Back to GetFilings.com





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended April 30, 2003
-------------------------------

OR

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

For the transition period from to
------------- -------------

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

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

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


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

(212) 644-1400
- ----------------------------------------------------
(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Securities and Exchange Act). Yes ( ) No ( X )

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

Class Outstanding at June 20, 2003
- ----------------------------------- ----------------------------
Common Stock, $0.05 par value 8,030,614









NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES

TABLE OF CONTENTS




PAGE
----

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

Report of Independent Certified Public Accountants 1

Condensed Consolidated Balance Sheets as of
April 30, 2003 and January 31, 2003 2

Condensed Consolidated Statements of Operations for the
Three Months Ended April 30, 2003 and 2002 3

Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Three Months Ended April 30, 2003 4

Condensed Consolidated Statements of Cash Flows for
the Three Months Ended April 30, 2003 and 2002 5

Notes to Condensed Consolidated Financial Statements 6


Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17


Item 3. Quantitative and Qualitative Disclosures about
Market Risk 24

Item 4. Controls and Procedures 24


PART II. OTHER INFORMATION

Item 1. Legal Proceedings 26

Item 6. Exhibits and Reports on Form 8-K 29


Signatures 29

Certifications 30





PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS





REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS


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


We have reviewed the accompanying condensed consolidated balance sheet
of National Auto Credit, Inc. and its subsidiaries as of April 30, 2003, the
related statements of operations for each of the three-month periods ended April
30, 2003 and 2002; the related statements of stockholders' equity and
comprehensive income for the three-month period ended April 30, 2003 and the
statements of cash flows for the three-month periods ended April 30, 2003 and
2002. The financial statements are the responsibility of the Company's
management.

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

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

We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of January 31, 2003, and the related consolidated statements of
operations, stockholders' equity and comprehensive income, and cash flows for
the year then ended (not presented herein) and in our report dated April 9,
2003, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 31, 2003, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.



/s/ Grant Thornton LLP
Cleveland, Ohio
June 12, 2003





1




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




April 30, January 31,
2003 2003
------------- -------------
(unaudited)

ASSETS
Cash and cash equivalents $ 787 $ 1,873
Marketable securities (Note 3) 1,028 984
Accounts receivable, net of allowance of $10 (Note 1) 574 -
Income taxes refundable 5,568 5,577
Prepaid expenses 269 138
Other current assets 575 500
------------- -------------
Total current assets 8,801 9,072

Property and equipment, net of accumulated depreciation
of $116, and $90, respectively (Note 1) 712 81
Investment in AFC (Note 4) 9,231 9,295
Goodwill 541 -
Other assets 300 264
------------- -------------
$ 19,585 $ 18,712
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current maturities of long term obligations (Note 5) $ 257 $ -
Accounts payable 434 117
Self-insurance claims 468 518
Accrued income taxes 647 711
Other liabilities 1,561 1,256
------------- -------------
Total current liabilities 3,367 2,602

Long term obligations 703 -
------------- -------------
4,070 2,602
------------- -------------

Commitments and contingencies (Note 6) - -

Stockholders' Equity:
Preferred stock - -
Common stock, $.05 par value;
authorized 40,000,000 shares; issued 39,577,589 and 39,377,589
shares, respectively 1,979 1,969
Additional paid-in capital 174,353 174,337
Retained deficit (137,120) (136,455)
Accumulated other comprehensive loss (99) (143)
Treasury stock, at cost, 31,546,975 shares (23,598) (23,598)
------------- -------------
15,515 16,110
------------- -------------
Total stockholders' equity $ 19,585 $ 18,712
============= =============


See accompanying notes to condensed consolidated financial statements.

2


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




Three Months Ended
April 30,
-------------------------------------
2003 2002
------------ -------------


Revenues $ 330 $ -

Cost of revenues 197 -
------------ -------------

Gross profit 133 -

Selling, general and administrative 923 841
------------ -------------

Loss from operations (790) (841)

Interest income from investments 20 45
Income from AFC investment 119 93
Interest expense (8) -
------------ -------------

Loss from continuing operations
before income taxes (659) (703)
Provision for income taxes - -
------------ -------------
Loss from continuing operations (659) (703)
Income (loss) from discontinued operations, net of tax (6) 182
------------ -------------

Net loss $ (665) $ (521)
============ =============

Basic and diluted earnings (loss) per share
Continuing operations $ (.08) $ (.08)
Discontinued operations - .02
------------ -------------
Net earnings (loss) per share $ (.08) $ (.06)
============ =============

Weighted average number of shares outstanding
Basic and diluted 7,862 8,642
============ =============




See accompanying notes to condensed consolidated financial statements.


3




NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED APRIL 30, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)






Preferred Stock Common Stock Accumulated
----------------- ------------------------- Additional Other
Par Par Paid-In Retained Treasury Comprehensive
Shares Value Shares Value Capital Deficit Stock Income (Loss)
-------- -------- ------------- ----------- --------------- ------------- ------------ ---------------


Balance at
January 31, 2003 - $ - 39,377,589 $ 1,969 $ 174,337 $ (136,455) $ (23,598) $ (143)

Net loss (665)
Acquisition of OMI 200,000 10 16
Other comprehensive
income-unrealized loss
on marketable securities 44
-------- -------- ------------- ----------- --------------- ------------- ------------ ---------------

Comprehensive income (loss)


Balance at
April 30, 2003 - $ - 39,577,589 $ 1,979 $ 174,353 $ (137,120) $ (23,598) $ (99)
======== ======== ============= =========== =============== ============= ============ ===============




Comprehensive
Income
Total (Loss)
----------- ------------


Balance at
January 31, 2003 $ 16,110

Net loss (665) $ (665)
Acquisition of OMI 26
Other comprehensive
income-unrealized loss
on marketable securities 44 44
----------- ------------

Comprehensive income (loss) $ (621)
============

Balance at
April 30, 2003 15,515
========








See accompanying notes to condensed consolidated financial statements.

4


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




April 30,
----------------------------
2003 2002
------------ ------------

Cash flows from operating activities
Net loss $ (665) $ (521)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss (income) from discontinued operations 6 (182)
Depreciation and amortization 26 7

Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (229) -
Accrued income tax (64) -
Accounts payable and other liabilities 106 (439)
Other operating assets and liabilities, net (273) 65
------------ ------------
Net cash used in operating activities (1,093) (1,070)
------------ ------------

Cash flows from investing activities
Acquisition of OMI net of cash acquired (97) -
Change in contracts in progress - (77)
Proceeds from AFC distributions 183 -
Purchase of property and equipment (25) (6)
------------ ------------
Net cash provided by (used in) investing activities 61 (83)
------------ ------------

Cash flows from financing activities
Proceeds from line of credit 8 -
Payments of long term debt (6) -
------------ ------------
Net cash provided by financing activities 2 -
------------ ------------

Decrease in cash and cash equivalents from
continuing operations (1,030) (1,153)
Decrease in cash and cash equivalents from
discontinued operations (56) 61
Cash and cash equivalents at beginning of period 1,873 6,122
------------ ------------
Cash and cash equivalents at end of period $ 787 $ 5,030
============ ============
Supplemental disclosures of cash flow information
Common stock issued pursuant to OMI acquisition $ 26 $ -
============ ============
Interest paid $ 7 $ -
============ ============
Income taxes paid $ 64 $ -
============ ============






See accompanying notes to condensed consolidated financial statements.

5




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




NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying unaudited condensed consolidated financial statements
include the accounts of National Auto Credit, Inc. and Subsidiaries ("NAC"). The
financial statements are unaudited, but in the opinion of management, reflect
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of NAC's consolidated financial position, results of
operations, stockholders' equity and comprehensive income, and cash flows for
the periods presented.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial statements and with the rules of the Securities and
Exchange Commission applicable to interim financial statements, and therefore do
not include all disclosures that might normally be required for interim
financial statements prepared in accordance with generally accepted accounting
principles. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with NAC's consolidated financial
statements, including the notes thereto, appearing in NAC's Annual Report on
Form 10-K for the year ended January 31, 2003. The results of operations for the
three months ended April 30, 2003 are not necessarily indicative of the
operating results for the full year.

The preparation of financial statements and the accompanying notes
thereto, in conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the respective reporting periods. Actual results could differ
from those estimates. NAC uses a January 31 year-end for financial reporting
purposes. References herein to the fiscal year ended January 31, 2003 shall be
the term "Fiscal 2003" and references to other "Fiscal" years shall mean the
year, which ended on January 31 of the year indicated. The term the "Company" or
"NAC" as used herein refers to National Auto Credit, Inc. together with its
subsidiaries unless the context otherwise requires.

Acquisition
- -----------

In April 2003, NAC consummated a Merger and Plan of Reorganization
Agreement whereby NAC acquired all of the outstanding common stock of ORA/Metro
Incorporated, now known as OMI Business Communications, Inc. ("OMI"), from Dean
R. Thompson, sole stockholder of OMI. OMI, headquartered in New York, New York,
is a multi-media production services, corporate meeting services, web-site
development and web content management company. OMI specializes in the full
service design, creative development, production and post production editing of
corporate communication and training videos for use at corporate events and as
collateral content material for client web-sites. Additionally, OMI frequently
provides event planning services including site selection, survey, event
management and related services associated with remote location presentations.
For financial reporting purposes, the effective date of the merger is April 1,
2003 (see Note 2).

6




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



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

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

In the fourth quarter of Fiscal 2002, NAC completed a strategic review
of its investment in ZoomLot Corporation ("ZoomLot"), acquired December 15,
2000, and the development of its e-commerce services. NAC's strategic review
included evaluating the evolving market conditions of the used car dealer and
financing industries, the start-up nature of the ZoomLot operations, the current
market demand for and penetration of ZoomLot's e-commerce solution to
electronically link eligible used car dealers and their qualified customers with
available used car lenders and financing terms, current operating losses and
forecasts of future operating results and strategic opportunities available to
ZoomLot. As a result of this review, management of NAC determined that it was
unable to predict, with the requisite degree of certainty, when or whether
ZoomLot would achieve positive cash flows.

As a consequence of NAC's strategic review and determination, effective
December 31, 2001, NAC suspended its ZoomLot operations and initiated steps to
discontinue e-commerce operations. Additionally, as a consequence of NAC's
decision to discontinue its ZoomLot e-commerce operations, NAC also formally
exited the sub-prime used automobile consumer finance business effective
December 31, 2001. As a result of these decisions, both the e-commerce and
automobile finance segments have been classified as discontinued operations as
of January 31, 2002. For the three months ended April 30, 2003, NAC incurred a
$6,000 loss from discontinued operations. For the three months ended April 30,
2002, NAC realized income from discontinued operations of $182,000 comprised
principally of proceeds derived from a favorable insurance settlement during the
period.

Subsequent to December 31, 2001, NAC was engaged principally in the
movie exhibition segment. Effective April 1, 2003, NAC is also engaged in
corporate communications and video production activities through its newly
acquired subsidiary, OMI.

NAC is evaluating various additional strategic business alternatives,
including, but not limited to, the purchase of one or more existing businesses
or the entry into one or more businesses.

Revenues
- --------

NAC recognizes revenue from video production and editing activities
when the video is complete and delivered. NAC does not have licensing or other
arrangements that result in additional revenues following the delivery of the
video. Costs accumulated in the production of the video are deferred until the
sale and delivery are complete. Deferred video production costs are included in
deferred production costs, a component of other current assets at April 30,
2003.

NAC recognizes revenue from designing and developing websites when the
customer accepts the completed project. Deposits and other prepayments are
recorded as deferred revenue, a component of other liabilities at April 30,
2003. These contracts are limited to the design and development of websites.
Clients have the option to engage NAC to maintain and upgrade their websites.
These contracts are separate from the website development and design agreements,
and the related revenue is recognized over the term of the contracts, which is
generally up to one year.

7





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



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

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

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

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

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

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

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

Property and equipment are stated at cost. Depreciation, including
depreciation on assets held under capital leases, is computed on the
straight-line over the estimated useful lives of the assets. The estimated
useful lives are three years for computer equipment and third party purchased
software and five years for furniture and fixtures. Leasehold improvements are
amortized over the term of the lease.

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

Certain Fiscal 2003 amounts have been reclassified to conform with
Fiscal 2004 presentations.


8



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


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

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

In July, 2002 the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred, rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard included lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring. SFAS 146 replaces Issue
94-3 and is required to be applied prospectively to exit or disposal activities
initiated after December 2002. SFAS 146 was adopted by NAC effective February 1,
2003. At the time of adoption, there was no material impact to NAC's financial
statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on the reported results. The provisions of
SFAS 148 are effective for financial statements for fiscal years ending after
December 15, 2002. NAC is currently evaluating the impacts, if any, of SFAS 148.


NOTE 2 - ACQUISITION - OMI

In April 2003, NAC consummated a Merger and Plan of Reorganization
Agreement whereby NAC acquired all of the outstanding common stock of OMI from
Dean R. Thompson, sole stockholder of OMI. In exchange for the acquisition of
all of the outstanding common stock of OMI, NAC (i) issued 200,000 shares of NAC
Common Stock, valued at $26,000 (ii) assumed $814,000 in bank debt and capital
lease obligations to financial institutions and (iii) issued a promissory note
payable to Mr. Thompson in the amount of $153,000, payable in monthly
installments of principal and interest over a 36 month period. In addition to
the initial payments, NAC agreed to a contingent payment to Mr. Thompson of
$150,000 based upon OMI's financial performance during the three-year period
ending January 31, 2006. OMI's revenues for the years ended December 31, 2002
and 2001 were $2.5 million and $3.5 million, respectively. OMI incurred net
losses of $343,000 and $27,000 for those years, respectively. For financial
reporting purposes, the effective date of the merger is April 1, 2003.

As part of the OMI acquisition, OMI entered into a five year employment
agreement with Mr. Thompson under which Mr. Thompson will serve as President of
OMI and, subject to certain limitations, will have control over the day-to-day
operations of OMI. Under the terms of the employment agreement, Mr. Thompson
will be entitled to base compensation of $175,000 per year, a grant of stock
options for up to 200,000 shares of NAC Common Stock and a performance bonus
based upon the operating results of the acquired companies.


9




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



NOTE 2 - ACQUISITION - OMI (CONTINUED)

The components and allocation of the purchase price were as follows
(in thousands):




Components of purchase price:
Common stock $ 26
Promissory note 153
Transaction costs 110
---------------
Total purchase price $ 289
===============

Allocation of purchase price:
Current assets $ 376
Property and equipment 632
Other assets 61
Goodwill arising in the acqusition 541
---------------
1,610
Accounts payable and accrued expenses (516)
Debt (805)
---------------
Net assets acquired $ 289
===============




The following sets forth the pro forma condensed results of operations
of NAC and OMI for the three months ended April 30, 2003 and 2002 as if the
acquisition were consummated on February 1, 2003 and 2002, respectively. Prior
to its acquisition, OMI used a December 31 year end, and accordingly the pro
forma results have been prepared by combining the historical results for NAC for
the three month periods ended April 30, with the historical results of OMI for
the three month periods ended March 31. These pro forma results have been
prepared for illustrative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been in effect for the periods
indicated or the results which may occur in the future. Pro forma revenues, net
loss and loss per share are as follows:



Three Months Three Months
Ended April 30, 2003 Ended April 30, 2002
-------------------- --------------------

Revenues $ 509 $ 836
=============== ==============
Net loss from continuing operations $ (881) $ (787)
=============== ==============
Loss per share from continuing operations $ (0.11) $ (0.10)
=============== ==============







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


NOTE 3 - MARKETABLE SECURITIES

Marketable securities at April 30, 2003 are summarized as follows (in
thousands):



Gross Unrealized
-------------------------------
Cost Gains Losses Fair Value
------------- ------------- ------------- -------------

Equity securities - mutual funds $ 1,127 $ - $ (99) $ 1,028



All marketable securities were classified as available for sale.


NOTE 4 - INVESTMENT IN AFC

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

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

NAC uses the equity method to account for its investment in AFC.
NAC's initial investment exceeded its share of AFC's net assets and that portion
of the investment balance is accounted for in a manner similar to goodwill. AFC
uses a December 31 year-end for financial reporting purposes. NAC reports on a
January 31 year-end, and for its fiscal quarters ending April 30, July 31,
October 31 and January 31 records its pro-rata share of AFC's earnings on the
basis of AFC's fiscal quarters ending March 31, June 30, September 30, and
December 31, respectively. For the three months ended April 30, 2003 and 2002,
NAC recorded income of $119,000 and $93,000, respectively, representing its
share of AFC's net income.


11




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


NOTE 4 - INVESTMENT IN AFC (CONTINUED)

Summarized income statement data for AFC for the three months ended
March 31, 2003, and 2002, respectively, is as follows (in thousands):



Three Months Ended
March 31,
-------------------------------
2003 2002
-------------- -----------

Revenues $ 1,603 $ 1,627

Film rental 392 478
Operating costs 736 758
Depreciation and amortization 205 173
General and administrative expenses 31 31
-------------- -----------
1,364 1,440
-------------- -----------
Net income $ 239 $ 187
============== ===========

NAC's proportionate share of net income $ 119 $ 93
============== ===========



NOTE 5 - CURRENT AND LONG TERM OBLIGATIONS

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

During 2001, OMI obtained a $300,000 bank term loan (the "Term Loan")
to finance certain capital expenditures. The Term Loan is payable in monthly
installments of $6,000, comprised of principal and interest, over a five year
term, expiring in July 2006. The Term Loan bears interest at the rate of 8.25%
per annum. In addition, during 2001 OMI obtained a $100,000 revolving credit
facility (the "Credit Facility") with a bank which must be renewed annually. The
Credit Facility bears interest at 2.5% per annum above the bank's prime rate.
The Term Loan and the Credit Facility are collateralized by substantially all of
OMI's assets and the personal guarantee of Mr. Thompson. Pursuant to the terms
of the Merger Agreement, NAC is seeking to obtain releases of Mr. Thompson's
personal guarantees from each financial institution.

On April 25, 2002, OMI obtained a $402,000 loan guaranteed by the U.S.
Small Business Administration (the "SBA Loan") to finance losses incurred as a
result of the September 11, 2001 terrorist attacks in New York City. The SBA
Loan is repayable in monthly installments of $3,309 beginning in May 2004, with
the last payment due in April 2017. The loan bears no interest through May 2004
and at the rate of 4% per annum thereafter.

The $153,000 promissory note payable to Mr. Thompson is payable in
monthly installments of principal and interest over a 36 month period expiring
April 2006. The promissory note bears interest at 5% per annum.

12




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


NOTE 5 - CURRENT AND LONG TERM OBLIGATIONS (CONTINUED)

OMI leases computer equipment under several different capital leases
with finance institutions with various payments terms, expiration dates and
imputed annual rates of interest.

The components of long term obligations at April 30, 2003 are as
follows (in thousands):



April 30, 2003
--------------

Capital leases $ 115
Term loan 202
Line of credit 88
SBA loan 402
Promissory note 153
------------
960
less current maturities (257)
------------
$ 703
============


NAC's current maturities and long term obligations at April 30, 2003
are as follows (in thousands):



April 30, 2003
--------------

2004 $ 271
2005 180
2006 147
2007 30
2008 20
Thereafter 326
------------
974
less interest due under
capital leases obligations (14)
------------
$ 960
============




The cost and accumulated depreciation for equipment under capital
leases were $335,000 and $9,000, respectively at April 30, 2003.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Shareholder Complaints
- ----------------------
On July 31, 2001, NAC received a derivative complaint (the "Academy
Complaint") filed by Academy Capital Management, Inc. ("Academy"), a shareholder
of NAC, with the Court of Chancery of Delaware, on or about July 31, 2001,
against James J. McNamara, John A. Gleason, William S. Marshall, Henry Y.L. Toh,
Donald Jasensky, Peter T. Zackaroff, Mallory Factor, and Thomas F. Carney, Jr.
(the "Director Defendants") and names NAC as a nominal defendant. The Academy
Complaint principally seeks: (i) a declaration that the Director Defendants
breached their fiduciary duties to NAC, (ii) a judgment voiding an employment
agreement with James J. McNamara and rescinding a stock exchange agreement in
which NAC acquired ZoomLot Corporation, (iii) a judgment voiding the grant of
stock options and the award of director fees allegedly related thereto, (iv) an
order directing the Director Defendants to account for alleged damages sustained
and profits obtained by the Director Defendants as a result of the alleged
various acts complained of, (v) the imposition of a constructive trust over
monies or other benefits received by the Director Defendants and (vi) an award
of costs and expenses.


13




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


NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

On August 16, 2001, NAC received a complaint (the "Markovich
Complaint") filed by Levy Markovich ("Markovich"), a shareholder of NAC, with
the Court of Chancery of Delaware on or about August 16, 2001, against James J.
McNamara, John A. Gleason, William S. Marshall, Henry Y. L. Toh, Donald
Jasensky, Peter T. Zackaroff, Mallory Factor, and Thomas F. Carney, Jr. and NAC
as a nominal defendant. The Markovich Complaint principally seeks: (i) a
declaration that the Director Defendants have breached their fiduciary duties to
NAC, (ii) a judgment voiding an employment agreement with James J. McNamara and
rescinding a stock exchange agreement in which NAC acquired ZoomLot Corporation,
(iii) a judgment voiding the grant of options and the award of directors fees
allegedly related thereto, (iv) an order directing the Director Defendants to
account for alleged damages sustained and alleged profits obtained by the
Director Defendants as a result of the alleged various acts complained of, (v)
the imposition of a constructive trust over monies or other benefits received by
the directors, and (vi) an award of costs and expenses.

On August 31, 2001, NAC received a complaint (the "Harbor Complaint")
filed by Harbor Finance Partners ("Harbor"), a shareholder of NAC, with the
Court of Chancery of Delaware on or about August 31, 2001, against Thomas F.
Carney, Jr., Mallory Factor, John A. Gleason, Donald Jasensky, William S.
Marshall, James J. McNamara, Henry Y. L. Toh, Peter T. Zackaroff, Ernest C.
Garcia, and ZoomLot Corporation as Defendants and NAC as a nominal defendant.
The Harbor Complaint principally seeks: (i) a judgment requiring the Director
Defendants to promptly schedule an annual meeting of shareholders within thirty
(30) days of the date of the Harbor Complaint; (ii) a judgment declaring that
the Director Defendants breached their fiduciary duties to NAC and wasted its
assets; (iii) an injunction preventing payment of monies and benefits to James
J. McNamara under his employment agreement with NAC and requiring Mr. McNamara
to repay the amounts already paid to him thereunder; (iv) a judgment rescinding
the agreement by NAC to purchase ZoomLot and refunding the amounts it paid; (v)
a judgment rescinding the award of monies and options to the directors on
December 15, 2000 and requiring the directors to repay the amounts they received
allegedly related thereto; (vi) a judgment requiring the defendants to indemnify
NAC for alleged losses attributable to their alleged actions; and (vii) a
judgment awarding interest, attorney's fees, and other costs, in an amount to be
determined.

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

NAC has vigorously defended against each of the respective claims made
in the Academy Complaint, Markovich Complaint, Harbor Complaint and the Zadra
Amended Complaint, as it believes that the claims have no merit. By order of the
Delaware Chancery Court on November 12, 2001, the Academy, Markovich and Harbor
Complaints were consolidated under the title "In re National Auto Credit, Inc.
Shareholders Litigation," Civil Action No. 19028 NC (Delaware Chancery Court)
("Delaware Consolidated Derivative Action") and the Academy Complaint was deemed
the operative complaint.



14





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


NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The parties in New York thereafter engaged in settlement negotiations
and the parties entered into a stipulation of settlement in December 2002,
proposing to settle all class and derivative claims. In January 2003, the New
York Supreme Court entered an order which, among other things, conditionally
certified a class of shareholders for settlement purposes, approved the form of
notice of the proposed settlement, and scheduled a hearing to approve the
settlement. Notice of the proposed settlement was given to the shareholders of
the Company and members of the class as per the Court's order in January and
February 2003. An initial hearing on the proposed settlement was held on May 14,
2003. The New York Supreme Court is reviewing, among other considerations, the
terms of the proposed settlement and the objections raised by certain
shareholders. A motion to dismiss the Delaware Consolidated Derivative Action
was also filed in 2002 which was denied by the Delaware court in January 2003.

No predictions can be made with respect to the outcome of these matters
and, accordingly, no provision for any loss or settlement that may occur has
been recorded in the consolidated financial statement


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

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

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

NAC is named as defendant in a self-insurance action Darrell Smith and
Aaron Simpson ("Plaintiffs") v. John J. Bennett, ARAC, Country Mutual Insurance
Company and Atlanta Casualty Insurance Company in Cook County (State) Court of
Illinois. This matter arises out of an incident in which an ARAC car renters'
son, while driving the rental vehicle, was involved in a fatal accident and with
serious injuries to Plaintiffs, passengers in the vehicle. Initially, the
Plaintiffs appeared to be recovering well from the injuries sustained. However,
subsequently plaintiff Simpson underwent an accident-related surgery on his back
for removal of a shunt, during which nerves in the spine were severed causing
paraplegia. The Plaintiffs are suing for damages resulting from their injuries
and the subsequent paraplegia suffered by plaintiff Simpson. The doctor and
hospital that performed the surgery were also named as defendants by Plaintiffs
and have been impleaded by NAC under a theory of medical malpractice. Damages
alleged in the complaint are not specified, although in discovery Plaintiffs
have indicated they are seeking millions of dollars in compensatory and other
damages. The matter is scheduled for trial during the second half of 2003.

15




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



NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

NAC maintains a number of defenses relating to this matter. NAC has
almost exhausted its self-insured retention of $500,000 on this case and NAC
attempted to get its excess carrier, the TIG Insurance Company ("TIG"), to take
over the defense of this action and indemnify NAC up to the policy limits.
However, as a result TIG filed a suit (TIG Insurance Company v. Darrell Smith,
Aaron Simpson and NAC in the United States Court for the Northern District of
Illinois) for a declaratory judgment seeking a ruling that it has no liability
as an "excess insurer" of NAC in connection with the Smith and Simpson action
and that under Illinois law, NAC's (and thereafter TIG's) financial
responsibility is capped at an amount less than what the Plaintiffs are seeking
in the state court action. TIG filed a motion for summary judgment on the same
grounds, arguing that it has no liability to NAC under such insurance policy.
NAC filed a motion for summary judgment, asserting that it has no liability to
Smith and Simpson; and that if there is any liability it is capped under
Illinois state law, or, if not capped, then TIG's excess insurance coverage
applies. Smith and Simpson filed their own cross-motion for summary judgment,
asserting that NAC is liable for Smith and Simpson's injuries and that NAC's
liability is not capped under Illinois law. On February 3, 2003, the Court
granted the motions of TIG and NAC for summary judgment, and denied the motion
for summary judgment of Smith and Simpson. The Court concluded that NAC bears no
financial responsibility to Smith and Simpson because, under the express terms
of the rental agreement at issue, Bennett was not a listed additional driver on
the underlying rental contract. The Court further concluded that TIG, as NAC's
excess insurance carrier, has no responsibility to defend or indemnify the
Bennett estate. Motions for reconsideration were filed by Smith and Simpson in
February and March but were denied by the Court. On April 11, 2003, Smith and
Simpson filed a Notice of Appeal of the Courts' decisions. NAC intends to
vigorously oppose this appeal.

Because of the uncertainties related to these two matters, as well as
several smaller legal proceedings involving NAC's former rental operations and
self-insurance claims, it is difficult to project with precision the ultimate
effect the adjudication or settlement of these matters will have on NAC. At
April 30, 2003 NAC had accrued $468,000 to cover all outstanding self-insurance
liabilities. As additional information regarding NAC's potential liabilities
becomes available, NAC will revise the estimates as appropriate.

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

In the normal course of its business, NAC is named as defendant in
legal proceedings. It is the policy of NAC to vigorously defend litigation
and/or enter into settlements of claims where management deems appropriate.


16









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


GENERAL

National Auto Credit, Inc. (the "Company" or "NAC") began operations in
1969 and was incorporated in Delaware in 1971.

Acquisition
- -----------

In April 2003, NAC consummated a Merger and Plan of Reorganization
Agreement whereby NAC acquired all of the outstanding common stock of ORA/Metro
Incorporated, now known as OMI Business Communications, Inc. ("OMI"), from Dean
R. Thompson, sole stockholder of OMI. OMI, headquartered in New York, New York,
is a multi-media production services, corporate meeting services, web-site
development and web content management company. OMI specializes in the full
service design, creative development, production and post production editing of
corporate communication and training videos for use at corporate events and as
collateral content material for client web-sites. Additionally, OMI frequently
provides event planning services including site selection, survey, event
management and related services associated with remote location presentations.

In exchange for the acquisition of all of the outstanding common
stock of OMI, NAC (i) issued 200,000 shares of NAC Common Stock, valued at
$26,000 (ii) assumed $814,000 in bank debt and capital lease obligations to
financial institutions and (iii) issued a promissory notes payable to Mr.
Thompson in the amount of $153,000, payable in monthly installments of principal
and interest over a 36 month period. In addition to the initial payments, NAC
agreed to a contingent payment to Mr. Thompson of $150,000 based upon OMI's
financial performance during the three-year period ending January 31, 2006.
OMI's revenues for the years ended December 31, 2002 and 2001 were $2.5 million
and $3.5 million, respectively. OMI incurred net losses of $343,000 and $27,000
for those years, respectively. For financial reporting purposes, the effective
date of the merger is April 1, 2003.

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

Through and including December 31, 2001, NAC's operations were
conducted principally through three operating segments, (i) the e-commerce
segment designed to facilitate the process by which used car dealerships,
lenders and insurance companies communicate and complete the transactions
between them that are needed to provide used car dealers' customers with
financing, insurance and other services, (ii) the movie exhibition segment,
which is comprised of the activities of Angelika Film Center LLC ("AFC") and
(iii) the automobile financing segment. In the fourth quarter of Fiscal 2002,
NAC completed a strategic review of its investment in its e-commerce services.
As a result of this review, management of NAC determined that it was unable to
predict, with the requisite degree of certainty, when or whether its e-commerce
segment would achieve positive cash flows.

As a consequence of NAC's strategic review and determination, effective
December 31, 2001, NAC discontinued its e-commerce operations. As a further
consequence of NAC's decision to discontinue its e-commerce operations, NAC also
formally exited the sub-prime used automobile consumer finance business
effective December 31, 2001. From October 1995 through March 2000, NAC's
principal business activity was to invest in sub-prime used automobile consumer
loans, which took the form of installment loans collateralized by the related
vehicle. NAC purchased such loans, or interests in pools of such loans, from
member dealerships, and performed the underwriting and collection functions for
such

17


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


loans. As a result of these decisions both the e-commerce and the automobile
financing operations were classified as a discontinued operations as of January
31, 2002.

Throughout the three months ended April 30, 2003 and as of June 12,
2003, NAC's external sources of financing are comprised of its cash flows from
its investment in marketable securities, distributions from AFC, and since its
acquisition on April 1, 2003 cash flows from the operations of OMI, and NAC has
operated on its existing cash balances. NAC continues to pursue its plan of
examining new business opportunities, which may be pursued through the
investment in, or acquisition of existing operating businesses or other means.
At April 30, 2003 NAC has cash and marketable securities of $1.8 million, which
together with any cash flow derived from its investment in AFC and proceeds from
the collection of its $5.6 million federal income tax refund, will be used to
pursue such opportunities. Additionally, NAC will continue to pursue reduction
in operating expenses and explore new debt or equity financing (for which there
can be no assurance NAC will obtain such financing) as means of supplementing
the resources available to pursue new opportunities.

CRITICAL ACCOUNTING POLICIES

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

Revenues

NAC recognizes revenue from video production and editing activities
when the video is complete and delivered. NAC does not have licensing or other
arrangements that result in additional revenues following the delivery of the
video. Costs accumulated in the production of the video are deferred until the
sale and delivery are complete. Deferred video production costs are included in
deferred production costs, a component of other current assets at April 30,
2003.

NAC recognizes revenue from designing and developing websites when the
customer accepts the completed project. Deposits and other prepayments are
recorded as deferred revenue, a component of other liabilities at April 30,
2003. These contracts are limited to the design and development of websites.
Clients have the option to engage NAC to maintain and upgrade their websites.
These contracts are separate from the website development and design agreements,
and the related revenue is recognized over the term of the contracts, which is
generally up to one year.


18




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


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

Cost of Revenues

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


Accounts Receivable

NAC extends credit to clients in the normal course of business. NAC
continuously monitors collections and payments from clients and maintain an
allowance for doubtful accounts based upon historical experience and any
specific client collection issues that have been identified. Since accounts
receivable are concentrated in a relatively few number of clients, a significant
change in the liquidity or financial position of any of these clients could have
a material adverse impact on the collectability of the accounts receivable and
future operating results.

Valuation of Long-lived Assets and Goodwill

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

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

19




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


Self-Insurance Claims

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

Income Taxes

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


RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2003
AS COMPARED TO THE THREE MONTHS ENDED APRIL 30, 2002

Revenues and Costs of Revenues: Revenues and the related cost of
revenues for the three months ended April 30, 2003 are comprised principally of
revenues and related costs derived from OMI's operations, acquired effective
April 1, 2003. Pro forma revenues for the three months ended April 30, 2003 were
$509,000 as compared to pro forma revenues of $836,000 for the three months
ended April 30, 2002. The decline in pro forma revenues for Fiscal 2004 of
$327,000 was principal due to the nature and timing of completion of the client
programs actually scheduled for and completed during the period compared to the
comparable period in Fiscal 2003. The gross margin for the one month period
subsequent to NAC's acquisition was 40.3% which is comparable to the gross
margins of OMI prior to NAC's acquisition.

Selling, General and Administrative: Selling, general and
administrative expenses include costs of one month of OMI's operations and NAC's
executive, accounting and legal personnel, occupancy, legal, professional,
insurance and other general corporate overhead costs. General and administrative
expenses increased $82,000 to $923,000 for the three months ended April 30, 2003
from $841,000 for the three months ended April 30, 2002. The increase in general
and administrative costs for the three months ended April 30, 2003, was
primarily due to the net effects of an increase of $160,000 in expenses
associated with OMI, acquired April 1, 2003 and a decrease of $106,000 in
professional services, which declined as a result in the contraction of NAC's
operations.

20


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


Interest Income from Investments: Interest income from investments is
principally the interest earned on NAC's investments in marketable securities,
commercial paper and money market accounts. Interest income from these
investments was $20,000 for the three months ended April 30, 2003 as compared to
$45,000 for the three months ended April 30, 2002. The decrease was primarily
due to the decrease in the weighted average investment balances for the three
months ended April 30, 2003.

Income from AFC Investment: NAC accounts for its investment in AFC
using the equity method. For the three months ended April 30, 2003 and 2002, NAC
recorded income of $119,000 and $93,000, respectively, representing NAC's share
of AFC's net income for the three months ended March 31, 2003 and 2002,
respectively.

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



Three Months Ended March 31,
----------------------------------------
2003 2002
--------------- --------------

Revenues $ 1,603 $ 1,627

Film rental 392 478
Operating costs 736 758
Depreciation and amortization 205 173
General and administrative expenses 31 31
--------------- --------------
1,364 1,440
--------------- --------------
Net income $ 239 $ 187
=============== ==============

NAC's proportionate share of net income $ 119 $ 93
=============== ==============




AFC's revenues decreased $24,000 for the three months ended March 31,
2003 as compared to the three months ended March 31, 2002, principally as a
result of the net effects of a 5.1% decrease in attendance which was partially
offset by a 1.3% increase in average ticket prices. The attendance, and at times
the ticket prices, at AFC will vary depending on audience interest in, and the
popularity of the films it exhibits and other factors. Film rental, as a
percentage of revenue, decreased 4.9% to 24.5% from 29.4% for the three months
ended March 31, 2003 and 2002, respectively. Film rental expense generally is a
factor of a fixed percentage rental rate per film multiplied by the number of
tickets sold. AFC experiences fluctuations in film rental expense, as a
percentage of revenue, depending upon the rental rate per film and the
popularity of the film. Operating costs, as a percent of revenue, remained
stable at 45.9% for the three months ended March 31, 2003 as compared to 46.6%
for the three months ended March 31, 2002 due principally to a decrease in
revenues offset by a decrease in advertising expenses. The nature of AFC's
operating costs tend to generally be more fixed overhead-related costs and
advertising expenses.

Income Taxes: Due to net operating losses and the availability of net
operating loss carryforwards, NAC's effective income tax rate was zero for the
three-month period ended April 30, 2003 and April 30, 2002. NAC has provided a
full valuation allowance against its net operating loss carryforward and other
net deferred tax asset items due to the uncertainty of their future realization.

21




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


DISCONTINUED OPERATIONS

For the three months ended April 30, 2003, NAC incurred a $6,000 loss
from discontinued operations. For the three months ended April 30, 2002, NAC
realized income from discontinued operations of $182,000 comprised principally
of proceeds derived from a favorable insurance settlement during the period.


LIQUIDITY AND CAPITAL RESOURCES

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

During 2001, OMI obtained a $300,000 bank term loan (the "Term Loan")
to finance certain capital expenditures. The Term Loan is payable in monthly
installments of $6,000, comprised of principal and interest, over a five year
term, expiring in July 2006. The Term Loan bears interest at the rate of 8.25%
per annum. In addition, during 2001 OMI obtained a $100,000 revolving credit
facility (the "Credit Facility") with a bank which must be renewed annually. The
Credit Facility bears interest at 2.5% per annum above the bank's prime rate.
The Term Loan and the Credit Facility are collateralized by substantially all of
OMI's assets and the personal guarantee of Mr. Thompson. Pursuant to the terms
of the Merger Agreement, NAC is seeking to obtain releases of Mr. Thompson's
personal guarantees from each financial institution. At April 30, 2003, OMI had
$202,000 and $88,000, respectively, outstanding under the terms of the Term Loan
and Credit Facility, respectively.

On April 25, 2002, OMI obtained a $402,000 loan guaranteed by the U.S.
Small Business Administration (the "SBA Loan") to finance losses incurred as a
result of the September 11, 2001 terrorist attacks in New York City. At April
30, 2003, the SBA Loan of $402,000 is repayable in monthly installments of
$3,309 beginning in May 2004, with the last payment due in April 2017. The SBA
Loan bears no interest through May 2004 and at the rate of 4% per annum
thereafter.

At April 30, 2003, the $153,000 promissory note payable to Mr. Thompson
is payable in monthly installments of principal and interest over a 36 month
period expiring April 2006. The promissory note bears interest at 5% per annum.

OMI leases computer equipment under several different capital leases
with finance institutions with various payments terms, expiration dates and
imputed annual rates of interest. At April 30, 2003, amounts outstanding under
the capital leases were $115,000.

For each of the three months ended April 30, 2003 and 2002, NAC used
cash flows of $1.1 million for operating activities as NAC's payments for
operating and general and administrative expenses exceeded the cash flows from
its investments in marketable securities, and for Fiscal 2004 the cash flows
from OMI's operations since its acquisitions on April 1, 2003. NAC funded the
negative operating cash flows and negative cash flows from discontinued
operations from its existing cash balances and in Fiscal 2004, $183,000 of
distributions from AFC.

22




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


NAC believes that the available cash and cash equivalents and
marketable securities totaling $1.8 million at April 30, 2003, the investment
income therefrom, the collection of the federal income tax refund of $5.6
million and any cash distributions from its investment in AFC and cash flow from
OMI's operations will be sufficient to pay operating expenses, existing
liabilities, and fund its activities through the next twelve months as NAC
explores new strategic business alternatives. As discussed in Note 6 of Notes to
Condensed Consolidated Financial Statements, NAC is presently a defendant or
nominal defendant in various derivative shareholder complaints and various
litigation matters relating to NAC's discontinued auto finance and auto rental
businesses. Although NAC intends to vigorously defend each of the claims, no
prediction can be made with respect to their ultimate outcomes. Accordingly, no
provision for any loss or settlement that may occur has been recorded in the
consolidated financial statements. An adverse outcome could have a material
adverse effect on NAC's liquidity, financial condition or results of operations.
Additionally, as previously discussed, NAC's lack of external financing sources
may limit its ability to pursue strategic business alternatives being considered
by NAC's Board of Directors. Such limitations may have an adverse impact on
NAC's financial position, results of operations and liquidity.

NEW ACCOUNTING PRONOUNCEMENTS

In July, 2002 the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred, rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard included lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring. SFAS 146 replaces Issue
94-3 and is required to be applied prospectively to exit or disposal activities
initiated after December 2002. SFAS 146 was adopted by NAC effective February 1,
2003. At the time of adoption, there was no material impact to NAC's financial
statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on the reported results. The provisions of
SFAS 148 are effective for financial statements for fiscal years ending after
December 15, 2002. NAC is currently evaluating the impacts, if any, of SFAS 148.

OTHER

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

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

23






FORWARD-LOOKING STATEMENTS

Various statements made in this Item 2 and elsewhere in this Quarterly
Report on Form 10-Q concerning the manner in which NAC intends to conduct its
future operations, and potential trends that may impact its future results of
operations, are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. NAC may be unable to realize its plan
and objectives due to various important factors, including, but not limited to,
the failure of the Board of Directors to promptly determine what strategic
business plan NAC should pursue, the failure of NAC to implement any such plan
due to its inability to identify suitable acquisition candidates or its
inability to obtain the financing necessary to complete any desired
acquisitions, or any adverse outcome of the pending shareholder actions or other
litigation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

As of April, 2003, as a result of the acquisition of OMI, NAC has
interest-bearing debt. The interest rate on each financial instrument, except
for the Credit Facility, is generally fixed in nature and accordingly no market
risk associated with increases in interest costs resulting from changes in
market rates. The Credit Facility charges interest at a variable rate of the
institution's prime rate plus 2%. Due to the limited amount outstanding under
the Credit Facility and the current rates of interest, NAC's exposure to market
risks, if any, are limited.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with Item 307 of regulation S-K promulgated under the
Securities Act 1933, as amended, and within 90 days of the date of this
Quarterly Report on Form 10-Q (the "Evaluation Date"), the Chief Executive
Officer and the Chief Financial Officer of NAC (the "Certifying Officers") have
conducted evaluations of NAC's disclosure controls and procedures. As defined
under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the term "disclosure controls and procedures"
means controls and other procedures of an issuer that are designed to ensure
that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer's management, including its principal
executive officer or officers and principal financial officer or officers, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. The Certifying Officers have reviewed NAC's
disclosure controls and procedures and have concluded that (subject to the
qualifications and disclosures set forth herein below) those disclosure controls
and procedures are effective as of the date of this Quarterly Report on Form
10-Q. In compliance with Section 302 of the Sarbanes-Oxley Act of 2002, (18
U.S.C. 1350), each of the Certifying Officers executed an Officer's
Certification included in this Quarterly Report on Form 10-Q.


24


As of this Quarterly Report on Form 10-Q, there have not been any
significant changes in NAC's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including corrective actions with regard to significant deficiencies and
material weaknesses.




25




PART II.
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

On July 31, 2001, NAC received a derivative complaint (the "Academy
Complaint") filed by Academy Capital Management, Inc. ("Academy"), a shareholder
of NAC, with the Court of Chancery of Delaware, on or about July 31, 2001,
against James J. McNamara, John A. Gleason, William S. Marshall, Henry Y.L. Toh,
Donald Jasensky, Peter T. Zackaroff, Mallory Factor, and Thomas F. Carney, Jr.
(the "Director Defendants") and names NAC as a nominal defendant. The Academy
Complaint principally seeks: (i) a declaration that the Director Defendants
breached their fiduciary duties to NAC, (ii) a judgment voiding an employment
agreement with James J. McNamara and rescinding a stock exchange agreement in
which NAC acquired ZoomLot Corporation, (iii) a judgment voiding the grant of
stock options and the award of director fees allegedly related thereto, (iv) an
order directing the Director Defendants to account for alleged damages sustained
and profits obtained by the Director Defendants as a result of the alleged
various acts complained of, (v) the imposition of a constructive trust over
monies or other benefits received by the Director Defendants and (vi) an award
of costs and expenses.

On August 16, 2001, NAC received a complaint (the "Markovich
Complaint") filed by Levy Markovich ("Markovich"), a shareholder of NAC, with
the Court of Chancery of Delaware on or about August 16, 2001, against James J.
McNamara, John A. Gleason, William S. Marshall, Henry Y. L. Toh, Donald
Jasensky, Peter T. Zackaroff, Mallory Factor, and Thomas F. Carney, Jr. and NAC
as a nominal defendant. The Markovich Complaint principally seeks: (i) a
declaration that the Director Defendants have breached their fiduciary duties to
NAC, (ii) a judgment voiding an employment agreement with James J. McNamara and
rescinding a stock exchange agreement in which NAC acquired ZoomLot Corporation,
(iii) a judgment voiding the grant of options and the award of directors fees
allegedly related thereto, (iv) an order directing the Director Defendants to
account for alleged damages sustained and alleged profits obtained by the
Director Defendants as a result of the alleged various acts complained of, (v)
the imposition of a constructive trust over monies or other benefits received by
the directors, and (vi) an award of costs and expenses.

On August 31, 2001, NAC received a complaint (the "Harbor Complaint")
filed by Harbor Finance Partners ("Harbor"), a shareholder of NAC, with the
Court of Chancery of Delaware on or about August 31, 2001, against Thomas F.
Carney, Jr., Mallory Factor, John A. Gleason, Donald Jasensky, William S.
Marshall, James J. McNamara, Henry Y. L. Toh, Peter T. Zackaroff, Ernest C.
Garcia, and ZoomLot Corporation as Defendants and NAC as a nominal defendant.
The Harbor Complaint principally seeks: (i) a judgment requiring the Director
Defendants to promptly schedule an annual meeting of shareholders within thirty
(30) days of the date of the Harbor Complaint; (ii) a judgment declaring that
the Director Defendants breached their fiduciary duties to NAC and wasted its
assets; (iii) an injunction preventing payment of monies and benefits to James
J. McNamara under his employment agreement with NAC and requiring Mr. McNamara
to repay the amounts already paid to him thereunder; (iv) a judgment rescinding
the agreement by NAC to purchase ZoomLot and refunding the amounts it paid; (v)
a judgment rescinding the award of monies and options to the directors on
December 15, 2000 and requiring the directors to repay the amounts they received
allegedly related thereto; (vi) a judgment requiring the defendants to indemnify
NAC for alleged losses attributable to their alleged actions; and (vii) a
judgment awarding interest, attorney's fees, and other costs, in an amount to be
determined.

26



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

NAC has vigorously defended against each of the respective claims made
in the Academy Complaint, Markovich Complaint, Harbor Complaint and the Zadra
Amended Complaint, as it believes that the claims have no merit. By order of the
Delaware Chancery Court on November 12, 2001, the Academy, Markovich and Harbor
Complaints were consolidated under the title "In re National Auto Credit, Inc.
Shareholders Litigation," Civil Action No. 19028 NC (Delaware Chancery Court)
("Delaware Consolidated Derivative Action") and the Academy Complaint was deemed
the operative complaint.

The parties in New York thereafter engaged in settlement negotiations
and the parties entered into a stipulation of settlement in December 2002,
proposing to settle all class and derivative claims. In January 2003, the New
York Supreme Court entered an order which, among other things, conditionally
certified a class of shareholders for settlement purposes, approved the form of
notice of the proposed settlement, and scheduled a hearing to approve the
settlement. Notice of the proposed settlement was given to the shareholders of
the Company and members of the class as per the Court's order in January and
February 2003. An initial hearing on the proposed settlement was held on May 14,
2003. The New York Supreme Court is reviewing, among other considerations, the
terms of the proposed settlement and the objections raised by certain
shareholders. A motion to dismiss the Delaware Consolidated Derivative Action
was also filed in 2002 which was denied by the Delaware court in January 2003.

No predictions can be made with respect to the outcome of these matters
and, accordingly, no provision for any loss or settlement that may occur has
been recorded in the consolidated financial statement

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

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

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



27




damage resulting from accidents involving NAC vehicles operated by employees
within the scope of their employment. In connection therewith, NAC established
certain reserves in its financial statements for the estimated cost of
satisfying those claims.

NAC is named as defendant in a self-insurance action Darrell Smith and
Aaron Simpson ("Plaintiffs") v. John J. Bennett, ARAC, Country Mutual Insurance
Company and Atlanta Casualty Insurance Company in Cook County (State) Court of
Illinois. This matter arises out of an incident in which an ARAC car renters'
son, while driving the rental vehicle, was involved in a fatal accident and with
serious injuries to Plaintiffs, passengers in the vehicle. Initially, the
Plaintiffs appeared to be recovering well from the injuries sustained. However,
subsequently plaintiff Simpson underwent an accident-related surgery on his back
for removal of a shunt, during which nerves in the spine were severed causing
paraplegia. The Plaintiffs are suing for damages resulting from their injuries
and the subsequent paraplegia suffered by plaintiff Simpson. The doctor and
hospital that performed the surgery were also named as defendants by Plaintiffs
and have been impleaded by NAC under a theory of medical malpractice. Damages
alleged in the complaint are not specified, although in discovery Plaintiffs
have indicated they are seeking millions of dollars in compensatory and other
damages. The matter is scheduled for trial during the second half of 2003.

NAC maintains a number of defenses relating to this matter. NAC has
almost exhausted its self-insured retention of $500,000 on this case and NAC
attempted to get its excess carrier, the TIG Insurance Company ("TIG"), to take
over the defense of this action and indemnify NAC up to the policy limits.
However, as a result TIG filed a suit (TIG Insurance Company v. Darrell Smith,
Aaron Simpson and NAC in the United States Court for the Northern District of
Illinois) for a declaratory judgment seeking a ruling that it has no liability
as an "excess insurer" of NAC in connection with the Smith and Simpson action
and that under Illinois law, NAC's (and thereafter TIG's) financial
responsibility is capped at an amount less than what the Plaintiffs are seeking
in the state court action. TIG filed a motion for summary judgment on the same
grounds, arguing that it has no liability to NAC under such insurance policy.
NAC filed a motion for summary judgment, asserting that it has no liability to
Smith and Simpson; and that if there is any liability it is capped under
Illinois state law, or, if not capped, then TIG's excess insurance coverage
applies. Smith and Simpson filed their own cross-motion for summary judgment,
asserting that NAC is liable for Smith and Simpson's injuries and that NAC's
liability is not capped under Illinois law. On February 3, 2003, the Court
granted the motions of TIG and NAC for summary judgment, and denied the motion
for summary judgment of Smith and Simpson. The Court concluded that NAC bears no
financial responsibility to Smith and Simpson because, under the express terms
of the rental agreement at issue, Bennett was not a listed additional driver on
the underlying rental contract. The Court further concluded that TIG, as NAC's
excess insurance carrier, has no responsibility to defend or indemnify the
Bennett estate. Motions for reconsideration were filed by Smith and Simpson in
February and March but were denied by the Court. On April 11, 2003, Smith and
Simpson filed a Notice of Appeal of the Courts' decisions. NAC intends to
vigorously oppose this appeal.

Because of the uncertainties related to these two matters, as well as
several smaller legal proceedings involving NAC's former rental operations and
self-insurance claims, it is difficult to project with precision the ultimate
effect the adjudication or settlement of these matters will have on NAC. At
April 30, 2003 NAC had accrued $468,000 to cover all outstanding self-insurance
liabilities. As additional information regarding NAC's potential liabilities
becomes available, NAC will revise the estimates as appropriate.

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

In the normal course of its business, NAC is named as defendant in
legal proceedings. It is the policy of NAC to vigorously defend litigation
and/or enter into settlements of claims where management deems appropriate.

28




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A) EXHIBITS



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

99.1 Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) 32
99.2 Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) 33
99.3 Notice of Class Action Determination and Proposed
Settlement of Class and Derivative Action 34



B) REPORTS ON FORM 8-K

None.-

SIGNATURES
----------

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


NATIONAL AUTO CREDIT, INC.




Date: June 20, 2003 By: /s/ James J. McNamara
------------------------------ ---------------------
James J. McNamara
Chairman of the Board and Chief Executive Officer


By: /s/ Robert V. Cuddihy, Jr.
--------------------------
Robert V. Cuddihy, Jr.
Chief Financial Officer




29







OFFICER'S CERTIFICATION PURSUANT TO
------------------------------------

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
--------------------------------------------------------------

I, James McNamara., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of National Auto Credit,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15-d-14) for the registrant and we have:

(a) designated such disclosure controls and procedures to ensure that
material information related to the registrant, including its
consolidating subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;

(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report ("Evaluation Date"); and

(c) presented in the Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors and material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 20, 2003

By: /s/ James J. McNamara
---------------------
James J. McNamara
Chief Executive Officer

30




OFFICER'S CERTIFICATION PURSUANT TO
-----------------------------------

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
--------------------------------------------------------------

I, Robert V. Cuddihy, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of National Auto Credit,
Inc.;

2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15-d-14) for the registrant and we have:

(a) designated such disclosure controls and procedures to ensure that
material information related to the registrant, including its
consolidating subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report ("Evaluation Date"); and

(c) presented in the Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors and material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 20, 2003
By: /s/ Robert V. Cuddihy, Jr.
--------------------------
Robert V. Cuddihy, Jr.
Chief Financial Officer


31