UGLY DUCKLING CORP, 424B3, 1997-06-24

UGLY DUCKLING CORP
424B3, 1997-06-24
PERSONAL CREDIT INSTITUTIONS

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<PAGE> 1

Rule 424(b)(3)
File No. 333-22237

PROSPECTUS SUPPLEMENT NO. 2 TO PROSPECTUS DATED APRIL 21, 1997

5,413,144 SHARES

UGLY DUCKLING LOGO

COMMON STOCK

This Prospectus Supplement No. 2 to the Prospectus dated April 21, 1997 of
Ugly Duckling Corporation (the "Company") relates to the offering of 5,413,144
shares of the Company's Common Stock by persons who have acquired such shares in
certain private placement transactions by the Company not involving a public
offering and modifies or supplements the Prospectus enclosed herewith.

The Common Stock is quoted on Nasdaq National Market under the symbol
"UGLY". On June 20, 1997, the last reported price of the Common Stock was
$15.875 per share.

SEE "RISK FACTORS" AT PAGE 8 OF THE PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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

The date of this Prospectus Supplement No. 2 is June 24, 1997.
<PAGE> 2

UGLY DUCKLING CORPORATION

QUARTERLY FINANCIAL INFORMATION

The following condensed consolidated financial information as of and for
the three month period ended March 31, 1997 is added to the Prospectus for the
purpose of updating the interim financial information contained therein. See
Note 1 to Condensed Consolidated Financial Statements.

UGLY DUCKLING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents............................................. $ 73,237 $ 18,455
Finance Receivables:
Held for Investment................................................. 39,790 52,188
Held for Sale....................................................... 30,000 7,000
-------- --------
Principal Balances, Net.......................................... 69,790 59,188
Less: Allowance for Credit Losses................................... (15,442) (8,125)
-------- --------
Finance Receivables, Net......................................... 54,348 51,063
-------- --------
Residuals in Finance Receivables Sold................................. 16,823 9,889
Investments Held in Trust............................................. 6,339 3,479
Inventory............................................................. 9,270 5,752
Property and Equipment, Net........................................... 24,996 20,652
Goodwill and Trademarks, Net.......................................... 8,590 2,150
Other Assets.......................................................... 12,473 6,643
-------- --------
$206,076 $118,083
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable.................................................... $ 1,858 $ 2,132
Accrued Expenses and Other Liabilities.............................. 9,575 6,728
Notes Payable....................................................... 8,400 12,904
Subordinated Notes Payable.......................................... 12,000 14,000
-------- --------
Total Liabilities................................................ 31,833 35,764
-------- --------
Stockholders' Equity:
Common Stock........................................................ 171,274 82,612
Retained Earnings (Accumulated Deficit)............................. 2,969 (293)
-------- --------
Total Stockholders' Equity....................................... 174,243 82,319
-------- --------
$206,076 $118,083
======== ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

S-2
<PAGE> 3

UGLY DUCKLING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER COMMON SHARE -- UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Sales of Used Cars....................................................... $18,211 $15,081
Less:
Cost of Used Cars Sold................................................. 9,164 8,348
Provision for Credit Losses............................................ 3,981 2,606
-------- --------
5,066 4,127
-------- --------
Interest Income.......................................................... 6,440 3,662
Gain on Sale of Finance Receivables...................................... 4,579 539
-------- --------
11,019 4,201
-------- --------
Other Income............................................................. 1,504 114
-------- --------
Income before Operating Expenses......................................... 17,589 8,442
Operating Expenses....................................................... 11,406 5,726
-------- --------
Operating Income......................................................... 6,183 2,716
Interest Expense......................................................... 769 1,651
-------- --------
Earnings before Income Taxes............................................. 5,414 1,065
Income Taxes............................................................. 2,152 --
-------- --------
Net Earnings............................................................. $ 3,262 $ 1,065
======== ========
Earnings per Share....................................................... $ 0.20 $ 0.13
======== ========
Shares Used in Computation............................................... 16,579 5,892
======== ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

S-3
<PAGE> 4

UGLY DUCKLING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Earnings........................................................... $ 3,262 $ 1,065
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating
Activities:
Provision for Credit Losses......................................... 3,981 2,606
Gain on Sale of Finance Receivables................................. (4,579) (539)
Finance Receivables Held for Sale................................... (47,876) --
Proceeds from Sale of Finance Receivables........................... 49,400 --
Decrease in Deferred Income Taxes................................... 573 --
Depreciation and Amortization....................................... 603 332
Decrease (Increase) in Inventory.................................... (719) 124
Decrease (Increase) in Other Assets................................. (4,294) 33
Increase in Accounts Payable, Accrued Expenses, and Other
Liabilities........................................................ 1,180 1,085
Increase in Income Taxes Receivable/Payable......................... 1,564 417
Other, Net.......................................................... 1 (1)
-------- --------
Net Cash Provided by Operating Activities...................... 3,096 5,124
-------- --------
Cash Flows from Investing Activities:
Increase in Finance Receivables........................................ -- (23,482)
Collections of Finance Receivables..................................... 11,341 10,079
Proceeds from Sale of Finance Receivables.............................. -- 9,937
Increase in Investments Held in Trust.................................. (2,861) (625)
Purchase of Property and Equipment..................................... (4,150) (533)
Payment for Purchase of Assets of Seminole Finance Co. ................ (3,449) --
Other, Net............................................................. (1,384) 26
-------- --------
Net Cash Used in Investing Activities.......................... (503) (4,598)
======== ========
Cash Flows from Financing Activities:
Repayments of Notes Payable............................................ (34,404) (362)
Net Issuance (Repayment) of Subordinated Notes Payable................. (2,000) (553)
Proceeds from Issuance of Common Stock................................. 88,662 --
Other, Net............................................................. (69) (366)
-------- --------
Net Cash Provided by (Used In) Financing Activities............ 52,189 (1,281)
Net Increase (Decrease) in Cash and Cash Equivalents..................... 54,782 (755)
Cash and Cash Equivalents at Beginning of Period......................... 18,455 1,419
-------- --------
Cash and Cash Equivalents at End of Period............................... $ 73,237 $ 664
======== ========
Supplemental Statement of Cash Flows Information:
Interest Paid.......................................................... $ 843 $ 1,661
======== ========
Income Taxes Paid...................................................... $ 15 $ --
======== ========
Purchase of Property and Equipment with Capital Leases................. $ 211 $ --
======== ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

S-4
<PAGE> 5

UGLY DUCKLING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Ugly Duckling Corporation (Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for a complete financial statement
presentation. In the opinion of management, such unaudited interim information
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present the Company's financial position and results of operations
for the periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full fiscal year. The
Condensed Consolidated Balance Sheet as of December 31, 1996 was derived from
audited consolidated financial statements as of that date but does not include
all the information and footnotes required by generally accepted accounting
principles. It is suggested that these condensed consolidated financial
statements be read in conjunction with the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K, as
amended, for the year ended December 31, 1996.

NOTE 2. SUMMARY OF PRINCIPAL BALANCES, NET

Following is a summary of Principal Balances, Net, as of March 31, 1997 and
December 31, 1996.

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
(000 OMITTED) (000 OMITTED)
<S> <C> <C>
Principal Balances............................... $68,757 $58,281
Add: Accrued Interest............................ 902 718
Loan Origination Costs...................... 131 189
------- -------
Principal Balances, Net.......................... $69,790 $59,188
======= =======
</TABLE>

NOTE 3. COMMON STOCK EQUIVALENTS

Net Earnings per common share amounts are based on the weighted average
number of common shares and common stock equivalents outstanding.

NOTE 4. RECLASSIFICATIONS

Certain reclassifications have been made to previously reported information
to conform to the current presentation.

NOTE 5. SUBSEQUENT EVENT

On April 1, 1997, the Company purchased substantially all of the assets of
a company engaged in the business of selling and financing used motor vehicles,
including seven dealerships in San Antonio and a contract portfolio of
approximately $24.3 million. The purchase price for the acquisition was $26.3
million, subject to adjustment. The seven dealerships had sales in 1996 of
approximately $22.5 million. The assets purchased have an unaudited book value
of $28.1 million, exclusive of allowances on approximately $26.2 million of
contract receivable principal balances.

S-5
<PAGE> 6

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

INTRODUCTION

General. The Company commenced its used car sales and finance operations
with the acquisition of two Company Dealerships in 1992. During 1993, the
Company acquired three additional Company Dealerships. In 1994, the Company
constructed and opened four new Company Dealerships that were built specifically
to meet the Company's new standards of appearance, reconditioning capabilities,
size, and location. During 1994, the Company closed one Company Dealership
because the facility failed to satisfy these new standards and, at the end of
1995, closed its Gilbert, Arizona dealership. In January 1997, the Company
acquired selected assets of a group of companies engaged in the business of
selling and financing used motor vehicles, including four dealerships located in
the Tampa Bay/St. Petersburg market.

In 1994, the Company acquired Champion Financial Services, Inc., an
independent automobile finance company, primarily for its management expertise
and contract servicing software and systems. Champion had one office and a
portfolio of approximately $1.9 million in sub-prime contracts averaging
approximately $2,000 in principal amount. For the balance of 1994, the Company
purchased an additional $1.7 million in contracts.

In April 1995, the Company initiated an aggressive plan to expand the
number of contracts purchased from its Third Party Dealer network. By March 31,
1997, the Company had 42 branch offices in 13 states. This expansion enabled the
Company to leverage its existing infrastructure and increase its contract
portfolio much more quickly than it could through the expansion of its Company
Dealerships. The Company is in the process of further expanding its Third Party
Dealer operations and diversifying its earning asset base by implementing the
Cygnet Dealer Program pursuant to which the Company provides Third Party Dealers
with operating credit lines secured by the dealers' retail installment contract
portfolios.

In 1996 the Company completed an initial public offering and a secondary
offering in which it sold common stock for a total of $82.3 million. In February
1997, the Company completed a private placement of common stock for a total of
$88.7 million, net of expenses.

On January 15, 1997, the Company acquired substantially all of the assets
of Seminole Finance Corporation and related companies ("Seminole") in exchange
for approximately $2.5 million in cash and assumption of $29.9 million in debt.
The combination of the Company's audited consolidated statement of operations
for the year ended December 31, 1996 and Seminole's audited combined statement
of operations for the same period (as if the Seminole acquisition had taken
place on January 1, 1996) results in a combined net loss for the year ended
December 31, 1996 of $(3.6) million. These pro forma results are not necessarily
indicative of the future results of operations of the Company or the results
that would have been obtained had the Seminole acquisition occurred on January
1, 1996. In addition, the pro forma results are not intended to be a projection
of future results. The Company expects the results of operations in 1997 for the
assets acquired from Seminole to differ materially from 1996 results because the
Company's management intends to significantly alter the type of vehicles sold at
the newly acquired car dealerships, the methodology by which the acquired
operations acquire, recondition, and market used cars, and the methodology by
which the related finance receivables are underwritten and collected, which
management believes will result in the acquired operations being profitable in
1997. Furthermore, Seminole's audited combined statement of operations for 1996
was impacted by several factors that are not expected to have an impact on
future operations. Such factors were related to the deterioration of its loan
portfolio, which the Company believes resulted from poor underwriting and
ineffective collection efforts. First, due to the deterioration of its loan
portfolio in 1996, Seminole recorded a total of $7.1 million in provision for
credit losses. Second, the deterioration of its loan portfolio also reduced its
borrowing capacity, thereby reducing Seminole's liquidity. As a result, in order
to raise cash, Seminole sold vehicles at substantially lower margins and sold a
portfolio of notes in December 1996 for a loss of approximately $1.5 million.

The following discussion and analysis provides information regarding the
Company's consolidated financial position as of March 31, 1997 and December 31,
1996, and its results of operations for the three month periods ended March 31,
1997 and 1996.

S-6
<PAGE> 7

Growth in Finance Receivables. As a result of the Company's rapid
expansion, contract receivables serviced increased by 53.9% to $169.1 million at
March 31, 1997 (including $100.4 million in contracts serviced under the
Company's Securitization Program) from $109.9 million at December 31, 1996.

The following tables reflect the growth in contract originations by Company
Dealerships and contract purchases from Third Party Dealers as well as the
period end balances measured in terms of the principal amount and the number of
contracts.

<TABLE>
<CAPTION>
TOTAL CONTRACTS ORIGINATED/PURCHASED
---------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
----------------------- -----------------------
PRINCIPAL NO. OF PRINCIPAL NO. OF
AMOUNT CONTRACTS AMOUNT CONTRACTS
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT NUMBER OF CONTRACTS)
<S> <C> <C> <C> <C>
Company Dealerships..................... $ 47,345 9,063 $ 13,635 1,986
Third Party Dealers..................... 41,510 7,538 7,186 1,268
--------- ------- -------- -------
Total......................... $ 88,855 16,601 $ 20,821 3,254
========= ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
TOTAL CONTRACTS OUTSTANDING
---------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
----------------------- -----------------------
PRINCIPAL NO. OF PRINCIPAL NO. OF
AMOUNT CONTRACTS AMOUNT CONTRACTS
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT NUMBER OF CONTRACTS)
<S> <C> <C> <C> <C>
Company Dealerships..................... $ 80,749 16,125 $ 49,066 9,615
Third Party Dealers..................... 88,385 17,797 60,878 12,942
--------- ------- -------- -------
Total Portfolio Serviced................ $ 169,134 33,922 $ 109,944 22,557
--------- ------- -------- -------
Less Portfolio Securitized and Sold..... (100,377) (19,628) (51,663) (10,612)
--------- ------- -------- -------
Company Total................. $ 68,757 14,294 $ 58,281 11,945
========= ======= ======== =======
</TABLE>

RESULTS OF OPERATIONS

The prices at which the Company sells its cars and the interest rates that
it charges to finance these sales take into consideration that the Company's
primary customers are high-risk borrowers, many of whom ultimately default. The
Provision for Credit Losses reflects these factors and is treated by the Company
as a cost of both the future interest income derived on the contract receivables
originated at Company Dealerships as well as a cost of the sale of the cars
themselves. Accordingly, unlike traditional car dealerships, the Company does
not present gross profits in its Statements of Operations calculated as Sales of
Used Cars less Cost of Used Cars Sold.

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

Sales of Used Cars. Sales of Used Cars increased by 20.5% to $18.2 million
for the three month period ended March 31, 1997 from $15.1 million for the three
month period ended March 31, 1996. This growth reflects increases in the number
of used car dealerships in operation, and average unit sales price. Units sold
increased by 16.7% to 2,472 units in the three month period ended March 31, 1997
from 2,119 units in the three month period ended March 31, 1996. Same store unit
sales were down by an average of 34 units per location. This is due to the
increased emphasis on underwriting at the Company Dealerships, particularly one
dealership where unit sales decreased by 310 units or 45.3% for the three month
period ended March 31, 1997 compared to the same period in 1996.

The average sales price per car increased by 3.5% to $7,367 for the three
month period ended March 31, 1997 from $7,117 for the three month period ended
March 31, 1996.

S-7
<PAGE> 8

Cost of Used Cars Sold and Gross Margin. The Cost of Used Cars Sold
increased by 10.8% to $9.2 million for the three month period ended March 31,
1997 from $8.3 million for the three month period ended March 31, 1996. On a per
unit basis, the Cost of Used Cars Sold decreased by 5.8% to $3,709 for the three
month period ended March 31, 1997 from $3,939 for the three month period ended
March 31, 1996. The gross margin on used car sales (Sales of Used Cars less Cost
of Used Cars Sold excluding Provision for Credit Losses) increased by 34.3% to
$9.0 million for the three month period ended March 31, 1997 from $6.7 million
for the three month period ended March 31, 1996. As a percentage of sales, the
gross margin was 49.7% and 44.7% for the three month periods ended March 31,
1997 and 1996, respectively. On a per unit basis, the gross margin per car sold
was $3,660 and $3,178 for the three month periods ended March 31, 1997 and 1996,
respectively.

Provision for Credit Losses. A high percentage of Company Dealership
customers ultimately do not make all of their contractually scheduled payments,
requiring the Company to charge off the remaining principal balance due. As a
result, the Company recognizes a Provision for Credit Losses in order to
establish an Allowance for Credit Losses sufficient to absorb anticipated future
losses. The Provision for Credit Losses increased by 53.9% to $4.0 million in
the three month period ended March 31, 1997 over $2.6 million for the three
month period ended March 31, 1996. This includes an increase of $720,000 in the
Provision for Credit Losses in the three month period ended March 31, 1997 for
third party receivables over the three month period ended March 31, 1996 when
the Company recorded no Provision for Credit Losses for third party receivables.
On a percentage basis, the Provision for Credit Losses per unit originated at
Company Dealerships increased by 17.8% to $1,545 per unit in the three month
period ended March 31, 1997 over $1,312 per unit in the three month period ended
March 31, 1996. As a percentage of contract balances originated, the Provision
for Credit Losses averaged 20.0% and 19.1%, for the for the three month periods
ended March 31, 1997 and 1996, respectively.

The Company charges its Provision for Credit Losses to current operations
and does not recognize any portion of the unearned interest income as a
component of its Allowance for Credit Losses. Accordingly, the Company's
unearned finance income is comprised of the full annual percentage rate ("APR")
on its contracts less amortization of loan origination costs.

Interest Income. Interest Income consists primarily of interest on both
finance receivables from Company Dealership sales and interest on Third Party
Dealer finance receivables.

Company Dealership Receivables -- Interest Income increased by 19.2% to
$3.1 million for the three month period ended March 31, 1997 from $2.6 million
for the three month period ended March 31, 1996. Interest Income was affected by
sales of $73.3 million in contract principal balances pursuant to the
Securitization Program, including sales of $15.1 million in contract principal
balances in the quarter ended March 31, 1997, and will continue to be affected
in future periods by additional securitizations. A primary element of the
Company's sales strategy is to provide financing to customers with poor credit
histories who are unable to obtain automobile financing through traditional
sources. The Company financed 89.4% of sales revenue and 85.4% of the used cars
sold at Company Dealerships for the three month period ended March 31, 1997
compared to 90.4% of sales revenue and 93.7% of the used cars sold for the three
month period ended March 31, 1996. The average amount financed increased to
$7,715 for the three month period ended March 31, 1997 from $6,866 for the three
month period ended March 31, 1996. The effective yield on Finance Receivables
from Company Dealerships was 28.0%, for each of the three month periods ended
March 31, 1997 and 1996, respectively. The Company operated 14 and 7 dealerships
at March 31, 1997 and 1996, respectively.

Third Party Dealer Receivables -- Interest Income increased by 200.0% to
$3.3 million for the three month period ended March 31, 1997 from $1.1 million
in the three month period ended March 31, 1996. Interest Income was affected by
sales of $55.6 million in contract principal balances pursuant to the
Securitization Program, including sales of $45.6 million in contract principal
balances in the quarter ended March 31, 1997, and will continue to be effected
in future periods by additional securitizations. Interest income has increased
in conjunction with the increases in Third Party Dealer contracts purchased and
outstanding. As noted above, the Company began to significantly expand its Third
Party Dealer branch office

S-8
<PAGE> 9

operations in April 1995. Further, subsequent to June 30, 1995, as a result of
its migration to higher quality contracts and expansion into markets with
interest rate limits, the Company's yield on its Third Party Dealer contract
portfolio has trended downward. Portfolio yield was 25.3%, and 26.9%, for the
three month periods ended March 31, 1997 and 1996, respectively. The Company
operated 42 and 10 branch offices at March 31, 1997 and 1996, respectively.

Gain on Sale of Finance Receivables. Champion Receivables Corporation
("CRC"), a "bankruptcy remote entity" is the Company's wholly-owned special
purpose securitization subsidiary. During the first quarter of 1996, the Company
initiated a Securitization Program under which CRC sells securities backed by
contracts to SunAmerica Life Insurance Company ("SunAmerica"). Under the
Securitization Program, CRC assigns and transfers the contracts to separate
trusts (the "Trusts") pursuant to Pooling and Servicing Agreements (the "Pooling
Agreements"). Pursuant to the Pooling Agreements, Class A Certificates and
subordinated Class B Certificates are issued to CRC. CRC then sells the Class A
Certificates to SunAmerica or its nominees. The transferred contracts are
serviced by Champion Acceptance Corporation ("CAC"), another subsidiary of the
Company. To obtain a "BBB" rating from Standard & Poors, CRC is required to
provide a credit enhancement by establishing and maintaining a cash spread
account for the benefit of the certificate holders. The Company makes an initial
cash deposit into the spread account, ranging from 3% to 4% of the initial
underlying finance receivables principal balance and pledges this cash to the
Trusts. The Company is also required to then make additional deposits from the
residual cash flow (through the trustees) to the spread account as necessary to
attain and maintain the spread account at a specified percentage, ranging from
6.0% to 8.0%, of the underlying finance receivables principal balance.
Distributions are not made to CRC on the Class B Certificates unless the spread
account has the required balance, the required periodic payments to the Class A
Certificate holders are current, and the trustee, servicer and other
administrative costs are current.

During the three months ended March 31, 1997, the Company made initial
spread account deposits totaling $1,973,000. Additional net deposits through the
trustees during the three months ended March 31, 1997 totaled $610,000 resulting
in a total balance in the spread accounts of $5,426,000 as of March 31, 1997. In
connection therewith, the specified spread account balance, based upon the
aforementioned specified percentages of the balances of the underlying
portfolios, as of March 31, 1997 was $6,990,000, resulting in additional funding
requirements from future cash flows as of March 31, 1997 of $1,564,000. The
additional funding requirements will decline as the trustees deposit additional
cash flows into the spread account and as the principal balance of the
underlying finance receivables declines.

The contracts transferred to the Trusts were purchased by CRC from either
CAC or Champion Financial Services ("CFS"), another subsidiary of the Company in
"true sale" transactions pursuant to separate purchase agreements. The
obligations of CAC, as servicer, pursuant to the Pooling Agreements are
guaranteed by the Company and certain other subsidiaries of the Company, other
than CRC, CAC, and CFS.

The Company recognizes a Gain on Sale of Finance Receivables equal to the
difference between the yield earned on the contract portfolio securitized and
the return on the securities sold. The amount of any Gain on Sale of Loans is
based upon certain estimates, which may not subsequently be realized. To the
extent that actual cash flows on a securitization are materially below
estimates, the Company would be required to revalue the residual portion of the
securitization which it retains, and record a charge to earnings based upon the
reduction.

The Company utilizes a number of estimates in arriving at the Gain on Sale
of Loans. The estimated cash flows into the Trusts were discounted with rates
ranging from 16% to 25%. For contracts originated at Company Dealerships, net
losses were estimated using total expected cumulative net losses at loan
origination of approximately 25.0%, adjusted for actual cumulative net losses
prior to securitization. For contracts purchased from Third Party Dealers, net
losses were estimated using total expected cumulative net losses at loan
origination of approximately 13.5%, adjusted for actual cumulative net losses
prior to securitization. Losses are discounted at an assumed risk free rate.
Prepayment rates were estimated to be 1.5% per month of the beginning of month
balance. The assumptions utilized in prior securitizations may not necessarily
be the

S-9
<PAGE> 10

same as those utilized in future securitizations, if any. The Company classifies
the residuals as "held-to-maturity" securities in accordance with SFAS No. 115.

Through March 31, 1997, the Company had securitized an aggregate of $128.9
million in contracts, issuing $105.2 million in securities to SunAmerica.
Pursuant to these transactions, the Company reduced its Allowance for Credit
Losses by $7.3 million during the three months ended March 31, 1997 and retained
a residual in the contracts sold of $16.8 million at March 31, 1997. The Company
also recorded Gain on Sale of Loans during the three months ended March 31, 1997
of $4.6 million, net of expenses, compared to $539,000 for the same period in
1996. The gain on sale of loans as a percentage of principal balance securitized
was 7.5% for both the Company Dealership portfolio securitized and for the Third
Party Dealer portfolio securitized in the three month period ended March 31,
1997 compared to 4.1% for the Company Dealership portfolio securitized in the
three month period ended March 31, 1996.

During the three months ended March 31, 1997, the Trusts issued
certificates to Sun America at a weighted average yield of 8.18% with the yields
ranging from 8.16% to 8.27%, resulting in net spreads, after servicing and
trustee fees, ranging from 12.5% to 17.2%, and averaging 13.5%.

The Company's net earnings may fluctuate from quarter to quarter in the
future as a result of the timing and size of its securitizations.

Other Income. Other Income consists primarily of servicing income,
insurance premiums earned on force placed insurance policies, earnings on
investments from the Company's cash and cash equivalents, and franchise fees
from the Company's rent-a-car franchisees. This income increased by 1,216% to
$1.5 million for three months ended March 31, 1997 from $114,000 for the three
months ended March 31, 1996. The Company services the $128.9 million in
contracts sold in the securitization for monthly fees ranging from .33% to .42%
of beginning of period principal balances (4% to 5% annualized). Servicing
Income for the three months ended March 31, 1997 increased to $598,000 from
$54,000 in the three month period ended March 31, 1996. The significant increase
is due to the increase in the principal balance of contracts being serviced
pursuant to the Securitization Program. The increase is also due to the increase
in insurance premium income of $127,000 and an increase in earnings on
investments of $435,000. The Company no longer actively engages in the
rent-a-car franchise business.

Income before Operating Expenses. As a result of the Company's continued
expansion, Income before Operating Expenses grew by 109.5% to $17.6 million for
the three month period ended March 31, 1997 from $8.4 million for the three
month period ended March 31, 1996. Interest Income on the loan portfolios and
Gain on Sale of Loans were the primary contributors to the increase. The
increase also reflects the growth of Sales of Used Cars.

Operating Expenses. Operating Expenses consist of Selling and Marketing
Expenses, General and Administrative Expenses, and Depreciation and
Amortization.

Selling and Marketing Expenses. For the three month periods ended March
31, 1997 and 1996, Selling and Marketing Expenses were comprised almost entirely
of advertising costs and commissions relating to Company Dealership operations.
Selling and Marketing Expenses increased by 50.0% to $1.5 million for the three
month period ended March 31, 1997 from $1.0 million for the three month period
ended March 31, 1996. As a percentage of Sales of Used Cars, these expenses
averaged 8.4% and 6.9% for the three month periods ended March 31, 1997, and
1996, respectively. On a per unit sold basis, Selling and Marketing Expenses of
Company Dealerships increased by 26.4% to $621 per unit for the three month
period ended March 31, 1997 from $491 per unit for the three month period ended
March 31, 1996. This increase is primarily due to increased marketing production
costs, and an increase in marketing in the Tampa Bay/ St. Petersburg market
where the Company initially commenced operations in the three month period ended
March 31, 1997, combined with a decrease in same store unit sales.

General and Administrative Expenses. General and Administrative Expenses
increased by 111.4% to $9.3 million for the three month period ended March 31,
1997 from $4.4 million for the three month period ended March 31, 1996. These
expenses represented 30.2%, and 22.4% of total revenues for three month periods
ended March 31, 1997, and 1996, respectively. For the three month period ended
March 31, 1997

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<PAGE> 11

approximately 34.9% of General and Administrative Expenses were attributable to
Company Dealership sales, approximately 17.1% to the Company Dealership
Receivables' financing activities, approximately 24.9% to Third Party Dealer
activities, and approximately 23.1% to corporate overhead. For the three month
period ended March 31, 1996, approximately 48.8% of General and Administrative
Expenses were attributable to Company Dealership sales, approximately 18.2% to
the Company Dealership Receivables' financing activities, approximately 13.0% to
Third Party Dealer activities, and approximately 20.0% to corporate overhead.
The increase in General and Administrative Expenses is a result of the Company's
increased number of used car dealerships, and significant expansion of its Third
Party Dealer financing operations as well as continued expansion of
infrastructure to administer growth.

Depreciation and Amortization. Depreciation and Amortization consists of
depreciation and amortization on the Company's property and equipment and
amortization of the Company's goodwill and trademarks. Depreciation and
amortization increased by 81.6% to $603,000 for the three month period ended
March 31, 1997 from $332,000 for the three month period ended March 31, 1996.
The increase was due primarily to the increase in depreciation expense for the
Company's Third Party Dealer Branch offices. For the three month period ended
March 31, 1997, approximately 33.2% of these expenses were attributable to
Company Dealership sales, approximately 34.2% to the Company Dealership
receivables' financing activities, approximately 12.1% to Third Party Dealer
activities, and approximately 20.5% to corporate overhead. For the three month
period ended March 31, 1996, approximately 22.6% of these expenses were
attributable to Company Dealership sales, approximately 53.3% to the Company
Dealership receivables' financing activities, approximately 9.9% to Third Party
Dealer activities, and approximately 14.2% to corporate overhead.

Interest Expense. Interest expense decreased by 54.8% to $769,000 in the
three month period ended March 31, 1997 from $1.7 million in the three month
period ended March 31, 1996. The decrease in 1997, despite significant growth in
Company assets, is the direct result of the two public offerings that were
completed in 1996, and a private placement that was completed in February of
1997 which generated, in the aggregate, approximately $168.1 million in cash,
and the Company's Securitization Program which generated cash from the sale of
Finance Receivables which the Company utilized to pay down debt. Further,
concurrent with the Company's initial public offering on June 21, 1996, the
Company restructured its Subordinated Notes Payable reducing the borrowing rate
on that debt from 18% to 10% per annum.

Income Taxes. Income taxes totaled $2.2 million in the three month period
ended March 31, 1997, an effective rate of 39.8%. In the three month period
ended March 31, 1996, no income tax was incurred due to income tax benefits
realized from the Company's reduction in its valuation allowance for deferred
income tax assets.

ALLOWANCE FOR CREDIT LOSSES

The Company has established an Allowance for Credit Losses ("Allowance") to
cover anticipated credit losses on the contracts currently in its portfolio. The
Allowance has been established through the Provision for Credit Losses on
contracts originated at Company Dealerships, and through nonrefundable
acquisition discounts and Provision for Credit Losses on contracts purchased
from Third Party Dealers. The Allowance on contracts originated at Company
Dealerships increased to 28.4% of outstanding principal balances as of March 31,
1997 compared to 23.0% as of December 31, 1996. The Allowance as a percentage of
Third Party Dealer contracts increased to 17.1% from 12.7% over the same period.
The Allowance as a percentage of the Company's combined contract portfolio
increased to 22.1% at March 31, 1997 from 13.7% at December 31, 1996. The
increase in reserves is primarily due to the acquisition of the portfolio in the
Company's Florida acquisition and a bulk purchase of finance receivables at a
discount.

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<PAGE> 12

The following table reflects activity in the Allowance, as well as
information regarding charge off activity, for the three month periods ended
March 31, 1997 and 1996, in thousands.

<TABLE>
<CAPTION>
THIRD PARTY
COMPANY DEALERSHIPS DEALERS
------------------- ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ------------------
1997 1996 1997 1996
------- ------- ------- ------
<S> <C> <C> <C> <C>
Allowance Activity:
Balance, Beginning of Period................. $ 1,626 $ 7,500 $ 5,434 $1,000
Provision for Credit Losses.................. 3,261 2,606 720 --
Discount Acquired............................ 9,033 -- 6,418 721
Discount accreted to interest income......... -- -- (642) --
Reduction Attributable to Loans Sold......... (3,100) (1,658) (4,235) --
Net Charge Offs.............................. (1,597) (2,048) (1,476) (371)
------- ------- ------- ------
Balance, End of Period....................... $ 9,223 $ 6,400 $ 6,219 $1,350
======= ======= ======= ======
Allowance as Percent of Period Ended
Principal Balance.......................... 28.4% 23.0% 17.1% 7.3%
======= ======= ======= ======
Charge off Activity:
Principal Balances:
Collateral Recovered....................... $ 2,140 $ 2,252 $ 1,597 $ 542
Collateral Not Recovered................... 123 462 464 91
------- ------- ------- ------
Total Principal Balances................... 2,263 2,714 2,061 633
Accrued Interest........................... -- 167 -- 30
Recoveries, Net............................ (666) (833) (585) (292)
------- ------- ------- ------
Net Charge Offs.............................. $ 1,597 $ 2,048 $ 1,476 $ 371
======= ======= ======= ======
Net Charge Offs as % of Average Principal
Outstanding................................ 5.0% 5.8% 2.9% 2.2%
======= ======= ======= ======
</TABLE>

The Company's policy is to charge off contracts when they are deemed
uncollectible, but in any event at such time as a contract is delinquent for 90
days.

Net Charge Offs -- Company Dealerships. Net Charge Offs for contracts
originated at Company dealerships in the three month period ended March 31, 1997
were 5.0% of the average principal balance outstanding compared to 5.8% in the
three month period ended March 31, 1996.

Recoveries averaged 29.4% of principal balances charged off in the three
month period ended March 31, 1997 compared to 30.7% in the three month period
ended March 31, 1996.

The Company's net charge offs on contracts generated through certain of the
Company Dealerships are favorably affected by a reduction in sales tax liability
as a result of loan defaults.

Net Charge Offs -- Third Party Dealers. Net Charge Offs for contracts
purchased from Third Party Dealers in the three month period ended March 31,
1997 were 2.9% of the average principal balance outstanding compared to 2.2% in
the three month period ended March 31, 1996. Prior to April 1995, the Company
purchased from Third Party Dealers, at discounts of approximately 15.0% to
25.0%, contracts with average principal balances of approximately $4,000 bearing
a typical APR of 29.9%. In April 1995 the Company significantly revised and
expanded its Third Party Dealer program. Under the current program, which is
aimed at more creditworthy borrowers, it purchases from Third Party Dealers, at
discounts averaging approximately 11.0%, contracts with average principal
balances of approximately $5,800 and bearing an average APR of 24.5%.

S-12
<PAGE> 13

Recoveries averaged 28.4% of principal balances charged off on contracts
purchased from Third Party Dealers in the three month period ended March 31,
1997 compared to 46.1% for the three month period ended March 31, 1996. The
decrease is primarily due to the increase in the charge off of principal
balances where no collateral has been recovered. The percentage of principal
charged off with no recovery of collateral increased to 22.5% in the three
months ended March 31, 997 from 14.4% in the comparable period in 1996.

The Company's Net Charge Offs on its Third Party Dealer contract portfolio
are significantly lower than those incurred on its Company Dealership contract
portfolio. This is attributable to the relationship of the average amount
financed to the underlying collateral's wholesale value and to a lesser degree
the generally more creditworthy customers served by Third Party Dealers. In its
Third Party Dealer portfolio, the Company generally limits the amount financed
to not more than 120.0% of the wholesale value of the underlying car, although
the Company will make exceptions on a case-by-case basis.

Net Charge Off percentage trends for the respective portfolios are
considered by management in determining the adequacy of the Allowance as a
percentage of contract principal balances outstanding.

Static Pool Analysis. To monitor contract performance, beginning in June
1995, the Company implemented "static pool" analysis for contracts originated
since January 1, 1993. Static pool analysis is a monitoring methodology by which
each month's originations and subsequent charge offs are assigned a unique pool
and the pool performance is monitored separately. Improving or deteriorating
performance is measured based on cumulative gross and net charge offs as a
percentage of original principal balances, based on the number of complete
payments made by the customer before charge off. The table below sets forth the
cumulative net charge offs as a percentage of original contract cumulative
balances, based on the quarter of origination and segmented by the number of
payments made prior to charge off. For periods denoted by "x", the pools have
not seasoned sufficiently to allow for computation of cumulative losses. For
periods denoted by "--", the pools have not yet attained the indicated
cumulative age. While the Company monitors its static pools on a monthly basis,
for presentation purposes the information in the tables are presented on a
quarterly basis.

Effective January 1, 1997, the Company retroactively implemented
methodology to more reasonably compute "Monthly Payments Completed by Customer
Before Charge Off" as it relates to loan balances charged off after final
insurance settlements and on loans modified from their original terms. Resulting
adjustments affect the timing of previously reported interim cumulative losses
and do not impact ending cumulative losses. For loan balances charged off after
insurance settlement principal reductions, the revised calculation method only
gives credit for payments actually made by the customer and excludes credit for
reductions arising from insurance proceeds. For modified loans, completed
payments now reflect customer payments made both before and after the loan was
modified. The numbers presented below reflect the adoption of the revised
calculation method.

Currently reported cumulative losses may also vary from those previously
reported due to ongoing collection efforts on charged off accounts and the
difference between final proceeds on the liquidation of repossessed collateral
versus original accounting estimates. Management believes that such variation
will be insignificant.

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<PAGE> 14

CONTRACTS ORIGINATED AT COMPANY DEALERSHIPS

The following table sets forth the cumulative net charge offs as a
percentage of original contract cumulative balances, based on the quarter of
origination and segmented by the number of monthly payments made prior to charge
off.

POOL'S CUMULATIVE NET LOSSES AS PERCENTAGE OF POOL'S ORIGINAL
AGGREGATE PRINCIPAL BALANCE

<TABLE>
<CAPTION>
MONTHLY PAYMENTS COMPLETED BY
CUSTOMER BEFORE CHARGE OFF
------------------------------------------------
0 3 6 12 18 24
--- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1993:
1st Quarter..................... 6.9% 18.7% 26.5% 31.8% 33.9% 35.1%
2nd Quarter..................... 7.2% 18.9% 25.1% 29.4% 31.7% 32.1%
3rd Quarter..................... 8.6% 19.5% 23.7% 28.5% 30.7% 31.6%
4th Quarter..................... 6.3% 16.1% 21.6% 27.0% 28.9% 29.5%
1994:
1st Quarter..................... 3.4% 10.0% 13.4% 18.1% 20.5% 21.2%
2nd Quarter..................... 2.8% 10.5% 14.3% 19.8% 22.0% 22.5%
3rd Quarter..................... 2.9% 8.2% 12.3% 16.6% 18.8% 19.7%
4th Quarter..................... 2.4% 7.7% 11.3% 17.0% 20.0% 21.0%
1995:
1st Quarter..................... 1.1% 7.4% 12.5% 17.8% 20.5% x
2nd Quarter..................... 1.7% 7.1% 12.2% 16.9% 19.8% --
3rd Quarter..................... 2.0% 7.1% 11.1% 18.1% x --
4th Quarter..................... 1.2% 5.7% 10.9% 17.8% -- --
1996:
1st Quarter..................... 1.4% 7.5% 13.1% x -- --
2nd Quarter..................... 2.2% 9.2% 14.0% -- -- --
3rd Quarter..................... 1.5% 7.3% x -- -- --
4th Quarter..................... 1.6% x -- -- -- --
1997:
1st Quarter..................... x -- -- -- -- --
</TABLE>

Analysis of portfolio delinquencies is also considered in evaluating the
adequacy of the Allowance. Principal balances 31 to 60 days delinquent as a
percentage of total outstanding contract principal balances totaled 2.3% as of
March 31, 1997 and December 31, 1996. Principal balances 61 to 90 days
delinquent as a percentage of total outstanding contract principal balances
totaled 1.7% and 0.6% as of March 31, 1997 and December 31, 1996, respectively.
In accordance with the Company's charge off policy, there are no accounts more
than 90 days delinquent as of March 31, 1997 and December 31, 1996.

CONTRACTS PURCHASED FROM THIRD PARTY DEALERS

Non-refundable acquisition discount ("Discount") acquired totaled $6.4
million and $721,000 for the three month periods ended March 31, 1997 and 1996,
respectively. The Discount, attributable to Third Party Dealer branch purchases,
averaged 15.5% as a percentage of principal balances purchased in the three
month period ended March 31, 1997, compared to 10.0% in the three month period
ended March 31, 1996. Beginning in 1996, the Company expanded into markets with
interest rate limits. While contractual interest rates on these contracts are
limited by law, the Company has been able to purchase these contracts at a
reasonably consistent effective yield and therefore Discounts have trended
upward. The increase in the Discount as a percent of purchased contracts was due
in large part to a bulk purchase of contracts in March 1997. The Discount for
purchased contracts excluding bulk purchases totaled 11.6% in the three month
period ended March 31, 1997.

S-14
<PAGE> 15

POOL'S CUMULATIVE NET LOSSES AS PERCENTAGE OF POOL'S ORIGINAL
AGGREGATE PRINCIPAL BALANCE

<TABLE>
<CAPTION>
MONTHLY PAYMENTS COMPLETED BY
CUSTOMER BEFORE CHARGE OFF
-------------------------------------------
0 3 6 12 18 24
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
1995:
2nd Quarter.......................... 0.9% 4.1% 5.7% 7.7% 9.4% x
3rd Quarter.......................... 1.4% 3.9% 5.1% 6.9% -- --
4th Quarter.......................... 1.0% 4.3% 6.8% 9.6% x --
1996:
1st Quarter.......................... 0.8% 3.7% 6.9% x -- --
2nd Quarter.......................... 1.6% 6.3% 9.7% -- -- --
3rd Quarter.......................... 1.3% 6.1% x -- -- --
4th Quarter.......................... 1.3% x -- -- -- --
1997:
1st Quarter.......................... x -- -- -- -- --
</TABLE>

Beginning April 1, 1995, the Company initiated a new purchasing program for
Third Party Dealer contracts which included an emphasis on higher quality
contracts. As of March 31, 1995, the Third Party Dealer portfolio originated
under the prior program had a principal balance of $2.0 million and has an
immaterial remaining balance as of March 31, 1997. Static pool results under the
prior program are not a material consideration for management evaluation of the
current Third Party Dealer portfolio and thus, contract performance under this
prior program has been excluded from the table above.

While the static pool information is developing, management augments its
evaluation of the adequacy of the Allowance for Third Party Dealers through
comparisons in the characteristics of collateral ratios and borrowers on Third
Party Dealer contracts versus those of the Company Dealership contracts, as well
as through comparisons of portfolio delinquency, actual contract performance
and, to the extent information is available, industry statistics.

Analysis of portfolio delinquencies is also considered in evaluating the
adequacy of the Allowance. Principal balances 31 to 60 days delinquent as a
percentage of total outstanding contract principal balances totaled 3.5% and
3.1% as of March 31, 1997 and December 31, 1996, respectively. Principal
balances 61 to 90 days delinquent as a percentage of total outstanding contract
principal balances totaled 1.9% and 1.1% as March 31, 1997 and December 31,
1996, respectively. In accordance with the Company's charge off policy there are
no Third Party Dealer contracts more than 90 days delinquent as of March 31,
1997 and December 31, 1996.

During 1996, the Company elected to extend the time period before
repossession is ordered with respect to those customers who exhibit a
willingness and capacity to bring their contracts current. As a result of this
revised repossession policy, delinquencies increased slightly, as expected.
Further, the Company underwent a conversion of its loan servicing system on
February 1, 1997. In the opinion of management, delinquency was adversely
effected by the conversion process due to the need for employees to completely
acquaint themselves with the Company's new systems.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to support increases in its contract
portfolio, expansion of Company Dealerships and Branch Offices, the purchase of
inventories, the purchase of property and equipment, and for

S-15
<PAGE> 16

working capital and general corporate purposes. The Company funds its capital
requirements through equity offerings, operating cash flow, the sale of finance
receivables, and supplemental borrowings.

The Company's Net Cash Provided by Operating Activities decreased by 39.2%
to $3.1 million for the three month period ended March 31, 1997 from $5.1 in the
three month period ended March 31, 1996. The decrease was primarily due to an
increase in Other Assets, the Gain on Sale of Finance Receivables, and an
increase in Finance Receivables Held for Sale offset by increases in Net
Earnings, the Provision for Credit Losses, and proceeds from sale of finance
receivables.

The Net Cash Used in Investing Activities decreased by 89.1% to $503,000 in
the three months ended March 31, 1997 from $4.6 million in the three months
ended March 31, 1996. The decrease was due to a net increase in Finance
Receivable activity of $14.8 million net of an increase in investments held in
trust of $2.2 million, an increase in the purchase of property and equipment of
$3.6 million, and the purchase of the assets of Seminole. Gross deposits into
the spread account by the trustees were $2.8 million and $625,000 while gross
disbursements from the spread account totaled $265,000 during the three months
ended March 31, 1997. There were no disbursements from the spread account during
the three months ended March 31, 1996.

The Company's Net Cash Provided by/Used in Financing Activities increased
to $52.2 million in the three months ended March 31, 1997 from ($1.3) million in
the three months ended March 31, 1996. This increase was the result of the $88.7
million in proceeds from the Company's sale of common stock, net of the $34.4
million of repayment of Notes Payable and the repayment of subordinated notes
payable of $2.0 million.

Revolving Facility. The Company maintains a Revolving Facility with GE
Capital that has a maximum commitment of up to $50.0 million. Under the
Revolving Facility, the Company may borrow up to 65.0% of the principal balance
of eligible Company Dealership contracts and up to 90.0% of the principal
balance of eligible Third Party Dealer contracts. The Revolving Facility expires
in September 1997, at which time the Company has the option to renew the
Revolving Facility for one additional year. The facility is secured by
substantially all of the Company's assets. As of March 31, 1997, the Company's
borrowing capacity under the Revolving Facility was $50.0 million, the aggregate
principal amount outstanding under the Revolving Facility was $100,000, and the
amount available to be borrowed under the facility was $49.9 million. The
Revolving Facility bears interest at the 30-day LIBOR plus 3.60%, payable daily
(total rate of 9.0% as of March 31, 1997).

The Revolving Facility contains covenants that, among other things, limit
the Company's ability to, without GE Capital's consent: (i) incur additional
indebtedness; (ii) make unsecured loans or other advances of money to officers,
directors, employees, stockholders or affiliates in excess of $25,000 in total;
(iii) engage in securitization transactions (other than the Securitization
Program with Sun America, for which GE Capital has consented); (iv) merge with,
consolidate with, acquire or otherwise combine with any other person or entity,
transfer any division or segment of its operations to another person or entity,
or form new subsidiaries; (v) make any change in its capital structure; (vi)
declare or pay dividends except in accordance with all applicable laws and not
in excess of fifteen percent (15%) of each year's net earnings available for
distribution; (vii) make certain investments and capital expenditures; and
(viii) engage in certain transactions with affiliates. These covenants also
require the Company to maintain specified financial ratios, including a debt
ratio of 2.0 to 1 and a net worth of at least $75,000,000, and to comply with
all laws relating to the Company's business. The Revolving Facility also
provides that a transfer of ownership of the Company that results in less than
15.0% of the Company's voting stock being owned by Mr. Ernest C. Garcia II, will
result in an event of default under the Revolving Facility.

The Company recently completed negotiations to modify the terms of its
Revolving Facility, and expects to execute a definitive agreement in the near
future. Under the modified terms of the agreement, the commitment will be raised
from $50 million to $100 million, the Company may borrow up to 65.0% of the
principal balance of eligible Company Dealership contracts and up to 86.0% of
the principal balance of eligible Third Party Dealer contracts, the interest
rate will be reduced to 30-day LIBOR plus 3.15%, payable daily, and the
Revolving Facility will expire in December 1998, at which time the Company will
have the option to renew the Revolving Facility for one additional year. The
definitive agreement will be subject to the approval

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<PAGE> 17

of the Board of Directors of the Company. Also, certain of the definitive terms
may vary from those set forth herein. No assurance can be given that a
definitive agreement will ultimately be executed.

Subordinated Indebtedness and Preferred Stock. The Company has
historically borrowed substantial amounts from Verde Investments Inc. ("Verde"),
an affiliate of the Company. The Subordinated Notes Payable balances outstanding
to Verde totaled $12.0 and $14.0 million as of March 31, 1997 and December 31,
1996, respectively. Prior to June 21, 1996, these borrowings accrued interest at
an annual rate of 18.0%. Effective June 21, 1996 the annual interest rate on
these borrowings was reduced to 10.0%. The Company is required to make monthly
payments of interest and annual payments of principal in the amount of $2.0
million. This debt is junior to all of the Company's other indebtedness and the
Company may suspend interest and principal payments in the event it is in
default on obligations to any other creditors.

On December 31, 1995, Verde converted $10.0 million of subordinated debt to
Preferred Stock of the Company. Prior to June 21, 1996, the Preferred Stock
accrued a dividend of 12.0% annually, increasing one percent per year up to a
maximum of 18.0%. Effective June 21, 1996, the dividend on the Preferred Stock
was decreased from 12.0% to 10.0%. During the three month period ended March 31,
1996, the Company paid a total of $300,000 in dividends to Verde on the
Preferred Stock which was redeemed in November 1996. As the preferred stock was
redeemed in 1996, there were no dividends paid in 1997.

Securitizations. SunAmerica and the Company have entered into the
Securitization Program under which SunAmerica may purchase up to $175.0 million
of certificates secured by contracts. The Securitization Program provides the
Company with a source of funding in addition to the Revolving Facility. At the
closing of each securitization, the Company receives payment from SunAmerica for
the certificates sold (net of Investments Held in Trust). The Company also
generates cash flow under this program from ongoing servicing fees and excess
cash flow distributions resulting from the difference between the payments
received from customers on the contracts and the payments paid to SunAmerica. In
addition, securitization allows the Company to fix its borrowing cost for a
given contract portfolio, broadens the Company's capital source alternatives,
and provides a higher advance rate than that available under the Revolving
Facility.

In connection with its securitization transactions, the Company is required
to make an initial cash deposit into an account held by the trustee (spread
account) and to pledge this cash to the Trust to which the finance receivables
were sold. The Trust in turn invests the cash in high quality liquid investment
securities. In addition, the Company (through the trustee) deposits additional
cash flows from the residual to the spread account as necessary to attain and
maintain the spread account at a specified percentage of the underlying finance
receivables principal balance. In the event that the cash flows generated by the
finance receivables sold to the Trust are insufficient to pay obligations of the
Trust, including principal or interest due to certificate holders or expenses of
the Trust, the trustee will draw funds from the spread account as necessary to
pay the obligations of the Trust. The spread account must be maintained at a
specified percentage of the principal balances of the finance receivables held
by the Trust, which can be increased in the event delinquencies or losses exceed
specified levels. If the spread account exceeds the specified percentage, the
trustee will release the excess cash to the Company from the pledged spread
account.

Capital Expenditures and Commitments. The Company is pursuing an
aggressive growth strategy. In the fourth quarter of 1996, the Company acquired
the leasehold rights to an existing dealership in Las Vegas, Nevada, which
commenced operations in March 1997, and has three other dealerships (one in
Phoenix, Arizona and two in Albuquerque, New Mexico) currently under
development. In addition, the Company opened seven new Branch Offices during the
first quarter of 1997, and recently completed expansion of its contract
servicing and collection facility.

On April 1, 1997, the Company purchased substantially all of the assets of
a Company engaged in the business of selling and financing used motor vehicles,
including seven dealerships in San Antonio and a contract portfolio of
approximately $24.3 million. The purchase price for the acquisition was $26.3
million, subject to adjustment. The seven dealerships had sales in 1996 of
approximately $22.5 million. The assets purchased have an unaudited book value
of $28.1 million, exclusive of reserves on approximately $26.2 million of
contract receivable principal balances. In addition to the facilities currently
under development, the Company intends to open 15 or more new Branch Offices and
three or more Company Dealerships through

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<PAGE> 18

the end of 1997. The Company believes that it will expend approximately $50,000
to establish each new Branch Office. New Company Dealerships cost approximately
$1.5 to $1.7 million to construct (excluding inventory). The Company intends to
finance these expenditures through operating cash flows and supplemental
borrowings, including amounts available under the Revolving Facility and
Securitization Program.

SEASONALITY

Historically, the Company has experienced higher revenues in the first two
quarters of the year than in the latter half of the year. The Company believes
that these results are due to seasonal buying patterns resulting in part from
the fact that many of its customers receive income tax refunds during the first
half of the year, which are a primary source of down payments on used car
purchases.

INFLATION

Increases in inflation generally result in higher interest rates. Higher
interest rates on the Company's borrowings would decrease the profitability of
the Company's existing portfolio. The Company will seek to limit this risk
through its Securitization Program and, to the extent market conditions permit,
for contracts originated at Company Dealerships, either by increasing the
interest rate charged, or the profit margin on, the cars sold, or for contracts
acquired from Third Party Dealers, either by acquiring contracts at a higher
discount or with a higher APR. To date, inflation has not had a significant
impact on the Company's operations.

ACCOUNTING MATTERS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128,"Earnings Per Share" (SFAS No. 128).
This statement is effective for both interim and annual periods ending after
December 15, 1997, and replaces the presentation of "primary" earnings per share
with "basic" earnings per share and the presentation of "fully diluted" earnings
per share with "diluted" earnings per share. Earlier application is not
permitted. When adopted, all previously reported earnings per common share
amounts must be restated based upon the provisions of the new standard.
Management of the Company does not expect that adoption of SFAS No. 128 will
have a material impact on the Company.

S-18
<PAGE> 19

E-Z PLAN, INC.

FINANCIAL STATEMENTS

The following E-Z Plan, Inc. Financial Statements for the year ended December
31, 1996 with Report of Independent Auditors, E-Z Plan, Inc. Condensed Financial
Statements -- Unaudited for the three months ended March 31, 1997, and Ugly
Duckling Corporation Pro Forma Financial Statements are added to the Prospectus.

REPORT OF INDEPENDENT AUDITORS

Board of Directors
E-Z Plan, Inc.

We have audited the accompanying balance sheet of E-Z Plan, Inc. as of
December 31, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of E-Z Plan, Inc. at December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

Ernst & Young LLP
San Antonio, Texas
February 24, 1997, except for
Note 8, as to which the date is
February 28, 1997

S-19
<PAGE> 20

E-Z PLAN, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER
31,
1996
-----------
<S> <C>
ASSETS
Cash and cash equivalents ($320,580 restricted at December 31, 1996)............ $ 630,938
Contracts in process of being collected from finance companies.................. 1,374,072
Notes receivable under retail sales contracts................................... 27,891,311
Less allowance for repossession losses.......................................... 1,964,108
------------
Notes receivable under retail sales contracts, net.............................. 25,927,203
Inventories -- used automobiles................................................. 5,402,706
Equipment and leasehold improvements:
Furniture and equipment....................................................... 513,677
Computer equipment............................................................ 405,254
Leasehold improvements........................................................ 730,532
------------
1,649,463
Less accumulated depreciation................................................. 760,935
------------
Net equipment and leasehold improvements........................................ 888,528
Other assets.................................................................... 1,048,272
------------
Total assets.......................................................... $35,271,719
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable................................................................. $13,132,959
Due to stockholders........................................................... 8,765,351
Accounts payable and accrued expenses......................................... 3,079,959
------------
Total liabilities.......................................................... 24,978,269
Commitments
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized; 1,000 issued and
outstanding................................................................ 1,000
Additional paid-in capital.................................................... 3,250,000
Retained earnings............................................................. 7,042,450
------------
Total stockholders' equity................................................. 10,293,450
------------
Total liabilities and stockholders' equity............................ $35,271,719
============
</TABLE>

See accompanying notes.

S-20
<PAGE> 21

E-Z PLAN, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Sales.......................................................................... $ 42,302,699
Cost of sales.................................................................. 30,799,966
------------
Gross profit before provision for repossession losses.......................... 11,502,733
Provision for repossession losses.............................................. 4,512,400
------------
Gross profit................................................................... 6,990,333
Other operating income (expenses):
Finance charge income........................................................ 6,417,753
Selling, general, and administrative expenses................................ (13,556,705)
Other, net................................................................... 2,882,867
------------
Income from operations......................................................... 2,734,248
Other income (expense):
Interest expense............................................................. (1,880,125)
Interest income.............................................................. 43,370
Key man life insurance expense............................................... (695,776)
------------
Total other expense....................................................... (2,532,531)
------------
Net income..................................................................... $ 201,717
============
</TABLE>

See accompanying notes.

S-21
<PAGE> 22

E-Z PLAN, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995................ $1,000 $3,250,000 $6,840,733 $10,091,733
Net income................................ -- -- 201,717 201,717
------ ---------- ---------- -----------
Balance at December 31, 1996................ $1,000 $3,250,000 $7,042,450 $10,293,450
====== ========== ========== ===========
</TABLE>

See accompanying notes.

S-22
<PAGE> 23

E-Z PLAN, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 201,717
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for repossession losses............................ 4,512,400
Depreciation................................................. 226,760
Decrease in cash surrender value of key man life insurance... 64,021
Loss from sale of property and equipment..................... 13,434
Changes in assets and liabilities:
Contracts in process of being collected from finance
companies................................................. 485,077
Inventories.................................................. 287
Other assets................................................. 49,414
Accounts payable and accrued expenses........................ 94,424
------------
Net cash provided by operating activities...................... 5,647,534
INVESTING ACTIVITIES
Retail sales and other costs financed.......................... (22,758,165)
Collections on notes receivable under retail sales contracts... 21,611,941
Proceeds from sale of property and equipment................... 99,790
Purchases of property and equipment............................ (432,595)
------------
Net cash used in investing activities.......................... (1,479,029)
FINANCING ACTIVITIES
Proceeds from notes payable.................................... 21,147,893
Payments on notes payable...................................... (21,494,913)
Due to stockholders, net....................................... (3,400,000)
------------
Net cash used in financing activities.......................... (3,747,020)
------------
Net change in cash and cash equivalents........................ 421,485
Cash and cash equivalents at beginning of year................. 209,453
------------
Cash and cash equivalents at end of year....................... $ 630,938
============
Supplementary cash flow information:
Interest paid................................................ $ 1,789,537
</TABLE>

See accompanying notes.

S-23
<PAGE> 24

E-Z PLAN, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

Operations

E-Z Plan, Inc. (the Company) began operations in January 1990 with the
opening of its first used automobile retail sales facility in San Antonio,
Texas. As of December 31, 1996, fourteen retail sales facilities were operating
under the names E-Z Motors, Red McCombs Superstores, and Red McCombs Star Cars
primarily in the San Antonio and central Texas areas. In addition to automobile
sales, the Company provides financing to its retail customers with terms
generally averaging 24-36 months at annual interest rates ranging from 18% to
26%. The Company retains a security interest in the related vehicles. During
1995 the Company also served as a financing source for motor vehicle contracts
arising from automobile sales by affiliated dealerships. Consideration paid by
the Company to these dealerships for such contracts was either 90% of the
principal financed on a non-recourse basis; or 100% of the principal financed
less a $200 fee on a recourse basis.

Income Recognition

The sales price and the related cost of the automobile are recognized in
the Company's operations at the time of sale. Notes receivable under retail
sales contracts arise from those sales for which the Company provides financing
and are collateralized by the titles to the automobiles sold. Finance charge
income related to these notes receivable is recognized using the interest method
over the term of the contract.

Repossession Losses

An allowance for repossession losses is maintained based on the Company's
loss experience and other factors. Upon customer default and repossession, the
remaining net note receivable balance, less the fair value or wholesale price of
the automobile, is charged to the allowance for repossession losses.

Inventories

The inventories of used automobiles are stated at the lower of cost, using
the last-in, first-out (LIFO) method, or market. If the first-in, first-out
(FIFO) method of inventory accounting had been used by the Company, inventories
would have been approximately $1,264,000 higher than reported at December 31,
1996.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation on
furniture and equipment and computer equipment is provided on straight-line and
accelerated methods over the estimated useful lives of the related assets, which
generally range from three to seven years. Amortization of leasehold
improvements is provided on an accelerated method over the estimated lives of
the related assets, which range from 1 to 39 years.

Advertising

The Company expenses advertising costs as they are incurred. Total
advertising expenditures were approximately $1,160,000 in 1996.

Federal Income Taxes

No provision for federal income tax has been made since the Company elected
to be treated as an S Corporation as prescribed by the Internal Revenue Service
Code. Under the terms of this election, the

S-24
<PAGE> 25

E-Z PLAN, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company generally pays no income tax and all stockholders will report their
proportionate share of the Company's tax items on their individual income tax
returns.

Cash Flow

For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. NOTES RECEIVABLE UNDER RETAIL SALES CONTRACTS

Future contractual maturities of notes receivable under retail sales
contracts at December 31, 1996 are as follows:

A summary of the allowance for repossession losses is as follows:

<TABLE>
<S> <C>
Balance at December 31, 1995.................... $ 1,586,801
Provision for repossession losses............. 4,512,400
Charge-offs................................... (4,135,093)
---------
Balance at December 31, 1996.................... $ 1,964,108
=========
</TABLE>

3. BORROWINGS

Notes payable at December 31, 1996 consist of five separate notes with a
remaining balance totaling $13,132,959. Three of the notes are due in 1997 and
the other two are due in 1998. Generally, payments are dependent on collections
of notes receivable under retail sales contracts. Based on expected collections,
approximately $11,619,509 of principal repayments are due in 1997, with the
remainder due in 1998. The notes carry fixed or variable interest rates of 8.75%
to 9.75% and are collateralized by notes receivable under retail sales
contracts.

Certain of the note agreements contain covenants restricting the issuance
of additional debt obligations and prohibiting the payment of dividends, among
other matters. The note agreements also require the Company to maintain an
escrow deposit with the lenders which approximates the previous month's
collections on the notes receivable that collateralize the notes payable. The
amounts of these escrow deposits are disclosed as restricted cash on the balance
sheets. A former stockholder of the Company has personally guaranteed
substantially all of the debt obligations.

The fair value of the Company's borrowings is estimated at the current rate
offered the Company for debt of the same approximate terms. The carrying value
of the Company's borrowings approximates fair value.

S-25
<PAGE> 26

E-Z PLAN, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMITMENTS

The Company leases land and facilities at each of its retail sales
facilities and its corporate office under operating leases. Rental expense for
the year ended December 31, 1996 was approximately $1,061,000. Future lease
commitments as of December 31, 1996 are as follows:

5. RELATED PARTY TRANSACTIONS

Entities in which the Company's stockholders and a related individual own a
controlling interest provided the Company with finance, accounting, and
management services for the year ended December 31, 1996. In addition, the
Company leases four retail sales facilities and its corporate office from
entities related to the stockholders by common ownership and other factors. The
accompanying statement of operations includes the following charges related to
these arrangements:

<TABLE>
<CAPTION>
1996
--------
<S> <C>
Finance, accounting, and management fees.......... $180,000
Lease expense..................................... 400,875
</TABLE>

At December 31, 1996, the Company has receivables from affiliates totaling
$391,410 included in other assets.

The stockholders have provided financing to the Company for use in
purchasing and reconditioning its used automobile inventory and in funding
operating expenses. The amounts due are unsecured, bear no interest except for
advances related to inventory purchases, and are payable on demand. Included in
interest expense in 1996 is $447,393, which the Company paid to stockholders for
advances related to inventory purchases.

6. RETIREMENT PLAN

The Company has a 401(k) plan in which all employees who have completed one
year of service are eligible for participation. Employees may make contributions
to the plan in an amount equal to 1% to 15% of their salary. The Company's
matching contributions are made based on years of participation in the plan with
the maximum employer contribution equal to 100% of a maximum participant
contribution of $1,500. Employees are 100% vested in their own contributions at
all times and vest in employer contributions as follows:

<TABLE>
<S> <C>
Years 1 and 2.......................................... 0%
Year 3................................................. 50%
Year 4................................................. 75%
Year 5................................................. 100%
</TABLE>

The Company made annual contributions to the plan of $27,336 during the
1996 plan year.

S-26
<PAGE> 27

E-Z PLAN, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. KEY MAN LIFE INSURANCE

The Company owns certain life insurance which insure the lives of the
Company's current and former owners and key officers with a combined benefit
value of $56,725,000. During 1996 premiums of $631,755 were paid and net cash
value decreased by $64,021 for a total expense of $695,776.

8. SUBSEQUENT EVENT

The Company has entered into a Letter of Intent dated February 28, 1997 to
sell substantially all the operating assets of the Company. The Letter of Intent
is subject to the execution of a definitive agreement. This transaction is
expected to close by March 31, 1997.

S-27
<PAGE> 28

E-Z PLAN, INC.

CONDENSED BALANCE SHEET -- UNAUDITED
MARCH 31, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
Assets:
Cash and cash equivalents........................................................ $ 1,272
Contracts in process of being collected from finance companies................... 2,096
Notes receivable under retail sales contracts.................................... 27,748
Less: Allowance for repossession losses (Note 2)................................. (5,827)
-------
Notes receivable under retail sales contracts, Net............................... 21,921
Inventories-used automobiles..................................................... 2,791
Equipment and leasehold improvements, Net........................................ 838
Other assets..................................................................... 967
-------
$29,885
=======
Liabilities and Stockholders' Equity:
Liabilities:
Notes payable................................................................. $ 314
Advances from stockholders.................................................... 20,080
Accounts payable and accrued expenses......................................... 3,045
-------
Total Liabilities........................................................ 23,439
-------
Stockholders' Equity:
Common stock.................................................................. 1
Additional paid-in capital.................................................... 3,250
Retained earnings............................................................. 3,195
-------
Total Stockholders' Equity............................................... 6,446
-------
$29,885
=======
</TABLE>

See accompanying notes to condensed unaudited financial statements.

S-28
<PAGE> 29

E-Z PLAN, INC.

CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
Sales of used cars......................................................... $10,730
Cost of used cars sold..................................................... 7,675
-------
Gross profit before provision for repossession losses...................... 3,055
Provision for repossession losses (Note 2)................................. 5,316
-------
Gross loss................................................................. (2,261)
Other operating income (expense):
Finance charge income.................................................... 1,357
Selling, general, and administrative expense............................. (3,406)
Other, net............................................................... 977
-------
Loss from operations....................................................... 3,333
-------
Other income (expense):
Interest expense......................................................... 359
Key man life insurance expense........................................... 155
-------
Total other expense........................................................ 514
-------
Net Loss................................................................... $(3,847)
=======
</TABLE>

See accompanying notes to condensed unaudited financial statements.

S-29
<PAGE> 30

E-Z PLAN, INC.

CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net Loss................................................................... $(3,847)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Provision for repossession losses........................................ 5,316
Depreciation............................................................. 51
Changes in assets and liabilities:
Contracts in process of being collected from finance companies........... (722)
Inventories.............................................................. 2,612
Other assets............................................................. 80
Accounts payable and accrued expenses...................................... (35)
-------
Net cash provided by operating activities.................................. 3,455
-------
INVESTING ACTIVITIES
Retail sales and other costs financed...................................... (6,690)
Collections on notes receivable under retail sales contracts............... 5,380
-------
Net cash used in investing activities...................................... (1,310)
-------
FINANCING ACTIVITIES
Proceeds from notes payable................................................ 7
Payments on notes payable.................................................. (12,826)
Due to stockholders, net................................................... 11,315
-------
Net cash used in financing activities...................................... (1,504)
-------
Net change in cash and cash equivalents.................................... 641
Cash and cash equivalents at beginning of period........................... 631
-------
Cash and cash equivalents at end of period................................. $ 1,272
=======
Supplementary Cash flow information:
Interest Paid............................................................ $ 379
</TABLE>

See accompanying notes to condensed unaudited financial statements.

S-30
<PAGE> 31

E-Z PLAN, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements of E-Z Plan, Inc.
(Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for a complete financial statement presentation. In the opinion of
management, such unaudited interim information reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present the
Company's financial position and results of operations for the periods
presented. The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full fiscal year. It is suggested
that these condensed financial statements be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1996.

NOTE 2. ALLOWANCE FOR REPOSSESSION LOSSES AND PROVISION FOR REPOSSESSION LOSSES

In anticipation of selling substantially all of the assets of EZ Plan (Note
3), management revised its method of computing the allowance for repossession
losses to conform to the method used by the acquiring company. As a result of
this change, the provision for repossession losses during the three months ended
March 31, 1997 increased by approximately $4.0 million over the amount computed
under the former method.

NOTE 3. SUBSEQUENT EVENT

On April 1, 1997, the Company sold substantially all of its assets
including seven dealerships in San Antonio and a contract portfolio of
approximately $24.3 million. The purchase price for the sale was $26.3 million,
subject to adjustment.

(B) PRO FORMA FINANCIAL INFORMATION.

The required pro forma financial information is set forth below.

S-31
<PAGE> 32

UGLY DUCKLING CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET -- UNAUDITED
MARCH 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO
UGLY PRO FORMA FORMA
DUCKLING EZ PLAN ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents..................... $ 73,237 $ 1,272 $ (1,270)(a) $ 46,988
-- -- (26,251)(a)
Contracts in process of being collected from
finance companies.......................... -- 2,096 (2,096)(a) --
Finance Receivables:
Held for Investment........................ 39,790 -- -- 39,790
Held for Sale.............................. 30,000 27,748 (1,489)(a) 56,259
-------- ------- -------- --------
Principal Balances, Net......................... 69,790 27,748 (1,489) 96,049
Less: Allowance for Credit Losses............... (15,442) (5,827) 312(a) (22,139)
-- -- (1,182)(b)
-------- ------- -------- --------
Finance Receivables, Net...................... 54,348 21,921 (2,359) 73,910
-------- ------- -------- --------
Residuals in Finance Receivables Sold........... 16,823 -- -- 16,823
Investments Held in Trust....................... 6,339 -- -- 6,339
Inventory....................................... 9,270 2,791 (1,465)(a) 10,475
-- -- (121)(b)
Property and Equipment, Net..................... 24,996 838 (284)(a) 25,412
-- -- (138)(b)
Goodwill and Trademarks, Net.................... 8,590 -- 5,044(b) 13,634
Other Assets.................................... 12,473 967 (967)(a) 12,519
-- -- 40(c)
-- -- 6(c)
-------- ------- -------- --------
$206,076 $29,885 $ (29,861) $206,100
======== ======= ======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts Payable........................... $ 1,858 $ 707 $ (707)(a) $ 1,858
Accrued Expenses and Other................. 9,575 2,338 (2,338)(a) 9,599
-- -- 24(c)
Notes Payable.............................. 8,400 314 (314)(a) 8,400
Advances from Stockholders................. -- 20,080 (20,080)(a) --
Subordinated Notes Payable................. 12,000 -- -- 12,000
-------- ------- -------- --------
Total Liabilities.......................... 31,833 23,439 (23,415) 31,857
-------- ------- -------- --------
Stockholders' Equity:
Common Stock............................... 171,274 3,251 (3,251)(a) 171,274
Retained Earnings.......................... 2,969 3,195 (3,195)(a) 2,969
-------- ------- -------- --------
Total Stockholders' Equity................. 174,243 6,446 (6,446) 174,243
-------- ------- -------- --------
$206,076 $29,885 $ (29,861) $206,100
======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.

S-32
<PAGE> 33

UGLY DUCKLING CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO
UGLY PRO FORMA FORMA
DUCKLING EZ PLAN ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Sales of Used Cars............................... $ 18,211 $10,730 $ -- $ 28,941
Less:
Cost of Used Cars Sold......................... 9,164 7,675 291(d) 17,130
Provision for Credit Losses.................... 3,981 5,316 -- 9,297
------- ------- ------- -------
5,066 (2,261) (291) 2,514
------- ------- ------- -------
Interest Income.................................. 6,440 1,357 -- 7,797
Gain on Sale of Loans............................ 4,579 -- -- 4,579
------- ------- ------- -------
11,019 1,357 -- 12,376
------- ------- ------- -------
Servicing Income................................. 598 -- -- 598
Other Income..................................... 906 977 -- 1,884
------- ------- ------- -------
1,504 977 -- 2,481
------- ------- ------- -------
Income before Operating Expenses................. 17,589 73 (291) 17,371
Operating Expenses............................... 11,406 3,561 (155)(e) 14,865
-- -- (10)(f)
-- -- 63(g)
------- ------- ------- -------
Income (Loss) before Interest Expense............ 6,183 (3,448) 189 2,506
Interest Expense................................. 769 359 169(h) 1,297
------- ------- ------- -------
Earnings (Loss) before Income Taxes.............. 5,414 (3,847) (358) 1,209
Income Taxes (Benefit)........................... 2,152 -- (1,323)(i) 829
------- ------- ------- -------
Net Earnings (Loss).............................. $ 3,262 $(3,847) $ 965 $ 380
======= ======= ======= =======
Earnings per Share............................... $ 0.20 $ 0.02
======= =======
Shares Used in Computation....................... 16,579 16,579
======= =======
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.

S-33
<PAGE> 34

UGLY DUCKLING CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
UGLY PRO FORMA PRO FORMA
DUCKLING EZ PLAN ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Sales of Used Cars............................. $ 53,768 $42,303 $ -- $96,071
Less:
Cost of Used Cars Sold....................... 29,890 30,800 (2)(d) 60,688
Provision for Credit Losses.................. 9,811 4,512 -- 14,323
------- ------- ----- -------
14,067 6,991 2 21,060
------- ------- ----- -------
Interest Income................................ 15,856 6,418 -- 22,274
Gain on Sale of Loans.......................... 4,434 -- -- 4,434
------- ------- ----- -------
20,290 6,418 -- 26,708
------- ------- ----- -------
Servicing Income............................... 921 -- -- 921
Other Income................................... 650 2,926 -- 3,576
------- ------- ----- -------
1,571 2,926 -- 4,497
------- ------- ----- -------
Income before Operating Expenses............... 35,928 16,335 2 52,265
Operating Expenses............................. 24,700 14,253 (696)(e) 38,329
-- -- (41)(f)
-- -- 113(g)
------- ------- ----- -------
Income (Loss) before Interest Expense.......... 11,228 2,082 626 13,936
Interest Expense............................... 5,262 1,880 477(h) 7,619
------- ------- ----- -------
Earnings (Loss) before Income Taxes............ 5,966 202 149 6,317
Income Taxes (Benefit)......................... 100 -- 290(i) 390
------- ------- ----- -------
Net Earnings (Loss)............................ $ 5,866 $ 202 $(141) $ 5,927
======= ======= ===== =======
Earnings per Share............................. $ 0.60(j) $ 0.61(j)
======= =======
Shares Used in Computation..................... 8,283 8,283
======= =======
</TABLE>

The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.

S-34
<PAGE> 35

UGLY DUCKLING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

(1) BASIS OF ACCOUNTING

On April 1, 1997, Ugly Duckling Corporation ("Ugly Duckling") completed the
acquisition of substantially all of the net assets of EZ Plan, Inc. (the Company
or "EZ Plan") in exchange for approximately $26,251,000 in cash.

The pro forma unaudited combined balance sheet gives effect to the
acquisition as if the transaction had taken place on March 31, 1997 and combines
Ugly Duckling's unaudited March 31, 1997 condensed consolidated balance sheet
amounts with EZ Plan's March 31, 1997 unaudited balance sheet amounts.

The pro forma unaudited combined statement of operations for the year ended
December 31, 1996 is presented using Ugly Duckling's audited consolidated
statement of operations for the year ended December 31, 1996 combined with the
EZ Plan's audited year ended December 31, 1996 statement of operations as if the
transaction had taken place on January 1, 1996.

The pro forma unaudited combined statement of operations for the three
months ended March 31, 1997 is presented using Ugly Duckling's unaudited
consolidated statement of operations for the three months ended March 31, 1997
combined with the EZ Plan's unaudited statement of operations for the three
months ended March 31, 1997 as if the transaction had taken place on January 1,
1996.

The pro forma condensed combined financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Ugly Duckling Corporation and with the audited financial statements and notes
thereto of EZ Plan, Inc.

The pro forma combined statements of operations are not necessarily
indicative of the future results of operations of Ugly Duckling or the results
of operations which would have resulted had Ugly Duckling and EZ Plan been
combined during the periods presented. In addition, the pro forma results are
not intended to be a projection of future results.

(2) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS AND PRO FORMA CONDENSED
COMBINED BALANCE SHEET

The accompanying pro forma adjustments reflect adjustments for the
following items:

(a) Reduction of $26,251,000 for the cash remitted to EZ Plan, as well
as reduction for cash, finance receivables, inventory, other assets, and
liabilities not acquired by Ugly Duckling. The common stock and retained
earnings of EZ Plan were eliminated in their entirety as a result of using
the "purchase method" of accounting.

(b) Ugly Duckling paid a total of $26,251,000 for assets with a fair
value of $21,207,000 resulting in an excess of the purchase price over the
fair value of the net assets acquired (goodwill) of $5,044,000. The
determination of the fair value of the finance receivables was based upon
review of the weighted average yield of the purchased portfolio as well as
the required allowance for credit losses. The allowance for credit losses
was increased by $1,182,000 for the effect of sales tax credits, which
historically have been utilized by EZ Plan to reduce credit losses, that
are not available to Ugly Duckling. Property and equipment was considered
to have been purchased at a fair value based upon review of estimated
replacement costs for a sample of the acquired items. The fair value of
inventory was determined utilizing published listing of vehicle values.

S-35
<PAGE> 36

UGLY DUCKLING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the allocation of fair values follows:

<TABLE>
<CAPTION>
FAIR
DESCRIPTION VALUE
------------------------------------------------ -----------
<S> <C>
Finance Receivables............................. $19,562,000
Inventory....................................... 1,205,000
Property and Equipment.......................... 416,000
Prepaid Rent.................................... 40,000
Deposits........................................ 6,000
Petty Cash...................................... 2,000
Property taxes.................................. (24,000)
-----------
Total Fair Value.............................. 21,207,000
Consideration Exchanged......................... 26,251,000
-----------
Excess of Purchase Price over Fair Value of
Assets Acquired............................... $ 5,044,000
===========
</TABLE>

(c) Represents the payment of $40,000 for prepaid rent for certain
locations, the purchase of lease deposits of $6,000, and Ugly Duckling's
assumption of a property tax liability of $24,000.

(d) Adjustment to convert EZ Plan inventory from last-in, first-out
(LIFO) to specific identification basis of accounting.

(e) Adjustment to reverse Key man life insurance expense for policies
retained by EZ Plan.

(f) Decrease in rent expense for difference in lease rates for a used
car dealership and an office building.

(g) Amortization of goodwill over a period of twenty years.

(h) The former stockholders of EZ Plan had provided financing to EZ
Plan for use in purchasing and reconditioning its inventory and in funding
operating expenses. No interest was charged, except for advances related to
inventory purchases. This pro forma adjustment is to charge interest at
Ugly Duckling's average borrowing rate as if the entire balance of the
advances from the stockholders had been charged interest.

(i) No provision for income taxes had been made to the EZ Plan
financial statements since EZ Plan elected to be treated as an S
Corporation for income taxes. Under the terms of the election, EZ Plan
generally paid no income tax as the income tax "flows through" to the
former stockholders of EZ Plan. This pro forma adjustment is for the income
tax effect of the earnings (loss) before income taxes of the Company as if
the EZ Plan had been consolidated with Ugly Duckling and had been subject
to corporate income taxes for the period.

(j) Earnings per share calculated after giving effect to payment of
$916,000 in preferred stock dividends in 1996.

S-36
<PAGE> 37

SELLING SECURITYHOLDERS

The table under the caption "Selling Securityholders" on pages 50-52 in the
Prospectus is replaced by the following table which has been updated to reflect
sales by certain Selling Securityholders prior to May 27, 1997.

<TABLE>
<CAPTION>
SHARES TO BE OFFERED
SHARES BENEFICIALLY FOR THE SELLING SHARES BENEFICIALLY
OWNED PRIOR TO SECURITYHOLDER'S OWNED AFTER THE
SELLING SECURITYHOLDER THE OFFERING ACCOUNT OFFERING
- ------------------------------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
SunAmerica Life Insurance Company.......... 458,667(1) 337,644 121,023(1)
Account 3 Special Growth Account........... 335,000 335,000 0
Alan W. Steinberg L.P. .................... 20,000 20,000 0
Andron Capital Mgmt. ...................... 10,000 10,000 0
Astrophel Ltd. ............................ 5,000 5,000 0
Balestra Capital Omnibus................... 10,000 10,000 0
Bank Clariden Zurich....................... 40,000 40,000 0
Barlow Partners, Inc. ..................... 44,300 19,000 25,300
Bay Pond Investors (Bermuda), L.P. ........ 372,100 94,500 277,600
Bay Pond Partners, L.P. ................... 708,400 210,500 497,900
Boston Provident Partners, L.P. ........... 546,700 105,700 441,000
BP Institutional Partners, L.P. ........... 67,500 12,000 55,500
BP Overseas Partners, Ltd. ................ 103,600 20,500 83,100
Brookside Corporation, Ltd. ............... 5,000 5,000 0
Charles Kleinow............................ 1,000 1,000 0
Chelsey Capital............................ 35,000 35,000 0
CI Global Financial Services............... 25,000 25,000 0
Closefire Ltd. ............................ 1,500 1,500 0
Collins Non-Core Equity.................... 21,700 21,700 0
Cornerstone Partners....................... 20,000 20,000 0
Credit Suisse Fides........................ 20,000 20,000 0
David Hancock IRA.......................... 20,000 20,000 0
Drakes Landing Associates, L.P. ........... 12,500 12,500 0
EAG Enterprises Ltd. ...................... 12,000 12,000 0
E. Jane Rochester.......................... 10,000 10,000 0
EOS Partners............................... 25,000 25,000 0
Ernest M. Rochester........................ 10,000 10,000 0
FBR Ashton, L.P............................ 350,000 350,000 0
Financial Services Hedge Fund, L.P. ....... 54,700 15,500 39,200
First Financial Fund, Inc. ................ 755,800 185,500 570,300
Friedman, Billings, Ramsey & Co.,
Inc.(2).................................. 105,000 105,000 0
Fullcrum Associates, L.P. ................. 75,000 75,000 0
Fullerton Capital Partners, L.P. .......... 20,000 20,000 0
Gerlach & Co. ............................. 7,000 7,000 0
Glen T. Presley............................ 3,000 3,000 0
</TABLE>

- ---------------
(1) The total for SunAmerica includes 121,023 shares of Common Stock subject
to 121,023 immediately exercisable warrants, which have an exercise price
of $6.75 per share. Affiliates of SunAmerica provide financing to the
Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Liquidity and Capital Resources."

(2) Friedman, Billings, Ramsey & Co., Inc. acted as placement agent for the
Company in connection with the Private Placement.

S-37
<PAGE> 38

<TABLE>
<CAPTION>
SHARES TO BE OFFERED
SHARES BENEFICIALLY FOR THE SELLING SHARES BENEFICIALLY
OWNED PRIOR TO SECURITYHOLDER'S OWNED AFTER THE
SELLING SECURITYHOLDER THE OFFERING ACCOUNT OFFERING
- ------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Goldsher Investment Co. ................... 4,000 4,000 0
Gordon V. and Helen C. Smith Foundation.... 40,000 40,000 0
Gorman & Co. .............................. 20,000 20,000 0
Hapna Foundation........................... 3,000 3,000 0
H.C. Lentz, Jr. ........................... 5,000 5,000 0
Hunter Lipton.............................. 5,000 5,000 0
International Charitable Interests II
Trust.................................... 58,000 13,000 45,000
Jack Barrish............................... 3,000 3,000 0
J.M. Hull Associates, L.P. ................ 25,000 25,000 0
John Hancock Advisers...................... 1,149,000 1,149,000 0
Jonathan G. Harrison and Karen M.
Harrison................................. 18,000 10,000 8,000
Kane & Co. ................................ 17,000 17,000 0
Kayne Anderson Offshore Ltd. .............. 10,000 10,000 0
Krakover Family Trust, Stewart M. Krakover
and Grace W. Krakover, Trustees.......... 3,000 3,000 0
Lancaster Investment Partners.............. 25,000 25,000 0
Maritime Global Securities Sub IV ......... 15,000 15,000 0
Maritime Global Subsidiary I............... 69,900 12,500 57,400
Mark Rochester............................. 10,000 10,000 0
Marlin Capital Corp. ...................... 15,000 15,000 0
Mary Knoll Capital......................... 5,000 5,000 0
McColl Partners, L.P. ..................... 25,000 25,000 0
Mercury Bank............................... 5,000 5,000 0
Mesirow Equity Opportunity Fund, L.P. ..... 41,800 8,200 33,600
Moore Global Investments, Ltd. ............ 95,450 95,450 0
Nilovar Pahlavi............................ 1,500 1,500 0
Novante Communications..................... 15,000 15,000 0
Offense Group Associates, L.P. ............ 70,000 70,000 0
Omega Capital Partners, L.P. .............. 42,700 42,700 0
Omega Institutional Partners, L.P. ........ 3,800 3,800 0
Paces Partners............................. 10,000 10,000 0
PAM Investments Ltd. ...................... 2,000 2,000 0
Paul Berger................................ 1,000 1,000 0
Pine Boston Partners....................... 57,900 8,100 49,800
Pogue Capital International Ltd. .......... 24,000 24,000 0
Portland General........................... 10,700 10,700 0
Priority Investments, Inc. ................ 2,200 2,200 0
Prospect Street High Income Portfolio,
Inc. .................................... 25,000 25,000 0
Quota Fund/Cold Springs Partners........... 15,000 15,000 0
Rajnikant Kothari.......................... 15,000 5,000 10,000
Rajnikant Kothari and Saroj Kothari........ 10,000 10,000 0
Rath Foundation............................ 30,000 30,000 0
Redwood Asset Management, L.P. ............ 37,500 37,500 0
Redwood Fund Ltd. ......................... 7,800 7,800 0
Richard A. Horstmann....................... 40,000 40,000 0
Richcourt Strategies, Inc. ................ 9,000 9,000 0
</TABLE>

S-38
<PAGE> 39

S-39
<PAGE> 40

DESCRIPTION OF CAPITAL STOCK

The second paragraph under the caption "Description of Capital Stock" on
page 54 of the Prospectus is replaced by the following:

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of Preferred
Stock par value $.001 per share. At the date hereof, 18,444,764 shares of Common
Stock were issued and outstanding.

S-40
<PAGE> 41

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER, OR ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Quarterly Financial Information........... S-2
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. S-6
E-Z Plan Financial Statements............. S-19
Selling Securityholders................... S-37
Description of Capital Stock.............. S-40

PROSPECTUS
Prospectus Summary........................ 3
Risk Factors.............................. 8
The Company............................... 14
Use of Proceeds........................... 14
Price Range of Common Stock............... 14
Dividend Policy........................... 15
Capitalization............................ 15
Selected Consolidated Financial Data...... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 18
Business.................................. 31
Management................................ 42
Principal Stockholders.................... 49
Selling Securityholders................... 50
Certain Relationships and Related
Transactions............................ 53
Description of Capital Stock.............. 54
Plan of Distribution...................... 57
Legal Matters............................. 58
Experts................................... 58
Available Information..................... 59
Index to Financial Statements............. F-1
</TABLE>

======================================================
======================================================
5,413,144 Shares

Ugly Duckling Logo

Common Stock
-----------------------

PROSPECTUS
-----------------------

June 24, 1997

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