CONSUMER PORTFOLIO SERVICES INC - 10-K Annual Report

Back to GetFilings.com

1
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

Commission File Number: 1-14116

CONSUMER PORTFOLIO SERVICES, INC.
(Exact name of registrant as specified in its charter)

CALIFORNIA 33-0459135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

16355 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92618
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (949) 753-6800

Securities registered pursuant to section 12(b) of the Act:
Title of each class: RISING INTEREST SUBORDINATED REDEEMABLE
SECURITIES DUE 2006 10.50% PARTICIPATING EQUITY NOTES DUE 2004
Name of each exchange on which registered: New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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 if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value on March 28, 2000 (based on the $1.875 per share
closing price on the Nasdaq Stock Market on that date) of the voting stock
beneficially held by non-affiliates of the registrant was $25,788,048. The
number of shares of the registrant's Common Stock outstanding on March 28, 2000,
was 20,211,001.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's proxy statement for its 2000 annual meeting of shareholders is
incorporated by reference into Part III of this report.

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

2

PART I

ITEM 1. BUSINESS

General

Consumer Portfolio Services, Inc. ("CPS," and together with its subsidiaries,
the "Company") is a consumer finance company specializing in the business of
purchasing, selling and servicing retail automobile installment contracts
("Contracts") originated by licensed motor vehicle dealers ("Dealers") in the
sale of new and used automobiles, light trucks and passenger vans. Through its
purchases, the Company provides indirect financing to Dealer customers with
limited credit histories, low incomes or past credit problems ("Sub-Prime
Customers"). The Company serves as an alternative source of financing for
Dealers, allowing sales to customers who otherwise might not be able to obtain
financing. The Company does not lend money directly to consumers. Rather, it
purchases installment Contracts from Dealers.

CPS was incorporated and began its operations in 1991. From inception through
December 31, 1999 the Company has purchased approximately $2.8 billion of
Contracts, and as of December 31, 1999, had an outstanding servicing portfolio
of approximately $821.0 million. The Company makes the decision to purchase
Contracts exclusively from its headquarters location. It obtains the funds for
such purchases by reselling such Contracts on a daily basis to unaffiliated
parties. The Company services the Contracts from two regional centers, one in
its California headquarters, and the other in Virginia.

The Market We Serve

The Company's automobile financing programs are designed to serve customers who
generally would not qualify for automobile financing from traditional sources,
such as commercial banks, credit unions and the captive finance companies
affiliated with major automobile manufacturers. Such customers ("Sub-Prime
Customers") generally have limited credit histories, low incomes or past credit
problems, and are therefore often unable to obtain credit from traditional
sources of automobile financing. (The terms "prime" and "sub-prime" reflect the
Company's categorization of customers and bear no relationship to the prime rate
of interest or persons who are able to borrow at that rate.) Because the Company
serves customers who are unable to meet the credit standards imposed by most
traditional automobile financing sources, the Company generally receives
interest at rates higher than those charged by traditional automobile financing
sources. The Company also sustains a higher level of credit losses than
traditional automobile financing sources since the Company provides financing in
a relatively high risk market.

Marketing

The Company directs its marketing efforts to Dealers, rather than to consumers.
As of December 31, 1999, the Company was a party to its standard form dealer
agreements ("Dealer Agreements") with 3,489 Dealers. Approximately 95% of these
Dealers are franchised new car dealers that sell both new and used cars and the
remainder are independent used car dealers. For the year ended December 31,
1999, approximately 85% of the Contracts purchased by the Company consisted of
financing for used cars and the remaining 15% for new cars, as compared to 92%
new and 8% used in the year ended December 31, 1998.

The Company establishes relationships with Dealers through Company
representatives who contact a prospective Dealer to explain the Company's
Contract purchase programs, and who and thereafter provide Dealer training and
support services. As of December 31, 1999, the Company had 42 representatives,
39 of whom are employees and 3 of whom are independent. The representatives are
contractually obligated to represent the Company's financing program
exclusively. The Company's representatives present the

2
3

Dealer with a marketing package, which includes the Company's promotional
material containing the terms offered by the Company for the purchase of
Contracts, a copy of the Company's standard-form Dealer Agreement, examples of
monthly reports, and required documentation relating to Contracts. Marketing
representatives have no authority relating to the decision to purchase Contracts
from Dealers.

Most of the Dealers under contract with CPS regularly submit Contracts to the
Company for purchase, although they are under no obligation to submit any
Contracts to the Company, nor is the Company obligated to purchase any
Contracts. During the year ended December 31, 1999, no Dealer accounted for more
than 1.0% of the total number of Contracts purchased by the Company. The
following table sets forth the geographical sources of the Contracts purchased
by the Company (based on the addresses of the customers as stated on the
Company's records) during the years ended December 31, 1999 and December 31,
1998:

Contracts Purchased During The Year Ended
-------------------------------------------------------------------
December 31, 1999 December 31, 1998
---------------------------- ----------------------------
Number Percent Number Percent
------ ------- ------ -------

California 4,446 15.2% 13,960 16.7%
Texas 2,383 8.2% 5,193 6.2%
Pennsylvania 2,336 8.0% 4,239 5.1%
North Carolina 2,298 7.9% 5,304 6.3%
Alabama 1,942 6.6% 4,707 5.6%
Michigan 1,915 6.6% 4,119 4.9%
Florida 1,856 6.3% 5,832 7.0%
Louisiana 1,728 5.9% 4,355 5.2%
Hawaii 1,037 3.5% 1,585 1.9%
New York 928 3.2% 2,690 3.2%
South Carolina 884 3.0% 2,152 2.6%
Washington 771 2.6% 1,436 1.7%
Maryland 733 2.5% 1,859 2.2%
Illinois 615 2.1% 3,808 4.6%
Ohio 629 2.1% 1,768 2.1%
Other States 4,766 16.3% 20,560 24.7%
======== ========
Total 29,267 83,567
======== ========

Origination of Contracts

Dealer Origination. When a retail automobile buyer elects to obtain financing
from a Dealer, the Dealer takes a credit application to submit to its financing
sources. Typically, a Dealer will submit the buyer's application to more than
one financing source for review. The Company believes the Dealer's decision to
finance the automobile purchase with the Company, rather than other financing
sources, is based primarily on the monthly payment that will be offered to the
automobile buyer, the discounted purchase price offered for the Contract, the
timeliness, consistency and predictability of response, the cash resources of
the financing source, and any conditions to purchase.

Upon receipt of an application from a Dealer, the Company's administrative
personnel order a credit report to document the buyer's credit history. If, upon
review by a Company loan officer, it is determined that the application meets
the Company's underwriting criteria, or would meet such criteria with
modification, the Company requests and reviews further information and
supporting documentation and, ultimately, decides whether to purchase the
Contract. When presented with an application, the Company attempts to notify the
Dealer within four hours as to whether it intends to purchase such Contract.

The actual agreement for purchase of the vehicle ("Contract") is prepared by the
Dealer. The Dealer also arranges for recording the Company's lien on the
vehicle. After the appropriate documents are signed by

3
4

the Dealer and the customer, the Dealer sells the Contract to the Company. The
Company currently sells all Contracts that it purchases, and plans to hold
Contracts for its own account in the future. In either case, the customer then
receives monthly billing statements.

The Company purchases Contracts from Dealers at a price generally equal to the
total amount financed under the Contracts, reduced by an acquisition fee ranging
from zero to $1,195 for each Contract purchased. The fees vary based on the
perceived credit risk and, in some cases, the interest rate on the Contract. For
the years ended December 31, 1999, 1998 and 1997, the average amount charged per
Contract purchased was $336, $418 and $438, respectively, or 2.32%, 3.24% and
3.5%, respectively, of the amount financed. In addition, during 1998 the Company
began purchasing certain Contracts of higher credit quality for which the
Company pays a fee to the Dealer. During 1999 and 1998, respectively, the
Company purchased 2,161 and 1,583 of these Contracts, representing approximately
7.4% and 1.9% of all Contracts purchased. The average fee paid to Dealers on
these Contracts was $568 and $531, respectively.

The Company attempts to control misrepresentation regarding the customer's
credit worthiness by carefully screening the Contracts it purchases, by
establishing and maintaining professional business relationships with Dealers,
and by including certain representations and warranties by the Dealer in the
Dealer Agreement. Pursuant to the Dealer Agreement, the Company may require the
Dealer to repurchase any Contract in the event that the Dealer breaches its
representations or warranties. There can be no assurance, however, that any
Dealer will have the financial resources to satisfy its repurchase obligations
to the Company.

Objective Contract Purchase Criteria. To be eligible for purchase by the
Company, a Contract must have been originated by a Dealer that has entered into
a Dealer Agreement to sell Contracts to the Company. The Contracts must be
secured by a first priority lien on a new or used automobile, light truck or
passenger van and must meet the Company's underwriting criteria. In addition,
each Contract requires the customer to maintain physical damage insurance
covering the financed vehicle and naming the Company as a loss payee. The
Company or any purchaser of the Contract from the Company may, nonetheless,
suffer a loss upon theft or physical damage of any financed vehicle if the
customer fails to maintain insurance as required by the Contract and is unable
to pay for repairs to or replacement of the vehicle or is otherwise unable to
fulfill his or her obligations under the Contract.

The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Sub-Prime Customers and the
adequacy of the financed vehicle as security for a Contract. These criteria
include standards for price, term, amount of down payment, installment payment
and add-on interest rate; mileage, age and type of vehicle; principal amount of
the Contract in relation to the value of the vehicle; customer income level, job
and residence stability, credit history and debt serviceability; and other
factors. Specifically, the Company's guidelines limit the maximum principal
amount of a purchased Contract to 115% of wholesale book value in the case of
used vehicles or to 110% of the manufacturer's invoice in the case of new
vehicles, plus, in each case, sales tax, licensing and, when the customer
purchases such additional items, a service contract or a credit life or
disability policy. The Company does not finance vehicles that are more than
eight model years old or have in excess of 85,000 miles. Under most CPS
programs, the maximum term of a purchased Contract is 60 months; a shorter
maximum term may be applied based on the year and mileage of the vehicle, and
contracts with terms up to 72 months may be purchased if the customer is among
the more creditworthy of CPS's obligors. Contract purchase criteria are subject
to change from time to time as circumstances may warrant. Upon receiving this
information with the customer's application, the Company's underwriters verify
the customer's employment, residency, insurance and credit information provided
by the customer by contacting various parties noted on the customer's
application, credit information bureaus and other sources.

4
5

Credit Scoring. Since November 1996 the Company has used a proprietary scoring
model that assigns each Contract a numeric value (a "credit score") at the time
the application is received from the Dealer and the customer's credit
information is retrieved from the credit reporting agencies. The credit score is
based on a variety of parameters, such as the customer's job and residence
stability, the amount of the down payment, and the age and mileage of the
vehicle. The Company has developed the credit score as a means of improving its
allocation of credit evaluation resources, and managing the risk inherent in the
sub-prime market.

Characteristics of Contracts. All of the Contracts purchased by the Company are
fully amortizing and provide for level payments over the term of the Contract.
The average original principal amount financed under Contracts purchased in the
year ended December 31, 1999 was approximately $14,513 with an average original
term of approximately 61 months and an average down payment of 13.2%. Based on
information contained in customer applications, for this twelve-month period,
the retail purchase price of the related automobiles averaged $14,716 (which
excludes tax and license fees, and any additional costs such as a maintenance
contract), the average age of the vehicle at the time the Contract was purchased
was 3 years, and the Company's average customer at the time of purchase was
approximately 37 years old, with approximately $35,009 in average annual
household income and an average of 4.9 years' history with his or her current
employer.

All Contracts may be prepaid at any time without penalty. In the event a
customer elects to prepay a Contract in full, the payoff amount is calculated by
deducting the unearned interest from the Contract balance, in the case of a
pre-computed Contract, or by adding accrued interest to the Contract balance, in
the case of a simple interest Contract.

Each Contract purchased by the Company prohibits the sale or transfer of the
financed vehicle without the Company's consent and allows for the acceleration
of the maturity of a Contract upon a sale or transfer without such consent. In
most circumstances, the Company will not consent to a sale or transfer of a
financed vehicle unless the related Contract is prepaid in full.

Dealer Compliance. The Dealer Agreement and related assignment contain
representations and warranties by the Dealer that an application for state
registration of each financed vehicle, naming the Company as secured party with
respect to the vehicle, was effected at the time of sale of the related Contract
to the Company, and that all necessary steps have been taken to obtain a
perfected first priority security interest in each financed vehicle in favor of
the Company under the laws of the state in which the financed vehicle is
registered. If a Dealer or the Company, because of clerical error or otherwise,
has failed to take such action in a timely manner, or to maintain such interest
with respect to a financed vehicle, neither the Company nor any purchaser of the
related Contract from the Company would have a perfected security interest in
the financed vehicle and its security interest may be subordinate to the
interest of, among others, subsequent purchasers of the financed vehicle,
holders of perfected security interests and a trustee in bankruptcy of the
customer. The security interest of the Company or the purchaser of a Contract
may also be subordinate to the interests of third parties if the interest is not
perfected due to administrative error by state recording officials. Moreover,
fraud or forgery by the customer could render a Contract unenforceable against
third parties. In such events, the Company could suffer a loss with respect to
the related Contract. In the event the Company suffers such a loss, it will
generally have recourse against the Dealer from which it purchased the Contract.
This recourse will be unsecured, and there can be no assurance that any Dealer
will have the financial resources to satisfy its repurchase obligations to the
Company.

Servicing of Contracts

General. The Company's servicing activities consist of collecting, accounting
for and posting of all payments received; responding to customer inquiries;
taking all necessary action to maintain the security interest granted in the
financed vehicle or other collateral; investigating delinquencies; communicating

5
6

with the customer to obtain timely payments; repossessing and liquidating the
collateral when necessary; and generally monitoring each Contract and any
related collateral.

Collection Procedures. The Company believes that its ability to monitor
performance and collect payments owed from Sub-Prime Customers is primarily a
function of its collection approach and support systems. The Company believes
that if payment problems are identified early and the Company's collection staff
works closely with customers to address these problems, it is possible to
correct many of them before they deteriorate further. To this end, the Company
utilizes pro-active collection procedures, which include making early and
frequent contact with delinquent customers; educating customers as to the
importance of maintaining good credit; and employing a consultative and customer
service approach to assist the customer in meeting his or her obligations, which
includes attempting to identify the underlying causes of delinquency and cure
them whenever possible. In support of its collection activities, the Company
maintains a computerized collection system specifically designed to service
automobile installment sale contracts with Sub-Prime Customers and similar
consumer obligations.

With the aid of its high penetration auto dialer, the Company typically attempts
to make telephonic contact with delinquent customers on the sixth day after
their monthly payment due date. Using coded instructions from a collection
supervisor, the automatic dialer will attempt to contact customers based on
their physical location, state of delinquency, size of balance or other
parameters. If the automatic dialer obtains a "no-answer" or a busy signal, it
records the attempt on the customer's record and moves on to the next call. If a
live voice answers the automatic dialer's call, the call is transferred to a
waiting collector at the same time that the customer's pertinent information is
simultaneously displayed on the collector's workstation. The collector then
inquires of the customer the reason for the delinquency and when the Company can
expect to receive the payment. The collector will attempt to get the customer to
make a promise for the delinquent payment for a time generally not to exceed one
week from the date of the call. If the customer makes such a promise, the
account is routed to a pending queue and is not contacted until the outcome of
the promise is known. If the payment is made by the promise date and the account
is no longer delinquent, the account is routed out of the collection system. If
the payment is not made, or if the payment is made, but the account remains
delinquent, the account is returned to the automatic dialing queue for
subsequent contacts.

If a customer fails to make or keep promises for payments, or if the customer is
uncooperative or attempts to evade contact or hide the vehicle, a supervisor
will review the collection activity relating to the account to determine if
repossession of the vehicle is warranted. Generally, such a decision will occur
between the 45th and 90th day past the customer's payment due date, but could
occur sooner or later, depending on the specific circumstances.

If CPS elects to repossess the vehicle, it assigns the task to an independent
local repossession service. Such services are licensed and/or bonded as required
by law. When the vehicle is recovered, the repossessor delivers it to a
wholesale auto auction, where it is kept until sold, usually within 30 days of
the repossession. The UCC and other state laws regulate repossession sales by
requiring that the secured party provide the customer with reasonable notice of
the date, time and place of any public sale of the collateral, the date after
which any private sale of the collateral may be held and of the customer's right
to redeem the financed vehicle prior to any such sale and by providing that any
such sale be conducted in a commercially reasonable manner. Financed vehicles
repossessed generally are resold by the Company through unaffiliated automobile
auctions, which are attended principally by car dealers. Net liquidation
proceeds are applied to the customer's outstanding obligation under the
Contract.

Under the UCC and other laws applicable in most states, a creditor is entitled
to obtain a deficiency judgment from a customer for any deficiency on
repossession and resale of the motor vehicle securing the unpaid balance of such
customer's Contract. However, some states impose prohibitions or limitations on
deficiency judgments. When obtained, deficiency judgements are entered against
defaulting individuals

6
7

who may have little capital or income. Therefore, in many cases, it may not be
useful to seek a deficiency judgment against a customer or, if one is obtained,
it may be settled at a significant discount.

Credit Experience

The Company's financial results are dependent on the performance of the
Contracts in which it retains an ownership interest. The tables below document
the delinquency, repossession and net credit loss experience of all Contracts
that the Company was servicing as of the respective dates shown.

DELINQUENCY EXPERIENCE (1)

December 31, 1999 December 31, 1998 December 31, 1997
----------------------- ----------------------- -----------------------
Number Number Number
Of of Of
Contracts Amount Contracts Amount Contracts Amount
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)

Gross servicing portfolio (1) ...................... 92,388 $ 868,797 141,396 $1,674,417 83,414 $1,031,573
Period of delinquency (2)
31-60 days ......................................... 2,781 26,204 4,202 48,324 3,092 36,609
61-90 days ......................................... 1,130 11,226 1,869 22,335 1,243 15,303
91+ days ........................................... 652 6,997 1,694 20,096 1,393 17,869
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies(2) ............................. 4,563 44,427 7,765 90,755 5,728 69,781
Amount in repossession (3) ......................... 3,424 28,896 2,961 32,772 1,977 24,463
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies and amount in repossession (2) . 7,987 $ 73,323 10,726 $ 123,527 7,705 $ 94,244
========== ========== ========== ========== ========== ==========
Delinquencies as a percent of gross
servicing portfolio ................................ 4.9% 5.1% 5.5% 5.4% 6.9% 6.8%

Total delinquencies and amount in repossession as a
percent of gross servicing portfolio ............... 8.7% 8.4% 7.6% 7.4% 9.2% 9.1%

(1) All amounts and percentages are based on the full amount remaining to be
repaid on each Contract, including, for pre-computed Contracts, any
unearned finance charges. The information in the table represents the
principal amount of all Contracts purchased by the Company, including
Contracts subsequently sold by the Company, which it continues to
service.

(2) The Company considers a Contract delinquent when an obligor fails to
make at least 90% of a contractually due payment by the following due
date, which date may have been extended within limits specified in the
Servicing Agreements. The period of delinquency is based on the number
of days payments are contractually past due. Contracts less than 31 days
delinquent are not included.

(3) Amount in repossession represents financed vehicles that have been
repossessed but not yet liquidated.

7
8

NET CHARGE-OFF EXPERIENCE(1)

Year Ended December 31,
----------------------------------------------
(Dollars in thousands)
1999 1998 1997
------------ ------------ ------------

Average servicing portfolio outstanding .......... $ 1,223,238 $ 1,300,519 $ 703,100
Net charge-offs as a percent of
average servicing portfolio (2) (3) .............. 9.2% 6.5% 5.9%

(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents all
Contracts serviced by the Company.

(2) Net charge-offs include the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle
(excluding accrued and unpaid interest).

(3) The increase in net charge-offs as a percent of the average servicing
portfolio is due to the decrease in the servicing portfolio combined
with an increase in total charge-offs for the year ended December 31,
1999, compared to the prior year. The increase in charge-offs is due to
the seasoning of those Contracts securitized during 1998.

Flow Purchase Program

From May 1999 through the date of this report, the Company has purchased
Contracts only for immediate and outright resale to non-affiliated third
parties. The Company sells such Contracts for a mark-up above what the Company
pays the Dealer. In such sales, the Company makes certain representations and
warranties to the purchasers, normal in the industry, which relate primarily to
the legality of the sale of the underlying motor vehicle and to the validity of
the security interest that is being conveyed to the purchaser. These
representations and warranties are generally similar to the representations and
warranties given by the originating Dealer to the Company. In the event of a
breach of such representations or warranties, the Company may incur liabilities
in favor of the purchaser(s) of the Contracts and there can be no assurance that
the Company would be able to recover, in turn, against the originating
Dealer(s).

Liquidation of Non-securitized Portfolio

From June 1994 through November 1998, substantially all Contracts that the
Company purchased were sold in securitization transactions, as described below.
In March 1999 the Company learned that it would not be able to close a
securitization transaction for an indefinite period. The Company's "warehouse"
lines of credit, under which the Company had drawn funds to acquire Contracts,
by their terms set a limit on how long any Contract could be considered eligible
collateral thereunder. Because the Company was unable to sell Contracts in a
securitization transaction, those time limits were exceeded, and the Company
fell into default on those lines of credit. In order to repay the outstanding
indebtedness the Company embarked on a program of selling outright, to
non-affiliated third parties, substantially all of such Contracts. A total of
approximately $318.0 million of Contracts were sold from June 1999 through
September 1999, yielding sufficient proceeds to repay all of the warehouse
indebtedness. All of such sales were at prices less than the Company's
acquisition cost of such Contracts; accordingly, the Company recorded a net loss
in the approximate aggregate amount of $15.2 million on such sales. The Company
has no intention or expectation of again selling quantities of Contracts at less
than their acquisition cost.

8
9

Securitization and Sale of Contracts

The Company currently purchases Contracts for immediate and outright resale to
non-affiliated third parties. In the past the Company purchased Contracts with
the intention and expectation of reselling them in securitization transactions.
The Company intends to again sell Contracts in securitization transactions,
although there can be no assurance that such future transactions will occur.

In a securitization sale, the Company is required to make certain
representations and warranties, which are generally similar to the
representations and warranties made by Dealers in connection with the Company's
purchase of the Contracts. If the Company breaches any of its representations or
warranties to a purchaser of the Contracts, the Company will be obligated to
repurchase the Contract from such purchaser at a price equal to such purchaser's
purchase price less the related cash securitization reserve and any payments
received by such purchaser on the Contract. The Company may then be entitled
under the terms of its Dealer Agreement to require the selling Dealer to
repurchase the Contract at a price equal to the Company's purchase price, less
any payments made by the customer. Subject to any recourse against Dealers, the
Company will bear the risk of loss on repossession and resale of vehicles under
Contracts repurchased by it.

Upon the sale of a portfolio of Contracts in a securitization transaction, the
Company retains the obligation to service the Contracts, and receives a monthly
fee for doing so. Among other services performed, the Company mails to obligors
monthly billing statements directing them to mail payments on the Contracts to a
lock-box account. The Company engages an independent lock-box processing agent
to retrieve and process payments received in the lock-box account. This results
in a daily deposit to the trust's bank account of the entire amount of each
day's lock-box receipts and the simultaneous electronic data transfer to the
Company of customer payment data records. Pursuant to the Servicing Agreements,
the Company is required to deliver monthly reports to the trust reflecting all
transaction activity with respect to the Contracts. The reports contain, among
other information, a reconciliation of the change in the aggregate principal
balance of the Contracts in the portfolio to the amounts deposited into the
trust's bank account as reflected in the daily reports of the lock-box
processing agent.

Pursuant to its securitization purchase commitments, the Company generally
warrants that, to the best of the Company's knowledge, no such liens or claims
are pending or threatened with respect to a financed vehicle, which may be or
become prior to or equal with the lien of the related Contracts. In the event
that any of the Company's representations or warranties proves to be incorrect,
the trust would be entitled to require the Company to repurchase the Contract
relating to such financed vehicle.

The Servicing Portfolio

The Company currently services all Contracts that it owns, as well as those
Contracts included in portfolios that it has sold to securitization trusts. The
Company does not service Contracts that were acquired in its flow purchase
program or that were sold in its Contract liquidation program. Pursuant to the
Company's usual form of servicing agreement (the Company's servicing agreements
with purchasers of portfolios of Contracts are collectively referred to as the
"Servicing Agreements"), CPS is obligated to service all Contracts sold to the
trusts in accordance with the Company's standard procedures. The Servicing
Agreements generally provide that the Company will bear all costs and expenses
incurred in connection with the management, administration and collection of the
Contracts serviced. The Servicing Agreements also provide that the Company will
take all actions necessary or reasonably requested by the investor to maintain
perfection and priority of the trust's security interest in the financed
vehicles.

The Company is entitled under most of the Servicing Agreements to receive a base
monthly servicing fee of 2.0% per annum computed as a percentage of the
declining outstanding principal balance of the non-defaulted Contracts in the
portfolio. Each month, after payment of the Company's base monthly servicing

9
10

fee and certain other fees, the trust receives the paid principal reduction of
the Contracts in its portfolios and interest thereon at the fixed rate that was
agreed when the Contracts were sold to the Trust. If, in any month, collections
on the Contracts are insufficient to pay such amounts and any principal
reduction due to charge-offs, the shortfall is satisfied from the "Spread
Account" established in connection with the sale of the portfolio. The "Spread
Account" is an account established at the time the Company sells a portfolio of
Contracts, to provide security to the purchase of the portfolio. If collections
on the Contracts exceed such amounts, the excess is utilized, first, to build up
or replenish the Spread Account to the extent required, next, to cover
deficiencies in Spread Accounts for other portfolios, and the balance, if any,
constitutes excess cash flows, which are distributed to the Company.
The Servicing Agreements also provide that the Company is entitled to receive
certain late fees collected from customers.

Pursuant to the Servicing Agreements, the Company is generally required to
charge off the balance of any Contract by the earlier of the end of the month in
which the Contract becomes five scheduled installments past due or, in the case
of repossessions, the month that the proceeds from the liquidation of the
financed vehicle are received by the Company or if the vehicle has been in
repossession inventory for more than 90 days. In the case of a repossession, the
amount of the charge-off is the difference between the outstanding principal
balance of the defaulted Contract and the net repossession sale proceeds. In the
event collections on the Contracts are not sufficient to pay to the holders of
interests in the trust ("Investors") the entire principal balance of Contracts
charged off during the month, the trustee draws on the related Spread Account to
pay the Investors. The amount drawn would then have to be restored to the Spread
Account from future collections on the Contracts remaining in the portfolio
before the Company would again be entitled to receive excess cash. In addition,
the Company would not be entitled to receive any further monthly servicing fees
with respect to the defaulted Contracts. Subject to any recourse against the
Company in the event of a breach of the Company's representations and warranties
with respect to any Contracts and after any recourse to any insurer guarantees
backing the Certificates, the Investors bear the risk of all charge-offs on the
Contracts in excess of the Spread Account. The Investors' rights with respect to
distributions from the Trusts are senior to the Company's rights. Accordingly,
variation in performance of pools of Contracts affects the Company's ultimate
realization of value derived from such Contracts.

The Servicing Agreements are terminable by the insurer of certain of the trust's
obligations in the event of certain defaults by the Company and under certain
other circumstances. As of December 31, 1999, 7 of the Company's 22 securitized
pools had incurred cumulative losses exceeding certain predetermined levels,
which in turn has given the certificate insurer the right to terminate the
Servicing Agreements with respect to all of the pools. To date, the certificate
insurer has waived its right to terminate the Servicing Agreements.

Competition

The automobile financing business is highly competitive. The Company competes
with a number of national, local and regional finance companies with operations
similar to those of the Company. In addition, competitors or potential
competitors include other types of financial services companies, such as
commercial banks, savings and loan associations, leasing companies, credit
unions providing retail loan financing and lease financing for new and used
vehicles, and captive finance companies affiliated with major automobile
manufacturers such as General Motors Acceptance Corporation, Ford Motor Credit
Corporation, Chrysler Credit Corporation and Nissan Motors Acceptance
Corporation. Many of the Company's competitors and potential competitors possess
substantially greater financial, marketing, technical, personnel and other
resources than the Company. Moreover, the Company's future profitability will be
directly related to the availability and cost of its capital in relation to the
availability and cost of capital to its competitors. The Company's competitors
and potential competitors include far larger, more established companies that
have access to capital markets for unsecured commercial paper and investment
grade-rated debt instruments and to other funding sources which may be
unavailable to the Company.

10
11

Many of these companies also have long-standing relationships with Dealers and
may provide other financing to Dealers, including floor plan financing for the
Dealers' purchase of automobiles from manufacturers, which is not offered by the
Company. The Company believes that the principal competitive factors affecting a
Dealer's decision to offer Contracts for sale to a particular financing source
are the purchase price offered for the Contracts, the reasonableness of the
financing source's underwriting guidelines and documentation requests, the
predictability and timeliness of purchases and the financial stability of the
funding source. The Company believes that it can obtain from Dealers sufficient
Contracts for purchase at attractive prices by consistently applying reasonable
underwriting criteria and making timely purchases of qualifying Contracts.

Government Regulation

Several federal and state consumer protection laws, including the federal
Truth-In-Lending Act, the federal Equal Credit Opportunity Act, the federal Fair
Debt Collection Practices Act and the federal Trade Commission Act, regulate the
extension of credit in consumer credit transactions. These laws mandate certain
disclosures with respect to finance charges on Contracts and impose certain
other restrictions on Dealers. In many states, a license is required to engage
in the business of purchasing Contracts from Dealers. In addition, laws in a
number of states impose limitations on the amount of finance charges that may be
charged by Dealers on credit sales. The so-called Lemon Laws enacted by the
Federal government and various states provide certain rights to purchasers with
respect to motor vehicles that fail to satisfy express warranties. The
application of Lemon Laws or violation of such other Federal and state laws may
give rise to a claim or defense of a customer against a Dealer and its
assignees, including the Company and purchasers of Contracts from the Company.
The Dealer Agreement contains representations by the Dealer that, as of the date
of assignment of Contracts, no such claims or defenses have been asserted or
threatened with respect to the Contracts and that all requirements of such
Federal and state laws have been complied with in all material respects.
Although a Dealer would be obligated to repurchase Contracts that involve a
breach of such warranty, there can be no assurance that the Dealer will have the
financial resources to satisfy its repurchase obligations to the Company.
Certain of these laws also regulate the Company's servicing activities,
including its methods of collection.

Although the Company believes that it is currently in material compliance with
applicable statutes and regulations, there can be no assurance that the Company
will be able to maintain such compliance. The past or future failure to comply
with such statutes and regulations could have a material adverse effect upon the
Company. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations or the expansion of the Company's business into jurisdictions that
have adopted more stringent regulatory requirements than those in which the
Company currently conducts business could have a material adverse effect upon
the Company. In addition, due to the consumer-oriented nature of the industry in
which the Company operates and the application of certain laws and regulations,
industry participants are regularly named as defendants in litigation involving
alleged violations of Federal and state laws and regulations and consumer law
torts, including fraud. Many of these actions involve alleged violations of
consumer protection laws. A significant judgment against the Company or within
the industry in connection with any such litigation could have a material
adverse effect on the Company's financial condition, results of operations or
liquidity. See "Legal Proceedings."

Alternative Marketing Programs

From 1996 through 1998, the Company invested in a 80 percent-owned subsidiary,
Samco Acceptance Corporation ("Samco"), which pursued a business strategy of
purchasing Contracts from independent finance companies that had in turn
purchased the Contracts from Dealers. The Contracts purchased from Samco showed
consistently higher losses than Contracts purchased by CPS directly from
Dealers. In

11
12

December 1998, the Company ceased further investments in Samco, and Samco
terminated all operations during the first quarter of 1999. The Company believes
that any credit losses related to Samco-originated Contracts have been
adequately reserved for, and that no material losses will result from Samco's
terminated operations.

In May 1996, CPS formed LINC Acceptance Corp. ("LINC"), an 80 percent-owned
subsidiary based in Norwalk, Connecticut. LINC offered the Company's sub-prime
auto finance products to credit unions, banks and savings institutions
("Depository Institutions"). The Company believes that Depository Institutions
do not generally make loans to Sub-Prime Customers, even though they may have
relationships with Dealers and have Sub-Prime Customers.

During the second quarter of 1999, the Company ceased to provide additional
funding to LINC in conjunction with the Company's plan to reduce the level of
Contract purchases and thus to decrease its capital requirements. LINC thereupon
ceased its operations. In November 1999 three former employees of LINC filed an
involuntary Chapter 7 (liquidation) bankruptcy petition against LINC. See "Legal
Proceedings." See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."

Employees

As of December 31, 1999, the Company had 523 full-time and 3 part-time
employees, of whom 10 are senior management personnel, 298 are collections
personnel, 97 are Contract origination personnel, 47 are marketing personnel (41
of whom are marketing representatives), 57 are operations and systems personnel,
and 37 are administrative personnel. The Company believes that its relations
with its employees are good. The Company is not a party to any collective
bargaining agreement.

ITEM 2. PROPERTY

The Company's headquarters are located in Irvine, California, where it leases
approximately 115,000 square feet of general office space from an unaffiliated
lessor. The annual rent is approximately $1.9 million for the first five years
of the lease term, and increases to $2.1 million for years six through ten. The
Company has the option to cancel the lease after five years without penalty. In
addition to the foregoing base rent, the Company has agreed to pay the property
taxes, maintenance and other expenses of the premises. Prior to November 1998,
the Company's headquarters were located in a different facility of approximately
51,400 square feet, also in Irvine, California. The Company has subleased its
former headquarters location, on terms that should yield immaterial sublease
income through the remainder of that lease.

The Company in March 1997 established a branch collection facility in
Chesapeake, Virginia. The Company leases approximately 27,988 square feet of
general office space in Chesapeake, Virginia, at a base rent that is currently
$411,703 per year, increasing to $504,545 over a ten-year term.

ITEM 3. LEGAL PROCEEDINGS

On May 18, 1999, Kevin Gilmore commenced a lawsuit against the Company in the
Superior Court of California, San Francisco County. The lawsuit alleges certain
defects in repossession notices used by the Company in the State of California,
and seeks injunctive relief, including "restitution" of an unspecified amount.
Similar cases have been filed against most of the major firms financing motor
vehicle purchases in California. Trial in the matter is set for May 2000. The
Company plans to contest vigorously this litigation.

12
13

On October 29, 1999, three ex-employees of LINC filed an involuntary petition
under Chapter 7 of the Bankruptcy Code, naming LINC as the debtor, and seeking
its liquidation. The petition was filed in the U.S. Bankruptcy Court for the
District of Connecticut. Among the allegations made by the petitioners, which
may be considered to be asserted against the Company, is that LINC is entitled
to a retained interest in the Contracts sold by LINC in securitizations, and
thus to a share of the distributions from the securitized pools. The Company
intends to contest vigorously this matter.

It is management's opinion that all litigation of which it is aware, including
the matters discussed above, will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity,
beyond reserves already taken.

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

Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Company's executive officers follows:

Charles E. Bradley, Jr., 40, has been the President and a director of the
Company since its formation in March 1991. In January 1992, Mr. Bradley was
appointed Chief Executive Officer of the Company. From March 1991 until December
1995 he served as Vice President and a director of CPS Holdings, Inc. From April
1989 to November 1990, he served as Chief Operating Officer of Barnard and
Company, a private investment firm. From September 1987 to March 1989, Mr.
Bradley, Jr. was an associate of The Harding Group, a private investment banking
firm. Mr. Bradley, Jr. is currently serving as a director of NAB Asset
Corporation, Chatwins Group, Inc., Texon Energy Corporation, and Thomas Nix
Distributor, Inc. Charles E. Bradley, Sr., Chairman of the board of directors of
the Company, is his father.

William L. Brummund, Jr., 47, has been Senior Vice President - Systems
Administration since March 1991. From 1986 to March 1991, Mr. Brummund was Vice
President and Systems Administrator for Far Western Bank.

Nicholas P. Brockman, 55, has been Senior Vice President - Asset Recovery &
Liquidation since January 1996. He was Senior Vice President of Contract
Originations from April 1991 to January 1996. From 1986 to March 1991, Mr.
Brockman served as a Vice President and Branch Manager of Far Western Bank.

Richard P. Trotter, 56, has been Senior Vice President-Contract Origination
since January 1996. He was Senior Vice President of Administration from April
1995 to December 1995. From January 1994 to April 1995 he was Senior Vice
President-Marketing of the Company. From December 1992 to January 1994, Mr.
Trotter was Executive Vice President of Lange Financial Corporation, Newport
Beach, California. From May 1992 to December 1992, he was Executive Director of
Fabozzi, Prenovost & Normandin, Santa Ana, California. From December 1990 to May
1992 he was Executive Vice President/Chief Operating Officer of R. Thomas
Ashley, Newport Beach, California. From April 1984 to December 1990, he was
President/Chief Executive Officer of Far Western Bank, Tustin, California.

Curtis K. Powell, 43, has been Senior Vice President - Marketing of the Company
since April 1995. He joined the Company in January 1993 as an independent
marketing representative until being appointed Regional Vice President of
Marketing for Southern California in November 1994. From June 1985 through
January 1993, Mr. Powell was in the retail automobile sales and leasing
business.

13
14

Mark A. Creatura, 40, has been Senior Vice President - General Counsel since
October 1996. From October 1993 through October 1996, he was Vice President and
General Counsel at Urethane Technologies, Inc., a polyurethane chemicals
formulator. Mr. Creatura was previously engaged in the private practice of law
with the Los Angeles law firm of Troy & Gould Professional Corporation, from
October 1985 through October 1993.

Thurman Blizzard, 57, has been Senior Vice President - Risk Management since May
1999, and was Senior Vice President-Collections from January 1998 until May
1999. The Company had previously engaged Mr. Blizzard as a consultant from
October 1997 to December 1997 to provide recommendations to the Company
concerning its collections operation. Prior thereto, Mr. Blizzard served as
Chief Operations Officer of Monaco Finance from May 1994 to March 1997. Mr.
Blizzard was previously an Asset Liquidation Manager with the Resolution Trust
Corporation, from November 1991 to May 1994.

Kris I. Thomsen, 42, has been Senior Vice President - Systems since June 1999.
Previously, Ms. Thomsen had been Vice President-Systems since the Company's
inception in March 1991.

James L. Stock, 34, has been Senior Vice President - Chief Financial Officer of
the Company since January 2000. Prior to being named the Chief Financial
Officer, Mr. Stock was the Vice President and Corporate Controller of the
Company. From August 1993 to December 1994, Mr. Stock was the assistant
controller of Fluid Recycling Services, an industrial fluids management company
based in Santa Ana, California. From July 1990 to August 1993, Mr. Stock was a
senior associate with Coopers & Lybrand.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq National Market System, under
the symbol "CPSS." The following table sets forth the high and low sales prices
reported by Nasdaq for the Common Stock for the periods shown.

High Low
------ -----

January 1-March 31, 1998 ...................... 12.750 8.375
April 1-June 30, 1998 ......................... 15.375 9.875
July 1-September 30, 1998 ..................... 13.500 1.813
October 1-December 31, 1998 ................... 5.750 2.000
January 1-March 31, 1999 ...................... 5.250 2.813
April 1-June 30, 1999 ......................... 4.313 1.031
July 1-September 30, 1999 ..................... 1.813 0.938
October 1-December 31, 1999 ................... 1.875 0.438

As of March 23, 2000, there were 76 holders of record of the Company's Common
Stock. To date, the Company has not declared or paid any dividends on its Common
Stock. The payment of future dividends, if any, on the Company's Common Stock is
within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition, and other
relevant factors. The instruments governing the Company's outstanding debt place
certain restrictions on the payment of dividends. The Company does not intend to
declare any dividends on its Common Stock in the foreseeable future, but instead
intends to retain any earnings for use in the Company's operations.

14
15

ITEM 6. SELECTED FINANCIAL DATA

Nine-month
Period Ended
Year ended December 31, December 31,
--------------------------------------------------------- -------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share data)

STATEMENT OF OPERATIONS DATA:
Gain (loss) on sale of Contracts, net ... $(14,844) $ 58,306 $ 35,045 $ 20,565 $ 10,721
Interest income ......................... 3,032 41,841 23,526 19,980 9,220
Servicing fees .......................... 27,761 25,156 14,487 7,893 3,485
Total revenue ........................... 14,805 126,280 75,251 48,438 23,426
Operating expenses ...................... 86,968 81,960 43,292 24,746 10,769
Net income (loss) ....................... (44,532) 25,703 18,532 14,097 7,575
Basic earnings (loss) per share (1) ..... (2.38) 1.67 1.29 1.05 0.65
Diluted net earnings (loss) per share (1) (2.38) 1.50 1.17 0.93 0.52

December 31,
---------------------------------------------------------------- March 31,
1999 1998 1997 1996 1995 1995
-------- -------- -------- -------- -------- --------

BALANCE SHEET DATA:
Contracts held for sale ............ $ 2,421 $165,582 $ 68,271 $ 21,657 $ 19,549 $ 21,896
Residual interest in securitizations 172,530 217,848 124,616 43,597 30,477 23,201
Total assets ....................... 223,565 431,962 225,895 101,946 77,878 57,975
Total liabilities .................. 139,128 312,881 143,288 44,989 36,397 30,981
Total shareholders' equity ......... 84,437 119,081 82,607 56,957 41,481 26,994

(1) All prior periods have been restated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."

15
16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following analysis of the financial condition of the Company should be read
in conjunction with "Selected Financial Data" and the Company's Consolidated
Financial Statements and the Notes thereto and the other financial data included
elsewhere in this report.

OVERVIEW

Consumer Portfolio Services, Inc. and its subsidiaries (collectively, the
"Company") primarily engage in the business of purchasing, selling and servicing
retail automobile installment sale contracts ("Contracts") originated by
automobile dealers ("Dealers") located throughout the United States. In the
past, the Company has purchased contracts in as many as 44 different states. At
various times in 1999, the Company suspended its solicitation of Contract
purchases in as many as 20 states, and as of the date of this report is active
in 29 states. There can be no assurance as to resumption of Contract purchasing
activities in other states. Through its purchase of Contracts, the Company
provides indirect financing to Dealer customers with limited credit histories,
low incomes or past credit problems, who generally would not be expected to
qualify for financing provided by banks or by automobile manufacturers' captive
finance companies.

The Company historically has generated revenue primarily from the gains
recognized on the sale or securitization of its Contracts, servicing fees earned
on Contracts sold, and interest earned on Residuals (as defined below) and on
Contracts held for sale. During the year ended December 31, 1999, and through
the date of this report, the Company did not sell any Contracts in
securitization transactions, and therefore recognized no gains on sale. All
sales of Contracts were on a servicing released basis either in the form of bulk
sales of Contracts being held by the Company for sale, or as part of a pass
through agreement with a third party for which the Company earned a fee on a per
Contract basis. The net loss on sale of Contracts for the year ended December
31, 1999, was $14.8 million compared to net gains of $58.3 million and $35.0
million for the years ended December 31, 1998 and 1997, respectively. Revenues
from interest and servicing fees for the year ended December 31, 1999, were $3.0
million and $27.8 million, respectively. Such revenues for the year ended
December 31, 1998, were $41.8 million and $25.2 million, respectively, and for
the year ended December 31, 1997, such revenues were $23.5 million and $14.5
million, respectively. The Company's income is affected by losses incurred on
Contracts, whether such Contracts are held for sale or have been sold in
securitizations. The Company's cash requirements have been significant in the
past and will continue to be significant should the Company sell loans in
securitization transactions in the future. Net cash provided by operating
activities for the year ended December 31, 1999, was approximately $170,000,
compared to net cash used in operating activities for the years ended December
31, 1998 and 1997, of $71.1 million and $26.1 million, respectively. See
"Liquidity and Capital Resources."

The Company has purchased Contracts with the primary intention of reselling them
in securitization transactions as asset-backed securities. From late May 1999 to
the present, the Company has purchased Contracts on a flow basis for third
parties; that is, the Company purchases a Contract from a Dealer, and sells the
Contract the next day to the third party for the same price the Company paid.
The Company also receives from the third party a fee for its services. The
Company retains no interest in such Contracts, and neither services such
Contracts nor earns a servicing fee.

Although the Company has not been able to sell Contracts in a securitization
transaction since December 1998, it does plan to securitize in the future, as to
which there can be no assurance. The Company's securitization structure has been
as follows:

First, the Company sells a portfolio of Contracts to a wholly owned subsidiary
("SPS"), which has been established for the limited purpose of buying and
reselling the Company's Contracts. The SPS then transfers the same Contracts to
either a grantor trust or an owner trust (the "Trust"). The Trust in turn issues
interest-bearing asset-backed securities (the "Certificates"), generally in a
principal amount equal to the aggregate

16
17

principal balance of the Contracts. The Company typically sells these Contracts
to the Trust at face value and without recourse, except that representations and
warranties similar to those provided by the Dealer to the Company are provided
by the Company to the Trust. One or more investors purchase the Certificates
issued by the Trust; the proceeds from the sale of the Certificates are then
used to purchase the Contracts from the Company. The Company purchases a
financial guaranty insurance policy, guaranteeing timely payment of principal
and interest on the senior Certificates, from an insurance company (the
"Certificate Insurer"). In addition, the Company provides a credit enhancement
for the benefit of the Certificate Insurer and the investors in the form of an
initial cash deposit to an account ("Spread Account") held by the Trust. The
agreements governing the securitization transactions (collectively referred to
as the "Servicing Agreements") require that the initial deposits to the Spread
Accounts be supplemented by a portion of collections from the Contracts until
the Spread Accounts reach specified levels, and then maintained at those levels.
The specified levels are generally computed as a percentage of the principal
amount remaining unpaid under the related Certificates. The specified levels at
which the Spread Accounts are to be maintained will vary depending on the
performance of the portfolios of Contracts held by the Trusts and on other
conditions, and may also be varied by agreement among the Company, the SPS, the
Certificate Insurer and the trustee. Such levels have increased and decreased
from time to time based on performance of the portfolios, and have also been
varied by agreement. The specified levels applicable to the Company's sold pools
increased materially in 1998. Effective November 3, 1999, as applied to monthly
measurement dates from September 1999 onward, the specified levels have
decreased, as is discussed under the heading "Liquidity and Capital Resources."

At the closing of each securitization, the Company removes from its consolidated
balance sheet the Contracts held for sale and adds to its consolidated balance
sheet (i) the cash received and (ii) the estimated fair value of the ownership
interest that the Company retains in the Contracts sold in the securitization.
That retained interest (the "Residual") consists of (a) the cash held in the
Spread Account and (b) the net interest receivables ("NIRs"). NIRs represent the
estimated discounted cash flows to be received by the Trust in the future, net
of principal and interest payable with respect to the Certificates, and certain
expenses. The excess of the cash received and the assets retained by the Company
over the carrying value of the Contracts sold, less transaction costs, equals
the net gain on sale of Contracts recorded by the Company.

The Company allocates its basis in the Contracts between the Certificates and
the Residuals retained based on the relative fair values of those portions on
the date of the sale. The Company recognizes gains or losses attributable to the
change in the fair value of the Residuals, which are recorded at estimated fair
value and accounted for as "held-for-trading" securities. The Company is not
aware of an active market for the purchase or sale of interests such as the
Residuals; accordingly, the Company determines the estimated fair value of the
Residuals by discounting the amount and timing of anticipated cash flows
released from the Spread Account (the cash out method), using a discount rate
that the Company believes is appropriate for the risks involved. For that
valuation, the Company has used an effective discount rate of approximately 14%
per annum.

The Company receives periodic base servicing fees for the servicing and
collection of the Contracts. In addition, the Company is entitled to the cash
flows from the Residuals that represent collections on the Contracts in excess
of the amounts required to pay principal and interest on the Certificates, the
base servicing fees, and certain other fees (such as trustee and custodial
fees). At the end of each collection period, the aggregate cash collections from
the Contracts are allocated first to the base servicing fees and certain other
fees such as trustee and custodial fees for the period, then to the
Certificateholders for interest at the pass-through rate on the Certificates
plus principal as defined in the Servicing Agreements. If the amount of cash
required for the above allocations exceeds the amount collected during the
collection period, the shortfall is drawn from the Spread Account. If the cash
collected during the period exceeds the amount necessary for the above
allocations, and there is no shortfall in the related Spread Account, the excess
is released to the Company, or in certain cases is transferred to other Spread
Accounts that may be below their specified levels. Pursuant to certain Servicing
Agreements, excess cash collected during the period is used to make accelerated
principal paydowns on certain Certificates to

17
18

create over-collateralization, that is, to reduce the aggregate principal
balance of outstanding Certificates below the aggregate principal amount of the
related automotive receivables. If the Spread Account balance is not at the
required credit enhancement level, then the excess cash collected is retained in
the Spread Account until the specified level is achieved. The cash in the Spread
Accounts is restricted from use by the Company. Cash held in the various Spread
Accounts is invested in high quality, liquid investment securities, as specified
in the Servicing Agreements. Spread Account balances are held by the Trusts on
behalf of the Company as the owner of the Residuals.

The annual percentage rate payable on the Contracts is significantly greater
than the rates payable on the Certificates. Accordingly, the Residuals described
above are a significant asset of the Company. In determining the value of the
Residuals described above, the Company must estimate the future rates of
prepayments, delinquencies, defaults and default loss severity, as they affect
the amount and timing of the estimated cash flows. The Company estimates
prepayments by evaluating historical prepayment performance of comparable
Contracts. The Company has used a constant prepayment estimate of approximately
4% per annum. The Company estimates defaults and default loss severity using
available historical loss data for comparable Contracts and the specific
characteristics of the Contracts purchased by the Company. In valuing the
Residuals, the Company estimates that losses as a percentage of the original
principal balance will range from 14% to 16.5% cumulatively over the lives of
the related Contracts.

In future periods, the Company could recognize additional revenue from the
Residuals if the actual performance of the Contracts were to be better than
originally estimated, or the Company could increase the estimated fair value of
the Residuals. If the actual performance of the Contracts were to be worse than
the original estimate, then a downward adjustment to the carrying value of the
Residuals would be required. Due to the inherent uncertainty of the future
performance of the underlying Contracts, the Company has established a provision
for future losses on the Residuals.

From March 1999 to the present, the Company has been unable to complete a
securitization transaction, due to unavailability of sufficient capital. The
above description is included because the Residuals created in past
securitizations continue to represent the Company's largest asset, and because
the Company plans again to purchase Contracts for sale in securitization
transactions, when necessary pre-conditions (including availability of capital)
are fulfilled.

During the year ended December 31, 1999, the Company has changed its basic
system of doing business. Previously, the Company would acquire Contracts for
its own account, borrowing from 88% to 97% of the principal balance of such
Contracts under "warehouse" lines of credit. Periodically (approximately once
every quarter) the Company would then sell most or all of the recently acquired
Contracts in a securitization transaction as described above. In such a sale,
the Company would retain (1) a residual ownership interest in the Contracts
sold, (2) the obligation to service the Contracts sold, and (3) the right to
receive servicing fees. At the end of March 1999, the Company learned that it
would be unable to sell Contracts in securitization transactions for an
indeterminate period. Accordingly, the Company commenced purchasing Contracts
for immediate re-sale to a third party, which third party purchases the
Contracts in turn on a daily basis. In this arrangement, the Company retains no
residual interest in the Contracts, has no servicing obligation, and receives no
servicing fee. For its services in acquiring Contracts for purchase, the Company
receives a per-Contract fee from the third party.

RESULTS OF OPERATIONS

THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

Revenue. During the year ended December 31, 1999, revenue decreased $111.5
million, or 88.3%, compared to the year ended December 31, 1998. Gain on sale of
Contracts, net, decreased by $73.2 million, or 125.5%, from a $58.3 million gain
on sale for the year ended December 31, 1998, to a $14.8 million loss for the
year ended December 31, 1999. The change in gain on sale from positive to
negative is due to the Company selling Contracts only on a servicing released
basis and thus not recording any

18
19

NIR gains during the year, as well as to selling Contracts at a loss. During the
year ended December 31, 1999, the Company sold $318.0 million of Contracts on a
servicing released basis, that is, with no residual interest retained, with no
servicing obligation, and with no right to receive a servicing fee. Those sales
resulted in a net loss of approximately $15.2 million. Expenses of approximately
$1.1 million were incurred related to previous securitization transactions,
including the amortization of a warrant issued to the Certificate Insurer in
November 1998. In addition, the Company sold $241.2 million of Contracts on a
flow through basis and received $6.2 million of fees which have been included as
a component of gain on sale of Contracts, net. For the years ended December 31,
1999 and 1998, $5.3 million and $3.5 million, respectively, of provision for
losses on Contracts held for sale was charged against gain on sale. The increase
in the provision for losses on Contracts held for sale is primarily due to the
Company's inability to securitize Contracts during 1999. As a result, Contracts
were held for sale for longer periods of time prior to being sold on a servicing
released basis, thus requiring additional loss reserves.

Interest income decreased by $38.8 million, or 92.8%, representing 20.5% of
total revenues for the year ended December 31, 1999. The decrease is primarily
due to decreases in Contracts held for sale and NIRs during 1999. Beginning in
May 1999, the Company began to purchase Contracts on a flow through basis and
thus did not hold any additional Contracts for sale since that time.
Additionally, the Company completed the final sale of Contracts on a servicing
released basis, other than those sold on a flow through basis, on September 1,
1999, leaving approximately $4.6 million of Contracts held for sale at the end
of September and decreasing to $2.4 million by year end. Such a reduction in
Contract purchases is expected to cause a reduction in revenues (both interest
and gain on sale) in future periods.

Servicing fees increased by $2.6 million, or 10.4%, and represented 187.5% of
total revenue. Servicing fees are composed of base fees, which are payable at
the rate of 2% per annum on the principal balance of the outstanding Contracts
in the related trusts, plus any other fees collected by the Company, such as
late fees and returned check fees. The increase in servicing fees is primarily
due to an increase in the fees other than base fees collected during 1999 During
the year ended December 31, 1999, the Company collected $4.9 million of other
servicing fees, an increase of 39.7% over other servicing fees collected in the
prior year.

Expenses. During the year ended December 31, 1999, operating expenses increased
$5.0 million, or 6.1%, compared to the year ended December 31, 1998. Employee
costs increased by $1.0 million, or 3.5%, and represented 34.3% of total
operating expenses. The increase is due to increases in salaries and wage rates.
General and administrative expenses decreased by $1.0 million, or 4.9% and
represented 22.5% of total operating expenses. The decrease in general and
administrative expenses is primarily due to the decrease in costs associated
with purchasing loans such as credit reports. During the year ended December 31,
1999, the Company purchased $424.7 million of Contracts compared to $1,076.5
million of Contracts purchased in the prior year.

Interest expense increased $5.4 million, or 24.5%, and represented 31.5% of
total operating expenses. The increase is due in part to the interest paid on
$25.0 million in subordinated debt securities issued by the Company in November
1998, and $6.5 million of additional subordinated debt securities issued during
the year ended December 31, 1999. In addition, the interest rate on the $25.0
million of subordinated debt issued in November 1998, was increased from 13.5%
in 1998 to 14.5% in April of 1999. Interest expense was also affected by the
volume of Contracts held for sale as well as by the Company's cost of borrowed
funds. (See "Liquidity and Captial Resources").

Marketing expenses decreased by $1.5 million or 21.3%, and represented 6.2% of
total expenses. The decrease is primarily due to the decrease in Contracts
purchased during the year ended December 31, 1999. Fees paid to marketing
representatives for their role in the submission of Contracts ultimately
purchased by the Company are included as a component in gain on sale of
Contracts, net.

Occupancy expenses increased by $526,000 or 23.2%, and represented 3.2% of total
expenses. Depreciation and amortization expenses increased by $340,000 or 27.1%,
and represented 1.8% of total

19
20

expenses. In November 1998, the Company moved its headquarters to a new 115,000
square foot facility. The Company has agreed to lease the new headquarters
facility for a ten-year term, with base rent of $1.9 million for the first five
years, and $2.1 million for years six through ten. In addition to base rent, the
Company has agreed to pay property taxes, maintenance, and other expenses of the
property.

The results for the years ended December 31, 1999, and 1998, include a net
operating loss of approximately $150,000 and $1.1 million, respectively, from
the Company's subsidiary Samco. For the year ended December 31, 1997, Samco had
net earnings of $1.2 million. During the first quarter of 1999, Samco ceased its
operations.

The results for the year ended December 31, 1999, include a net operating loss
of $830,380 from the Company's subsidiary LINC. For the years ended December 31,
1998, and 1997, LINC had net operating losses of $565,333, and $533,222,
respectively. During the second quarter of 1999, LINC ceased its operations.

The results for the years ended December 31, 1999 and 1998, include net earnings
of $35,131 and $298,000, respectively, from the Company's subsidiary CPS
Leasing, Inc. For the year ended December 31, 1997, CPS Leasing had a net
operating loss of $88,000. The Company intends to sell CPS Leasing, Inc., during
2000.

The results for the year ended December 31, 1999, include a net operating loss
of $2.5 million from the Company's investment in 38% of NAB Asset Corp. The
results for the years the years ended December 31, 1998 and 1997, include
$52,000 and $849,000, respectively, in net earnings from the Company's
investment in NAB Asset Corp.

The Company's effective tax rate was 38.3% and 42.0%, for the years ended
December 31, 1999 and 1998, respectively.

THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

Revenue. During the year ended December 31, 1998, revenue increased $51.0
million, or 67.8%, compared to the year ended December 31, 1997. Gain on sale of
Contracts, net, increased by $23.3 million, or 66.4%, and represented 46.2% of
total revenue for the year ended December 31, 1998. The increase in gain on sale
is largely due to the volume of Contracts that were sold in the period. During
the year ended December 31, 1998, the Company sold $948.3 million in Contracts,
compared to $573.3 million in the year ended December 31, 1997. For the years
ended December 31, 1998 and 1997, $3.5 million and $4.1 million, respectively,
of provision for losses on contracts held for sale was charged against gain on
sale. Due to the inherent uncertainty of the future performance of the
underlying Contracts, the Company during 1998 established a provision for losses
on the Residuals in the amount of $7.8 million that was charged against gain on
sale.

Interest income increased by $18.3 million, or 77.9%, representing 33.1% of
total revenues for the year ended December 31, 1998. The increase is due to the
increase in the volume of contracts purchased and held for sale. During the year
ended December 31, 1998, the Company purchased $1,076.5 million in Contracts
from Dealers, compared to $632.1 million in the year ended December 31, 1997.
The Company expects that Contract purchases in the near future will not exceed
$200.0 million per quarter. Such a reduction in Contract purchases is expected
to cause a reduction in revenues (both interest and gain on sale) in future
periods.

Servicing fees increased by $10.7 million, or 73.6%, and represented 19.9% of
total revenue. The increase in servicing fees is due to the increase in Contract
purchase, sale and servicing activities. As of December 31, 1998, the Company
was earning servicing fees on 128,025 Contracts approximating $1,362.8 million,
compared to 77,731 Contracts approximating $830.9 million as of December 31,
1997. In addition to the $1,362.8 million in sold Contracts on which servicing
fees were earned, the Company was holding for sale and servicing an additional
$176.1 million in Contracts for an aggregate servicing

20
21

portfolio of $1,538.9 million. Amortization of NIRs increased by $22.2 million
and represented 104.9% of residual interest income for the year ended December
31, 1998, versus 59.0% for year ended December 31, 1997. The increase is due to
higher losses on the servicing portfolio and the increase in the NIRs from 1997
to 1998.

Expenses. During the year ended December 31, 1998, operating expenses increased
$38.7 million, or 89.3%, compared to the year ended December 31, 1997. Employee
costs increased by $12.9 million, or 81.5%, and represented 35.2% of total
operating expenses. The increase is due to the addition of staff necessary to
accommodate the Company's growth and certain increases in salaries of existing
staff. General and administrative expenses increased by $6.5 million, or 45.7%
and represented 25.2% of total operating expenses. Increases in general and
administrative expenses included increases in telecommunications, stationary,
credit reports and other related items as a result of increases in the volume of
purchasing and servicing of Contracts.

Interest expense increased $12.8 million, or 139.7%, and represented 26.9% of
total operating expenses. The increase is due in part to the interest paid on an
additional $30.0 million in subordinated debt securities issued by the Company
during 1998 as well as interest paid on the outstanding balance on a revolving
line of credit (the "Residual Line"). Interest expense was also affected by the
volume of Contracts held for sale as well as by the Company's cost of borrowed
funds. (See "Liquidity and Capital Resources").

Marketing expenses increased by $5.0 million or 272.7%, and represented 8.4% of
total expenses. The increase is primarily due to the increase in printing,
travel, promotion and convention expenses. Fees paid to marketing
representatives for their role in the submission of Contracts ultimately
purchased by the Company are included as a component in gain on sale of
Contracts, net.

Occupancy expenses increased by $863,000 or 61.5%, and represented 2.8% of total
expenses. Depreciation and amortization expenses increased by $498,000 or 65.8%,
and represented 1.5% of total expenses. In November 1998, the Company moved its
headquarters to a new 115,000 square foot facility. The Company has agreed to
lease the new headquarters facility for a ten-year term, with base rent of $1.9
million for the first five years, and $2.1 million for years six through ten. In
addition to base rent, the Company has agreed to pay property taxes,
maintenance, and other expenses of the property. Occupancy of the new building
can be expected to increase the Company's overall occupancy expenses in the
future beginning with commencement of the lease. The Company has subleased its
former headquarters location.

The results for the year ended December 31, 1998, include a net operating loss
of $1.1 million from the Company's subsidiary Samco. For the year ended December
31, 1997, Samco had net earnings of $1.2 million.

The results for the years ended December 31, 1998, and 1997 include net
operating losses of $565,333, and $533,222, respectively from the Company's
subsidiary LINC.

The results for the year ended December 31, 1998, include net earnings of
$298,000 from the Company's subsidiary CPS Leasing, Inc. For the year ended
December 31, 1997, CPS Leasing, Inc., had a net operating loss of $88,000.

The results for the years ended December 31, 1998 and 1997, include $52,000 and
$849,000, respectively, in net earnings from the Company's investment in 38% of
NAB Asset Corp.

The Company's effective tax rate was 42.0% for the years ended December 31, 1998
and 1997.

21
22

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company's business requires substantial cash to support its operating
activities. The Company's primary sources of cash from operating activities have
been proceeds from the sales of Contracts, amounts borrowed under its various
warehouse lines, servicing fees on portfolios of Contracts previously sold,
proceeds from the sales of Contracts, customer payments of principal and
interest on Contracts held for sale, fees for origination of Contracts, and
releases of cash from Spread Accounts. The Company's primary uses of cash have
been the purchases of Contracts, repayment of amounts borrowed under its
warehouse lines and otherwise, operating expenses such as employee, interest,
and occupancy expenses, the establishment of and further contributions to Spread
Accounts, and income taxes. As a result, the Company has been dependent on its
warehouse lines of credit to purchase Contracts, and on the availability of
capital from outside sources in order to finance its continued operations, and
to fund the portion of Contract purchase prices not borrowed under warehouse
lines of credit. The Company is not presently party to any warehouse line of
credit, and did not receive any material releases of cash from Spread Accounts
from June 1998 through October 1999. The inability to borrow and the lack of
cash releases resulted in a liquidity deficiency, which has been progressively
alleviated since the recommencement of releases of cash from Spread Accounts
began in November 1999.

The Company has maintained its Contract purchasing program in the absence of any
warehouse line of credit by entering into flow purchase arrangements. Flow
purchases allow the Company to purchase Contracts while maintaining only an
immaterial level of Contracts held for sale. The Company's revenues from flow
purchase of Contracts, however, are materially less than may be received by
holding Contracts to maturity or by selling Contracts in securitization
transactions.

Net cash provided by operating activities was $170,000 during the year ended
December 31, 1999, compared to net cash used in operating activities of $71.1
million for the year ended December 31, 1998. Net cash released from trusts was
$9.7 million, compared to net cash deposited into Trusts of $83.5 million for
the year ended December 31, 1998.

During the year ended December 31, 1999, the Company did not complete a
securitization transaction, and therefore, did not use any cash for initial
deposits to Spread Accounts, compared to $45.6 million used during the year
ended December 31, 1998. Cash used for subsequent deposits to Spread Accounts
for the year ended December 31, 1999, was $18.4 million, a decrease of $35.7
million, or 66.1%, from cash used for subsequent deposits to Spread Accounts in
the year ended December 31, 1998. Cash released from Spread Accounts for the
year ended December 31, 1999, was $28.0 million, an increase of $11.9 million,
or 73.9%, from cash released from Spread Accounts in the year ended December 31,
1998. Changes in deposits to and releases from Spread Accounts are affected by
the relative size, seasoning and performance of the various pools of sold
Contracts that make up the Company's Servicing Portfolio.

Beginning in June 1998, the Company's liquidity was adversely affected by the
absence of releases from Spread Accounts. Such releases did not occur because a
number of the Trusts had incurred cumulative net losses as a percentage of the
original Contract balance or average delinquency ratios in excess of the
predetermined levels specified in the respective Servicing Agreements.
Accordingly, pursuant to the Servicing Agreements, the specified levels
applicable to the Company's Spread Accounts were increased, in most cases to an
unlimited amount. Due to cross collateralization provisions of the Servicing
Agreements, the specified levels have been increased on 16 of the Company's 18
remaining Trusts. Until the November 1999 effectiveness of an amendment to the
Servicing Agreement, described below, no material releases from any of the
Spread Accounts were available to the Company. Upon effectiveness of that
amendment, the requisite Spread Account levels in general have been set at 21%
of the outstanding principal balance of the Certificates issued by the related
Trusts, with higher percentages applicable to those Trusts that have amortized
to the point that "floor" or minimum levels of credit enhancement are
applicable.

22
23

In addition to requiring higher Spread Account levels, the Servicing Agreements
provide the Certificate Insurer with certain other rights and remedies, some of
which have been waived on a monthly basis by the Certificate Insurer with
respect to all of the Trusts. Increased specified levels for the Spread Accounts
have been in effect from time to time in the past. As a result of the increased
Spread Account specified levels and cross collateralization provisions, excess
cash flows that would otherwise have been released to the Company instead were
retained in the Spread Accounts to bring the balance of those Spread Accounts up
to higher levels. As a result of the increased specified levels applicable to
the Spread Accounts, approximately $39.1 million of cash that would otherwise
have been available to the Company had been delayed and retained in the Spread
Accounts as of December 31, 1999. A portion of such cash was subsequently
released to the Company, as discussed below.

23
24

Since late May 1999, the Company has purchased Contracts from Dealers without
use of warehouse lines of credit, in "flow purchase" arrangements with third
parties. Under the flow purchase arrangements, the Company purchases Contracts
from Dealers and sells such Contracts outright to the third party.

Purchase of Contracts on a flow basis, as compared with purchase of Contracts
for the Company's own account, has materially reduced the Company's cash
requirements. The Company's plan for meeting its liquidity needs is (1) to
increase the quantity of Contracts that it purchases and sells on a flow basis,
thus increasing the fees that it receives in connection with such purchases and
sales, and (2) to continue to receive releases of cash from its Spread Accounts,
pursuant to the Amendment, which became effective on November 3, 1999. There can
be no assurance that this plan will be successful.

During the second and third quarters of 1999, the Company sold, on a servicing
released basis, $318.0 million of its Contracts held for sale. The remaining
Contracts held for sale represent Contracts that did not meet the criteria for
the various sales occurring in the second and third quarters. The Company's
ability to increase the quantity of Contracts that it purchases and sells on a
flow basis will be subject to general competitive conditions and other factors.
Although the Company has continued to increase the amount of Contracts purchased
and sold on a flow basis, there can be no assurance that the current level of
flow production can be maintained or increased.

Obtaining releases of cash from the Spread Accounts is dependent on collections
from the related Trusts generating sufficient cash in excess of the amended
specified levels. There can be no assurance that collections from the related
Trusts will generate cash in excess of the amended specified levels.

CAPITAL RESOURCES

The acquisition of Contracts for subsequent sale in securitization transactions,
and the need to fund Spread Accounts when those transactions take place, results
in a continuing need for capital. The amount of capital required is most heavily
dependent on the rate of the Company's Contract purchases (other than flow
purchases), the required level of initial credit enhancement in securitizations,
and the extent to which the Spread Accounts either release cash to the Company
or capture cash from collections on sold Contracts.

In the past, the Company funded the increase in its servicing portfolio through
off balance sheet securitization transactions, as discussed above, and funded
its other capital needs with cash from operations and with the proceeds from the
issuance of long-term debt and/or equity. During the year ended December 31,
1999, the Company did not complete a securitization transaction, issued $5.0
million of subordinated debt, sold $318.0 million of Contracts on a servicing
released basis, and received $1.5 million in loans from affiliated parties.

24
25

The table below documents the Company's history of Contract securitizations,
comprising sales to 25 securitization trusts.

Securitized
Period Funded Dollar Amount Ratings(1)) Rating Agency Pool Name
- ------------- ------------- ----------- ------------- --------------------------
(In thousands)

April 1993 $4,990 A Duff & Phelps Alton Grantor Trust 1993-1
May 1993 3,933 A Duff & Phelps Alton Grantor Trust 1993-1
June 1993 3,467 A Duff & Phelps Alton Grantor Trust 1993-1
July 1993 5,575 A Duff & Phelps Alton Grantor Trust 1993-2
August 1993 3,336 A Duff & Phelps Alton Grantor Trust 1993-2
September 1993 3,578 A Duff & Phelps Alton Grantor Trust 1993-2
October 1993 1,921 A Duff & Phelps Alton Grantor Trust 1993-2
November 1993 1,816 A Duff & Phelps Alton Grantor Trust 1993-3
December 1993 6,694 A Duff & Phelps Alton Grantor Trust 1993-3
January 1994 1,998 A Duff & Phelps Alton Grantor Trust 1993-3
March 1994 20,787 A Duff & Phelps Alton Grantor Trust 1993-4
June 1994 24,592 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-1
September 1994 28,916 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-2
October 1994 13,136 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-3
December 1994 28,893 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-4
February 1995 20,084 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-1
June 1995 49,290 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-2
September 1995 45,009 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-3
September 1995 2,369 BB S&P CPS Auto Grantor Trust 1995-3
December 1995 53,634 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-4
December 1995 2,823 BB S&P CPS Auto Grantor Trust 1995-4
March 1996 63,747 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-1
March 1996 3,355 BB S&P CPS Auto Grantor Trust 1996-1
June 1996 (2) 84,456 Aaa/AAA Moody's/S&P Fasco Auto Grantor Trust 1996-1
June 1996 4,445 BB S&P Fasco Auto Grantor Trust 1996-1
September 1996 87,523 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-2
September 1996 4,606 BB S&P CPS Auto Grantor Trust 1996-2
December 1996 88,215 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-3
December 1996 4,643 BB S&P CPS Auto Grantor Trust 1996-3
March 1997 97,211 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1997-1
March 1997 5,116 BB S&P CPS Auto Grantor Trust 1997-1
May 1997 113,394 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1997-2
May 1997 5,968 BB S&P CPS Auto Grantor Trust 1997-2
August 1997 142,500 Aaa/AAA Moody's/S&P CPS Auto Receivables Trust 1997-3 (3)
August 1997 7,499 BB S&P CPS Auto Receivables Trust 1997-3 (3)
October 1997 100,568 Aaa/AAA Moody's/S&P CPS Auto Receivables Trust 1997-4 (3)
October 1997 5,293 BB S&P CPS Auto Receivables Trust 1997-4 (3)
December 1997 90,925 Aaa/AAA Moody's/S&P CPS Auto Receivables Trust 1997-5 (3)
December 1997 4,781 BB S&P CPS Auto Receivables Trust 1997-5 (3)
March 1998 177,607 Aaa/AAA Moody's/S&P CPS Grantor Trust 1998-1
March 1998 9,348 BB S&P CPS Grantor Trust 1998-1
May 1998 200,490 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1998-2
May 1998 10,552 BB S&P CPS Auto Grantor Trust 1998-2
July 1998 (4) 36,000 P-1/A-1+ Moody's/S&P CPS Auto Receivables Trust 1998-3 (3)
July 1998 199,532 Aaa/AAA Moody's/S&P CPS Auto Receivables Trust 1998-3 (3)
December 1998 32,500 P-1/A-1+ Moody's/S&P CPS Auto Receivables Trust 1998-4 (3)
December 1998 277,500 Aaa/AAA Moody's/S&P CPS Auto Receivables Trust 1998-4 (3)
----------
TOTAL $2,184,615
==========

(1) Commencing with the securitization completed on June 28, 1994, the
principal and interest due on the asset-backed securities issued by the
various trusts have been guaranteed by Financial Security Assurance Inc.
("FSA"), enabling the issuer to obtain Aaa/AAA or P-1/A-1+ ratings for
the asset-backed securities issued in such transactions. See "Business
-- Purchase and Sale of Contracts -- Securitization and Sale of
Contracts to Institutional Investors."

25
26

(2) Commencing with the securitization completed on June 27, 1996,
asset-backed securities with Aaa/AAA or P-1/A-1+ ratings have been sold
through public offerings pursuant to registration statements filed with
the Securities and Exchange Commission.

(3) These Trusts are structured as "owner trusts" rather than as "grantor
trusts".

(4) Commencing with the securitization completed on July 28, 1998, the
Company began using a structure that included a guaranteed money market
tranche of asset-backed securities, rated P-1/A-1+.

As noted above, the absence of any significant releases of cash from Spread
Accounts since June 1998 had materially impaired the Company's ability to meet
such capital requirements. To reduce its capital requirements and to meet those
requirements, the Company in November 1998 began to implement a three-part plan:
the plan includes (i) issuance of debt and equity securities, (ii) agreements
with the Certificate Insurer to reduce the level of initial Spread Account
deposits, and to reduce the maximum levels of the Spread Accounts, and (iii) a
reduction in the rate of Contract purchases.

As the first step in the plan, the Company in November 1998 and April 1999
issued $25.0 million and $5.0 million, respectively, of subordinated promissory
notes (collectively, the "LLCP Notes"), to Levine Leichtman Capital Partners,
L.P. ("LLCP"). The LLCP Notes are due in 2004, and bear interest at the rate of
14.5% per annum. Net proceeds received from the issuances were approximately
$28.5 million. In conjunction with the LLCP Notes, the Company issued warrants
to purchase up to 4,450,000 shares of common stock at $0.01 per share, 3,115,000
and 1,334,000 of which were exercised in April 1999 and May 1999, respectively.
The effective cost of this new capital represents a material increase in the
cost of capital to the Company. As part of the agreements for issuance of the
LLCP Notes, Stanwich Financial Services Corp. ("SFSC") agreed to purchase an
additional $15.0 million of notes (at least $7.5 million by July 31, 1999, and
the remainder by August 31, 1999), and the Company agreed to sell such notes.
The chairman and the president of the Company are the principal shareholders of
SFSC, and the Company's chairman is the chief executive officer of SFSC. The
terms of these transactions were subsequently modified, in March 2000, as
discussed below.

Also in November 1998, as the second step in its plan, the Company reached an
agreement with the Certificate Insurer regarding initial cash deposits. In this
agreement, the Certificate Insurer committed to insure asset-backed securities
issued by the Trusts with respect to at least $560.0 million of Contracts, while
requiring an initial cash deposit of 3% of principal. Of the $560.0 million
committed, $310.0 million was used in the Company's December 1998 securitization
transaction. The Company's agreement with the Certificate Insurer also required
that the Company issue to the Certificate Insurer or its designee warrants to
purchase 2,525,114 shares of the Company's common stock at $3.00 per share,
exercisable through the fifth anniversary of the warrants' issuance. The
exercise price of the warrants is subject to certain anti-dilution adjustments.

The amendment agreement mentioned above (the "Amendment") fixes the amount of
cash to be retained in the Spread Accounts for 16 of the Company's 18 remaining
securitization Trusts. The amended level is 21% of the outstanding principal
balance of the Certificates issued by such Trusts, computed on a pool by pool
basis. The 21% level is subject to adjustment to reflect over collateralization.
Older Trusts may require more than 21% if the Certificate balance has amortized
to such a level that "floor" or minimum levels of credit enhancement are
applicable.

In the event of certain defaults by the Company, the specified level applicable
to such Spread Accounts could increase to an unlimited amount, but such defaults
are narrowly defined, and the Company does not anticipate suffering such
defaults. The Amendment by its terms is applicable from September 1999 onward,
and on November 3, 1999, the necessary signatures and conditions were satisfied
to make the Amendment effective. The Company on November 4, 1999, received its
first material release of cash from the securitized portfolio pursuant to the
terms of the Amendment. The releases of cash are expected to continue and to
vary in amount from month to month. There can be no assurance that such releases
of cash will continue in the future.

As a third part of its plan, the Company reduced its planned level of Contract
purchases initially to not more than $200.0 million per quarter beginning
November 1998. In the first quarter of 1999, the Company purchased $158.2
million of Contracts. During the second quarter of 1999, the Company purchased
$59.3 million of Contracts, of which $34.0 million was on a flow basis, as
discussed below. During the third quarter of 1999, the Company purchased $89.6
million of Contracts, all of which was on a flow basis. During the fourth
quarter of 1999, the Company purchased $117.6 million of Contracts, all of which
was on a flow basis. The Company expects to purchase Contracts only on a flow
basis in the future until the Company is able to identify appropriate sources of
capital to acquire and hold Contracts for the Company's own account. The
reduction in the amount of Contracts purchased for the Company's own account has
materially reduced the Company's capital requirements.

Over the three-year period ended December 31, 1999, the Company has increased
its capitalization by issuing $33.0 million of senior debt, an aggregate of
$65.0 million of subordinated debt (which is convertible into, or was issued
with warrants to purchase, common stock), $21.5 million of related party debt
($15.0 million of which is partially convertible and $5.0 million which is
entirely convertible) and $5.0 million of capital stock. The following review of
the terms of such issuances shows that the cost of such capital increased
materially beginning in 1998:

In April 1997 the Company issued, in a public offering, $20.0 million of
subordinated partially convertible notes due 2004, which bear an interest rate
of 10.50% per annum. These notes are convertible as to 25% of their principal
amount into common stock of CPS at $10.15 per share. In June 1997 the

26
27

Company issued to a related party $15.0 million of partially convertible notes
due 2004. These notes are convertible as to 20% of their principal amount into
common stock of CPS at $11.25 per share. In April 1998, the Company entered into
the Senior Secured Line, described above. CPS borrowed $5.0 million from related
parties in August and September 1998, the terms of which were renegotiated in
November 1998, in connection with the issuance of $25.0 million of subordinated
notes to LLCP. The $25.0 million of subordinated notes issued in November 1998
carried interest at 13.50% per annum, are due November 2003, and were issued
together with warrants that would have allowed the investor to purchase up to an
aggregate of 3,450,000 shares of the Company's common stock at $3.00 per share.
As renegotiated in November 1998, the $5.0 million of related party loans are
subordinated both to the Company's general and secured creditors and also to the
LLCP Notes, bear interest at 12.50% per annum, are due June 2004, and are
convertible into an aggregate of 1,666,667 shares of the Company's common stock
at $3.00 per share. A related party also purchased $5.0 million of Company's
common stock in July 1998, at $11.275 per share.

The cost of capital increased further in 1999. To meet a portion of its capital
requirements, the Company on April 15, 1999, issued an additional $5.0 million
in subordinated notes to LLCP (the "New LLCP Notes"). The New LLCP Notes bear
interest at 14.5% per annum and include new warrants to purchase 1,335,000
shares of the Company's common stock at $0.01 per share. As part of the
agreement to issue the New LLCP Notes, the Company was required to restructure
the terms of the $25.0 million subordinated promissory notes discussed above.
Such restructuring included an increase in the interest rate from 13.5% to
14.5%, a reduction in the number of warrants issued to purchase the Company's
common stock from 3,450,000 to 3,115,000, a waiver by LLCP of certain defaults
under the notes sold to LLCP in November 1998, and a reduction in the exercise
price of the warrants from $3.00 per share to $0.01 per share. Among the
agreements entered into in connection with the issuance of the New LLCP Notes
are agreements by Stanwich Financial Services Corp. ("SFSC"), an affiliate of
the chairman of the Company's board of directors, to purchase an additional
$15.0 million of notes and of the Company to sell such notes. Additionally, the
New LLCP Notes have been personally guaranteed by the chairman of the Company's
board of directors and the president of the Company.

During 1999, the Company defaulted on certain lending agreements, as a result of
which, the related lenders required the balances to be paid in full. Such
agreements are discussed below:

In November 1998, the Company entered into a warehouse line of credit agreement
with General Electric Capital Corporation (the "GECC Line"). The GECC Line
provided for warehouse facility advances up to a maximum of $100 million at a
variable interest rate of LIBOR + 3.75%. The GECC Line by its terms was to
expire November 30, 1999. During 1999, the Company defaulted on the GECC Line
agreements and was required to repay all balances owed. During August 1999, all
amounts owed under the GECC Line were repaid and the agreement was terminated.

In November 1997, the Company entered into a warehouse line of credit agreement
with First Union Capital Markets ("First Union Line"). The First Union Line
provided for a maximum of $150.0 million of advances to the Company, with
interest at a variable rate indexed to prevailing commercial paper rates. In
July 1998, the advance amount was increased to $200.0 million. In conjunction
with the increase in maximum advance amount under the agreement, the expiration
date was changed to July 31, 1999, renewable for one year with the mutual
consent of the Company and First Union Capital Markets. During 1999, the Company
defaulted on the First Union Line agreement and was required to repay the
balance outstanding in its entirety. In June 1999, the balance of the First
Union Line was repaid in its entirety and the related agreement was terminated.

In December 1996, the Company entered into an overdraft financing facility, with
a bank, that provided for maximum borrowings of $2.0 million. Interest was
charged on the outstanding balance at the bank's reference rate plus 1.75%.
During 1997, the overdraft facility was increased to $4.0 million. There were no
borrowings outstanding under this facility at December 31, 1998. During 1999,
the Company defaulted under the overdraft facility and was required to repay the
outstanding balance in its entirety. In November 1999, the remaining balance
outstanding under the overdraft facility was repaid in its entirety and the
related agreement was terminated.

In April 1998, the Company established a $33.3 million line of credit (the
"Senior Secured Line") with State Street Bank and Trust Company, Prudential
Insurance and an affiliate of Prudential. Borrowings under the Senior Secured
Line accrued interest at LIBOR + 4.0%, and were secured by all of the Company's
assets, including its residual interest in securitizations. The lenders under
the Senior Secured Line declared a default in August 1999, and in November 1999
reached an agreement with the Company under which such lenders agreed to refrain
from exercising their remedies occasioned by such default, and under which the
Company and such lenders agreed to a repayment schedule with respect to all
indebtedness under the senior secured loan. As part of the agreement to
restructure the repayment schedule of the senior secured loan, the interest rate
was increased from LIBOR + 4% to LIBOR + 5%. In March 2000, the Company repaid
all amounts owed under the Residual Line.

As of December 31, 1999, the Company's subordinated debt exceeded its
consolidated net worth, which excess was an event of default under the
indentures governing the RISRS and PENs. The event of default was cured on March
15, 2000, by the issuance of senior secured debt in exchange for outstanding
subordinated debt.

In August and September 1999, the Company issued to SFSC $1.5 million of related
party subordinated debt bearing interest at 14.5% per annum, representing a
portion of the commitment of SFSC to purchase subordinated notes. As part of
that agreement, the Company also agreed to issue SFSC warrants to purchase up to
207,000 shares of the Company's common stock at a price of $0.01 per share. Such
warrants have been neither issued nor exercised. The Company's agreement to
issue such warrants was modified in the March 2000 debt restructuring described
below.

In March 2000, the Company issued $16.0 million of new senior secured debt to
LLCP, and used the proceeds to repay in full all amounts outstanding under the
Senior Secured Line. The new indebtedness bears interest at 12.5% per annum, and
matures in June 2001. The interest rate and maturity of the previously
outstanding $30.0 million of indebtedness to LLCP are unchanged, at 14.5% and
November 2003, respectively. As additional terms of the restructuring agreement,
all prior defaults under the Company's existing agreements with LLCP were waived
or cured, all of the Company's indebtedness to LLCP became senior secured debt
(rather than subordinated debt), LLCP received 103,500 shares of Company common
stock, and the Company agreed with SFSC to reduce by 50% the 207,000 warrants
that had been contemplated in connection with SFSC's August and September 1999
investments in the Company.

FORWARD-LOOKING STATEMENTS

The descriptions of the Company's business and activities set forth in this
report and in other past and future reports and announcements by the Company may
contain forward-looking statements and assumptions regarding the future
activities and results of operations of the Company. Actual results may be
adversely affected by various factors including the following: increases in
unemployment or other changes in domestic economic conditions which adversely
affect the sales of new and used automobiles and may result in increased
delinquencies, foreclosures and losses on Contracts; adverse economic conditions
in geographic areas in which the Company's business is concentrated; changes in
interest rates, adverse changes in the market for securitized receivables pools,
or a substantial lengthening of the Company's warehousing period, each of which
could restrict the Company's ability to obtain cash for new Contract
originations and purchases; increases in the amounts required to be set aside in
Spread Accounts or to be expended for other forms of credit enhancement to
support future securitizations; the unavailability of warehouse lines of credit
which the Company plans to use to accumulate Contracts for

27
28

securitization transactions; increased competition from other automobile finance
sources; reduction in the number and amount of acceptable Contracts submitted to
the Company by its automobile Dealer network; changes in government regulations
affecting consumer credit; and other economic, financial and regulatory factors
beyond the Company's control. A further discussion of factors that may cause
actual results to differ, or may otherwise have an adverse effect on the
Company's financial condition or results of operations, is contained in the
exhibit to this report titled "cautionary statement," incorporated herein by
this reference.

NEW ACCOUNTING PRONOUNCEMENTS

The Company will adopt in future periods new accounting pronouncements. For
information on how adoption has affected and will affect the Financial
Statements, see Note 1 of Notes to Consolidated Financial Statements.

YEAR 2000

The Company did not experience any significant problems associated with the Year
2000. All major applications have continued to function properly with minimal
adjustments being made overall.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company's funding strategy is largely dependent upon issuing interest
bearing asset-backed securities and incurring debt. Therefore, fluctuations in
interest rates affect the Company's profitability. The Company uses several
strategies to minimize the risk of interest rate fluctuations, including
offering only fixed rate contracts to obligors, regular sales of auto Contracts
to the Trusts, and pre-funding securitizations, whereby the amount of
asset-backed securities issued in a securitization exceeds the amount of
Contracts initially sold to the Trusts. The proceeds from the pre-funded portion
are held in an escrow account until the Company sells the additional Contracts
to the Trust in amounts up to the balance of the pre-funded escrow account. In
pre-funded securitizations, the Company locks in the borrowing costs with
respect to the loans it subsequently delivers to the Trust. However, the Company
incurs an expense in pre-funded securitizations equal to the difference between
the money market yields earned on the proceeds held in escrow prior to
subsequent delivery of Contracts and the interest rate paid on the asset-backed
securities outstanding.

28
29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This report includes Consolidated Financial Statements, Notes thereto and an
Independent Auditors' Report, at the pages indicated below. Certain unaudited
quarterly financial information is included in the Notes to Consolidated
Financial Statements, as Note 18

INDEX TO FINANCIAL STATEMENTS

Page
Reference
---------

Independent Auditors' Report ................................................................... F-1
Consolidated Balance Sheets as of December 31, 1999, and 1998 .................................. F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997 .... F-3
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1999, 1998, and 1997 ...................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 .... F-5
Notes to Consolidated Financial Statements for the years ended December 31, 1999, 1998,
and 1997 .................................................................................. F-7

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information regarding directors of the registrant is incorporated by reference
to the registrant's definitive proxy statement for its annual meeting of
shareholders to be held in 2000 (the "2000 Proxy Statement"). The 2000 Proxy
Statement will be filed not later than April 29, 2000. Information regarding
executive officers of the registrant appears in Part I of this report, and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the 2000 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the 2000 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the 2000 Proxy Statement.

29
30

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The financial statements listed above under the caption "Index to Financial
Statements" are filed as a part of this report. No financial statement schedules
are filed as the required information is inapplicable or the information is
presented in the consolidated financial statements or the related notes.
Separate financial statements of the Company have been omitted as the Company is
primarily an operating company and its subsidiaries are wholly owned and do not
have minority equity interests and/or indebtedness to any person other than the
Company in amounts which together exceed 5% of the total consolidated assets as
shown by the most recent year-end consolidated balance sheet.

The following exhibits are filed as part of this report:

3.1 Restated Articles of Incorporation(1)

3.2 Amended and Restated Bylaws(2)

4.1 Indenture re Rising Interest Subordinated Redeemable Securities
("RISRS")(3)

4.2 First Supplemental Indenture re RISRS(3)

4.3 Form of Indenture re 10.50% Participating Equity Notes ("PENs")(4)

4.4 Form of First Supplemental Indenture re PENs(4)

10.1 1991 Stock Option Plan & forms of Option Agreements thereunder(5)

10.2 1997 Long-Term Incentive Stock Plan(5)

10.3 Lease Agreement re Chesapeake Collection Facility(6)

10.4 Lease of Headquarters Building(7)

10.5 Partially Convertible Subordinated Note(7)

10.6 Registration Rights Agreement(7)

10.7 Residual Interest in Securitizations Revolving Credit and Term Loan
Agreement dated as of April 30, 1998, between registrant and State
Street Bank and Trust Company(8)

10.7a Second Amendment Agreement dated November 17, 1998 re: State Street
residual interest in Securitizations Revolving Credit and Term Loan
Agreement(9)

10.7b Amendment and Forbearance Agreement(10)

10.8 Pledge and Security Agreement dated as of April 30, 1998, between
the Company and State Street Bank and Trust Company(8)

10.9 Revolving Credit and Term Note dated April 30, 1998(8)

10.10 Subscription Agreement regarding shares issued in July 1998(11)

10.11 Registration Rights Agreement regarding shares issued in July 1998(11)

10.12 Amended and Restated Motor Vehicle Installment Contract Loan and
Security Agreement(9)

10.13 FSA Warrant Agreement dated November 30, 1998(9)

30
31

10.14 Securities Purchase Agreement dated November 17, 1998(12)

10.14a First Amendment dated as of April 15, 1999, to Securities Purchase
Agreement dated as of November 17, 1998, between the Company and
Levine Leichtman Capital Partners II, L.P. ("LLCP"), (said
Securities Purchase Agreement, as amended, is referred to below as
the "Amended SPA")(13)

10.14b Amended and Restated Securities Purchase Agreement dated as of
March 15, 2000, between the LLCP and the Company(14)

10.15 Senior Subordinated Primary Note dated November 17, 1998(12)

10.15a Senior Subordinated Primary Note in the principal amount of
$25,000,000, as amended and restated pursuant to the Amended SPA(13)

10.16 Primary Warrant to purchase 3,450,000 shares of common stock dated
November 17, 1998(12)

10.16a Primary Warrant to Purchase 3,115,000 Shares of Common Stock, as
amended and restated pursuant to the Amended SPA(13)

10.17 Investor Rights Agreement dated November 17, 1998(12)

10.17a First Amendment to Investors Rights Agreement, dated as of April
15, 1999(13)

10.18 Waiver Agreement dated as of March 15, 2000, between LLCP and the
Company(14)

10.19 Amended and Restated Investor Rights Agreement dated as of March
15, 2000(14)

10.20 Registration Rights Agreement dated as of November 17, 1998(12)

10.20a First Amendment to Registration Rights Agreement, dated as of April
15, 1999(13)

10.20b Amended and Restated Registration Rights Agreement dated as of
March 15, 2000, between LLCP and the Company(14)

10.21 Subordination Agreement dated as of November 17, 1998 re: Stanwich
Note and Poole Note(9)

10.22 Investment Agreement and Continuing Guaranty, dated as of April 15,
1999(13)

10.23 Termination and Settlement Agreement with Respect to Investment
Agreement and Continuing Guaranty dated as of March 15, 2000(14)

10.24 Consolidated Registration Rights Agreement dated November 17, 1998
re: 1997 Stanwich Notes(9)

10.25 Securities Purchase Agreement dated as of April 15, 1999, between
the Company and LLCP(13)

10.26 Senior Subordinated Note in the principal amount of $5,000,000(13)

10.27 Amended and Restated Secured Senior Note Due 2003 in the principal
amount of $30,000,000(14)

10.28 Secured Senior Note Due 2001 in the principal amount of $16,000,000(14)

10.29 Warrant to Purchase 1,335,000 Shares of Common Stock(13)

10.30 FSA Letter Agreement dated November 17, 1998(9)

10.31 Agreement dated May 29, 1999 for Sale of Contracts on a Flow Basis(15)

10.32 Amendment to Master Spread Account Agreement (filed herewith)

21.1 Subsidiaries of the Company(9)

23.1 Consent of independent auditors (filed herewith)

27 Financial Data Schedule (filed herewith)

31
32

Each exhibit marked above with a number enclosed in parentheses is incorporated
in this report by reference. The reference is to the report filed by or with
respect to Consumer Portfolio Services, Inc. as specified below:

1 Form 10-KSB dated December 31, 1995

2 Form 10-K dated December 31, 1997

3 Form 8-K filed December 26, 1995

4 Form S-3, no. 333-21289

5 Form 10-KSB dated March 31, 1994

6 Form 10-K dated December 31, 1996

7 Form 10-Q dated September 30, 1997

8 Form 10-Q dated March 31, 1998

9 Form 10-K dated December 31, 1998

10 Form 10-Q dated September 30, 1999

11 Form 10-Q dated June 30, 1998

12 Schedule 13D filed November 25, 1988

13 Schedule 13D filed on April 21, 1999

14 Schedule 13D filed on March 24, 2000

15 Form 10-Q dated June 30, 1999

(b) REPORTS ON FORM 8-K

During the last quarter of the fiscal year ended December 31, 1999, the Company
filed no reports on Form 8-K.

32
33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

CONSUMER PORTFOLIO SERVICES, INC. March 30, 2000
(Registrant)

By: /s/ Charles E. Bradley, Jr.
Charles E. Bradley, Jr.,
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

By: /s/ Charles E. Bradley, Sr. March 30, 2000
Charles E. Bradley, Sr.
Chairman of the Board

By: /s/ Charles E. Bradley, Jr. March 30, 2000
Charles E. Bradley, Jr., Director,
President and Chief Executive Officer
(Principal Executive Officer)

By: /s/ William B. Roberts March 30, 2000
William B. Roberts, Director

By: /s/ John G. Poole March 30, 2000
John G. Poole, Director

By: /s/ Thomas L. Chrystie March 30, 2000
Thomas L. Chrystie, Director

By: /s/ Robert A. Simms March 30, 2000
Robert A. Simms, Director

By: /s/ James L. Stock March 30, 2000
James L. Stock,
Chief Financial Officer
(Principal Financial and Accounting Officer)

33
34
CONSUMER PORTFOLIO SERVICES, INC.

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Consumer Portfolio Services, Inc.:

We have audited the accompanying consolidated balance sheets of Consumer
Portfolio Services, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Consumer
Portfolio Services, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

KPMG LLP

Orange County, California
March 30, 2000

F-1
35

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

December 31, December 31,
------------ ------------
1999 1998
-------- --------

ASSETS
Cash $ 1,640 $ 1,940
Restricted cash (note 2) 1,684 1,619
Contracts held for sale (note 3) 2,421 165,582
Servicing fees receivable 9,919 11,148
Residual interest in securitizations (note 4) 172,530 217,848
Furniture and equipment, net (notes 8 and 11) 3,040 4,272
Taxes receivable (note 12) 4,914 --
Deferred financing costs (note 13) 2,488 2,817
Investment in unconsolidated affiliates (note 9) 755 4,145
Related party receivables (note 9) 901 3,268
Deferred interest expense (notes 10 and 13) 10,720 5,103
Other assets (notes 9 and 10) 12,553 14,220
-------- --------
$223,565 $431,962
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable & accrued expenses $ 13,637 $ 9,267
Warehouse line of credit (note 13) -- 151,857
Taxes payable (note 12) -- 1,821
Deferred tax liability (note 12) 6,318 27,247
Capital lease obligation (note 11) 1,506 2,132
Notes payable (note 13) 4,006 2,557
Senior secured debt (note 13) 23,161 33,000
Subordinated debt (note 13) 69,000 65,000
Related party debt (note 9) 21,500 20,000
-------- --------
139,128 312,881

Shareholders' Equity (notes 10 and 13)
Preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Series A preferred stock, $1 par value;
authorized 5,000,000 shares;
3,415,000 shares issued; none outstanding -- --
Common stock, no par value; authorized
30,000,000 shares; 20,107,501 and 15,658,501 shares
issued and outstanding at December 31, 1999
and December 31, 1998, respectively 62,421 52,533
Retained earnings 22,016 66,548
-------- --------
84,437 119,081
-------- --------
Commitments and contingencies (notes 3,4,7,9,10
11,12,13, and 14) $223,565 $431,962
======== ========

See accompanying notes to consolidated financial statements

F-2

36

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Year Ended December 31,
--------------------------------------------
1999 1998 1997
--------- --------- ---------

Revenues:
Gain (loss) on sale of contracts,
net (notes 3, 4 and 5) $ (14,844) $ 58,306 $ 35,045
Interest income (note 6) 3,032 41,841 23,526
Servicing fees 27,761 25,156 14,487
Other income (loss) (note 9) (1,144) 977 2,193
--------- --------- ---------
14,805 126,280 75,251
--------- --------- ---------

Expenses:
Employee costs 29,820 28,812 15,875
General and administrative (note 9) 19,605 20,618 14,147
Interest 27,405 22,019 9,185
Marketing 5,423 6,891 1,849
Occupancy (note 11) 2,793 2,267 1,404
Depreciation and amortization 1,595 1,255 757
Related party consulting fees (note 9) 327 98 75
--------- --------- ---------
86,968 81,960 43,292
--------- --------- ---------
Income (loss) before income taxes (72,163) 44,320 31,959
Income taxes (benefit) (note 12) (27,631) 18,617 13,427
========= ========= =========
Net income (loss) $ (44,532) $ 25,703 $ 18,532
========= ========= =========

Earnings (loss) per share (note 1):
Basic $ (2.38) $ 1.67 $ 1.29
Diluted $ (2.38) $ 1.50 $ 1.17

Number of shares used in computing earnings
(loss) per share (note 1):
Basic 18,678 15,412 14,332
Diluted 18,678 17,500 16,053

See accompanying notes to consolidated financial statements

F-3

37

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

SERIES A NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------- ------------------------- FROM EXERCISE RETAINED
SHARES AMOUNT SHARES AMOUNT OF OPTIONS EARNINGS TOTAL
------ ----- --------- --------- ------------- --------- ---------

Balance at December 31, 1996 -- $ -- 13,780 $ 34,645 $ -- $ 22,313 $ 56,958

Common stock issued upon exercise
of warrants (note 10) -- -- 14 42 -- -- 42
Common stock issued upon exercise
of options (note 10) -- -- 937 2,464 (500) -- 1,964
Common stock issued upon
conversion of debt -- -- 480 3,000 -- -- 3,000
Income tax benefit from
exercise of options (note 12) -- -- -- 2,111 -- -- 2,111
Net income -- -- -- -- -- 18,532 18,532
---- ----- --------- --------- --------- --------- ---------
Balance at December 31, 1997 -- $ -- 15,211 $ 42,262 $ (500) $ 40,845 $ 82,607

Common stock issued upon exercise
of options (notes 10 and 13) -- -- 5 43 500 -- 543
Common stock issued (note 9) -- -- 443 5,000 -- -- 5,000
Valuation of warrants issued (notes
10 and 13) -- -- -- 5,228 -- -- 5,228
Net income -- -- -- -- -- 25,703 25,703
---- ----- --------- --------- --------- --------- ---------
Balance at December 31, 1998 -- $ -- 15,659 $ 52,533 $ -- $ 66,548 $ 119,081

Common stock issued upon exercise
of warrants (notes 10 and 13) -- -- 4,449 44 -- -- 44
Valuation of warrants issued and
repriced (notes 10 and 13) -- -- -- 9,844 -- -- 9,844
Net loss -- -- -- -- -- (44,532) (44,532)
---- ----- --------- --------- --------- --------- ---------
Balance at December 31, 1999 -- $ -- 20,108 $ 62,421 $ -- $ 22,016 $ 84,437
==== ===== ========= ========= ========= ========= =========

See accompanying notes to consolidated financial statements

F-4

38
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year Ended December 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------

Cash flows from operating activities:
Net income (loss) $ (44,532) $ 25,703 $ 18,532
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,595 1,255 757
Amortization of NIRs (note 4) 35,610 35,540 13,310
Amortization of deferred financing costs 641 356 268
Provision for credit losses 5,323 3,544 4,088
Provision for loss on NIRs (note 4) -- 7,762 --
NIR gains recognized (note 4) -- (52,990) (34,767)
Loss on sale of fixed asset -- -- 13
Gain on sale of subsidiary -- (56) --
Equity in net (income) loss of investment in
unconsolidated affiliates 2,411 (187) (912)
Gain on redemption of related party preferred stock -- -- (145)
Net releases from (deposits into) trusts 9,708 (83,544) (35,907)
Changes in assets and liabilities:
Restricted cash (65) (1,619) --
Purchases of contracts held for sale (424,746) (1,076,457) (632,096)
Liquidation of contracts held for sale 582,584 975,602 581,394
Other assets 6,792 (12,886) (4,484)
Accounts payable and accrued expenses 4,370 (962) 8,269
Warehouse lines of credit (151,857) 90,191 48,401
Deferred tax liability (20,929) 14,104 6,116
Taxes payable/receivable (6,735) 3,509 1,032
----------- ----------- -----------
Net cash provided by (used in) operating activities 170 (71,135) (26,131)

Cash flows from investing activities:
Proceeds from sale of investment in unconsolidated affiliate 979 -- --
Net related party receivables 2,367 4,027 (5,987)
Purchase of related party preferred stock -- -- (14,500)
Proceeds from sale of related party preferred stock -- -- 14,645
Investment in unconsolidated affiliate -- (65) (716)
Purchases of furniture and equipment (33) (1,308) (1,032)
Net cash from sale of subsidiary -- 382 --
Purchase of subsidiary, net of cash acquired -- -- 92
----------- ----------- -----------
Net cash provided by (used in) investing activities 3,313 3,036 (7,498)

Cash flows from financing activities:
Increase in senior secured debt -- 33,000 --
Issuance of related party debt 1,500 5,000 54,500
Issuance of subordinated debt 5,000 25,000 20,000
Issuance of notes payable 2,147 2,461 --
Repayment of senior secured debt (9,839) -- --
Repayment of subordinated debt (1,000) -- --
Repayment of capital lease obligations (626) (553) (166)
Repayment of notes payable (697) (824) (10)
Repayment of related party debt -- -- (39,945)
Payment of financing costs (312) (1,333) (1,165)
Issuance of common stock -- 5,000 --
Exercise of options and warrants 44 543 2,006
----------- ----------- -----------
Net cash provided by (used in) financing activities (3,783) 68,294 35,220
----------- ----------- -----------
(Decrease) increase in cash (300) 195 1,591

Cash at beginning of year 1,940 1,745 154
----------- ----------- -----------
Cash at end of year $ 1,640 $ 1,940 $ 1,745
=========== =========== ===========

See accompanying notes to consolidated financial statements

F-5

39

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year Ended December 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 23,872 $ 21,542 $ 8,476
Income taxes $ 62 $ 1,013 $ 6,204

Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock upon conversion of debt $ -- $ -- $ 3,000
Note receivable from exercise of options $ -- $ -- $ 500
Income tax benefit from exercise of options $ -- $ -- $ 2,111
Furniture and equipment acquired through capital leases $ -- $ 1,193 $ 1,658
Issuance and revaluation of common stock warrants $ 9,844 $ 5,228 $ --

Purchase of CPS Leasing, Inc.
Assets acquired $ -- $ -- $ 2,718
Liabilities assumed -- -- (2,638)
----------- ----------- -----------
Cash paid to acquire business -- -- 80
Less: cash acquired -- -- (172)
----------- ----------- -----------
Net cash received upon acquisition $ -- $ -- $ (92)
=========== =========== ===========

Sale of PIC Leasing, Inc. --
Net assets sold $ -- $ 706 $ --
Net assets retained -- (155) --
Gain on sale of subsidiary -- 56 --
----------- ----------- -----------
Cash received from sale of subsidiary -- 607 --
Less: cash relinquished upon disposition -- (225) --
----------- ----------- -----------
Net cash received from sale of subsidiary $ -- $ 382 $ --
=========== =========== ===========

See accompanying notes to consolidated financial statements

F-6

40

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Consumer Portfolio Services, Inc. ("CPS") was incorporated in California
on March 8, 1991. CPS and its subsidiaries (collectively, the "Company") engage
primarily in the business of purchasing, selling and servicing retail automobile
installment sale contracts ("Contracts") originated by dealers located
throughout the United States. The Company specializes in Contracts with obligors
who generally would not be expected to qualify for traditional financing, such
as that provided by commercial banks or automobile manufacturers' captive
finance companies. The Company's headquarters and principal collection
facilities are located in Irvine, California and a satellite collection facility
is located in Chesapeake, Virginia.

Principles of Consolidation

The consolidated financial statements include the accounts of Consumer
Portfolio Services, Inc. and its wholly-owned subsidiaries, CPS Marketing, Inc.,
Alton Receivables Corp. ("Alton"), CPS Receivables Corp. ("CPSRC"), CPS Funding
Corp. ("CPSFC") and CPS Warehouse Corp. ("CPSWC"). Alton, CPSRC, CPSFC and CPSWC
are limited purpose corporations formed to accommodate the structures under
which the Company purchases and sells its Contracts. CPS Marketing, Inc. employs
marketing representatives who solicit business from dealers. The consolidated
financial statements also include the accounts of SAMCO Acceptance Corp., LINC
Acceptance Company, LLC, and CPS Leasing, Inc., which are 80% owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Investments in unconsolidated affiliates that are
not majority owned are reported using the equity method. The excess of the
purchase price of such subsidiaries over the Company's share of the net assets
at the acquisition date ("goodwill") is being amortized over a period of up to
fifteen years. Goodwill is reviewed for possible impairment when events or
changed circumstances may affect the underlying basis of the asset. Impairment
is measured by discounting operating income at an appropriate discount rate.

Contracts Held for Sale

Contracts held for sale include automobile installment sales contracts
on which interest is precomputed and added to the amount financed. The interest
on such Contracts is included in unearned financed charges. Unearned financed
charges are amortized using the interest method over the remaining period to
contractual maturity. Contracts held for sale are stated at the lower of cost or
market value. Market value is determined by purchase commitments from investors
and prevailing market prices. Gains and losses are recorded as appropriate when
Contracts are sold. The Company considers a transfer of Contracts where the
Company surrenders control over

F-7
41

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Contracts to be a sale to the extent that consideration other than
beneficial interests in the transferred Contracts is received in exchange for
the Contracts.

Contracts Held to Maturity

Contracts held to maturity are presented at cost and are included in
other assets. Payments received on Contracts held to maturity are restricted to
certain securitized pools, and the related Contracts cannot be resold.

Allowance for Credit Losses

The Company estimates an allowance for credit losses, which management
believes provides adequately for known and inherent losses that may develop in
the Contracts held for sale. Provision for loss is charged to gain on sale of
Contracts. Charge offs, net of recoveries, are charged to the allowance.
Management evaluates the adequacy of the allowance by examining current
delinquencies, the characteristics of the portfolio and the value of the
underlying collateral.

Contract Acquisition Fees

Upon purchase of a Contract from a dealer, the Company generally charges
the dealer an acquisition fee. The acquisition fees associated with Contract
purchases are deferred until the Contracts are sold, at which time the deferred
acquisition fees are recognized as a component of the gain on sale. The Company
also charges an origination fee for those Contracts that are sold on a flow
basis. Those fees are recognized at the time the Contracts are sold and are also
a component of the gain on sale.

Investments

The Company determines the appropriate classification of its investments
in debt securities at the time of purchase. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale. Securities available for sale are carried at fair value,
with unrealized gains and losses, net of tax, reported in a separate component
of shareholders' equity as accumulated other comprehensive income.

The amortized cost of debt securities classified as available for sale
is adjusted for amortization of premiums and accretion of discounts, over the
estimated life of the security. Such amortization and interest earned on the
debt securities are included in interest income.

Flow Purchase Program

From May 1999 through the date of this report, the Company has purchased
Contracts only for immediate and outright resale to non-affiliated third
parties. The Company sells such Contracts for a mark-up above what the Company
pays the Dealer. In such sales, the Company makes certain representations and
warranties to the purchasers, normal in the industry, which relate primarily to
the legality of the sale of the underlying motor vehicle and to the validity of
the security interest that is being conveyed to the purchaser. These
representations and warranties are generally similar to the representations and
warranties given by the originating Dealer to the Company. In the event of a
breach of such representations or warranties, the Company may incur liabilities
in favor of the purchaser(s) of the Contracts and there can be no assurance that
the Company would be able to recover, in turn, against the originating
Dealer(s).

F-8
42

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Residual Interest in Securitizations and Gain on Sale of Contracts

The Company has purchased Contracts with the primary intention of
reselling them in securitization transactions as asset-backed securities.
Although the Company has not been able to sell Contracts in a securitization
transaction since December 1998, it does plan to securitize in the future, as to
which there can be no assurance. The Company's securitization structure has been
as follows: The securitizations are generally structured as follows: First, the
Company sells a portfolio of Contracts to a wholly owned subsidiary ("SPS"),
which has been established for the limited purpose of buying and reselling the
Company's Contracts. The SPS then transfers the same Contracts to either a
grantor trust or an owner trust (the "Trust"). The Trust in turn issues
interest-bearing asset-backed securities (the "Certificates"), generally in a
principal amount equal to the aggregate principal balance of the Contracts. The
Company typically sells these Contracts to the Trust at face value and without
recourse, except that representations and warranties similar to those provided
by the Dealer to the Company are provided by the Company to the Trust. One or
more investors purchase the Certificates issued by the Trust; the proceeds from
the sale of the Certificates are then used to purchase the Contracts from the
Company. The Company purchases a financial guaranty insurance policy,
guaranteeing timely payment of principal and interest on the senior
Certificates, from an insurance company (the "Certificate Insurer"). In
addition, the Company provides a credit enhancement for the benefit of the
Certificate Insurer and the investors in the form of an initial cash deposit to
an account ("Spread Account") held by the Trust. The agreements governing the
securitization transactions (collectively referred to as the "Securitization
Agreements") require that the initial deposits to the Spread Accounts be
supplemented by a portion of collections from the Contracts until the Spread
Accounts reach specified levels, and then maintained at those levels. The
specified levels are generally computed as a percentage of the principal amount
remaining unpaid under the related Certificates. The specified levels at which
the Spread Accounts are to be maintained will vary depending on the performance
of the portfolios of Contracts held by the Trusts and on other conditions, and
may also be varied by agreement among the Company, the SPS, the Certificate
Insurer and the trustee. Such levels have increased and decreased from time to
time based on performance of the portfolios, and have also been varied by
agreement. The specified levels applicable to the Company's sold pools increased
significantly in 1998. Effective November 3, 1999, as applied to monthly
measurement dates from September 1999 onward, the specified levels have
decreased. See note 16 - "Liquidity".

At the closing of each securitization, the Company removes from its
consolidated balance sheet the Contracts held for sale and adds to its
consolidated balance sheet (i) the cash received and (ii) the estimated fair
value of the ownership interest that the Company retains in Contracts sold in
securitization. That retained interest (the "Residual") consists of (a) the cash
held in the Spread Account and (b) the net interest receivables ("NIRs"). NIRs
represent the estimated discounted cash flows to be received from the Trust in
the future, net of principal and interest payable with respect to the
Certificates, and certain expenses. The excess of the cash received and the
assets retained by the Company over the carrying value of the Contracts sold,
less transaction costs, equals the net gain on sale of Contracts recorded by the
Company.

The Company allocates its basis in the Contracts between the
Certificates and the Residuals retained based on the relative fair values of
those portions on the date of the sale. The Company recognizes gains or losses
attributable to the change in the fair value of the Residuals, which are
recorded at estimated fair value and accounted for as "held-for-trading"
securities. The Company is not aware of an active market for the purchase or
sale of interests such as the Residuals; accordingly, the Company determines the
estimated fair value of the Residuals by discounting the

F-9

43

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

amount and timing of anticipated cash flows released from the Spread Account
(the cash out method), using a discount rate that the Company believes is
appropriate for the risks involved. For that valuation, the Company has used an
effective discount rate of approximately 14% per annum.

The Company receives periodic base servicing fees for the servicing and
collection of the Contracts. In addition, the Company is entitled to the cash
flows from the Residuals that represent collections on the Contracts in excess
of the amounts required to pay principal and interest on the Certificates, the
base servicing fees, and certain other fees (such as trustee and custodial
fees). At the end of each collection period, the aggregate cash collections from
the Contracts are allocated first to the base servicing fees and certain other
fees such as trustee and custodial fees for the period, then to the
Certificateholders for interest at the pass-through rate on the Certificates
plus principal as defined in the Servicing Agreements. If the amount of cash
required for the above allocations exceeds the amount collected during the
collection period, the shortfall is drawn from the Spread Account. If the cash
collected during the period exceeds the amount necessary for the above
allocations, and there is no shortfall in the related Spread Account, the excess
is released to the Company or in certain cases is transferred to other Spread
Accounts that may be below their required levels. Pursuant to certain Servicing
Agreements, excess cash collected during the period is used to make accelerated
principal paydowns on certain Certificates to create excess collateral
(over-collateralization or OC account). If the Spread Account balance is not at
the required credit enhancement level, then the excess cash collected is
retained in the Spread Account until the specified level is achieved. The cash
in the Spread Accounts is restricted from use by the Company. Cash held in the
various Spread Accounts is invested in high quality, liquid investment
securities, as specified in the Servicing Agreements. Spread Account balances
are held by the Trusts on behalf of the Company as the owner of the Residuals.

The annual percentage rate payable on the Contracts is significantly
greater than the pass through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In determining
the value of the Residuals described above, the Company must estimate the future
rates of prepayments, delinquencies, defaults and default loss severity as they
affect the amount and timing of the estimated cash flows. The Company estimates
prepayments by evaluating historical prepayment performance of comparable
Contracts. The Company has used a constant prepayment estimate of approximately
4% per annum. The Company estimates defaults and default loss severity using
available historical loss data for comparable Contracts and the specific
characteristics of the Contracts purchased by the Company. In valuing the
residuals, the Company estimates that losses as a percentage of the original
principal balance will range from 14% to 16.5% cumulatively over the lives of
the related Contracts.

In future periods, the Company would recognize additional revenue from
the Residuals if the actual performance of the Contracts were to be better than
the original estimate, or the Company would increase the estimated fair value of
the Residuals. If the actual performance of the Contracts were to be worse than
the original estimate, then a downward adjustment to the carrying value of the
Residuals would be required. Due to the inherent uncertainty of the future
performance of the underlying Contracts, the Company during 1998 established a
provision for losses on the Residuals.

The Certificateholders and the related securitization trusts have no
recourse to the Company for failure of the Contract obligors to make payments on
a timely basis. The Company's Residuals are subordinate to the Certificates
until the Certificateholders are fully paid.

F-10
44

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Servicing

The Company considers the servicing fee received to approximate adequate
compensation. As a result, no servicing asset or liability has been recognized.
Servicing fees are reported as income when earned. Servicing costs are charged
to expense as incurred. Servicing fees receivable represent fees earned but not
yet remitted to the Company by the trustee.

Furniture and Equipment

Furniture and equipment are stated at cost net of accumulated
depreciation. The Company calculates depreciation using the straight-line method
over the estimated useful lives of the assets which ranges from three to five
years. Assets held under capital leases and leasehold improvements are amortized
over the lesser of the estimated useful lives of the assets or the related lease
terms.

Earnings (Loss) per Share

The following table illustrates the computation of basic and diluted
earnings per share:

Year ended December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except per share data)

Numerator:
Numerator for basic earnings (loss) per share --
net income (loss) $(44,532) $ 25,703 $ 18,532
Interest on borrowings, net of tax effect on conversion of
convertible subordinated debt -- 590 313
-------- -------- --------
Numerator for diluted earnings (loss) per share $(44,532) $ 26,293 $ 18,845
======== ======== ========

Denominator:
Denominator for basic earnings (loss) per share
- -- weighted average number of common shares outstanding
during the year 18,678 15,412 14,332
Incremental common shares attributable to exercise of
outstanding options and warrants -- 881 1,212
Incremental common shares attributable to conversion of
subordinated debt -- 1,207 509
-------- -------- --------
Denominator for diluted earnings (loss) per share 18,678 17,500 16,053
======== ======== ========

Basic earnings (loss) per share $ (2.38) $ 1.67 $ 1.29
======== ======== ========

Diluted earnings (loss) per share $ (2.38) $ 1.50 $ 1.17
======== ======== ========

Excluded from the diluted loss per share calculation for the year ended
December 31, 1999, were 344,256 shares from outstanding options and warrants and
an additional 2.4 million from incremental shares attributable to the conversion
of certain subordinated debt, as these securities are anti-dilutive.

Income Taxes

The Company and its subsidiaries file a consolidated Federal income and
combined state franchise tax returns. The Company utilizes the asset and
liability method of accounting for income taxes, under which deferred income
taxes are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary

F-11
45

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

Stock Option Plan

As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company accounts
for stock-based employee compensation plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. The Company provides the pro forma net income, pro
forma earnings per share, and stock based compensation plan disclosure
requirements set forth in SFAS No. 123.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.

Segment Reporting

Operations are managed and financial performance is evaluated on a
Company wide basis by chief decision makers. Accordingly, all of the Company's
operations are considered by management to be aggregated in one reportable
operating segment.

New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in foreign
operations, an unrecognized firm commitment, an available for sale security, or
a foreign-currency-denominated forecasted transaction.

Under SFAS No. 133, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management is in the process of assessing the effect of implementing SFAS No.
133.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements, as well as the reported amounts of income and
expenses during the reported periods. Specifically, a number of estimates were
made in connection with determining an appropriate allowance for credit losses,
valuing the Residuals and computing the related gain on sale on the transactions
that created the Residuals. Actual results could differ from those estimates
depending on the future performance of the related Contracts.

F-12

46

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassification

Certain amounts for the prior years have been reclassified to conform to
the current year's presentation.

(2) RESTRICTED CASH

Restricted cash in the amount of $1.7 million and $1.6 million as of
December 31, 1999 and 1998, respectively, is required as part of the agreement
related to a $33.3 million senior secured line of credit established by the
Company in April 1998 (see note 13). The agreement requires the Company to post
a cash reserve equal to the greater of $1.0 million or six months of interest
based on the outstanding balance of the line at the end of the month. Borrowings
under the senior secured line bear interest at LIBOR + 5% (11.46% at December
31, 1999).

(3) CONTRACTS HELD FOR SALE

The following table presents the components of Contracts held for sale:

December 31,
--------------------------
1999 1998
--------- ---------
(in thousands)

Gross receivable balance ........................ $ 3,857 $ 183,876
Unearned finance charges ........................ (136) (10,949)
Deferred acquisition fees and discounts ......... (437) (4,594)
Allowance for credit losses ..................... (863) (2,751)
--------- ---------
Net contracts held for sale .................. $ 2,421 $ 165,582
========= =========

The following table presents the activity in the allowance for credit losses:

Year ended December 31,
-------------------------------------
1999 1998 1997
------- ------- -------
(in thousands)

Balance, beginning of year ................. $ 2,751 $ 2,204 $ 723
Provisions ................................. 5,323 3,544 4,088
Charge-offs ................................ (8,478) (2,535) (2,935)
Allowance allocated to repossessed inventory
(217) (1,349) (261)
Recoveries ................................. 1,484 887 589
------- ------- -------
Balance, end of year .................... $ 863 $ 2,751 $ 2,204
======= ======= =======

The Company is required to represent and warrant certain matters with
respect to the Contracts used as collateral in warehouse lines of credit, which
generally duplicate the substance of the representations and warranties made by
the dealers in connection with the Company's purchase of the Contracts. In the
event of a breach by the Company of any representation or warranty with respect
to a Contract, such Contract would no longer be eligible collateral for purposes
of the warehouse line, and the Company would be required to repay to the
warehouse lender the amounts advanced with respect to such Contract. In most
cases, the Company would then be entitled under the terms of its agreements with
dealers to require the selling dealer to repurchase the Contracts at the
Company's purchase price less any principal payments received from the obligor.

As of December 31, 1999 and 1998, respectively, the Company had
commitments to purchase $1.7 million and $2.3 million of Contracts from Dealers
in the ordinary course of business.

F-13

47

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) RESIDUAL INTEREST IN SECURITIZATIONS

The following table presents the components of the residual interest in
securitizations:

December 31,
-----------------------
1999 1998
-------- --------
(in thousands)

Cash, commercial paper, US government securities and other
qualifying investments (Spread Account) ................. $126,126 $130,394
NIRs ..................................................... 19,190 54,800
OC accounts .............................................. 27,098 31,836
Funds held by investor ................................... -- 480
Investment in subordinated certificates .................. 116 338
-------- --------
$172,530 $217,848
======== ========

The following table presents the activity of the NIRs :

Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)

Balance, beginning of year .................. $ 54,800 $ 45,112 $ 23,655
NIR gains recognized (note 5) ............... -- 52,990 34,767
Amortization of NIRs (note 6) ............... (35,610) (35,540) (13,310)
Provision for loss on NIRs .................. -- (7,762) --
-------- -------- --------
Balance, end of year ........................ $ 19,190 $ 54,800 $ 45,112
======== ======== ========

The following table presents the estimated remaining undiscounted credit
losses included in the fair value estimate of the Residuals as a percentage of
the Company's servicing portfolio subject to recourse provisions:

December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)

Undiscounted estimated credit losses ........................... $ 77,480 $ 169,110 $ 90,814

Servicing subject to recourse provisions ....................... $ 813,061 $1,362,801 $ 830,918
========== ========== ==========

Undiscounted estimated credit losses as percentage of servicing
subject to recourse provisions ................................. 9.53% 12.41% 10.93%
========== ========== ==========

(5) GAIN ON SALE OF CONTRACTS

The following table presents the components of the net gain on sale of
Contracts:

F-14
48

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)

NIR gains recognized .................. $ -- $ 52,990 $ 34,767
Loss on sale of Contracts ............. (15,831) -- --
Deferred acquisition fees and discounts
7,434 23,330 8,925
Provision for loss on NIRs ............ -- (7,762) --
Expenses related to sales ............. (1,124) (6,708) (4,559)
Provision for credit losses ........... (5,323) (3,544) (4,088)
-------- -------- --------
$(14,844) $ 58,306 $ 35,045
======== ======== ========

(6) INTEREST INCOME

The following table presents the components of interest income:

Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)

Interest on Contracts held for sale ......... $ 27,949 $ 43,493 $ 14,279
Residual interest income .................... 10,693 33,888 22,557
Amortization of NIRs ........................ (35,610) (35,540) (13,310)
-------- -------- --------
$ 3,032 $ 41,841 $ 23,526
======== ======== ========

(7) SERVICING

The following table presents the components of the Company's servicing
portfolio:

December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)

Contracts held for sale ................. $ 4,833 $ 176,108 $ 71,829
Contracts held to maturity .............. 3,085 -- --
Servicing subject to recourse provisions:
Whole loan portfolios ................. -- 1,463 4,839
Alton Receivables Corp. ............... -- 259 3,073
CPS Receivables Corp. ................. 813,061 1,361,079 823,006
---------- ---------- ----------
$ 820,979 $1,538,909 $ 902,747
========== ========== ==========

(8) FURNITURE AND EQUIPMENT

The following table presents the components of furniture and equipment:

December 31,
--------------------
1999 1998
------- -------
(in thousands)

Furniture and fixtures ....................... $ 3,000 $ 2,973
Computer equipment ........................... 2,378 2,365
Leasing assets ............................... 882 882
Leasehold improvements ....................... 637 644
Other fixed assets ........................... 34 34
------- -------
6,931 6,898
Less accumulated depreciation and amortization (3,891) (2,626)
------- -------
$ 3,040 $ 4,272
======= =======

F-15
49

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) RELATED PARTY TRANSACTIONS

Investment in Unconsolidated Affiliates

Investment in unconsolidated affiliates primarily consists of a 38%
interest in NAB Asset Corporation ("NAB") that was acquired by the Company on
June 6, 1996, for approximately $4.3 million. At the time of the acquisition,
NAB had approximately $3.5 million in cash and no significant operations. The
Company's purchase price of its investment in NAB exceeded the Company's share
of the net assets of NAB at the acquisition date by approximately $1.4 million.
This amount, which was included in other assets in the accompanying consolidated
balance sheets as goodwill, was being amortized over a period of fifteen years.
During 1999, the Company determined that the value of the goodwill was impaired
and wrote off the remaining balance of the goodwill, which is included in other
income (loss) in the accompanying consolidated statement of operations. Based on
the closing price on the Nasdaq, the market value of the investment in NAB was
approximately $483,674 and $2.9 million at December 31, 1999 and 1998,
respectively. Charles E. Bradley, Sr., Chairman of the Company's Board of
Directors and a principal shareholder of the Company, and Charles E. Bradley,
Jr., President, Chief Executive Officer and a member of the Company's Board of
Directors, are both members of the Board of Directors of NAB.

Subsequent to the Company's investment in NAB, NAB purchased Mortgage
Portfolio Services, Inc. ("MPS") from the Company for $300,000. MPS, formed by
the Company in April 1996, is a mortgage broker-dealer based in Texas. In July
1996, NAB formed CARSUSA, Inc. ("CARSUSA"), which purchased, and now owns and
operates, a Mitsubishi automobile dealership in Southern California. On June 27,
1997, NAB sold CARSUSA to Charles E. Bradley, Sr. and Charles E. Bradley, Jr.,
for $1.5 million. Included in other income for the years ended December 31,
1999, 1998 and 1997, is a loss of $2.5 million and income of $51,593 and
$848,920, respectively, which represents the Company's share of NAB's net income
or loss.

Related Party Receivables

The following table presents the components of related party receivables:

December 31,
---------------------
Related Party 1999 1998
------ ------
(in thousands)

NAB Asset Corporation ............................ $ 86 $2,100
CARSUSA, Inc. .................................... 690 904
Service and Management Cooperative, Inc. ......... -- 139
Loan to Subsidiary Officer ....................... 125 125
------ ------
$ 901 $3,268
====== ======

Included in the receivable from CARSUSA at December 31, 1999 and 1998,
is $321,100 and $329,500, respectively, related to a flooring line of credit
provided to CARSUSA. The remainder relates to amounts owed by CARSUSA for other
borrowings.

During fiscal 1999 and 1998, respectively, the Company sold 11 and 51
repossessed automobiles to CARSUSA and received proceeds of $83,800 and
$432,790, respectively. Additionally, the Company purchased 57 and 296 Contracts
from CARSUSA, with an aggregate principal balance of approximately $827,434 and
$4.2 million, respectively, in 1999 and 1998.

F-16
50

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During 1997, the Company lent a total of $9.5 million to NAB,
represented by two promissory notes for $5.5 million and $4.0 million, each
bearing interest at 13% annually. On December 31, 1997, Stanwich Financial
Services Corp. ("SFSC") purchased the $4.0 million note at par. Charles E.
Bradley, Sr., Charles E. Bradley, Jr., and John G. Poole, who are officers and
directors of the Company, collectively own all of the common stock of Stanwich
Holdings, Inc. ("Stanwich Holdings"), and Mr. Bradley, Sr., is the president and
a director of Stanwich Holdings. SFSC is a wholly-owned subsidiary of Stanwich
Holdings. NAB repaid approximately $3.4 million of the $5.5 million promissory
note during 1998, and the balance during 1999.

In June 1998, the Company issued an additional promissory note to NAB
for $3 million, bearing interest at 14% annually. During 1998, the note was
repaid in full.

On March 2, 1998, NAB acquired Stanwich Holdings. At that time the
Company received a note from NAB for $530,835 in exchange for an option it had
held to acquire 100% of the outstanding common stock of Stanwich Holdings. In
June 1998, NAB rescinded the transaction to acquire Stanwich Holdings, with an
effective date of March 2, 1998.

At December 31, 1998, the Company was owed $139,229 by Service and
Management Cooperative, Inc. This was written off in 1999 and is included in
other income (loss). These amounts represent liabilities incurred by Service and
Management Cooperative, Inc., which were paid for by the Company. Certain
officers of the Company's subsidiary Samco were officers of Service and
Management Cooperative, Inc.

In July 1998, the president of SAMCO borrowed $125,000 from the Company.
The loan bears interest at the rate of 10% per annum and is due July 2001.

The Company was a party to a consulting agreement with Stanwich
Partners, Inc., that called for monthly payments of $6,250 through December 31,
1999. Stanwich Partners, Inc., is an affiliate of Charles E. Bradley, Sr.
Included in the accompanying consolidated statements of operations for each of
the years ended December 31, 1999, 1998 and 1997, is $75,000 of consulting
expense related to this consulting agreement.

In November 1998, the Company issued $25 million of subordinated
promissory notes due November 30, 2003, to an affiliate of Levine Leichtman
Capital Partners, Inc. ("LLCP") (see note 13). As part of the transaction, the
Company entered into a consulting agreement with LLCP, calling for monthly
consulting fees of $22,917 through November 1999. Included in the accompanying
consolidated statements of operations for the years ended December 31, 1999, and
1998, are $252,083 and $22,917, respectively, of consulting fees related to this
consulting agreement.

Related Party Debt

In June 1997, the Company borrowed $15 million on an unsecured and
subordinated basis from SFSC. This loan ("RPL") is due 2004, and has a fixed
rate of interest of 9% per annum, payable monthly beginning July 1997. The
Company may pre-pay the RPL without penalty at any time after three years. At
maturity or repayment of the RPL, the holder thereof will have an option to
convert 20% of the principal amount into common stock of the Company, at a
conversion rate of $11.86 per share. The balance of the RPL at December 31, 1999
and 1998, was $15 million.

During 1998, the Company borrowed an additional $4 million on an
unsecured basis from SFSC. This loan ("RPL2") is due 2004, and had a fixed rate
of interest of 12.5% per annum

F-17

51

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

payable monthly beginning December 1998. The Company may pre-pay the RPL2,
without penalty, at any time after June 12, 2000. At maturity or repayment of
the RPL2, the holder thereof will have the option to convert the entire
principal balance of the note, or a portion thereof, into common stock of the
Company, at a conversion rate of $3 per share. The balance of the RPL2 at
December 31, 1999 and 1998 was $4 million.

During 1998, the Company borrowed $1 million on an unsecured basis from
John G. Poole, a director of the Company. The terms of this note ("RPL3") are
the same as RPL2. The balance of the RPL3 at December 31, 1999 and 1998 was $1
million.

During 1999, the Company borrowed $1.5 million on an unsecured basis
from SFSC. This loan ("RPL4") is due 2004, has a fixed rate of interest of 14.5%
per annum payable monthly beginning October 1999. In conjunction with the
issuance of RPL4, the Company agreed to issue warrants to purchase up to 207,000
shares of the Company's common stock at a price of $0.01 per share. Such
warrants have been neither issued nor exercised. The Company's agreement to
issue such warrants was modified in the March 2000 debt restructuring described
below.

In March 2000, the Company issued $16.0 million of new senior secured
debt to LLCP, and used the proceeds to repay in full all amounts outstanding
under the Senior Secured Line. The new indebtedness bears interest at 12.5% per
annum, and matures in June 2001. The interest rate and maturity of the
previously outstanding $30.0 million of indebtedness to LLCP are unchanged, at
14.5% and November 2003, respectively. As additional terms of the restructuring
agreement, all prior defaults under the Company's existing agreements with LLCP
were waived or cured, all of the Company's indebtedness to LLCP became senior
secured debt (rather than subordinated debt), LLCP received 103,500 shares of
Company common stock, and the Company agreed with SFSC to reduce by 50% the
207,000 warrants that had been contemplated in connection with SFSC's August and
September 1999 investments in the Company.

Related Party Stock Sale

In July 1998, the Company sold 443,459 shares of common stock in a
private placement to SFSC for $5 million. As of December 31, 1999, the above
shares of common stock had not been registered for public sale.

(10) SHAREHOLDERS' EQUITY

Common Stock

Holders of the common stock are entitled to such dividends as the
Company's Board of Directors, in its discretion, may declare out of funds
available, subject to the terms of any outstanding shares of preferred stock and
other restrictions. In the event of liquidation of the Company, holders of
common stock are entitled to receive, pro rata, all of the assets of the Company
available for distribution, after payment of any liquidation preference to the
holders of outstanding shares of preferred stock. Holders of the shares of
common stock have no conversion or preemptive or other subscription rights and
there are no redemption or sinking fund provisions applicable to the common
stock.

The Company is required to comply with various operating and financial
covenants defined in the agreements governing the warehouse lines, residual
financing, subordinated debt, and related party debt. The covenants restrict the
payment of certain distributions, including dividends. (See note 13 - "Debt.")

Options and Warrants

In 1991, the Company adopted and gained sole shareholder approval of the
1991 Stock Option Plan (the "1991 Plan") pursuant to which the Company's Board
of Directors may grant stock options to officers and key employees. The Plan, as
amended, authorizes grants of options to purchase up to 2,700,000 shares of
authorized but unissued common stock. Stock options are granted with an exercise
price equal to the stock's fair market value at the date of grant. Stock options
have terms that range from 7 to 10 years and vest over a range of 0 to 7 years.
In addition to the 1991 Plan, in fiscal 1995, the Company granted 60,000 options
to certain directors of the Company that vest over three years and expire nine
years from the grant date.

In July 1997, the Company adopted and gained shareholder approval of the
1997 Long-Term Incentive Plan (the "1997 Plan") pursuant to which the Company's
Board of Directors may grant

F-18

52

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

stock options, restricted stock and stock appreciation rights to employees,
directors or employees of entities in which the Company has a controlling or
significant equity interest. Options that have been granted under the 1997 Plan
have in all cases been granted at an exercise price equal to the stock's fair
market value at the date of the grant, with terms of 10 years and vesting over 5
years. The 1997 Plan provides that an aggregate maximum of 1,500,000 shares of
the Company's common shares may be subject to awards under the 1997 Plan.

In October 1998, the Company's Board of Directors approved a plan to cancel
and reissue certain stock options previously granted to key employees of the
Company. All options granted prior to October 22, 1998, with an option price
greater than $3.25 per share, were repriced to $3.25 per share. In conjunction
with the repricing, a one year period of non-exercisability was placed on all
repriced options, which period ended on October 21, 1999.

In October 1999, the Company's Board of Directors approved a plan to cancel
and reissue certain stock options previously granted to key employees of the
Company. All options granted prior to October 29, 1999, with an option price
greater than $0.625 per share, were repriced to $0.625 per share. In conjunction
with the repricing, a six month period of non-exercisability was placed on all
repriced options, which period will end on April 29, 2000. Under a proposed
Interpretation of the application of APB Opinion No. 25 ("APB 25"), the change
in the exercise price during the original option term would be required to be
accounted for as a variable award. Variable award accounting would apply to the
modified option from the date of modification until the date of exercise,
regardless of whether the option is vested or unvested at the date of
modification. Accordingly, estimates of the compensation, based on the option's
intrinsic value, would be recorded in future periods once this Interpretation is
effective. The provision of this Interpretation would be effective upon issuance
and would apply to modifications of outstanding stock options that occur after
December 31, 1998.

At December 31, 1999, there were a total of 82,400 additional shares
available for grant under the 1991 Plan and 1997 Plan. Of the options
outstanding at December 31, 1999, 1998 and 1997, 24,800, 194,040 and 584,920,
respectively, were then exercisable, with weighted-average exercise prices of
$0.69, $2.68 and $6.77, respectively. The per share weighted-average fair value
of stock options granted during the years ended December 31, 1999, 1998 and
1997, was $1.11, $1.87, and $5.79, respectively, at the date of grant. That fair
value was computed using the Black-Scholes option-pricing model with the
following weighted average assumptions:

Year ended December 31,
-------------------------------
1999 1998 1997
------ ----- -----

Expected life (years) ...................... 6.09 6.41 6.50
Risk-free interest rate .................... 5.96% 4.95% 6.48%
Volatility ................................. 114.79% 20.00% 52.04%
Expected dividend yield .................... -- -- --

The Company applies APB 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation," the
Company's net income and net earnings per share would have been reduced to the
pro forma amounts indicated below.

F-19
53

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year ended December 31,
-----------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands, except per share data)

Net income (loss)
As reported ......................... $ (44,532) $ 25,703 $ 18,532
Pro forma ........................... $ (46,236) $ 24,639 $ 18,182

Net earnings (loss) per share - basic
As reported ......................... $ (2.38) $ 1.67 $ 1.29
Pro forma ........................... $ (2.48) $ 1.60 $ 1.27

Net earnings (loss) per share - diluted
As reported ......................... $ (2.38) $ 1.50 $ 1.17
Pro forma ........................... $ (2.48) $ 1.48 $ 1.17

Pro forma net income (loss) and net earnings (loss) per share reflect
only options granted in the years ended December 31, 1999, 1998, 1997, and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma amounts presented above,
because compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to Apri1 1, 1995, is not considered.

Stock option activity during the periods indicated is as follows:

Number of Weighted-Average
Shares Exercise Price
--------- -----------------
(in thousands,
except per share data)

Balance at December 31, 1996 ............... 2,154 $ 5.04
Granted ............................... 321 9.76
Exercised ............................. 937 2.64
Canceled .............................. 145 11.69
----- ------
Balance at December 31, 1997 ............... 1,393 7.05
Granted ............................... 3,515 5.42
Exercised ............................. 5 8.50
Canceled .............................. 2,412 8.64
----- ------
Balance at December 31, 1998 ............... 2,491 3.22
Granted ............................... 3,751 1.28
Exercised ............................. -- --
Canceled .............................. 3,318 3.27
----- ------
Balance at December 31, 1999 ............... 2,924 $ 0.69
===== ======

At December 31, 1999, the range of exercise prices, the number,
weighted-average exercise price and weighted-average remaining term of options
outstanding and the number and weighted-average price of options currently
exercisable are as follows:

Weighted Weighted
Weighted- Average Average
Average Exercise Number Exercise
Range of Exercise Number Remaining Price Per Exer- Price Per
Prices (per share) Outstanding Term Share cisable Share
- ------------------ ----------- --------- --------- ------- ----------
(in thousands, except per share data)

$0.63 - $1.56 2,863 7.29 $ 0.63 3 $ 0.63
$3.25 -$4.56 61 8.24 $ 3.40 22 $ 3.32

F-20
54

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the Company's initial public offering, the Company
sold to the underwriter of the offering, for an aggregate price of $120,
warrants to purchase up to 240,000 shares of the Company's common stock at an
exercise price of $3.00 per share. The warrants were exercisable during the four
year period commencing one year from the date of the offering. The shares
represented by the warrants have been registered for public sale. During the
year ended December 31, 1997 and 1996, the underwriter exercised 14,000 and
86,000 warrants, respectively. At December 31, 1997, all warrants had been
exercised.

On November 17, 1998, in conjunction with the issuance of a $25.0
million subordinated promissory note to an affiliate of LLCP, the Company issued
warrants to purchase up to 3,450,000 shares of common stock at $3.00 per share,
exercisable through November 30, 2005. In April 1999, in conjunction with the
issuance of $5.0 million of an additional subordinated promissory note to an
affiliate of LLCP, the Company issued additional warrants to purchase 1,335,000
shares of the Company's common stock at $0.01 per share to LLCP. As part of the
purchase agreement, the existing warrants to purchase 3,450,000 shares at $3.00
per share were exchanged for warrants to purchase 3,115,000 shares at a price of
$0.01 per share. The aggregate value of the warrants, $12.9 million, which is
comprised of $3.0 million from the original warrants issued in November 1998 and
$9.9 million from the repricing and additional warrants issued in April 1999, is
reported as deferred interest expense to be amortized over the expected life of
the related debt, five years. As of December 31, 1999, 1,000 warrants remained
unexercised. As of December 31, 1999, the remaining warrants, and the common
stock issued in conjunction with the exercise of 4,449,000 of warrants had not
been registered for public sale. However, the holder of the remaining warrants
has the right to require the Company register the warrants and common stock for
public sale in the future.

Also in November 1998, the Company entered into an agreement with the
Certificate Insurer of its asset-backed securities. The agreement commits the
Certificate Insurer to provide insurance for the securitization of $560.0
million in asset-backed securities, of which $250.0 million remained at December
31, 1998. The agreement provides for a 3% initial Spread Account deposit. As
consideration for the agreement, the Company issued warrants to purchase up to
2,525,114 shares of common stock at $3.00 per share, subject to anti-dilution
adjustments. The warrants are fully exercisable on the date of grant and expire
in November 2003. The value of the warrants, $2.2 million, is included in other
assets as deferred securitization expense to be amortized over five years. As of
December 31, 1999, the warrants had not been registered for public sale.
However, the holder of the warrants has the right to require the Company
register the warrants for public sale in the future.

(11) COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its facilities and certain computer equipment under
non-cancelable operating and capital leases, which expire through 2009. Future
minimum lease payments at December 31, 1999, under these leases are as follows:

F-21

55

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Capital Operating
------- -------
(in thousands)

2000 $ 697 $ 3,311
2001 598 2,696
2002 413 2,599
2003 56 2,612
2004 -- 2,570
Thereafter -- 9,375
------- -------
Total minimum lease payments 1,764 $23,163
======= =======

Less: amount representing interest 258
-------
Present value of net minimum lease payments $ 1,506
=======

Included in furniture and equipment in the accompanying consolidated
balance sheets are the following assets held under capital leases at December
31, 1999:

Computer equipment $ 811
Furniture and fixtures 2,044
------
2,855

Less: accumulated depreciation 1,403
------
$1,452
======

Rent expense for the years ended December 31, 1999, 1998 and 1997, was
$3.1 million, $2.0 million, and $1.0 million, respectively. The Company's
facility lease contains certain rental concessions and escalating rental
payments, which are recognized as adjustments to rental expense and are
amortized on a straight-line basis over the term of the lease.

In November 1998, the Company entered into a sublease agreement for the
space that had been the Company's headquarters in Irvine, California. The
sublease agreement extends beyond the term of the lease and provides for the
tenant to pay a base rent in excess of the lease payment required of the
Company, plus all common area maintenance charges and property taxes. During
1999 and 1998, the Company received $875,215 and $64,289, respectively, of
sublease income, which is included in occupancy expenses. Future minimum
sublease payments totaled $1,057,235 at December 31, 1999.

Litigation

On May 18, 1999, Kevin Gilmore commenced a lawsuit against the Company in the
Superior Court of California, San Francisco County. The lawsuit alleges certain
defects in repossession notices used by the Company in the State of California,
and seeks injunctive relief, including "restitution" of an unspecified amount.
Similar cases have been filed against most of the major firms financing motor
vehicle purchases in California. Trial in the matter is set for May 2000. The
Company plans to contest vigorously this litigation.

On October 29, 1999, three ex-employees of LINC filed an involuntary petition
under Chapter 7 of the Bankruptcy Code, naming LINC as the debtor, and seeking
its liquidation. The petition was filed in the U.S. Bankruptcy Court for the
District of Connecticut. Among the allegations made by the petitioners, which
may be considered to be asserted against the Company, is that LINC is entitled
to a retained interest in the Contracts sold by LINC in securitizations, and
thus to a share of the distributions from the securitized pools. The Company
intends to contest vigorously this matter.

It is management's opinion that all litigation of which it is aware, including
the matters discussed above, will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity,
beyond reserves already taken.

(12) INCOME TAXES

Income taxes consist of the following:

F-22

56

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)

Current
Federal ................................. $ (6,702) $ 3,318 $ 4,278
State ................................... -- 1,195 922
-------- -------- --------
(6,702) 4,513 5,200
Deferred
Federal ................................. (14,674) 10,451 4,505
State ................................... (6,255) 3,653 1,611
-------- -------- --------
(20,929) 14,104 6,116
Income tax (expense benefit)
from exercise of options credited
to shareholders' equity ................... -- -- 2,111
-------- -------- --------
Income taxes (benefit) .............. $(27,631) $ 18,617 $ 13,427
======== ======== ========

The Company's effective tax expense benefit for the years ended December
31, 1999, 1998 and 1997, differs from the amount determined by applying the
statutory federal rate of 35% to income (loss) before income taxes as follows:

Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)

Expense (benefit) at federal tax rate ...................... $(25,257) $ 15,512 $ 11,186
California franchise tax, net of federal income tax benefit (4,066) 3,151 1,672
State tax benefit from exercise of options, net of
federal income tax benefit, credited to shareholders' equity -- -- 586
Non-deductible warrant amortization ........................ 514 -- --
Other ...................................................... 1,178 (46) (17)
-------- -------- --------
$(27,631) $ 18,617 $ 13,427
======== ======== ========

The tax effected cumulative temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 1999 and 1998, are as follows:

F-23

57

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31,
------------------------
1999 1998
-------- --------
(in thousands)

Deferred Tax Assets:
Accrued liabilities .......................... $ 1,239 $ 1,296
Furniture and equipment ...................... 233 212
Equity investment ............................ 434 --
NOL Carryforward ............................. 6,373 --
Minimum tax credit ........................... 334 --
State taxes .................................. -- 403
Other ........................................ 123 --
-------- --------
8,736 1,911
Deferred Tax Liabilities:
NIRs ......................................... 8,168 21,054
Provision for credit losses .................. 6,140 7,511
Federal impact of state NOL carryforward ..... 746 --
Equity investments ........................... -- 593
-------- --------
15,054 29,158
-------- --------
Net deferred tax liability ................... $ 6,318 $ 27,247
======== ========

As of December 31, 1999, the Company has net operating loss carry-forwards for
federal and state income tax purposes of $12.0 million and $20.0 million,
respectively, which are available to offset future taxable income, if any,
through 2019 and 2004, respectively. In addition, the Company has an alternative
minimum tax credit carry-forward of approximately $334,000 which is available to
reduce future federal regular income taxes, if any, over an indefinite period.

The Company believes that the deferred tax asset will more likely than not be
realized due to the reversal of the deferred tax liability and the expected
future taxable income. In determining the possible future realization of
deferred tax assets, future taxable income from the following sources are taken
into account: (a) reversal of taxable temporary differences, (b) future
operations exclusive of reversing temporary differences, and (c) tax planning
strategies that, if necessary, would be implemented to accelerate taxable income
into years in which net operating losses might otherwise expire.

The Company files its tax returns on a fiscal year ending March 31.
During 1998, the Company's federal income tax return for the tax year ended
March 31, 1995, was audited by the Internal Revenue Service. As a result of the
audit, the Company was required to pay approximately $150,000 in payroll taxes
and interest. The audit was concluded and closed during 1998.

(13) DEBT

In November 1998, the Company entered into a warehouse line of credit
agreement with General Electric Capital Corporation (the "GECC Line"). The GECC
Line provided for warehouse facility advances up to a maximum of $100 million at
a variable interest rate of LIBOR + 3.75% (8.87% at December 31, 1998). The GECC
Line by its terms was to expire November 30, 1999. During 1999, the Company
defaulted on the GECC Line agreements and was required to repay all balances
owed. During August 1999, all amounts owed under the GECC Line were repaid and
the agreement was terminated.

F-24

58

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company was charged a non-utilization fee of .25% per annum on the unused
portion of the GECC Line. The balance outstanding at December 31, 1998, under
the GECC Line was $21.7 million.

In November 1997, the Company entered into a warehouse line of credit
agreement with First Union Capital Markets ("First Union Line"). The First Union
Line provided for a maximum of $150.0 million of advances to the Company, with
interest at a variable rate (5.05% at December 31, 1998) indexed to prevailing
commercial paper rates. In July 1998, the advance amount was increased to $200.0
million. In conjunction with the increase in maximum advance amount under the
agreement, the expiration date was changed to July 31, 1999, renewable for one
year with the mutual consent of the Company and First Union Capital Markets.
During 1999, the Company defaulted on the First Union Line agreement and was
required to repay the balance outstanding in its entirety. In June 1999, the
balance of the First Union Line was repaid in its entirety and the related
agreement was terminated. The balance outstanding under the First Union Line at
December 31, 1998, was $130.2 million.

In December 1996, the Company entered into an overdraft financing
facility, with a bank, that provided for maximum borrowings of $2.0 million.
Interest was charged on the outstanding balance at the bank's reference rate
(7.75% at December 31, 1998) plus 1.75%. During 1997, the overdraft facility was
increased to $4.0 million. There were no borrowings outstanding under this
facility at December 31, 1998. During 1999, the Company defaulted under the
overdraft facility and was required to repay the outstanding balance in its
entirety. In November 1999, the remaining balance outstanding under the
overdraft facility was repaid in its entirety and the related agreement was
terminated.

In April 1998, the Company established a $33.3 million senior secured
credit line (the "Senior Secured Line") with State Street Bank and Trust
Company, Prudential Insurance and an affiliate of Prudential. Borrowings under
the Senior Secured Line carried interest at LIBOR + 4.0% (9.54% at December 31,
1998), and were secured by all the Company's assets, including its residual
interest in securitizations. The Senior Secured Line was a revolving facility
for one year, after which it converted into a loan with a maximum term of four
years. The lenders under the Senior Secured Line declared a default in August
1999, and in November 1999 reached an agreement with the Company under which
such lenders agreed to refrain from exercising their remedies occasioned by such
default, and under which the Company and such lenders agreed to a repayment
schedule with respect to all indebtedness under the Senior Secured Line. As part
of the agreement to restructure the repayment schedule of the Senior Secured
Line, the interest rate was increased from LIBOR + 4% to LIBOR + 5%. At December
31, 1999, and 1998, the balance outstanding under the Senior Secured Line was
$23.2 million and $33.0 million, respectively. (See note 17 - "Subsequent
Events.")

In November 1998, the Company issued $25.0 million of subordinated
promissory notes due November 30, 2003, to an affiliate of Levine Leichtman
Capital Partners, Inc. ("LLCP"), and received the proceeds (net of $1.3 million
of capitalized issuance costs), of approximately $23.7 million. The Company also
issued warrants to purchase up to 3,450,000 shares of common stock at $3.00 per
share, exercisable through November 30, 2005 (see note 10). The debt bears
interest at 13.5% per annum, and may not be prepaid without penalty prior to
November 1, 2002. Simultaneously with the consummation of that transaction,
certain affiliates of the Company, who had lent the Company an aggregate of $5.0
million on a short-term basis in August and September 1998, agreed to
subordinate their indebtedness to the indebtedness in favor of LLCP, to extend
the maturity of their debt until June 2004, and to reduce their interest rate
from 15% to 12.5%. Such affiliates received in return the option to convert such
debt into an aggregate of

F-25

59

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1,666,667 shares of common stock at the rate of $3.00 per share through maturity
at June 30, 2004. Additionally, SFSC also agreed to subordinate $6.0 million, or
40%, of its RPL in favor of LLCP.

In April 1999, the Company issued an additional $5.0 million of
subordinated promissory notes due April 30, 2004, to the same affiliate of LLCP
as noted above, and received proceeds (net of $312,000 of capitalized issuance
costs) of $4.7 million. The Company also issued warrants to purchase 1,335,000
shares of the Company's common stock at $0.01 per share to LLCP, exercisable
through April 2009. The debt bears interest at 14.5% per annum, and may be
prepaid without penalty at anytime. As part of the purchase agreement, the
interest rate on the previously issued LLCP notes was increased to 14.5% per
annum, and the warrant to purchase 3,450,000 shares of the Company's common
stock at $3.00 per share was exchanged for a warrant to purchase 3,115,000
shares at a price of $0.01 per share.

On April 15, 1997, the Company issued $20.0 million in subordinated
participating equity notes ("PENs") due April 15, 2004. The PENs are unsecured
general obligations of the Company. Interest on the PENs is payable on the
fifteenth of each month, commencing May 15, 1997, at an interest rate of 10.5%
per annum. In connection with the issuance of the PENs, the Company incurred and
capitalized issuance costs of $1.2 million. The Company recognizes interest and
amortization expense related to the PENs using the effective interest method
over the expected redemption period. The PENs are subordinated to certain
existing and future indebtedness of the Company as defined in the indenture
agreement. The Company may at its option elect to redeem the PENs from the
registered holders, in whole but not in part, at any time on or after April 15,
2000, at 100% of their principal amount, subject to limited conversion rights,
plus accrued interest to and including the date of redemption. At maturity, upon
the exercise by the Company of an optional redemption, or upon the occurrence of
a "Special Redemption Event," each holder will have the right to convert into
common stock of the Company ("Common Stock"), 25% of the aggregate principal
amount of the PENs held by such holder at the conversion price of $10.15 per
share of Common Stock. "Special Redemption Events" are certain events related to
a change in control of the Company.

On December 20, 1995, the Company issued $20.0 million in rising
interest subordinated redeemable securities due January 1, 2006 (the "Notes").
The Notes are unsecured general obligations of the Company. Interest on the
Notes is payable on the first day of each month, commencing February 1, 1996, at
an interest rate of 10.0% per annum. The interest rate increases 0.25% on each
January 1 for the first nine years and 0.50% in the last year. In connection
with the issuance of the Notes, the Company incurred and capitalized issuance
costs of $1.1 million. The Company recognizes interest and amortization expense
related to the Notes using the effective interest method over the expected
redemption period. The Notes are subordinated to certain existing and future
indebtedness of the Company as defined in the indenture agreement. The Company
is required to redeem, subject to certain adjustments, $1.0 million of the
aggregate principal amount of the Notes through the operation of a sinking on or
before of January 1, 2000, 2001, 2002, 2003, 2004 and 2005. The Company may at
its option elect to redeem the Notes from the registered holders of the Notes,
in whole or in part at 100% of their principal amount, plus accrued interest to
and including the date of redemption. During 1999, the Company redeemed $1.0
million of principal amount of the notes in conjunction with the requirements of
the related sinking fund agreement.

During the year ended December 31, 1997 the Company acquired CPS
Leasing, Inc. At December 31, 1999 and 1998, CPS Leasing, Inc., had borrowings
to banks of $3.3 million and $2.6 million, respectively.

F-26
60

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 1999, the Company's subordinated debt exceeded its
consolidated net worth, which excess was an event of default under the
indentures governing the RISRS and PENs. The event of default was cured on March
15, 2000, by the issuance of senior secured debt in exchange for outstanding
subordinated debt. (See note 17 - "Subsequent Events.")

The GECC Line, First Union Line, Senior Secured Line, PENs, Notes, LLCP
notes, and the overdraft financing facility contain various restrictive and
financial covenants. With respect to the Senior Secured Line, an August 1999
default under the GECC Line resulted in a default under the Senior Secured Line,
which entitled the lender of that facility to accelerate the repayment of the
outstanding borrowings. In November 1999, the Company entered into a
forebearance agreement with the lender resulting in a revised repayment
schedule. On March 15, 2000, the lender was repaid in full. With respect to the
LLCP notes, as of December 31, 1999, the Company was in violation of
certain covenants. As of March 15, 2000, the holder of such notes has waived
such violations.

(14) EMPLOYEE BENEFITS

The Company sponsors a pretax savings and profit sharing plan (the
"401(k) Plan") qualified under section 401(k) of the Internal Revenue Code.
Under the 401(k) Plan, eligible employees are able to contribute up to 15% of
their compensation (subject to stricter limitation in the case of highly
compensated employees). The Company matches 100% of employees' contributions up
to $600 per employee per calendar year. The Company's contributions to the
401(k) Plan were $300,791, $250,428, and $115,684 for the years ended December
31, 1999, 1998 and 1997, respectively.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgments were
required in estimating fair value for certain items. The subjective factors
include, among other things, the estimated timing and amount of cash flows, risk
characteristics, credit quality and interest rates, all of which are subject to
change. Since the fair value is estimated as of December 31, 1999 and 1998, the
amounts that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different. The estimated fair values of
financial assets and liabilities at December 31, 1999 and 1998, were as follows:

F-27
61

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31,
--------------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Carrying Carrying
Value or Value or
Notional Fair Notional Fair
Financial Instrument Amount Value Amount Value
-------- -------- -------- --------
(in thousands)

Cash ............................... $ 1,640 $ 1,640 $ 1,940 $ 1,940
Restricted Cash .................... 1,684 1,684 1,619 1,619
Contracts held for sale ............ 2,421 2,421 165,582 169,958
Residual interest in securitizations 172,530 172,530 217,848 217,848
Related party receivables .......... 901 901 3,268 3,268
Commitments ........................ 1,661 44 2,313 61
Warehouse lines of credit .......... -- -- 151,857 151,857
Notes payable ...................... 4,006 4,006 2,557 2,557
Senior secured debt................. 23,161 23,161 33,000 33,000
Subordinated debt .................. 69,000 69,000 65,000 65,000
Related party debt ................. 21,500 21,500 20,000 20,000

Cash and Restricted Cash

The carrying value equals fair value.

Contracts held for sale

The fair value of the Company's contracts held for sale is determined by
purchase commitments from investors and prevailing market rates.

Residual Interest in Securitizations

The fair value is estimated by discounting future cash flows using
credit and discount rates that the Company believes reflect the estimated
credit, interest rate and prepayment risks associated with similar types of
instruments.

Related Party Receivables

The carrying value approximates fair value because the related interest
rates are estimated to reflect current conditions for similar types of
investments.

Commitments

The fair value of commitments to purchase contracts from Dealers is
determined by purchase commitments from investors and prevailing market rates.

Warehouse Line of Credit

The carrying value approximates fair value because the warehouse line of
credit is short-term in nature and the related interest rates are estimated to
reflect current market conditions for similar types of instruments.

Notes Payable, Senior Secured Debt, Subordinated and Related Party Debt

The carrying value approximates fair value because the related interest
rates are estimated to reflect current market conditions for similar types of
instruments.

F-28
62

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(16) LIQUIDITY

The Company's business requires substantial cash to support its
operating activities. The Company's primary sources of cash from operating
activities have been proceeds from the sales of Contracts, amounts borrowed
under its various warehouse lines, servicing fees on portfolios of Contracts
previously sold, proceeds from the sales of Contracts, customer payments of
principal and interest on Contracts held for sale, fees for origination of
Contracts, and releases of cash from Spread Accounts. The Company's primary uses
of cash have been the purchases of Contracts, repayment of amounts borrowed
under its warehouse lines and otherwise, operating expenses such as employee,
interest, and occupancy expenses, the establishment of and further contributions
to Spread Accounts, and income taxes. As a result, the Company has been
dependent on its warehouse lines of credit to purchase Contracts, and on the
availability of capital from outside sources in order to finance its continued
operations, and to fund the portion of Contract purchase prices not borrowed
under warehouse lines of credit. The Company is not presently party to any
warehouse line of credit, and did not receive any material releases of cash from
Spread Accounts from June 1998 through October 1999. The inability to borrow and
the lack of cash releases resulted in a liquidity deficiency, which has been
progressively alleviated since the recommencement of releases of cash from
Spread Accounts began in November 1999.

The Company has maintained its Contract purchasing program in the
absence of any warehouse line of credit by entering into flow purchase
arrangements. Flow purchases allow the Company to purchase Contracts while
maintaining only an immaterial level of Contracts held for sale. The Company's
revenues from flow purchase of Contracts, however, are materially less than may
be received by holding Contracts to maturity or by selling Contracts in
securitization transactions.

Net cash provided by operating activities was $170,000 during the year
ended December 31, 1999, compared to net cash used in operating activities of
$71.1 million for the year ended December 31, 1998. Net cash released from
Trusts was $9.7 million as compared to net cash deposited into Trusts of $83.5
million for the year ended December 31, 1998.

During the year ended December 31, 1999, the Company did not complete a
securitization transaction, and therefore, did not use any cash for initial
deposits to Spread Accounts, compared to $45.6 million used during the year
ended December 31, 1998. Cash used for subsequent deposits to Spread Accounts
for the year ended December 31, 1999, was $18.4 million, a decrease of $35.7
million, or 66.1%, from cash used for subsequent deposits to Spread Accounts in
the year ended December 31, 1998. Cash released from Spread Accounts for the
year ended December 31, 1999, was $28.0 million, an increase of $11.9 million,
or 73.9%, from cash released from Spread Accounts in the year ended December 31,
1998. Changes in deposits to and releases from Spread Accounts are affected by
the relative size, seasoning and performance of the various pools of sold
Contracts that make up the Company's Servicing Portfolio.

Beginning in June 1998, the Company's liquidity was adversely affected
by the absence of releases from Spread Accounts. Such releases did not occur
because a number of the Trusts had incurred cumulative net losses as a
percentage of the original Contract balance or average delinquency ratios in
excess of the predetermined levels specified in the respective Servicing
Agreements. Accordingly, pursuant to the Servicing Agreements, the specified
levels applicable to the Company's Spread Accounts were increased in most cases
to an unlimited amount. Due to cross collateralization provisions of the
Servicing Agreements, the specified levels have been increased on 16 of the
Company's 18 remaining Trusts. Until the November 1999 effectiveness of an
amendment to the Servicing Agreement, described below, no material releases from
any of the Spread Accounts were available to the Company. Upon effectiveness of
that amendment, the requisite Spread Account levels in general have been set at
21% of the outstanding principal

F-29

63

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

balance of the Certificates issued by the related Trusts, with higher
percentages applicable to those Trusts that have amortized to the point that
"floor" or minimum levels of credit enhancement are applicable.

In addition to requiring higher Spread Account levels, the Servicing
Agreements provide the Certificate Insurer with certain other rights and
remedies, some of which have been waived on a monthly basis by the Certificate
Insurer with respect to all of the Trusts. Increased specified levels for the
Spread Accounts have been in effect from time to time in the past. As a result
of the increased Spread Account specified levels and cross collateralization
provisions, excess cash flows that would otherwise have been released to the
Company instead were retained in the Spread Accounts to bring the balance of
those Spread Accounts up to higher levels. As a result of the increased
specified levels applicable to the Spread Accounts, approximately $39.1 million
of cash that would otherwise have been available to the Company had been delayed
and retained in the Spread Accounts as of December 31, 1999. A portion of such
cash was subsequently released to the Company as discussed below.

The acquisition of Contracts for subsequent sale in securitization
transactions, and the need to fund Spread Accounts when those transactions take
place, results in a continuing need for capital. The amount of capital required
is most heavily dependent on the rate of the Company's Contract purchases (other
than flow purchases), the required level of initial credit enhancement in
securitizations, and the extent to which the Spread Accounts either release cash
to the Company or capture cash from collections on sold Contracts. As noted
above, the absence of any significant releases of cash from Spread Accounts
since June 1998 had materially impaired the Company's ability to meet such
capital requirements. To reduce its capital requirements and to meet those
requirements, the Company in November 1998 began to implement a three-part plan:
the plan includes (i) issuance of debt and equity securities, (ii) agreements
with the Certificate Insurer to reduce the level of initial Spread Account
deposits, and to reduce the maximum levels of the Spread Accounts, and (iii) a
reduction in the rate of Contract purchases.

As the first step in the plan, the Company in November 1998 and April
1999 issued $25.0 million and $5.0 million, respectively, of subordinated
promissory notes (collectively, the "LLCP Notes"), to Levine Leichtman Capital
Partners, L.P. ("LLCP"). The LLCP Notes are due in 2004, and bear interest at
the rate of 14.5% per annum. Net proceeds received from the issuances were
approximately $28.5 million. In conjunction with the LLCP Notes, the Company
issued warrants to purchase up to 4,450,000 shares of common stock at $0.01 per
share, 3,115,000 and 1,334,000 of which were exercised in April 1999 and May
1999, respectively. The effective cost of this new capital represents a material
increase in the cost of capital to the Company. As part of the agreements for
issuance of the LLCP Notes, Stanwich Financial Services Corp. ("SFSC") agreed to
purchase an additional $15.0 million of notes (at least $7.5 million by July 31,
1999, and the remainder by August 31, 1999), and the Company agreed to sell such
notes. The chairman and the president of the Company are the principal
shareholders of SFSC, and the Company's chairman is the chief executive officer
of SFSC. The terms of these transactions were subsequently modified in March
2000 (see Note 17 -- "Subsequent Events").

Also in November 1998, as the second step in its plan, the Company
reached an agreement with the Certificate Insurer regarding initial cash
deposits. In this agreement, the Certificate Insurer committed to insure
asset-backed securities issued by the Trusts with respect to at least $560.0
million of Contracts, while requiring an initial cash deposit of 3% of
principal. Of the $560.0 million committed, $310.0 million was used in the
Company's December 1998 securitization transaction. The Company's agreement with
the Certificate Insurer also required that the Company issue to the Certificate
Insurer or its designee warrants to purchase 2,525,114 shares of the Company's
common stock at $3.00 per share, exercisable through the fifth anniversary of
the

F-30

64

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

warrants' issuance. The exercise price of the warrants is subject to certain
anti-dilution adjustments.

The amendment agreement mentioned above (the "Amendment") fixes the
amount of cash to be retained in the Spread Accounts for 16 of the Company's 18
remaining securitization Trusts. The amended level is 21% of the outstanding
principal balance of the Certificates issued by such Trusts, computed on a pool
by pool basis. The 21% level is subject to adjustment to reflect over
collateralization. Older Trusts may require more the 21% of credit if the
Certificate balance has amortized to such a level that "floor" or minimum levels
of credit enhancement are applicable.

In the event of certain defaults by the Company, the specified level
applicable to such Spread Accounts could increase to an unlimited amount, but
such defaults are narrowly defined, and the Company does not anticipate
suffering such defaults. The Amendment by its terms is applicable from September
1999 onward, and on November 3, 1999, the necessary signatures and conditions
were satisfied to make the Amendment effective. The Company on November 4, 1999,
received its first material release of cash from the securitized portfolio
pursuant to the terms of the Amendment. The releases of cash are expected to
continue and to vary in amount from month to month. There can be no assurance
that such releases of cash will continue in the future.

As a third part of its plan, the Company reduced its planned level of
Contract purchases initially to not more than $200.0 million per quarter
beginning November 1998. In the first quarter of 1999, the Company purchased
$158.2 million of Contracts. During the second quarter of 1999, the Company
purchased $59.3 million of Contracts, of which $34.0 million was on a flow
basis, as discussed below. During the third quarter of 1999, the Company
purchased $89.6 million of Contracts, all of which was on a flow basis. During
the fourth quarter of 1999, the Company purchased $117.6 million of Contracts,
all of which was on a flow basis. The Company expects to purchase Contracts only
on a flow basis in the future until the Company is able to identify appropriate
sources of capital to acquire and hold Contracts for the Company's own account.
The reduction in the amount of Contracts purchased for the Company's own account
has materially reduced the Company's capital requirements.

Since late May 1999, the Company has purchased Contracts from Dealers
without use of warehouse lines of credit, in "flow purchase" arrangements with
third parties. Under the flow purchase arrangements, the Company purchases
Contracts from Dealers and sells such Contracts outright to the third party.

Purchase of Contracts on a flow basis, as compared with purchase of
Contracts for the Company's own account, has materially reduced the Company's
cash requirements. The Company's plan for meeting its liquidity needs is (1) to
increase the quantity of Contracts that it purchases and sells on a flow basis,
thus increasing the fees that it receives in connection with such purchases and
sales, and (2) to continue to receive releases of cash from its Spread Accounts,
pursuant to the Amendment, which became effective on November 3, 1999. There can
be no assurance that this plan will be successful.

During the second and third quarters of 1999, the Company sold, on a
servicing released basis, $318.0 million of its Contracts held for sale. The
remaining Contracts held for sale represent Contracts that did not meet the
criteria for the various sales occurring in the second and third quarters. The
Company's ability to increase the quantity of Contracts that it purchases and
sells on a flow basis will be subject to general competitive conditions and
other factors. Although the Company has continued to increase the amount of
Contracts purchased and sold on a flow basis, there can be no assurance that the
current level of flow production can be maintained or increased.

F-31

65

CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Obtaining releases of cash from the Spread Accounts is dependent on collections
from the related Trusts generating sufficient cash in excess of the amended
specified levels. There can be no assurance that collections from the related
Trusts will generate cash in excess of the amended specified levels.

(17) SUBSEQUENT EVENTS

In March 2000, the Company issued $16.0 million of new senior secured
debt to LLCP, and used the proceeds to repay in full all amounts outstanding
under the Senior Secured Line. The new indebtedness bears interest at 12.5% per
annum, and matures in June 2001. The interest rate and maturity of the
previously outstanding $30.0 million of indebtedness to LLCP are unchanged, at
14.5% and November 2003, respectively. As additional terms of the restructuring
agreement, all prior defaults under the Company's existing agreements with LLCP
were waived or cured, all of the Company's indebtedness to LLCP became senior
secured debt (rather than subordinated debt), LLCP received 103,500 shares of
Company common stock, and the Company agreed with SFSC to reduce by 50% the
207,000 warrants that had been contemplated in connection with SFSC's August and
September 1999 investments in the Company.

(18) SELECTED QUARTERLY DATA (UNAUDITED)

Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(in thousands, except per share data)

1999
Revenues ................. $ 20,824 $ 13,406 $ (9,204) $(10,221)
Loss before income taxes . (3,667) (11,925) (28,559) (28,012)
Net loss ................. (2,127) (6,910) (16,569) (18,926)

Loss per share:
Basic ................ $ (0.14) $ (0.37) $ (0.82) $ (0.94)
Diluted .............. $ (0.14) $ (0.37) $ (0.82) $ (0.94)

1998
Revenues ................. $ 24,782 $ 29,724 $ 34,577 $ 37,197
Income before income taxes
9,658 10,240 10,744 13,678
Net income ............... 5,603 5,925 6,238 7,937

Earnings per share:
Basic ................ $ 0.37 $ 0.39 $ 0.40 $ 0.51
Diluted .............. $ 0.34 $ 0.36 $ 0.38 $ 0.44

1997
Revenues ................. $ 15,230 $ 17,542 $ 20,231 $ 22,248
Income before income taxes
7,143 7,549 8,309 8,958
Net income ............... 4,145 4,386 4,816 5,185

Earnings per share:
Basic ................ $ 0.29 $ 0.31 $ 0.34 $ 0.36
Diluted .............. $ 0.27 $ 0.28 $ 0.30 $ 0.32

F-32
66

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

3.1 Restated Articles of Incorporation (1)

3.2 Amended and Restated Bylaws (2)

4.1 Indenture re Rising Interest Subordinated Redeemable Securities
("RISRS") (3)

4.2 First Supplemental Indenture re RISRS (3)

4.3 Form of Indenture re 10.50% Participating Equity Notes ("PENs") (4)

4.4 Form of First Supplemental Indenture re PENs (4)

10.1 1991 Stock Option Plan & forms of Option Agreements thereunder (5)

10.2 1997 Long-Term Incentive Stock Plan (5)

10.3 Lease Agreement re Chesapeake Collection Facility (6)

10.4 Lease of Headquarters Building (7)

10.5 Partially Convertible Subordinated Note (7)

10.6 Registration Rights Agreement (7)

10.7 Residual Interest in Securitizations Revolving Credit and Term Loan
Agreement dated as of April 30, 1998, between registrant and State
Street Bank and Trust Company (8)

10.7a Second Amendment Agreement dated November 17, 1998 re: State Street
residual interest in Securitizations Revolving Credit and Term Loan
Agreement (9)

10.7b Amendment and Forbearance Agreement (10)

10.8 Pledge and Security Agreement dated as of April 30, 1998, between
the Company and State Street Bank and Trust Company (8)

10.9 Revolving Credit and Term Note dated April 30, 1998 (8)

10.10 Subscription Agreement regarding shares issued in July 1998 (11)

10.11 Registration Rights Agreement regarding shares issued in July 1998
(11)

10.12 Amended and Restated Motor Vehicle Installment Contract Loan and
Security Agreement (9)

10.13 FSA Warrant Agreement dated November 30, 1998 (9)

67

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

10.14 Securities Purchase Agreement dated November 17, 1998 (12)

10.14a First Amendment dated as of April 15, 1999, to Securities Purchase
Agreement dated as of November 17, 1998, between the Company and
Levine Leichtman Capital Partners II, L.P. ("LLCP"). (said
Securities Purchase Agreement, as amended, is referred to below as
the "Amended SPA") (13)

10.14b Amended and Restated Securities Purchase Agreement dated as of
March 15, 2000, between the LLCP and the Company (14)

10.15 Senior Subordinated Primary Note dated November 17, 1998 (12)

10.15a Senior Subordinated Primary Note in the principal amount of
$25,000,000, as amended and restated pursuant to the Amended SPA
(13)

10.16 Primary Warrant to purchase 3,450,000 shares of common stock dated
November 17, 1998 (12)

10.16a Primary Warrant to Purchase 3,115,000 Shares of Common Stock, as
amended and restated pursuant to the Amended SPA (13)

10.17 Investor Rights Agreement dated November 17, 1998 (12)

10.17a First Amendment to Investors Rights Agreement, dated as of April
15, 1999 (13)

10.18 Waiver Agreement dated as of March 15, 2000, between LLCP and the
Company (14)

10.19 Amended and Restated Investor Rights Agreement dated as of March
15, 2000 (14)

10.20 Registration Rights Agreement dated as of November 17, 1998 (12)

10.20a First Amendment to Registration Rights Agreement, dated as of April
15, 1999 (13)

10.20b Amended and Restated Registration Rights Agreement dated as of
March 15, 2000, between LLCP and the Company (14)

10.21 Subordination Agreement dated as of November 17, 1998 re: Stanwich
Note and Poole Note (9)

10.22 Investment Agreement and Continuing Guaranty, dated as of April 15,
1999 (13)

10.23 Termination and Settlement Agreement with Respect to Investment
Agreement and Continuing Guaranty dated as of March 15, 2000, (14)

10.24 Consolidated Registration Rights Agreement dated November 17, 1998
re: 1997 Stanwich Notes (9)

10.25 Securities Purchase Agreement dated as of April 15, 1999, between
the Company and LLCP (13)

10.26 Senior Subordinated Note in the principal amount of $5,000,000 (13)

10.27 Amended and Restated Secured Senior Note Due 2003 in the principal
amount of $30,000,000 (14)

10.28 Secured Senior Note Due 2001 in the principal amount of $16,000,000
(14)

10.29 Warrant to Purchase 1,335,000 Shares of Common Stock (13)

10.30 FSA Letter Agreement dated November 17, 1998 (9)

10.31 Agreement dated May 29, 1999 for Sale of Contracts on a Flow Basis
(15)

10.32 Amendment to Master Spread Account Agreement (filed herewith)

21.1 Subsidiaries of the Company (9)

23.1 Consent of independent auditors (filed herewith)

27 Financial Data Schedule (filed herewith)