===============================================================================
                       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, 1999

                        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         (Zip Code)
                         offices)

                                 (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 6, 1999,  there  were  approximately  14,879,000  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, 1998.
================================================================================


<PAGE>



                            UGLY DUCKLING CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                   Page
                              Part I. -- FINANCIAL STATEMENTS
  Item 1.  FINANCIAL STATEMENTS...........................................................................
<S>                                                                                                                <C>
    Condensed Consolidated Balance Sheets-- June 30, 1999 and December 31, 1998...........................           1
    Condensed Consolidated Statements of Operations-- Three and Six Months Ended June 30, 1999 and June 30, 1998     2
    Condensed Consolidated Statements of Cash Flows-- Six Months Ended June 30, 1999 and June 30, 1998....           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 ...................................................................................          31

                               Part II. -- OTHER INFORMATION
  Item 1.  LEGAL PROCEEDINGS..............................................................................
                                                                                                                    32
  Item 2.  CHANGES IN SECURITIES..........................................................................          32
  Item 3.  DEFAULTS UPON SENIOR SECURITIES................................................................          32
  Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................          32
  Item 5.  OTHER INFORMATION..............................................................................          32
  Item 6.  EXHIBITS AND REPORTS ON FORM 8-K...............................................................          32
  SIGNATURES..............................................................................................          34
  Exhibit 10.1  Amendment No. 4 to the Amended and Restated Motor Vehicle and Installment Contract Loan and
                    Security Agreement between General Electric Capital Corporation and Registrant dated June
                    30, 1999
  Exhibit 11    Statement regarding computation of per share earnings (see note 5 of Notes to Condensed Consolidated Financial
                    Statements)
  Exhibit 27    Financial Data Schedule
  Exhibit 99    Risk Factors

</TABLE>



<PAGE>

                                     ITEM 1.

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)




<TABLE>
<CAPTION>
                                                       June 30,      December 31,
                                                         1999            1998
                                                     -------------  ----------------
                                      ASSETS
<S>                                                    <C>            <C>
Cash and Cash Equivalents                              $    1,302     $       2,751
Finance Receivables, Net                                  307,199           163,209
Notes Receivable, Net                                      21,317            28,257
Inventory                                                  37,810            44,167
Property and Equipment, Net                                34,750            32,970
Intangible Assets, Net                                     14,985            15,530
Other Assets                                               22,997            20,575
Net Assets of Discontinued Operations                      24,817            38,516
                                                     -------------  ----------------
                                                       $  465,177     $     345,975
                                                     =============  ================
</TABLE>
<TABLE>
<CAPTION>

       LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
<S>                                                    <C>            <C>
    Accounts Payable                                   $    4,892     $       2,479
    Accrued Expenses and Other Liabilities                 30,992            19,694
    Notes Payable                                         232,952           117,294
    Subordinated Notes Payable                             36,943            43,741
                                                     -------------  ----------------
Total Liabilities                                         305,779           183,208
                                                     -------------  ----------------
Stockholders' Equity:
    Common Stock                                               19                19
    Additional Paid in Capital                            173,864           173,809
    Retained Earnings                                       5,339             3,449
    Treasury Stock                                        (19,824)          (14,510)
                                                     -------------  ----------------
Total Stockholders' Equity                                159,398           162,767
                                                     -------------  ----------------
                                                       $  465,177     $     345,975
                                                     =============  ================
</TABLE>



     See accompanying notes to Condensed Consolidated Financial Statements.



                                     Page 1

<PAGE>

                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                Three and Six Months Ended June 30, 1999 and 1998
                (In thousands, except earnings per share amounts)


<TABLE>
<CAPTION>
                                                                     Three Months Ended                 Six Months Ended
                                                                          June 30,                          June 30,
                                                                -----------------------------     -----------------------------
                                                                   1999            1998               1999            1998
                                                                ------------   --------------     -------------   -------------

<S>                                                               <C>            <C>                <C>            <C>
Sales of Used Cars                                                $  97,876      $    69,523        $  204,319     $   142,496
Less:
    Cost of Used Cars Sold                                           55,559           39,237           115,656          78,968
    Provision for Credit Losses                                      26,635           14,988            55,196          30,350
                                                                ------------   --------------     -------------   -------------
                                                                     15,682           15,298            33,467          33,178
                                                                ------------   --------------     -------------   -------------
Other Income:
    Interest Income                                                  20,186            6,024            34,236          12,230
    Gain on Sale of Finance Receivables                                 --             3,659               --            8,273
    Servicing and Other Income                                        7,670            9,531            17,295          13,442
                                                                ------------   --------------     -------------   -------------
                                                                     27,856           19,214            51,531          33,945
                                                                ------------   --------------     -------------   -------------
Income before Operating Expenses                                     43,538           34,512            84,998          67,123
    Operating Expenses:
    Selling and Marketing                                             5,887            4,274            12,495           9,195
    General and Administrative                                       27,022           22,567            55,381          41,353
    Depreciation and Amortization                                     2,321            1,352             4,458           2,525
                                                                ------------   --------------     -------------   -------------
                                                                     35,230           28,193            72,334          53,073
                                                                ------------   --------------     -------------   -------------
Operating Income                                                      8,308            6,319            12,664          14,050
Interest Expense                                                      5,817            1,369             9,473           2,871
                                                                ------------   --------------     -------------   -------------

Earnings before Income Taxes                                          2,491            4,950             3,191          11,179
Income Taxes                                                          1,021            2,007             1,301           4,507
                                                                ------------   --------------     -------------   -------------
Income from Continuing Operations                                     1,470            2,943             1,890           6,672

Discontinued Operations:
Loss from Operations of Discontinued Operations, net of
    income tax benefit of $492                                           --               --                --            (768)
Loss on Disposal of Discontinued Operations, net of
    income tax benefit of $3,024                                         --               --                --          (4,827)
                                                                ------------   --------------     -------------   -------------
Net Earnings                                                      $   1,470      $     2,943        $    1,890     $     1,077
                                                                ============   ==============     =============   =============
Earnings per Common Share from Continuing Operations:
    Basic                                                         $    0.10      $      0.16        $     0.12     $      0.36
                                                                ============   ==============     =============   =============
    Diluted                                                       $    0.10      $      0.16        $     0.12     $      0.35
                                                                ============   ==============     =============   =============
Net Earnings per Common Share:
    Basic                                                         $    0.10      $      0.16        $     0.12     $      0.06
                                                                ============   ==============     =============   =============
    Diluted                                                       $    0.10      $      0.16        $     0.12     $      0.06
                                                                ============   ==============     =============   =============
Shares Used in Computation:
    Basic                                                            14,940           18,590             5,292          18,570
                                                                ============   ==============     =============   =============
    Diluted                                                          15,210           18,980            15,495          18,930
                                                                ============   ==============     =============   =============
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.



                                     Page 2
<PAGE>


                   UGLY DUCKLING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Six Months Ended June 30, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  1999           1998
                                                                              -------------   ------------
<S>                                                                             <C>             <C>
         Cash Flows from Operating Activities:
         Net Earnings                                                           $   1,890       $   1,077
         Adjustments to Reconcile Net Earnings to Net Cash Provided
           by Operating Activities:
           Provision for Credit Losses                                             55,196          30,350
           Gain on Sale of Finance Receivables                                         --          (8,273)
           Depreciation and Amortization                                            4,458           2,525
           Loss from Discontinued Operations                                           --           5,595
           Purchase of Finance Receivables Held for Sale                               --        (161,018)

           Increase in Deferred Income Taxes                                       (5,188)         (1,260)
           Proceeds from Sale of Finance Receivables                                   --         109,711
           Collections of Finance Receivables                                          --          26,026
           (Increase) Decrease in Inventory                                         6,357          (2,370)
           (Increase) Decrease in Other Assets                                      1,172          (3,143)
           Increase in Accounts Payable, Accrued Expenses and Other
         liabilities                                                               13,922           7,733
           Increase in Income Taxes Payable                                         2,926             703
                                                                              -------------   ------------
         Net Cash Provided by Operating Activities                                 80,733           7,656
                                                                              -------------   ------------
         Cash Flows Used in Investing Activities:
           Purchase of Finance Receivables Held for Investment                   (256,684)             --
           Collections of Finance Receivables Held for Investment                  62,148              --
           Increase in Investments Held in Trust                                   (5,983)         (7,537)
           Advances under Notes Receivable                                         (5,195)        (24,312)
           Repayments of Notes Receivable                                          12,135          26,727
           Proceeds from Disposal of Property and Equipment                            --          21,893
           Purchase of Property and Equipment                                      (5,692)        (12,759)
                                                                              -------------   ------------
         Net Cash Provided by (Used in) Investing Activities                     (199,271)          4,012
                                                                              -------------   ------------
         Cash Flows from Financing Activities:
           Additions to Notes Payable                                             199,336          30,000
           Repayment of Notes Payable                                             (84,088)        (46,631)
           Net Issuance (Repayment) of Subordinated Notes Payable                  (6,798)         13,000
           Proceeds from Issuance of Common Stock                                      55              40
           Acquisition of Treasury Stock                                           (5,314)             --
           Other, Net                                                                 199            (182)
                                                                              -------------   ------------
         Net Cash Provided by (Used in) Financing Activities                      103,390          (3,773)
                                                                              -------------   ------------
         Cash Provided by (Used in) Discontinued Operations                        13,699          (9,780)
                                                                              -------------   ------------
         Net Decrease in Cash and Cash Equivalents                                 (1,449)         (1,885)
         Cash and Cash Equivalents at Beginning of Period                           2,751           3,537
                                                                              -------------   ------------
         Cash and Cash Equivalents at End of Period                             $   1,302       $   1,652
                                                                              =============   ============
         Supplemental Statement of Cash Flows Information:
         Interest Paid                                                          $  10,180       $   2,706
                                                                              =============   ============
         Income Taxes Paid                                                      $   3,315       $   1,106
                                                                              =============   ============
</TABLE>


     See accompanying notes to Condensed Consolidated Financial Statements.

                                     Page 3
<PAGE>



                            UGLY DUCKLING CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

    Our accompanying  unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information  and  pursuant to rules and  regulations  of the
Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by generally accepted  accounting  principles
for a complete financial statement presentation.  In our opinion, such unaudited
interim  information  reflects  all  adjustments,   consisting  only  of  normal
recurring  adjustments,  necessary to present our financial position and results
of operations for the periods  presented.  Our results of operations for interim
periods are not necessarily  indicative of the results to be expected for a full
fiscal year.  Our Condensed  Consolidated  Balance Sheet as of December 31, 1998
was derived from our audited  consolidated  financial statements as of that date
but does not include all the  information  and  footnotes  required by generally
accepted  accounting  principles.  We suggest that these condensed  consolidated
financial  statements  be read in  conjunction  with  the  audited  consolidated
financial  statements  included in our Annual Report on Form 10-K,  for the year
ended December 31, 1998.

Note 2.  Summary of Finance Receivables

    Following is a summary of our Finance Receivables,  Net, as of June 30, 1999
and December 31, 1998 (in thousands):


<TABLE>
<CAPTION>
                                                           June 30, 1999                           December 31, 1998
                                              ----------------------------------------   ---------------------------------------
                                                                Non                                       Non
                                               Dealership    Dealership                 Dealership    Dealership
                                               Operations    Operations      Total      Operations    Operations       Total
                                              ------------- ------------- ------------- ------------  ------------  ------------

<S>                                             <C>          <C>            <C>           <C>           <C>          <C>
Installment Sales Contract Principal Balances   $  256,645   $   77,366     $ 334,011     $  93,936     $  51,282    $  145,218
Add: Accrued Interest                                2,755          868         3,623           877           473         1,350
    Loan Origination Costs                           4,450           --         4,450         2,237            --         2,237
                                              ------------- ------------- ------------- ------------  ------------  ------------
Principal Balances, Net                            263,850       78,234       342,084        97,050        51,755       148,805
Residuals in Finance Receivables Sold               22,559        2,625        25,184        33,331         2,625        35,956
Investments Held in Trust                           35,249           --        35,249        20,564            --        20,564
                                              ------------- ------------- ------------- ------------  ------------  ------------
                                                   321,658       80,859       402,517       150,945        54,380       205,325
Allowance for Credit Losses                        (66,905)      (2,990)      (69,895)      (24,777)       (2,024)      (26,801)
Discount on Acquired Loans                              --      (25,423)      (25,423)           --       (15,315)      (15,315)
                                              ------------- ------------- ------------- ------------  ------------  ------------
Finance Receivables, Net                        $  254,753   $   52,446     $ 307,199     $ 126,168     $  37,041    $  163,209
                                              ============= ============= ============= ============  ============  ============

Classification of Principal Balances:
Finance Receivables Held for Investment         $   99,049   $   77,366     $ 176,415     $  26,852     $  51,282    $   78,134
Finance Receivables Held as Collateral for
  Securitization Notes Payable                     157,596           --       157,596        67,084            --        67,084
                                              ============= ============= ============= ============  ============  ============
Installment Sales Contract Principal Balances   $  256,645   $   77,366     $ 334,011     $  93,936     $  51,282    $  145,218
                                              ============= ============= ============= ============  ============  ============
</TABLE>


                                     Page 4
<PAGE>


     As of June 30,  1999 and  December  31,  1998,  our  Residuals  in  Finance
Receivables Sold from dealership  operations were comprised of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                 June 30,         December 31,
                                                                   1999               1998
                                                             -----------------  -----------------
<S>                                                           <C>                 <C>
Retained interest in subordinated securities (B
    Certificates)                                             $        33,080     $       51,243
Net interest spreads, less present value discount                      14,596             25,838
Reduction for estimated credit losses                                 (25,117)           (43,750)
                                                             -----------------  -----------------
Residuals in finance receivables sold                         $        22,559     $       33,331
                                                             =================  =================
Securitized principal balances outstanding                    $       126,945     $      198,747
                                                             =================  =================
Estimated credit losses as a % of securitized principal
  balances outstanding                                                  19.8%              22.0%
                                                             =================  =================
</TABLE>

     The  following  table  reflects a summary of activity for our  Residuals in
Finance  Receivables Sold from dealership  operations for the periods ended June
30, 1999 and 1998, respectively (in thousands):

<TABLE>
<CAPTION>
                                     Three Months Ended            Six Months Ended
                                          June 30,                     June 30,
                                 ---------------------------   --------------------------
                                    1999           1998           1999          1998
                                 ------------   ------------   -----------   ------------
<S>                               <C>            <C>            <C>           <C>
Balance, Beginning of Period      $   28,480     $   24,741     $  33,331     $   13,277
Additions                                 --         10,396            --         24,254
Amortization                          (5,921)        (6,719)      (10,772)        (9,113)
                                 ------------   ------------   -----------   ------------
Balance, End of Period            $   22,559     $   28,418     $  22,559     $   28,418
                                 ============   ============   ===========   ============
</TABLE>

Note 3.  Notes Receivable

    Our  Cygnet  dealer  program  has  various  notes  receivable  from used car
dealers.  Under Cygnet's asset based loan program, our commitments for revolving
notes receivable totaled $9.6 million at June 30, 1999.

    In July 1997, First Merchants Acceptance Corporation (First Merchants) filed
for bankruptcy.  Immediately  subsequent to the bankruptcy filing, we executed a
loan agreement to provide First  Merchants  with debtor in possession  financing
(DIP facility).  The maximum commitment under the DIP facility was $11.5 million
at June 30, 1999.  The  outstanding  balance on the DIP facility  totaled  $11.5
million and $12.2 million at June 30, 1999 and December 31, 1998, respectively.

    Following is a summary of Notes Receivable at June 30, 1999 and December 31,
1998 (in thousands):

<TABLE>
<CAPTION>
                                                                           June 30,        December 31,
                                                                             1999              1998
                                                                         --------------   ----------------
<S>                                                                        <C>              <C>
Notes Receivable under the asset based loan program, net of
    allowance for doubtful accounts of $103, and $500, respectively        $     7,433      $       8,311
First Merchants Debtor in Possession Note Receivable                            11,502             12,228
First Merchants Bank Group Participation                                         1,279              6,856
Other Notes Receivable                                                           1,103                862
                                                                         --------------   ----------------
Notes Receivable, Net                                                      $    21,317      $      28,257
                                                                         ==============   ================
</TABLE>



                                     Page 5
<PAGE>


Note 4.  Notes Payable

    The  following  is a summary of Notes  Payable at June 30, 1999 and December
31, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                                              June 30,       December 31,
                                                                                                1999             1998
                                                                                           ---------------- ---------------

<S>                                                                                         <C>              <C>
Revolving Facility with GE Capital                                                          $      76,647    $      51,765
Securitization Notes Payable                                                                      119,325           50,607
Note Payable Collateralized by the Common Stock of our Securitization Subsidiaries                 37,500           12,234
Mortgage Loan with Finance Company                                                                     --            3,386
Others                                                                                                735              967
                                                                                           ---------------- ---------------
Subtotal                                                                                          234,207          118,959
Less:  Unamortized Loan Fees                                                                        1,255            1,665
                                                                                           ---------------- ---------------
Notes Payable                                                                               $     232,952    $     117,294
                                                                                           ================ ===============
</TABLE>


Note 5.  Common Stock Equivalents

    Net  Earnings per common  share  amounts are based on the  weighted  average
number of common shares and common stock equivalents outstanding for the periods
ended June 30,  1999,  and 1998 as follows (in  thousands,  except for per share
amounts):

<TABLE>
<CAPTION>
                                                                              Three Months Ended          Six Months Ended
                                                                                   June 30,                   June 30,
                                                                          ---------------------------  ------------------------
                                                                             1999           1998          1999         1998
                                                                          ------------  -------------  -----------  -----------

<S>                                                                        <C>            <C>            <C>         <C>
Income from Continuing Operations                                          $    1,470     $    2,943     $  1,890    $   6,672
                                                                          ============  =============  ===========  ===========
Net Earnings                                                               $    1,470     $    2,943     $  1,890    $   1,077
                                                                          ============  =============  ===========  ===========
Basic EPS-Weighted Average Shares Outstanding                                  14,940         18,590       15,292       18,570
                                                                          ============  =============  ===========  ===========
Basic Earnings Per Share from:
    Continuing Operations                                                  $     0.10     $     0.16     $    0.12   $     0.36
                                                                          ============  =============  ===========  ===========
Net Earnings                                                               $     0.10     $     0.16     $    0.12   $     0.06
                                                                          ============  =============  ===========  ===========

Basic EPS-Weighted Average Shares Outstanding                                  14,940         18,590       15,292       18,570
Effect of Diluted Securities:
    Warrants                                                                       --             44           --           35
    Stock Options                                                                 270            346          203          325
                                                                          ------------  -------------  -----------  -----------
Dilutive EPS-Weighted Average Shares Outstanding                               15,210         18,980       15,495       18,930
                                                                          ============  =============  ===========  ===========
Diluted Earnings Per Share from:
    Continuing Operations                                                  $     0.10  $        0.16  $      0.12 $       0.35
                                                                          ============  =============  ===========  ===========
    Net Earnings                                                           $     0.10  $        0.16  $      0.12 $       0.06
                                                                          ============  =============  ===========  ===========
Warrants Not Included in Diluted EPS Since Antidilutive                         1,439          1,214        1,510          715
                                                                          ============  =============  ===========  ===========

Stock Options Not Included in Diluted EPS since Antidilutive                      905            571        1,035           96
                                                                          ============  =============  ===========  ===========
</TABLE>

Note 6.  Business Segments

    We have two divisions:  dealership operations and non-dealership operations.
Within  our  divisions,  we have six  distinct  business  segments.  Within  the
dealership  operations  division,  the  segments  consist  of  retail  car sales
operations  (company  dealerships),   the  income  generated  from  the  finance
receivables  generated at the Ugly Duckling  dealerships and corporate and other
operations.  Under the non-dealership  operations division, the segments consist
of the Cygnet dealer program, bulk purchasing and loan servicing,  and corporate
and other operations.

                                     Page 6
<PAGE>


    A summary of operating  activity by business  segment for the periods  ended
June 30, 1999 and 1998 follows (in thousands):

<TABLE>
<CAPTION>

                                             Dealership Operations                Non Dealership Operations
                                     ------------------------------------- -------------------------------------
                                                   Company
                                       Company    Dealership    Corporate     Cygnet    Cygnet Loan   Corporate
                                     Dealerships Receivables    and Other     Dealer     Servicing    and Other     Total
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------

<S>                                   <C>         <C>           <C>         <C>          <C>          <C>         <C>
Three months ended June 30, 1999:
Sales of Used Cars                    $  97,876   $       --    $      --   $       --   $     --     $      --   $  97,876
Less:  Cost of Used Cars Sold            55,559           --           --           --          --           --      55,559
    Provision for Credit Losses          20,131        5,658           --          846          --           --      26,635
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
                                         22,186       (5,658)          --         (846)         --           --      15,682
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------

Interest Income                              --       15,647          109        4,114         315            1      20,186
Servicing and Other Income                    6        2,296          133           --       5,235           --       7,670
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
Income before Operating Expenses         22,192       12,285          242        3,268       5,550            1      43,538
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------

Operating Expenses:
    Selling and Marketing                 5,864           --           --           23          --           --       5,887
    General and Administrative           11,101        4,567        4,621          974       4,986          773      27,022
    Depreciation and Amortization           859          280          537          107         370          168       2,321
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
                                         17,824        4,847        5,158        1,104       5,356          941      35,230
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
Operating Income (Loss)               $   4,368   $    7,438    $  (4,916)  $    2,164   $     194    $    (940)  $   8,308
                                     =========== ============= =========== ============ ============ =========== ============


Three months ended June 30, 1998:
Sales of Used Cars                    $  69,523   $       --    $      --   $       --   $      --    $      --   $  69,523
Less:  Cost of Used Cars Sold            39,237           --           --           --          --           --      39,237
    Provision for Credit Losses          14,263           10           --          715          --           --      14,988
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
                                         16,023          (10)          --         (715)         --           --      15,298
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------

Interest Income                              --        3,506           54        2,012         452           --       6,024
Gain on Sale of Loans                        --        3,659           --           --          --           --       3,659
Servicing and Other Income                   17        4,015           56           --       5,443           --       9,531
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
Income before Operating Expenses         16,040       11,170          110        1,297       5,895           --      34,512
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------

Operating Expenses:
    Selling and Marketing                 4,218           --           --           44          12           --       4,274
    General and Administrative            9,329        4,279        3,456          593       4,203          707      22,567
    Depreciation and Amortization           615          311          249           23         154           --       1,352
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
                                         14,162        4,590        3,705          660       4,369          707      28,193
                                     ----------- ------------- ----------- ------------ ------------ ----------- ------------
Operating Income (Loss)               $   1,878   $    6,580    $  (3,595)  $      637   $   1,526    $    (707)  $   6,319
                                     =========== ============= =========== ============ ============ =========== ============
</TABLE>

                                     Page 7
<PAGE>


<TABLE>
<CAPTION>
                                            Dealership Operations               Non Dealership Operations
                                     ------------------------------------ ---------------------------------------
                                                   Company
                                      Company    Dealership   Corporate      Cygnet     Cygnet Loan  Corporate
                                     Dealerships Receivables  and Other      Dealer      Servicing   and Other      Total
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
<S>                                   <C>         <C>          <C>          <C>          <C>          <C>          <C>
  Six months ended June 30, 1999:
  Sales of Used Cars                  $ 204,319   $       --   $      --    $       --   $       --   $      --    $204,319
  Less: Cost of Used Cars Sold          115,656           --          --            --           --          --     115,656
  Provision for Credit Losses            42,024       11,529          --         1,643           --          --      55,196
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
                                         46,639      (11,529)         --        (1,643)          --          --      33,467
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------

  Interest Income                            --       25,959         170         7,478          627           2      34,236
  Servicing and Other Income                 13        5,178         178            --       11,926          --      17,295
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
  Income before Operating Expenses       46,652       19,608         348         5,835       12,553           2      84,998
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------

  Operating Expenses:
    Selling and Marketing                12,433           --          --            59            3          --      12,495
    General and Administrative           22,010        9,150       9,959         1,937       10,807       1,518      55,381
    Depreciation and Amortization         1,653          562       1,058           185          692         308       4,458
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
                                         36,096        9,712      11,017         2,181       11,502       1,826      72,334
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
  Operating Income (Loss)             $  10,556   $    9,896   $ (10,669)   $    3,654   $    1,051   $  (1,824)   $ 12,664
                                     =========== ============ ===========  ============ ============ =========== ============


  Six months ended June 30, 1998:
  Sales of Used Cars                  $ 142,496   $       --   $      --    $       --   $       --   $      --    $142,496
  Less: Cost of Used Cars Sold           78,968           --          --            --           --          --      78,968
  Provision for Credit Losses            29,297           10          --         1,043           --          --      30,350
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
                                         34,231          (10)         --        (1,043)          --          --      33,178
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------

  Interest Income                            --        7,323         118         3,610        1,179          --      12,230
  Gain on Sale of Loans                      --        8,273          --            --           --          --       8,273
  Servicing and Other Income                 58        7,839         102            --        5,443          --      13,442
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
  Income before Operating Expenses       34,289       23,425         220         2,567        6,622          --      67,123
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------

  Operating Expenses:
    Selling and Marketing                 9,096           --          --            87           12          --       9,195
    General and Administrative           19,835        8,834       6,075         1,108        4,203       1,298      41,353
    Depreciation and Amortization         1,228          648         450            45          154          --       2,525
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
                                         30,159        9,482       6,525         1,240        4,369       1,298      53,073
                                     ----------- ------------ -----------  ------------ ------------ ----------- ------------
  Operating Income (Loss)             $   4,130   $   13,943   $  (6,305)   $    1,327   $    2,253   $  (1,298)   $ 14,050
                                     =========== ============ ===========  ============ ============ =========== ============
</TABLE>


Note 7.  Discontinued Operations

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


                                     Page 8
<PAGE>


    The components of Net Assets of Discontinued  Operations as of June 30, 1999
and December 31, 1998 follow (in thousands):

<TABLE>
<CAPTION>
                                                      June 30,       December 31,
                                                        1999             1998
                                                   ---------------- ---------------

<S>                                                   <C>            <C>
Finance Receivables, net                              $    19,195    $      30,649
Residuals in Finance Receivables Sold                       4,503            7,875
Investments Held in Trust                                   2,638            3,665
Other Assets, net of Accounts Payable and
    Accrued Liabilities                                     1,569            2,351
Disposal Liability                                         (3,088)          (6,024)
                                                   ---------------- ---------------
Net Assets of Discontinued Operations                 $    24,817    $      38,516
                                                   ================ ===============
</TABLE>

Note 8.  Use of Estimates

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

Note 9.  Certain Bankruptcy Remote Entities

    Ugly Duckling  Receivables  Corporation (UDRC) and Ugly Duckling Receivables
Corporation   II  (UDRC  II)   (collectively   referred  to  as   Securitization
Subsidiaries),   are  our  wholly-owned   special  purpose   "bankruptcy  remote
entities." Their assets, including assets classified as Discontinued Operations,
include  Residuals in Finance  Receivables  Sold and Investments  Held In Trust.
Total  assets for UDRC and UDRC II are  approximately  $183.4  million  and $5.3
million, respectively, at June 30, 1999. These amounts would not be available to
satisfy claims of our creditors on a consolidated basis.

Note 10.  Reclassifications

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


                                     Page 9
<PAGE>



                                     ITEM 2.

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

    Our Quarterly  Report on Form 10-Q contains forward looking  statements.  We
may make additional written or oral forward looking statements from time to time
in filings  with the  Securities  and Exchange  Commission  or  otherwise.  Such
forward looking statements are within the meaning of that term in Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  21E of the  Securities
Exchange Act of 1934,  as amended.  Such  statements  may  include,  but are not
limited to,  projections of revenues,  income,  or loss,  capital  expenditures,
plans for future operations,  financing needs or plans, Year 2000 readiness, and
plans relating to our products or services,  as well as assumptions  relating to
the  foregoing.   The  words  "believe,"   "expect,"   "intend,"   "anticipate,"
"estimate,"   "project,"  and  similar  expressions   identify  forward  looking
statements,  which  speak only as of the date the  statement  was made.  Forward
looking statements are inherently  subject to risks and  uncertainties,  some of
which cannot be predicted or quantified.  Future events and actual results could
differ  materially from those set forth herein,  contemplated  by, or underlying
the forward looking statements. We undertake no obligation to publicly update or
revise any forward looking  statements,  whether as a result of new information,
future events, or otherwise.  Statements in this Quarterly Report, including the
Notes to the  Condensed  Consolidated  Financial  Statements  and  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations,"
describe  factors,  among  others,  that  could  contribute  to  or  cause  such
differences.  Additional  risk factors that could cause actual results to differ
materially from those expressed in such forward looking statements are set forth
in Exhibit 99 which is attached  hereto and  incorporated by reference into this
Quarterly Report on Form 10-Q.

Introduction

    General.  We  operate  the  largest  chain  of buy  here-pay  here  used car
dealerships  in the United  States.  We sell and  finance  our used  vehicles to
customers  within the  sub-prime  segment of the used car market.  Our customers
typically have limited credit histories, low incomes or past credit problems. At
June 30, 1999,  we operated 59  dealerships  located in several  large  markets,
including Los Angeles, Atlanta, Tampa, San Antonio, Phoenix and Dallas.

    In addition to our dealership and financing operations, we also
     o  provide  financing  to other  independent  used car dealers  through our
          Cygnet dealer program,
     o  service and collect  large  portfolios  of finance  receivables owned by
          others,  and
     o manage  selected  financial  assets  that  we  acquire  from  financially
          distressed third parties.

    From 1994 through the first quarter of 1998, we maintained a national branch
office  network that acquired and serviced  retail  installment  contracts  from
numerous  independent third party dealers.  We discontinued  these operations in
1998.

    Below is a summary of our businesses by division and their related segments:

    [Organizational Chart of Business Segments]


    The chart above shows Ugly Duckling with two operating divisions. Dealership
operations  is the first  division.  Dealership  operations  has three  distinct
segments.  Retail sales is its first segment.  This is the segment that operates
our chain of Ugly Duckling Car Sales  dealerships.  Portfolio and loan servicing
is the second segment of dealership operations.  This segment holds and services
the  loan  portfolios  originated  or  acquired  by our  dealership  operations.
Finally,  dealership  operations  has an  administration  segment that  provides
corporate administration to the division. Our non-dealership operations division
also contains three segments. The first non-dealership operations segment is the
bulk  purchasing/loan  servicing  segment.  In this  segment,  we  acquire  loan
portfolios  in bulk from third  parties and  provide  loan  servicing  for third
parties.  The second segment of  non-dealership  operations is the Cygnet dealer
program under which we provide various credit facilities to independent used car
dealers.  Finally,  the  non-dealership  operations also have an  administration
segment that provides corporate administration to the non-dealership operations.
Last,  the chart shows our  discontinued  operations,  which contains our branch
office network that we closed in February 1998 and the loans we acquired through
that network.

                                    Page 10
<PAGE>


Company Dealership Operations

    We  commenced  dealership  operations  in 1992 with the  acquisition  of two
dealerships  in Arizona,  and have  expanded  aggressively  since then through a
combination of acquisitions and development of new stores.  Our most significant
growth  occurred in 1997,  when
   o  we acquired from Seminole  Finance, Inc. and related companies (Seminole),
         four  dealerships in Tampa/St.  Petersburg  and a contract portfolio of
         approximately $31.1 million;
   o  we purchased  from E-Z Plan,  Inc. (E-Z Plan),  seven  dealerships in  San
         Antonio and a contract portfolio of  approximately $24.3 million;
   o  we purchased from Kars-Yes  Holdings,  Inc. and related  companies (Kars),
         six dealerships in the Los Angeles market, two in the Miami market, two
         in the Atlanta market, and two in the Dallas market; and
   o  we opened  our first used car  dealership  in the  Las Vegas  market,  two
         additional  dealerships in the  Albuquerque  market and one  additional
         dealership  in the  Phoenix  market.  We also  closed a  dealership  in
         Arizona.

    We continued our aggressive growth in 1998, adding 17 new dealerships in our
existing  markets.  We opened one  dealership in the  Albuquerque  market,  four
dealerships in the Atlanta market,  three dealerships in the Dallas market,  two
dealerships in the Los Angeles  market,  two  dealerships in the Phoenix market,
two  dealerships in the San Antonio market,  and three  dealerships in the Tampa
market. We also closed two dealerships in Miami and exited that market.

     In the first quarter of 1999, we opened one dealership in the Dallas market
and  one in the  Tampa  market.  In the  second  quarter  of  1999,  we  added a
dealership  in the Los  Angeles  market,  which  brought  our  total  number  of
dealerships to 59.

     The following table  summarizes the number of stores we had in operation by
major  market  as of June  30,  1999,  and each of the last  three  years  ended
December 31, 1998, 1997, and 1996:

                               Number of Stores by Market
                        -------------------------------------------
                         June 30,             December 31,
                        ----------  -------------------------------
                           1999        1998       1997       1996
                        ----------  ---------  ---------  ---------
        Phoenix                  9          9          7          5
        San Antonio              9          9          7         --
        Atlanta                  9          9          5         --
        Los Angeles              9          8          6         --
        Tampa                    9          8          5         --
        Dallas                   7          6          3         --
        Tucson                   3          3          3          3
        Albuquerque              3          3          2         --
        Las Vegas                1          1          1         --
        Miami                   --         --          2         --
                         ----------  ---------  ---------  ---------
                                59         56         41          8
                         ==========  =========  =========  =========

Non-Dealership Operations

    Cygnet Dealer Program. In 1997 we began operating the Cygnet dealer program,
which  provides  qualified  dealers  with  warehouse  purchase   facilities  and
revolving lines of credit primarily  secured by the dealers' finance  receivable
portfolios.  We extend credit facilities that are subject to various  collateral
coverage ratios, maximum advance rates, and performance measurements,  depending
on the  financial  condition  of the  dealer  and  the  quality  of the  finance
receivables originated. The dealer remains responsible for collection of finance
receivable  payments  and retains  control of the  customer  relationship.  As a
condition to  providing  financing,  each dealer is required to satisfy  certain
criteria to qualify for the program,  report  collection  activities  to us on a
daily basis and provide us with periodic financial statements.  In addition, our
dealers are "audited" by our audit department on a periodic basis.

    Bulk Purchasing and Loan Servicing Operations.  We have entered into several
large servicing and/or bulk purchasing transactions involving third party dealer
contract portfolios. Under these transactions,  we have acquired loan portfolios
or participation  interests in loan portfolios that we also service.  During the
second  quarter of 1999,  we closed our loan  servicing  facility in  Nashville,
Tennessee,  and consolidated our non-dealership  loan servicing  operations into
our two remaining facilities,  which are located in Aurora,  Colorado and Plano,
Texas.

                                    Page 11
<PAGE>


    In April 1998,  we announced  that our Board of  Directors  had directed our
management  team  to  separate  our  dealership  operations  and  non-dealership
operations into separate,  publicly held companies.  Our stockholders approved a
proposal  to  split-up  the  company  through a rights  offering  at the  annual
stockholders meeting held in August 1998. Due to a lack of stockholder interest,
however,  we canceled  the rights  offering.  In the first  quarter of 1999,  we
reclassified  the Cygnet dealer  program and bulk  purchasing and loan servicing
operations  into  continuing  operations  for  all  periods  presented  in  this
quarterly report.

Discontinued Operations

    In 1994, we acquired  Champion  Financial  Services,  Inc.,  an  independent
automobile  finance  company.  In April 1995, we initiated an aggressive plan to
expand  Champion's  branch office network and, by December 31, 1997, we operated
83 branch  offices  across the  country.  In February  1998,  we  announced  our
intention to close the branch  office  network and exit this line of business in
the  first  quarter  of 1998.  We  recorded  a pre-tax  charge  to  discontinued
operations totaling  approximately $9.1 million (approximately $5.6 million, net
of income taxes)  during the first quarter of 1998. In addition,  a $6.0 million
charge  (approximately  $3.6 million,  net of income taxes) was taken during the
third quarter of 1998 due primarily to higher than  anticipated  loan losses and
servicing expenses.  The branch office closure was substantially complete by the
end of the first quarter of 1998.

    In the following  discussion and analysis,  we explain the general financial
condition and the results of  operations of Ugly Duckling and its  subsidiaries.
In  particular,  we analyze and explain the changes in the results of operations
of our various  business  segments for the quarter and six month  periods  ended
June 30, 1999 compared to the quarter and six month periods ended June 30, 1998.

   Results of Operations for the Three Months Ended June 30, 1999 and 1998

    Income items in our Statement of Operations consist of:
    o  Sales of Used Cars
             less Cost of Used Cars Sold
             less Provision for Credit Losses
    o  Interest Income
    o  Gain on Sale of Loans
    o  Servicing and Other Income

Sales of Used Cars and Cost of Used Cars Sold

                                           Three Months Ended
                                                June 30,
                                         (Dollars in Thousands)
                                       ---------------------------
                                          1999            1998
                                       ------------    -----------
           Used Cars Sold (Units)           11,416          8,631
                                       ============    ===========

           Sales of Used Cars            $  97,876      $  69,523
           Cost of Used Cars Sold           55,559         39,237
                                       ------------    -----------
           Gross Margin                  $  42,317      $  30,286
                                       ============    ===========

           Gross Margin %                    43.2%          43.6%
                                       ============    ===========

           Per Unit Sold:
           Sales of Used Cars            $   8,574      $   8,055
           Cost of Used Cars Sold            4,867          4,546
                                       ------------    -----------
           Gross Margin                  $   3,707      $   3,509
                                       ============    ===========

    The number of cars we sold  (units)  increased by 32.3% for the three months
ended June 30, 1999 over the same period in 1998.  Same store unit sales for the
three  months  ended June 30, 1999  increased  3.3%  compared to the three month
period  ended  June 30,  1998.  The  increase  in our same  store unit sales was
primarily a result of the maturation of stores purchased or opened in late 1997.
We anticipate  future revenue growth will come from increasing the number of our
dealerships and not from higher sales volumes at existing dealerships.


                                    Page 12
<PAGE>


    Our Used Car Sales  revenues  increased  by 40.8% for the three months ended
June 30,  1999 over the same  period  ended June 30,  1998.  The growth for this
period  reflects  increases in the number of  dealerships  in operation  and the
average unit sales price.  The Cost of Used Cars Sold increased by 41.6% for the
three months  ended June 30, 1999 over the same period ended June 30, 1998.  The
gross  margin on used car sales  (Sales of Used Cars less Cost of Used Cars Sold
excluding  Provision for Credit Losses)  increased by 39.7% for the three months
ended June 30, 1999 over the same period ended June 30,  1998.  The gross margin
per car sold for the second  quarter of 1999 is comparable to the second quarter
of 1998.

    Our average sales price per car increased by 6.4% for the three months ended
June 30, 1999 over the three  months  ended June 30,  1998.  The increase in the
average  sales price was  necessary  to offset the  increase in the Cost of Used
Cars Sold. On a per unit basis, the Cost of Used Cars Sold increased by 7.0% for
the three  months ended June 30, 1999 over the three months ended June 30, 1998.
The  increase  in our  average  cost per used  car sold is  primarily  due to an
increase in the direct cost of the cars we sell.

Provision for Credit Losses

    We record provisions for credit losses in our dealership  operations and our
non-dealership operations.

    Dealership Operations.  Following is a summary of the Provision for Credit
Losses from our dealership operations:

                                                       Three Months Ended
                                                            June 30,
                                                    --------------------------
                                                       1999          1998
                                                    ------------  ------------
   Provision for Credit Losses (in thousands)        $   25,789    $   14,273
                                                    ============  ============
   Provision per contract originated                 $    2,275    $    1,676
                                                    ============  ============
   Provision as a percentage of
      principal balances originated                       26.9%         21.3%
                                                    ============  ============

    The Provision for Credit Losses in our  dealership  operations  increased by
80.7% in the three  months  ended June 30, 1999 over the three months ended June
30, 1998. The Provision for Credit Losses per unit originated at our dealerships
increased  by $599 or 35.7% in the three  months  ended  June 30,  1999 over the
three  months   ended  June  30,   1998.   When  we  changed  how  we  structure
securitizations  for accounting  purposes in the fourth quarter of 1998, we also
changed the timing of  providing  for credit  losses.  For periods  prior to the
fourth  quarter of 1998, we generally  provided a Provision for Credit Losses of
approximately  21% of the loan  principal  balance at the time of origination to
record the loan at the lower of cost or market. However, as a consequence of our
revised securitization  structure, we will now be retaining securitized loans on
our balance sheet for accounting  purposes and recognizing  income over the life
of the contracts.  We record a provision for credit losses of approximately  27%
of the principal balance at the time of origination.

    Non-Dealership   Operations.   The   provision  for  credit  losses  in  our
non-dealership  operations  increased  by 18.3% to $846,000 in the three  months
ended June 30, 1999 from  $715,000 in the three months ended June 30, 1998.  The
increase was primarily due to the significant increase in loans under the Cygnet
dealer program.

    See also "Allowance for Credit Losses" below.

Interest Income

    We generate  Interest  Income from both our  dealership  operations  and our
non-dealership operations.

    Dealership  Operations.  Interest Income  consists  primarily of interest on
finance  receivables  from our  dealership  sales and income from  Residuals  in
Finance  Receivables  Sold  from  our  securitization   transactions  that  were
structured as sale transactions for accounting  purposes  (Securitized  Contract
Sales).  Interest  Income  increased  by 342.6% to $15.8  million  for the three
months ended June 30, 1999 from $3.6 million for the three months ended June 30,
1998.  The increase  was  primarily  due to the increase in the average  finance
receivables  retained on our balance  sheet.  Because we structured  most of our
securitizations  to recognize  income as sales for accounting  purposes prior to
1999,  there were fewer  receivables  retained on our balance sheet and Interest
Income was lower in these periods. See  "Securitizations-Dealership  Operations"
below for additional  discussion of our  securitization  transactions and our on
balance sheet portfolio.


                                    Page 13
<PAGE>


    A primary  element  of our sales  strategy  is to provide  financing  to our
customers,  almost all of whom are  sub-prime  borrowers.  As  summarized in the
following  table,  we continue  to  increase  the  percentage  of sales  revenue
financed, and the number of units sold and financed.

                                                     Three Months Ended
                                                          June 30,
                                                    ---------------------
                                                      1999        1998
                                                    ---------   ---------
             Percentage of sales revenue financed    97.8%       96.2%

             Percentage of sales units financed      99.3%       98.7%


    The average effective yield on finance  receivables from our dealerships was
approximately  26.3% for the three  months ended June 30, 1999 and 25.3% for the
three months ended June 30, 1998.  Our policy is to charge 29.9% per year on our
dealership contracts. However, in those states that impose interest rate limits,
such as Texas and Florida, we charge the maximum interest rate permitted.

    Non-Dealership  Operations.  In our non-dealership  operations,  we generate
interest income primarily from our Cygnet dealer program and from a loan we made
to First Merchants as part of its bankruptcy  proceedings.  Interest Income from
the First  Merchants  transaction  decreased  by 30.3% to $315,000 for the three
months  ended June 30, 1999 from  $452,000  for the three  months ended June 30,
1998. Interest Income from the Cygnet dealer program increased by 104.5% to $4.1
million for the three months ended June 30, 1999 from $2.0 million for the three
months ended June 30, 1998. The increase in interest income in the Cygnet dealer
program  reflects a  significant  increase  in the  amount of loans  outstanding
during the three months  ended June 30, 1999  compared to the three months ended
June 30, 1998.

Gain on Sale of Loans

    Dealership  Operations.  The  gain on sale of  finance  receivables  we have
recorded prior to the fourth quarter of 1998 was generated from  securitizations
that were structured as sale transactions. During the fourth quarter of 1998, we
began structuring our  securitization  transactions as financings for accounting
purposes (securitized  borrowings) instead of sales transactions and, therefore,
we  have  not  recognized  gains  on  the  sale  of  loans  from  securitization
transactions  subsequent  to the  change.  We  recorded  Gains  on Sale of Loans
related to  securitized  contract  sales of zero for the three months ended June
30, 1999 and $3.7  million  during the three  months  ended June 30,  1998.  See
"Securitizations-Dealership  Operations" below for a summary of the structure of
our securitizations.

Servicing and Other Income

    We generate  Servicing and Other Income from both our dealership  operations
and our  non-dealership  operations.  A summary of  Servicing  and Other  Income
follows for the three months ending June 30, 1999 and 1998 (in thousands):

                                Dealership      Non-Dealership
                                Operations       Operations         Total
                               --------------   --------------  --------------

    June 30, 1999               $      2,435      $     5,235    $      7,670
                               ==============   ==============  ==============

    June 30, 1998               $      4,088      $     5,443    $      9,531
                               ==============   ==============  ==============

    Dealership Operations. Servicing and Other Income decreased by 40.4% to $2.4
million in the three  months  ended June 30, 1999  compared to the $4.1  million
recognized in the three months ended June 30, 1998.  We service the  securitized
contracts that were included in the Securitized  Contract Sales transactions for
monthly  fees  ranging  from .25% to .33% of the  beginning  of month  principal
balances  (3.0% to 4.0% per year).  We do not,  however,  recognize  service fee
income on the contracts included in our Securitized Borrowings.  The significant
decrease in Servicing  and Other Income is primarily  due to the decrease in the
principal   balance  of  (1)  contracts   being   serviced  under  the  previous
securitization  structure  and (2) a  portfolio  we service on behalf of a third
party. We anticipate that our future Servicing and Other Income will continue to
decline as the principal balance of the contracts serviced under the Securitized
Contract Sales agreements and the third party portfolio continues to decrease.


                                    Page 14
<PAGE>


    Non-Dealership  Operations. Our Servicing and Other Income decreased 3.8% to
$5.2  million in the three  months  ended  June 30,  1999  compared  to the $5.4
million recognized in the three months ended June 30, 1998. Our servicing fee is
generally a percentage of the  portfolio  balance  (generally  3.25% to 4.0% per
year) with a minimum fee per loan serviced (generally $14 to $17 per month). The
decrease in our Servicing and Other income is due to an  approximately  $200,000
decrease in service fees earned by our loan  servicing  operations.  Our service
fee income is tied to the contract  principal  dollars and units that we service
and will continue to decline,  subject to the incentive  compensation  discussed
below,  unless we increase the number and amount of contracts we are  servicing.
We have not  entered  into any loan  servicing  agreements  thus far in 1999 and
expect that our service  fee income  will  continue to decline as the  principal
balances of the portfolios that we are currently servicing decrease.  We did not
recognize  any  servicing  income in the first quarter 1998, as we did not begin
servicing loans in our non-dealership operations until April 1998.

    Our  non-dealership  operations have entered into servicing  agreements with
two  companies  that have filed and  subsequently  emerged from  bankruptcy  and
continue to operate  under their  approved  plans of  reorganization.  Under the
terms  of  the   respective   servicing   agreements   and  approved   plans  of
reorganization,  once certain creditors of the bankrupt companies have been paid
in full,  we are  entitled to certain  incentive  compensation  in excess of the
servicing  fees that we have earned to date.  As of June 30,  1999,  we estimate
that the total incentive  compensation  from both agreements could range from $0
to $8.0 million.  We have not accrued any fee income from these incentives as an
amount is not determinable at this time

Income before Operating Expenses

    As a result of our continued  expansion,  Income before  Operating  Expenses
grew by 26.2% to $43.5  million  for the three  months  ended June 30, 1999 from
$34.5 million for the three months ended June 30, 1998.  Growth of Sales of Used
Cars and Interest Income, were the primary contributors to the increase.

Operating Expenses

    Operating Expenses consist of:

    o  Selling and Marketing Expenses,
    o  General and Administrative Expenses, and
    o  Depreciation and Amortization.

    A summary of  operating  expenses  for our  business  segments for the three
months ended June 30, 1999 and 1998 follows (in thousands):

<TABLE>
<CAPTION>
                                    Dealership Operations                Non-Dealership Operations
                              ---------------------------------   -----------------------------------------
                                             Company
                                Company    Dealership   Corporate       Cygnet   Cygnet Loan   Corporate
                              Dealerships Receivables  and Other        Dealer     Servicing   and Other         Total
                              -----------  ----------  ------------  -----------  ----------  -----------  ---------------
<S>                            <C>           <C>        <C>            <C>          <C>         <C>              <C>
1999:
Selling and Marketing          $   5,864     $     --   $       --     $      23    $     --    $      --        $  5,887
General and Administrative        11,101        4,567        4,621           974       4,986          773          27,022
Depreciation and Amortization        859          280          537           107         370          168           2,321
                              -----------  ----------  ------------  -----------  ----------  -----------  ---------------
                               $  17,824     $  4,847   $    5,158     $   1,104    $  5,356    $     941        $ 35,230
                              ===========  =========== ============   =========== ============ ===========     ===========
1998:
Selling and Marketing          $   4,218     $     --   $       --     $      44    $     12    $      --        $  4,274
General and Administrative         9,329        4,279        3,456           593       4,203          707          22,567
Depreciation and Amortization        615          311          249            23         154           --           1,352
                              -----------  ----------  ------------  -----------  ----------  -----------  ---------------
                               $  14,162     $  4,590   $    3,705     $     660    $  4,369    $     707        $ 28,193
                              ===========  =========== ============   =========== ============ ===========     ===========
</TABLE>


    Selling and Marketing  Expenses.  A summary of Selling and Marketing Expense
for the three months  ended June 30, 1999 and 1998 as a  percentage  of Sales of
Used Cars and  Selling  and  Marketing  Expense  per car sold  from our  company
dealership segment follows:


                                    Page 15
<PAGE>

                                                       1999        1998
                                                    ----------   ---------
       Selling and Marketing Expense as a
       Percentage of Sales of Used Cars                6.0%        6.1%

       Selling and Marketing Expense
       per Car Sold                                   $ 514       $ 489

    For the three  months  ended June 30, 1999 and 1998,  Selling and  Marketing
Expenses consisted almost entirely of advertising costs and commissions relating
to our dealership operations.  Total Selling and Marketing Expenses increased by
37.7% to $5.9 million for the three months ended June 30, 1999 from $4.3 million
for the three  months ended June 30, 1998.  Selling and  Marketing  Expense as a
percentage of Sales of Used Cars is  comparable  for the three months ended June
30, 1999 and 1998.  Selling and Marketing  Expense per car sold increased due to
an increase in advertising expenditures for the three months ended June 30, 1999
compared to the three months ended June 30, 1998.

    General and Administrative Expenses. A summary of General and Administrative
Expenses as a  percentage  of Sales of Used Cars ad General  and  Administrative
Expenses per car sold from our company dealership segment follows:

                                                1999             1998
                                              -----------     ----------
General and Administrative Expense
     as a Percentage of Used Car Sales          11.3%            13.4%

General and Administrative Expense
     per Car Sold                            $    972         $  1,081

    For the three  months ended June 30, 1999 total  General and  Administrative
Expenses  increased by 19.7% to $27.0  million from $22.6  million for the three
months ended June 30, 1998. The increase in General and Administrative  Expenses
was primarily a result of the addition of new  dealerships,  our bulk purchasing
and loan servicing operations, the expansion of infrastructure to administer the
increased  number of used car  dealerships  in operation,  and the growth of the
Cygnet dealer program.

     Depreciation and  Amortization.  Depreciation and Amortization  consists of
depreciation  and amortization on our property and equipment and amortization of
goodwill and trademarks.  Depreciation  and  amortization  increased by 71.9% to
$2.3  million for the three months ended June 30, 1999 from $1.4 million for the
three  months ended June 30, 1998.  The  increase in 1999 was  primarily  due to
depreciation   on  an  increased   dealership   base,   depreciation   from  our
non-dealership  operations,  and an  increase in  software  amortization  of our
investment in our integrated car sales and loan servicing system.

Interest Expense

    Interest  expense  increased  by 325.0% to $5.8 million for the three months
ended June 30, 1999 from $1.4  million for the three months ended June 30, 1998.
The  increase  in the second  quarter  of 1999 was  primarily  due to  increased
borrowings   under  our   Securitization   Notes  Payable,   Notes  Payable  and
Subordinated Notes Payable. The increased borrowings were used primarily to fund
the increases in Finance Receivables.

Income Taxes

    Income taxes  totaled $1.0 million for the three months ended June 30, 1999,
and $2.0 million for the three months ended June 30,  1998.  Our  effective  tax
rate was 41.0% for the three  months ended June 30, 1999 and 40.5% for the three
months ended June 30, 1998.


                                    Page 16
<PAGE>


Results of Operations for the Six Months Ended June 30, 1999 and 1998

Sales of Used Cars and Cost of Used Cars Sold

                                           Six Months Ended
                                               June 30,
                                        (Dollars in Thousands)
                                    -------------------------------
                                        1999             1998
                                    -------------    --------------

        Used Cars Sold (Units)            24,170            18,070
                                    =============    ==============

        Sales of Used Cars            $  204,319       $   142,496
        Cost of Used Cars Sold           115,656            78,968
                                    -------------    --------------
        Gross Margin                  $   88,663       $    63,528
                                    =============    ==============

        Gross Margin %                     43.4%             44.6%
                                    =============    ==============
        Per Unit Sold:
        Sales of Used Cars            $    8,453       $     7,886
        Cost of Used Cars Sold             4,785             4,370
                                    -------------    --------------

        Gross Margin                  $    3,668       $     3,516
                                    =============    ==============

    The  number of cars we sold  (units)  increased  by 33.8% for the six months
ended June 30, 1999 over the same period in 1998.  Same store unit sales for the
six months ended June 30, 1999 increased  24.7% compared to the six month period
ended June 30, 1998.  The increase in our same store unit sales was  primarily a
result  of the  maturation  of stores  purchased  or  opened  in late  1997.  We
anticipate  future  revenue  growth will come from  increasing the number of our
dealerships and not from higher sales volumes at existing dealerships.

    Our Used Car Sales revenues increased by 43.4% for the six months ended June
30, 1999 over the same period  ended June 30,  1998.  The growth for this period
reflects  increases in the number of  dealerships  in operation  and the average
unit  sales  price.  The Cost of Used Cars Sold  increased  by 46.5% for the six
months ended June 30, 1999 over the same period  ended June 30, 1998.  The gross
margin  on used car  sales  (Sales  of Used  Cars  less  Cost of Used  Cars Sold
excluding  Provision  for Credit  Losses)  increased by 39.6% for the six months
ended June 30, 1999 over the same period ended June 30,  1998.  The gross margin
per car sold for the six months  ended June 30,  1999 is  comparable  to the six
months ended June 30, 1998.

    Our average  sales price per car  increased by 7.2% for the six months ended
June 30,  1999 over the six months  ended June 30,  1998.  The  increase  in the
average  sales price was  necessary  to offset the  increase in the Cost of Used
Cars Sold. On a per unit basis, the Cost of Used Cars Sold increased by 9.5% for
the six months ended June 30, 1999 over the six months ended June 30, 1998.  The
increase in our average cost per used car sold is  primarily  due to an increase
in the direct cost of the cars we sell.

Provision for Credit Losses

    We record provisions for credit losses in our dealership  operations and our
non-dealership operations.

    Dealership Operations.  Following is a summary of the Provision for Credit
Losses from our dealership operations:

                                                      Six Months Ended
                                                          June 30,
                                                 ---------------------------

                                                     1999          1998
                                                 -------------  ------------

  Provision for Credit Losses (in thousands)      $   53,553      $  29,307
                                                 =============  ============
  Provision per contract originated               $    2,234      $   1,641
                                                 =============  ============
  Provision as a percentage of
     principal balances originated                      26.9%         21.5%
                                                 =============  ============


                                    Page 17
<PAGE>


    The Provision for Credit Losses in our  dealership  operations  increased by
82.7% in the six months  ended June 30, 1999 over the six months  ended June 30,
1998.  The Provision for Credit  Losses per unit  originated at our  dealerships
increased  by $593 or 36.1% in the six months  ended June 30,  1999 over the six
months ended June 30, 1998.  The increase is primarily a result of the change in
how we structure securitizations for accounting purposes.

    Non-Dealership   Operations.   The   provision  for  credit  losses  in  our
non-dealership  operations  increased by 57.5% to $1.6 million in the six months
ended June 30, 1999 from $1.0 million in the six months ended June 30, 1998. The
increase was primarily due to the significant increase in loans under the Cygnet
dealer program.

    See also "Allowance for Credit Losses" below.

Interest Income

    We generate  Interest  Income from both our  dealership  operations  and our
non-dealership operations.

    Dealership  Operations.  Interest Income  consists  primarily of interest on
finance  receivables  from our  dealership  sales and income from  Residuals  in
Finance  Receivables Sold from our Securitized  Contract Sales.  Interest Income
increased by 251.2% to $26.1 million for the six months ended June 30, 1999 from
$7.4 million for the six months ended June 30, 1998.  The increase was primarily
due to the increase in the average finance  receivables  retained on our balance
sheet.  Because we structured most of our securitizations to recognize income as
sales for  accounting  purposes  prior to 1999,  there  were  fewer  receivables
retained on our balance  sheet and Interest  Income was lower in these  periods.
See  "Securitizations-Dealership  Operations" below for additional discussion of
our securitization transactions and our on balance sheet portfolio.

    A primary  element  of our sales  strategy  is to provide  financing  to our
customers,  almost all of whom are  sub-prime  borrowers.  As  summarized in the
following  table,  we continue  to  increase  the  percentage  of sales  revenue
financed, and the number of units sold and financed.

                                                    Six Months Ended
                                                        June 30,
                                           ----------------------------------
                                                1999                 1998
                                           ---------------      -------------
Percentage of sales revenue financed           97.3%                95.9%

Percentage of sales units financed             99.2%                98.8%


     The average effective yield on finance receivables from our dealerships was
approximately 26.3% for the six months ended June 30, 1999 and 25.7% for the six
months ended June 30, 1998.

    Non-Dealership   Operations.   Interest  Income  from  the  First  Merchants
transaction  decreased  by 46.8% to $627,000  for the six months  ended June 30,
1999 from $1.2 million for the six months ended June 30, 1998.  Interest  Income
from the Cygnet dealer  program  increased by 107.1% to $7.5 million for the six
months  ended June 30, 1999 from $3.6  million for the six months ended June 30,
1998. The increase in interest  income in the Cygnet dealer  program  reflects a
significant  increase in the amount of loans  outstanding  during the six months
ended June 30, 1999 compared to the six months ended June 30, 1998.

Gain on Sale of Loans

    Dealership  Operations.  Because of the change in the way we  structure  our
securitization  transactions  for  accounting  purposes in the fourth quarter of
1998,  we no longer  recognize  gains on the sale of loans  from  securitization
transactions. We recorded Gains on Sale of Loans related to securitized contract
sales of zero for the six months ended June 30, 1999 and $8.3 million during the
six months  ended June 30,  1998.  See  "Securitizations-Dealership  Operations"
below for a summary of the structure of our securitizations.


                                    Page 18
<PAGE>


Servicing and Other Income

    We generate  Servicing and Other Income from both our dealership  operations
and our  non-dealership  operations.  A summary of  Servicing  and Other  Income
follows for the six months ending June 30, 1999 and 1998 (in thousands):

                             Dealership     Non-Dealership
                              Operations       Operations         Total
                            ------------- ------------------ -------------
 June 30, 1999               $     5,369     $     11,926      $  17,295
                            ============= ================== =============

 June 30, 1998               $     7,999     $      5,443      $  13,442
                            ============= ================== =============

    Dealership Operations. Servicing and Other Income decreased by 32.9% to $5.4
million  in the six months  ended June 30,  1999  compared  to the $8.0  million
recognized  in the six months  ended June 30,  1998.  As  previously  noted,  we
anticipate  that our  future  Servicing  and Other  Income  will  decline as the
principal balance of the contracts serviced under the Securitized Contract Sales
agreements and the third party portfolio will continue to decrease.

    Non-Dealership Operations. Our Service Fee and Other Income increased 119.1%
to $11.9  million in the six months  ended June 30,  1999  compared  to the $5.4
million  recognized  in the six months ended June 30, 1998.  Our Service Fee and
Other  Income  increased  because our  non-dealership  operations  did not begin
servicing loans until April 1998. As previously  noted, we have not entered into
any loan servicing  agreements  thus far in 1999 and expect that our service fee
income will continue to decline as the principal balances of the portfolios that
we are currently servicing decrease.

Income before Operating Expenses

    As a result of our continued  expansion,  Income before  Operating  Expenses
grew by 26.6% to $85.0 million for the six months ended June 30, 1999 from $67.1
million for the six months  ended June 30,  1998.  Growth of Sales of Used Cars,
Interest Income, and Servicing and Other Income were the primary contributors to
the increase.

    A summary of operating expenses for our business segments for the six months
ended June 30, 1999 and 1998 follows (in thousands):

<TABLE>
<CAPTION>
                                     Dealership Operations             Non-Dealership Operations
                               ----------------------------------   ---------------------------------
                                            Company
                                 Company   Dealership   Corporate    Cygnet    Cygnet Loan  Corporate
                               Dealerships Receivables  and Other    Dealer    Servicing    and Other       Total
                               ----------  ----------  ----------   ---------   ----------  ----------   ------------
<S>                            <C>          <C>        <C>           <C>         <C>         <C>          <C>
1999:
    Selling and Marketing      $   12,433   $     --   $      --     $     59    $     3     $     --     $  12,495
    General and                    22,010      9,150       9,959        1,937     10,807         1,518       55,381
Administrative
    Depreciation and                1,653        562       1,058          185        692           308        4,458
       Amortization
                               ----------  ----------  ----------   ---------   ----------  ----------   ------------
                                 $ 36,096   $  9,712   $  11,017     $  2,181    $11,502     $   1,826    $  72,334
                               ==========  ==========  ==========   =========   ==========  ==========   ============
1998:
    Selling and Marketing          $9,096   $     --   $      --     $     87    $    12     $      --    $   9,195
    General and                    19,835      8,834       6,075        1,108      4,203         1,298       41,353
Administrative
    Depreciation and                             648         450           45        154            --        2,525
       Amortization                 1,228
                               ----------  ----------  ----------   ---------   ----------  ----------   ------------
                                  $30,159   $  9,482   $   6,525     $  1,240    $ 4,369     $   1,298    $  53,073
                               ==========  ==========  ==========   ==========  ==========  ===========  ============
</TABLE>

    Selling and Marketing  Expenses.  A summary of Selling and Marketing Expense
for the six months ended June 30, 1999 and 1998 as a percentage of Sales of Used
Cars and Selling and Marketing Expense per car sold from our company  dealership
segment follows:


                                    Page 19
<PAGE>


                                                 1999        1998
                                              -----------  ----------
Selling and Marketing Expense as a
Percent of Sales of Used Cars                       6.1%        6.4%
                                              ===========  ==========

Selling and Marketing Expense
per Car Sold                                    $    514     $   503
                                              ===========  ==========

    For the six months ended June 30, 1999 and 1998, total Selling and Marketing
Expenses consisted almost entirely of advertising costs and commissions relating
to our dealership operations.  Total Selling and Marketing Expenses increased by
35.9% to $12.5  million for the six months ended June 30, 1999 from $9.2 million
for the six months  ended June 30,  1998.  Selling  and  Marketing  Expense as a
percentage of Sales of Used Cars and on a per unit basis is  comparable  for the
six months ended June 30, 1999 compared to the six month period in 1998.

    General and Administrative Expenses. A summary of General and Administrative
Expenses  for the six months  ended June 30,  1999 and 1998 as a  percentage  of
Sales of Used Cars and General and Administrative Expenses per car sold from our
Company Dealership segment follows:
                                                  1999         1998
                                               ----------   ----------
General and Administrative Expense
   as a Percentage of Used Car Sales              10.8%        13.9%

General and Administrative Expense
   per Car Sold                                $    911     $  1,098

    For the six months  ended June 30,  1999 total  General  and  Administrative
Expenses  increased  by 33.9% to $55.4  million  from $41.4  million for the six
months ended June 30, 1998. The increase in General and Administrative  Expenses
was primarily a result of an increase in the number of dealerships in operation,
the addition of our bulk purchasing and loan servicing operations, the expansion
of  infrastructure to administer the increased number of used car dealerships in
operation, and the growth of the Cygnet dealer program.

     Depreciation and  Amortization.  Depreciation and Amortization  consists of
depreciation  and amortization on our property and equipment and amortization of
goodwill and trademarks.  Depreciation  and  amortization  increased by 76.6% to
$4.5  million for the six months  ended June 30, 1999 from $2.5  million for the
six months  ended June 30,  1998.  The  increase  in 1999 was  primarily  due to
depreciation   on  an  increased   dealership   base,   depreciation   from  our
non-dealership  operations,  and an  increase in  software  amortization  of our
investment in our integrated car sales and loan servicing system.

Interest Expense

    Interest  expense  increased  by 230.0% to $9.5  million  for the six months
ended June 30, 1999 from $2.9  million for the six months  ended June 30,  1998.
The  increase  for the six  months  ended  June 30,  1999 was  primarily  due to
increased borrowings under our Securitization  Notes Payable,  Notes Payable and
Subordinated Notes Payable. The increased borrowings were used primarily to fund
the increases in Finance Receivables.

Income Taxes

    Income  taxes  totaled  $1.3 million for the six months ended June 30, 1999,
and $4.5 million for the six months ended June 30, 1998.  Our effective tax rate
was 40.8% for the six months  ended  June 30,  1999 and 40.3% for the six months
ended June 30, 1998.

Discontinued Operations

    We  recorded  a  pre-tax   charge  to   discontinued   operations   totaling
approximately  $9.1 million  (approximately  $5.6 million,  net of income taxes)
during the first  quarter of 1998  related to the  closure of our branch  office
network.  In addition,  we recorded a $6.0 million  charge  (approximately  $3.6
million,  net of income taxes) during the third quarter of 1998 due primarily to
higher than  anticipated  loan  losses and  servicing  expenses.  The charges we
recorded to  Discontinued  Operations  represent the total estimated net loss we
expect to realize from the branch office network closure. As a result, there was
no income or loss from Discontinued Operations for the six months ended June 30,
1999.


                                    Page 20
<PAGE>


Financial Position

     Total  assets  increased  by 34.5% to $465.2  million at June 30, 1999 from
$346.0  million at December  31,  1998.  The  increase  was due  primarily to an
increase in Finance  Receivables of $144.0 million to $307.2 million at June 30,
1999 from $163.2  million at  December  31,  1998.  Our  dealership  operations'
Finance Receivables increased  approximately $128.6 million due primarily to the
change  in our  securitization  structure,  and our  non-dealership  operations'
Finance Receivables increased  approximately $15.4 million primarily as a result
of growth of the Cygnet dealer program.

    We financed the increases in assets primarily through additional borrowings,
represented  by increases in Notes  Payable.  Notes Payable  increased by $115.7
million to $233.0  million at June 30, 1999 from $117.3  million at December 31,
1998. The increase in our Notes Payable is  attributable to an increase of $24.9
million in our  revolving  line of credit,  which  totaled  approximately  $76.7
million at June 30, 1999,  compared to $51.8  million at December 31, 1998.  Our
Securitization  Notes  Payable  increased  by $68.7  million  as a result of the
securitization   transaction   we  closed  in  April  1999.   Our  Note  Payable
Collateralized by the Common Stock of our Securitization  Subsidiaries increased
by $25.3 million as a result of a loan obtained from an unrelated third party in
May 1999.  We also  repaid  $3.4  million in  mortgage  loans from an  unrelated
finance company.

    Growth  in  Finance  Receivables.  As a result of our  continued  expansion,
contract  receivables  managed by our  dealership  operations  have continued to
increase.  The following table reflects the growth in period end balances of our
dealership  operations  measured in terms of the principal amount and the number
of contracts outstanding.

    The following table reflects the growth in contract originations measured in
terms of the principal amount and the number of contracts.

<TABLE>
<CAPTION>
                                                Total Contracts Outstanding - Dealership Operations
                                                    (In thousands, except number of contracts)
                                                   June 30, 1999                December 31, 1998
                                            ----------------------------   -----------------------------
                                              Principal     Number of        Principal      Number of
                                               Amount       Contracts          Amount       Contracts
                                            -------------  -------------   --------------   ------------
<S>                                           <C>           <C>             <C>             <C>
Managed Portfolio                             $   383,596        61,661     $    292,683         49,501
Less: Portfolios Securitized and Sold             126,951        27,596          198,747         37,186
                                            --------------  ------------   --------------   ------------
   Total Retained Principal                   $   256,645        34,065     $     93,936         12,415
                                            ==============  ============   ==============   ============
</TABLE>

    In addition to the loan  portfolio  summarized  above,  we also service loan
portfolios  totaling  approximately  $69.7 million  ($27.2  million for Kars and
$42.5  million from branch office  originations)  as of June 30, 1999 and $121.2
million   ($47.9   million  for  Kars  and  $73.3  million  from  branch  office
originations) as of December 31, 1998.

                          Three Months Ending        Six Months Ending
                               June 30,                   June 30,
                        -----------------------  ---------------------------
                           1999          1998        1999          1998
                        -----------  ----------  ------------  -------------
Principal Amount         $  96,098    $  66,908   $   198,831   $   136,616
Number of Contracts         11,335        8,518        23,969        17,857
Average Principal        $   8,478    $   7,855   $     8,295   $     7,651

    Finance   Receivable   principal  balances  generated  or  acquired  by  our
dealership  operations  during  the three  months  period  ended  June 30,  1999
increased  by 43.6% to $96.1  million  from $66.9  million for the three  months
ended June 30, 1998. For the six months ended June 30, 1999, Finance Receivables
increased  by 45.5% to $198.8  million  from  $136.6  million for the six months
ended June 30, 1998.  The increase in average  principal  financed is due to the
increase in our average sales price per car sold.

     Our  non-dealership  operations  began  servicing  loans on behalf of First
Merchants in April 1998,  and began  servicing  additional  loan  portfolios  on
behalf  of  other  third  parties   throughout   1998.  At  June  30,  1999  our
non-dealership bulk purchasing/loan  servicing operations were servicing a total
of approximately  $356.3 million in finance  receivables  (approximately  56,000
contracts)  compared  to $587.3  million in finance  receivables  (approximately
80,000 contracts) at December 31, 1998.


                                    Page 21
<PAGE>


    Cygnet dealer's net investment in finance receivables purchased from a third
party dealer  totaled  approximately  $10.8 million  representing  approximately
18.0% of Cygnet dealer's net finance receivables  portfolio as of June 30, 1999.
We did not have any other  third party  dealer  loans that  exceeded  10% of our
Cygnet dealer finance receivable portfolio as of June 30, 1999.

Allowance for Credit Losses

    We have  established  an Allowance  for Credit Losses  (Allowance)  to cover
anticipated  credit  losses on the  contracts  currently  in our  portfolio.  We
established  the  Allowance by recording an expense  through the  Provision  for
Credit Losses.

    For  Finance  Receivables  generated  at our  dealerships,  our policy is to
charge off a contract the earlier of:

    o  when we believe it is uncollectible, or
    o  when it is delinquent for more than 90 days.

    The following  table  reflects  activity in the Allowance for our dealership
operations,  as well as information  regarding charge off activity for the three
and six months ended June 30, 1999 and 1998, in thousands.

<TABLE>
<CAPTION>
                                                                         Three Months Ended               Six Months Ended
                                                                              June 30,                        June 30,
                                                                   -------------------------------  ------------------------------
                                                                       1999             1998            1999            1998
                                                                   --------------  ---------------  --------------  --------------
<S>                                                                  <C>            <C>               <C>            <C>
Allowance Activity:
Balance, Beginning of Period                                         $    48,628    $       6,153     $    24,777    $     10,356
Provision for Credit Losses                                               25,789           14,273          53,553          29,307
Reduction Attributable to Loans Sold                                          --          (13,082)             --         (30,722)
Net Charge Offs                                                           (7,512)          (1,394)        (11,425)         (2,991)
                                                                   --------------  ---------------  --------------  --------------
Balance, End of Period                                               $    66,905    $       5,950     $    66,905    $      5,950
                                                                   ==============  ===============  ==============  ==============
Allowance as a Percent of Period End Balances                              26.1%            18.5%           26.1%           18.5%
                                                                   ==============  ===============  ==============  ==============
Charge off Activity:
Principal Balances                                                   $    (9,570)   $      (2,068)    $   (14,580)   $     (4,331)
Recoveries, Net                                                            2,058              674           3,155           1,340
                                                                   --------------  ---------------  --------------  --------------
Net Charge Offs                                                      $    (7,512)   $      (1,394)    $   (11,425)  $      (2,991)
                                                                   ==============  ===============  ==============  ==============
Net Charge Offs as a Percent of Average Principal Outstanding               3.4%             2.9%            6.4%            5.0%
                                                                   ==============  ===============  ==============  ==============
Average Principal Balance Outstanding                                $   220,655    $      48,172     $   178,758    $     60,242
                                                                   ==============  ===============  ==============  ==============
</TABLE>

    The  Allowance  on contracts  from  dealership  operations  was 26.1% of the
outstanding  principal  balances  as of June 30,  1999 and 26.4% of  outstanding
principal  balances as of December  31,  1998.  We changed the  structure of our
securitization  transactions  for  accounting  purposes in the fourth quarter of
1998, which resulted in us retaining the securitized  loans from  securitization
transactions  closed  subsequent  to the third quarter of 1998. We increased the
provision for credit losses to  approximately  27% of the principal  balance for
loans  originated  beginning in the fourth  quarter of 1998 as we intend to hold
the balance sheet portfolio for investment and not for sale.

    A Summary of the  Allowance  on  contracts  from  non-dealership  operations
follows:

<TABLE>
<CAPTION>
                                                                            Non-Dealership Operations
                                                        ------------------------------------------------------------------
                                                                   June 30,                        December 31,
                                                        -------------------------------  ---------------------------------
<S>                                                     <C>             <C>              <C>              <C>
                                                             1999            1998             1998             1997
                                                        --------------- ---------------  ---------------  ----------------
 As Percent of Period End Balances:
      Allowance                                                   3.9%             3.2%             3.9%             3.8%
      Non-refundable discount and security deposits              32.9%            28.1%            29.9%            26.0%
                                                        --------------- ---------------  ---------------  ----------------
      Total Allowance, discount and security deposits            36.8%            31.3%            33.8%            29.8%
                                                        =============== ===============  ===============  ================
</TABLE>

                                    Page 22
<PAGE>


    Even though a contract is charged off, we continue to attempt to collect the
contract.  Recoveries  as a percentage  of principal  balances  charged off from
dealership  operations  averaged  21.5% for the three months ended June 30, 1999
compared to 32.6% for the three months ended June 30, 1998.  Such recoveries for
the six month  periods  ended June 30, 1999 and 1998  averaged  21.6% and 30.9%,
respectively.  Recoveries as a percentage of principal balances charged off from
non-dealership  operations  averaged  37.7% for the three  months ended June 30,
1999 compared to 27.6% for the three months ended June 30, 1998. Such recoveries
for the six month periods ended June 30, 1999 and 1998 averaged 34.7% and 29.3%,
respectively.

    For Finance  Receivables  acquired  by our  non-dealership  operations  with
recourse  to  the  seller,  our  general  policy  is to  exercise  the  recourse
provisions in our agreements  under the Cygnet dealer program when a contract is
delinquent for 45 days. For contracts not purchased with recourse, our policy is
similar to that for our dealership operations.

Static Pool Analysis

    We use a "static pool" analysis to monitor performance for contracts 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
contract  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
for the reasons listed below,  however,  management believes that such variation
will not be material:

    o  ongoing collection efforts on charged off accounts, and
    o  the  difference   between  final  proceeds  on the  sale  of  repossessed
          collateral versus our estimates of the sale proceeds.

    The  following  table sets forth as of July 31,  1999,  the  cumulative  net
charge offs as a percentage of original  contract  cumulative  (pool)  balances,
based on the  quarter  of  origination  and  segmented  by the number of monthly
payments  completed  by  customers  before  charge off. The table also shows the
percent of principal  reduction  for each pool since  inception  and  cumulative
total net losses incurred (TLI).





                                    Page 23
<PAGE>



<TABLE>
<CAPTION>
          POOL'S CUMULATIVE NET LOSSES AS PERCENTAGE OF POOL'S ORIGINAL
                           AGGREGATE PRINCIPAL BALANCE

                             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>
1994:
1st Quarter     $     6,305   3.4%     10.0%    13.4%    17.9%    20.3%    20.9%    21.0%    100.0%
2nd Quarter     $     5,664   2.8%     10.4%    14.1%    19.6%    21.5%    22.0%    22.1%    100.0%
3rd Quarter     $     6,130   2.8%      8.1%    12.0%    16.3%    18.2%    19.1%    19.2%    100.0%
4th Quarter     $     5,490   2.4%      7.6%    11.2%    16.4%    19.3%    20.2%    20.3%    100.0%
1995:
1st Quarter     $     8,191   1.6%      9.1%    14.7%    20.4%    22.7%    23.6%    23.8%    100.0%
2nd Quarter     $     9,846   2.0%      8.5%    13.3%    18.1%    20.7%    22.1%    22.5%    100.0%
3rd Quarter     $    10,106   2.5%      7.9%    12.2%    18.8%    22.1%    23.5%    24.2%     99.7%
4th Quarter     $     8,426   1.5%      6.6%    11.7%    18.2%    22.5%    24.0%    24.6%     99.6%
1996:
1st Quarter     $    13,635   1.6%      8.0%    13.7%    20.6%    24.7%    26.1%    27.0%     98.9%
2nd Quarter     $    13,462   2.2%      9.2%    13.4%    22.0%    25.9%    27.6%    28.8%     97.3%
3rd Quarter     $    11,082   1.6%      6.8%    12.5%    21.3%    25.5%    27.7%    28.6%     94.9%
4th Quarter     $    10,817   0.6%      8.4%    15.9%    24.8%    29.2%    31.0%    31.7%     92.4%
1997:
1st Quarter     $    16,279   2.1%     10.5%    17.8%    24.4%    29.4%    31.8%    32.0%     88.8%
2nd Quarter     $    25,875   1.5%      9.9%    15.8%    22.7%    27.4%    29.3%    29.3%     82.3%
3rd Quarter     $    32,147   1.4%      8.4%    13.2%    22.5%    27.1%    27.7%    27.7%     75.9%
4th Quarter     $    42,529   1.4%      6.8%    12.6%    21.9%    25.3%    25.3%    25.3%     69.6%
1998:
1st Quarter     $    69,708   0.9%      6.9%    13.5%    21.1%    22.6%       --    22.6%     62.2%
2nd Quarter     $    66,908   1.1%      8.0%    14.3%    19.9%      --        --    20.0%     50.4%
3rd Quarter     $    71,027   1.0%      8.0%    13.6%      --       --        --    16.3%     39.6%
4th Quarter     $    69,583   0.9%      6.8%      --       --       --        --    10.6%     25.6%
1999:
1st Quarter     $   102,733   0.8%       --       --       --       --        --     4.5%      0.0%
2nd Quarter     $    96,098    --        --       --       --       --        --     0.5%      0.0%
</TABLE>

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

                                 Retained    Securitized    Managed
                                ----------   -----------   ---------
            June 30, 1999:
            31 to 60 days           3.9%         6.4%          4.7%
            61 to 90 days           2.2%         3.3%          2.6%
            December 31, 1998:
            31 to 60 days           2.3%         5.2%          4.6%
            61 to 90 days           0.5%         2.2%          1.9%

    In accordance with our charge off policy, there are no accounts more than 90
days delinquent as of June 30, 1999 and December 31, 1998.

Securitizations--Dealership Operations

    Structure  of  Securitizations.  In the fourth  quarter of 1998 we announced
that we were changing the way we structure  transactions for accounting purposes
under our securitization program.  Through September 30, 1998, we had structured
these  transactions  as sales  for  accounting  purposes  (Securitized  Contract
Sales).  However,  beginning in the fourth quarter of 1998, we began structuring


                                    Page 24
<PAGE>


securitizations for accounting purposes to retain the contract,  and the related
Securitization  Note Payable on our balance  sheet and recognize the income over
the life of the contracts (Securitized Borrowings).  This change will not affect
our  prior  securitizations.  Historically,  Gains  on Sale of Loans  have  been
material to our reported  revenues and net  earnings.  Altering the structure of
these transactions so that no gain is recognized at the time of a securitization
transaction  will  have a  material  effect  on our  reported  revenues  and net
earnings  until such time as we accumulate  Finance  Receivables  on our balance
sheet  sufficient to generate  interest income (net of interest,  credit losses,
and  other  expenses)  equivalent  to the  revenues  that  we  had  historically
recognized on our securitization transactions.

    Under our  securitization  program,  we  transfer  the  securitized  Finance
Receivables to our securitization  subsidiaries who then assign and transfer the
Finance Receivables to separate trusts for either Securitized  Contract Sales or
Securitized  Borrowings.  The trusts issue Class A certificates and subordinated
Class  B   certificates   (Residuals  in  Finance   Receivables   Sold)  to  the
securitization subsidiaries. The securitization subsidiaries then sell the Class
A certificates to the investors and retain the Class B certificates. We continue
to service the securitized contracts.

    Residuals in Finance  Receivables  Sold.  The  residuals  are a component of
Finance   Receivables   and  represent  our  retained   interest  (the  Class  B
certificates) in the Finance  Receivables  included in our Securitized  Contract
Sales.  We utilize a number of assumptions to determine the initial value of the
Residuals in Finance Receivables Sold. The Residuals in Finance Receivables Sold
represent the present value of the expected net cash flows of the securitization
trusts using the out of the trust  method.  The net cash flows out of the trusts
are  the  collections  on the  loans  in the  trust  in  excess  of the  Class A
certificate principal and interest payment and certain other trust expenses. The
assumptions  used to compute the Residuals in Finance  Receivables Sold include,
but are not limited to:

    o  charge off rates,
    o  repossession recovery rates,
    o  portfolio  delinquency,
    o  prepayment rates, and
    o  trust expenses.

    The  Residuals  in  Finance   Receivables   Sold  are  adjusted  monthly  to
approximate  the present  value of the expected  remaining net cash flows out of
the trusts.  If actual  cash flows on a  securitization  are below our  original
estimates, and those differences appear to be other than temporary in nature, we
are  required  to revalue  Residuals  in Finance  Receivables  Sold and record a
charge  to  earnings  based  upon  the  reduction.  The  cumulative  net loss at
origination  assumption  inherent in the securitization  transactions we entered
into in 1996 and 1997 is approximately  27.5%. For the  securitizations  that we
completed during the nine month period ended September 30, 1998, net losses were
estimated  using total  expected  cumulative  net losses at loan  origination of
approximately  29.0%.  The remaining net charge offs in our Residuals in Finance
Receivables  Sold  as a  percentage  of  the  remaining  principal  balances  of
securitized  contracts was approximately  19.8% as of June 30, 1999, compared to
22.0% as of December  31,  1998.  Because we now  structure  our  securitization
transactions to retain the Finance Receivables securitized, we will no longer be
adding to our  Residuals in Finance  Receivables  Sold.  Further,  the remaining
Residuals  in  Finance  Receivables  Sold that were  originated  under our prior
method  will  continue  to decline as the  underlying  loan  portfolios  mature.
Consequently,  the  remaining  net  charge  offs  in our  Residuals  in  Finance
Receivables  Sold  as a  percentage  of  the  remaining  principal  balances  of
securitized  contracts  will continue to decline as the related loan  portfolios
mature.  The  balance of the  Residuals  in Finance  Receivables  sold was $22.6
million at June 30, 1999 and $33.3  million as of December 31, 1998. We classify
the residuals as "held-to-maturity" securities in accordance with SFAS No. 115.

    Spread  Account  Requirements.  We  maintain  a  spread  account  under  our
securitization agreements. The spread account is a reserve account that would be
used to repay the Class A certificates in the event  collections on a particular
pool of finance  receivables was insufficient to make the required payments.  At
the time a  securitization  transaction  is  entered  into,  our  securitization
subsidiary  makes an initial  cash deposit  into the spread  account,  generally
equivalent to 4% to 6% of the initial underlying Finance  Receivables  principal
balance,  and pledges  this cash to the spread  account.  The trustee then makes
additional  deposits to the spread account out of collections on the securitized
receivables  as  necessary  to  maintain  the  spread  account  to  a  specified
percentage,  ranging from 6.0% to 10.5%, of the underlying Finance  Receivables'
principal balance. The trustee will not make distributions to the securitization
subsidiaries on the Class B certificates unless:

    o  the spread account has the required balance,
    o  the required  periodic  payments to the  Class A certificate  holders are
         current, and
    o  the trustee, servicer and other administrative costs are current.


                                    Page 25
<PAGE>


    At June 30, 1999,  we met the targeted  spread  account  balances  under our
securitization agreements of $27.9 million. We also maintain spread accounts for
the  securitization  transactions  that  were  consummated  by our  discontinued
operations.  We had  satisfied  the spread  account  funding  obligation of $2.6
million as of June 30, 1999 with respect to these securitization transactions.

    Certain financial information regarding  securitizations.  During April 1999
we closed a Securitized  Borrowing  transaction in which we  securitized  $119.7
million of contracts, issuing $87.4 million in Class A certificates.  During the
first two quarters of 1998, we securitized $152.9 million in contracts,  issuing
$110.1  million  in  Class  A  certificates,   and  $42.8  million  in  Class  B
certificates. We recorded the carrying value of the related Residuals in Finance
Receivables Sold at $25.5 million for the first and second quarters of 1998. Due
to the change in the structure of our  securitization  transactions,  we did not
record any Residuals in Finance  Receivables for the securitization  transaction
we closed in April 1999.

Liquidity and Capital Resources

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

    o  increases in our contract portfolio,
    o  expansion of our dealership network,
    o  our commitments under the First Merchants transaction,
    o  expansion of the Cygnet dealer program,
    o  common stock repurchases,
    o  the purchase of inventories,
    o  the purchase of property and equipment, and
    o  working capital and general corporate purposes.

    We fund our capital requirements primarily through:

    o  operating cash flow,
    o  our revolving facility with General Electric Capital Corporation (GE
         Capital),
    o  securitization transactions,
    o  supplemental borrowings, and
    o  in the past, equity offerings.

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

Operating Cash Flow

    Net Cash Provided by Operating  Activities increased by $73.1 million in the
six months ended June 30, 1999 to $80.7 million compared to the six months ended
June 30, 1998 of $7.7 million.  The change in inventory and accounts payable and
accrued  expenses  contributed  to the increase in  operating  cash flow for the
quarter.  The changes in the Net Cash Provided by Operating  activities  and Net
Cash Used in Investing  Activities is largely due to a change in  classification
of  portfolio   activity   related  to  the  change  in  the  structure  of  our
securitization  transactions.  Under our old structure  contracts  were held for
sale and, consequently,  Finance Receivable purchases and related sales proceeds
were considered operating activities. Under our revised structure, contracts are
held for investment and such purchases are considered investing activities.

    Net Cash Used in Investing  Activities increased by $203.3 million to $199.3
million in the six months  ended June 30, 1999  compared to $4.0  million of Net
Cash Provided by Investing Activities in the six months ended June 30, 1998. The
increase is primarily due to increases in Cash Used in Investing Activities from
purchases of Finance Receivables, net decreases in Cash advanced under our Notes
Receivable,  which were offset by increased  collections of Finance  Receivables
and Notes Receivable.

    Net Cash  Provided by Financing  Activities  increased by $107.2  million to
$103.4 million in the six months ended June 30, 1999 compared to $3.8 million of
Net Cash Used in Financing Activities in the six months ended June 30, 1998. The
increase is due to increases in Notes Payable, net of increases in repayments of
Notes Payable and the acquisition of Treasury Stock.


                                    Page 26
<PAGE>


Financing Resources

     Revolving  Facility.  The maximum  commitment  under our  revolving  credit
facility with GE Capital is $125.0 million. Under the revolving facility, we may
borrow:

    o up to 65.0% of the principal balance of eligible contracts originated from
        the sale of used cars,
    o up to  86.0% of the  principal  balance  of eligible contracts  previously
        originated by our branch office network,
    o the lesser of $20 million or 58% of the direct vehicle costs for  eligible
        vehicle inventory, and
    o the lesser of $15 million or 50% of eligible contracts or loans originated
        under the Cygnet dealer program.

    However,  an amount up to $8.0 million of the borrowing  capacity  under the
revolving  facility  is not  available  at any time while our  guarantee  to the
purchaser  of  contracts  acquired  from First  Merchants  is  outstanding.  The
revolving  facility  expires in June 2000 and contains a provision that requires
us to pay GE Capital a termination fee of $200,000 if we terminate the revolving
facility prior to the expiration date. We secure the facility with substantially
all of our assets.

    As of June 30, 1999, our borrowing capacity under the revolving facility was
$105.9 million,  the aggregate  principal amount outstanding under the revolving
facility  was  approximately  $76.6  million,  and the  amount  available  to be
borrowed  under the facility was $29.3  million.  The revolving  facility  bears
interest at the 30-day LIBOR plus 3.15%,  payable  daily (total rate of 8.06% as
of June 30, 1999).

    The revolving  facility contains  covenants that, among other things,  limit
our ability to do the following without GE Capital's consent:

    o  incur additional indebtedness,
    o  make any change in our capital structure,
    o  declare or pay dividends,  except in accordance  with all applicable laws
       and not in excess of fifteen  percent  (15%) of each year's net  earnings
       available for distribution, and
    o  make certain investments and capital expenditures.

    The revolving  facility also provides that an event of default will occur if
Mr.  Ernest C. Garcia II owns less than 15.0% of our voting  stock.  Mr.  Garcia
owned approximately 32.1% of our common stock at June 30, 1999.

    We were also required to be Year 2000  compliant no later than June 30, 1999
(see discussion below under the Year 2000 Readiness Disclosure), and we are also
required  to maintain  specified  financial  ratios,  including a debt to equity
ratio of 2.2 to 1 and a net worth of at least $150 million.

    Securitizations.  Our  securitization  program  is a  primary  source of our
working  capital.   Since  September  30,  1997,  we  have  closed  all  of  our
securitizations  with private investors through Greenwich Capital Markets,  Inc.
(Greenwich  Capital).  In March  1999,  we  executed a  commitment  letter  with
Greenwich Capital to act as our exclusive agent in placing up to $300 million of
surety wrapped securities under our securitization program.

    Securitizations generate cash flow for us from:

    o  the sale of Class A certificates,
    o  ongoing servicing fees, and
    o  excess  cash  flow  distributions  from  collections  on the  contracts
         securitized after:
         o  payments on the Class A certificates sold to third party investors,
         o  payment of fees, expenses, and insurance premiums, and
         o  required deposits to the spread account.

    In April 1999,  we closed a  securitization  transaction  through  Greenwich
Capital. Under this transaction,  we securitized approximately $119.7 million of
contracts and issued approximately $87.4 million of Class A certificates with an
annual interest rate of 5.7%.


                                    Page 27
<PAGE>


    Securitization  also allows us to fix our cost of funds for a given contract
portfolio.  Failure to  regularly  engage in  securitization  transactions  will
adversely  affect us. See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations--Securitizations--Dealership operations" for
a more complete description of our securitization program.

Supplemental Borrowings

    Verde Debt.  Prior to our public offering in September 1996, we historically
borrowed  substantial  amounts from Verde  Investments,  Inc. (Verde),  which is
owned by our  Chairman,  Ernest C.  Garcia II. The  Subordinated  Notes  Payable
balances outstanding to Verde totaled $8.0 and $10.0 million as of June 30, 1999
and as of December  31, 1998.  Under the terms of this note,  we are required to
make monthly payments of interest and annual payments of principal in the amount
of $2.0 million.  These  borrowings  accrue interest at an annual rate of 10.0%.
Except for the debt incurred related to our exchange offer,  this debt is junior
to all of our other  indebtedness  and we may  suspend  interest  and  principal
payments if we are in default on  obligations  to any other  creditors.  In July
1997, our Board of Directors approved the prepayment of the total balance of the
Verde subordinated debt after the earlier of the following:

    o  the completion of a debt offering,
    o  the  First  Merchants  transactions  have  been  completed  or  the  cash
         requirements for completion of the transaction are known,  or
    o  we  either  have  cash in  excess  of our current  needs  or  have  funds
         available under our financing sources in excess of our current needs.

    No such prepayment has been made as of the date of filing of this Form 10-Q.
Any prepayment would require the consent of certain of our lenders.

    Exchange Offer. In the fourth quarter of 1998, we acquired approximately 2.7
million shares of our common stock in exchange for  approximately  $17.5 million
of subordinated debentures.  The debentures are unsecured and are subordinate to
all of our  existing  and  future  indebtedness.  We must  pay  interest  on the
debentures  twice a year at 12% per year.  We are required to pay the  principal
amount of the debentures on October 23, 2003.

    We issued the debentures at a premium of approximately $3.9 million over the
market  value of the shares of our  common  stock  that were  exchanged  for the
debentures.  Accordingly,  the debt was recorded at $13.6 million on our balance
sheet. The premium will be amortized over the life of the debentures and results
in an effective annual interest rate of  approximately  18.8%. We can redeem all
or part of the debentures at any time, subject to the subordination provision of
the debentures.  The balance of the subordinated debentures was $13.9 million at
June 30, 1999.

    Senior  Subordinated  Notes.  In February 1998, we borrowed a total of $15.0
million of subordinated debt from unrelated third parties for a three year term.
We pay interest on this debt quarterly at 12% per annum. This debt is:

    o  senior  to  the  Verde  subordinated   note  (described  above)  and  the
         subordinated  debentures  issued in our exchange offer (also  described
         above), and
    o  subordinate to our other indebtedness.

    We issued  warrants  to the  lenders of this debt to  purchase up to 500,000
shares of our common stock at an exercise price of $10.00 per share, exercisable
at any time until the later of February 2001, or when the debt is paid in full.

    In July 1998, we borrowed a total of $5.0 million in subordinated  debt from
unrelated third parties for a three-year  term. In the first quarter of 1999, we
prepaid $3.0 million of the loans.  We repaid the remaining $2.0 million in June
1999.

    Additional Financing.  On November 12, 1998, we borrowed $15.0 million for a
term of 364 days from  Greenwich  Capital.  We pay  interest  on this loan at an
interest rate equal to LIBOR plus 400 basis points. We secured the loan with the
common  stock of our  securitization  subsidiaries.  In March 1999,  we borrowed
$20.0 million for a term of 278 days from  Greenwich  Capital.  $1.5 million was
used to repay the remaining  balance of the $15 million  Greenwich Capital loan.
The new loan was secured by the common stock of our securitization subsidiaries.
The interest  rate is at LIBOR plus 500 basis points and we paid an  origination
fee of 100 basis points. We repaid this loan in the second quarter of 1999.

    On March 26, 1999, we borrowed  approximately  $28.9 million from  Greenwich
Capital under a repurchase facility with a 62% advance rate, bearing interest at
8.5%, and maturing May 31, 1999.  This  repurchase  facility was repaid in April
1999.


                                    Page 28
<PAGE>


    In March 1999,  we executed a commitment  letter with  Greenwich  Capital in
which,  subject to satisfaction of certain conditions,  Greenwich Capital agreed
to provide us with a $100 million  surety-wrapped  warehouse line of credit at a
rate equal to LIBOR plus 110 basis points.

    On May 14, 1999, we borrowed  approximately  $38.0 million from an unrelated
party for a term of three  years  maturing  on May 1,  2001.The  note  calls for
monthly principal  payments of generally not less than $500,000 plus interest at
a rate  equal to LIBOR  plus  550  basis  points.  The  loan is  secured  by our
Residuals in Finance Receivables Sold and certain Finance Receivables.

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

Capital Expenditures and Commitments

    During the three months ended June 30, 1999,  we opened one new  dealership.
We also have three additional dealerships under development.  The direct cost of
opening a  dealership  is primarily a function of whether we lease a facility or
construct a facility. A leased facility costs approximately $650,000 to develop,
while a facility we construct costs approximately $1.7 million. In addition,  we
require  capital to finance the portfolio that we carry on our balance sheet for
each store.  It takes  approximately  $2.2  million in cash to support a typical
stabilized  store  portfolio  with our  existing  65% advance  rate under our GE
facility.  Additionally,  it takes approximately 30 months for a store portfolio
to reach a stabilized level.

    On July 11,  1997,  we  entered  into an  agreement  to  provide  debtor  in
possession financing to First Merchants (DIP facility). As of June 30, 1999, the
maximum  commitment  on the DIP facility was $11.5  million and the  outstanding
balance  on the  DIP  facility  totaled  $11.5  million.  When  First  Merchants
defaulted on the DIP facility,  we negotiated a settlement  agreement  with them
that  has  increased  our  funding  obligation  by  $2.0  million,   subject  to
satisfaction of certain conditions, and in exchange for other concessions. These
conditions were satisfied in August 1999 and the loan is no longer in default.

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

     Common  Stock  Repurchase  Program.  During  the first  quarter  of 1999 we
repurchased  approximately  928,000  shares of our common stock for $5.2 million
under our stock repurchase  program.  We have repurchased a total of one million
shares of our  common  stock  under the  program,  which is the total  number of
shares the Board of Directors authorized.  In April 1999, our Board of Directors
authorized,  subject to certain  conditions and lender approval,  a second stock
repurchase  program  that  would  allow  us  to  repurchase  up to  2.5  million
additional shares of our common stock. Purchases may be made depending on market
conditions,  share price,  and other  factors.  We did not repurchase any of our
common stock during the second quarter of 1999.

Year 2000 Readiness Disclosure

    Many older computer programs refer to years only in terms of their final two
digits. Such programs may interpret the year 2000 to mean the year 1900 instead.
The problem affects not only computer  software,  but also computer hardware and
other  systems  containing  processors  and  embedded  chips.  Business  systems
affected by this  problem may not be able to  accurately  process  date  related
information  before,  during or after January 1, 2000. This is commonly referred
to as the Year 2000 issue. Failures of our own business systems due to Year 2000
issues as well as those of our suppliers and business  partners could materially
adversely affect our business. We are in the process of addressing these issues.

    Our Year 2000 compliance program consists of:

    o  identification and assessment of critical computer programs, hardware and
         other business equipment and systems,
    o  remediation  and  testing,
    o  assessment  of the Year 2000 readiness of our critical suppliers, vendors
         and business partners, and
    o  contingency planning.

    Identification and Assessment

    The first component of our Year 2000 compliance program is complete. We have
identified our critical  computer  programs,  hardware,  and other  equipment to
determine which systems are compliant, or must be replaced or remediated.


                                    Page 29
<PAGE>


    Remediation and Testing

    Dealership  Operations.  We have finished  remediating  the program code and
underlying data,  testing the remediated code modifications and have implemented
these changes into  operation for our  integrated  car sales and loan  servicing
system (CLASS  System).  We placed the modified  program code into production in
April 1999 and have completed performing date testing on the modified code.

    Non-Dealership  Operations.  Our  non-dealership  loan servicing  operations
currently  utilize  several loan processing and  collections  programs  provided
through third party service bureaus.  Based upon certifications we have received
from the software vendors, and independent testing we have performed, we believe
that our loan processing and collections programs are Year 2000 compliant.

    Our Cygnet  dealer  program  utilizes  one of the same loan  processing  and
collections programs used by our loan servicing  operations.  The service bureau
that  provides the program has written a custom module for us and has stated the
custom module is Year 2000 compliant. In addition, we have performed independent
Year 2000 compliance  testing on the Cygnet dealer program's custom module,  and
believe it is year 2000 compliant.

    The  remediation  and testing of the critical  business  systems used by our
dealership and non-dealership operations was completed during the second quarter
of 1999.

    Assessment of Business Partners

    We have also  identified  critical  suppliers,  vendors,  and other business
partners  and have taken steps to  determine  their Year 2000  readiness.  These
steps include interviews,  questionnaires, and other types of inquiries. Because
of the large number of business systems that our business partners use and their
varying levels of Year 2000 readiness, it is difficult to determine how any Year
2000 issues of our business  partners will affect us. We are not currently aware
of any  business  relationships  with third  parties that we believe will likely
result in a  significant  disruption  of our  businesses.  We  believe  that our
greatest risk is with our utility suppliers,  banking and financial  institution
partners,  and  suppliers  of  telecommunications  services,  all of  which  are
operating  within  the  United  States.  Potential  consequences  if we,  or our
business partners, are not Year 2000 compliant include:

    o  failure to operate from a lack of power,
    o  shortage of cash flow,
    o  disruption or errors in loan collection and processing efforts, and
    o  delays in receiving inventory, supplies, and services.

    If any of these events  occurred,  the results could have a material adverse
impact on us and our operations.

Contingency Plans

    We are also  developing  contingency  plans to mitigate the risks that could
occur in the event of a Year 2000  business  disruption.  Contingency  plans may
include:

    o  increasing inventory levels,
    o  securing additional financing,
    o  relocating operations to unaffected sites,
    o  vendor/supplier replacement,
    o  utilizing temporary manual or spreadsheet-based processes, or
    o  other prudent actions,

    We are  currently  working  on  updating  our  disaster  recovery  plan  and
formulating  our Year 2000  contingency  plans.  We will continue to develop our
contingency plans throughout the rest of the year and expect to complete them by
December 31, 1999.


                                    Page 30
<PAGE>


Costs

    We currently  estimate that  remediation and testing of our business systems
will cost  between $2.4  million and $2.7  million.  Most of these costs will be
expensed and funded by our operating  line of credit.  Costs incurred as of June
30, 1999 approximate $2.4 million,  including approximately $231,000 of internal
payroll  costs,  substantially  all of which have been  charged  to general  and
administrative  expense.  Costs  incurred in the six month period ended June 30,
1999 approximate  $970,000. No such costs were incurred in the comparable period
in  1998.  We  believe  costs   associated  with  developing  and   implementing
contingency  measures  will  not be  material  to  our  operating  results.  The
scheduled  completion dates and costs associated with the various  components of
our Year 2000 compliance  program  described above are estimates and are subject
to change.

Accounting Matters

     In February 1998, the Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  132,  "Employer's  Disclosures  about
Pensions  and  Other  Postretirement  Benefits"  (SFAS  No.  132)  which  became
effective  for us January 1, 1999.  SFAS No. 132  establishes  standards for the
information that public enterprises report in annual financial  statements.  The
adoption of SFAS No. 132 did not have a material impact on us.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities"  (SFAS No. 133) which becomes effective for us June 15,
2000. We believe the adoption of SFAS No. 133 will not have a material impact on
us.

                                     ITEM 3.

Market Risk

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

    Our  financial   instruments   consist   primarily  of  fixed  rate  finance
receivables,  residual  interests  in pools of fixed rate  finance  receivables,
short term variable rate revolving Notes Receivable, and variable and fixed rate
Notes  Payable.  Our finance  receivables  are  classified as subprime loans and
generally  bear  interest  at the lower of 29.9% or the  maximum  interest  rate
allowed in states  that impose  interest  rate  limits.  At June 30,  1999,  the
scheduled maturities on our finance receivables range from one to 52 months with
a weighted  average  maturity of 31.3 months.  The interest  rates we charge our
customers on finance  receivables has not changed as a result of fluctuations in
market interest rates,  although we may increase the interest rates we charge in
the future if market interest rates  increase.  A large component of our debt at
June 30, 1999 is the Collateralized  Note Payable (Class A certificates)  issued
under our  securitization  program.  Issuing  debt  through  our  securitization
program  allows us to mitigate our interest rate risk by reducing the balance of
the variable  revolving  line of credit and replacing it with a lower fixed rate
note  payable.  We are subject to interest rate risk on fixed rate Notes Payable
to the extent that future  interest  rates are higher than the interest rates on
our existing Notes Payable.

    We believe that our market risk information has not changed  materially from
December 31, 1998.


                                    Page 31
<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.  Although we cannot determine at this
time the amount of the ultimate exposure from these lawsuits,  if any, we, based
on the advice of  counsel,  do not  expect the final  outcome to have a material
adverse effect on our financial position.

Item 2.  Changes in Securities and Use of Proceeds.

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

Item 3.  Defaults Upon Senior Securities.

    Under the terms of the  revolving  facility,  we are required to maintain an
interest  coverage ratio that we failed to satisfy during the three months ended
March 31, 1999. We failed to meet this  covenant  primarily due to the reduction
in  earnings  we  recognized  as a result of the  change  in our  securitization
structure.  GE  Capital  waived the  covenant  violation  as of March 31,  1999.
Subsequently, the revolving facility was amended to take into account the change
in structure of our  securitization  transactions and as a result of this change
there was no default as of June 30, 1999.

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

    Set forth below is  information  concerning  the sole matter  submitted to a
vote at Ugly Duckling's Annual Meeting of Stockholders on June 2, 1999:

     Election  of  Directors.  Each of the  following  persons  was elected as a
director  of Ugly  Duckling  to hold  office  until the 2000  Annual  Meeting of
Stockholders,  until his  successor  is duly  elected  and  qualified,  or until
retirement,  resignation  or  removal:  Ernest  C.  Garcia  II,  Christopher  D.
Jennings, John N. MacDonough,  Gregory B. Sullivan, and Frank P. Willey. Each of
these  persons  received  13,919,162  votes "for"  reelection  and 292,896 votes
"withheld."

Item 5.  Other Information.

    On July 26, 1999,  Gregory B. Sullivan,  President,  Chief Operating Officer
and a director of Ugly Duckling,  was appointed Chief  Executive  Officer by our
Board of Directors.  Mr.  Sullivan  replaced Ernest C. Garcia II, who remains as
Chairman  of the  Board  and  our  largest  stockholder  with  over  32% of Ugly
Duckling's stock.

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

    (a) Exhibits

        Exhibit 10.1-- Amendment No. 4 to the Amended and Restated Motor Vehicle
           Installment  Contract Loan and  Security  Agreement  between  General
           Electric Capital Corporation and Registrant dated June 30, 1999

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

        Exhibit 27 -- Financial Data Schedule

        Exhibit 99 -- Risk Factors

                                    Page 32
<PAGE>


    (b) Reports on Form 8-K.

     During the second  quarter of 1999,  Ugly Duckling did not file any reports
on Form 8-K. In addition,  after the second  quarter of 1999,  Ugly Duckling has
not filed any reports on Form 8-K.























                                    Page 33
<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 13, 1999



<PAGE>



<TABLE>
<CAPTION>
                                           EXHIBIT INDEX

  Exhibit
  Number                                      Description
<S>          <C>
10.1         Amendment No. 4 to the Amended and Restated Motor Vehicle and Installment
             Contract Loan and Security Agreement between General Electric Capital
             Corporation and Registrant dated June 30, 1999
11           Statement regarding computation of per share earnings (see note 5 of Notes
             to Condensed Consolidated Financial Statements)
27           Financial Data Schedule
99           Risk Factors
</TABLE>