Hometown Auto Retailers 10Q 2006 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Commission file number: 000-24669

HOMETOWN AUTO RETAILERS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	06-1501703
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1309 South Main Street

Waterbury, CT 06706

(Address of principal executive offices) (Zip code)

(203) 756-1300

(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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Title		Outstanding As of November 7, 2006

Common Stock, Class A, par value $.001 per share		3,910,137
Common Stock, Class B, par value $.001 per share		2,579,252

INDEX

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Consolidated Balance Sheets at September 30, 2006 (Unaudited) and December 31, 2005 (Audited)	3
	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005 (Restated)	4
	Unaudited Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2006 and 2005 (Restated)	5
	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (Restated)	6
	Notes to Unaudited Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	36
ITEM 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	37
ITEM 1A.	Risk Factors	37
ITEM 2	Unregistered Sales Of Equity Securities and Use of Proceeds	37
ITEM 3.	Defaults Upon Senior Securities	37
ITEM 4.	Submission of Matters to a Vote of Security Holders	37
ITEM 5.	Other Information	37
ITEM 6.	Exhibits

SIGNATURES		38

CERTIFICATIONS		39

FORWARD LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Hometown Auto Retailers, Inc. (“Hometown”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Hometown. Although Hometown believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Hometown or any other person that the objectives and plans of Hometown will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

HOMETOWN AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

ASSETS		September 30, 2006 (Unaudited)			December 31, 2005 (Audited)

Current Assets:
Cash and cash equivalents	$	6,352		$	6,453
Accounts receivable, net		4,857			4,330
Inventories, net		31,064			33,542
Prepaid expenses and other current assets		760			568
Deferred and prepaid income taxes		1,039			1,039

Total current assets		44,072			45,932

Property and equipment, net		12,616			13,035
Other assets		4,691			2,919

Total assets	$	61,379		$	61,886


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Floor plan notes payable - trade	$	5,040		$	6,697
Floor plan notes payable - non-trade		24,913			26,265
Accounts payable and accrued expenses		4,090			3,909
Current maturities of long-term debt and capital lease obligations		1,316			5,245
Deferred revenue		148			207

Total current liabilities		35,507			42,323

Long-term debt and capital lease obligations		14,206			7,884
Other long-term liabilities and deferred revenue		61			128

Total liabilities		49,774			50,335

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, Class A, $.001 par value, 12,000,000 shares authorized, 3,910,137 shares issued and outstanding for both periods		4			4
Common stock, Class B, $.001 par value, 3,760,000 shares authorized, 2,579,252 shares issued and outstanding for both periods		2			2
Additional paid-in capital		29,032			29,022
Accumulated deficit		(17,433	)		(17,477	)

Total stockholders' equity		11,605			11,551

Total liabilities and stockholders' equity	$	61,379		$	61,886

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2006			2005			2006			2005
					(Restated)						(Restated)

Revenues
New vehicle sales	$	35,122		$	38,543		$	95,819		$	117,213
Used vehicle sales		15,576			15,723			46,435			48,204
Parts and service sales		5,469			5,246			16,017			17,311
Other, net		1,960			1,881			5,873			5,834

Total revenues		58,127			61,393			164,144			188,562

Cost of sales
New vehicle		32,611			35,956			89,138			109,459
Used vehicle		14,070			14,280			41,834			43,651
Parts and service		2,541			2,372			7,467			7,885

Total cost of sales		49,222			52,608			138,439			160,995

Gross profit		8,905			8,785			25,705			27,567

Selling, general and administrative expenses		7,289			7,749			21,798			23,457

Income from operations		1,616			1,036			3,907			4,110

Interest income		105			64			298			193
Interest (expense)		(1,053	)		(802	)		(4,122	)		(2,646	)
Other income		4			-			12			591
Other (expense)		-			-			(20	)		-

Pre-tax income		672			298			75			2,248
Income tax provision		272			119			31			899

Net income	$	400		$	179		$	44		$	1,349


Earnings per share, basic	$	0.06		$	0.03		$	0.01		$	0.20


Earnings per share, diluted	$	0.06		$	0.03		$	0.01		$	0.20


Weighted average shares outstanding, basic		6,489,389			6,451,128			6,489,389			6,660,012
Weighted average shares outstanding, diluted		6,657,479			6,646,549			6,645,245			6,811,927

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMETOWN AUTO RETAILERS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Class A Common Stock			Class B Common Stock						Additional Paid-in			(Accumulated			Total Stockholders’
	Shares		Amount	Shares			Amount			Capital			Deficit)			Equity


Balance at December 31, 2004 (Restated)	3,870	$	4	3,519		$	3		$	30,017		$	(18,769	)	$	11,255
Net income	-		-	-			-			-			1,349			1,349
Exercise of stock options	40		-	-			-			47			-			47
Litigation Settlement	-		-	(940	)		(1	)		(1,042	)		-			(1,043	)

Balance at September 30, 2005 (Restated)	3,910	$	4	2,579		$	2		$	29,022		$	(17,420	)	$	11,608

Balance at December 31, 2005	3,910	$	4	2,579		$	2		$	29,022		$	(17,477	)	$	11,551
Net income	-		-	-			-			-			44			44
Stock option expense	-		-	-			-			10			-			10

Balance at September 30, 2006	3,910	$	4	2,579		$	2		$	29,032		$	(17,433	)	$	11,605


The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		For the Nine Months ended September 30,
		2006			2005
					(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	44		$	1,349
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization		955			965
Loss on sale of fixed assets		19			-
(Gain) on disposal of dealership		-			(587	)
Deferred income taxes		31			899
Stock option expense		10			-
Changes in assets and liabilities:
Accounts receivable, net		(527	)		275
Inventories, net		3,912			9,347
Prepaid expenses and other current assets		(192	)		(154	)
Prepaid taxes		(282	)		(176	)
Other assets		103			18
Floor plan notes payable - trade		(1,657	)		(5,336	)
Accounts payable and accrued expenses		181			(859	)
Deferred revenue - current		(59	)		(287	)
Other long-term liabilities and deferred revenue		(67	)		(144	)
Net cash provided by operating activities		2,471			5,310

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(303	)		(132	)
Proceeds from sale of property and equipment		1			-
Acquisition of Nissan franchise		(2,101	)		-
Net cash (used in) investing activities		(2,403	)		(132	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from floor plan notes payable - non-trade		131,292			121,793
Payment of floor plan notes payable - non-trade		(132,644	)		(125,924	)
Principal payments of long-term debt and capital lease obligations		(6,478	)		(1,614	)
Proceeds from long-term borrowings		7,661			225
Exercise of stock options and warrants		-			47
Net cash (used in) financing activities		(169	)		(5,473	)

Net (decrease) in cash and cash equivalents		(101	)		(295	)
CASH AND CASH EQUIVALENTS, beginning of period		6,453			6,101

CASH AND CASH EQUIVALENTS, end of period	$	6,352		$	5,806

Cash paid for - Interest	$	4,159		$	2,717
Cash paid for - Taxes	$	282		$	176
Purchases financed by capital lease obligations	$	1,563		$	801

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Supplemental Cash flow Information:

On May 11, 2005 Hometown transferred certain assets and liabilities to the Vergopia’s resulting in a gain of approximately $587,000 on the transaction. (See Note 15 - Commitments and Contingencies - Litigation to December 31, 2005 Form 10-K.) Hometown received 940,000 shares of Hometown Common Stock valued at $1,043,000 in exchange for Accounts Receivable of $154,000, New Vehicle and Parts Inventory of $6,786,000, Net Property and Equipment of $195,000, Floor Plan Notes Payable - Trade of $6,664,000 and Other Debt of $134,000. Costs of $119,000 are included in the computation of the gain.

HOMETOWN AUTO RETAILERS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Business of Hometown Auto Retailers, Inc. (“Hometown” or the “Company”)

Hometown sells new and used cars and light trucks, provides maintenance and repair services, sells replacement parts and provides related financing, insurance and service contracts through 8 franchised dealerships and 1 stand-alone service facility, located in New Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown’s dealerships offer 10 American and Asian automotive brands including Chevrolet, Chrysler, Dodge, Ford, Jeep, Lincoln, Mazda, Mercury, Nissan and Toyota.

2. RESTATEMENT

Subsequent to fiscal year end December 31, 2005, Hometown concluded that the income from certain extended warranty and extended warranty reimbursement insurance policies generated in Connecticut was no longer required to be recognized over the period of the contract. Prior to July 1, 2003, Connecticut dealerships were considered to be “extended warranty providers” because they did not qualify for any of the exclusions applicable to the retail seller of the extended warranty. Effective on July 1, 2003, the Connecticut law applicable to extended warranties was amended to provide that an “extended warranty provider” means a person who issues, makes, provides or offers to provide an extended warranty but that person must also be “contractually obligated to provide service under such extended warranty”. The administrator of the extended warranties sold by Hometown has confirmed that Hometown is not contractually obligated to provide service under the extended warranties that they sell. Therefore Hometown is no longer liable as the “extended warranty provider” under the extended warranties that they sell. Hometown has determined that it is no longer necessary to recognize the commissions that it receives from the sale of such extended warranties over the period of the warranty contract. Accordingly, financial statements for periods prior to December 31, 2005 were restated and are reflected as such within this Form 10Q.

The effect of this restatement was to increase pre-tax income $60,000 and $173,000 for the three and nine months ended September 30, 2005, respectively. The after tax effects was to increase net income by $36,000 and $104,000 for the three and nine months ended September 30, 2005, respectively. The effect of these adjustments for the three months ended September 30, 2005 was to increase basic and diluted earnings per share by $0.01. The effect of these adjustments was to increase basic and diluted earnings per share by $0.01 and $0.02, respectively for the nine months ended September 30, 2005.

Deferred revenue recorded as of June 30, 2003, will continue to be taken into income over the remaining life of the contract. At September 30, 2006, Hometown had $173,000 of related deferred revenue remaining. This deferred revenue will be recognized over the next three years as follows: 2006 (remaining period) - $47,000, 2007 - $100,000 and 2008 - $26,000. These revenues are recorded in Revenues, Other in the Statement of Operations. The recognition of deferred revenues does not generate a cash tax effect as the recording of deferred revenues generates a deferred tax asset; therefore the recognition of this income causes a reduction of deferred tax assets. As of September 30, 2006 Hometown has other deferred revenues of $25,000.

The effect of the restatement on the financial statement items affected follows:

		Three months ended September 30, 2005				Nine months ended September 30, 2005
		Previously		Restated		Previously			Restated
		Reported				Reported
Statements of Operations:

Other revenues, net	$	1,821	$	1,881	$	5,661		$	5,834
Total revenues	$	61,333	$	61,393	$	188,389		$	188,562

Gross profit	$	8,725	$	8,785	$	27,394		$	27,567

Income from operations	$	976	$	1,036	$	3,937		$	4,110

Pre-tax income	$	238	$	298	$	2,075		$	2,248
Provision for income taxes	$	95	$	119	$	830		$	899
Net income	$	143	$	179	$	1,245		$	1,349

Earnings per share, basic	$	0.02	$	0.03	$	0.19		$	0.20

Earnings per share, diluted	$	0.02	$	0.03	$	0.18		$	0.20

Statements of Cash Flows:

Net income					$	1,245		$	1,349
Deferred income taxes					$	830		$	899
Deferred revenue - current					$	(235	)	$	(287	)
Other long-term liabilities and deferred revenue					$	(23	)	$	(144	)
Net cash provided by operating activities					$	5,310		$	5,310

In addition, Hometown has previously restated its Balance Sheets and Statements of Cash Flows to comply with guidance under SFAS 95, “Statement of Cash Flows”, which states that payments to suppliers should be classified as an operating activity. The balance sheets restatement is to breakdown the floor plan notes payable into trade and non-trade components, where it had previously been shown as a single line item, which has been consistent with industry practice. The Statements of Cash Flows reclassification was to show the non-trade component of floor plan notes payable as a financing activity, where it had been shown as an operating activity. The floor plan lender is FMCC, an affiliate of Ford, Lincoln and Mercury; therefore; floor plan notes payable amounts due from purchases of inventory from Ford, Lincoln and Mercury are classified as floor plan - trade and the related borrowings and payments are to be classified as operating activities in the Statements of Cash Flows. Amounts due for inventory purchases from all other manufacturers are classified as floor plan notes payable - non-trade and the related borrowings and payments are to be classified as financing activities in the Statements of Cash Flows. The changes do not affect working capital or total cash flows. See Note 7 to the unaudited consolidated financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated balance sheet as of September 30, 2006, the consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005 (restated), the consolidated statements of stockholders’ equity and the consolidated statements of cash flows for the nine months ended September 30, 2006 and 2005 (restated), are unaudited. (See Note 2) The consolidated financial statements include all significant majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods were made. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. Due to seasonality and other factors, the results of operations for interim periods are not necessarily indicative of the results that will be realized for the entire year.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, were omitted. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2005, which are included in Hometown’s filings of its amended annual report on Form 10-K.

The financial statements have been prepared in conformity with generally accepted accounting principles and, accordingly, include amounts based on estimates and judgments of management. Actual results could differ from those estimates.

Stock-based Compensation

At September 30, 2006, Hometown has one stock-based employee compensation plan, the 1998 Stock Option Plan (the “Stock Option Plan”). In December 2004, the FASB issued SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005, the SEC issued Staff Bulletin No. 107 regarding its interpretation of SFAS 123R. The standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees and was effective for annual periods beginning after June 15, 2005. As of January 1, 2006, Hometown adopted SFAS 123R using the modified prospective transition method. Accordingly, Hometown’s unaudited consolidated financial statements for prior periods have not been restated to reflect the adoption of SFAS 123R.

For the three and nine months ended September 30, 2006, Hometown recognized approximately $3,000 and $10,000 pre-tax, respectively ($1,800 and $6,000 after-tax, respectively) of non-cash compensation expense (included in Selling, General and Administrative expense in the 2006 Unaudited Consolidated Statement of Operations) attributable to stock options that vested subsequent to December 31, 2005. Hometown used the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period of the grant. As of September 30, 2006 there was $17,000 of total unrecognized compensation cost related to non-vested stock options, which will be recognized over a three-year period.

The risk-free interest rate used was from 3.00% - 3.82% and is based on the U.S. Treasury yield curve at the time of the grant. The expected dividend yield used was 0%. The expected term of stock options granted is 5-10 years and is derived from historical data and represents the period of time that stock options are expected to be outstanding. The expected volatility used is 75% and is based on historical volatility and other factors impacting the Company.

A summary of stock option transactions is as follows for the nine months ended September 30, 2006.

	Number of Shares	Weighted Average Exercise Price per Share	Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2005	497,500	$1.03	2.50
Options granted	-	-
Exercised	-	-
Canceled	(220,000)	$1.63
Options outstanding at September 30, 2006	277,500	$0.56	3.27	$106,894
Options exercisable at September 30, 2006	264,167	$0.53	3.01	$ 93,609

A summary of non-vested stock option transactions is as follows for the nine months ended September 30, 2006.

	Number of Shares	Weighted Average Grant-Date Fair Value per Share
Non-vested stock options at December 31, 2005	39,999	$0.67
Options granted	-	-
Vested	(25,833)	$0.50
Canceled	(833)	$0.67
Non-vested stock options at September 30, 2006	13,333	$1.01

Prior to January 1, 2006, the Company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for stock-based employee compensation arrangements whereby compensation cost related to stock options was generally not recognized in determining net income and the pro forma impact of compensation cost related to stock options was disclosed.

The Company’s pro forma net income and pro forma earnings per share were as follows:

(in thousands, except per share data)		Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005

Net income, as reported	$	179		$	1,349
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1)		(2	)		(7	)
Pro forma net income	$	177		$	1,342

Earnings per share:
Basic, as reported	$	0.03		$	0.20
Basic, pro forma	$	0.03		$	0.20
[Missing Graphic Reference]
Diluted, as reported	$	0.03		$	0.20
Diluted, pro forma	$	0.03		$	0.20

(1)	All awards refer to awards granted, modified, or settled in fiscal periods since plan inception in 1998; that is, awards for which the fair value was required to be measured under Statement 123

New Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140," which simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation and eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 will have no impact on our results of operations or our financial position.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140," which establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities by requiring that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 will have no impact on our results of operations or our financial position.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”, an Interpretation of FASB Statement No. 109. The objective of this interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the fiscal years beginning after December 15, 2006. The adoption of this statement is not expected to have a material effect on our financial position or results of operations.

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R),” which requires recognition of a net liability or asset to report the funded status of defined benefit pension and other postretirement plans on the balance sheet and recognition (as a component of other comprehensive income) of changes in the funded status in the year in which the changes occur. Additionally, SFAS No. 158 requires measurement of a plan’s assets and obligations as of the balance sheet date and additional annual disclosures in the notes to the financial statements. The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006, while the requirement to measure a plan’s assets and obligations as of the balance sheet date is effective for fiscal years ending after December 15, 2008. The adoption of this statement is not expected to have a material effect on our financial position or results of operations.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosures requirements about fair value measurements. SFAS No. 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this statement is not expected to have a material effect on our financial position or results of operations.

4. EARNINGS PER SHARE / STOCKHOLDERS EQUITY

“Basic earnings per share” is computed by dividing net income by the weighted average common shares outstanding. “Diluted earnings per share” is computed by dividing net income by the weighted average common shares outstanding adjusted for the incremental dilution of potentially dilutive securities. Options to purchase approximately 278,000 and 498,000 shares of common stock were outstanding as of September 30, 2006 and 2005, respectively.

Basic and diluted weighted average shares for the three and nine months ended September 30, 2006 and 2005 are as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2006	2005	2006	2005

Basic, Weighted Average Shares	6,489,389	6,451,128	6,489,389	6,660,012

Common Stock Equivalents	168,090	195,421	155,856	151,915
Diluted, Weighted Average Shares	6,657,479	6,646,549	6,645,245	6,811,927

Basic weighted average shares reflect a reduction of 940,000 Class B shares from the settlement of the Vergopia litigation on March 3, 2005. These shares have been cancelled as of May 13, 2005. Also, the nine months ended September 30, 2005 includes a gain on the transfer of the Westwood dealership of $587,000.

The common stock equivalents are options whose exercise price is less than the average market price of the common shares during the period. For the three and nine months ended September 30, 2006, no options were excluded from the calculation of diluted earnings per share. For the three and nine months ended September 30, 2005, options to purchase 217,000 shares of Hometown common stock were excluded from the calculation of diluted income per share due to the option prices being greater than the average market price of the common shares during the period.

The basic and diluted income per share for the three and nine months ended September 30, 2006 is $0.06 and $0.01, respectively. The basic and diluted income per share for the three and nine months ended September 30, 2005 is $0.03 and $0.20 respectively.

5. INVENTORIES

New, used and demonstrator vehicles are stated at the lower of cost or market, determined on a specific unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventories, net consist of the following:

(in thousands)		9/30/06		12/31/05

New Vehicles	$	21,564	$	24,474
Used Vehicles		7,658		7,284
Parts, accessories and other		1,842		1,784

Total Inventories	$	31,064	$	33,542

The lower of cost or market adjustment was $0.4 million at September 30, 2006 and December 31, 2005.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2006 and December 31, 2005, Hometown’s intangible assets consisted of the following:

(in thousands)		9/30/06			12/31/05

Goodwill	$	1,539		$	-
Manufacturer franchise rights		562			-
Deferred finance charges		62			272
Accumulated amortization		(54	)		(142	)
Franchise fee		10			10
Accumulated amortization		(6	)		(5	)

Net intangible assets	$	2,113		$	135

These assets are included in Other Assets in the consolidated financial statements. During the first quarter of 2006, $0.1 million of deferred financing charges was expensed (resulting from a debt refinancing in February 2006, see Note 8) and is included in Selling, General and Administrative expenses in the accompanying Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2006.

In connection with the acquisition of a Nissan franchise (see Note 8), a formal appraisal of the assets acquired was completed. Based on this appraisal, Hometown recorded $1.5 million as goodwill and $0.6 million as manufacturer franchise rights. Goodwill represents the excess cost of the business acquired over the fair market value of the identifiable net assets.

Hometown has determined the manufacturer franchise rights have an indefinite life as there are no legal, contractual, economic or other factors that limit its useful life and it is expected to generate cash flows indefinitely due to the historically long lives of manufacturers brand names. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” Hometown does not amortize intangible assets that are deemed to have indefinite lives.

Intangible assets are reviewed for impairment on an annual basis or more often if circumstances indicate that impairment may have occurred. According to the criteria under SFAS 142, it has been determined that Hometown is a single reporting unit. Goodwill impairment is assessed through comparison of an estimate of its fair value with its carrying value. Fair value is determined by using a discounted cash flow approach.

Franchise rights impairment is assessed through a comparison of an estimate of its fair value with its carrying value. Its fair value is determined by discounting the projected cash flows attributable to the franchise. An indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss is recognized.

7. FLOOR PLAN NOTES PAYABLE

Hometown has a floor plan line of credit at each dealership with Ford Motor Credit Corporation (“FMCC”). The FMCC floor plan agreement provides financing for vehicle purchases and is secured by and dependent upon new and used vehicle inventory levels. Maximum availability under the FMCC agreement is a function of new and used car sales and is not a pre-determined amount.

Hometown is subject to the FMCC standard financing agreement which provides for floor plan loans for new and used vehicles that have variable interest rates that increase or decrease based on movements in the prime or LIBOR borrowing rates. The FMCC agreement has no set maturity date and it is the intention of Hometown to continue with this financing on an ongoing basis.

FMCC directly pays the manufacturers from which Hometown purchases new vehicle inventory. The process is done electronically where an Electronic Funds Transfer (EFT) is made whereby the vehicle is purchased with funds from the floor plan line. Hometown does not have the discretion to receive these funds prior to disbursement to the manufacturers. Hometown finances used vehicles acquired by trade-in at the time a customer is purchasing a new vehicle shortly after receipt of the used vehicle from the customer. Hometown will also acquire used vehicles at auction, where more likely than not, arrangements have been made with FMCC for payment to be made by FMCC on our behalf using funds available from the floor plan notes payable line of credit.

Hometown typically makes monthly interest payments on the amount financed, but is not generally required to repay the principal prior to sale of the vehicle.

Outstanding floor plan borrowings financing new vehicles of manufacturers that are affiliates of FMCC (Ford, Lincoln and Mercury) are classified as “floor plan notes payable - trade”. All other floor plan borrowings are classified as “floor plan notes payable - non-trade”.

The Statement of Cash Flows reflects changes in “floor plan notes payable - trade” as a cash operating activity and the changes in “floor plan notes payable -non- trade” as a cash financing activity.

8. NISSAN FRANCHISE ACQUISITION / LONG-TERM DEBT

On February 9, 2006 Hometown completed the acquisition of a Nissan franchise. Pursuant to the terms of the Asset and Franchise Purchase Agreement, Hometown purchased a Nissan sales and service franchise and certain assets including certain new parts and accessories, special tools and new vehicle inventory. Hometown did not assume any liabilities. Hometown has accounted for the acquisition using the purchase method. The purchase price including acquisition costs was $2.1 million (recorded as goodwill of $1.5 million and franchise rights of $0.6 million and is included in Other Assets, Note 6) plus approximately $0.1 million for certain special tools and parts and accessories. In addition, Hometown received a credit for holdbacks, floor plan assistance and advertising credits of less than $0.1 million and assumed the new vehicle inventory on hand which was financed under Hometown’s existing floor plan financing with Ford Motor Credit Corporation. A formal appraisal of the assets acquired was completed which determined the allocation of the purchase price to the assets acquired.

With regard to the pending Exchange Agreement (see Note 10) with the New England Subsidiaries of Hometown and the stockholders of Hometown in the Shaker Group, the assets acquired under the Asset and Franchise Purchase Agreement were acquired by Hometown Auto Framingham, Inc., one of the New England Subsidiaries and all of the indebtedness relating to the acquisition is in favor of and secured only by the assets of the New England Subsidiaries. Accordingly, in the event that the exchanges are ultimately consummated, it is anticipated that the assets and the indebtedness related thereto will become the sole obligation of the New England Subsidiaries and Hometown will have no interest in the assets and no obligation with respect to the indebtedness incurred in connection with the acquisition of such assets.

The acquisition described above was funded through the completion of several simultaneous financing transactions on February 9, 2006 including: (i) the pay-off (prepayment) of a real estate mortgage note payable of $4.3 million (plus a $1.0 million prepayment yield maintenance fee described below); (ii) a $6.0 million real estate mortgage note payable from Ford Motor Credit Company (the “Mortgage Loan”); and (iii) a $1.5 million capital loan from Ford Motor Credit Company (the “Capital Loan”).

The prepayment of the real estate mortgage note payable required payment of a “yield maintenance” fee defined generally as the “excess, if any, of the value of all remaining payments, discounted to the prepayment date, over the outstanding loan amount.” The yield maintenance fee was calculated to equal $1.0 million and was expensed in the first quarter of 2006 to Interest Expense in Hometown’s Consolidated Statement of Operations.

The Mortgage Loan bears interest at a rate, variable monthly, equal to 2.75% per annum above the LIBOR Rate (effective rate of 8.09% at September 30, 2006), and is payable in 59 unequal, consecutive monthly installments of principal commencing on the first day of the second month following the closing, together with accrued interest, based upon a 240 month amortization, with a final balloon payment due upon maturity five (5) years from the first payment date.

The Mortgage Loan is unconditionally guaranteed by the following corporate subsidiaries of Hometown (collectively, the “Corporate Guarantors”): Hometown Auto Framingham, Inc., Family Ford, Inc., Shakers, Inc., Hometown Brattleboro, Inc., Shaker Auto Group, Inc., and by certain shareholders (the “Individual Guarantors”). Hometown has agreed to indemnify the Individual Guarantors in the event that the Exchange Agreement is not consummated. The Mortgage Loan is secured by a first mortgage on real estate and improvements owned by the Borrower at 571 Worcester Road, Framingham, Massachusetts (the “Property”), a first security interest in the Borrower’s and each Corporate Guarantor’s personal property, a collateral assignment of a lease by and between the Borrower and Hometown Auto Framingham, Inc., and a collateral assignment of all leases of real or personal property used in connection with the Property. Furthermore, the Mortgage Loan is “cross-defaulted” and “cross-collateralized” with: (i) the Capital Loan from Lender to Hometown Auto Framingham, Inc. recited below; (ii) a Wholesale Line of Credit made by Lender to Hometown Auto Framingham, Inc. dated March 2, 2001; (iii) a Wholesale Line of Credit made by Lender to Family Ford, Inc. dated February 28, 2001; (iv) a Wholesale Line of Credit made by Lender to Shakers Inc. dated February 28, 2001; (v) a Wholesale Line of Credit made by Lender to Hometown Brattleboro, Inc. dated March 2, 2001; (vi) any and all other loans now or hereafter outstanding made by Lender to Borrower and/or the Guarantors; and (vii) any and all extensions, increases, amendments, renewals and modifications of the foregoing obligations.

The Capital Loan bears interest at a variable rate, equal to 2.50% per annum above the Prime Rate (effective rate of 10.75% at September 30, 2006), and is payable in 59 consecutive monthly installments of principal in the amount of $12,500 each commencing on the fifteenth day of the first month following the closing, together with accrued interest, with a final balloon payment due upon maturity five (5) years from the closing date. The Capital Loan was made to Hometown Auto Framingham, Inc. (the “Borrower”) by the Lender and is unconditionally guaranteed by the following corporate subsidiaries of Hometown (collectively, the “Corporate Guarantors”): Bay State Realty Holdings, Inc., Family Ford, Inc., Shakers, Inc., Hometown Brattleboro, Inc., Shaker Auto Group, Inc., and by certain shareholders. The Capital Loan is secured by a first security interest in the Borrower’s and each Corporate Guarantor’s personal property, and is also “cross-defaulted” and “cross-collateralized” with: (i) the Mortgage Loan from Lender to Bay State Realty Holdings, Inc. recited above; (ii) a Wholesale Line of Credit made by Lender to Hometown Auto Framingham, Inc. dated March 2, 2001; (iii) a Wholesale Line of Credit made by Lender to Family Ford, Inc. dated February 28, 2001; (iv) a Wholesale Line of Credit made by Lender to Shakers Inc. dated February 28, 2001; (v) a Wholesale Line of Credit made by Lender to Hometown Brattleboro, Inc. dated March 2, 2001; (vi) any and all other loans now or hereafter outstanding made by Lender to Borrower and/or the Guarantors; and (vii) any and all extensions, increases, amendments, renewals and modifications of the foregoing obligations.

Both the Mortgage Loan and the Capital Loan were made with Lender’s understanding that the Borrowers and the Guarantors would not be prohibited from completing the pending Exchange Agreement. The Borrowers and Corporate Guarantors under the Mortgage Loan and the Capital Loan comprise the New England Subsidiaries (as described in the Exchange Agreement), and Hometown is neither a Borrower nor a Guarantor under either Loan. Accordingly, in the event that the exchanges under the Exchange Agreement are ultimately consummated, it is anticipated that the indebtedness under the Mortgage Loan and the Capital Loan will remain the sole obligation of the New England Subsidiaries and Hometown will have no obligation with respect to the indebtedness under the Mortgage Loan and the Capital Loan.

9. COMMITMENTS AND CONTINGENCIES

Litigation

Hometown Auto Retailers, Inc. d/b/a Muller Toyota, Inc. was named as one of about 1,667 defendants in a complaint filed by Maryann Cerbo, et. al. in the Superior Court of New Jersey in Bergen County and allegedly served upon Hometown on December 30, 2004. The action was brought on behalf of about 111 named plaintiffs and purportedly on behalf of a class of individuals and companies who purchased or leased a motor vehicle from the defendants. Plaintiffs contended that the defendants (a) "overcharged" for registration and/or title fees; (b) failed to properly itemize documentary costs and governmental costs; (c) charged grossly excessive documentary fees not reasonably related to costs; and (d) failed to disclose that the defendants are not required to perform certain documentary services. Plaintiffs attempted to name as defendants all franchised automobile dealers in the State of New Jersey, as well as a large assortment of other persons and entities. There were no allegations that Hometown ever performed any services for any of the named plaintiffs. Hometown accepted a settlement offer by the class which provided for a payment of legal fees to plaintiffs' counsel, administrative fees of the Settlement Administrator and the refunding to any consumers that file a valid claim with the Settlement Administrator that they were "overcharged." The settlement was approved at a "fairness hearing" by the Court on November 2, 2006. Hometown presently anticipates that the additional net expense after applicable insurance will be approximately $40,000. Hometown does not believe that the payments made or to be made as part of the settlement of this case will have a material adverse effect upon Hometown’s consolidated financial position or results of operations.

On July 8, 2005 Hometown issued a press release in which it announced its receipt of notice of the commencement of a lawsuit against Hometown and an indefinite delay in the mailing to Hometown’s stockholders of the Information Statement prepared in connection with the Exchange Agreement announced by Hometown on June 2, 2005. The press release was filed with the Securities and Exchange Commission as part of Hometown’s Form 8-K filed on July 8, 2005. See Note 10 to the unaudited consolidated financial statements.

The complaint was filed on June 30, 2005 in the Court of Chancery of the State of Delaware by Steven N. Bronson, Louis J. Meade and Leonard Hagan against Hometown Auto Retailers, Inc. and its directors, Corey E. Shaker, William C. Muller, Jr., Joseph Shaker, Bernard J. Dzinski, Jr., Steven A. Fournier, H. Dennis Lauzon and Timothy C. Moynihan. Plaintiffs purport to bring the action individually, derivatively and as a class action on behalf of the public stockholders of Hometown’s Class A shares. The plaintiffs allege in their complaint that the directors and controlling stockholders have breached their fiduciary duties to Hometown and the Class A stockholders, have failed to seek a transaction that would maximize value for Hometown and all its stockholders, and have initiated a transaction that is not fair to Hometown and its public stockholders. The plaintiffs seek equitable and monetary relief, including, rescission of the Exchange Agreement, a preliminary and permanent injunction against the Exchange Agreement transactions, a declaration that the defendants have breached their fiduciary duties, a constructive trust on any assets transferred pursuant to the Exchange Agreement transactions, damages for the injury suffered by plaintiffs and the Class as a result of defendants’ breach of fiduciary duties, certification of the action as a class action, and an order requiring defendants to pay attorneys’ fees and expenses to plaintiffs.

On July 19, 2005, a copy of the complaint as filed in the Court of Chancery of the State of Delaware was filed with the Securities and Exchange Commission by Steven N. Bronson as an Exhibit to Amendment No. 4 to Mr. Bronson’s Schedule 13D filing.

Following the filing of the lawsuit, the parties engaged in negotiations to resolve the matter. In order to avoid the expense and uncertainty of litigation, the parties negotiated a settlement. Under the terms of a Stipulation and Agreement of Compromise, Settlement and Release dated June 7, 2006 (the “Settlement Agreement”), Hometown agreed, among other things, to enter into a merger (the “Merger”) pursuant to which: (a) a newly-formed corporation called Hometown Acquisition Corporation (“Newco”) will be merged with and into Hometown; (b) the stockholders of Hometown other than the members of the Shaker Group and the Muller Group (as defined in Note 10 below) (the “Public Stockholders”) will receive $2.40 in cash (reduced by certain legal fees) for each share of Hometown’s Class A Common Stock which they own; and (c) the Public Stockholders will receive a per share cash payment equal to the excess, if any, of $2.40 (reduced by certain legal fees) over the exercise price per share of any options to acquire shares of Class A Common Stock which they own. The Settlement Agreement is subject to certain conditions as described in the Form 8-K filed with the Securities and Exchange Commission on June 7, 2006, and in the press release attached to the Form 8-K filed with the Securities and Exchange Commission on June 8, 2006.

The Court of Chancery approved the Settlement Agreement on July 27, 2006. The Court also awarded plaintiffs’ counsel attorneys’ fees and expenses in the amount of $300,000. Accordingly, if the Merger is consummated, the Public Stockholders will receive approximately $2.30 per share.

Hometown from time to time may be a defendant in lawsuits arising from normal business activities. Management reviews pending litigation with legal counsel and believes that the ultimate liability, if any, resulting from such actions will not have a material adverse effect on Hometown's consolidated financial position or results of operations.

Guarantees

Hometown may guaranty or partially guaranty loans advanced by financial institutions to certain customers. It is Hometown’s policy to provide reserves for potential future default losses based on available historical information.

In connection with the acquisition in 1999 of real estate used by Baystate Lincoln Mercury, Hometown guaranteed the mortgage debt of Rellum Realty Company. On February 28, 2006, Rellum Realty Company refinanced their mortgage. As part of that refinancing, Hometown was released from its guaranty of the mortgage debt.

Warranties

Hometown’s new vehicle sales and certain used vehicle sales have manufacturer warranties that specify coverage and period. In these instances, Hometown is reimbursed by the manufacturer for the cost of parts and service on the vehicle covered by these warranties, as specified by the manufacturer. Hometown also provides a limited warranty on used vehicles sold at retail. The warranty period is as agreed upon by the customer and may be subject to a minimum period as mandated by the state. The typical warranty period ranges up to three months. Hometown also sells parts and service. Manufacturer parts are covered by limited warranties, as specified by the manufacturer. Service also has a limited warranty; whereby the part and certain labor costs are covered under the limited manufacturer warranty. Also, certain Hometown dealerships provide a ten-year 250,000-mile limited engine warranty on new vehicles. The cost of this warranty is charged to the cost of sale of the vehicle. The warranty covers certain parts and labor for ten-years or until the vehicle reaches an odometer reading of 250,000 miles, whichever comes sooner. The warranty is insured, making the cost of the warranty fixed for Hometown. The insurance company pays costs associated with the warranty work to Hometown.

Hometown records a reserve referred to as “policy” for used vehicle warranties and the labor portion of service warranties based on available historical information. Also included in this reserve are (i) the costs associated with free products or services that may be offered to a retail customer for purposes of maintaining goodwill with that particular service customer or new or used vehicle customer, or (ii) the free products or service may be part of a service maintenance program whereby customers may receive certain services for free if they maintain a certain level of service at the dealership. At September 30, 2006 and December 31, 2005, Hometown has a reserve of $238,000 and $202,000, respectively. The reserve is based on the last three months of used vehicle units sold and the average cost of repairs, including free parts and service, over the last twelve months. While Hometown believes its estimated liability for product warranties and free parts and service is adequate and that the judgment applied is appropriate, the estimated liability for product warranties and free parts and service could differ materially from future actual costs.

Reserve for Policy Work	Balance At Beginning of Year	Additions To Costs and Expenses	Deductions	Balance At End of Quarter

Nine Months Ended September 30, 2006	$202,000	$672,000	$(636,000)	$238,000

Other revenues generated by sales of extended service plans, finance, insurance and other do not have any Hometown warranties attached to the sale, except for certain sales prior to July 1, 2003 in Connecticut dealerships discussed in Note 2.

Franchise Agreements

Toyota Motor Sales, U.S.A., Inc. has extended Hometown’s current Toyota Dealer Agreement on a periodic basis since March of 2003. The most recent extension was for a period of three months through January 10, 2007. Previously on March 13, 2003, Hometown was notified by Toyota Motor Sales, U.S.A., that Hometown must correct certain operational deficiencies or make substantial progress toward rectifying such deficiencies. Toyota had previously expressed concerns that the financial resources of the Toyota dealerships were being used to finance the cash flow deficits of other Hometown dealerships and that because of this the financial health of the Toyota dealerships were detrimentally affected by a net working capital deficiency. Toyota requested and Hometown provided a written action plan and consolidated financial forecast. Toyota also expressed concerns about the impact of Ford Motor Credit’s financing terms upon the Toyota dealerships and the existing litigation, which has now been settled. Hometown developed and implemented plans to correct the operational deficiencies that would bring Hometown into compliance. Hometown has obtained written confirmations from Ford Motor Credit in response to Toyota’s requests for information relating to financing arrangements. In addition, Hometown has improved net working capital through the sale of a Chrysler/Jeep sales and service franchise in the second quarter of 2003 and advances on warranty income from Hometown’s Extended Service Plan vendor. Hometown has been in regular contact with Toyota to review the efforts of Hometown to resolve the deficiencies alleged by Toyota. The two Toyota dealerships for the fiscal year ended December 31, 2005 had combined revenues of $104.0 million and pre-tax income before allocation of corporate costs of $2.4 million. Hometown believes that it has corrected the alleged net working capital deficiency for the Toyota dealerships and that it has undertaken reasonable steps to alleviate the concerns expressed by Toyota. However, there can be no assurance that Toyota will enter into a new dealer agreement with Hometown and Toyota has reserved the right to terminate the Toyota Dealership Agreements if sufficient progress is not made to correct the alleged deficiencies. Should Hometown be notified by Toyota that they intend to terminate the Toyota Dealership Agreements, Hometown believes it would have a reasonable amount of time to cure the defaults.

10.

MERGER AND EXCHANGE

On June 2, 2005 Hometown entered into an Exchange Agreement with the New England Subsidiaries of Hometown (as described below) and the stockholders of Hometown in the Shaker Group (as described below). The Exchange Agreement was also approved by the written consent of stockholders owning a majority of the voting power of the shares of stock of Hometown.

Pursuant to the Exchange Agreement, Hometown will organize a new corporation to be called Shaker Auto Group, Inc. (“Shaker Auto Group”). Hometown will then transfer to Shaker Auto Group all of the shares of stock of the New England Subsidiaries, plus $5 million in cash (subject to adjustment for fluctuations in the value of certain assets and liabilities of the New England Subsidiaries) in exchange for all of the outstanding shares of stock of Shaker Auto Group. Immediately following this transfer, Hometown will transfer all of the outstanding shares of stock of Shaker Auto Group to the Shaker Group in exchange for all of their shares of stock of Hometown. These transactions are referred to as the “Exchanges”.

The New England Subsidiaries consist of the business operations and real estate holdings of Hometown located in the States of Connecticut, Massachusetts and Vermont. They include ERR Enterprises, Inc., Family Ford, Inc., Shaker’s, Inc., Shaker’s Lincoln/Mercury Auto Care, Inc., Hometown Brattleboro, Inc., Hometown Auto Framingham, Inc., Bay State Realty Holdings, Inc. and Brattleboro Realty Holdings, Inc.

The automobile franchises operated by the New England subsidiaries include:

·	Bay State Lincoln Mercury (Framingham, Mass.),

·	Hometown Nissan (Framingham, Mass.),

·	Brattleboro Chrysler Jeep Dodge (Brattleboro, Vt.),

·	Family Ford (Waterbury, Conn.),

·	Shaker’s Lincoln Mercury (Watertown, Conn.),

·	Wellesley Mazda (Wellesley, Mass.),

·	Shaker’s Auto Care (Naugatuck, Conn.).

The New England subsidiaries also include the following real estate holding companies:

·	Baystate Realty (Framingham, Mass.), and

·	Brattleboro Realty (Brattleboro, Vt.).

Following the split-off of the above-described assets and liabilities to Shaker Auto Group, Hometown Auto will operate the following automobile franchises:

·	Muller Chevrolet (Stewartsville, N.J.);

·	Muller Toyota (Clinton, N.J.), and

·	Toyota of Newburgh, (New Windsor, N.Y.).

The Shaker Group consists of the following individuals and trusts: Corey Shaker (individually and as custodian for Lindsay Shaker, Kristen Shaker and Edward Shaker), Edward Shaker Family Trust, Joseph Shaker, Shaker Irrevocable Trust, Richard Shaker Family Trust, Steven Shaker, Janet Shaker, Paul Shaker, Edward D. Shaker, Edward Shaker, Lillian Shaker, Richard Shaker and Rose Shaker.

The Muller Group consists of the following individuals and trust: William C. Muller, Jr., Douglas D. Muller, Angela P. Muller, Rose Muller Trust, Robert Scott Doyle, Andrea L. Pantuso and Michelle Muller.

On June 2, 2005, Hometown issued a press release describing the general terms of the proposed Exchanges and disclosing the approval of the Exchanges by the Board of Directors and by a majority of the voting power to the Company’s Common Stock. The press release and the Exchange Agreement were filed with the Securities and Exchange Commission, as part of the Company’s Form 8-K filed on June 2, 2005.

On June 17, 2005, Hometown filed a Preliminary Schedule 14C Information Statement (“Information Statement”) with the Securities and Exchange Commission which describes the proposed Exchanges. The Preliminary Schedule 14C Information Statement included the disclosure that the members of the Board of Directors of the Company were sent a letter dated June 14, 2005 signed by Steven Bronson, Louis J. Meade and Leonard Hagan, which letter was included in an amendment to a Schedule 13D filed by Steven Bronson with the Securities and Exchange Commission on June 15, 2005. In the letter, Messrs. Bronson, Meade and Hagan (the “Holders”) stated that they own an aggregate of 16.31% of Hometown’s Class A Common Stock. In the letter, the Holders also stated their belief that the Exchanges will have a material adverse effect on Hometown and the shareholders who are not parties to the Exchanges, and are not in the best interests of Hometown and its shareholders. They further stated their belief that the Exchanges violate the Board’s statutory and common law fiduciary duties and demand that Hometown abandon the Exchanges, that the Board appoint a new Compensation Committee, that the President of Hometown resign, that the Board appoint a Special Committee to explore all options for maximizing shareholder value, including conversion of Hometown’s Class B Common Stock into Class A Common Stock, that provision be made for minority shareholder representation on the Board, and that the Shaker Group reimburse Hometown for its costs in pursuing the Exchanges.

On July 8, 2005 Hometown issued a press release in which it announced (a) its receipt of notice of the lawsuit which is described above, see Note 9 - “Litigation”, in which the plaintiffs seek equitable and monetary relief, including rescission of the Exchange Agreement, and (b) an indefinite delay in the mailing of the Information Statement to Hometown’s stockholders. The press release was also filed with the Securities and Exchange Commission, as part of Hometown’s Form 8-K filed on July 8, 2005.

Following the filing of the lawsuit, the parties engaged in negotiations to resolve the lawsuit and entered into the Settlement Agreement on June 7, 2006. Under the terms of the Settlement Agreement, Hometown agreed, among other things, to enter into a merger between Hometown and Newco, a newly organized corporation, (the “Merger”) pursuant to which the Public Stockholders will receive $2.40 in cash (reduced by certain legal fees) for each share of Hometown’s Class A Common Stock, which they own. The Court of Chancery approved the Settlement Agreement on July 27, 2006. The Court also awarded plaintiffs’ counsel attorneys’ fees and expenses in the amount of $300,000. Accordingly, if the Merger is consummated, the Public Stockholders will receive approximately $2.30 per share. See Note 9 - “Litigation”.

The consummation of the Merger and the Exchanges is subject to various conditions and contingencies, including that holders of not more than seven percent (7%) of Hometown’s Class A Common Stock exercise their dissenters’ rights in connection with the Merger, that Hometown’s manufacturers approve the transfer of the automobile franchises to Shaker Auto Group, and that Hometown’s various lenders approve the release of Hometown from certain liabilities and approve the assumption of certain liabilities by Shaker Auto Group.

Immediately following the consummation of the Merger and the Exchanges, the Shaker Group will be the owners of Shaker Auto Group and the New England Subsidiaries and will no longer have any interest in Hometown, and Hometown will no longer have any interest in Shaker Auto Group or any of the New England Subsidiaries. In addition, the Muller Group will hold 367,500 shares of Class A Common Stock and 776,752 shares of Class B Common Stock, representing 100% of the issued and outstanding shares of common stock of Hometown. [Note: Hometown Class B Common Stock has 10 for 1 voting rights versus Class A Common Stock, which are voted on a 1 to 1 basis.]

In order to consummate the Merger and the Exchanges, the Company anticipates that it will raise approximately $9.5 million by borrowing or by other capital raising events such as a sale of assets or by a combination thereof. The capital raised will be applied to (a) the $7.0 million cost to purchase the outstanding shares of Class A Common Stock and the options to acquire shares of Class A Common Stock from the Public Stockholders in connection with the Merger; and (b) the $5.0 million cash contribution to Shaker Auto Group in connection with the Exchanges. The additional $2.5 million required to complete the foregoing transactions and expected additional split-off costs and associated severance costs of $0.5 million will be paid out of existing Hometown cash on hand.

As of September 30, 2006, Hometown has incurred approximately $0.8 million in costs related to the Exchanges and related lawsuit (see Note 9 - Litigation), which amount has been expensed and is included in Selling General and Administrative Expenses on Hometown’s Consolidated Statements of Operations. Approximately $0.1 million of these costs were incurred and expensed in the nine months ended September 30, 2006, with the remainder in the year ended December 31, 2005.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis of financial condition and results of operations is based on the historical financial statements of Hometown Auto Retailers, Inc. and contains forward-looking statements that involve risks and uncertainties. Hometown's actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, as described under "Risk Factors" as detailed on Hometown’s annual report on Form 10-K for the year ended December 31, 2005.

Restatement

The effect of the restatement on the financial statement items affected follows:

		Three months ended September 30, 2005				Nine months ended September 30, 2005
		Previously		Restated		Previously			Restated
		Reported				Reported
Statements of Operations:

Other revenues, net	$	1,821	$	1,881	$	5,661		$	5,834
Total revenues	$	61,333	$	61,393	$	188,389		$	188,562

Gross profit	$	8,725	$	8,785	$	27,394		$	27,567

Income from operations	$	976	$	1,036	$	3,937		$	4,110

Pre-tax income	$	238	$	298	$	2,075		$	2,248
Provision for income taxes	$	95	$	119	$	830		$	899
Net income	$	143	$	179	$	1,245		$	1,349

Earnings per share, basic	$	0.02	$	0.03	$	0.19		$	0.20

Earnings per share, diluted	$	0.02	$	0.03	$	0.18		$	0.20

Statements of Cash Flows:

Net income					$	1,245		$	1,349
Deferred income taxes					$	830		$	899
Deferred revenue - current					$	(235	)	$	(287	)
Other long-term liabilities and deferred revenue					$	(23	)	$	(144	)
Net cash provided by operating activities					$	5,310		$	5,310

Overview

Hometown sells new and used cars and light trucks, provides maintenance and repair services, sells replacement parts and provides related financing, insurance and service contracts through 8 franchised dealerships and 1 stand-alone service facility located in New Jersey, New York, Connecticut, Massachusetts and Vermont. Hometown’s dealerships offer 10 American and Asian automotive brands including Chevrolet, Chrysler, Dodge, Ford, Jeep, Lincoln, Mazda, Mercury, Nissan and Toyota.

Hometown's operations are subject to seasonal variations, with the second and third quarters generally contributing more revenues and operating profit than the first and fourth quarters. This seasonality is driven primarily by: (i) manufacturer related factors, primarily the historical timing of major manufacturer incentive programs and model changeovers, (ii) weather-related factors, which primarily affect parts and service and (iii) consumer buying patterns. Sales also fluctuate due to other items such as availability of credit, consumer confidence in the economy, industry competition, international conflicts and fuel prices among others.

We assess the growth of our revenues and gross profit by comparing the year-to-year results of our dealerships that have operated continuously during the periods being compared. During the fourth quarter of 2004, Hometown announced that it had resolved in principal to resolve certain litigation matters, which resulted in the transfer of the Westwood Lincoln Mercury dealership during the second quarter of 2005. This contributes to decreases in sales and gross profit from 2005 to 2006, as well as a decrease in selling, general and administrative expenses. We have segregated this operation in the analysis that follows to allow for a better comparison of the results. Also, during the first quarter of 2006, Hometown replaced a Lincoln Mercury franchise at its Baystate, MA dealership with a Nissan franchise that was acquired in February 2006. New and used vehicle retail sales at this dealership were hampered due to the change over from being a Lincoln Mercury dealership to a Nissan dealership in February 2006. Sales were negatively affected for approximately a two-month period; however, it is expected that this change will be beneficial to this dealership due to the strength of the Nissan brand versus the Lincoln Mercury brand. Nissan ranks much higher nationally than Lincoln Mercury with respect to vehicle sales per dealership. Also demographic information indicates the area where the dealership is located is considered more of an import market than a domestic market. Hometown believes this change will translate into increases in all revenues at this dealership along with increased profits. The results for this dealership are included in same store results for both periods that are compared. Nissan results for the store will be compared to the Lincoln Mercury results for the period being discussed.

Revenues are generated from: (i) the sale of new vehicles to (a) retail customers and (b) commercial customers, referred to as fleet; (ii) the sale of used vehicles to (a) retail customers and (b) other dealers at auctions, referred to as wholesale; (iii) parts and service sales; and (iv) other revenues, including the sale of third-party extended warranty products and the arrangement of third-party financing and insurance for which the company receives a fee among other items. We assess revenue results by a year-to-year comparison as follows: new and used vehicle revenues on unit volumes, parts and service revenues on aggregate revenues and other on per retail vehicle.

New vehicle cost of sales primarily includes the cost of the vehicle, net of any manufacturer incentives including floor plan assistance. Used vehicle cost of sales primarily includes the cost of the vehicle, including the labor and parts associated with preparing a used vehicle for sale. Parts and service cost of sales primarily includes the cost of the part and cost of labor incurred on the service.

Our gross profit percentage varies with product mix and varies across product lines. Parts and service revenues generate the highest gross profit percentages, followed generally by used vehicle sales and new vehicle sales. Other revenues are recorded net. We assess gross profit results by a year-to-year comparison as follows: new and used vehicle gross profit per retail vehicle, parts and service on aggregate gross profit and other on gross profit per retail vehicle.

Selling, general and administrative expenses (“SG&A”) consist of: compensation and related taxes and benefits, advertising, building costs (rent, utilities, real estate taxes, depreciation), data processing and other operating expenses. A large amount of compensation is variable in that it is commission based and certain significant expenses, such as advertising, are controllable. Hometown also includes certain distribution costs in SG&A, which other similar companies may include in cost of sales. These costs total $0.1 million in the three months ended September 30, 2006 and 2005, and $0.3 million and $0.2 million in the nine months ended September 30, 2006 and 2005, respectively.

Interest expense primarily relates to indebtedness incurred in connection with new and used vehicle inventories. The 2006 period also includes a $1.0 million prepayment penalty associated with a refinancing. See Note 8 to the unaudited consolidated financial statements. Other interest expense consists of all other interest charges on interest bearing debt including mortgage obligations and capitalized leases.

Three months ended September 30, 2006 compared with three months ended September 30, 2005.

*Revenues*		For the Three Months Ended September 30,				Increase		%
(in thousands, except per vehicle data)		2006		2005		(Decrease)		Change

New vehicle data:
Retail revenues	$	34,580	$	37,922	$	(3,342	)	(8.8	)%
Fleet revenues		542		621		(79	)	(12.7	)%
Total new vehicles revenues, as reported	$	35,122	$	38,543	$	(3,421	)	(8.9	)%

New retail units		1,375		1,484		(109	)	(7.3	)%
Fleet units		33		38		(5	)	(13.2	)%
Total new vehicle units		1,408		1,522		(114	)	(7.5	)%

Used vehicle data:
Retail revenues	$	12,194	$	12,151	$	43		0.4	%
Wholesale revenues		3,382		3,572		(190	)	(5.3	)%
Total used vehicle revenue, as reported	$	15,576	$	15,723	$	(147	)	(0.9	)%

Used retail		760		745		15		2.0	%
Used wholesale units		776		844		(68	)	(8.1	)%
Total used units		1,536		1,589		(53	)	(3.3	)%

Total parts and service revenue	$	5,469	$	5,246	$	223		4.3	%

Total other revenues, net	$	1,960	$	1,881	$	79		4.2	%

Total revenue	$	58,127	$	61,393	$	(3,266	)	(5.3	)%

The percentages used in the revenues discussion below are from the above table.

The operations of Westwood Lincoln Mercury ceased during the second quarter of 2005. The dealerships in operation were the same during the three months ended September 30, 2006 compared to the three months ended September 30, 2005; therefore there is no separate comparison of same store revenues.

Total revenue decreased $3.3 million, or 5.3% to $58.1 million for three months ended September 30, 2006 from $61.4 million for three months ended September 30, 2005.

New retail revenues decreased $3.3 million, or 8.8% to $34.6 million for the three months ended September 30, 2006 from $37.9 million for the three months ended September 30, 2005. This decrease was primarily attributable to the 7.3% decrease in units ($2.8 million) sold in 2006 compared to 2005. A 1.6% decrease in average revenue per unit sold in 2006 compared to 2005 contributed $0.5 million to the decrease. The unit decrease is due to a drop off in truck sales during the 2006 period, which in turn contributed to the decrease in the average revenue per unit. This is consistent with national trends. Buyers have been opting for higher gas mileage vehicles and have been buying fewer trucks, which include more expensive sport utility vehicles. Many of Hometown’s domestic dealerships experienced a decrease in unit sales and new retail revenues from 2005 to 2006. Chrysler, Ford, Lincoln Mercury and Chevrolet unit sales were down from 12% - 38% from 2005 to 2006. The decreases at the other domestic dealerships were in line with decreases at non-Hometown dealerships in Hometown’s area, some of which were larger or smaller than Hometown’s declines. Ford was benefited in 2005 with the Family Plan, which caused an increase in unit sales during the 2005 period. Toyota unit sales were down 3%, which compares to an approximate 13% increase for non-Hometown dealerships in Hometown’s region. The Hometown dealerships relied heavily on truck and SUV sales and were carrying inventory accordingly. Car sales for Toyota began to increase but the dealerships were not carrying the appropriate vehicle inventory, which caused a reduction in the amount of potential sales. The inventory situation was corrected by the end of the third quarter. Also one Toyota facility has been adversely affected by not having the Scion vehicle available for sale. The Nissan dealership sold 35% more in unit sales compared to its predecessor Lincoln Mercury dealership. Also, the Mazda dealership sold 23% more units in 2006 than 2005 primarily due to a change in management at the dealership. Fleet revenues decreased from 2005 levels, but does not contribute significantly to profits.

Used vehicle retail revenues increased less than $0.1 million, or 0.4% remaining constant at $12.2 million for the three months ended September 30, 2006 and 2005. A 2.0% increase in units sold ($0.2 million) was substantially offset by a 1.6% decrease in average revenue per unit. Increases at Chevrolet, Chrysler and Mazda were partially offset by decreases at Hometowns other dealerships. The increase at the Chevrolet dealership is due to an increased focus on used vehicle sales vs. new vehicle sales that began earlier in the year. Chrysler has also increased its focus on used vehicles. The increase at Mazda was due the same management change referred to in the new vehicle section discussion above. Partially offsetting this was a decrease at the remaining Lincoln Mercury dealership, which experienced a large drop off in traffic in the store that began in the second quarter and continued through the third quarter. Also, the Nissan dealership has not sold as many used vehicle units as the predecessor Lincoln Mercury dealership. Wholesale revenues decreased $0.2 million, or 5.3% to $3.4 million for the three months ended September 30, 2006 from $3.6 million for the three months ended September 30, 2005. A decrease in units ($0.3 million) was partially offset by a 3.0% increase in average selling price. High quality vehicles that were taken as trade-ins at the time of new vehicle purchases, were not all sold at retail, necessitating being sold at wholesale, generating higher prices.

Parts and service revenues increased $0.3 million or 4.3% to $5.5 million for the three months ended September 30, 2006 from $5.2 million for the three months ended September 30, 2005. The increase was primarily due to the new Nissan dealership (more than $0.2 million). The Nissan dealership has experienced an increase in parts and service revenue since changing from a Lincoln Mercury dealership due to a higher amount of Nissan customers in their area.

Other dealership revenues increased $0.1 million, or 4.2% to $2.0 million for the three months ended September 30, 2006 from $1.9 million for the three months ended September 30, 2005. An increase in extended warranty revenues and miscellaneous other revenues were partially offset by a decrease in new vehicle finance revenue (due to a decrease in vehicles sold combined with decreased revenue earned on each financing transaction).

*Gross Profit*		For the Three Months Ended September 30,						Increase		%
(in thousands, except per vehicle data)		2006			2005			(Decrease)		Change

New vehicle data:
Retail gross profit - same store	$	2,505		$	2,568		$	(63	)	(2.5	)%
Retail gross profit - other stores (1)		-			13			(13	)	*
Total new retail gross profit		2,505			2,581			(76	)	(2.9	)%

Fleet gross profit		6			6			-		-
Total new vehicles gross profit, as reported	$	2,511		$	2,587		$	(76	)	(2.9	)%
Gross profit percentage		7.1	%		6.7	%

New retail units - same store		1,375			1,484			(109	)	(7.3	)%
New retail units - other stores (1)		-			-			-		-
Fleet units		33			38			(5	)	(13.2	)%
Total new vehicle units		1,408			1,522			(114	)	(7.5	)%

*Gross Profit -(continued)*		For the Three Months Ended September 30,						Increase		%
(in thousands, except per vehicle data)		2006			2005			(Decrease)		Change

Used vehicle data:
Retail gross profit - same store	$	1,556		$	1,452		$	104		7.2	%
Retail gross profit - other stores (1)		-			19			(19	)	*
Total used retail gross profit		1,556			1,471			85		5.8	%

Wholesale gross profit - same store		(50	)		(28	)		(22	)	(78.6	)%
Wholesale gross profit - other stores (1)		-			-			-		-
Total wholesale gross profit		(50	)		(28	)		(22	)	(78.6	)%

Total used vehicle gross profit, as reported	$	1,506		$	1,443		$	63		4.4	%
Gross profit percentage		9.7	%		9.2	%

Used retail units - same store		760			745			15		2.0	%
Used retail units - other stores (1)		-			-			-		-
Used wholesale units - same store		776			844			(68	)	(8.1	)%
Used wholesale units - other stores (1)		-			-			-		-
Total used units		1,536			1,589			(53	)	(3.3	)%

Parts and service:
Parts and service gross profit - same store	$	2,928		$	2,874		$	54		1.9	%
Parts and service gross profit - other stores (1)		-			-			-		-
Total parts and service revenue	$	2,928		$	2,874		$	54		1.9	%
Gross profit percentage		53.5	%		54.8	%

Other gross profit:
Other gross profit - same store	$	1,960		$	1,881		$	79		4.2	%
Other gross profit - other stores (1)		-			-			-		-
Total other gross profit, as reported	$	1,960		$	1,881		$	79		4.2	%
Gross profit percentage		100.0	%		100.0	%

Other gross profit PVR - same store	$	918		$	844		$	74		8.8	%
Other gross profit PVR - other stores (1)		-			-			-		-
Total other gross profit PVR, as reported	$	918		$	844		$	74		8.8	%

Total gross profit:
Same store	$	8,905		$	8,753		$	152		1.7	%
Other stores (1)		-			32			(32	)	*
Total gross profit, as reported	$	8,905		$	8,785		$	120		1.4	%
Gross profit percentage		15.3	%		14.3	%

(1) Represents the Westwood Lincoln Mercury dealership operations transferred on May 11, 2005.

* - Percentage is 100% or greater.

The percentages used in the gross profit discussion below are from the above table.

The operations of Westwood Lincoln Mercury ceased during the second quarter of 2005. The dealerships in operation were the same during the three months ended September 30, 2006 compared to the three months ended September 30, 2005. Gross profit reported for Westwood during the 2005 third quarter was minimal.

Total gross profit decreased $0.1 million, or 1.4%, to $8.9 million for the three months ended September 30, 2006, from $8.8 million for the three months ended September 30, 2005. Same store gross profit on new retail vehicle sales decreased $0.1 million, or 2.5%, to $2.5 million for the three months ended September 30, 2006, from $2.6 million for the three months ended September 30, 2005. Similar to revenues, the decrease in gross profit is primarily attributable to the 7.3% decrease in unit sales. This was partially offset by a 5.3% increase in average gross profit per unit due to improved vehicle mix. Although Nissan revenues were up compared to its predecessor Lincoln Mercury dealership, gross profit was down. Nissan vehicles typically generate a lower gross profit per vehicle than Lincoln Mercury vehicles.

Same store gross profit on used vehicle retail sales increased $0.1 million, or 7.2%, to $1.6 million for the three months ended September 30, 2006, from $1.5 million for the three months ended September 30, 2005. The increase is attributable to a 2.0% increase in units sold combined with a 5.1% increase in average gross profit per unit. The dealerships have continued to focus on generating a higher gross profit per vehicle sold. Gross profit on wholesale sales decreased slightly from the prior year period.

Same store parts and service gross profit increased less than $0.1 million or 1.9% remaining at $2.9 million for the three months ended September 30, 2006 and September 30, 2005. The increase is primarily due to the increase in revenues discussed above.

Selling, General and Administrative Expenses (“S,G&A”)

S,G&A decreased $0.4 million, or 5.2%, to $7.3 million for the three months ended September 30, 2006 from $7.7 million for the three months ended September 30, 2005. Reported S,G&A is the same as same store S,G&A due to the operations of Westwood Lincoln Mercury ceasing during the second quarter of 2005. The 2005 period included $0.5 million in costs associated with the Exchange Agreement (see Notes 9 and 10 to the unaudited consolidated financial statements) in excess of the comparable 2006 period. Partially offsetting this was increased advertising costs of $0.1 million in 2006 compared to 2005 (needed to maintain sales levels).

Interest Expense

Interest expense increased $0.3 million to $1.1 million for the three months ended September 30, 2006 from $0.8 million for the three months ended September 30, 2005. The increase is primarily due to an increase in floorplan interest expense resulting from higher interest rates combined with increased borrowings resulting from higher average inventories in 2006 compared to 2005.

Income tax provision

The effective income tax rate was 40.5% in the quarter ended September 30, 2006 and 40.0% in the same period of 2005. The rates were based on current forecasts of income before taxes, and current forecasts of permanent differences between tax and book income. The rates reflect the expected effective tax rate for the year. Deferred taxes, including the valuation allowance, will be reviewed throughout fiscal 2006.

Net Income

Net income increased $0.2 million to $0.4 million for the three months ended September 30, 2006, from $0.2 million for the three months ended September 30, 2005 for the various reasons discussed above.

Earnings Per Share, Basic and Diluted and Weighted Average Shares

“Basic earnings per share” is computed by dividing net income by the weighted average common shares outstanding. “Diluted earnings per share” is computed by dividing net income by the weighted average common shares outstanding adjusted for the incremental dilution of potentially dilutive securities. See Note 4 to the unaudited consolidated financial statements.

The basic and diluted income per share for the three months ended September 30, 2006 and 2005 is $0.06 and $0.03, respectively.

Nine months ended September 30, 2006 compared with nine months ended September 30, 2005.

*Revenues*		For the Nine Months Ended September 30,				Increase		%
(in thousands, except per vehicle data)		2006		2005		(Decrease)		Change

New vehicle data:
Retail revenues - same store	$	93,009	$	105,877	$	(12,868	)	(12.2	)%
Retail revenues - other stores (1)		-		9,022		(9,022	)	*
Total new retail revenues		93,009		114,899		(21,890	)	(19.1	)%

Fleet revenues - same store		2,810		2,314		496		21.4	%
Total new vehicles revenues, as reported	$	95,819	$	117,213	$	(21,394	)	(18.3	)%

New retail units - same store		3,705		4,122		(417	)	(10.1	)%
New retail units - other stores (1)		-		245		(245	)	*
Fleet units		139		132		7		5.3	%
Total new vehicle units		3,844		4,499		(655	)	(14.6	)%

Used vehicle data:
Retail revenues - same store	$	35,805	$	36,181	$	(376	)	(1.0	)%
Retail revenues - other stores (1)		-		789		(789	)	*
Total used retail revenues		35,805		36,970	$	(1,165	)	(3.2	)%

Wholesale revenues - same store		10,630		10,815		(185	)	(1.7	)%
Wholesale revenues - other stores (1)		-		419		(419	)	*
Total wholesale revenues		10,630		11,234		(604	)	(5.4	)%

Total used vehicle revenue, as reported	$	46,435	$	48,204	$	(1,769	)	(3.7	)%

Used retail units - same store		2,193		2,194		(1	)	(0.0	)%
Used retail units - other stores (1)		-		45		(45	)	*
Used wholesale units - same store		2,135		2,424		(289	)	(11.9	)%
Used wholesale units - other stores (1)		-		59		(59	)	*
Total used units		4,328		4,722		(394	)	(8.3	)%

Parts and service:
Parts and service revenues - same store	$	16,017	$	15,804	$	213		1.3	%
Parts and service revenues - other stores (1)		-		1,507		(1,507	)	*
Total parts and service revenue	$	16,017	$	17,311	$	(1,294	)	(7.5	)%

Other revenues, net:
Other revenues, net - same store	$	5,873	$	5,715	$	158		2.8	%
Other revenues, net - other stores (1)		-		119		(119	)	*
Total other revenues, net, as reported	$	5,873	$	5,834	$	39		0.7	%

Total revenue:
Same store	$	164,144	$	176,706	$	(12,562	)	(7.1	)%
Other stores (1)		-		11,856		(11,856	)	*
Total revenue, as reported	$	164,144	$	188,562	$	(24,418	)	(12.9	)%

(1) Represents the Westwood Lincoln Mercury dealership operations transferred on May 11, 2005.

* - Percentage is 100% or greater.

The percentages used in the revenues discussion below are from the above table.

Total revenue decreased $24.5 million, or 12.9% to $164.1 million for nine months ended September 30, 2006 from $188.6 million for nine months ended September 30, 2005. Same store revenues decreased $12.6 million, or 7.1% to $164.1 million for nine months ended September 30, 2006 from $176.7 million for nine months ended September 30, 2005.

Same store new retail revenues decreased $12.9 million, or 12.2% to $93.0 million for the nine months ended September 30, 2006 from $105.9 million for the nine months ended September 30, 2005. This decrease was primarily attributable to the 10.1% decrease in units ($10.7 million) sold in 2006 compared to 2005 combined with a 2.3% decrease in average revenue per unit sold ($2.2 million) in 2006 compared to 2005. The Nissan dealership has sold more units compared to its predecessor Lincoln Mercury brand and the Mazda dealership was within three units of the 2005 level. All other Hometown dealerships experienced a decrease in unit sales and new retail revenues from 2005 to 2006, with the domestic brands having the largest percentage declines over the prior year. The year to date unit decrease is from both cars and trucks, but the drop off in truck sales continued during the third quarter whereas car sales were consistent with the prior year. The decrease in truck sales contributed to the decrease in the average revenue per unit. This is consistent with national trends. Buyers have been opting for higher gas mileage vehicles and have been buying fewer trucks, including more expensive sport utility vehicles. Lincoln Mercury, Ford, Chrysler and Chevrolet unit sales were down from 16% - 34% from 2005 to 2006. These decreases were in line with decreases at non-Hometown dealerships in Hometown’s area, some of which were larger or smaller than Hometown’s declines. Ford was benefited in 2005 with the Family Plan, which caused an increase in unit sales during the 2005 period. Chevrolet was benefited in 2005 with an employee-pricing program, which caused an increase in unit sales during the 2005 period. Chevrolet did not offer this program during the 2006 period. Toyota unit sales were down nearly 4%, which compares to an approximate 11% increase for non-Hometown dealerships in Hometown’s region. The Hometown dealerships relied heavily on truck and SUV sales and were carrying inventory accordingly. Car sales for Toyota began to increase but the dealerships were not carrying the appropriate vehicle inventory, which caused a reduction in the amount of potential sales. The inventory situation was corrected by the end of the third quarter. Also one Toyota facility has been adversely affected by not having the Scion vehicle available for sale. Fleet revenues increased from 2005 levels, but do not contribute significantly to profits.

Same store used vehicle retail revenues decreased $0.4 million, or 1.0% to $35.8 million for the nine months ended September 30, 2006 from $36.2 million for the nine months ended September 30, 2005. This decrease was due to a 1.0% decrease in average revenue per unit and was primarily due to a decrease at the remaining Lincoln Mercury dealership which experienced a large drop off in traffic in the store that began in the second quarter and continued through the third quarter. Also, the Nissan dealership has not sold as many used vehicle units as the predecessor Lincoln Mercury dealership. This was partially offset by an increase at the Chevrolet dealership due to an increased focus on used vehicle sales vs. new vehicle sales. Also, the Mazda dealership had increased vehicle sales primarily due to a change in management at the dealership that occurred during the third quarter. Same store wholesale revenues decreased $0.2 million, or 1.7% to $10.6 million for the nine months ended September 30, 2006 from $10.8 million for the nine months ended September 30, 2005. A decrease in units was partially offset by an increase in average selling price. High quality vehicles that were taken as trade-ins at the time of new vehicle purchases, were not all sold at retail, necessitating being sold at wholesale, generating higher prices.

Same store parts and service revenues increased $0.2 million or 1.3% to $16.0 million for the nine months ended September 30, 2006 from $15.8 million for the nine months ended September 30, 2005. Increases at the Nissan ($0.5 million) and Mazda ($0.1 million) dealerships were partially offset by decreases at the Chevrolet ($0.1 million) and the remaining Lincoln Mercury ($0.2 million) dealerships. The Nissan dealership has experienced an increase in parts and service revenue since changing from a Lincoln Mercury dealership due to a higher amount of Nissan customers in their area. Mazda also experienced an increase primarily due to continuing to build on its service customer base, as the brand has only been sold by Hometown since 1999. The domestic brands have had decreasing new car sales, which has been causing a decrease in their service customer base making it difficult to increase parts and service revenues.

Same store other dealership revenues increased $0.2 million or 2.8% to $5.9 million for the nine months ended September 30, 2006 from $5.7 million for the nine months ended September 30, 2005. An increase in extended warranty revenues and miscellaneous other revenues were partially offset by a decrease in new vehicle finance revenue (due to a decrease in vehicles sold combined with decreased revenue earned on each financing transaction).

*Gross Profit*		For the Nine Months Ended September 30,						Increase		%
(in thousands, except per vehicle data)		2006			2005			(Decrease)		Change

New vehicle data:
Retail gross profit - same store	$	6,658		$	7,256		$	(598	)	(8.2	)%
Retail gross profit - other stores (1)		-			477			(477	)	*
Total new retail gross profit		6,658			7,733			(1,075	)	(13.9	)%

Fleet gross profit		23			21			2		9.5	%
Total new vehicles gross profit, as reported	$	6,681		$	7,754		$	(1,073	)	(13.8	)%
Gross profit percentage		7.0	%		6.6	%

New retail units - same store		3,705			4,122			(417	)	(10.1	)%
New retail units - other stores (1)		-			245			(245	)	*
Fleet units		139			132			7		5.3	%
Total new vehicle units		3,844			4,499			(655	)	(14.6	)%

Used vehicle data:
Retail gross profit - same store	$	4,518		$	4,170		$	348		8.3	%
Retail gross profit - other stores (1)		-			125			(125	)	*
Total used retail gross profit		4,518			4,295			223		5.2	%

Wholesale gross profit - same store		83			264			(181	)	(68.6	)%
Wholesale gross profit - other stores (1)		-			(6	)		6		*
Total wholesale gross profit		83			258			(175	)	(67.8	)%

Total used vehicle gross profit, as reported	$	4,601		$	4,553		$	48		1.1	%
Gross profit percentage		9.9	%		9.4	%

Used retail units - same store		2,193			2,194			(1	)	0.0	%
Used retail units - other stores (1)		-			45			(45	)	*
Used wholesale units - same store		2,135			2,424			(289	)	(11.9	)%
Used wholesale units - other stores (1)		-			59			(59	)	*
Total used units		4,328			4,722			(394	)	(8.3	)%

Parts and service:
Parts and service gross profit - same store	$	8,550		$	8,563		$	(13	)	(0.2	)%
Parts and service gross profit - other stores (1)		-			863			(863	)	*
Total parts and service revenue	$	8,550		$	9,426		$	(876	)	(9.3	)%
Gross profit percentage		53.4	%		54.5	%

*Gross Profit -(continued)*		For the Nine Months Ended September 30,						Increase
(in thousands, except per vehicle data)		2006			2005			(Decrease)		Change

Other gross profit:
Other gross profit - same store	$	5,873		$	5,715		$	158		2.8	%
Other gross profit - other stores (1)		-			119			(119	)	*
Total other gross profit, as reported	$	5,873		$	5,834		$	39		0.7	%
Gross profit percentage		100.0	%		100.0	%

Other gross profit PVR - same store	$	996		$	905		$	91		10.0	%
Other gross profit PVR - other stores (1)		-			410			(410	)	*
Total other gross profit PVR, as reported	$	996		$	883		$	113		12.8	%

Total gross profit:
Same store	$	25,705		$	25,989		$	(284	)	(1.1	)%
Other stores (1)		-			1,578			(1,578	)	*
Total gross profit, as reported	$	25,705		$	27,567		$	(1,862	)	(6.8	)%
Gross profit percentage		15.7	%		14.6	%

(1) Represents the Westwood Lincoln Mercury dealership operations transferred on May 11, 2005.

* - Percentage is 100% or greater.

The percentages used in the gross profit discussion below are from the above table.

Total gross profit decreased $1.9 million, or 6.8%, to $25.7 million for the nine months ended September 30, 2006, from $27.6 million for the nine months ended September 30, 2005. Same store total gross profit decreased $0.3 million, or 1.1% to $25.7 million for the nine months ended September 30, 2006, from $26.0 million for the nine months ended September 30, 2005. Same store gross profit on new retail vehicle sales decreased $0.6 million, or 8.2%, to $6.7 million for the nine months ended September 30, 2006, from $7.3 million for the nine months ended September 30, 2005. Similar to the decrease in revenues, the decrease in gross profit is primarily attributable to the 10.1% decrease in unit sales discussed in revenues. All dealerships, except Mazda and Toyota, experienced a decrease in new vehicle gross profit in 2006 compared to 2005. Both Mazda and Toyota were able to generate an increase in average gross profit per unit causing the favorable comparison to 2005. Although Nissan revenues were up compared to its predecessor Lincoln Mercury dealership, gross profit was down. Nissan vehicles typically generate a lower gross profit per vehicle than Lincoln Mercury vehicles.

Same store gross profit on used vehicle retail sales increased $0.3 million, or 8.3%, to $4.5 million for the nine months ended September 30, 2006, from $4.2 million for the nine months ended September 30, 2005. The overall increase is attributable to an 8.4% increase in average gross profit per unit. The improvement is similar to the change in revenues discussed above. The majority of the increase was due to the Chevrolet dealership and is primarily due to a change in the incentive pay plan of the used vehicle sales manager whereby his focus is more on used vehicle gross profit. Gross profit on wholesale sales decreased $0.2 million from the prior year period primarily due to a decrease in the wholesale price of trucks and sport utility vehicles.

Same store parts and service gross profit decreased less than $0.1 million or 0.2% remaining at $8.6 million for the nine months ended September 30, 2006 and September 30, 2005. An increase in gross profit due to increases in revenues (discussed above) was offset by a decrease in the gross profit percentage.

Selling, General and Administrative Expenses (“S,G&A”)

S,G&A decreased $1.7 million, or 7.2%, to $21.8 million for the nine months ended September 30, 2006 from $23.5 million for the nine months ended September 30, 2005. This decrease was primarily attributable to the transfer of the Westwood dealership ($1.3 million) in May 2005. On a same store basis, S,G&A decreased $0.4 million, or 1.8%, to $21.8 million for the nine months ended September 30, 2006 from $22.2 million for the nine months ended September 30, 2005. The 2005 period included $0.4 million in costs associated with the Exchange Agreement (see Notes 9 and 10 to the unaudited consolidated financial statements) in excess of the comparable 2006 period. Reductions in payroll and related costs of $0.1 million (due to decreased gross profit on a same store basis) and reductions in policy costs of $0.1 million due to a decrease in vehicles sold and cost per vehicle (see Note 9 - warranties to the unaudited consolidated financial statements) was partially offset by (i) increased advertising costs of $0.2 million (needed to maintain sales levels).

Interest Expense

Interest expense increased $1.5 million to $4.1 million for the nine months ended September 30, 2006 from $2.6 million for the nine months ended September 30, 2005. The increase is primarily due to a $1.0 million prepayment penalty associated with a debt refinancing as part of the Nissan acquisition (see Note 8 to the unaudited consolidated financial statements), and an increase in floorplan interest expense ($0.4 million) resulting from higher interest rates partially offset by decreased borrowings primarily resulting from one less dealership in 2006 compared to 2005.

Other Income

In May 2005, Hometown completed the transfer of certain assets in relation to the settlement of litigation matters resulting in a gain of approximately $587,000 recorded in Other Income. See Note 15 - Commitments and Contingencies - Litigation to December 31, 2005 Form 10-K.

Income tax provision

The effective income tax rate was 41.3% in the nine months ended September 30, 2006 and 40.0% in the same period of 2005. The rates were based on current forecasts of income before taxes, and current forecasts of permanent differences between tax and book income. The rates reflect the expected effective tax rate for the year. Deferred taxes, including the valuation allowance, will be reviewed throughout fiscal 2006.

Net Income

Net income decreased $1.3 million to less than $0.1 million for the nine months ended September 30, 2006, from income of $1.3 million for the nine months ended September 30, 2005 primarily due to the $1.0 million prepayment penalty in 2006 discussed above in Interest Expense above combined with the $0.6 million gain in 2005 discussed above in Other Income. See above for explanation of other changes.

Earnings Per Share, Basic and Diluted and Weighted Average Shares

“Basic earnings per share” is computed by dividing net income by the weighted average common shares outstanding. “Diluted earnings per share” is computed by dividing net income by the weighted average common shares outstanding adjusted for the incremental dilution of potentially dilutive securities. See Note 4 to the unaudited consolidated financial statements.

The basic and diluted income per share for the nine months ended September 30, 2006 and 2005 is $0.01 and $0.20, respectively.

Cyclicality

Hometown’s operations, like the automotive retailing industry in general, are affected by a number of factors relating to general economic conditions, including consumer business cycles, consumer confidence, economic conditions, availability of consumer credit and interest rates. Although the above factors, among others, may affect Hometown’s business, Hometown believes that the impact on Hometown’s operations of future negative trends in such factors will be somewhat mitigated by its (i) strong parts, service and collision repair services, (ii) variable cost salary structure, (iii) geographic regional focus, and (iv) product diversity.

Seasonality

Hometown’s operations are subject to seasonal variations, with the second and third quarters generally contributing more revenues and operating profit than the first and fourth quarters. This seasonality is driven primarily by: (i) Manufacturer related factors, primarily the historical timing of major Manufacturer incentive programs and model changeovers, (ii) weather-related factors and (iii) consumer buying patterns.

Effects of Inflation

Due to the relatively low levels of inflation experienced in the 2006 and 2005 periods, inflation did not have a significant effect on the results of Hometown during those periods.

Liquidity and Capital Resources

The principal sources of liquidity are cash on hand, cash from operations and floor plan financing.

Cash and Cash Equivalents

Total cash and cash equivalents was $6.4 million and $6.5 million at September 30, 2006 and December 31, 2005, respectively.

Cash Flow from Operations

The following table sets forth the consolidated selected information from the unaudited statements of cash flows:

		Nine months ended September 30,
(in thousands)		2006			2005

Net cash provided by operating activities	$	2,471		$	5,310
Net cash (used in) investing activities		(2,403	)		(132	)
Net cash (used in) financing activities		(169	)		(5,473	)

Net (decrease) in cash and cash equivalents	$	(101	)	$	(295	)

For the nine months ended September 30, 2006, net cash provided by operating activities of $2.5 million primarily consists of: (i) net income of less than $0.1 million plus non-cash items of $1.0 million (totaling $1.1 million), (ii) a decrease in inventory of $3.9 million less the decrease in floor plan liability - trade of $1.7 million, and (iii) an increase in accounts payable and accrued expenses of $0.2 million primarily caused by an increase in sales and use tax payments due to an increase in revenues in September 2006 compared to December 2005; partially offset by (i) an increase in accounts receivable of $0.5 million, primarily due to an increase in revenues in September 2006 compared to December 2005 and (ii) an increase in prepaid taxes, expenses and other current assets of $0.5 million, primarily due to prepayments of income taxes, insurance and advertising. Inventory and related floor plan liability (trade and non-trade) decreased $3.9 million and $3.0 million, respectively, due to increased sales that take place in the summer months compared to the winter months. The difference between the two decreases is due to the timing of floorplan payoffs. Net cash used in investing activities of $2.4 million is primarily due to the acquisition of the Nissan franchise ($2.1 million, see Note 8 to the unaudited consolidated financial statements) and $0.3 million of miscellaneous capital expenditures, primarily dealership equipment, signage and leasehold improvements. Net cash used in financing activities of $0.2 million is due to proceeds from long-term borrowings of $7.7 million (primarily used as follows: $2.1 million was used to purchase the Nissan Franchise discussed above, $4.3 million to refinance the Baystate mortgage loan and $1.0 million to pay the prepayment penalty. See Note 8 to the unaudited consolidated financial statements), offset by (i) the net change (decrease) in non-trade floorplan notes payable of $1.4 million (see operating activities discussion above) and (ii) principal payments of long-term debt and capital lease obligations of $6.5 million ($4.3 million of which was to pay off the Baystate loan discussed above which was refinanced with a different bank).

For the nine months ended September 30, 2005, net cash provided from operations of $5.3 million primarily consists of: (i) net income of $1.3 million plus non-cash items of $1.3 million (totaling $2.6 million), (ii) a decrease in inventory of $9.3 million less the decrease in floor plan liability - trade of $5.3 million, (iii) a decrease in accounts receivable of $0.3 million, primarily due to owning one less dealership; partially offset by (iv) a decrease in accounts payable and accrued expenses of $0.9 million, primarily due to payment of litigation settlements and owning one less dealership, (v) an increase in prepaid expenses and other current assets of $0.1 million, (vi) prepaid income taxes of $0.2 million, and (vii) amortization of deferred revenue of $0.5 million. (See Note 2 to the unaudited consolidated financial statements.) Inventory and related floor plan liability (trade and non-trade) decreased due to improved new vehicle inventory management. Net cash used in investing activities of $0.1 million is due to miscellaneous capital expenditures. Net cash used in financing activities of $5.5 million is due to: (i) the net change in non-trade floorplan notes payable of $4.1 million (which decreased due to a similar change in related inventory, see operating activities) and (ii) principal payments of long-term debt and capital lease obligations of $1.6 million; partially offset by proceeds from long-term borrowings of $0.2 million (used to fund the build-out of the corporate office which was built in December 2004) and exercise of stock options (less than $0.1 million).

Capital Expenditures

Capital expenditures for fiscal 2006 are expected to be $0.4 million, consisting primarily of equipment purchases, signage and building and leasehold improvements.

Receivables

Hometown had $4.9 million in accounts receivable, net at September 30, 2006 compared to $4.3 million at December 31, 2005. A substantial portion of those receivables, $2.3 million and $1.8 million as of September 30, 2006 and December 31, 2005, respectively, are due from finance companies that provide or secure financing for customer purchases, and primarily represent contracts-in-transit. These amounts are typically received within seven days of the transaction. Of the remaining amount, $1.5 million and $0.9 million as of September 30, 2006 and December 31, 2005, respectively, represents amounts due from manufactures for such items as warranty claims and incentive reimbursements. These categories increased from December 31, 2005 primarily due to a 31% increase in dealerships revenue in the third quarter of 2006 compared to the fourth quarter of 2005. Also, certain receivables due from manufacturers are due on a quarterly basis. Other receivables, net of the allowance for doubtful accounts, decreased to $0.7 million at September 30, 2006 from $1.2 million at December 31, 2005, primarily due to a decrease of fleet sales receivables at September 30, 2006. Parts and service receivables were $0.4 million as of September 30, 2006 and December 31, 2005.

In assessing our allowance for doubtful accounts, we consider historical losses as well as current performance with respect to past due accounts. The allowance for doubtful accounts is $0.2 million at both September 30, 2006 and December 31, 2005.

Inventories

Hometown had $31.1 million in inventories, net at September 30, 2006 compared to $33.5 million at December 31, 2005. The majority of inventory, $21.6 million and $24.5 million as of September 30, 2006 and December 31, 2005, respectively, is new vehicle inventory. New, used and demonstrator vehicle values are stated at the lower of cost or market, determined on a specific unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Hometown assesses the lower of cost or market reserve requirement for vehicles, on an individual unit basis, taking into consideration historical loss rates, the age and composition of the inventory and current market conditions. The lower of cost or market adjustment was $0.4 million at both September 30, 2006 and December 31, 2005.

Floor Plan Financing

See Note 7 to the unaudited consolidated financial statements.

Long-Term Debt and Capital Lease Obligations

See Note 8 to the unaudited consolidated financial statements.

Commitments and Contingencies

See Note 9 to the unaudited consolidated financial statements.

Forward Looking Statement

When used in the amended Quarterly Report on Form 10Q, the words “may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act regarding events, conditions and financial trends that may affect Hometown’s future plans of operations, business strategy, results of operations and financial condition. Hometown wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors including the ability of Hometown to consummate, and the terms of, acquisitions. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth herein and others set forth from time to time in Hometown’s reports and registration statements filed with the Securities and Exchange Commission (the “Commission”). Hometown disclaims any intent or obligation to update such forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on our amounts outstanding under our floor plan financing arrangement, which bears interest at variable rates based on the prime or LIBOR borrowing rates. Based on floor plan amounts (trade and non-trade) outstanding at September 30, 2006 of $30.0 million, a 1% change in the prime rate would result in a $0.3 million change to annual floor plan interest expense.

At September 30, 2006, Hometown invested $4.5 million of excess cash, of which $0.8 million was invested in money market accounts paying a weighted average interest rate of 4.87% at September 30, 2006, and $3.7 million was invested in a Ford Motor Credit Company cash management account paying interest of 9.25% at September 30, 2006. The cash management account interest rate is tied to the rate charged on Hometown’s floor plan financing arrangement.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to use its judgment in evaluating the cost to benefit relationship of possible controls and procedures.

At September 30, 2006, management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation and subject to the foregoing, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective to accomplish their objectives.

There have been no significant changes in our internal controls over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 - Commitments and Contingencies - Litigation, to the notes to the unaudited consolidated financial statements.

ITEM 1A. RISK FACTORS

See Hometown’s annual report on Form 10-K for the year ended December 31, 2005 for a description of Risk Factors. There has been no material change in risk factors since that filing.

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

NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS

31.1 Chief Executive Officer Certification

31.2

Chief Financial Officer Certification

32.1

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

		Hometown Auto Retailers, Inc.

November 10, 2006		By: /s/ Corey E. Shaker
Date		Corey E. Shaker
		President and Chief Executive Officer

November 10, 2006		By: /s/ Charles F. Schwartz
Date		Charles F. Schwartz
		Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Hometown Auto Retailers Inactive 10-Q2006 Q3 Quarterly report

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