UGLY DUCKLING CORP, POS AM, 1997-07-18

UGLY DUCKLING CORP
POS AM, 1997-07-18
PERSONAL CREDIT INSTITUTIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997

REGISTRATION NO. 333-22237
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2 ON

FORM S-3
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

UGLY DUCKLING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 86-0721358
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
</TABLE>

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

2525 EAST CAMELBACK ROAD, SUITE 1150
PHOENIX, ARIZONA 85016
(602) 852-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

STEVEN P. JOHNSON, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
UGLY DUCKLING CORPORATION
2525 EAST CAMELBACK ROAD, SUITE 1150
PHOENIX, ARIZONA 85016
(602) 852-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPY TO:

STEVEN D. PIDGEON, ESQ.
SNELL & WILMER L.L.P.
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
(602) 382-6000
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
------------------------

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.

PURSUANT TO RULE 429(a), THE PROSPECTUS THAT IS A PART OF THIS REGISTRATION
STATEMENT ALSO RELATES TO ANOTHER REGISTRATION STATEMENT OF THE COMPANY
(REGISTRATION NO. 333-13755).
================================================================================
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3,439,294 SHARES

UGLY DUCKLING LOGO

COMMON STOCK

This Prospectus relates to an aggregate of 3,439,294 shares of Common
Stock, par value $.001 per share ("Common Stock"), of Ugly Duckling Corporation,
a Delaware corporation (the "Company"), which may be offered for sale by persons
(the "Selling Securityholders") who have acquired such shares in certain private
placement transactions by the Company not involving a public offering. The
Common Stock is being registered under the Securities Act of 1933, as amended
(the "Securities Act"), on behalf of the Selling Securityholders in order to
permit the public sale or other distribution of the Common Stock. The Common
Stock offered hereby is approximately 18.6% of the total outstanding Common
Stock of the Company. See "Risk Factors -- Shares Eligible for Future Sale."

The Common Stock may be sold or distributed from time to time by or for the
account of the Selling Securityholders or their nominees or pledgees through
underwriters or dealers, through brokers or other agents, or directly to one or
more purchasers, including pledgees, at market prices prevailing at the time of
sale or at prices otherwise negotiated.

None of the proceeds from the sale of the 3,439,294 shares of Common Stock
offered by the Selling Securityholders will be received by the Company.
Substantially all of the expenses in connection with the registration of the
Common Stock will be borne by the Company, except for any underwriter's,
brokers' or dealers' commissions or discounts. See "Plan of Distribution."

The Common Stock is quoted on Nasdaq National Market ("Nasdaq") under the
symbol "UGLY". On July 15, 1997, the last reported price of the Common Stock was
$14.875 per share.

SEE "RISK FACTORS" AT PAGE 6 OF THIS 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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

The date of this Prospectus is July 18, 1997.
<PAGE> 3

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus constitutes a part of the Registration Statement and
does not contain all of the information set forth therein and in the exhibits
thereto, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and exhibits. The Registration Statement, including the
exhibits thereto, may be examined without charge at the Commission's public
reference facility at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, copies of all or any part of the
Registration Statement, including such exhibits thereto, may be obtained from
the Commission at its principal office in Washington, D.C., upon payment of the
fees prescribed by the Commission.

The Company is subject to the reporting and informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements, and other information
with the Commission. Such reports, proxy statements, and other information filed
by the Company can be inspected and copied at the principal office of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, New York, NY 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60601. Copies of such material may be
obtained from the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of the
fees prescribed by the Commission. The Commission maintains a World Wide Web
site (http://www.sec.gov) that contains reports, proxy statements, and other
information regarding registrants, such as the Company, that file electronically
with the Commission.

The Company's Common Stock is traded on Nasdaq. Reports, proxy statements,
and other information filed by the Company may be inspected and copied at the
National Association of Securities Dealers, 1735 K Street, N.W., Washington,
D.C. 20007.

INFORMATION INCORPORATED BY REFERENCE

The following documents previously filed by the Company (File No. 0-20841)
with the Commission are hereby incorporated by reference in this Prospectus:

1. The Company's Form 10-K Report for the fiscal year ended December 31,
1996, as amended by its Form 10-K/A Report filed on May 20, 1997;

2. The Company's Form 10-Q Report for the fiscal quarter ended March 31,
1997;

3. The Company's Form 8-K Report dated January 15, 1997, as amended by its
Form 8-K/A1 Report dated January 15, 1997 and its Form 8-K/A2 Report dated
January 15, 1997;

4. The Company's Form 8-K Report dated February 3, 1997;

5. The Company's Form 8-K Report dated February 11, 1997, as amended by its
Form 8-K/A1 Report dated February 10, 1997 and its Form 8-K/A2 Report dated
February 11, 1997;

6. The Company's Form 8-K Report dated April 1, 1997, as amended by its
Form 8-K/A1 Report dated April 1, 1997 (the "April 1 Form 8-K"); and

7. The Company's Form 8-K Report dated April 21, 1997.

All other documents and reports filed by the Company with the Commission
pursuant to Section 13, 14, or 15(d) of the Exchange Act subsequent to the date
of the April 1 Form 8-K and prior to the termination of this offering of the
Common Stock shall be deemed to be incorporated by reference in this Prospectus
and to be made a part hereof from their respective dates of filing.

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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company will cause to be furnished without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all documents
incorporated herein by reference (not including the exhibits to such documents).
Requests should be directed to Ugly Duckling Corporation, 2525 East Camelback
Road, Suite 1150, Phoenix, Arizona 85016. The telephone number of the Company is
1-800-THE-DUCK.

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THE COMPANY

The Ugly Duckling Corporation (the "Company") operates the largest publicly
held chain of "buy here-pay here" used car dealerships in the United States and
underwrites, finances, and services retail installment contracts generated from
the sale of used cars by its dealerships and by third party used car dealers
located in select markets throughout the country. As part of its financing
activities, the Company has initiated a collateralized dealer financing program
pursuant to which it provides qualified independent used car dealers with
operating credit lines secured by the dealers' retail installment contract
portfolios. The Company targets its products and services to the sub-prime
segment of the automobile financing industry, which focuses on selling and
financing used cars to persons who have limited credit histories, low incomes,
or past credit problems ("Sub-Prime Borrowers"). As used herein amounts followed
by "(pro forma)" do not include revenues or sales derived from one Company
dealership which was sold on December 31, 1995.

The Company has expanded significantly in recent periods. From 1995 to
1996, total revenues increased by 55.2%, from $48.7 million (pro forma) to $75.6
million. The Company's net income grew to $5.9 million in 1996 (including $4.4
million in gains recognized from the sale of contract receivables pursuant to a
securitization program (the "Securitization Program") with SunAmerica Life
Insurance Company ("SunAmerica") discussed below), or $.60 per share, compared
with a net loss of $(4.0) million, or $(.67) per share in 1995.

The Company originated 6,929 contracts through its dealerships with an
aggregate principal balance of $49.0 million and purchased 9,825 contracts from
third party dealers with an aggregate principal balance of $56.8 million during
1996. The principal balance of the Company's total contract portfolio managed as
of March 31, 1997 was $169.1 million, including $100.4 million in contracts
serviced under the Securitization Program. Substantially all of the contracts
the Company services are with Sub-Prime Borrowers.

Company Dealership Operations. The Company sells used cars through
twenty-four wholly owned used car dealerships ("Company Dealerships") in
Arizona, Texas, Florida, Nevada, and New Mexico and finances such sales through
retail installment contracts that the Company services. The Company's targeted
competition for its Company Dealerships are the numerous small independent used
car dealerships that sell and finance used cars to Sub-Prime Borrowers ("Buy
Here-Pay Here" dealers). The Company estimates that there are over 63,000
independent used car dealers in the United States, a substantial portion of
which are Buy Here-Pay Here dealers. The Company distinguishes its Company
Dealership operations from those of typical Buy Here-Pay Here dealers by
providing multiple locations, upgraded facilities, large inventories of used
automobiles, centralized purchasing, value-added marketing programs, and
dedication to customer service. Most Company Dealerships maintain extensive
inventories of 100 to 300 used cars and feature a wide selection of makes and
models (with ages generally ranging from 5 to 10 years). The average sales price
per car at Company Dealerships was $7,107 for 1996. The Company has developed
flexible underwriting guidelines and techniques, which combine established
underwriting criteria with managerial discretion, to facilitate rapid credit
decisions and utilizes networked computer systems to monitor and service large
volumes of contracts.

The Company believes it has achieved widespread brand name recognition
through extensive television, radio, and billboard advertising featuring its
widely recognized animated duck mascot and logo. The Company emphasizes its
large network of Company Dealerships, its wide selection of quality used cars,
and its ability to finance most Sub-Prime Borrowers. The Company has also
established several innovative marketing programs that are designed to attract
Sub-Prime Borrowers by assisting them in re-establishing their credit, offering
rewards for timely payment on contracts, and promoting customer loyalty.

Third Party Dealer Operations. The Company also purchases and services
contracts originated by third party used car dealers ("Third Party Dealers").
Through its acquisition of Champion Financial Services, Inc. in 1994, the
Company entered the Third Party Dealer financing market in order to leverage the
contract servicing expertise it had acquired through its Company Dealership
activities. Since that time, the Company has significantly expanded its Third
Party Dealer contract purchasing operations and, as of the date of this
Prospectus, has opened 64 Third Party Dealer contract buying offices ("Branch
Offices") in 17 states and entered into contract purchasing agreements with
approximately 2,710 Third Party Dealers.

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The Company is in the process of expanding its Third Party Dealer
operations by implementing a collateralized dealer financing program (the
"Cygnet Dealer Program"). The Company believes that providing operating credit
lines to qualified Third Party Dealers will give such dealers a unique
opportunity to obtain the debt financing necessary to expand their businesses
while enabling the Company to earn additional finance income and to diversify
its earning asset base. The Company also believes that the relationships
established with these dealers will provide a preferred position to acquire
retail installment contracts from them. Such contract purchases would provide
these dealers with an additional source of financing and enable the Company to
further expand its contract portfolio.

The Company has also established insurance operations directed to the
sub-prime market. Its initial activities in this area have focused on force
placing casualty insurance on its Third Party Dealer contracts.

Growth Strategy. The Company is the largest publicly held chain of Buy
Here-Pay Here used car dealerships in the United States and its size has enabled
it to have greater access to capital. The Company's strategy is to deploy this
capital base to increase sales revenue and finance income by acquiring or
opening new dealerships and finance operations. In the last several months, the
Company has opened new Company Dealerships in Arizona, Nevada, and New Mexico.
The Company acquired four operating used car dealership locations and a used car
reconditioning facility in Florida on January 15, 1997 and has since opened a
fifth location in Florida. On April 1, 1997, the Company acquired seven
operating used car dealerships in San Antonio and a contract portfolio of
approximately $24.3 million.

Newly acquired or opened dealerships have historically generated operating
profit within the first few months of operation, although results have varied
significantly by dealership. The Company's recent dealership acquisitions,
however, have been of larger groups of dealerships than those previously
acquired and are in new markets. Accordingly, no assurance can be given that the
recently acquired dealerships will become profitable, if at all, as quickly as
previously acquired or opened dealerships. The Company is continually evaluating
potential expansion and acquisition opportunities. Continued expansion is
subject to numerous factors, including the identification of attractive market
opportunities, the availability of inventory, the hiring and training of
personnel, and other factors.

In recent periods, the Company has also rapidly expanded its Branch Office
network. Since December 31, 1995 the Company has opened 60 Branch Offices. The
Company intends to continue to develop this network, consistent with the
Company's guidelines on contract portfolio risk, and its desire for continued
geographic diversity.

As an additional element of its growth strategy, the Company intends to
expand its insurance services and its Cygnet Dealer Program. While the Company
anticipates that its Cygnet Dealer Program could be a substantial revenue
contributor and is currently placing significant marketing emphasis on this
product, the Company is unable to predict the success or size of this program.

Capital Resources. The Company finances its operations through the
issuance of equity securities and borrowings pursuant to various credit
arrangements, including a revolving credit facility (the "Revolving Facility")
with General Electric Capital Corporation ("GE Capital"). In addition, the
Company has derived revenue through the sale of contracts under its
Securitization Program with SunAmerica. Through March 31, 1997, the Company had
securitized an aggregate of $73.3 million in contracts originated through
Company Dealerships and $55.6 million in loans originated at Third Party Dealers
and purchased by the Company. Standard & Poor's has given "BBB" ratings to the
$128.9 million in securities issued to SunAmerica, as of March 31, 1997, in
connection with the Securitization Program (the "Certificates"), which the
Company believes are the only "investment grade" ratings given to certificates
collateralized by used car installment contracts originated at Buy Here-Pay Here
dealerships without any external credit enhancement. The Standard & Poor's
rating is unrelated to an investment in the Common Stock being offered pursuant
to this Prospectus. Since March 31, 1997, the Company has substantially utilized
its maximum commitment from SunAmerica to purchase Certificates. For risks
associated with the Company's dependence on securitization transactions and the
fact that the Securitization Program with SunAmerica has been substantially
utilized, see "Risk Factors -- Dependence on Securitizations."

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RISK FACTORS

Investment in the Common Stock offered hereby involves certain risks. In
addition to the other information included elsewhere in this Prospectus,
prospective investors should give careful consideration to the following factors
before purchasing shares of the Common Stock offered hereby.

NO ASSURANCE OF CONTINUED PROFITABILITY; FLUCTUATIONS IN OPERATING RESULTS

The Company began operations in 1992 and incurred significant losses in
1994 and 1995. In 1996, however, the Company achieved profitability with net
earnings of approximately $5.9 million (including $4.4 million of gains
recognized from the sale of contract receivables pursuant to the Securitization
Program) on total revenues of $75.6 million. There can be no assurance that the
Company will remain profitable.

DEPENDENCE ON SECURITIZATIONS

In recent periods, a significant portion of the Company's net earnings have
been attributable to gains on sales of contract receivables under its
Securitization Program. To date, all of the Company's securitization
transactions have been completed under the Securitization Program with
SunAmerica. Under this program, SunAmerica was granted the right to purchase
$175 million in Certificates. As of June 30, 1997, the Company had substantially
utilized its maximum commitment from SunAmerica under the Securitization
Program. The Company is actively seeking to identify alternative securitization
participants. Failure to identify new securitization participants and to
periodically engage in securitization transactions will adversely affect the
Company's cash flows and net earnings. The Company's ability to successfully
complete securitizations in the future may also be affected by several factors,
including the condition of securities markets generally, conditions in the
asset-backed securities markets specifically, and the credit quality of the
Company's portfolio. In addition, with respect to securitization transactions
that have previously been effected, the amount of any gain on sale 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 subordinate certificate portion of the
securitization which it retains, and record a charge to earnings based upon the
reduction. In addition, the Company records ongoing income based upon the cash
flows on its subordinate certificate portion. The income recorded on the
subordinate certificate portion will vary from quarter to quarter based upon
cash flows received in a given period. Champion Receivables Corporation ("CRC"),
a bankruptcy remote entity is the Company's wholly-owned special purpose
securitization subsidiary. Its assets include residuals in finance receivables
and investments held in trust, in the amounts of $16.8 million and $5.4 million,
respectively, at March 31, 1997, which amounts would not be available to satisfy
claims of creditors of the Company on a consolidated basis.

POOR CREDITWORTHINESS OF BORROWERS; HIGH RISK OF CREDIT LOSSES

Substantially all of the contracts that the Company services are with
Sub-Prime Borrowers. Due to their poor credit histories, Sub-Prime Borrowers are
generally unable to obtain credit from traditional financial institutions, such
as banks, savings and loans, credit unions, or captive finance companies owned
by automobile manufacturers. The Company typically charges fixed interest rates
ranging from approximately 21.0% to 29.9% on contracts originated at Company
Dealerships, while rates range from approximately 17.6% to 29.9% on the Third
Party Dealer contracts it purchases. In addition, the Company has established an
Allowance for Credit Losses, which approximated 13.9% and 17.7% of contract
principal balances as of December 31, 1996 and 1995, respectively, and 22.1% of
contract principal balances as of March 31, 1997, to cover anticipated credit
losses on the contracts currently in its portfolio. At December 31, 1996 and
1995, the principal balance of delinquent contracts as a percentage of total
outstanding contract principal balances was 3.7% and 4.2%, respectively. The
principal balance of delinquent contracts as a percentage of total outstanding
contract principal balances at March 31, 1997, was 4.7%. The Company's
annualized net charge offs as a percentage of average principal outstanding for
the years ended December 31, 1996 and 1995 were 16.7% and 21.7%, respectively.
The Company's annualized net charge offs as a percentage of average principal
outstanding for the three months ended March 31, 1997 were 19.4%. The Company
believes its current Allowance for Credit Losses is adequate to absorb
anticipated credit losses. However, no assurance can be

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given that the Company has adequately provided for, or will adequately provide
for, such credit risks or that credit losses in excess of its Allowance for
Credit Losses will not occur in the future. A significant variation in the
timing of or increase in credit losses on the Company's portfolio would have a
material adverse effect on the Company.

RISKS ASSOCIATED WITH GROWTH STRATEGY AND NEW PRODUCT OFFERINGS

The Company's business strategy calls for aggressive growth in its sales
and financing activities through the development and acquisition of new Company
Dealerships and Branch Offices and the expansion of its existing operations to
include additional financing and insurance services. The Company's ability to
remain profitable as it pursues this business strategy will depend upon its
ability to: (i) expand its revenue generating operations while not
proportionately increasing its administrative overhead; (ii) originate and
purchase contracts with an acceptable level of credit risk; (iii) effectively
collect payments due on the contracts in its portfolio; (iv) locate sufficient
financing, with acceptable terms, to fund the expansion of used car sales and
the origination and purchase of additional contracts; and (v) adapt to the
increasingly competitive market in which it operates. Outside factors, such as
the economic, regulatory, and judicial environments in which it operates, will
also have an effect on the Company's business. The Company's inability to
achieve or maintain any or all of these goals could have a material adverse
effect on the Company.

The Company has initiated its Cygnet Dealer Program, pursuant to which the
Company provides qualified Third Party Dealers with operating lines of credit
secured by such dealers' retail installment contract portfolios and/or
inventory. While the Company will require Third Party Dealers to meet certain
minimum net worth and operating history criteria to be considered for inclusion
in the Cygnet Dealer Program, the Company will, nevertheless, be extending
credit to dealers who are not otherwise able to obtain debt financing from
traditional lending institutions such as banks, credit unions, and major finance
companies. Consequently, as with its other financing activities, the Company
will be subject to a high risk of credit losses that could have a material
adverse effect on the Company's financial condition and results of operations
and on the Company's ability to meet its own financing obligations. Further,
there can be no assurance that the Company will be able to obtain the financing
necessary to fully implement the Cygnet Dealer Program. In addition, there can
be no assurance that the Company will be successful in its efforts to expand its
insurance services.

NO ASSURANCE OF SUCCESSFUL ACQUISITIONS

The Company has recently completed two acquisitions and intends to consider
additional acquisitions of and alliances with other companies that could
complement the Company's existing business. There can be no assurance that
suitable acquisition or joint venture candidates can be identified, or that, if
identified, any such transactions will be consummated. Furthermore, there can be
no assurance that the Company will be able to integrate successfully such
acquired businesses, including those recently acquired, into its existing
operations, which could increase the Company's operating expenses in the
short-term and materially and adversely affect the Company's results of
operations. Moreover, any acquisition by the Company may result in potentially
dilutive issuances of equity securities, the incurrance of additional debt, and
amortization of expenses related to goodwill and intangible assets, all of which
could adversely affect the Company's profitability. Acquisitions involve
numerous risks, such as the diversion of the attention of the Company's
management from other business concerns, the entrance of the Company into
markets in which it has had no or only limited experience, and the potential
loss of key employees of the acquired company, all of which could have a
material adverse effect on the Company.

HIGHLY COMPETITIVE INDUSTRY

Although the used car sales industry has historically been highly
fragmented, it has attracted significant attention recently from a number of
large companies, including AutoNation, U.S.A. and Driver's Mart, which have
entered the used car sales business or announced plans to develop large used car
sales operations. Many franchised new car dealerships have also increased their
focus on the used car market. The Company believes that these companies are
attracted by the relatively high gross margins that can be achieved in this
market and the industry's lack of consolidation. Many of these companies and
franchised dealers have significantly greater

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financial, marketing, and other resources than the Company. Among other things,
increased competition could result in increased wholesale costs for used cars,
decreased retail sales prices, and lower margins.

Like the sale of used cars, the business of purchasing and servicing
contracts originated from the sale of used cars to Sub-Prime Borrowers is highly
fragmented and very competitive. In recent years, several consumer finance
companies have completed public offerings in order to raise the capital
necessary to fund expansion and support increased purchases of contracts. These
companies have increased the competition for the purchase of contracts, in many
cases purchasing contracts at prices that the Company believes are not
commensurate with the associated risk. There are numerous financial services
companies serving, or capable of serving, this market, including traditional
financial institutions such as banks, savings and loans, credit unions, and
captive finance companies owned by automobile manufacturers, and other
non-traditional consumer finance companies, many of which have significantly
greater financial and other resources than the Company. Increased competition
may cause downward pressure on the interest rates the Company charges on
contracts originated by its Company Dealerships or cause the Company to reduce
or eliminate the nonrefundable acquisition discount on the contracts it
purchases from Third Party Dealers, which could have a material adverse effect
on the Company.

The Company believes that recent demographic, economic, and industry trends
favor growth in the used car sales and Sub-Prime Borrower financing markets. To
the extent such trends do not continue, however, the Company's profitability may
be materially and adversely affected.

GENERAL ECONOMIC CONDITIONS

The Company's business is directly related to sales of used cars, which are
affected by employment rates, prevailing interest rates, and other general
economic conditions. While the Company believes that current economic conditions
favor continued growth in the markets it serves and those in which it seeks to
expand, a future economic slowdown or recession could lead to decreased sales of
used cars and increased delinquencies, repossessions, and credit losses that
could hinder the Company's business. Because of the Company's focus on the
sub-prime segment of the automobile financing industry, its actual rate of
delinquencies, repossessions, and credit losses could be higher under adverse
conditions than those experienced in the used car sales and finance industry in
general.

INDUSTRY CONSIDERATIONS

In recent periods, several major used car finance companies have announced
major downward adjustments to their financial statements, violations of loan
covenants, related litigation and other events. In addition, two of these
companies have filed for bankruptcy protection. These announcements have had and
may continue to have a disruptive effect on the market for securities of
sub-prime automobile finance companies, are expected to result in a tightening
of credit to the sub-prime markets and could lead to enhanced regulatory
oversight. Furthermore, companies in the used car financing market have been
subject to an increasing number of class action lawsuits brought by customers
alleging violations of various federal and state consumer credit and similar
laws and regulations. Although the Company is not currently subject to any such
lawsuits, no assurance can be given that such claims will not be asserted
against the Company in the future or that the Company's operations will not be
subject to enhanced regulatory oversight.

NEED TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH THIRD PARTY DEALERS

The Company enters into nonexclusive agreements with Third Party Dealers,
which may be terminated by either party at any time, pursuant to which the
Company purchases contracts originated by such dealers that meet the Company's
established terms and conditions. Pursuant to the Cygnet Dealer Program, the
Company enters into financing agreements with qualified Third Party Dealers. The
Company's Third Party Dealer financing activities depend in large part upon its
ability to establish and maintain relationships with such dealers. While the
Company believes that it has been successful in developing and maintaining
relationships with Third Party Dealers in the markets that it currently serves,
there can be no assurance that the Company will be successful in maintaining or
increasing its existing Third Party Dealer base, that such

8
<PAGE> 10

dealers will continue to generate a volume of contracts comparable to the volume
of contracts historically generated by such dealers, or that any such dealers
will become involved in the Cygnet Dealer Program.

GEOGRAPHIC CONCENTRATION

Company Dealership operations are currently located in Arizona, Texas,
Florida, Nevada, and New Mexico. In addition, a majority of the Company's Branch
Offices are located in Arizona, Texas, Florida, and Indiana. Because of this
concentration, the Company's business may be adversely affected in the event of
a downturn in the general economic conditions existing in the Company's primary
markets.

DEPENDENCE ON EXTERNAL FINANCING

The Company has borrowed, and will continue to borrow, substantial amounts
to fund its operations from financing companies and other lenders, some of which
are affiliated with the Company. Currently, the Company receives financing
pursuant to the Revolving Facility with GE Capital, which has a maximum
commitment of $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 it for one additional year. The
Revolving Facility is secured by substantially all of the Company's assets. In
addition, the Revolving Facility contains various covenants that limit, among
other things, the Company's ability to engage in mergers and acquisitions, incur
additional indebtedness, and pay dividends or make other distributions, and also
requires the Company to meet certain financial tests. As of March 31, 1997, the
aggregate principal amount outstanding under the Revolving Facility was
$100,000, and the amount available to be borrowed was $49.9 million. Although
the Company believes it is currently in compliance with the terms and conditions
of the Revolving Facility, there can be no assurance that the Company will be
able to continue to satisfy such terms and conditions or that the Revolving
Facility will be extended beyond its current expiration date. In addition, there
can be no assurance that the Company will be able to secure additional
financing, including the financing necessary to fully implement the Cygnet
Dealer Program, when and as needed in the future, or on terms acceptable to the
Company.

The Company recently completed negotiations to modify the terms of the
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. The definitive agreement will
be subject to the approval 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 embodying these terms will
ultimately be executed.

SENSITIVITY TO INTEREST RATES

A substantial portion of the Company's financing income results from the
difference between the rate of interest it pays on the funds it borrows and the
rate of interest it earns on the contracts in its portfolio. While the contracts
the Company owns bear interest at a fixed rate, the indebtedness that the
Company incurs under its Revolving Facility bears interest at a floating rate.
In the event the Company's interest expense increases, it would seek to
compensate for such increases by raising the interest rates on its Company
Dealership contracts, increasing the acquisition discount at which it purchases
Third Party Dealer contracts, or raising the retail sales prices of its used
cars. To the extent the Company were unable to do so, the Company's net interest
margins would decrease, thereby adversely affecting the Company's profitability.

IMPACT OF USURY LAWS

The Company typically charges fixed interest rates ranging from
approximately 21.0% to 29.9% on the contracts originated at Company Dealerships,
while rates range from approximately 17.6% to 29.9% on the Third

9
<PAGE> 11

Party Dealer contracts it purchases. Currently, a significant portion of the
Company's used car sales activities are conducted in, and a significant portion
of the contracts the Company services are originated in, Arizona, which does not
impose limits on the interest rate that a lender may charge. However, the
Company has expanded, and will continue to expand, its operations into states
that impose usury limits, such as Florida and Texas. The Company attempts to
mitigate these rate restrictions by raising the retail prices of its used cars
or purchasing contracts originated in these states at a higher discount. The
Company's inability to achieve higher sales prices or adequate discounts in
states imposing usury limits would adversely affect the Company's planned
expansion and its results of operations. There can be no assurance that the
usury limitations to which the Company is or may become subject or that
additional laws, rules, and regulations that may be adopted in the future will
not adversely affect the Company's business.

DEPENDENCE UPON KEY PERSONNEL

The Company's future success will depend upon the continued services of the
Company's senior management as well as the Company's ability to attract
additional members to its management team with experience in the used car sales
and financing industry. The unexpected loss of the services of any of the
Company's key management personnel, or its inability to attract new management
when necessary, could have a material adverse effect upon the Company. The
Company has entered into employment agreements (which include non-competition
provisions) with certain of its officers.

CONTROL BY PRINCIPAL STOCKHOLDER

Mr. Ernest C. Garcia, II, the Company's Chairman, Chief Executive Officer,
and principal stockholder, holds 25.1% of the outstanding Common Stock,
including 136,000 shares held by The Garcia Family Foundation, Inc., an Arizona
non-profit corporation. As a result, Mr. Garcia has a significant influence upon
the activities of the Company, as well as on all matters requiring approval of
the stockholders, including electing or removing members of the Company's Board
of Directors, causing the Company to engage in transactions with affiliated
entities, causing or restricting the sale or merger of the Company, and changing
the Company's dividend policy.

POTENTIAL ANTI-TAKEOVER EFFECT OF PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the Company to issue
"blank check" Preferred Stock, the designation, number, voting powers,
preferences, and rights of which may be fixed or altered from time to time by
the Board of Directors. Accordingly, the Board of Directors has the authority,
without stockholder approval, to issue Preferred Stock with dividend,
conversion, redemption, liquidation, sinking fund, voting, and other rights that
could adversely affect the voting power or other rights of the holders of the
Common Stock. The Preferred Stock could be utilized, under certain
circumstances, to discourage, delay, or prevent a merger, tender offer, or
change in control of the Company that a stockholder might consider to be in its
best interests. Although the Company has no present intention of issuing any
additional shares of its authorized Preferred Stock, there can be no assurance
that the Company will not do so in the future.

REGULATION, SUPERVISION, AND LICENSING

The Company's operations are subject to ongoing regulation, supervision,
and licensing under various federal, state, and local statutes, ordinances, and
regulations. Among other things, these laws require that the Company obtain and
maintain certain licenses and qualifications, limit or prescribe terms of the
contracts that the Company originates and/or purchases, require specified
disclosures to customers, limit the Company's right to repossess and sell
collateral, and prohibit the Company from discriminating against certain
customers. The Company is also subject to federal and state franchising and
insurance laws.

The Company believes that it is currently in substantial compliance with
all applicable federal, state, and local laws and regulations. There can be no
assurance, however, that the Company will be able to remain in compliance with
such laws, and such failure could have a material adverse effect on the
operations of the Company. In addition, the adoption of additional statutes and
regulations, changes in the interpretation of

10
<PAGE> 12

existing statutes and regulations, or the Company's entrance into jurisdictions
with more stringent regulatory requirements could have a material adverse effect
on the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Approximately 5,122,456 shares of Common Stock outstanding as of the date
of this Prospectus (excluding the 3,439,294 shares offered hereby) are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act. In general, under Rule 144 as currently in effect,
subject to the satisfaction of certain other conditions, if one year has elapsed
since the later of the date of acquisition of restricted shares from an issuer
or an affiliate of an issuer, the acquiror or subsequent holder is entitled to
sell in the open market, within any three-month period, a number of shares that
does not exceed the greater of one percent of the outstanding shares of the same
class or the average weekly trading volume during the four calendar weeks
preceding the filing of the required notice of sale. (A person who has not been
an affiliate of the Company for at least the three months immediately preceding
the sale and who has beneficially owned shares of Common Stock as described
above for at least two years is entitled to sell such shares under Rule 144
without regard to any of the limitations described above.) Of the "restricted
securities" outstanding, substantially all of these shares have been held for
the one-year holding period required under Rule 144. In addition, up to
3,439,294 shares of Common Stock offered hereby may be sold in the market. No
predictions can be made with respect to the effect, if any, that sales of the
Common Stock offered hereby in the market or the availability of shares of
Common Stock for sale under Rule 144 will have on the market price of Common
Stock prevailing from time to time. However, since nearly 8,561,750 out of the
Company's 18,446,764 shares of Common Stock outstanding are available for sale
pursuant to this Prospectus or pursuant to Rule 144, substantial amounts of
Common Stock may be sold in the public market which may adversely affect
prevailing market prices for the Common Stock.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock could be subject to significant
fluctuations in response to such factors as, among others, variations in the
anticipated or actual results of operations of the Company or other companies in
the used car sales and finance industry, changes in conditions affecting the
economy generally, analyst reports, or general trends in the industry.

PRIOR LEGAL ACTIONS INVOLVING CHIEF EXECUTIVE OFFICER

In October 1990, Mr. Garcia pled guilty to one felony count of bank fraud
brought by the United States, on behalf of the Resolution Trust Corporation
("RTC"), for his participation in a real estate transaction involving Lincoln
Savings and Loan Association, a federally insured savings and loan institution
that later went into receivership. In connection with this matter, Mr. Garcia
also settled civil lawsuits filed against him by the RTC and the Commission, and
consented to an administrative order imposed by the Commission. In addition, a
real estate investment company owned by Mr. Garcia, as well as several limited
partnerships organized by that company, filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in 1990 and 1991. Mr. Garcia and
his wife filed a petition for discharge under Chapter 7 of the United States
Bankruptcy Code in June 1990. Mr. Garcia's company and the related partnerships
were successfully reorganized in the period from 1990 to 1993 and Mr. Garcia was
fully discharged in 1991.

FORWARD LOOKING STATEMENTS

This Prospectus contains forward looking statements. Additional written or
oral forward looking statements may be made by the Company from time to time in
filings with the Commission or otherwise. Such forward looking statements are
within the meaning of that term in Section 27A of the Securities Act and Section
21E of the Exchange Act. Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward looking statements. Forward looking statements are
inherently subject to risks and uncertainties, some of which

11
<PAGE> 13

cannot be predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the forward
looking statements. Statements in this Prospectus, including those contained in
this section entitled "Risk Factors," describe factors, among others, that could
contribute to or cause such differences. The Company undertakes no obligation to
publicly update or revise any forward looking statements, whether as a result of
new information, future events, or otherwise.

USE OF PROCEEDS

None of the proceeds from the sale of the Common Stock offered hereby by
the Selling Securityholders will be received by the Company.

12
<PAGE> 14

SELLING SECURITYHOLDERS

The following table sets forth the name of each Selling Securityholder, the
aggregate number of shares of Common Stock beneficially owned by each Selling
Securityholder as of June 30, 1997, the aggregate number of shares of Common
Stock registered hereby that each Selling Securityholder may offer and sell
pursuant to this Prospectus, and the aggregate number of shares of Common Stock
that will be beneficially owned by each Selling Securityholder after completion
of the offering. However, because the Selling Securityholders may offer all or a
portion of the Common Stock at any time and from time to time after the date
hereof, the exact number of shares of Common Stock that each Selling
Securityholder may retain upon completion of the offering cannot be determined
at this time. All of the 3,439,294 shares of Common Stock offered are issued and
outstanding as of the date of this Prospectus. To the knowledge of the Company,
none of the Selling Stockholders has had within the past three years any
material relationship with the Company or any of its predecessors or affiliates,
except as set forth in the footnotes to the following table.

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

<TABLE>
<S> <C> <C> <C>
(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.
</TABLE>

13
<PAGE> 15

<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>
Friedman, Billings, Ramsey & Co.,
Inc.(2).................................. 105,000 105,000 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
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...................... 589,500 589,500 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
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
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
</TABLE>

- ---------------
(2) Friedman, Billings, Ramsey & Co., Inc. acted as placement agent for the
Company in connection with the private placement of 5,075,500 shares of
Common Stock in February 1997.

14
<PAGE> 16

15
<PAGE> 17

PLAN OF DISTRIBUTION

The Selling Securityholders or their nominees or pledgees may sell or
distribute some or all of the Common Stock from time to time through
underwriters, dealers, brokers or other agents or directly to one or more
purchasers, including pledgees, in transactions (which may involve crosses and
block transactions) on Nasdaq, in privately negotiated transactions (including
sales pursuant to pledges) in the over-the-counter market, in transactions in
which shares of Common Stock may be delivered in connection with the issuance of
securities by issuers other than the Company that are exchangeable for (whether
optional or mandatory), or payable in, such shares (whether such securities are
listed on a national securities exchange or otherwise) or pursuant to which such
shares of Common Stock may be distributed (which securities issued by others
will, to the extent required by applicable law, be registered under the
Securities Act), in brokerage transactions, in a combination of such
transactions or by any other legally available means. Such transactions may be
effected by the Selling Securityholders at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. Brokers, dealers, agents or
underwriters participating in such transactions as agent may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders (and, if they act as agent for the purchaser of such
shares, from such purchaser). Such discounts, concessions or commissions as to a
particular broker, dealer, agent or underwriter might be in excess of those
customary in the type of transaction involved. This Prospectus also may be used,
with the Company's consent, by donees of the Selling Securityholders, or by
other persons acquiring shares of Common Stock and who wish to offer and sell
such shares under circumstances requiring or making desirable its use. To the
extent required, the Company will file, during any period in which offers or
sales are being made, one or more supplements to this Prospectus to set forth
the names of donees of Selling Stockholders and any other material information
with respect to the plan of distribution not previously disclosed. In addition,
any Common Stock which qualifies for sale pursuant to Section 4 of, or Rules 144
or 144A under, the Securities Act may be sold under such provisions rather than
pursuant to this Prospectus.

The Selling Securityholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor the Selling Securityholders can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Securityholder and any other Selling Securityholder,
underwriter, broker, dealer or other agent relating to the sale or distribution
of the shares of Common Stock.

The Selling Securityholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Regulation M, which provisions may limit the timing of purchases and
sales of any of the shares of Common Stock by the Selling Securityholders. All
of the foregoing may affect the marketability of the Common Stock.

The Company will pay substantially all of the expenses incident to this
offering of the shares of Common Stock by the Selling Securityholders to the
public other than commissions and discounts of underwriters, brokers, dealers or
agents. Each Selling Securityholder may indemnify any broker, dealer, agent or
underwriter that participates in transactions involving sales of the shares of
Common Stock against certain liabilities, including liabilities arising under
the Securities Act. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities including certain liabilities under
the Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.

If shares of Common Stock are sold in an underwritten offering, the shares
of Common Stock may be acquired by the underwriters for their own account and
may be further resold from time to time in one or more transactions, including
negotiated transactions, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices. The names of the underwriters with respect to any such offering
and the terms of the transactions, including any underwriting discounts,
concessions or commissions and other items constituting compensation of the
underwriters and broker-dealers,

16
<PAGE> 18

if any, will be set forth in a supplement to this Prospectus relating to such
offering. Any public offering price and any discounts, concessions or
commissions allowed or reallowed or paid to broker-dealers may be changed from
time to time. Unless otherwise set forth in a supplement to this Prospectus, the
obligations of the underwriters to purchase the shares of Common Stock will be
subject to certain conditions precedent and the underwriters will be obligated
to purchase all of the shares specified in such supplement if any such shares of
Common Stock are purchased.

If the shares of Common Stock are sold in an underwritten offering, the
underwriters and selling group members (if any) may engage in passive market
making transactions in the Common Stock on Nasdaq immediately prior to the
commencement of the sale of shares in such offering, in accordance with
Regulation M. Passive market making presently consists of displaying bids on
Nasdaq limited by the bid prices of market makers not connected with such
offering and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited in amount
to 30% of the passive market maker's average daily trading volume in the Common
Stock during the period of the two full consecutive calendar months prior to the
filing with the Commission of the Registration Statement of which this
Prospectus is a part and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.

LEGAL MATTERS

The validity of the shares offered hereby is being passed upon for the
Company by Snell & Wilmer L.L.P., Phoenix, Arizona.

EXPERTS

The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996, have been incorporated by reference
herein, and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent auditors, incorporated by reference herein, and in
the registration statement, and upon the authority of said firm as experts in
accounting and auditing.

The combined financial statements of Seminole Finance Corporation and
Related Companies as of December 31, 1996 and for the year ended December 31,
1996, have been incorporated by reference herein, and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, incorporated by reference herein, and in the registration statement,
and upon the authority of said firm as experts in accounting and auditing.

The report of KPMG Peat Marwick LLP dated March 18, 1997 contains an
explanatory paragraph that states: "the accompanying combined financial
statements have been prepared assuming that Seminole Finance Corporation and
Related Companies will continue as a going concern. As discussed in Note 7 to
the combined financial statements, Seminole Finance Corporation and Related
Companies is involved in a lawsuit that involves a material amount of damages
that, if there were an adverse outcome, raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 7. The combined financial statements do not
include any adjustments that might result from the outcome of this uncertainty."

The combined financial statements of Seminole Finance Corporation and
Related Companies as of December 31, 1995 and for the year then ended have been
incorporated herein by reference to the Company's Current Report on Form 8-K/A1
dated January 15, 1997 and its Form 8-K/A2 Report dated January 15, 1997, in
reliance upon the report of Barton & Company, P.A., independent certified public
accountants, incorporated by reference, and upon the authority of said firm as
experts in accounting and auditing.

The financial statements of E-Z Plan, Inc. for the year ended December 31,
1996, included in the Company's Current Report (Form 8-K/A1) dated April 1,
1997, have been audited by Ernst and Young LLP, independent auditors, as set
forth in their report included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

17
<PAGE> 19

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

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>
Available Information...................... 2
Information Incorporated by Reference...... 2
The Company................................ 4
Risk Factors............................... 6
Use of Proceeds............................ 12
Selling Securityholders.................... 13
Plan of Distribution....................... 16
Legal Matters.............................. 17
Experts.................................... 17
</TABLE>

======================================================
======================================================
3,439,294 Shares

LOGO

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

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

July 18, 1997

======================================================
<PAGE> 20

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
registrant, will be substantially as follows:

<TABLE>
<CAPTION>
ITEM AMOUNT
------------------------------------------------------------------ --------
<S> <C>
SEC Registration Fee............................................. $ 31,146
Nasdaq Filing Fee................................................ 17,500
*Blue Sky Fees and Expenses (including legal fees)................ 3,000
*Accounting Fees and Expenses..................................... 55,000
*Legal Fees and Expenses.......................................... 90,000
*Printing and Engraving........................................... 50,000
*Registrar and Transfer Agent's Fees.............................. 3,000
*Miscellaneous Expenses........................................... 354
--------
Total................................................... $250,000
========
</TABLE>

- ---------------
* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability for: (i) any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) liability for
payments of dividends or stock purchases or redemptions in violation of Section
174 of the Delaware General Corporation Law; or (iv) any transaction from which
the director derived an improper personal benefit. In addition, the Company's
Certificate of Incorporation provides that the Company shall to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment), indemnify and hold harmless any person who was or is a
party, or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such person
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "Indemnitee")
against expenses, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties paid in connection with the Employee Retirement
Income Security Act of 1974, as amended, and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided, however, that except as otherwise provided with respect to proceedings
to enforce rights to indemnification, the Company shall indemnify any such
Indemnitee in connection with a proceeding (or part thereof) initiated by such
Indemnitee only if such proceeding or part thereof was authorized by the board
of directors of the Company.

The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an Indemnitee in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
Indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of such Indemnitee,

II-1
<PAGE> 21

to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is not further right to appeal that such
Indemnitee is not entitled to be indemnified for such expenses under this
section or otherwise. The rights to indemnification and to the advancement of
expenses conferred herewith are contract rights and continue as to an Indemnitee
who has ceased to be a director, officer, employee or agent and inures to the
benefit of the Indemnitee's heirs, executors and administrators.

The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.

ITEM 16. EXHIBITS.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant(1)
3.1(a) Amendment to Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
3.2(a) Amendment to Bylaws of the Registrant(1)
4.1 Certificate of Incorporation of the Registrant filed as Exhibit 3.1(1)
4.2 18% Subordinated Debenture of the Registrant issued to Verde Investments, Inc.(1)
4.3 18% Junior Subordinated Revolving Debenture of the Registrant issued to Verde
Investments, Inc., as amended(1)
4.4 Convertible Note of the Registrant issued to SunAmerica Life Insurance Company(1)
4.5 Form of Certificate representing Common Stock(1)
4.6 Form of Warrant issued to Cruttenden Roth Incorporated as Representative of the
several underwriters(1)
4.7 Form of Warrant issued to SunAmerica Life Insurance Company(1)
5 Opinion of Snell & Wilmer L.L.P. regarding the legality of the common stock being
registered+
23.1 Independent Auditors' Consent (KPMG Peat Marwick -- Ugly Duckling Corporation)
23.2 Independent Auditors' Consent (KPMG Peat Marwick -- Seminole Finance Corporation
and Related Companies)
23.3 Independent Auditors' Consent (Barton & Company, P.A. -- Seminole Finance
Corporation and Related Companies)
23.4 Consent of Independent Auditors (Ernst & Young -- E-Z Plan, Inc.)
23.5 Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
</TABLE>

- ---------------
+ Previously filed.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-3998), effective June 18, 1996.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-13755), effective October 30, 1996.

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

(4) Incorporated by reference to the Company's Current Report on Form 8-K, filed
January 30, 1997.

II-2
<PAGE> 22

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-3
<PAGE> 23

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 2 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on July 17, 1997.

Ugly Duckling Corporation

By: /s/ ERNEST C. GARCIA, II

------------------------------------
Ernest C. Garcia, II
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------- --------------
<C> <S> <C>
/s/ ERNEST C. GARCIA, II Chief Executive Officer and July 17, 1997
- --------------------------------------------- Director (Principal executive
Ernest C. Garcia, II officer)

* Senior Vice President and Chief July 17, 1997
- --------------------------------------------- Financial Officer (Principal
Steven T. Darak financial and accounting officer)

* Director July 17, 1997
- ---------------------------------------------
Robert J. Abrahams

* Director July 17, 1997
- ---------------------------------------------
Christopher D. Jennings

* Director July 17, 1997
- ---------------------------------------------
John N. MacDonough

* Director July 17, 1997
- ---------------------------------------------
Arturo R. Moreno

* Director July 17, 1997
- ---------------------------------------------
Frank P. Willey

By /s/ ERNEST C. GARCIA, II
- ---------------------------------------------
*Ernest C. Garcia, II
(Attorney-in-fact)
</TABLE>

II-4
<PAGE> 24

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- --------------------------------------------------------------------------------- ------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant(1)
3.1(a) Amendment to Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
3.2(a) Amendment to Bylaws of the Registrant(1)
4.1 Certificate of Incorporation of the Registrant filed as Exhibit 3.1(1)
4.2 18% Subordinated Debenture of the Registrant issued to Verde Investments, Inc.(1)
4.3 18% Junior Subordinated Revolving Debenture of the Registrant issued to Verde
Investments, Inc., as amended(1)
4.4 Convertible Note of the Registrant issued to SunAmerica Life Insurance Company(1)
4.5 Form of Certificate representing Common Stock(1)
4.6 Form of Warrant issued to Cruttenden Roth Incorporated as Representative of the
several underwriters(1)
4.7 Form of Warrant issued to SunAmerica Life Insurance Company(1)
5 Opinion of Snell & Wilmer L.L.P. regarding the legality of the common stock being
registered+
23.1 Independent Auditors' Consent (KPMG Peat Marwick -- Ugly Duckling Corporation)
23.2 Independent Auditors' Consent (KPMG Peat Marwick -- Seminole Finance Corporation
and Related Companies)
23.3 Independent Auditors' Consent (Barton & Company, P.A. -- Seminole Finance
Corporation and Related Companies)
23.4 Consent of Independent Auditors (Ernst & Young -- E-Z Plan, Inc.)
23.5 Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
</TABLE>

- ---------------
+ Previously filed.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-3998), effective June 18, 1996.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-13755), effective October 30, 1996.

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

(4) Incorporated by reference to the Company's Current Report on Form 8-K, filed
January 30, 1997.

<PAGE> 1
Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Ugly Duckling Corporation:

We consent to the inclusion of our report dated January 31, 1997, except for
Note 19 to the Consolidated Financial Statements which is as of February 13,
1997, on the consolidated financial statements of Ugly Duckling Corporation
incorporated by reference herein, which report appears in the December 31, 1996
annual report on Form 10-K as amended by its Form 10-K/A of Ugly Duckling
Corporation and to the reference to our firm under the heading "Experts" in the
prospectus.

/s/ KPMG PEAT MARWICK LLP

Phoenix, Arizona
July 17, 1997

<PAGE> 1
Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Ugly Duckling Corporation:

We consent to the inclusion of our report dated March 18, 1997 with respect to
the combined balance sheet of Seminole Finance Corporation and Related
Companies as of December 31, 1996 and the related combined statements of
operations, stockholder's equity (deficit), and cash flows for the year ended
December 31, 1996, incorporated by reference herein, which report appears in
the Form 8-K as amended by its Form 8-K/A-1 and its Form 8-K/A2 of Ugly
Duckling Corporation and to the reference to our firm under the heading
"Experts" in the Prospectus.

Our report dated March 18, 1997, contains an explanatory paragraph that states:
"the accompanying combined financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to
the combined financial statements, the Company is involved in a lawsuit that
involves a material amount of damages that, if there were an adverse outcome,
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 7. The
combined financial statements do not include any adjustments that might result
from the outcome of this uncertainty."

/s/ KPMG PEAT MARWICK LLP

Tampa, Florida
July 17, 1997

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 10, 1997 with respect to the financial
statements of E-Z Plan, Inc. incorporated by reference in the Registration
Statement (Post-Effective Amendment No. 2 on Form S-3 No. 333-22237) and related
Prospectus of Ugly Duckling Corporation for the registration of 3,439,294 shares
of its common stock.

/s/ Barton & Company, P.A.

St. Petersburg, Florida
July 16, 1997

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 24, 1997, except for Note 8, as to which
the date is February 28, 1997, with respect to the financial statements of E-Z
Plan, Inc. incorporated by reference in the Registration Statement
(Post-Effective Amendment No. 2 on Form S-3 No. 333-22237) and related
Prospectus of Ugly Duckling Corporation for the registration of 3,439,294 shares
of its common stock.

/s/ Ernst & Young LLP

San Antonio, Texas
July 15, 1997