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                                  UNITED STATES
                       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

                For the quarterly period ended     July 31, 2005
                                               ------------------------------

                                       OR

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

      For the transition period from ___________ to ___________

Commission file number     1-11601
                           -------

                           NATIONAL AUTO CREDIT, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                             34-1816760
--------------------------------------------------        ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

555 Madison Avenue, 29th Floor, New York, New York               10022
--------------------------------------------------        ----------------------
(Address of principal executive offices)                       (Zip Code)

                   (212) 644-1400
--------------------------------------------------
(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.

                                Yes ( X ) No ( )

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Securities and Exchange Act).

                                Yes ( ) No ( X )

Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:

          Class                               Outstanding at September 12, 2005
 ----------------------------                 ---------------------------------
Common Stock, $0.05 par value                            8,540,114

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

<TABLE>

                                                                                   PAGE
                                                                                   ----

ART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements

             Report of Independent Registered Public Accounting Firm                 3

             Condensed Consolidated Balance Sheets as of
             July 31, 2005 and January 31, 2005                                      4

             Condensed Consolidated Statements of Operations for the
             Three Months and the Six Months Ended July 31, 2005 and 2004            5

             Condensed Consolidated Statements of Stockholders' Equity and
             Comprehensive Income (Loss) for the Six Months Ended
             July 31, 2005                                                           6

             Condensed Consolidated Statements of Cash Flows for the
             Six Months Ended July 31, 2005 and 2004                                 7

             Notes to Condensed Consolidated Financial Statements                    8

Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations                          19

Item 3.      Quantitative and Qualitative Disclosures about
             Market Risk                                                            33

Item 4.      Controls and Procedures                                                33

PART II.     OTHER INFORMATION

Item 1.      Legal Proceedings                                                      35

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds            38

Item 6.      Exhibits and Reports on Form 8-K                                       38

Signatures                                                                          39

Certifications                                                                      40
</TABLE>

                                       2

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
National Auto Credit, Inc. and Subsidiaries
New York, New York

     We have reviewed the accompanying condensed consolidated balance sheets of
National Auto Credit, Inc. and Subsidiaries as of July 31, 2005, the related
condensed consolidated statements of operations for each of the three-month and
six-month periods ended July 31, 2005 and 2004; the related condensed
consolidated statement of stockholders' equity and comprehensive loss for the
six-month period ended July 31, 2005 and the condensed consolidated statements
of cash flows for the six-month periods ended July 31, 2005 and 2004. These
financial statements are the responsibility of the Company's management.

     We conducted our reviews in accordance with standards established by the
Public Company Accounting Oversight Board ("PCAOB"). A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

     Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.

     We have previously audited, in accordance with standards established by the
PCAOB, the consolidated balance sheet as of January 31, 2005, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for the year then ended (not presented herein) and in our
report dated April 22, 2005, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of January 31, 2005, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.

/s/ Grant Thornton LLP
Cleveland, Ohio
September 9, 2005

                                        3

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>

                                                                                July 31,       January 31,
                                                                                  2005             2005
                                                                              -------------    -------------
                                                                              (unaudited)

                           ASSETS
Cash and cash equivalents                                                          $ 1,016            $ 471
Accounts receivable, net of allowance of
  $64 and $65, respectively (Note 1)                                                 1,162            2,132
Income taxes refundable                                                                  -              826
Prepaid expenses                                                                       328              256
Other current assets                                                                   208              494
                                                                              -------------    -------------
  Total current assets                                                               2,714            4,179

Property and equipment, net of accumulated
  depreciation of $1,612 and $1,216, respectively (Note 1)                           1,986            2,240
Investment in AFC (Note 3)                                                           7,963            7,955
Goodwill (Note 1)                                                                    4,920            4,920
Other intangible assets, net of accumulated
  amortization of $1,135 and $852, respectively (Note 1)                             8,347            8,630
Other assets                                                                           154              165
                                                                              -------------    -------------
                                                                                  $ 26,084         $ 28,089
                                                                              =============    =============

            LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current maturities of long term obligations (Note 4)                               $ 1,198          $ 1,612
Accounts payable                                                                       772            1,255
Self-insurance claims (Note 6)                                                         235              256
Accrued income taxes                                                                   339              328
Deferred revenue (Note 1)                                                            1,859            1,194
Other liabilities                                                                      661            1,392
                                                                              -------------    -------------
  Total current liabilities                                                          5,064            6,037

Long term obligations (Note 4)                                                       8,608            8,650
Convertible promissory note (Note 4)                                                 2,825            2,825
                                                                              -------------    -------------
                                                                                    16,497           17,512
                                                                              -------------    -------------

COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)                                            -                -

STOCKHOLDERS' EQUITY
Preferred stock                                                                          -                -
Common stock - $.05 par value, authorized 40,000,000 shares,
  issued 39,949,589                                                                  1,997            1,997
Additional paid-in capital                                                         174,542          174,454
Retained deficit                                                                  (143,704)        (143,383)
Deferred compensation                                                                  (77)             (89)
Treasury stock, at cost, 31,409,475 and 29,946,975
  shares, respectively (Note 2)                                                    (23,171)         (22,402)
                                                                              -------------    -------------
  Total stockholders' equity                                                         9,587           10,577
                                                                              -------------    -------------
                                                                                  $ 26,084         $ 28,089
                                                                              =============    =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>

                                                       Three Months Ended                 Six Months Ended
                                                            July 31,                           July 31,
                                                  -----------------------------      ------------------------------
                                                     2005             2004              2005              2004
                                                  ------------     ------------      ------------     -------------

Service revenues                                      $ 1,632          $ 2,388           $ 4,496           $ 5,681

Cost of service revenues                                1,268            1,341             2,765             3,288
                                                  ------------     ------------      ------------     -------------

  Gross profit                                            364            1,047             1,731             2,393

Selling, general and administrative                     2,109            1,656             3,836             3,586
                                                  ------------     ------------      ------------     -------------

  Loss from operations                                 (1,745)            (609)           (2,105)           (1,193)

Interest income                                            31                -                35                 -
Income from AFC investment                                 58              111               216               189
Interest expense                                         (158)            (181)             (323)             (344)
Other income - net (Note 2)                             1,897                -             1,897                 -
                                                  ------------     ------------      ------------     -------------

  Income (loss) from continuing operations
     before income taxes                                   83             (679)             (280)           (1,348)

Provision for income taxes                                 (4)               -               (15)                -
                                                  ------------     ------------      ------------     -------------

  Income (loss) from continuing operations                 79             (679)             (295)           (1,348)

Income (loss) from discontinued
  operations, net of tax                                   14               (5)               16                (6)
                                                  ------------     ------------      ------------     -------------

  Net income (loss)                                      $ 93           $ (684)           $ (279)         $ (1,354)
                                                  ============     ============      ============     =============

Basic and diluted income (loss) per share
  Continuing operations                                 $ .01           $ (.08)           $ (.03)           $ (.15)
  Discontinued operations                                   -                -                 -                 -
                                                  ------------     ------------      ------------     -------------
     Net income (loss) per share                        $ .01           $ (.08)           $ (.03)           ($.15)
                                                  ============     ============      ============     =============

Weighted average number
   of shares outstanding
   Basic and diluted                                    9,457            9,146             9,766             9,100
                                                  ============     ============      ============     =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             AND COMPREHENSIVE LOSS
                         SIX MONTHS ENDED JULY 31, 2005
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>

                                Preferred Stock         Common Stock
                               ---------------- --------------------------  Additional
                                         Par                      Par         Paid-In       Retained      Treasury
                               Shares   Value      Shares        Value        Capital       Deficit        Stock
                               -------  ------- -------------  ----------- -------------- ------------- -------------

Balance at
January 31, 2005                    -      $ -    39,949,589      $ 1,997      $ 174,454    $ (143,383)    $ (22,402)

Net loss                                                                                          (279)
Treasury stock issued for services                                                                 (42)           75
Treasury stock purchased                                                                                        (844)
Fair value of Eligible Shareholder
  warrants to be issued                                                               88
Deferred compensation
   expense
                               -------  ------- -------------  ----------- -------------- ------------- -------------
Comprehensive income (loss)

Balance at
 July 31, 2005                      -      $ -    39,949,589      $ 1,997      $ 174,542    $ (143,704)    $ (23,171)
                               =======  ======= =============  =========== ============== ============= =============

                                 Deferred                   Comprehensive
                               Compensation                    Income
                                  Expense       Total          (Loss)
                               -------------- -----------   -------------

Balance at
January 31, 2005                       $ (89)   $ 10,577

Net loss                                            (279)         $ (279)
Treasury stock issued for services                    33
Treasury stock purchased                            (844)
Fair value of Eligible Shareholder
  warrants to be issued                               88
Deferred compensation
   expense                                12          12
                               -------------- -----------   -------------
Comprehensive income (loss)                                       $ (279)
                                                            =============
Balance at
 July 31, 2005                         $ (77)    $ 9,587
                               ============== ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       6

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>

                                                                            Six Months Ended
                                                                                July 31,
                                                                     ----------------------------
                                                                        2005             2004
                                                                     -----------      -----------

Cash flows from operating activities
  Net loss                                                           $      (279)     $    (1,354)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
   (Income) loss from discontinued operations                                (16)               6
    Depreciation and amortization                                            679              663
    Fair value of Eligible Shareholder warrants                               88             --

  Changes in operating assets and liabilities, net of acquisition:
   Accounts receivable                                                       970             (869)
   Income tax refundable                                                     826               92
   Accrued income tax                                                         11               (7)
   Accounts payable and other liabilities                                   (483)            (235)
   Deferred revenue                                                          665              541
   Other operating assets and liabilities, net                              (469)            (461)
                                                                     -----------      -----------
     Net cash provided by (used in) operating activities                   1,992           (1,624)
                                                                     -----------      -----------

Cash flows from investing activities:
  Proceeds from AFC distributions                                            208              937
  Purchase of property and equipment                                        (142)            (116)
                                                                     -----------      -----------
     Net cash provided by investing activities                                66              821
                                                                     -----------      -----------

Cash flows from financing activities:
  Proceeds from issuance of promissory note                                 --              1,000
  Proceeds from sale of treasury stock                                      --                118
  Payments to acquire treasury stock                                      (1,052)            --
  Payments of long term debt                                                (456)            (150)
                                                                     -----------      -----------
     Net cash provided by (used in) financing activities                  (1,508)             968
                                                                     -----------      -----------

   Increase in cash and cash equivalents from
      continuing operations                                                  550              165
   Decrease in cash and cash equivalents from
      discontinued operations                                                 (5)            (130)
   Cash and cash equivalents at beginning of period                          471              376
                                                                     -----------      -----------
   Cash and cash equivalents at end of period                        $     1,016      $       411
                                                                     ===========      ===========

 Supplemental disclosures of cash flow information:
   Interest paid                                                     $       479      $       345
                                                                     ===========      ===========
   Income taxes paid                                                 $      --        $         7
                                                                     ===========      ===========
   Stock issued for services                                         $        33      $      --
                                                                     ===========      ===========
   Fair value of Eligible Shareholder warrants                       $        88      $      --
                                                                     ===========      ===========
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       7

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General
-------

     The accompanying unaudited condensed consolidated financial statements
include the accounts of National Auto Credit, Inc. and Subsidiaries ("NAC").
NAC, through its operating subsidiaries, Audience Response Systems, Inc. ("ARS")
and the Campus Group Companies, Inc. ("Campus" and collectively with ARS, the
"The Campus Group") and OMI Business Communications, Inc. ("OMI"), specializes
in the full-service design, creative development, production, post production
editing and transmission, via broadcast satellite videoconferencing, webcasting
and traditional on-site presentations, of corporate communication, education and
training video and other services for use at corporate events. Additionally,
NAC, through its investment in the Angelika Film Center LLC ("AFC"), operates in
the movie exhibition industry (see Note 3).

     The financial statements are unaudited, but in the opinion of management,
reflect all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of NAC's consolidated financial position, results of
operations, stockholders' equity and comprehensive loss, and cash flows for the
periods presented.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and with the rules of the Securities and Exchange
Commission applicable to interim financial statements, and therefore do not
include all disclosures that might normally be required for interim financial
statements prepared in accordance with generally accepted accounting principles.
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with NAC's consolidated financial statements, including the
notes thereto, appearing in NAC's Annual Report on Form 10-K for the year ended
January 31, 2005. The results of operations for the six months ended July 31,
2005 are not necessarily indicative of the operating results for the full year.

     The preparation of financial statements and the accompanying notes thereto,
in conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the respective reporting periods. Actual results could differ from those
estimates.

     NAC uses a January 31 year-end for financial reporting purposes. References
herein to the fiscal year ended January 31, 2006 shall be the term "Fiscal 2006"
and references to other "Fiscal" years shall mean the year, which ended on
January 31 of the year indicated. The term the "Company" or "NAC" as used herein
refers to National Auto Credit, Inc. together with its subsidiaries unless the
context otherwise requires.

Discontinued Operations
-----------------------

     Effective December 31, 2001, NAC suspended its ZoomLot operations and
initiated steps to discontinue e-commerce operations. Additionally, as a
consequence of NAC's decision to discontinue its ZoomLot e-commerce operations,
NAC also formally exited the sub-prime used automobile consumer finance business
effective December 31, 2001. As a result of these decisions, both the e-commerce
and automobile finance segments have been classified as discontinued operations
as of January 31, 2002. For the six months ended July 31 2005, NAC realized
income from discontinued operations of $16,000. For the six months ended July
31, 2004 , NAC incurred a loss from discontinued operations of $6,000.

                                       8

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Service Revenues
----------------

     NAC's service revenues are earned within short time periods, generally less
than one week. NAC recognizes revenue from video production, video editing,
meeting services and broadcast satellite or webcast services when the video is
complete and delivered or all technical services have been rendered. Deposits
and other prepayments are recorded as deferred revenue until revenue is
recognized. NAC does not have licensing or other arrangements that result in
additional revenues following the delivery of the video or a broadcast. Costs
accumulated in the production of the video, meeting services or broadcasts are
deferred until the sale and delivery are complete. Deferred production costs of
$208,000 and $401,000, respectively, are included as a component of other
current assets at July 31, 2005 and January 31, 2005, respectively.

     NAC recognizes revenue from website design and development when the
customer accepts the completed project. Deposits and other prepayments are
recorded as deferred revenue until revenue is recognized. These contracts are
generally limited to the design and development of websites and the presentation
of site library content developed by NAC. Clients also have the option to engage
NAC to maintain and upgrade their websites. These projects are separate from the
website development and design engagements, and the related revenue is
recognized over the term of the agreement, which is generally up to one year.

     NAC recognizes revenue from developing and maintaining websites pursuant to
the requirements of Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by Statement of Position No. 98-9,
"Software Revenue Recognition with Respect to Certain Arrangements." Under SOP
97-2, revenue attributable to an element in a customer arrangement is recognized
when persuasive evidence of an arrangement exists and delivery has occurred,
provided the fee is fixed or determinable, collectibility is probable and the
arrangement does not require significant customization of the software. If at
the outset of the customer arrangement, NAC determines that the arrangement fee
is not fixed or determinable or that collectibility is not probable, NAC defers
the revenue and recognizes the revenue when the arrangement fee becomes due and
payable or, when collectibility is uncertain, as cash is collected.

Cost of Service Revenues
------------------------

     Cost of revenues consists of direct expenses specifically associated with
client service revenues. The cost of revenues includes direct salaries and
benefits, purchased products or services for clients, web hosting, support
services, shipping and delivery costs.

Accounts Receivable
-------------------

     Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is NAC's best estimate of the
amount of probable credit losses in NAC's existing accounts receivable. NAC
determines the allowance based on analysis of historical bad debts, client
concentrations, client credit-worthiness and current economic trends. NAC
reviews its allowance for doubtful accounts quarterly. Past-due balances over 90
days and specified other balances are reviewed individually for collectibility.
All other balances are reviewed on an aggregate basis. Account balances are
written off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. NAC does not have
any off-balance sheet credit exposure related to its customers.

                                       9

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Property and Equipment
----------------------

     Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from eighteen months to ten years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the related
improvements.

Goodwill and Other Intangible Assets
------------------------------------

     Intangible assets with indefinite lives, including goodwill, are not
subject to amortization but are subject to testing for impairment at least
annually or whenever there is an impairment indicator.

     In its acquisition of The Campus Group, NAC acquired certain intangible
assets including client relationships and lists and a non-competition agreement
with an initial aggregate fair value of $9.5 million. The useful lives of these
intangibles are estimated to be 17 years and 9 years, respectively. The
intangible assets with definite useful lives are amortized using the
straight-line method over those lives. For the six months ended July 31, 2005
and 2004, NAC charged to operations $283,000 and $284,000, respectively, for the
amortization of these intangible assets.

Impairment of Long-Lived Assets
-------------------------------

     NAC reviews the carrying value of its long-lived assets (other than
goodwill) whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. If indicators of impairment exist, NAC would
determine whether the estimated undiscounted sum of the future cash flows of
such assets is less than its carrying amount. If less, an impairment loss would
be recognized based on the excess of the carrying amount of such assets over
their respective fair values. NAC would determine the fair value by using quoted
market prices, if available, for such assets; or if quoted market prices are not
available, NAC would discount the expected estimated future cash flows.

Income Taxes
------------

     Deferred income taxes are provided for all temporary differences between
the book and tax basis of assets and liabilities. Deferred income taxes are
adjusted to reflect new tax rates when they are enacted into law. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
recognized if it is anticipated that some or all of a net deferred tax asset may
not be realized.

Reclassifications
-----------------

     Certain Fiscal 2005 amounts have been reclassified to conform with Fiscal
2006 presentations.

                                       10

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

New Accounting Pronouncements
-----------------------------

     In December, 2004 the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123R (revised 2004), Share-Based Payment, which replaces
SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
beginning with the first interim or annual period after June 15, 2005, with
early adoption encouraged. The pro forma disclosures previously permitted under
SFAS 123 no longer will be an alternative to financial statement recognition.
NAC is required to adopt SFAS 123R at the beginning of Fiscal 2007 (effective
February 1, 2006). Under SFAS No. 123R, NAC must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption.
The transition methods include prospective and retrospective adoption options.
Under the retrospective option, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. The prospective
method requires that compensation expense be recorded for all unvested stock
options and restricted stock at the beginning of the first quarter of adoption
while the retrospective methods would record compensation expense for all
unvested stock options and restricted stock beginning with the first period
restated. NAC has not yet determined the method of adoption or the effect of
adopting SFAS 123R, and has not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS 123.

     In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary
Assets, which is an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. The guidance in APB Opinion No. 29 is based on the principle that
exchanges of nonmonetary assets should be measured based upon the fair value of
the assets exchanged, with certain exemptions to that principle. SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a consequence of the exchange. The adoption of SFAS No. 153
will be effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. NAC expects that the adoption of SFAS No. 153
will not have a material impact NAC's consolidated financial statements.

     In March 2005, the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations ("FIN 47"). This Interpretation
clarifies that conditional asset retirement obligations meet the definition of a
liability and should be recognized when incurred if the fair value can be
reasonably estimated. FIN 47 also provides guidance as to when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective for fiscal years ending after
December 15, 2005. NAC expects the adoption of FIN 47 will not have a material
impact on NAC's consolidated financial position or results of operations.

     In May 2005, FASB issued Statement No. 154, Accounting Changes and Error
Corrections ("SFAS 154"). SFAS 154 replaces APB No. 20, Accounting Changes, and
SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and
establishes retrospective application as the required method for reporting a
change in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS 154
applies to all voluntary changes in accounting principles and to changes
required by an accounting pronouncement in the instance that the pronouncement
does not include specific transition provisions. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. NAC expects that the adoption of SFAS 154 will not have
a material impact on NAC's consolidated financial position or results of
operations.

                                       11

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SHAREHOLDER COMPLAINT SETTLEMENT

Shareholder Complaints
----------------------

     In July and August 2001, NAC received three separate derivative complaints
filed with the Court of Chancery of Delaware ("Delaware Court") by each of
Academy Capital Management, Inc ("Academy Complaint")., Levy Markovich,
("Markovich Complaint") and Harbor Finance Partners ("Harbor Complaint"), all
shareholders of NAC, against James J. McNamara, John A. Gleason, William S.
Marshall, Henry Y.L. Toh, Donald Jasensky, Peter T. Zackaroff, Mallory Factor,
and Thomas F. Carney, Jr. (the "Director Defendants") and names NAC as a nominal
defendant. By order of the Delaware Court on November 12, 2001, the Academy,
Markovich and Harbor Complaints were consolidated under the title "In re
National Auto Credit, Inc. Shareholders Litigation," Civil Action No. 19028 NC
(Delaware Court) ("Delaware Action") and the Academy Complaint were consolidated
as the Delaware Action.

     The Delaware Action principally seeks: (i) a declaration that the Director
Defendants breached their fiduciary duties to NAC, (ii) a judgment voiding an
employment agreement with James J. McNamara and rescinding a stock exchange
agreement in which NAC acquired ZoomLot, (iii) a judgment voiding the grant of
stock options and the award of director fees allegedly related thereto, (iv) an
order directing the Director Defendants to account for alleged damages sustained
and profits obtained by the Director Defendants as a result of the alleged
various acts complained of, (v) the imposition of a constructive trust over
monies or other benefits received by the Director Defendants, (vi) a judgment
requiring the Director Defendants to promptly schedule an annual meeting of
shareholders and (vii) an award of costs and expenses.

     On October 12, 2001, NAC received a derivative complaint filed by Robert
Zadra, a shareholder of NAC, that had been filed with the Supreme Court of the
State of New York ("New York Court") on or about October 12, 2001 against James
J. McNamara, John A. Gleason, William S. Marshall, Henry Y. L. Toh, Donald
Jasensky, Peter T. Zackaroff, Mallory Factor, Thomas F. Carney, Jr., and NAC as
Defendants. On or about May 29, 2002 the complaint was amended to include class
action allegations (the "New York Action"). The New York Action contains
allegations similar to those in the Delaware Action concerning the Board's
approval of the employment agreement with James McNamara, option grants and past
and future compensation to the Director Defendants, and the ZoomLot transaction.
The New York Action seeks (i) a declaration that as a result of approving these
transactions the Director Defendants breached their fiduciary duties to NAC,
(ii) a judgment enjoining Director Defendants from proceeding with or exercising
the option agreements, (iii) rescission of the option grants to Director
Defendants, if exercised, (iv) an order directing the Director Defendants to
account for alleged profits and losses obtained by the Director Defendants as a
result of the alleged various acts complained of, (v) awarding compensatory
damages to NAC and the class, together with prejudgment interest, and (vi) an
award of costs and expenses.

     NAC has vigorously defended against each of the respective claims made in
the Delaware Action and New York Action, as it believes that the claims have no
merit.

                                       12

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SHAREHOLDER COMPLAINT SETTLEMENT - CONTINUED

     The parties in the New York Action thereafter engaged in settlement
negotiations and, in December 2002, the parties entered into a stipulation of
settlement which was thereafter amended in November 2004 (the "New York
Settlement Stipulation"). Under the terms of the New York Settlement
Stipulation, NAC agreed (subject to certain terms and conditions) to, among
other things, (a) adopt or implement certain corporate governance procedures or
policies, (b) issue to a class of NAC shareholders who had continuously held NAC
Common Stock from December 14, 2000 through December 24, 2002 ("Eligible NAC
Shareholders") up to one million warrants (one warrant per 8.23 shares of Common
Stock), with each warrant having a five year term and being exercisable for
shares of NAC Common Stock at a price of $1.55 per share, (c) cancel 50% of
certain stock options granted on December 15, 2000, and (d) make certain
payments for legal fees for counsel to the plaintiffs in the New York Action. In
addition, the New York Settlement Stipulation created for the benefit of NAC a
Settlement Fund in the amount of $2.5 million which has been funded by an
insurance policy. The New York Court also subsequently approved $500,000 for
legal fees for counsel to the plaintiffs in the New York Action to be paid from
the proceeds from the Settlement Fund.

     In order to facilitate the settlement and dismissal of the separate
Delaware Action as well as the New York Action, on April 22, 2005, NAC entered
into a Stock Purchase Agreement ("Agreement") with Academy Capital Management,
Inc., Diamond A. Partners, L.P., Diamond A. Investors, L.P., Ridglea Investor
Services, Inc. and William S. Banowsky (hereinafter referred to collectively as
the "Selling Stockholders"). The Selling Stockholders had also raised objections
to the settlement of the New York Action. The New York Court (a) had rejected
the objections raised by the Selling Stockholders and (b) had approved as fair
and in the best interests of NAC and its shareholders the proposed settlement of
the New York Action as set forth in the New York Settlement Stipulation. The
Selling Stockholders had then filed an appeal (the "Appeal") to such
determination by the New York Court.

     Pursuant to the terms of the Agreement, the Selling Stockholders agreed,
among other things, to do the following:

     o   enter into a stipulation (to be filed with the New York Court) pursuant
         to which they will (a) irrevocably withdraw, with prejudice, any
         objections they had asserted or might have asserted with respect to the
         settlement of the New York Action, (b) stipulate to the entry of an
         order dismissing the New York Action and (c) agree to the dismissal of
         the Appeal.

     o   enter into a stipulation (to be filed with the Appellate Division,
         First Department, of the Supreme Court of the State of New York)
         providing for the dismissal of the Appeal.

     o   enter into a stipulation (to be filed in the Delaware Court), pursuant
         to which they will agree to the dismissal of the Delaware Action with
         prejudice.

     The Selling Stockholders have executed and delivered to NAC and NAC filed
with the applicable New York Court and Delaware Court each of the stipulations
referred to above. Effective May 5, 2005, the New York Court entered a Final
Order and Judgment in which it approved the Stipulation of Dismissal of
Objections, finding the terms set forth therein fair, reasonable and adequate,
and dismissed the New York Action and the objections to the New York Settlement
with prejudice. Effective May, 13, 2005, the Appellate Division, First
Department, of the Supreme Court of the State of New York granted the dismissal
of the Appeal. Effective May 18, 2005, the Delaware Court granted an Order and
Judgment Dismissing Action with Prejudice the Delaware Action. As a consequence
of each of the above actions by the respective courts, settlement of the New
York Action and the Delaware Action, was deemed final in June 2005 and NAC
received net proceeds of $2.0 million from NAC's insurer from the Settlement
Fund in the New York Action.

                                       13

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SHAREHOLDER COMPLAINT SETTLEMENT - CONTINUED

     Pursuant to the Agreement, NAC agreed (subject to certain terms and
conditions set forth in the Agreement) to purchase from the Selling Shareholders
their 1,562,500 shares of Common Stock at a price of $0.6732 per share (or a
total purchase price of $1,051,875) and to contribute $100,000 to cover a
portion of the legal fees incurred by the Selling Shareholders. Effective June
30, 2005, NAC purchased 1,562,500 shares of Common Stock from the Selling
Stockholders.

     As a consequence of the confirmation of the New York Settlement Stipulation
and the subsequent purchase by NAC of Common Stock from the Selling
Shareholders, for the three months and six months ended July 31, 2005, NAC
recorded (i) a charge to operations of $100,000 for legal fees of the Selling
Shareholders, (ii) a charge to operations of $208,000 for the excess cost over
the market value of the Common Stock acquired as of the date of the Agreement,
April 22, 2005, (iii) a charge to other income of $88,000 for the expense of the
fair value of the warrants to be issued to Eligible Shareholders and (iv)
realized other income of $2.0 million for the net proceeds received by NAC from
the Settlement Fund. In addition, the Eligible NAC Shareholders have until
December 2005 to submit their claim for one warrant for each 8.23 shares of
Common Stock owned during the eligibility period, with each warrant having a
five year term and being exercisable for shares of NAC Common Stock at a price
of $1.55 per share. Upon the final submission of claims by Eligible NAC
Shareholders, NAC anticipates issuing the final warrants in the fourth quarter
of Fiscal 2006.

     As acknowledged by the Selling Shareholders in the Agreement, NAC was
willing to enter into the Agreement, settle the New York Action and the Delaware
Action and consummate the other transactions contemplated by the Agreement in
order to terminate prolonged and expensive litigation and NAC's entry into the
Agreement would not constitute or be deemed to constitute or evidence any
improper or illegal conduct by or on behalf of NAC (or any of its directors,
officers, employees and other agents or representatives) or any other wrong
doing by NAC (or any of its directors, officers, employees and other agents or
representatives). The Agreement was approved by the disinterested and
independent members of NAC's Board of Directors.

NOTE 3 - INVESTMENT IN AFC

     On April 5, 2000, NAC, through its wholly owned subsidiary National
Cinemas, Inc., acquired a 50% membership interest in AFC. AFC is the owner and
operator of the Angelika Film Center, which is a multiplex cinema and cafe
complex in the Soho District of Manhattan in New York City.

     AFC is currently owned 50% by NAC and 50% by Reading International, Inc.
("Reading"). The articles and bylaws of AFC provide that for all matters subject
to a vote of the members, a majority is required, except that in the event of a
tie vote, the Chairman of Reading shall cast the deciding vote.

     NAC uses the equity method to account for its investment in AFC. NAC's
initial investment exceeded its share of AFC's net assets and that portion of
the investment balance is accounted for in a manner similar to goodwill. AFC
uses a December 31 year-end for financial reporting purposes. NAC reports on a
January 31 year-end, and for its fiscal quarters ending April 30, July 31,
October 31 and January 31 records its pro-rata share of AFC's earnings on the
basis of AFC's fiscal quarters ending March 31, June 30, September 30, and
December 31, respectively. For the three months ended July 31, 2005 and 2004,
NAC recorded income of $58,000 and $111,000, respectively, representing its
share of AFC's net income. For the six months ended July 31, 2005 and 2004, NAC
recorded income of $216,000 and $189,000, respectively, representing its share
of AFC's net income.

                                       14

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3 - INVESTMENT IN AFC - CONTINUED

     Summarized income statement data for AFC for the three months and six
months ended June 30, 2005 and 2004, respectively, is as follows (in thousands):

<TABLE>

                                                      Three Months Ended                   Six Months Ended
                                                            June 30,                            June 30,
                                              ----------------------------------  ---------------------------------
                                                   2005               2004             2005              2004
                                              ----------------   ---------------  ---------------    --------------

Revenues                                              $ 1,141           $ 1,262          $ 2,552           $ 2,567

Film rental                                               228               243              534               503
Operating costs                                           566               577            1,115             1,210
Depreciation and amortization                             189               177              387               391
General and administrative expenses                        42                43               84                85
                                              ----------------   ---------------  ---------------    --------------
                                                        1,025             1,040            2,120             2,189
                                              ----------------   ---------------  ---------------    --------------
Net income                                              $ 116             $ 222            $ 432             $ 378
                                              ================   ===============  ===============    ==============

NAC's proportionate share of net income                  $ 58             $ 111            $ 216             $ 189
                                              ================   ===============  ===============    ==============
</TABLE>

NOTE 4 - CURRENT AND LONG TERM OBLIGATIONS

     On July 14, 2004, National Auto Credit, Inc. ("NAC") consummated a Loan and
Security Agreement ("Loan Agreement") with a lender and issued a Promissory Note
("Note") of $1.0 million. The lender, Time Passages Corp., is an unaffiliated
third party lender. The President of Time Passages Corp. was a former director
of NAC who last served on NAC's board in January 2002. Pursuant to the terms of
the Note (i) the outstanding principal of the Note is due July 13, 2005, (ii)
NAC is required to pay interest only, monthly and in arrears, during the term
and (iii) the Note bears interest at twenty percent per annum. NAC may prepay
the Note at anytime and without a prepayment penalty. In January 2005, NAC
prepaid $650,000 of the Note. In February 2005, NAC prepaid the $350,000
remaining balance and retired the Note.

     As a consequence of NAC's acquisition of The Campus Group effective July
31, 2003, NAC issued to Steve Campus and certain family trusts promissory notes
of $9.9 million and issued to a family trust a convertible promissory note of
$2.8 million. Of the $9.9 million in promissory notes issued by NAC, $6.6
million of the promissory notes ("Base Notes") bear interest at 5% per annum and
are repayable in quarterly installments according to a formula based upon the
future cash flows realized from The Campus Group over a period not to exceed
seven years. The remaining $3.3 million in promissory notes ("Trailing Notes")
issued by NAC bear interest at 5% per annum and are repayable in quarterly
installments, commencing upon the retirement of the Base Notes, according to a
formula based upon the future cash flows realized from The Campus Group over a
period not to exceed three years subsequent to the retirement of the Base Notes.
The $2.8 million convertible promissory note (i) bears interest at 5% per annum,
payable quarterly in cash or accumulating as principal at the election of NAC,
(ii) requires principal payments to commence upon the retirement of the Base
Notes and Trailing Notes and is then repayable in quarterly installments
according to a formula based upon the future cash flows realized from The Campus
Group over a period not to exceed three years and (iii) is convertible at the
option of the holder into shares of NAC common stock at a base conversion price
of $1.50 per share. The holder may not convert the convertible promissory note
into NAC common stock prior to repayment of the Base Notes and Trailing Notes.
The promissory notes are secured by the capital stock of the companies
comprising The Campus Group. At July 31, 2005, NAC has outstanding obligations
under the terms of the Base Notes, Trailing Notes and the Convertible Notes of
$6.0 million, $3.3 million and $2.8 million, respectively.

                                       15

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 4 - CURRENT AND LONG TERM OBLIGATIONS - CONTINUED

     As a consequence of NAC's acquisition of OMI effective April 1, 2003, NAC
assumed $814,000 in bank debt and capital lease obligations to financial
institutions and issued a promissory note payable to Dean Thompson in the amount
of $153,000.

     During 2001, OMI obtained a $300,000 bank term loan (the "Term Loan") to
finance certain capital expenditures. The Term Loan is payable in monthly
installments of $6,000, comprised of principal and interest, over a five year
term, expiring in July 2006. The Term Loan bears interest at the rate of 8.25%
per annum. The Term Loan is collateralized by substantially all of OMI's assets
and the personal guarantee of Mr. Thompson. The outstanding balance of the Term
Loan at July 31, 2005 is $62,000.

     On April 25, 2002, OMI obtained a $402,000 loan guaranteed by the U.S.
Small Business Administration (the "SBA Loan") to finance losses incurred as a
result of the September 11, 2001 terrorist attacks in New York City. At July 31,
2005, the remaining balance of the SBA Loan of $373,000 is repayable in monthly
installments of $3,309 with the last payment due in April 2017. The SBA Loan
bears interest at the rate of 4% per annum. The SBA Loan is collateralized by
substantially all of OMI's assets and the personal guarantee of Mr. Thompson.
Pursuant to the terms of the Merger Agreement, NAC is seeking to obtain a
release of Mr. Thompson's personal guarantee from the SBA Loan.

     The promissory note payable to Mr. Thompson is payable in monthly
installments of principal and interest over a 36 month period expiring April
2006. The promissory note bears interest at 5% per annum. The outstanding
balance of the promissory note at July 31, 2005 was $50,000.

         The components of long term obligations at July 31, 2005 are as follows
(in thousands):

                                                       Amounts
                                                       -------
             Term loan                                     $ 62
             SBA loan                                       373
             Promissory note                                 50
             Base promissory notes                        6,046
             Trailing promissory notes                    3,275
             Convertible note payable                     2,825
                                                    ------------
                                                         12,631
             Less current maturities                     (1,198)
                                                    ------------
             Long term obligations and
                convertible note payable               $ 11,433
                                                    ============

                                       16

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 4 - CURRENT AND LONG TERM OBLIGATIONS - CONTINUED

     NAC's current maturities and long term obligations at July 31, 2005 are as
follows (in thousands):

                                                 Amounts
                                                 -------
         2006                                     $  1,198
         2007                                        1,143
         2008                                        1,201
         2009                                        1,262
         2010                                        1,327
         Thereafter                                  6,500
                                               ------------
                                                  $ 12,631
                                               ============

NOTE 5 - ISSUANCE OF TREASURY STOCK

     In February 2005, NAC issued 100,000 shares of unregistered, restricted
treasury stock as compensation for professional services rendered by an
unrelated third party. Such shares issued were recorded at their then market
value of $0.33 per share for an aggregate cost of $33,000. The restricted shares
may not be sold or otherwise transferred without registration under the
Securities and Exchange Act of 1933, as amended, or applicable state securities
laws or an exemption therefrom. In the event that NAC proposes to register any
of its securities under the Securities Act, whether for its own account or for
the account of another shareholder, the treasury stock issued may be included in
such registration.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Self-Insurance Reserves for Property Damage and Personal Injury Claims
----------------------------------------------------------------------

         NAC, under the names Agency Rent-A-Car, Inc. ("ARAC"), Altra Auto
Rental and Automate Auto Rental, previously engaged in the rental of automobiles
on a short-term basis, principally to the insurance replacement market. In
Fiscal 1996, NAC disposed of its rental fleet business through the sale of
certain assets and through certain leases to a national car rental company. All
liabilities related to the discontinued rental business, principally
self-insurance claims, were retained by NAC.

         NAC maintained and continues to maintain self-insurance for claims
relating to bodily injury or property damage from accidents involving the
vehicles rented to customers by its discontinued automobile rental operations.
NAC was, when required by either governing state law or the terms of its rental
agreement, self-insured for the first $1.0 million per occurrence, and for
losses in excess of $5.0 million per occurrence, for bodily injury and property
damage resulting from accidents involving its rental vehicles. NAC was also
self-insured, up to certain retained limits, for bodily injury and property
damage resulting from accidents involving NAC vehicles operated by employees
within the scope of their employment. In connection therewith, NAC established
certain reserves in its financial statements for the estimated cost of
satisfying those claims.

                                       17

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 6 - COMMITMENTS AND CONTINGENCIES - CONTINUED

     NAC estimates the required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of the
claim and the estimated costs to be incurred. These estimates include, but are
not limited to, NAC's historical loss experience and projected loss factors. The
required self-insurance liability is subject to adjustment in the future based
upon changes in the nature of the remaining claims or the ultimate cost. As a
consequence of NAC's sale of its automobile rental operations in 1995, NAC
believes that all incurred claims have been reported to NAC and that there are
no longer any incurred but not yet reported claims to be received by NAC.

     Because of the uncertainties related to several residual small claims and
legal proceedings involving NAC's former rental operations and self-insurance
claims, it is difficult to project with precision the ultimate effect the
adjudication or settlement of these matters will have on NAC. At July 31, 2005
and January 31, 2004, NAC had accrued $235,000 and $256,000, respectively, to
cover all outstanding self-insurance liabilities. As additional information
regarding NAC's potential liabilities becomes available, NAC will revise the
estimates as appropriate.

Other Litigation
----------------

     In the normal course of its business, NAC is periodically named as
defendant in legal proceedings. It is the policy of NAC to vigorously defend
litigation and/or enter into settlements of claims where management deems
appropriate. In the opinion of management, the amount of ultimate liability with
respect to any current actions, if any, is unlikely to materially affect our
financial position, results of operations or liquidity.

                                       18

                                     ITEM 2.
                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     National Auto Credit, Inc. ("the Company" or "NAC") began operations in
1969 and was incorporated in Delaware in 1971. NAC is a multi-dimensional
corporate communications and entertainment company. NAC, through its operating
subsidiaries, Audience Response Systems, Inc. ("ARS") and the Campus Group
Companies, Inc. ("Campus" and collectively with ARS, the "The Campus Group") and
OMI Business Communications, Inc. ("OMI"), specializes in the full-service
design, creative development, production, post production editing and
transmission, via broadcast satellite videoconferencing, webcasting and
traditional on-site presentations, of corporate communication, education and
training video and other services for use at corporate events. Additionally,
NAC, through its investment in the Angelika Film Center LLC ("AFC"), operates in
the movie exhibition industry.

Significant Developments
------------------------

     In order to settle a derivative and class action entitled Robert Zadra, et
al v, James A. McNamara, et al (Index. No. 01-604859) (hereinafter referred to
as the "New York Action") that was commenced against NAC and certain of its
directors in the Supreme Court of the State of New York, New York County (the
"New York Court"), NAC entered into a November 2004 Amended Stipulation of
Settlement (the "New York Settlement Stipulation"). Under the terms of the New
York Settlement Stipulation, NAC agreed (subject to certain terms and
conditions) to, among other things, (a) adopt or implement certain corporate
governance procedures or policies, (b) issue to a class of NAC shareholders who
had continuously held NAC Common Stock from December 14, 2000 through December
24, 2002 ("Eligible NAC Shareholders") up to one million warrants (one warrant
per 8.23 shares of Common Stock), with each warrant having a five year term and
being exercisable for shares of NAC Common Stock at a price of $1.55 per share,
(c) cancel 50% of certain stock options granted on December 15, 2000, and (d)
make certain payments for legal fees for counsel to the plaintiffs in the New
York Action. In addition, the New York Settlement Stipulation created for the
benefit of NAC a Settlement Fund in the amount of $2.5 million which has been
funded by an insurance policy. The New York Court also subsequently approved
$500,000 for legal fees for counsel to the plaintiffs in the New York Action to
be paid from the proceeds from the Settlement Fund.

     In order to facilitate the settlement and dismissal of a separate
derivative action entitled In re National Auto Credit, Inc, Shareholders
Litigation (Index No. 19028 NC) (hereinafter referred to as the "Delaware
Action"), which had been commenced in the Chancery Court for the State of
Delaware (the "Delaware Court") against NAC, as well as the New York Action, on
April 22, 2005, NAC entered into a Stock Purchase Agreement ("Agreement") with
Academy Capital Management, Inc., Diamond A. Partners, L.P., Diamond A.
Investors, L.P., Ridglea Investor Services, Inc. and William S. Banowsky
(hereinafter referred to collectively as the "Selling Stockholders"). The
Selling Stockholders had also raised objections to the settlement of the New
York Action. The New York Court (a) rejected the objections raised by the
Selling Stockholders and (b) approved as fair and in the best interests of NAC
and its shareholders the proposed settlement of the New York Action as set forth
in the New York Settlement Stipulation. The Selling Stockholders then filed an
appeal (the "Appeal") to such determination by the New York Court.

                                       19

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     Pursuant to the terms of the Agreement, the Selling Stockholders agreed,
among other things, to do the following:

     o   enter into a stipulation (to be filed with the New York Court) pursuant
         to which they will (a) irrevocably withdraw, with prejudice, any
         objections they had asserted or might have assertedwith respect to the
         settlement of the New York Action, (b) stipulate to the entry of an
         order dismissing the New York Action and (c) agree to the dismissal of
         the Appeal.

     o   enter into a stipulation (to be filed with the Appellate Division,
         First Department, of the Supreme Court of the State of New York)
         providing for the dismissal of the Appeal.

     o   enter into a stipulation (to be filed in the Delaware Court), pursuant
         to which they will agree to the dismissal of the Delaware Action with
         prejudice.

     The Selling Stockholders have executed and delivered to NAC and NAC has
filed with the applicable New York Court and Delaware Court each of the
stipulations referred to above. Effective May 5, 2005, the New York Court
entered a Final Order and Judgment in which it approved the Stipulation of
Dismissal of Objections, finding the terms set forth therein fair, reasonable
and adequate, and dismissed the New York Action and the objections to the New
York Settlement with prejudice. Effective May, 13, 2005, the Appellate Division,
First Department, of the Supreme Court of the State of New York granted the
dismissal of the Appeal. Effective May 18, 2005, the Delaware Court granted an
Order and Judgment Dismissing Action with Prejudice the Delaware Action. As a
consequence of each of the above actions by the respective courts, settlement of
the New York Action and the Delaware Action, the settlement was deemed final in
June 2005 and NAC received net proceeds of $2.0 million from the Settlement Fund
in the New York Action.

     Pursuant to the Agreement, NAC agreed (subject to certain terms and
conditions set forth in the Agreement) to purchase from the Selling Shareholders
their 1,562,500 shares of NAC Common Stock at a price of $0.6732 per share (or a
total purchase price of $1,051,875) and to contribute $100,000 to cover a
portion of the legal fees incurred by the Selling Shareholders. Effective June
30, 2005, NAC purchased 1,562,500 shares of Common Stock from the Selling
Shareholders.

     As a consequence of the confirmation of the New York Settlement
Stipulation, the Dismissing Action with Prejudice of the Delaware Action and the
purchase of Common Stock from the Selling Shareholders, for the three months and
six months ended July 31, 2005, NAC recorded (i) a charge to operations of
$100,000 for legal fees of the Selling Shareholders, (ii) a charge to operations
of $208,000 for the excess cost over the market value of the Common Stock
acquired as of the date of the Agreement, April 22, 2005, (iii) a charge to
other income of $88,000 for the expense of the fair value of the warrants to be
issued to Eligible Shareholders and (iv) realized other income of $2.0 million
for the net proceeds received by NAC from the Settlement Fund. In addition, the
Eligible NAC Shareholders have until December 2005 to submit their claim for one
warrant for each 8.23 shares of Common Stock owned during the eligibility
period, with each warrant having a five year term and being exercisable for
shares of NAC Common Stock at a price of $1.55 per share. Upon the final
submission of claims by Eligible NAC Shareholders, NAC anticipates issuing the
final warrants in the fourth quarter of Fiscal 2006.

                                       20

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     As acknowledged by the Selling Shareholders in the Agreement, NAC was
willing to enter into the Agreement, settle the New York Action and the Delaware
Action and consummate the other transactions contemplated by the Agreement in
order to terminate prolonged and expensive litigation and NAC's entry into the
Agreement would not constitute or be deemed to constitute or evidence any
improper or illegal conduct by or on behalf of NAC (or any of its directors,
officers, employees and other agents or representatives) or any other wrong
doing by NAC (or any of its directors, officers, employees and other agents or
representatives). The Agreement was approved by the disinterested and
independent members of NAC's Board of Directors.

     Management believes that settlement of the New York Action and the Delaware
Action, as provided for in the Agreement and the New York Settlement
Stipulation, will allow management to concentrate its efforts on NAC's business
and will allow NAC to avoid the costs and distractions of prolonged litigation.

CRITICAL ACCOUNTING POLICIES

     NAC's consolidated financial statements are prepared in accordance with
generally accepted accounting principles, which require NAC to make estimates
and assumptions. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses of NAC. Certain accounting policies are
deemed "critical", as they require management's highest degree of judgment,
estimates and assumptions. These accounting estimates and disclosures have been
discussed with the Audit Committee of NAC's Board of Directors. A discussion of
NAC's critical accounting policies, the judgments and uncertainties affecting
their application, and the likelihood that materially different amounts would be
reported under different conditions or using different assumptions are as
follows:

     Service Revenues: NAC's service revenues are earned within short time
periods, generally less than one week. NAC recognizes revenue from video
production, video editing, meeting services and broadcast satellite or webcast
services when the video is complete and delivered or all technical services have
been rendered. Deposits and other prepayments are recorded as deferred revenue
until revenue is recognized. NAC does not have licensing or other arrangements
that result in additional revenues following the delivery of the video or a
broadcast. Costs accumulated in the production of the video, meeting services or
broadcasts are deferred until the sale and delivery are complete. Deferred
production costs of $208,000 and $401,000, respectively, are included as a
component of other current assets at July 31, 2005 and January 31, 2005.

     NAC recognizes revenue from website design and development when the
customer accepts the completed project. Deposits and other prepayments are
recorded as deferred revenue until revenue is recognized. These contracts are
generally limited to the design and development of websites and the presentation
of site library content developed by NAC. Clients also have the option to engage
NAC to maintain and upgrade their websites. These projects are separate from the
website development and design engagements, and the related revenue is
recognized over the term of the agreement, which is generally up to one year.

                                       21

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     NAC recognizes revenue from developing and maintaining websites pursuant to
the requirements of Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by Statement of Position No. 98-9,
"Software Revenue Recognition with Respect to Certain Arrangements." Under SOP
97-2, revenue attributable to an element in a customer arrangement is recognized
when persuasive evidence of an arrangement exists and delivery has occurred,
provided the fee is fixed or determinable, collectibility is probable and the
arrangement does not require significant customization of the software. If at
the outset of the customer arrangement, NAC determines that the arrangement fee
is not fixed or determinable or that collectibility is not probable, NAC defers
the revenue and recognizes the revenue when the arrangement fee becomes due and
payable or, when collectibility is uncertain, as cash is collected.

     Cost of Service Revenues: Cost of revenues consists of direct expenses
specifically associated with client service revenues. The cost of revenues
includes direct salaries and benefits, purchased products or services for
clients, web hosting, support services, shipping and delivery costs.

     Accounts Receivable: NAC extends credit to clients in the normal course of
business. NAC continuously monitors collections and payments from clients and
maintains an allowance for doubtful accounts based upon historical experience
and any specific client collection issues that have been identified. Since
accounts receivable are concentrated in a relatively few number of clients, a
significant change in the liquidity or financial position of any of these
clients could have a material adverse impact on the collectibility of the
accounts receivable and future operating results. NAC does not have any
off-balance sheet credit exposure related to its customers.

     Valuation of Long-lived Assets and Goodwill: NAC reviews the carrying value
of its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be fully
recoverable and it annually assesses whether goodwill has been impaired by
comparing the carrying amount of the goodwill to its fair value. When it is
determined that the carrying amount of long-lived assets or goodwill is
impaired, impairment is measured by comparing an asset's estimated fair value to
its carrying value. The determination of fair value is based on quoted market
prices in active markets, if available, or independent appraisals; sales price
negotiations; or projected future cash flows discounted at a rate determined by
management to be commensurate with our business risk. The estimation of fair
value utilizing discounted forecasted cash flows includes significant judgments
regarding assumptions of revenue, operating and marketing costs; selling and
administrative expenses; interest rates; property and equipment additions and
retirements; and industry competition, general economic and business conditions,
among other factors.

     Management has determined that there was no impairment to our long-lived
assets and goodwill on the basis of a review of a discounted cash flow analysis,
which for goodwill is performed at the level of the subsidiaries to which the
goodwill relates. If there is a material change in the assumptions used in the
determination of fair value or a material change in the conditions or
circumstances influencing fair value, NAC could be required to recognize a
material impairment charge.

                                       22

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     Self-Insurance Claims: NAC maintained and continues to maintain
self-insurance for claims and associated litigation expenses relating to bodily
injury or property damage from accidents involving the vehicles rented to
customers by its discontinued automobile rental operations occurring in Fiscal
1996 and prior. NAC was, when required by either governing state law or the
terms of its rental agreement, self-insured for the first $1.0 million per
occurrence, and for losses in excess of $5.0 million per occurrence, for bodily
injury and property damage resulting from accidents involving its rental
vehicles. NAC was also self-insured, up to certain retained limits, for bodily
injury and property damage resulting from accidents involving NAC vehicles
operated by employees within the scope of their employment.

     NAC is subject to certain self-insurance claims and litigation expenses
relating to its discontinued automobile rental operations. NAC estimates the
required self-insurance liability based upon specific identification of the
known matters subject to future claims, the nature of the claim and the
estimated costs to be incurred. These estimates include, but are not limited to,
NAC's historical loss experience and projected loss factors. The required
self-insurance liability is subject to adjustment in the future based upon
changes in the nature of the remaining claims or the ultimate cost. As a
consequence of NAC's sale of its automobile rental operations in 1995, NAC
believes that all incurred claims have been reported to NAC and that there are
no longer any incurred but not yet reported claims to be received by NAC. NAC's
self-insurance liability at July 31, 2005 was $235,000.

     Because of the uncertainties related to several residual small claims and
legal proceedings involving NAC's former rental operations and self-insurance
claims, it is difficult to project with precision the ultimate effect the
adjudication or settlement of these matters will have on NAC. As additional
information regarding NAC's potential liabilities becomes available, NAC will
revise the estimates as appropriate.

     Income Taxes: NAC recognizes deferred tax assets and liabilities based on
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities. Loss carrybacks, reversal of deferred tax
liabilities, tax planning and estimates of future taxable income are considered
in assessing the need for a valuation allowance. At the time it is determined
that NAC is unable to realize deferred tax assets in excess of the recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should management determine that
NAC would not be able to realize all or part of its net deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to income
in the period such determination was made.

                                       23

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2005
  AS COMPARED TO THE THREE MONTHS ENDED JULY 31, 2004

     Service Revenues: Revenues for the three months ended July 31, 2005 were
$1.6 million and are comprised principally of revenues derived from the
operations of OMI and The Campus Group. Revenues for the three months ended July
31, 2004 were $2.4 million.

     For the three months ended July 31, 2005, revenues for The Campus Group
were $1.5 million as compared to revenues of $2.0 million for the three months
ended July 31, 2004. For the three months ended July 31, 2005, revenues for OMI
were $145,000 as compared to revenues of $354,000 for the three months ended
July 31, 2004. The aggregate decrease in revenues for the Campus Group and OMI
of $756,000 for the three months ended July 31, 2005 as compared to revenues for
the three months ended July 31, 2004 was principally due to a decrease in the
number, scope and value of client assignments completed during the three months
ended July 31, 2005 and 2004. The nature of OMI's and The Campus Group's
business is such that the nature and timing of assignments completed for
clients, and the resulting revenue, will vary from period to period. During the
three months ended July 31, 2005, The Campus Group and OMI hired three senior
marketing strategists for corporate communication services to develop new
marketing initiatives, create new project opportunities, seek new clients for
its services and expand existing client relationships to generate new revenues.
Although no assurances can be made, NAC seeks revenue expansion through the
retention of these new marketing strategists as a means to reduce year-to-year,
quarter-to-quarter fluctuations in its revenues and ultimately increase
revenues. Generally, there is a 6-12 month investment period in such personnel
by the Company before the benefits, in the form of new projects and/or clients,
are realized in new project and therefore revenues.

     Cost of Service Revenues: Cost of revenues for three months July 31, 2005
were $1.3 million and are comprised principally of cost of revenues derived from
operations of The Campus Group and OMI, (i) The Campus Group cost of revenues of
$1.2 million and (ii) OMI cost of revenues of $46,000. The average gross margin
for the three months ended July 31, 2005 was 17.8% and 67.9% for The Campus
Group and OMI, respectively. Cost of revenues for three months July 31, 2004
were $1.3 million and are comprised principally of (i) The Campus Group cost of
revenues of $1.0 million and (ii) OMI cost of revenues of $325,000. The average
gross margin for the three months ended July 31, 2004 was 50.0% and 8.1% for The
Campus Group and OMI, respectively.

     The aggregate decrease in gross profit of $683,000 is due to the combined
effect of (i) a decrease in revenues and (ii) a decrease in gross margin. The
aggregate average gross margins for The Campus Group and OMI decreased 21.5% for
the three months ended July 31, 2005 as compared to the three months ended July
31, 2004 due principally to less revenues realized to offset fixed production
overhead costs during the three months ended July 31, 2005.

                                       24

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     Selling, General and Administrative ("SG&A"): SG&A expenses includes SG&A
expenses of OMI's operations ("OMI SG&A"), The Campus Group's operations
("Campus SG&A") and NAC's personnel, occupancy, legal, professional, insurance
and other general corporate overhead costs ("NAC SG&A").

     For the three months ended July 31, 2005, SG&A expense was $2.1 million
comprised of (i) Campus SG&A of $730,000, (ii) OMI SG&A of $262,000, and (iii)
NAC SG&A of $1.1 million. For the three months ended July 31, 2004, SG&A expense
was $1.7 million comprised of (i) Campus SG&A of $585,000, (ii) OMI SG&A of
$216,000, and (iii) NAC SG&A of $855,000. The increase of SG&A expense of
$453,000 for the three months ended July 31, 2005 as compared to the comparable
period ended July 31, 2004 is principally the result of the net effects of (i)
an increase in personnel costs of $203,000, (ii) the $100,000 charge to SG&A for
legal fees associated with the Selling Shareholders, (iii) the $208,000 charge
to SG&A for the excess cost over the market value of Common Stock acquired and
(iv) a net decrease of other SG&A of $58,000 as NAC reduced general SG&A
expenditures from period-to-period.

     Income from AFC Investment: NAC accounts for its investment in AFC using
the equity method. For the three months ended July 31, 2005 and 2004, NAC
recorded income of $58,000 and $111,000, respectively, representing NAC's share
of AFC's net income for the three months ended June 30, 2005 and 2004
respectively.

     The following sets forth summarized operating results for AFC (in
thousands):

                                                      Three Months Ended
                                                             June 30,
                                                  --------------------------
                                                     2005           2004
                                                  -----------    -----------

Revenues                                             $ 1,141        $ 1,262

Film rental                                              228            243
Operating costs                                          566            577
Depreciation and amortization                            189            177
General and administrative expenses                       42             43
                                                  -----------    -----------
                                                       1,025          1,040
                                                  -----------    -----------
Net income                                             $ 116          $ 222
                                                  ===========    ===========

NAC's proportionate share of net income                 $ 58          $ 111
                                                  ===========    ===========

                                       25

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     AFC's revenues decreased $121,000 for the three months ended June 30, 2005
as compared to the three months ended June 30, 2004, principally as a result of
the net effects of (i) a 13.3% decrease in attendance, (ii) a decrease of
$10,000 in other, concession and cafe revenues and (iii) a 3.1% increase in
average ticket prices period-to-period. The attendance, and at times the ticket
prices, at AFC will vary depending on audience interest in, and the popularity
of the films it exhibits and other factors. Film rental, as a percentage of
revenue, increased 0.7% to 20.0% from 19.3% for the three months ended June 30,
2005 and 2004, respectively. Film rental expense generally is a factor of a
fixed percentage rental rate per film multiplied by the number of tickets sold.
AFC experiences fluctuations in film rental expense, as a percentage of revenue,
depending upon the rental rate per film and the popularity of the film.
Operating costs, as a percent of revenue, increased 3.9% to 49.6% for the three
months ended June 30, 2005 as compared to 45.7% for the three months ended June
30, 2004 due principally to a decrease in revenues realized without a
corresponding a reduction in general operating expenses. The nature of AFC's
operating costs tend to generally be more fixed overhead-related costs and
advertising expenses.

     Income Taxes: Due to net operating losses and the availability of net
operating loss carryforwards, NAC's effective federal income tax rate was zero
for the three month periods ended July 31, 2005 and July 31, 2004. NAC has
provided a full valuation allowance against its net operating loss carryforward
and other net deferred tax asset items due to the uncertainty of their future
realization. Income tax expense for the three months ended July 31, 2005 is
comprised of various state and local minimum income tax expense for the period.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS FROM OPERATIONS FOR THE SIX MONTHS ENDED JULY 31, 2005
  AS COMPARED TO THE SIX MONTHS ENDED JULY 31, 2004

     Service Revenues: Revenues for the six months ended July 31, 2005 were $4.5
million and are comprised principally of revenues derived from the operations of
OMI and The Campus Group. Revenues for the six months ended July 31, 2004 were
$5.7 million.

     For the six months ended July 31, 2005, revenues for The Campus Group were
$4.1 million as compared to revenues of $5.1 million for the six months ended
July 31, 2004. For the six months ended July 31, 2005, revenues for OMI were
$387,000 as compared to revenues of $615,000 for the six months ended July 31,
2004. The aggregate decrease in revenues for the Campus Group and OMI of $1.2
million for the six months ended July 31, 2005 as compared to revenues for the
six months ended July 31, 2004 was principally due to a decrease in the number,
scope and value of client assignments completed during the six months ended July
31, 2005 and 2004. The nature of OMI's and The Campus Group's business is such
that the nature and timing of assignments completed for clients, and the
resulting revenue, will vary from period to period. As indicated above, The
Campus Group and OMI recently hired three senior marketing strategists for
corporate communication services to develop new marketing initiatives, create
new project opportunities, seek new clients for its services and expand existing
client relationships to generate new revenues. Although no assurances can be
made, NAC seeks revenue expansion through the retention of these new marketing
strategists as a means to reduce year-to-year, quarter-to-quarter fluctuations
in its revenues and ultimately increase revenues. Generally, there is at a 6-12
month investment period in such personnel by the Company before the benefits, in
the form of new projects and/or clients are realized in new project and
therefore revenues.

                                       26

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     Cost of Service Revenues: Cost of revenues for six months July 31, 2005
were $2.8 million and are comprised principally of cost of revenues derived from
operations of The Campus Group and OMI, (i) The Campus Group cost of revenues of
$2.6 million and (ii) OMI cost of revenues of $194,000. The average gross margin
for the six months ended July 31, 2005 was 37.4% and 49.9% for The Campus Group
and OMI, respectively. Cost of revenues for six months July 31, 2004 were $3.3
million and are comprised principally of (i) The Campus Group cost of revenues
of $2.8 million and (ii) OMI cost of revenues of $556,000. The average gross
margin for the six months ended July 31, 2004 was 44.8% and 9.5% for The Campus
Group and OMI, respectively.

     The aggregate decrease in gross profit of $662,000 is due to the combined
effect of (i) a decrease in revenues and (ii) a decrease in gross margin. The
aggregate average gross margins for The Campus Group and OMI decreased 3.6% for
the six months ended July 31, 2005 as compared to the six months ended July 31,
2004 principally due to a less revenues realized to offset fixed production
overhead costs during the six months ended July 31, 2005.

     Selling, General and Administrative ("SG&A"): SG&A expenses includes SG&A
expenses of OMI's operations ("OMI SG&A"), The Campus Group's operations
("Campus SG&A") and NAC's personnel, occupancy, legal, professional, insurance
and other general corporate overhead costs ("NAC SG&A").

     For the six months ended July 31, 2005, SG&A expense was $3.8 million
comprised of (i) Campus SG&A of $1.4 million, (ii) OMI SG&A of $507,000, and
(iii) NAC SG&A of $1.9 million. For the six months ended July 31, 2004, SG&A
expense was $3.6 million comprised of (i) Campus SG&A of $1.3 million, (ii) OMI
SG&A of $520,000, and (iii) NAC SG&A of $1.7 million. The increase of SG&A
expense of $250,000 for the six months ended July 31, 2005 as compared to the
comparable period ended July 31, 2004 is principally the result of the net
effects of (i) an increase in personnel costs of $126,000, (ii) the $100,000
charge to SG&A for legal fees associated with the Selling Shareholders, (iii)
the $208,000 charge to SG&A for the excess cost over the market value of Common
Stock acquired and (ii) a net decrease of other SG&A of $184,000 as NAC reduced,
other legal costs and general SG&A expenditures from period-to-period.

                                       27

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     Income from AFC Investment: NAC accounts for its investment in AFC using
the equity method. For the six months ended July 31, 2005 and 2004, NAC recorded
income of $216,000 and $189,000, respectively, representing NAC's share of AFC's
net income for the six months ended June 30, 2005 and 2004 respectively.

     The following sets forth summarized operating results for AFC (in
thousands):

                                                        Six Months Ended
                                                             June 30,
                                                   ----------------------------
                                                      2005            2004
                                                   ------------    ------------

Revenues                                               $ 2,552         $ 2,567

Film rental                                                534             503
Operating costs                                          1,115           1,210
Depreciation and amortization                              387             391
General and administrative expenses                         84              85
                                                   ------------    ------------
                                                         2,120           2,189
                                                   ------------    ------------
Net income                                               $ 432           $ 378
                                                   ============    ============

NAC's proportionate share of net income                  $ 216           $ 189
                                                   ============    ============

     AFC's revenues decreased $15,000 for the six months ended June 30, 2005 as
compared to the six months ended June 30, 2004, principally as a result of the
net effects of (i) a 1.5% increase in attendance, (ii) an increase of $21,000 in
other, concession and cafe revenues and (iii) a 3.2% increase in average ticket
prices period-to-period. The attendance, and at times the ticket prices, at AFC
will vary depending on audience interest in, and the popularity of the films it
exhibits and other factors. Film rental, as a percentage of revenue, increased
1.3% to 20.9% from 19.6% for the six months ended June 30, 2005 and 2004,
respectively. Film rental expense generally is a factor of a fixed percentage
rental rate per film multiplied by the number of tickets sold. AFC experiences
fluctuations in film rental expense, as a percentage of revenue, depending upon
the rental rate per film and the popularity of the film. Operating costs, as a
percent of revenue, decreased 3.4% to 43.7% for the six months ended June 30,
2005 as compared to 47.1% for the six months ended June 30, 2004 due principally
to a decrease in general operating expense for the six months ended June 30,
2005 as compared to the six months ended June 30, 2004. The nature of AFC's
operating costs tend to generally be more fixed overhead-related costs and
advertising expenses.

     Income Taxes: Due to net operating losses and the availability of net
operating loss carryforwards, NAC's effective federal income tax rate was zero
for the six month periods ended July 31, 2005 and July 31, 2004. NAC has
provided a full valuation allowance against its net operating loss carryforward
and other net deferred tax asset items due to the uncertainty of their future
realization. Income tax expense for the six months ended July 31, 2005 is
comprised of various state and local minimum income tax expense for the period.

                                       28

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

     Throughout the six months ended July 31, 2005 and as of September 12, 2005,
NAC had no external source of financing and has operated on its existing cash
balances, proceeds from its income tax refund, net proceeds form the Shareholder
Settlement, cash flows from operations, and distributions from its investment in
AFC. NAC will continue to pursue reductions in its operating expenses and new
debt or equity financing (which there can be no assurance NAC will obtain such
financing) as means of supplementing NAC's resources available to pursue new
acquisitions, joint ventures or other business development opportunities. At
July 31, 2005, NAC had cash of $1.0 million which together with any cash flow
derived from its investment in AFC and the operations of NAC's corporate
communications business will be used to pursue such opportunities.

     As a consequence of periodic fluctuations in NAC's working capital needs
based upon the timing of collections, periods of increased media production
activity and the then pending collection of the income tax refundable, on July
14, 2004 NAC consummated a Loan and Security Agreement ("Loan Agreement") with a
lender and issued a Promissory Note ("Note") of $1.0 million. The lender, Time
Passages Corp., is an unaffiliated third party lender. The President of Time
Passages Corp. was a former director of NAC who last served on NAC's board in
January 2002. Pursuant to the terms of the Note, (i) the outstanding principal
of the Note was due July 13, 2005, (ii) NAC is required to pay interest only,
monthly and in arrears, during the term and (iii) the Note bears interest at
twenty percent per annum. NAC may prepay the Note at anytime and without a
prepayment penalty. In January 2005, NAC prepaid $650,000 of the Note. In
February 2005, NAC prepaid the $350,000 remaining balance and retired the Note.

     As a consequence of NAC's acquisition of The Campus Group effective July
31, 2003, NAC issued to Mr. Campus and certain family trusts promissory notes of
$9.9 million and issued to a family trust a convertible promissory note of $2.8
million. Of the $9.9 million in promissory notes issued by NAC, $6.6 million of
the promissory notes ("Base Notes") bear interest at 5% per annum and are
repayable in quarterly installments according to a formula based upon the future
cash flows realized from The Campus Group over a period not to exceed seven
years. The remaining $3.3 million in promissory notes ("Trailing Notes") issued
by NAC bear interest at 5% per annum and are repayable in quarterly
installments, commencing upon the retirement of the Base Notes, according to a
formula based upon the future cash flows realized from The Campus Group over a
period not to exceed three years subsequent to the retirement of the Base Notes.
The $2.8 million convertible promissory note (i) bears interest at 5% per annum,
payable quarterly in cash or accumulating as principal at the election of NAC,
(ii) requires principal payments to commence upon the retirement of the $9.9
million of Base Notes and the Trailing Notes and is then repayable in quarterly
installments according to a formula based upon the future cash flows realized
from The Campus Group over a period not to exceed three years and (iii) is
convertible at the option of the holder into shares of NAC common stock at a
base conversion price of $1.50 per share. The holder may not convert the
convertible promissory note into NAC common stock prior to repayment of the Base
Notes and the Trailing Notes. The promissory notes are secured by the capital
stock of the companies comprising The Campus Group. At July 31, 2005, NAC has
outstanding obligations under the terms of the Base Notes, Trailing Notes and
the Convertible Notes of $6.0 million, $3.3 million and $2.8 million,
respectively.

                                       29

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     As a consequence of NAC's acquisition of OMI effective April 1, 2003, NAC
assumed $814,000 in bank debt and capital lease obligations to financial
institutions and issued a promissory note payable to Mr. Thompson in the amount
of $153,000.

     During 2001, OMI obtained a $300,000 bank term loan (the "Term Loan") to
finance certain capital expenditures. The Term Loan is payable in monthly
installments of $6,000, comprised of principal and interest, over a five year
term, expiring in July 2006. The Term Loan bears interest at the rate of 8.25%
per annum. The Term Loan is collateralized by substantially all of OMI's assets
and the personal guarantee of Mr. Thompson. The outstanding balance of the Term
Loan at July 31, 2005 was $62,000.

     On April 25, 2002, OMI obtained a $402,000 loan guaranteed by the U.S.
Small Business Administration (the "SBA Loan") to finance losses incurred as a
result of the September 11, 2001 terrorist attacks in New York City. At July 31,
2005, the remaining balance of the SBA Loan of $373,000 is repayable in monthly
installments of $3,309 with the last payment due in April 2017. The SBA Loan
bears interest at the rate of 4% per annum.

     The promissory note payable to Mr. Thompson is payable in monthly
installments of principal and interest over a 36 month period expiring April
2006. The promissory note bears interest at 5% per annum. The outstanding
balance of the promissory note at July 31, 2005 was $50,000.

     For the six months ended July 31, 2005, NAC's cash and cash equivalents
increased $550,000 due principally to the net effects of (i) cash flows provided
by operations, inclusive of the net proceeds derived from the Shareholder
Settlement of $2.0 million, (ii) proceeds from AFC distributions of $208,000,
offset by (iii) payments to acquire Common Stock of $1.2 million, (iv) capital
expenditures of $142,000, and (v) the repayment of debt of $456,000. Principle
components of NAC's cash flows from operations for the six months ended July 31,
2005 included the collection of NAC's $826,000 income tax refund and the net
proceeds derived from the New York Settlement Stipulation of $2.0 million. The
cash flows from the distributions from AFC decreased for the six months ended
July 31, 2005, as compared to those for the six months ended July 31, 2004, as a
consequence of the timing of distributions by AFC.

     NAC believes that the available cash and cash equivalents totaling $1.0
million at July 31, 2005 and any cash distributions from its investment in AFC
and cash flow from operations will be sufficient to pay operating expenses,
existing liabilities, fund existing debt repayments and fund its activities
through the next twelve months as NAC explores new strategic business
alternatives. Additionally, as previously discussed, NAC's lack of external
financing sources may limit its ability to pursue strategic business
alternatives being considered by NAC's Board of Directors. Such limitations may
have an adverse impact on NAC's financial position, results of operations and
liquidity.

                                       30

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

OTHER

New Accounting Pronouncements
-----------------------------

     In December, 2004 the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123R (revised 2004), Share-Based Payment, which replaces
SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
beginning with the first interim or annual period after June 15, 2005, with
early adoption encouraged. The pro forma disclosures previously permitted under
SFAS 123 no longer will be an alternative to financial statement recognition.
NAC is required to adopt SFAS 123R at the beginning of Fiscal 2007 (effective
February 1, 2006). Under SFAS No. 123R, NAC must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption.
The transition methods include prospective and retrospective adoption options.
Under the retrospective option, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. The prospective
method requires that compensation expense be recorded for all unvested stock
options and restricted stock at the beginning of the first quarter of adoption
while the retrospective methods would record compensation expense for all
unvested stock options and restricted stock beginning with the first period
restated. NAC has not yet determined the method of adoption or the effect of
adopting SFAS 123R, and has not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS 123.

     In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary
Assets, which is an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. The guidance in APB Opinion No. 29 is based on the principle that
exchanges of nonmonetary assets should be measured based upon the fair value of
the assets exchanged, with certain exemptions to that principle. SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a consequence of the exchange. The adoption of SFAS No. 153
will be effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. NAC expects that the adoption of SFAS No. 153
will not have a material impact NAC's consolidated financial statements.

     In March 2005, the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations ("FIN 47"). This Interpretation
clarifies that conditional asset retirement obligations meet the definition of a
liability and should be recognized when incurred if the fair value can be
reasonably estimated. FIN 47 also provides guidance as to when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective for fiscal years ending after
December 15, 2005. NAC expects the adoption of FIN 47 will not have a material
impact on NAC's consolidated financial position or results of operations.

                                       31

                   NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

     In May 2005, FASB issued Statement No. 154, Accounting Changes and Error
Corrections ("SFAS 154"). SFAS 154 replaces APB No. 20, Accounting Changes, and
SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and
establishes retrospective application as the required method for reporting a
change in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS 154
applies to all voluntary changes in accounting principles and to changes
required by an accounting pronouncement in the instance that the pronouncement
does not include specific transition provisions. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. NAC expects that the adoption of SFAS 154 will not have
a material impact on NAC's consolidated financial position or results of
operations.

     Inflation
     ---------

     Inflation has not had a material effect on NAC's business.

     NAC's exposure to the risks of inflation is generally limited to the
potential impact of inflation on its operating and general and administrative
expenses. To date, inflation has not had a material adverse impact on NAC.

     NAC does not utilize futures, options or other derivative financial
instruments.

                                       32

FORWARD-LOOKING STATEMENTS

     Some of the information in this report contains forward looking statements
within the meaning of the federal securities laws that relate to future events
or our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause us or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking statements. You should
not rely on forward-looking statements in this report. Forward-looking
statements typically are identified by use of terms such as "anticipate",
"believe", "plan", "expect", "intend", "may", "will", "should", "estimate",
"predict", "potential", "continue" and similar words although some
forward-looking statements are expressed differently. This report may contain
forward-looking statements attributed to third parties relating to their
estimates regarding the growth of our markets. All forward-looking statements
address matters that involve risk and uncertainties, and there are many
important risks, uncertainties and other factors that could cause our actual
results, as well as those of the markets we serve, levels of activity,
performance, achievements and prospects to differ materially from the
forward-looking statements contained in this report. You should also consider
carefully the statements under other sections of this report which address
additional facts that could cause our actual results to differ from those set
forth in any forward-looking statements. We undertake no obligation to publicly
update or review any forward-looking statements, whether as a result of new
information, future developments or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Like virtually all commercial enterprises, NAC can be exposed to the risk
("market risk") that the cash flows to be received or paid relating to certain
financial instruments could change as a result of changes in interest rate,
exchange rates, commodity prices, equity prices and other market changes.

     NAC does not engage in trading activities and does not utilize interest
rate swaps or other derivative financial instruments or buy or sell foreign
currency, commodity or stock indexed futures or options. Accordingly, NAC is not
exposed to market risk from these sources.

     As of July 31, 2005, the interest rates under NAC's long term and
convertible debt are fixed. As a result NAC has limited market risk associated
with market interest rates.

ITEM 4. CONTROLS AND PROCEDURES

     As of the end of the period covered by this interim report on Form 10-Q,
the Chief Executive Officer and the Chief Financial Officer of NAC (the
"Certifying Officers") have conducted evaluations of NAC's disclosure controls
and procedures. As defined under Sections 13a-15(e) and 15d-15(e)) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
"disclosure controls and procedures" means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. The
Certifying

                                       33

Officers have reviewed NAC's disclosure controls and procedures and have
concluded that those disclosure controls and procedures were effective as of the
end of our most recent fiscal quarter. In compliance with Section 302 of the
Sarbanes-Oxley Act of 2002, (18 U.S.C. 1350), each of the Certifying Officers
executed an Officer's Certification included in this Quarterly Report on Form
10-Q.

         During our most recent fiscal quarter, there were no changes in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

                                       34

                                    PART II.
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Shareholder Complaints
----------------------

     In July and August 2001, NAC received three separate derivative complaints
filed with the Court of Chancery of Delaware ("Delaware Court") by each of
Academy Capital Management, Inc ("Academy Complaint")., Levy Markovich,
("Markovich Complaint") and Harbor Finance Partners ("Harbor Complaint"), all
shareholders of NAC, against James J. McNamara, John A. Gleason, William S.
Marshall, Henry Y.L. Toh, Donald Jasensky, Peter T. Zackaroff, Mallory Factor,
and Thomas F. Carney, Jr. (the "Director Defendants") and names NAC as a nominal
defendant. By order of the Delaware Court on November 12, 2001, the Academy,
Markovich and Harbor Complaints were consolidated under the title "In re
National Auto Credit, Inc. Shareholders Litigation," Civil Action No. 19028 NC
(Delaware Court) ("Delaware Action") and the Academy Complaint were consolidated
as the Delaware Action.

     The Delaware Action principally seeks: (i) a declaration that the Director
Defendants breached their fiduciary duties to NAC, (ii) a judgment voiding an
employment agreement with James J. McNamara and rescinding a stock exchange
agreement in which NAC acquired ZoomLot, (iii) a judgment voiding the grant of
stock options and the award of director fees allegedly related thereto, (iv) an
order directing the Director Defendants to account for alleged damages sustained
and profits obtained by the Director Defendants as a result of the alleged
various acts complained of, (v) the imposition of a constructive trust over
monies or other benefits received by the Director Defendants, (vi) a judgment
requiring the Director Defendants to promptly schedule an annual meeting of
shareholders and (vii) an award of costs and expenses.

     On October 12, 2001, NAC received a derivative complaint filed by Robert
Zadra, a shareholder of NAC, that had been filed with the Supreme Court of the
State of New York ("New York Court") on or about October 12, 2001 against James
J. McNamara, John A. Gleason, William S. Marshall, Henry Y. L. Toh, Donald
Jasensky, Peter T. Zackaroff, Mallory Factor, Thomas F. Carney, Jr., and NAC as
Defendants. On or about May 29, 2002 the complaint was amended to include class
action allegations (the "New York Action"). The New York Action contains
allegations similar to those in the Delaware Action concerning the Board's
approval of the employment agreement with James McNamara, option grants and past
and future compensation to the Director Defendants, and the ZoomLot transaction.
The New York Action seeks (i) a declaration that as a result of approving these
transactions the Director Defendants breached their fiduciary duties to NAC,
(ii) a judgment enjoining Director Defendants from proceeding with or exercising
the option agreements, (iii) rescission of the option grants to Director
Defendants, if exercised, (iv) an order directing the Director Defendants to
account for alleged profits and losses obtained by the Director Defendants as a
result of the alleged various acts complained of, (v) awarding compensatory
damages to NAC and the class, together with prejudgment interest, and (vi) an
award of costs and expenses.

     NAC has vigorously defended against each of the respective claims made in
the Delaware Action and New York Action, as it believes that the claims have no
merit.

                                       35

     The parties in the New York Action thereafter engaged in settlement
negotiations and, in December 2002, the parties entered into a stipulation of
settlement which was thereafter amended in November 2004 (the "New York
Settlement Stipulation"). Under the terms of the New York Settlement
Stipulation, NAC agreed (subject to certain terms and conditions) to, among
other things, (a) adopt or implement certain corporate governance procedures or
policies, (b) issue to a class of NAC shareholders who had continuously held NAC
Common Stock from December 14, 2000 through December 24, 2002 ("Eligible NAC
Shareholders") up to one million warrants (one warrant per 8.23 shares of Common
Stock), with each warrant having a five year term and being exercisable for
shares of NAC Common Stock at a price of $1.55 per share, (c) cancel 50% of
certain stock options granted on December 15, 2000, and (d) make certain
payments for legal fees for counsel to the plaintiffs in the New York Action. In
addition, the New York Settlement Stipulation created for the benefit of NAC a
Settlement Fund in the amount of $2.5 million which has been funded by an
insurance policy. The New York Court also subsequently approved $500,000 for
legal fees for counsel to the plaintiffs in the New York Action to be paid from
the proceeds from the Settlement Fund.

     In order to facilitate the settlement and dismissal of the separate
Delaware Action as well as the New York Action, on April 22, 2005, NAC entered
into a Stock Purchase Agreement ("Agreement") with Academy Capital Management,
Inc., Diamond A. Partners, L.P., Diamond A. Investors, L.P., Ridglea Investor
Services, Inc. and William S. Banowsky (hereinafter referred to collectively as
the "Selling Stockholders"). The Selling Stockholders had also raised objections
to the settlement of the New York Action. The New York Court (a) had rejected
the objections raised by the Selling Stockholders and (b) had approved as fair
and in the best interests of NAC and its shareholders the proposed settlement of
the New York Action as set forth in the New York Settlement Stipulation. The
Selling Stockholders had then filed an appeal (the "Appeal") to such
determination by the New York Court.

     Pursuant to the terms of the Agreement, the Selling Stockholders agreed,
among other things, to do the following:

      o  enter into a stipulation (to be filed with the New York Court) pursuant
         to which they will (a) irrevocably withdraw, with prejudice, any
         objections they had asserted or might have asserted with respect to the
         settlement of the New York Action, (b) stipulate to the entry of an
         order dismissing the New York Action and (c) agree to the dismissal of
         the Appeal.

      o  enter into a stipulation (to be filed with the Appellate Division,
         First Department, of the Supreme Court of the State of New York)
         providing for the dismissal of the Appeal.

      o  enter into a stipulation (to be filed in the Delaware Court), pursuant
         to which they will agree to the dismissal of the Delaware Action with
         prejudice.

     The Selling Stockholders have executed and delivered to NAC and NAC filed
with the applicable New York Court and Delaware Court each of the stipulations
referred to above. Effective May 5, 2005, the New York Court entered a Final
Order and Judgment in which it approved the Stipulation of Dismissal of
Objections, finding the terms set forth therein fair, reasonable and adequate,
and dismissed the New York Action and the objections to the New York Settlement
with prejudice. Effective May, 13, 2005, the Appellate Division, First
Department, of the Supreme Court of the State of New York granted the dismissal
of the Appeal. Effective May 18, 2005, the Delaware Court granted an Order and
Judgment Dismissing Action with Prejudice the Delaware Action. As a consequence
of each of the above actions by the respective courts, settlement of the New
York Action and the Delaware Action, was deemed final in June 2005 and NAC
received net proceeds of $2.0 million from NAC's insurer from the Settlement
Fund in the New York Action.

                                       36

     Pursuant to the Agreement, NAC agreed (subject to certain terms and
conditions set forth in the Agreement) to purchase from the Selling Shareholders
their 1,562,500 shares of Common Stock at a price of $0.6732 per share (or a
total purchase price of $1,051,875) and to contribute $100,000 to cover a
portion of the legal fees incurred by the Selling Shareholders. Effective June
30, 2005, NAC purchased 1,562,500 shares of NAC Common Stock from the Selling
Stockholders.

     As acknowledged by the Selling Shareholders in the Agreement, NAC was
willing to enter into the Agreement, settle the New York Action and the Delaware
Action and consummate the other transactions contemplated by the Agreement in
order to terminate prolonged and expensive litigation and NAC's entry into the
Agreement would not constitute or be deemed to constitute or evidence any
improper or illegal conduct by or on behalf of NAC (or any of its directors,
officers, employees and other agents or representatives) or any other wrong
doing by NAC (or any of its directors, officers, employees and other agents or
representatives). The Agreement was approved by the disinterested and
independent members of NAC's Board of Directors.

     Management believes that settlement of the New York Action and the Delaware
Actions, as provided for in the Agreement and the New York Settlement
Stipulation, will allow management to concentrate its efforts on NAC's business
and will allow NAC to avoid the costs and distractions of prolonged litigation.

Self-Insurance Reserves for Property Damage and Personal Injury Claims
----------------------------------------------------------------------

     NAC, under the names Agency Rent-A-Car, Inc. ("ARAC"), Altra Auto Rental
and Automate Auto Rental, previously engaged in the rental of automobiles on a
short-term basis, principally to the insurance replacement market. In Fiscal
1996, NAC disposed of its rental fleet business through the sale of certain
assets and through certain leases to a national car rental company. All
liabilities related to the discontinued rental business, principally
self-insurance claims, were retained by NAC.

     NAC maintained and continues to maintain self-insurance for claims relating
to bodily injury or property damage from accidents involving the vehicles rented
to customers by its discontinued automobile rental operations occurring in
Fiscal 1996 and prior. NAC was, when required by either governing state law or
the terms of its rental agreement, self-insured for the first $1.0 million per
occurrence, and for losses in excess of $5.0 million per occurrence, for bodily
injury and property damage resulting from accidents involving its rental
vehicles. NAC was also self-insured, up to certain retained limits, for bodily
injury and property damage resulting from accidents involving NAC vehicles
operated by employees within the scope of their employment.

     NAC is the subject to certain self-insurance claims and litigation expenses
relating to its discontinued automobile rental operations. NAC estimates the
required self-insurance liability based upon specific identification of the
known matters subject to future claims, the nature of the claim and the
estimated costs to be incurred. These estimates include, but are not limited to,
NAC's historical loss experience and projected loss factors. The required
self-insurance liability is subject to adjustment in the future based upon
changes in the nature of the remaining claims or the ultimate cost. As a
consequence of NAC's sale of its automobile rental operations in 1995, NAC
believes that all incurred claims have been reported to NAC and that there are
no longer any incurred but not yet reported claims to be received by NAC. NAC's
self-insurance liability at July 31, 2005 was $235,000.

                                       37

     Because of the uncertainties related to several residual small claims and
legal proceedings involving NAC's former rental operations and self-insurance
claims, it is difficult to project with precision the ultimate effect the
adjudication or settlement of these matters will have on NAC. As additional
information regarding NAC's potential liabilities becomes available, NAC will
revise the estimates as appropriate.

Other Litigation
----------------

     In the normal course of its business, NAC is named as defendant in legal
proceedings. It is the policy of NAC to vigorously defend litigation and/or
enter into settlements of claims where management deems appropriate. In the
opinion of management, the amount of ultimate liability with respect to any
current actions, if any, is unlikely to materially affect our financial
position, results of operations or liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     A) EXHIBITS

<TABLE>

    EXHIBIT                                                                     PAGE
    NUMBER       TITLE OF EXHIBIT                                               NUMBER
---------------------------------------------------------------------------------------

    31.1         Officer's Certification Pursuant to Section 302 of the
                 Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)                       40
    31.2         Officer's Certification Pursuant to Section 302 of the
                 Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)                       41
    32.1         Certification of Principal Executive Officer Pursuant to
                 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)    42
    32.2         Certification of Principal Financial Officer Pursuant to
                 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)    43
</TABLE>

     B) REPORTS ON FORM 8-K

     On June 30, 2005, NAC filed a Current Report on Form 8-K to report that it
consummated its previously disclosed agreement to settle all outstanding
shareholder litigation and repurchase 1,562,500 shares of Common Stock from
unaffiliated third parties, Academy Capital Management, Inc., Diamond A.
Partners, L.P., Diamond A. Investors, L.P., Ridglea Investor Services, Inc. and
William S. Banowsky ("the Selling Stockholders").

                                       38

                                   SIGNATURES
                                   ----------

         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.

                                           NATIONAL AUTO CREDIT, INC.

Date:  September 12, 2005                  By:  /s/ James J. McNamara
     ----------------------                     --------------------------------
                                           James J. McNamara
                                           Chairman of the Board and Chief
                                           Executive Officer (principal
                                           executive officer)

                                           By:  /s/ Robert V. Cuddihy, Jr.
                                                --------------------------------
                                           Robert V. Cuddihy, Jr.
                                           Chief Financial Officer (principal
                                           accounting and financial officer)

                                       39
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