  and $3.2  million  for the three and
six-months ended June 30, 2001, respectively,  as compared with $4.3 million and
$8.8 million for the same periods of the prior year. The decrease is primarily a
result of a decrease in Used Cars Sold,  an increase in the provision for credit
loss from 27% to 31% of  originations  and an  increase  in  portfolio  interest
expense, partially offset by an increase in interest income.

Business Segment Information

     We report our operations based on three operating segments.  These segments
are reported as Retail, Portfolio and Corporate.  These segments were previously
reported as Company Dealership, Company Dealership Receivables and Corporate and
Other,  respectively.  See  Note  6  to  the  Condensed  Consolidated  Financial
Statements.

     Operating Expenses for our business  segments,  along with a description of
the included activities, for the three and six-month periods ended June 30, 2001
and 2000 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:


                                       15
<PAGE>



<TABLE>
<CAPTION>
                                                Three Months Ended                        Six Months Ended
                                                     June 30,                                 June 30,
                                       --------------------------------------  ---------------------------------------
                                              2001                2000               2001                2000
                                       -------------------  -----------------  -----------------  --------------------
     <S>                               <C>                  <C>                <C>                <C>
     Retail Operations
       Selling and Marketing           $             6,235  $           7,426  $          13,861  $             15,561
       General and Administrative                   14,855             14,593             29,513                28,783
       Depreciation and Amortization                 1,363              1,133              2,689                 2,204
                                       -------------------  -----------------  -----------------  --------------------
            Retail Expense             $            22,453  $          23,152  $          46,063  $             46,548
                                       ===================  =================  =================  ====================
     Per Car Sold:
       Selling and Marketing           $               537                517                524                   516
       General and Administrative                    1,280              1,016              1,115                   954
       Depreciation and Amortization                   117                 79                102                    73
                                       -------------------  -----------------  -----------------  --------------------
          Total                        $             1,934  $          1,612   $           1,741  $              1,543
                                       ===================  =================  =================  ====================
     As % of Used Cars Sold Revenue:
       Selling and Marketing                          5.9%               6.1%               5.9%                  6.1%
       General and Administrative                    14.0%              12.0%              12.5%                 11.3%
       Depreciation and Amortization                  1.3%               0.9%               1.1%                  0.9%
                                       -------------------  -----------------  -----------------  --------------------
          Total                                      21.2%              19.1%              19.5%                 18.3%
                                       ===================  =================  =================  ====================
</TABLE>


     Selling and Marketing  expenses on a per car sold basis have  increased due
to a decrease  in the amount of cars sold  without a  proportionate  decrease in
expenses, for both the three and six-months ended June 30, 2001, versus the same
period  of  the  previous  year.  However,  selling  and  marketing  costs  as a
percentage of Used Cars Sold Revenue have remained relatively constant primarily
due to an increase  of $667 and $495 in the average  sales price per car for the
three and six months ended June 30, 2001, respectively.

     General and Administrative  expenses increased both on a per car sold basis
as well as on a percentage of related  revenue basis for the three and six-month
periods  ended June 30,  2001,  principally  due to a reduction in the amount of
cars sold and a high  proportion of fixed general and  administrative  costs. We
are in the process of implementing cost savings  initiatives  across the company
in an effort to improve profitability.

     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.

<TABLE>
<CAPTION>

                                                              Three Months Ended                       Six Months Ended
                                                                   June 30,                                June 30,
                                                      ------------------------------------   --------------------------------------
                                                            2001               2000                2001                2000
                                                      ------------------  ----------------   ------------------  ------------------
     <S>                                              <C>                 <C>                <C>                 <C>
     Portfolio Expense:
      General and Administrative                      $            7,359  $          5,416   $           15,367  $         11,493
      Depreciation and Amortization                                  232               280                  496               580
                                                      ------------------  ----------------   ------------------  ------------------
       Portfolio Expense                              $            7,591  $          5,696   $           15,863  $         12,073
                                                      ==================  ================   ==================  ==================

   Expense per Month per Loan Serviced                $            29.25  $          24.06   $            30.37  $          26.36
                                                      ==================  ================   ==================  ==================
   Annualized Expense as % of  EOP Managed
       Principal Balances                                           5.8%              5.0%                 6.0%              5.3%
                                                      ==================  ================   ==================  ==================
</TABLE>


     The  increase  in  portfolio  expenses as well as the expense per month per
loan  serviced for the three and  six-month  periods ended June 30, 2001 for our
Portfolio  segment is primarily a result of the increased number of loans in our
portfolio.  Also attributing to the increase was approximately  $600,000 for the
six-month  period  ended June 30,  2001,  respectively,  for costs  incurred  in
relation to the closing of the collection and loan administration  facilities in
Florida and Texas during the first quarter of 2001.
                                       16

<PAGE>


     Corporate Operations.  Operating expenses for our Corporate segment consist
of costs to provide  managerial  oversight,  financings  and  reporting  for the
Company, develop and implement policies and procedures, and provide expertise to
the Company in areas such as finance,  legal,  human  resources and  information
technology.
<TABLE>
<CAPTION>

                                                             Three Months Ended                        Six Months Ended
                                                                  June 30,                                 June 30,
                                                     ------------------------------------   ---------------------------------------
                                                           2001               2000                2001                2000
                                                     ------------------  ----------------   -----------------  --------------------
     <S>                                             <C>                 <C>                <C>                <C>
     Corporate Expense:
       General and Administrative                    $            5,003  $          5,183   $           9,775  $           10,454
       Depreciation and Amortization                                840               818               1,657               1,655
                                                     ------------------  ----------------   -----------------  --------------------
       Corporate Expense                             $            5,843  $          6,001   $          11,432  $           12,109
                                                     ------------------  ----------------   -----------------  --------------------

     Per Car Sold                                    $              503  $            418   $             432  $              401
                                                     ==================  ================   =================  ====================
     As % of Total Revenues                                        4.1%              4.0%                3.8%                3.9%
                                                     ==================  ================   =================  ====================
</TABLE>

     Operating  expenses related to our Corporate  segment as a percent of total
revenue remained  relatively  consistent for the three and six-months ended June
30,  2001,  versus  the same  period of 2000.  However,  on a per car sold basis
corporate  expenses  increased $85 and $31 per car for the three and  six-months
ended  June 30,  2001,  respectively,  as  compared  to the same  periods of the
previous  year. The increase on a per car sold basis is due to a decline in used
cars  sold for both the three  and  six-months  ended  June 30,  2001  without a
proportionate  reduction in expenses.  As  mentioned  previously,  we are taking
steps to implement a cost savings  plan in an effort to reduce  overall  company
expenses.

Financial Position

     The following table represents key components of our financial position:
<TABLE>
<CAPTION>

                                           June 30,       December 31,      Percentage
                                             2001             2000            Change
                                       --------------------------------------------------
<S>                                    <C>               <C>                <C>
Total Assets                           $       678,950   $      652,121              4.1%


Inventory                                       40,772           63,742           (36.0%)
Finance Receivables, Net                       544,585          500,469              8.8%
Net Assets of Discontinued Operations            3,734            4,175           (10.6%)

Total Debt                                     493,323          457,652              7.8%
Notes Payable - Portfolio                      415,877          406,551              2.3%
Other Notes Payable                             42,495           16,579            156.3%
Subordinated Notes Payable                      34,951           34,522              1.2%
Stockholders' Equity                   $       158,604   $      155,400              2.1%
</TABLE>


     Total  Assets.  Total assets has  increased  slightly due to an increase in
Finance Receivables, Net, partially offset by the decrease in Inventory.

     Inventory. Inventory represents the acquisition and reconditioning costs of
used cars located at our  dealerships  and our  inspection  centers.  Our strong
sales  periods  are  typically  the  first  and  second  quarters  of the  year.
Consequently,  management  increases inventory levels at year-end in preparation
for the  upcoming  increase in demand.  As the  increase  in demand  diminishes,
inventory  levels return to normal  operating  levels,  thus the lower inventory
amount as of June 30, 2001.

     Growth in Finance Receivables, net. Due to the lack of growth in the volume
of cars sold, Finance  Receivables,  net as of June 30, 2001 increased only 8.8%
from  December 31, 2000.  See Note (2) to the Condensed  Consolidated  Financial
Statements for the details of the components of Finance Receivables, net.

                                       17
<PAGE>


     The following table reflects the growth in principal  balances  retained on
our balance sheet measured in terms of the principal  balances and the number of
loans outstanding.




<TABLE>
<CAPTION>

                                                                    Managed Loans Outstanding
                                             -----------------------------------------------------------------------
                                             -----------------------------------------------------------------------
                                                       Principal Balances                   Number of Loans
                                             -----------------------------------------------------------------------
                                                 June 30,          December 31,      June 30,        December 31,
                                                   2001                2000           2001               2000
                                             -----------------------------------------------------------------------
<S>                                          <C>                <C>               <C>             <C>
Principal - Managed                          $       534,766    $        519,005         86,446               84,864
Less:  Principal - Securitized and Sold                   -                4,059             -                 2,266
                                             -----------------------------------------------------------------------
Principal - Retained on Balance Sheet        $       534,766    $        514,946  $      86,446   $           82,598
                                             =======================================================================
</TABLE>


     At June 30, 2001, the entire loan portfolio is on balance sheet.  Principal
Balances - Retained on Balance Sheet has increased 3.8%. As we continue to focus
on enhanced underwriting  guidelines,  we do not expect the portfolio balance to
grow as significantly  as in past quarters.  The number of loans originated were
11,558  for the  quarter  ended June 30,  2001,  versus  14,291  during the same
quarter of the prior year. For the six-months ended June 30, the number of loans
originated totaled 26,334 in 2001 versus 30,012 in 2000.  Although the volume of
loans  originated is declining and the number of loans  outstanding is leveling,
we believe the quality of the loans written is improving, with the ultimate goal
of reducing loan losses.

     The following  table reflects  activity in the Allowance for Credit Losses,
as well as  information  regarding  charge off  activity,  for the three and six
months ended June 30, 2001 and 2000:
<TABLE>
<CAPTION>

                                                    Three Months Ended                     Six Months Ended
                                                         June 30,                              June 30,
                                           ----------------------------------------------------------------------------
                                                 2001                2000              2001                 2000
                                           ------------------  ------------------------------------   -----------------
<S>                                        <C>                 <C>               <C>                  <C>
Allowance Activity:
Balance, Beginning of Period               $          102,000         $ 87,585   $           99,700   $          76,150
Provision for Credit Losses                            32,210           32,212               71,230              66,785
Other Allowance Activity
                                                         (48)          (1,104)                  (6)             (1,000)
Net Charge Offs
                                                     (32,573)         (20,160)             (69,335)            (43,402)
                                           ------------------  ------------------------------------  -------------------
Balance, End of Period                     $          101,589  $        98,533   $          101,589   $          98,533
                                           ==================  ====================================   =================
Allowance as % Ending Principal Balances                19.0%            20.9%                19.0%               20.9%
                                           ==================  ====================================   =================
</TABLE>


     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  for  the  next  12  months.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Static Pool Analysis" below.

     Charge offs,  net of  recoveries,  for the three months ended June 30, 2001
and 2000 were $32.6 million and $20.2 million,  respectively. As a percentage of
average principal  balances,  net charge offs for the same periods were 6.1% and
4.1%, respectively.  For the six-month periods ended June 30, 2001 and 2000, net
charge offs were $69.4 million and $43.4 million,  respectively. Net charge offs
as a percentage  of average  principal  balances for the same periods were 13.0%
and 9.3%, respectively.

     During the second quarter of 2001, we inserted  31-60 day  collectors  into
the  majority  of the  dealerships.  Upon  initial  deployment  of the 31-60 day
collectors,  we  experienced  some negative  performance  as the  collectors and
collection   managers   adapted  to   collecting   and  managing  the  mid-range
delinquencies  and a decentralized  environment.  Adjustments were  subsequently
made in an attempt to address the negative  performance issues and we ultimately
expect to improve collection  performance as a result of the relocation of these
collectors.

     While we  continue to monitor the  adequacy  of our  allowance  for finance
receivables, there can be no assurance that our provision rate, currently 31% of
originations,  will be adequate to maintain an allowance balance that will cover
net charge offs for the next twelve months. In particular,  the current level of
the allowance is premised in part on projected  improvements  in collections and
improved  underwriting  on  more  recent  originations,  which,  if  they  don't
materialize,  may  result in the need for a higher  level for the  allowance  as
early  as  the  third  quarter.  Consequently,   dependent  upon  our  allowance
evaluations  in the  future,  the  rate  of  provision  charged  may  need to be
increased in future quarters.

                                       18

<PAGE>

Static Pool Analysis

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

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

     The  following  table sets forth as of July 31, 2001,  the  cumulative  net
charge offs as a percentage of original loan cumulative  (pool) balances,  based
on the quarter of  origination  and segmented by the number of monthly  payments
completed  by customers  before  charge off. The table also shows the percent of
principal  reduction  for each pool since  inception  and  cumulative  total net
losses incurred (TLI).
<TABLE>
<CAPTION>

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


                                                  Monthly Payments Completed by Customer Before Charge Off
                                      ----------------------------------------------------------------------------------
                             Orig.        0         3         6         12        18        24       TLI       Reduced
                          ----------  --------  --------  --------   --------  --------  --------  --------   --------
    <S>                   <C>         <C>       <C>       <C>        <C>       <C>       <C>       <C>        <C>
    1993                  $   12,984      8.8%     22.1%     28.5%      33.8%     35.9%     36.5%     36.8%     100.0%
    1994                  $   23,589      5.3%     14.8%     19.9%      25.6%     28.0%     28.7%     28.8%     100.0%
    1995                  $   36,569      1.9%      8.1%     13.1%      19.0%     22.2%     23.5%     24.1%     100.0%
    1996:                 $   48,996      1.5%      8.1%     13.9%      22.1%     26.2%     27.9%     28.9%     100.0%
    1997:
       1st Quarter        $   16,279      2.1%     10.7%     18.2%      24.8%     29.8%     32.0%     33.5%     100.0%
       2nd Quarter        $   25,875      1.5%      9.9%     15.8%      22.7%     27.4%     29.4%     30.6%     100.0%
       3rd Quarter        $   32,147      1.4%      8.3%     13.2%      22.4%     26.9%     29.1%     30.6%      99.9%
       4th Quarter        $   42,529      1.4%      6.8%     12.6%      21.8%     26.0%     28.7%     29.9%      99.9%
    1998:
       1st Quarter        $   69,708      0.9%      6.9%     13.4%      20.9%     26.3%     28.7%     29.9%      99.8%
       2nd Quarter        $   66,908      1.1%      8.1%     14.2%      21.7%     27.2%     29.2%     30.2%      98.4%
       3rd Quarter        $   71,027      1.0%      7.9%     13.3%      23.0%     27.7%     30.2%     30.9%      99.1%
       4th Quarter        $   69,583      0.9%      6.6%     13.1%      24.2%     29.0%     31.4%     31.9%      97.2%
    1999:
       1st Quarter        $  103,068      0.8%      7.4%     15.0%      23.5%     29.4%     31.6%     31.9%      93.5%
       2nd Quarter        $   95,768      1.1%      9.9%     16.7%      25.3%     31.4%        x      33.4%      88.2%
       3rd Quarter        $  102,585      1.0%      8.3%     14.2%      25.2%     30.8%       --      31.8%      82.4%
       4th Quarter        $   80,641      0.7%      5.9%     12.6%      23.6%        x        --      28.3%      74.6%
    2000:
       1st Quarter        $  128,123      0.3%      6.5%     14.6%      24.2%       --        --      26.3%      66.1%
       2nd Quarter        $  118,778      0.6%      8.6%     15.9%         x        --        --      24.2%      56.1%
       3rd Quarter        $  124,367      0.7%      7.8%     14.4%        --        --        --      18.1%      43.7%
       4th Quarter        $  100,823      0.6%      6.7%        x         --        --        --      11.1%      29.9%
    2001:
       1st Quarter        $  126,015      0.4%        x        --         --        --        --       4.2%      18.1%
       2nd Quarter        $  103,615        x        --        --         --        --        --       0.3%       5.5%
</TABLE>

                                       19

<PAGE>





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


                                                     June 30, 2001       June 30, 2000       December 31, 2000
                                                    -----------------   -----------------  ----------------------
<S>                                                 <C>                 <C>                <C>
Days Delinquent:
Current                                                         76.4%               71.9%                   66.1%
1-30 Days                                                       16.8%               20.9%                   26.1%
31-60 Days                                                       4.1%                4.5%                    4.7%
61-90 Days                                                       2.7%                2.7%                    3.1%
                                                    -----------------   -----------------  ----------------------
Total Portfolio                                                100.0%              100.0%                  100.0%
                                                    =================   =================  ======================
</TABLE>

     In accordance  with our charge off policy,  there are no accounts more than
90 days delinquent as of June 30, 2001.

     Delinquencies  rose  during  the second  quarter  of 2001  versus the first
quarter of this year,  primarily due to seasonality.  However,  current and 1-30
day  delinquencies  have improved  over the same quarter of the prior year.  The
current accounts,  those not one day late, have improved to 76.4% as compared to
71.9% for the second  quarter of 2000.  Current  accounts at March 31, 2001 were
78.6% and were  72.4% and 66.1% at the end of the third and fourth  quarters  of
2000,  respectively.  The  improvements in 2001 over the prior year quarters are
attributable to the success of the Company's in store  collectors  which service
the 1-30 day  accounts.  During the second  quarter of 2001,  the  Company  also
inserted 31-60 day collectors  into the majority of the  dealerships in order to
achieve  the same  successes  as the roll  out of the  1-30 day  collectors  and
continue to make improvements in the loans losses of this category.

     Based upon our continued review of the adequacy of the Allowance for Credit
Losses,  we have  recorded  a  provision  for loan  losses for the three and six
months  ended June 30,  2001 at 31% of  originations.  The 31%  provision  is 1%
higher than the  effective  30%  provision  for 2000 and 4% greater than the 27%
recorded  during  the  first  and  second  quarters  of 2000,  as  losses on our
existing,  older  portfolio  continue to emerge at higher than expected  levels.
With the  provision  recorded  during this  quarter,  we believe  the  allowance
balance as of June 30,  2001  remains at a level that we estimate to be adequate
to cover net charge offs for the next 12 months.

Securitizations

     Under the current legal structure of our  securitization  program,  we sell
loans to our bankruptcy  remote  subsidiaries  that then securitize the loans by
transferring  them to separate  trusts that issue  several  classes of notes and
certificates  collateralized by the loans. The securitization  subsidiaries then
sell  Class A bonds or  certificates  (Class  A  obligations  or Notes  Payable)
representing  approximately 71% of the total finance  receivable balance for the
most recent securitizations to investors and subordinate classes are retained by
us. We continue to service the securitized loans.

     The Class A obligations have  historically been structured so as to receive
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 cash  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
3.0%-6.0% of the initial underlying Finance Receivables  principal balance,  and
pledge this cash to the reserve account agent. The trustee then makes additional
deposits  to  the  reserve   account  out  of  collections  on  the  securitized
receivables as necessary to fund the reserve account to a specified  percentage,
ranging from 8.0% to 11.0%,  of the underlying  Finance  Receivables'  principal
balance. The trustee makes distributions to us when:

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.

     Certain Financial Information Regarding Our Securitizations

                                       20
<PAGE>


     During June 2001, we closed our 20th securitization in which we securitized
$142.3  million  of loans,  $35.5  million of which was  pre-funded,  and issued
$100.8 million in Class A certificates  with an annual interest rate of 4.74%, a
significant rate improvement from our securitizations closed during 2000.

Liquidity and Capital Resources
<TABLE>
<CAPTION>

     We require capital for:

<S>     <C>                                                   <C>       <C>
o        increases in our loan portfolio,                      o        the  seasonal purchase of inventories, and
o        working capital and general corporate purposes,       o        the purchase or lease of property and equipment.
o        equity or debt repurchases,

     We fund our capital requirements primarily through:

o        operating cash flow,                                  o        our revolving  warehouse and inventory  credit lines, 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.

Cash Flow

     Net cash provided by operating  activities decreased $13.7 million to $94.0
million in the six months ended June 30, 2001.  The decrease is primarily due to
a significant decrease in accrued liabilities at June 30, 2001 and a decrease in
collections of residuals in finance  receivables  sold,  offset by a decrease in
inventory levels.

     Net cash used in  investing  activities  decreased  $64.5  million to $94.1
million  during the six months ended June 30, 2001 as compared to $158.6 million
used  during  the  same  period  of  2000.  The  decrease  is due  to  increased
collections  on finance  receivables  and a decline in the  increase  of finance
receivables.

     Financing  activities  used $2.2  million for the six months ended June 30,
2001, versus generating $23.5 million during the six months ended June 30, 2000.
The  change  is  primarily  due to net  payments  made on Notes  Payable  and an
increase in additional deposits into investments held in trust.

Financing Resources

     Revolving  Facility.  In April 2001, we replaced our warehouse  receivables
facility,  previously  with GE  Capital,  and  have  extended  the  $25  million
inventory  line of credit portion of the prior facility from June 30, 2001 until
December 31, 2001.

     The extension on the inventory line of credit  requires us to pay a fee for
each  quarterly  extension  after June 30, 2001,  and after June 30,  2001,  the
interest  rate on the line  increases by 50 basis points to LIBOR plus 3.65% and
is secured by substantially  all company assets.  The interest rate in effect on
this line was 7.31% at June 30,  2001.  Currently,  we have  signed a term sheet
with a lender to  replace  the  inventory  line of credit and expect to close on
this facility by August 31, 2001.

     Our new revolving  facility is with Greenwich Capital  Financial  Products,
Inc. and allows for maximum  borrowings  of $75 million  during the period May 1
through  November 30  increasing  to $100 million  during the period  December 1
through  April 30. The term of the  facility is 364 days with a renewal  option,
upon mutual  consent,  for an additional  364-day  period.  The  borrowing  base
consists of up to 65% of the principal balance of eligible loans originated from
the sale of used cars. The lender maintains an option to adjust the advance rate
to reflect changes in market conditions or portfolio  performance.  The interest
rate on the facility is LIBOR plus 2.80% (6.96% at June 30, 2001).  The facility
is secured with substantially all Company assets. The line is subject to several
covenants,  including certain financial and loan portfolio related covenants. At
June 30, 2001, we were in compliance with all of the covenants.

                                       21

<PAGE>

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

     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.  In January  2001,  we entered into a $35 million
senior  secured  loan  facility  as a renewal  for our $38  million  senior loan
facility  originated in May 1999. The new facility has a term of 25 months.  Per
the agreement we must make  principal  payments of $1.0 million per month during
months 4 through 22. Thereafter through maturity, the agreement requires minimum
payments of the greater of $3.0  million per month or 50% of the cash flows from
classes of notes issued  through  securitization  that are  subordinate to the A
notes.Interest is payable monthly at LIBOR plus 600 basis points (10.16% at June
30, 2001). The balance on this note was $32.0 million at June 30, 2001.

     As a condition  to the $35 million  senior  secured loan  agreement,  Verde
Investments, Inc., an affiliate of Mr. Garcia, was required to invest $7 million
in us through a subordinated loan. The funds were placed in escrow as additional
collateral  for the $35  million  senior  secured  loan.  The  funds  were to be
released in July 2001 if, among other conditions,  we had at least $7 million in
pre-tax  income  through June of 2001 and, at that time,  Mr.  Garcia would have
guaranteed  33.3% of the $35  million  facility.  If the loan with Verde and the
guarantee  of the $35 million  senior  secured loan were not removed by July 25,
2001, Mr. Garcia was entitled to receive warrants from us for 1.5 million shares
of stock,  vesting over a one-year period, at an exercise price of $4.50 subject
to certain conditions. Under the terms of the senior secured loan agreement, any
necessary  shareholder  approval is a condition of the issuance of the warrants.
We have been advised by NASDAQ that shareholder  approval is required.  We, with
Mr. Garcia's consent,  have delayed obtaining  shareholder  approval until after
the resolution of Mr. Garcia's offer to purchase our  outstanding  common stock.
See item 5 under "Part II -Other  Information"  for further  information  on Mr.
Garcia's offer.  Also as consideration  for the loan, we released all options to
purchase  real  estate  that were then  owned by Verde and leased to us. We also
granted  Verde the option to  purchase,  at book  value,  any or all  properties
currently  owned by us, or acquired  by us prior to the earlier of December  31,
2001, or the date the loan is repaid.  Verde agreed to lease the properties back
to us, on terms  similar to our current  leases,  if it exercises  its option to
purchase any of the properties. The loan is secured by residual interests in our
securitization  transactions  but is  subordinate  to the  senior  secured  loan
facility.  The loan requires quarterly interest payments at LIBOR plus 600 basis
points  (10.16%  at June 30,  2001) and is  subject  to pro rata  reductions  if
certain  conditions are met. An independent  committee of our board reviewed and
negotiated the terms of this  subordinated  loan and we also received an opinion
from an investment banker,  which deemed the loan fair from a financial point of
view both to our  shareholders  and us.  The  balance of the note with Verde was
$6.6 million at June 30, 2001.


Capital Expenditures and Commitments

     In November 2000, Verde Investments,  Inc.  ("Verde"),  an affiliate of Mr.
Garcia,   purchased  a  certain  property   located  in  Phoenix,   Arizona  and
simultaneously  leased the  property  to us  pursuant  to among  other terms the
following:  20 year term which expires  December 31, 2020;  rent payable monthly
with 5% annual rent  adjustments;  triple net lease;  four five-year  options to
renew;  and an option to purchase the property  upon prior notice and at Verde's
cost.  Subsequently,  we  surrendered  this  option  as part  of the $7  million
subordinated  loan  with  Verde.  We  are  in  the  process  of  building  a new
headquarters at this location and anticipate an occupancy date of August 2001.

Accounting Matters

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June  30,  2001  as  well  as  all  purchase  method  business
combinations  completed  after  June 30,  2001.  Statement  141  also  specifies
criteria  intangible  assets acquired in a purchase method business  combination
must meet to be recognized and reported apart from goodwill.  Statement 142 will
require that  goodwill and  intangible  assets with  indefinite  useful lives no
longer be amortized,  but instead  tested for  impairment  at least  annually in
accordance with the provisions of Statement 142. Statement 142 will also require
that  intangible  assets with  definite  useful  lives be  amortized  over their
respective  estimated  useful  lives to their  estimated  residual  values,  and
reviewed for  impairment in  accordance  with SFAS No. 121,  Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

                                       22
<PAGE>

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately  and  Statement  142  effective  January 1, 2002.  Furthermore,  any
goodwill and any intangible asset  determined to have an indefinite  useful life
that are acquired in a purchase  business  combination  completed after June 30,
2001 will not be amortized,  but will continue to be evaluated for impairment in
accordance  with  the  appropriate   pre-Statement  142  accounting  literature.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before  July 1, 2001 will  continue  to be  amortized  prior to the  adoption of
Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior purchase business combination, and make any necessary reclassifications in
order to conform with the new criteria in Statement  141 for  recognition  apart
from  goodwill.  Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible  assets acquired
in purchase business  combinations,  and make any necessary  amortization period
adjustments by the end of the first interim period after adoption.  In addition,
to the extent an intangible  asset is identified as having an indefinite  useful
life, the Company will be required to test the  intangible  asset for impairment
in  accordance  with the  provisions  of Statement  142 within the first interim
period.  Any  impairment  loss will be measured  as of the date of adoption  and
recognized as the cumulative  effect of a change in accounting  principle in the
first interim period.

     As of January 1, 2002, the Company expects to have unamortized  goodwill of
approximately $11.6 million and no unamortized  identifiable  intangible assets.
The goodwill will be subject to the transition  provisions of Statements 141 and
142.  Amortization  expense related to goodwill was approximately  $1.0 million,
$0.2 million and $0.5  million for the year ended  December 31, 2000 and for the
three and six months ended June 30, 2001, respectively. Because of the extensive
effort  needed  to  comply  with  adopting  Statements  141 and  142,  it is not
practicable to reasonably  estimate the impact of adopting  these  Statements on
the Company's financial statements at the date of this report, including whether
any  transitional  impairment  losses will be required to be  recognized  as the
cumulative effect of a change in accounting principle.

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

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

We Make Forward Looking Statements

     This report includes statements that constitute  forward-looking statements
within the  meaning of the safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995. We claim the protection of the  safe-harbor  for
our  forward   looking   statements.   Forward-looking   statements   are  often
characterized  by  the  words  "may,"  "anticipates,"  "believes,"  "estimates,"
"projects,"  "expects"  or similar  expressions  and do not  reflect  historical
facts.  Forward-looking  statements in this report relate,  among other matters,
to:  anticipated  financial  results,  such as sales,  other  revenues  and loan
portfolios,  improvements in underwriting,  adequacy of the allowance for credit
losses,   and  improvements  in  recoveries  and  loan  performance,   including
delinquencies and charge offs; the closing of the replacement  inventory line of
credit;  roll-out of collectors to our dealerships;  the success of cost control
related initiatives; improvements in inventory and inventory mix; and e-commerce
related growth and loan performance.  Forward looking  statements include risks,
uncertainties and other factors which may cause our actual results,  performance
or  achievements  to be materially  different from those expressed or implied by
such forward  looking  statements,  some of which we cannot predict or quantify.
Factors that could  affect our results and cause or  contribute  to  differences
from these  forward-looking  statements  include,  but are not  limited  to: any
decline  in  consumer  acceptance  of our  car  sales  strategies  or  marketing
campaigns;  any  inability to finance our  operations in light of a tight credit
market for the sub-prime industry and our current financial  circumstances;  any
deterioration in the used car finance  industry or increased  competition in the
used car sales and finance  industry;  any  inability to monitor and improve our
underwriting and collection processes;  any changes in estimates and assumptions
in, and the ongoing adequacy of, our allowance for credit losses;  any inability
to continue to reduce operating expenses as a percentage of sales;  increases in
interest rates; adverse economic conditions;  any material litigation against us
or material,  unexpected developments in existing litigation; any new or revised
accounting,  tax or legal  guidance  that  adversely  affect  used car  sales or
financing;  and  developments  with  respect  to Mr.  Garcia's  offer to take us
private.  Future  events and actual  results  could differ  materially  from the
forward-looking statements.
                                       23

<PAGE>

When considering  each  forward-looking  statement,  you should keep in mind the
risk  factors  and  cautionary   statements  found  in  the  sections   entitled
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Risk  Factors," in our most recent report on Form 10-K, in Exhibit
99  attached  to  this  Quarterly  Report  on Form  10-Q  and  elsewhere  in our
Securities and Exchange Commission  filings. In addition,  the foregoing factors
may affect generally our business, results of operations and financial position.
There may also be other  factors  that we are  currently  unable to  identify or
quantify,  but  may  arise  or  become  known  in the  future.  Forward  looking
statements  speak  only as of the  dated  the  statement  was  made.  We are not
obligated to publicly update or revise any forward looking  statements,  whether
as a result of new information, future events, or for any other reason.


                                     ITEM 3.

Market Risk

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

Our financial  instruments consist primarily of fixed rate finance  receivables,
residual  interests  in pools  of fixed  rate  finance  receivables,  short-term
variable  rate  revolving  Notes  Receivable,  and variable and fixed rate Notes
Payable.  Our finance receivables are classified as subprime loans and generally
bear  interest at the lower of 29.9% or the  maximum  interest  rate  allowed in
states that  impose  interest  rate  limits.  At June 30,  2001,  the  scheduled
maturities  on our  finance  receivables  ranged  from one to 48 months,  with a
weighted  average  maturity of 23.6  months.  The  interest  rates we charge our
customers on finance  receivables has not changed as a result of fluctuations in
market interest rates,  although we may increase the interest rates we charge in
the future if market interest rates  increase.  A large component of our debt at
June 30, 2001 is the Collateralized  Notes Payable (Class A obligations)  issued
under our  securitization  program.  Issuing  debt  through  our  securitization
program  allows us to mitigate our interest rate risk by reducing the balance of
the variable  revolving  line of credit and replacing it with a lower fixed rate
note  payable.  We are subject to interest rate risk on fixed rate Notes Payable
to the extent that future  interest  rates are lower than the interest  rates on
our existing Notes Payable.

     We believe that our market risk information has not changed materially from
December 31, 2000.



                                       24


<PAGE>





PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings.

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

     There has also been  litigation  filed in connection with or related to the
intent  and/or  offer  of our  chairman,  Mr.  Garcia,  to  purchase  all of our
outstanding common stock not owned by him (See Item 5 below). On March 20, 2001,
a  shareholder  derivative  complaint was filed,  purportedly  on behalf of Ugly
Duckling Corporation,  in the Court of Chancery for the State of Delaware in New
Castle County,  captioned Berger v. Garcia,  et al., No. 18746NC.  The complaint
alleges  that our  current  directors  breached  fiduciary  duties owed to us in
connection  with  certain  transactions  between us and Mr.  Garcia and  various
entities  controlled by Mr. Garcia.  The complaint was amended on April 17, 2001
to add a second  cause of action,  on behalf of all  persons  who own our common
stock,  and  their  successors  in  interest,  which  alleges  that our  current
directors breached fiduciary duties in connection with the proposed  acquisition
by Mr. Garcia of all of the  outstanding  shares of Ugly Duckling  common stock.
Ugly Duckling is named as a nominal defendant in the action.  The original cause
of action seeks to void all transactions  deemed to have been approved in breach
of fiduciary duty and recovery by Ugly Duckling of alleged  compensatory damages
sustained as a result of the  transactions.  The second cause of action seeks to
enjoin us from  proceeding with the proposed  acquisition by Mr. Garcia,  or, in
the alternative, awarding compensatory damages to the class.

     Following  Mr.  Garcia's  offer in early April 2001,  five  additional  and
separate purported  shareholder class action complaints were filed between April
17 and April 25, 2001 in the Court of Chancery  for the State of Delaware in New
Castle County.  They are captioned  Turberg v. Ugly Duckling  Corp., et al., No.
18828NC,  Brecher v. Ugly Duckling Corp.,  et al., No. 18829NC,  Suprina v. Ugly
Duckling  Corporation,  et al., No.  18830NC,  Benton v. Ugly Duckling Corp., et
al., No. 18838NC, and Don Hankey Living Trust v. Ugly Duckling  Corporation,  et
al., No. 18843NC. Each complaint alleges that Ugly Duckling,  and its directors,
breached  fiduciary  duties in connection  with the proposed  acquisition by Mr.
Garcia of all of the outstanding  shares of the Ugly Duckling common stock.  The
complaints seek to enjoin the proposed  acquisition by Mr. Garcia and to recover
compensatory  damages caused by the proposed  acquisition and the alleged breach
of fiduciary duties.

     These cases were  consolidated in June 2001. We intend to vigorously defend
against the  plaintiff's  allegations  and believe  that the actions are without
merit.

Item 2.  Changes in Securities and Use of Proceeds.

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

Item 3.  Defaults Upon Senior Securities.

     We recently  obtained waiver letters for financial ratio covenant  breaches
under our revolving credit facility and our senior secured loan facility.

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

     None

Item 5.  Other Information.

     On April 16, 2001, as previously announced,  Mr. Ernest Garcia, II, made an
offer to the board of directors to purchase all of the outstanding shares of our
common stock not already held by him. Under the terms of the offer,  the holders
of the outstanding  shares of common stock would receive $7.00 per share,  $2.00
in cash and $5.00 in  subordinated  debentures from the acquiring  company.  The

                                       25

<PAGE>

subordinated  debentures  would  have  interest  payable at 10%,  interest  only
payments  semiannually  until maturity and a ten-year  term. Mr.  Garcia's offer
also states that Greg Sullivan, our chief executive officer and president, would
receive an option to purchase a 20% interest in the acquiring company. The board
of  directors   established  a  special  transaction   committee,   composed  of
disinterested directors, which is in the process of evaluating the proposal.

     There can be no  assurance  that the  proposed  transaction  regarding  Mr.
Garcia's  offer  to  take  us  private  referenced  in this  Form  10-Q  will be
consummated  on the proposed  terms or any revised  terms.  In the event that we
accept the proposed  transaction,  we, and the acquiring company, will likely be
required to file a joint proxy  statement/prospectus  and to make certain  other
filings  regarding the proposed  transaction  with the  Securities  and Exchange
Commission.  Investors and security holders are advised to read all such filings
regarding the proposed  transaction,  when and if the  transaction  proceeds and
such  filings  are  made,  because  they  will  contain  important  information.
Investors and security  holders may obtain free copies of any such filings (when
and if  they  become  available)  and  other  documents  filed  by us  with  the
Commission at the Commission's  website at www.sec.gov.  Information  concerning
any participants in any solicitation of Ugly Duckling  stockholders that is made
in connection with the proposed transaction will be disclosed when available.

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

(a)      Exhibits

Exhibit 99 - Statement Regarding Forward Looking Statements and Risk Factors

(b)      Reports on Form 8-K.

     During the second  quarter of 2001,  the Company filed four reports on Form
8-K.  The first  report on Form 8-K,  dated  April 19,  2001 and filed April 20,
2001, reported Ugly Duckling's closing of a warehouse receivables loan facility,
the closing of its 19th  securitization  and the extension of its inventory line
of credit,  and filed as an exhibit to the Form 8-K, was a press  release  dated
April  16,  2001,   entitled  "Ugly  Duckling  Announces  Closing  of  Warehouse
Receivables Facility and 19th Securitization, and Extension of Inventory Line of
Credit." The second  report on Form 8-K dated April 19, 2001 and filed April 20,
2001, reported the receipt of an offer to purchase the Company,  and filed as an
exhibit to the Form 8-K was a press release dated April 16, 2001 entitled  "Ugly
Duckling  Confirms  Receipt of Offer to Purchase  Company from  Chairman/Largest
Shareholder." The third report on Form 8-K, dated April 27, 2001 and filed April
30, 2001, reported Ugly Duckling's first quarter 2000 earnings,  and filed as an
exhibit to the Form 8-K was a press release dated April 25, 2001 entitled  "Ugly
Duckling  Reports First  Quarter 2001  Results." The fourth report filed on Form
8-K,  dated May 16,  2001 and  filed May 17,  2001,  reported  the  hiring of an
investment  banker to evaluate  the offer to purchase  the Ugly  Duckling by our
chairman and litigation issues in connection with the offer.

                                       26
<PAGE>




SIGNATURE

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

         UGLY DUCKLING CORPORATION

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

Date:  August 14, 2001



<PAGE>






EXHIBIT INDEX
<TABLE>
<CAPTION>

                       Exhibit
                       Number                                     Description
                     <S>          <C>
                     99           Statement Regarding Forward Looking Statements and Risk Factors
</TABLE>