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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q



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


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003


OR

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


FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NUMBER: 28050

ONYX ACCEPTANCE CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    33-0577635
(I.R.S. EMPLOYER
IDENTIFICATION NO.)


ONYX ACCEPTANCE CORPORATION
27051 TOWNE CENTRE DRIVE
FOOTHILL RANCH, CA 92610
(949) 465-3900
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES o NO x

As of
November 14, 2003 there were 5,128,610 shares of registrants Common
Stock, par value $.01 per share outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                          |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME             
|                              |                                                                                               | CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY          
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 10.132               
|EXHIBIT 10.133               
|EXHIBIT 10.134               
|EXHIBIT 10.135               
|EXHIBIT 10.136               
|EXHIBIT 21.1                 
|EXHIBIT 31                   
|EXHIBIT 32                   



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##### Table of Contents



TABLE OF CONTENTS

ONYX ACCEPTANCE CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

PAGEPART I
    
    Financial Information
    
    
    3Item 1
    
    Financial Statements
    
    
    3Condensed Consolidated Statements of Financial Condition at September 30, 2003 and December 31, 2002
    
    
    3Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2003 and September 30, 2002
    
    
    4Consolidated Statement of Stockholders Equity at September 30, 2003
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4
    
    Controls and Procedures
    
    
    21PART II
    
    Other Information
    
    
    21Item 1
    
    Legal Proceedings
    
    
    21Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Item 5
    
    Other Information
    
    
    22Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    27SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30


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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)

SEPTEMBER 30,
    
    DECEMBER 31,2003
    
    2002(DOLLARS IN THOUSANDS)ASSETSCash and cash equivalents
    
    $
    19,149
    
    
    $
    72Restricted cash
    
    
    
    
    
    
    3,430Credit enhancement assets, at fair value
    
    
    177,923
    
    
    
    177,108Contracts held for sale
    
    
    186,630
    
    
    
    170,353Contracts held for investment (net of allowance)
    
    
    7,992
    
    
    
    6,555Other assets
    
    
    9,825
    
    
    
    9,639Total assets
    
    $
    401,519
    
    
    $
    367,157LIABILITIESAccounts payable
    
    $
    27,005
    
    
    $
    33,871Debt:Warehouse lines
    
    
    185,005
    
    
    
    166,007Residual lines
    
    
    33,604
    
    
    
    45,599Subordinated debt
    
    
    45,436
    
    
    
    27,128Total debt
    
    
    264,045
    
    
    
    238,734Other liabilities
    
    
    36,525
    
    
    
    29,639Total liabilities
    
    
    327,575
    
    
    
    302,244EQUITYCommon stockPar value $.01 per share; authorized 15,000,000 shares; issued and outstanding 5,118,206 as
of September 30, 2003 and 5,086,793 as of December 31, 2002
    
    
    51
    
    
    
    51Paid in capital
    
    
    32,803
    
    
    
    32,652Retained earnings
    
    
    31,334
    
    
    
    27,843Accumulated other comprehensive income, net of tax
    
    
    9,756
    
    
    
    4,367Total equity
    
    
    73,944
    
    
    
    64,913Total liabilities and equity
    
    $
    401,519
    
    
    $
    367,157


See the accompanying notes to the condensed consolidated financial statements.

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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

THREE MONTHS ENDED
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    SEPTEMBER 30,2003
    
    2002
    
    2003
    
    2002(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)REVENUES:Interest income
    
    $
    8,670
    
    
    $
    10,145
    
    
    $
    30,140
    
    
    $
    28,006Interest expense
    
    
    1,666
    
    
    
    2,845
    
    
    
    6,071
    
    
    
    9,003Net interest income
    
    
    7,004
    
    
    
    7,300
    
    
    
    24,069
    
    
    
    19,003Gain on sale of contracts (net)
    
    
    8,725
    
    
    
    3,255
    
    
    
    18,057
    
    
    
    9,932Service fee income
    
    
    13,616
    
    
    
    12,842
    
    
    
    40,042
    
    
    
    39,472Total Revenues
    
    
    29,345
    
    
    
    23,397
    
    
    
    82,168
    
    
    
    68,407EXPENSES:Provision for credit losses
    
    
    967
    
    
    
    818
    
    
    
    2,221
    
    
    
    (461
    )Interest expense-other
    
    
    2,250
    
    
    
    1,225
    
    
    
    4,994
    
    
    
    3,154OPERATING EXPENSES:Salaries and benefits
    
    
    13,474
    
    
    
    13,549
    
    
    
    41,236
    
    
    
    40,998Systems and servicing
    
    
    1,088
    
    
    
    777
    
    
    
    3,135
    
    
    
    2,156Telephone and data lines
    
    
    781
    
    
    
    1,056
    
    
    
    2,366
    
    
    
    2,541Depreciation
    
    
    575
    
    
    
    806
    
    
    
    1,885
    
    
    
    2,676General and administrative expenses
    
    
    7,068
    
    
    
    4,592
    
    
    
    20,362
    
    
    
    15,449Total Operating Expenses
    
    
    22,986
    
    
    
    20,780
    
    
    
    68,984
    
    
    
    63,820Total Expenses
    
    
    26,203
    
    
    
    22,823
    
    
    
    76,199
    
    
    
    66,513Income before income taxes
    
    
    3,142
    
    
    
    574
    
    
    
    5,969
    
    
    
    1,894Income Taxes
    
    
    1,304
    
    
    
    238
    
    
    
    2,478
    
    
    
    785Net Income
    
    $
    1,838
    
    
    $
    336
    
    
    $
    3,491
    
    
    $
    1,109Net Income per share  Basic
    
    $
    0.36
    
    
    $
    0.07
    
    
    $
    0.69
    
    
    $
    0.22Net Income per share  Diluted
    
    $
    0.31
    
    
    $
    0.07
    
    
    $
    0.63
    
    
    $
    0.21Basic Shares Outstanding
    
    
    5,103,395
    
    
    
    5,086,793
    
    
    
    5,092,998
    
    
    
    5,084,914Diluted Shares Outstanding
    
    
    6,002,979
    
    
    
    5,142,298
    
    
    
    5,514,459
    
    
    
    5,194,178


See the accompanying notes to the condensed consolidated financial statements.

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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(IN THOUSANDS)
(UNAUDITED)

ACCUMULATED OTHERADDITIONAL
    
    
    
    
    
    COMPREHENSIVECOMMON
    
    PAID-IN
    
    RETAINED
    
    INCOMESHARES
    
    STOCK
    
    CAPITAL
    
    EARNINGS
    
    NET OF TAX
    
    TOTALBALANCE, DECEMBER 31, 2002
    
    
    5,087
    
    
    $
    51
    
    
    $
    32,652
    
    
    $
    27,843
    
    
    $
    4,367
    
    
    $
    64,913Issuance of Common Stock
    
    
    31
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    151Comprehensive income:Unrealized gain in
securitized assets,
net of tax of $3.9 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,445
    
    
    
    5,445Unrealized loss on hedging
activities,
net of tax of $40 thousand
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,491
    
    
    
    
    
    
    
    3,491Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,491
    
    
    
    5,389
    
    
    
    8,880BALANCE, SEPTEMBER 30, 2003
    
    
    5,118
    
    
    $
    51
    
    
    $
    32,803
    
    
    $
    31,334
    
    
    $
    9,756
    
    
    $
    73,944


See the accompanying notes to the condensed consolidated financial statements.

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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

NINE MONTHS ENDEDSEPTEMBER 30,2003
    
    2002(Dollars in Thousands)OPERATING ACTIVITIES:Net cash used in operating activities
    
    $
    (8,360
    )
    
    $
    (9,067
    )INVESTING ACTIVITIES:Cash used for purchases of property and equipment
    
    
    (975
    )
    
    
    (998
    )FINANCING ACTIVITIES:Proceeds from exercise of employee options
    
    
    151
    
    
    
    4Payments on capital lease obligations
    
    
    (480
    )
    
    
    (331
    )Proceeds from lease refinance
    
    
    
    
    
    
    900Payments on residual lines of credit
    
    
    (41,393
    )
    
    
    (102,474
    )Proceeds from drawdown on residual lines of credit
    
    
    29,398
    
    
    
    86,480Paydown of warehouse lines related to securitizations
    
    
    (1,170,121
    )
    
    
    (900,223
    )Proceeds from warehouse lines
    
    
    1,189,120
    
    
    
    924,223Proceeds from issuance of subordinated debt
    
    
    25,179
    
    
    
    8,120Principal payments on subordinated debt
    
    
    (6,872
    )
    
    
    (2,880
    )Net cash provided by financing activities
    
    
    24,982
    
    
    
    13,819Increase in cash and cash equivalents
    
    
    15,647
    
    
    
    3,754Decrease in restricted cash
    
    
    3,430
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    72
    
    
    
    1,135Cash and cash equivalents at end of period
    
    $
    19,149
    
    
    $
    4,889


See the accompanying notes to the condensed consolidated financial statements.

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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1  NATURE OF OPERATIONS

Onyx Acceptance Corporation, a Delaware Corporation, (Onyx), and its
wholly owned special purpose subsidiaries Onyx Acceptance Financial Corporation
(OAFC), Onyx Acceptance Funding Corporation (OFC), and Onyx Acceptance
Receivables Corporation (OARC), its wholly owned subsidiary, ABNI Inc.
(ABNI), and its majority owned subsidiary, Credit Union Acceptance
Corporation, (CUAC), (collectively, the Company), is a specialized consumer
finance company engaged in the purchase, securitization and servicing of motor
vehicle retail installment contracts originated by franchised and select
independent automobile dealerships (collectively the Contracts). Onyx was
incorporated on August 17, 1993, and commenced operations in February 1994.
Onyx provides an independent source to automobile dealers to finance their
customers purchases of new and used vehicles. The Company attempts to meet the
needs of dealers through consistent buying practices, competitive rates, a
dedicated customer service staff, fast turnaround time and systems designed to
expedite the processing of credit applications.

RECLASSIFICATION

Certain amounts in the 2002 periods condensed consolidated financial
statements have been reclassified to conform to the corresponding 2003
presentation.

NOTE 2  BASIS OF PRESENTATION

The condensed consolidated financial statements included herein are
unaudited and have been prepared by Onyx Acceptance Corporation (Onyx or the
Company) in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the regulations. In the opinion of
management, the financial statements reflect all adjustments (all of a normal
and recurring nature) which are necessary for a fair statement of the financial
position, results of operations and cash flows for the interim period.
Operating results for the three and nine months ended September 30, 2003 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. The condensed consolidated financial statements
should be read in conjunction with the audited financial statements and
footnotes thereto for the year ended December 31, 2002 included in the
Companys 2002 Annual Report on Form 10-K/A.

USE OF ESTIMATES

In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported values of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses for each reporting period. The more significant estimates made in the
preparation of the Companys condensed consolidated financial statements relate
to the credit enhancement assets and the gain on sale of motor vehicle retail
installment sales and loan contracts (Contracts). Such assumptions include,
but are not limited to, estimates of loan prepayments, defaults, recovery rates
and present value discount rates. The Company uses a combination of its own
historical experience and expectation of future performance to determine such
estimates. Actual results may differ from the Companys estimates due to
numerous factors both within and beyond the control of Company management.
Changes in these factors could require the Company to revise its assumptions
concerning the amount of voluntary prepayments, the frequency and/or severity
of defaults and the recovery rates associated with the disposition of
repossessed vehicles.

NOTE 3  RESTRICTED CASH

The Companys restricted cash balance may, from time to time, consist of
one or more of the following components: funds held in reserve accounts
supporting an on balance sheet residual securitization transaction; cash
collateral to meet margin requirements related to hedging activities; and cash
collateral to cure potential borrowing base deficiencies associated with the
Companys warehouse lines.

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NOTE 4  CONTRACTS HELD FOR SALE

Contracts held for sale are carried at the lower of cost or market value
on an aggregate basis. Contracts held for sale include contracts reacquired
upon the exercise of clean up calls and available for sale as part of future
securitizations. At the time of such calls, any unamortized RISA
balance, net of associated other comprehensive income remaining in
stockholders equity is
reclassified from credit enhancement assets and accounted for as loan premium
on the reacquired Contracts. Loan premiums are amortized in a manner that
results in a constant effective yield over the remaining life of the Contracts.
In amortizing loan premium, the Company anticipates prepayments will occur at a
rate consistent with that utilized in valuing its residual interests
(approximately 1.75% per month) over the estimated remaining contractual life
of the Contracts at the date such Contracts are reacquired. If the Companys
actual prepayment experience differs materially from anticipated prepayment
experience, the Company will recalculate the effective yield to reflect actual
payments to date and anticipated future payments. The unamortized loan premium
is adjusted, through a charge or credit to interest income, to the amount that
would have existed had the new effective yield been applied since the
acquisition of the Contracts.

September 30,
    
    December 31,2003
    
    2002(In Thousands)Gross Contracts held for sale
    
    $
    188,812
    
    
    $
    171,785Loan
premium
    
    
    3,942
    
    
    
    3,981Less unearned interest
    
    
    (845
    )
    
    
    (1,265
    )Contracts held for sale
    
    
    191,909
    
    
    
    174,501Dealer participation
    
    
    (5,279
    )
    
    
    (4,148
    )Total
    
    $
    186,630
    
    
    $
    170,353


As of September 30, 2003, 27% of Contracts held for sale were originated in
California, versus 30% as of December 31, 2002.

NOTE 5  CONTRACTS HELD FOR INVESTMENT

Contracts held for investment are net of a $2.3 million allowance for
probable losses at September 30, 2003 and a $1.9 million allowance at December
31, 2002. Amounts held for investment include Contracts that do not qualify for
securitizations as a result of delinquency status, minimum balance or minimum
remaining term.

Contracts held for investment consist of the following:

September 30,
    
    December 31,2003
    
    2002(In Thousands)Gross Contracts held for investment
    
    $
    10,267
    
    
    $
    8,430Less unearned interest
    
    
    (20
    )
    
    
    (24
    )Contracts held for investment
    
    
    10,247
    
    
    
    8,406Allowance
    
    
    (2,255
    )
    
    
    (1,851
    )Total
    
    $
    7,992
    
    
    $
    6,555


NOTE 6  CREDIT ENHANCEMENT ASSETS

SFAS 140 requires that following a transfer of financial assets, an entity
is to recognize the assets it controls and the liabilities it has incurred, and
derecognize assets for which control has been surrendered and liabilities that
have been extinguished.

Credit enhancement assets consisted of the following:

September 30,
    
    December 31,2003
    
    2002(In Thousands)Trust receivables
    
    $
    5,000
    
    
    $
    3,506RISA
    
    
    172,923
    
    
    
    173,602Total
    
    $
    177,923
    
    
    $
    177,108


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Trust receivables represent initial deposits in spread accounts.

Retained interest in securitized assets (RISA) capitalized upon
securitization of Contracts, represents the present value of the estimated
future earnings to be received by the Company from the excess spread created in
securitization transactions. Excess spread is calculated by taking the
difference between the weighted average coupon rate of the Contracts sold and
the weighted average security rate paid to the investors less contractually
specified servicing and guarantor fees and projected credit losses, after
giving effect to estimated prepayments.

Prepayment and credit loss assumptions are utilized to project future
earnings and are based on historical experience. At the time of securitization,
the Company uses a 1.75% prepayment rate for all outstanding securitizations
with an average Contract life range of 1.7 to 1.8 years. Net credit loss
assumptions at the time of securitization range from 3.6% to 4.7% cumulative
depending upon the credit statistics of the underlying portfolio to be
securitized. Credit losses are estimated using cumulative loss frequency and
severity estimates by management. All assumptions are evaluated each quarter
and adjusted, if appropriate, to reflect the actual performance of the
underlying Contracts. Future earnings are discounted at a rate management
believes to be representative of market at the time of securitization, which
was 10.75% for the 2003-C securitization. As of September 30, 2003, the
discount rates used for valuing RISA on our securitizations ranged from 8.3% to
10.8% and net loss assumptions ranged from 3.4% to 6.4% cumulative.

During the quarter ended September 30, 2003, the Company recorded an
impairment loss of $0.45 million, compared to $5.5 million for the quarter
ended September 30, 2002. Impairment charges are netted against
gain on sale as reported in the statement of income.

In initially valuing the RISA and determining estimated cash flows, the
Company establishes an off balance sheet allowance for probable credit losses.
The allowance is based upon historical experience, the credit statistics of the
underlying portfolio and managements estimate of future performance regarding
credit losses. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from managements prior estimates.

The following table presents the estimated future undiscounted RISA
earnings to be received from securitizations. Estimated future undiscounted
RISA earnings are calculated by taking the difference between the weighted
average coupon rate of the Contracts sold and the weighted average security
rate paid to the investors, less the contractually specified servicing fee of
1.0%, financial guaranty insurance premiums and other costs and fees, after
giving effect to estimated prepayments and assuming no losses. To arrive at the
RISA, this amount is reduced by the off balance sheet allowance established for
probable future losses and by discounting to present value.

September 30,
    
    December 31,2003
    
    2002(In Thousands)Estimated net undiscounted RISA earnings
    
    $
    315,659
    
    
    $
    321,685Off balance sheet allowance for losses
    
    
    (105,182
    )
    
    
    (109,490
    )Discount to present value
    
    
    (37,554
    )
    
    
    (38,593
    )Retained interest in securitized assets
    
    $
    172,923
    
    
    $
    173,602Outstanding balance of contracts sold through securitizations
    
    $
    2,650,991
    
    
    $
    2,726,878


In January of 2003, the Financial Accounting Standards Board issued the
pronouncement, Financial Interpretation Number 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46 provides guidance in determining which off
balance sheet assets, liabilities and obligations should be consolidated with
the Companys financial statements. The guidance as outlined in FIN 46 provides
that qualified special purpose entities as defined by FAS 140,
like those the Company employs, are excluded
from the scope of FIN 46.

NOTE 7  NET INCOME PER SHARE

In accordance with Statement of Financial Accounting Standards No. 128,
the following is an illustration of the dilutive effect of the Companys
potential common stock on net income per share.

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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002(Dollars in Thousands, Except Per Share Data)Net Income
    
    $
    1,838
    
    
    $
    336
    
    
    $
    3,491
    
    
    $
    1,109Weighted average shares outstanding
    
    
    5,103
    
    
    
    5,087
    
    
    
    5,093
    
    
    
    5,085Net effect of dilutive stock options/warrants
    
    
    900
    
    
    
    55
    
    
    
    421
    
    
    
    109Diluted weighted average shares outstanding
    
    
    6,003
    
    
    
    5,142
    
    
    
    5,514
    
    
    
    5,194Net income per share:Basic EPS
    
    $
    0.36
    
    
    $
    0.07
    
    
    $
    0.69
    
    
    $
    0.22Diluted EPS
    
    $
    0.31
    
    
    $
    0.07
    
    
    $
    0.63
    
    
    $
    0.21


As of September 30, 2003 and 2002, 49,182 and 1.3 million of combined
options and warrants, respectively, were not included in the calculation of
full dilution for the respective quarters, as they were anti-dilutive.

NOTE 8  STOCK OPTIONS

Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation (SFAS No. 123), and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123 encourages, but does not
require, companies to recognize compensation expense associated with stock
based compensation plans over the anticipated service period based on the fair
value of the award on the date of grant. As allowed by SFAS 123 and 148, the
Company has continued to account for stock-based compensation plans under APB
25. The fair value of the options was estimated at date of grant using a
Black-Scholes single-option pricing model using the following assumptions:

September 30,2003
    
    2002Risk free interest rate
    
    
    2.9
    %
    
    
    3.8
    %Expected stock price volatility
    
    
    79.7
    %
    
    
    87.6
    %Expected life of options
    
    four years
    
    four yearsExpected dividends
    
    none
    
    none


The following table presents the pro forma disclosures required for SFAS
123 and SFAS 148 for the three and nine-month periods ended September 30:

For the Quarters Ended,
    
    For the Nine Months Ended,September 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002(Dollars in Thousands, Except Per Share Data)Net income, as reported (in thousands)
    
    $
    1,838
    
    
    $
    336
    
    
    $
    3,491
    
    
    $
    1,109Stock-based employee compensation expense determined under fair
value based
method for all awards, net of related tax effects (in thousands)
    
    $
    110
    
    
    $
    116
    
    
    $
    332
    
    
    $
    308Pro forma net income (in thousands)
    
    $
    1,728
    
    
    $
    220
    
    
    $
    3,159
    
    
    $
    801Earnings per share:Basic  as reported
    
    $
    0.36
    
    
    $
    0.07
    
    
    $
    0.69
    
    
    $
    0.22Basic  pro forma
    
    $
    0.34
    
    
    $
    0.04
    
    
    $
    0.62
    
    
    $
    0.16Diluted  as reported
    
    $
    0.31
    
    
    $
    0.07
    
    
    $
    0.63
    
    
    $
    0.21Diluted  pro forma
    
    $
    0.29
    
    
    $
    0.04
    
    
    $
    0.57
    
    
    $
    0.15


NOTE 9  CONTINGENCIES

Management believes that the Company has taken prudent steps to address
the litigation risks associated with the Companys business. However, there can
be no assurance that the Company will be able to successfully defend against
all such claims or that the determination of any such claim in a manner adverse
to the Company would not have a material adverse effect on the Companys
automobile finance business. Based upon information presently available, the
Company believes that all current proceedings should not have a material
adverse effect upon the Companys results of operations, cash flows or
financial condition.

NOTE 10  SUBSEQUENT EVENTS

In October of 2003, the Company completed a securitization in the amount
of $400.0 million. The Companys CSFB-Europe residual line
was renewed in October 2003 until January, 2004; additionally, the
size of the CSFB-Europe facility was reduced to $21.4 million to
align with the Companys borrowing requirements.

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

OVERVIEW

Onyx is a specialized consumer finance company engaged in the purchase,
origination, securitization and servicing of Contracts originated by franchised
and select independent automobile dealerships in the United States. The Company
focuses its efforts on acquiring Contracts that are collateralized by late
model used and, to a lesser extent, new automobiles, that are entered into with
purchasers whom the Company believes have a favorable credit profile. Since
commencing the purchase of Contracts in February 1994, the Company has acquired
more than $9.9 billion in Contracts and currently has relationships with over
11,000 dealerships. The Company has expanded its operations from a single
office in California to 18 Auto Finance Centers serving many regions of the
United States.

The Company generates revenues primarily through the purchase,
origination, warehousing, subsequent securitization and ongoing servicing of
Contracts. The Company earns net interest income on Contracts held during the
warehousing period. Net interest income is the difference between the income
earned on interest earning assets and the interest paid on interest bearing
liabilities. Upon the securitization and sale of Contracts, the Company
recognizes a gain on sale of Contracts, receives excess cash flows generated by
owner trusts, and earns fees from servicing the securitized Contracts.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are an integral part of the compilation of
the Companys financial condition and results of operations. Critical
accounting policies require complicated and often intricate calculations and
judgments because they often rely on estimates based on continually changing
market conditions. The following is a summary of accounting policies we
consider critical.

RETAINED INTEREST IN SECURITIZED ASSETS (RISA)

RISA represents the present value of the estimated future earnings to be
received by the Company from the excess spread created in securitization
transactions. Excess spread is calculated by taking the difference between the
weighted average coupon rate of the Contracts sold and the weighted average
security rate paid to the investors less contractually specified servicing and
guarantor fees and projected credit losses, after giving effect to estimated
prepayments. The estimates that Management makes during the execution of the
securitization relate to the expected prepayment rate of the Contracts in the
transaction, the discount rate to be applied to the cash flows and the amount
of cumulative net losses that will be experienced by the Contracts that are
sold in the transaction. As these estimates are made at the inception of the
transaction, they will have a degree of uncertainty as the transaction ages. A
major variable to these estimates relates to the general state of the economy
at any given time and its effect on the performance of the Contracts in the
transaction. The Company recognizes the excess of all estimated cash flows
attributable to the RISA estimated at the acquisition date over the initial
investment (accretable yield) as interest income over the estimated life of the
RISA using the effective yield method. If estimated cash flows change, then the
accretable yield is recalculated and the periodic accretion is adjusted
prospectively. If the estimated fair value of the RISA has declined below its
carrying amount, an other-than-temporary decline is considered to exist if
there has been a decline in the estimated present value of future cash flows
and the difference between the carrying value and fair value of the RISA is
recorded as an impairment loss through the income statement.

RISA is classified in a manner similar to available for sale assets and as
such is marked to market each quarter. Market value changes are calculated by
discounting the estimated cash flows using a current market discount rate. Each
quarter Management reviews its estimates of the cash flows and adjusts any that
are inconsistent with its current estimates. If the effect of the new estimates
reduces the present value of the cash flows and if the fair market value has
declined below the carrying amount of the transaction, Management will record
an impairment loss on the transaction. If the new estimated present value has
declined but the carrying amount remains below the fair value, any change in
the market value of the RISA is reported as a separate component of
shareholders equity on the consolidated statements of financial condition as
accumulated other comprehensive income (loss), net of applicable taxes.

HEDGING ACTIVITIES

The Contracts originated and held by us earn interest at a fixed rate and,
accordingly, we have exposure to changes in interest rates during the warehouse
period. We therefore employ a hedging strategy that is intended to minimize the
risk of interest rate fluctuations. Such transactions involve the execution of
forward interest rate swaps and/or the use of a pre-funding structure for
securitizations.

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Management monitors the hedging activities on a frequent basis to ensure
that the value of hedges, their correlation to the Contracts being hedged and
the amounts being hedged continue to provide effective protection against
interest rate risk. Our hedging strategy requires estimates of monthly Contract
acquisition volume and timing of securitizations. The amount and timing of
hedging transactions are determined by senior management, and are based upon
the amount of Contracts purchased and the interest rate environment.

The Company uses forward interest rate swaps to hedge the variability in
the forecasted future net cash flows it will receive from the RISA attributable
to the risk of changing interest rates. The Companys interest rate swap
agreements involve arrangements to pay a fixed interest rate and receive a
floating interest rate, at specified intervals, calculated on agreed-upon
amortizing notional amounts. The debt and amounts that the Company hedges are
determined based on prevailing market conditions and the current shape of the
yield curve. Interest rate swap agreements are executed as an integral part of
specific securitization transactions. Interest rate swap agreements are unwound
upon securitization, whereby the gain or loss on the hedge is recorded to
income and the associated component of the gain or loss previously recorded in
other comprehensive income in reversed.  As of September 30, 2003,
the Company had $250 million of forward interest rate swaps
outstanding with a AA-rated counterparty.

Derivative instruments used by Onyx involve, to varying degrees, elements
of credit risk in the event a counterparty should default and market risk as
the instruments are subject to rate and price fluctuations. Credit risk is
managed through the use of credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition and
International Swap Dealers Association master netting agreements in place with
all derivative counterparties.

All derivatives are recognized on the balance sheet at their fair value.
On the date that the Company enters into a derivative contract, it designates
the derivative as a hedge of a forecasted transaction of the variability of
cash flows that are to be received or paid in connection with the
securitization (a cash flow hedge). Changes in the fair value of a derivative
that are highly effective and previously designated to qualify as a cash flow
hedge to the extent that the hedge is effective, are recorded in other
comprehensive income until earnings are affected by the variability of cash
flows of the hedged transaction (e.g., until periodic settlements of a variable
asset or liability are recorded in earnings). Any hedge ineffectiveness (which
represents the amount by which the changes in the fair value of the derivative
exceed the variability in the cash flows of the forecasted transaction) is
recorded in current-period earnings.

RESULTS OF OPERATIONS

The Company had net income of $1.8 million and $3.5 million for the
quarter and nine-month periods ended September 30, 2003, compared to net income
of $0.3 million and $1.1 million for the same periods in 2002. The increase in
net income was principally due to a combination of an increase in gains
recorded, a reduction in impairment charges and a reduction in interest expense
during the three and nine-month periods ended September 30, 2003 versus the
same periods in 2002.

Net Interest Income.Net interest income consists primarily of 1) the
difference between the finance revenue earned on Contracts held on balance
sheet during the warehousing period and the interest costs associated with the
Companys borrowings to purchase such Contracts; and 2) the difference between
income accreted on RISA and the interest costs associated with residual line
borrowings secured by RISA.

Net interest income was $7.0 million and $24.1 million for the quarter and
nine-month periods ended September 30, 2003, compared to $7.3 million and $19.0
million for the same periods in 2002.

Finance revenue earned on Contracts held for sale and investment decreased
by approximately $0.45 million and was principally due to the timing and size
of the Companys 2003-C securitizations pre-funding arrangement, which resulted
in a reduction of the average balance of Contracts held for sale and investment
during the quarter versus the same three-month period in 2002. For the three
months ended September 30, 2003, the average balance of Contracts held for sale
and investment was $142.7 million, compared to $158.0 million for the same
period in 2002. Additionally, income accreted on RISA decreased by
$0.5
million and was principally due to a lower average balance of RISA. For the
three-month period ended September 30, 2003, the average balance of RISA was
$171.7 million, compared to $180.3 million for the same period in 2002. The
reduction in the RISA balance principally reflects impairment charges taken and
normal amortization. The reduction in interest income for the quarter was
partially offset by a reduction in interest expense on the Companys residual
lines of credit, stemming from a clean-up call executed on the 2002-A residual
securitization in August of 2003. During the quarter, interest expense
incurred on the residual lines of credit totaled $0.7 million, compared to $1.8
million for the same period in 2002.

The increase in net interest income for the nine-month period was
principally due to (i) a reduction in interest expense incurred on the
Companys residual lines of credit, and (ii) a larger average balance of higher
yielding Contracts that were held on the balance

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##### Table of Contents



sheet, when compared to the same nine-month period in 2002. Interest
expense in connection with the Companys residual lines decreased by $2.7
million for the nine-month period ended September 30, 2003, and was principally
due to the clean-up call executed on the 2002-A residual securitization in
August of 2003. Finance revenue earned on Contracts held for sale and
investment was $13.1 million for the nine-month period ended September 30,
2003, versus $12.3 million for the same period in 2002. The
Company has increased the fair value on certain of its outstanding
ABS transactions through other comprehensive income on the statement
of financial condition. The increase is principally due to the
improved loss performance of certain ABS transactions, and will
result in higher earnings on the RISA assets in future quarters. The table below depicts
the major components of net interest income.

For the Three Months Ended,
    
    For the Nine Months Ended,September 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002(Dollars in Thousands)Income:Finance Revenue (net of participation amortization)
    
    $
    3,806
    
    
    $
    4,304
    
    
    $
    13,147
    
    
    $
    12,311RISA income
    
    
    4,864
    
    
    
    5,841
    
    
    
    16,993
    
    
    
    15,695Total interest income
    
    
    8,670
    
    
    
    10,145
    
    
    
    30,140
    
    
    
    28,006Expense:Warehouse lines
    
    
    990
    
    
    
    1,077
    
    
    
    3,265
    
    
    
    3,453Residual lines
    
    
    676
    
    
    
    1,768
    
    
    
    2,806
    
    
    
    5,550Total interest expense
    
    
    1,666
    
    
    
    2,845
    
    
    
    6,071
    
    
    
    9,003Net interest income
    
    $
    7,004
    
    
    $
    7,300
    
    
    $
    24,069
    
    
    $
    19,003


Contractual servicing fee income is earned at a rate of 1.0% per annum on
the outstanding principal balance of Contracts securitized. Servicing fee
income is related to the size of the serviced portfolio and also includes
investment interest, late fees, extension fees, document fees and other fees
charged to customer accounts. Service fee income was $13.6 million and $40.0
million for the quarter and nine-month period ended September 30, 2003,
compared to $12.8 million and $39.5 million for the same periods in 2002. The
relatively small increase in service fee income reflects the stability in the
size of the serviced portfolio. As of September 30, 2003, the Companys
serviced portfolio was $2.8 billion, compared to $2.9 billion as of September
2002.

Gain on Sale of Contracts.The Company computes a gain on sale with
respect to Contracts securitized based on the present value of the estimated
future excess cash flows to be received from such Contracts using a market
discount rate. The present value of the estimated future excess cash flows is
recorded as a credit enhancement asset on the statement of financial condition.
The gain recorded in the statement of income is equal to the credit enhancement
asset recorded as adjusted for prepaid dealer participation, issuance costs,
the gain or loss on the termination of the cash flow hedge and impairment
charges. The gain on the sale of Contracts is affected by the amount of
Contracts securitized and the net interest rate spread on those Contracts.

The Company completed one securitization in the amount of $400 million during
the quarter, resulting in a gain on sale of Contracts of $9.2 million or 2.3%
of the dollar amount of Contracts securitized, compared to a securitization of
$450 million during the third quarter of 2002, which resulted in a gain on sale
of Contracts totaling $8.8 million or 1.96% of the dollar amount of the
Contracts securitized. For the nine-month period ended September 30, 2003 the
Company completed three securitizations in the amount of $1.2 billion for a
combined gain of $26.7 million, compared to $1.23 billion with a combined gain
of $19.0 million for 2002. The Company recorded a $0.45 million pre-tax
impairment charge on its RISA assets during the third quarter of 2003, and a
$5.5 million pre-tax impairment charge for the same period in 2002. For the
nine months ended September 30, 2003, the Company recorded a combined
impairment of $8.7 million, versus $9.9 million for the same period in 2002.
While the Company has experienced a significant reduction in its overall
delinquency and loss rates on its 2001 and 2002 securitizations, certain
pre-2001 securitizations continue to experience higher losses and delinquency
rates reflecting current economic conditions. The impairment charges have been
recorded to reduce the previously recorded gain on sale on the impaired assets.

The increase in gains recorded for 2003 was principally due to the
increase in the weighted average net spread realized. The net interest rate
spread is the difference between the weighted average Contract rate of the
securitized assets and the weighted average investor rate inclusive of all
costs related to the transaction. Interest rate spread is affected by product
mix, general market conditions and overall market interest rates. The risks
inherent in interest rate fluctuations are partially reduced through hedging
activities. For the securitizations executed during
the nine months ended September 20, 2003, the weighted average interest rate
spread, before issuance costs, was 4.73%, compared to 4.32% for the same period
in 2002. Additionally, the Company reduced the cumulative loss rate on its 2003
securitizations to reflect the improved credit statistics of the underlying
Contracts in the transaction.

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##### Table of Contents



2003-A
    
    2003-B
    
    2003-C
    
    2002-A
    
    2002-B
    
    2002-CWeighted average A.P.R.
    
    
    9.79
    %
    
    
    9.14
    %
    
    
    8.75
    %
    
    
    10.68
    %
    
    
    10.46
    %
    
    
    10.45
    %Projected loss rate (Annualized)
    
    
    (2.21
    )
    
    
    (2.20
    )
    
    
    (2.07
    )
    
    
    (2.50
    )
    
    
    (2.32
    )
    
    
    (2.19
    )Service
fee, dealer participation & other
    
    
    (2.19
    )
    
    
    (2.01
    )
    
    
    (1.99
    )
    
    
    (2.23
    )
    
    
    (2.19
    )
    
    
    (2.13
    )Cost of funds, including investor rate
    
    
    (3.24
    )
    
    
    (2.78
    )
    
    
    (2.48
    )
    
    
    (4.34
    )
    
    
    (4.62
    )
    
    
    (4.21
    )Net spread
    
    
    2.15
    %
    
    
    2.15
    %
    
    
    2.21
    %
    
    
    1.61
    %
    
    
    1.33
    %
    
    
    1.92
    %


Provision for Credit Losses.The Provision for credit losses represents
net credit losses incurred on Contracts held for investment. The provision for
credit losses increased to $967 thousand and $2.2 million for the quarter and
nine months ended September 30, 2003, respectively, compared to $818 thousand
and $(461) thousand for the same periods in 2002. The negative provision for
credit losses for the nine months ended September 30, 2002, reflects a sales
tax refund of approximately $2.0 million received during the second quarter of
2002. The refund has been treated as a recovery as it relates to pro-rata sales
taxes paid by the Company in financing the purchases of vehicles for which the
related Contracts have been previously charged-off. The Company plans to pursue
additional refunds from applicable states in the forthcoming quarters. During
the first quarter of 2003, charges of approximately $1.4 million were incurred
in connection with the liquidation of the Companys repossession inventory.
These charges have been reclassified to collection expense in the Companys
2003 year-to-date presentation of its statement of income to
conform with the current period presentation.

Other Interest Expense.Other interest expense was $2.25 million and $4.99
million for the quarter and nine months ended September 30, 2003, respectively,
compared to $1.22 million and $3.15 million for the same periods in 2002. Other
interest expense includes interest and amortized fees on the Companys
subordinated debt, capital lease obligations and the expenses associated with
the ineffective portion of hedging activities under the guidelines of FAS 133. The increase in interest
expense for the quarter and nine months ended September 30, 2003 was
principally due to interest recorded in connection with the Companys renewable
notes program launched during the first quarter of 2002. As of September 30,
2003, the balance of renewable notes was approximately $33.4 million, compared
to approximately $7.9 million as of September 30, 2002. The weighted average
interest rate on the balance of the renewable notes outstanding as of September
30, 2003 was 8.83%. The renewable notes have varying maturities ranging from
three months to 10 years.

Operating Expenses.The Company has made a significant effort to control
operating expenses though renegotiation of existing service contracts and the
further implementation of technology and automation, including the conversion
of its loan accounting and collection systems to an in-house system and the
development of an automated front-end credit application system. While these
improvements have increased operating efficiencies, the Company has experienced
an increase in charges associated with external collection agencies, insurance
and legal services creating a combined increase of approximately $2.5 million
for the quarter and $5.6 million for the nine month period ending September 30,
2003. Total operating expenses were $23.0 million for the quarter ended
September 30, 2003 compared to $20.8 million for the same period in 2002. For
the nine month period ended September 30, 2003, total operating expenses were
$69.0 million, compared to $63.8 million of the same period in 2002.

Salaries and Benefits Expense.The Company incurred salary and benefit
expenses of $13.5 million and $41.2 million during the quarter and nine months
ended September 30, 2003, respectively, compared to $13.5 million and $41.0
million during the same periods in 2002. Salary expense for the quarters ended
September 30, 2003 and 2002 was $9.5 million. For the nine months ended
September 30, 2003 and 2002, salary expense was $28.7 million and $28.9
million, respectively. The Company has reduced its operating staff by
approximately 4% since September of 2002 as a result of operating efficiencies
gained during the past year. Additionally, the Company consolidated and
renegotiated long-term service contracts with temporary staff agencies thereby
reducing the related expenses by approximately $496 thousand for the nine-month
period in 2003 versus the same period in 2002. Decreases in salary and
temporary staff charges were partially offset by increases in bonus incentives,
annual merit increases and higher health care costs in connection with the
Companys benefit plans.

System and Servicing Expense.System and servicing expense was $1.1
million for the quarter ended September 30, 2003, an increase of approximately
$0.3 million versus the quarter ended September 30, 2002. For the nine months
ended September 30, 2003, total system and servicing expense was $3.1 million,
compared to $2.2 million for the same period in 2002. Toward the end of the
third quarter of 2002, the Company implemented a third-party credit application
system in an effort to reduce the time commitment to manually input the daily
credit applications from its dealer customers. The new system streamlined the
processing of a majority of the Companys credit applications, which resulted in the reduction of its data
entry staff shortly after the deployment. Charges in connection this system
were approximately $305,000 and $877,000 for the quarter and nine months ended
September 30, 2003. The Company incurred approximately $39,000 in expenses for
the quarter and nine-month period ended September 30, 2002 for this system, as
it was initially deployed in September, 2002.

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Telephone and Data Line Expenses.Telephone and data line expenses
decreased to $0.8 million and $2.4 million for the quarter and nine months
ended September 30, 2003, respectively, from $1.1 million and $2.5 million for
the quarter and nine months ended September 30, 2002, respectively. As a result
of Managements renegotiation of its existing service contracts late in 2001,
the Company received refunds from its long-distance service carriers in the
first quarter of 2002; the refunds totaled approximately $172,000. Excluding
the effects of the refunds, telephone and data line expenses remained
materially unchanged versus 2002, as the Companys serviced portfolio remained
at approximately $2.9 billion.

Depreciation Expense.Depreciation expense decreased to $0.6 million and
$1.9 million for the quarter and nine months ended September 30, 2003,
respectively, from $0.8 million and $2.7 million for the quarter and nine
months ended September 30, 2002, respectively. Substantially all of the system
upgrades in connection with the Companys corporate office relocation to
Foothill Ranch during 1999 have been fully depreciated. The Company uses a
three-year life and a straight-line depreciation method for most capital
purchases. The Company will continue to invest in technology and infrastructure
to support the serviced portfolio as a means to increase operating
efficiencies.

Other Operating Expenses.Other operating expenses include professional
fees, marketing, supplies, facility related charges, collection expenses,
insurance fees and credit bureau fees. Other operating expenses were $7.1
million for the quarter ended September 30, 2003 versus $4.6 million for the
same period in 2002. For the nine months ended September 30, 2003 other
operating expenses were $20.4 million, versus $15.5 million for the same period
in 2002. The increase in other operating expense stems from higher fees paid to
third party repossession agencies, and other expenses including insurance and
legal fees.

Income Taxes.The Company files federal and certain state tax returns as a
consolidated group. Tax liabilities from the consolidated returns are allocated
in accordance with a tax sharing agreement based on the relative income or loss
of each entity on a stand-alone basis. The effective tax rate for Onyx was
41.5% for the third quarters of 2003 and 2002.

FINANCIAL CONDITION

CONTRACTS HELD FOR SALE

Contracts held for sale are presented at the lower of cost or market value
and totaled $186.6 million at September 30, 2003, compared to $170.4 million at
December 31, 2002. The number and principal balance of Contracts held for sale
is largely dependent upon the timing and size of the Companys securitizations.

CONTRACTS HELD FOR INVESTMENT

Contracts
held for investment are net of a $2.3 million allowance for
probable losses as of September 30, 2003 and a $1.9 million allowance as of
December 31, 2002. Amounts held for investment include Contracts that do not
qualify for Contract securitizations as a result of delinquency status or
minimum balance. The Company maintains an allowance for credit losses to cover
anticipated losses on the Contracts held for investment on the statement of
financial condition. The allowance for credit losses is increased by charging
the provision for credit losses and decreased by actual losses on the Contracts
held for investment. The level of the allowance is based principally on the
outstanding balance of Contracts held for investment and historical loss
trends.

The following table illustrates the changes in the Companys Contract
acquisition volume, securitization activity and servicing portfolio during the
past five fiscal quarters:

SELECTED QUARTERLY FINANCIAL INFORMATION

For the Quarters EndedSept. 30,
    
    June 30,
    
    Mar. 31,
    
    Dec. 31,
    
    Sept. 30,2003
    
    2003
    
    2003
    
    2002
    
    2002(Dollars in Thousands)Contracts purchased during period
    
    $
    386,945
    
    
    $
    424,575
    
    
    $
    393,096
    
    
    $
    389,743
    
    
    $
    403,199Average monthly volume during period
    
    
    128,981
    
    
    
    141,525
    
    
    
    131,032
    
    
    
    129,914
    
    
    
    134,399Contracts securitized during period
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    450,000
    
    
    
    450,000Servicing portfolio at period end
    
    
    2,849,201
    
    
    
    2,894,435
    
    
    
    2,894,883
    
    
    
    2,905,968
    
    
    
    2,902,674


15



---



##### Table of Contents



ASSET QUALITY

The Company monitors and attempts to minimize delinquencies and losses
through timely collections and the use of a predictive dialing system. At
September 30, 2003, delinquencies represented 1.49% of the amount of Contracts
in its serviced portfolio compared to 2.58% at December 31, 2002. Net
charge-offs as a percentage of the average serviced portfolio were 1.98% for
the quarter ended September 30, 2003, compared to 2.53% for the quarter ended
September 30, 2002. In an effort to improve borrower credit statistics, the
Company modified its incentive compensation system during the fourth quarter of
2000 to shift purchases of Contracts to a higher percentage of higher credit
quality product. The result has been increased credit scores and an improvement
in overall borrower statistics. Delinquency has declined due in part to the
Contracts originated in 2001 and 2002. The Company continues to experience a
higher loss rate on its older transactions that have been impacted by the
slow-down in the economy and the softening of the used car market, which
resulted in lower recovery rates on repossessions.

DELINQUENCY EXPERIENCE OF SERVICED PORTFOLIO

September 30, 2003
    
    December 31, 2002Amount
    
    Amount(Dollars in Thousands)Serviced portfolio
    
    $
    2,849,201
    
    
    $
    2,905,968Delinquencies(1)(2)30 - 59 days
    
    $
    29,225
    
    
    $
    51,64560 - 89 days
    
    
    7,848
    
    
    
    14,12790+ days
    
    
    5,346
    
    
    
    9,118Total
    
    $
    42,419
    
    
    $
    74,890Total delinquencies as a percent of Serviced portfolio
    
    
    1.49
    %
    
    
    2.58
    %




---

|(1) |  | Delinquencies include principal amounts only, net of repossessed
inventory and accounts in bankruptcy. Delinquent thirty-plus day
repossessed inventory as a percent of the serviced portfolio was 0.55% and
0.61% at September 30, 2003 and December 31, 2002, respectively.
Delinquent thirty-plus day Contracts in bankruptcy as a percent of the
serviced portfolio were 0.93% and 1.05% at September 30, 2003 and December
31, 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The period of delinquency is based on the number of days payments are
contractually past due.                                                                                                                                                                                                                                                                                                                                                          

16



---



##### Table of Contents



LOAN LOSS EXPERIENCE OF SERVICING PORTFOLIO

For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002(Dollars in Thousands)Average servicing portfolio(1)
    
    $
    2,873,953
    
    
    $
    2,902,140
    
    
    $
    2,889,316
    
    
    $
    2,877,018Number of gross charge-offs
    
    
    3,205
    
    
    
    3,201
    
    
    
    10,215
    
    
    
    10,039Gross charge-offs
    
    $
    17,625
    
    
    $
    21,620
    
    
    $
    57,611
    
    
    $
    76,499Net charge-offs(2)
    
    $
    14,255
    
    
    $
    18,343
    
    
    $
    47,433
    
    
    $
    62,223Annualized net charge-offs as a percent of average Servicing
portfolio
    
    
    1.98
    %
    
    
    2.53
    %
    
    
    2.19
    %
    
    
    2.88
    %




---

|(1) |  | Average is based on daily balances.                                                        
|--- |  | -------------------------------------------------------------------------------------------
|   
|(2) |  | Net charge-offs are gross charge-offs minus recoveries on Contracts
previously charged off.

The following table illustrates the cumulative net credit loss performance of
each of the securitized pools outstanding for the period from the date of
securitization through September 30, 2003, stated as a percentage of the
original principal balance.

MONTH
    
    99-A
    
    99-B
    
    99-C
    
    99-D
    
    00-A
    
    00-B
    
    00-C
    
    00-D
    
    01-A
    
    01-B
    
    01-C
    
    01-D
    
    02-A
    
    02-B
    
    02-C
    
    02-D
    
    03-A
    
    03-B
    
    03-C1
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %2
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %3
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.01
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %4
    
    
    0.05
    %
    
    
    0.07
    %
    
    
    0.06
    %
    
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.02
    %5
    
    
    0.11
    %
    
    
    0.14
    %
    
    
    0.16
    %
    
    
    0.09
    %
    
    
    0.11
    %
    
    
    0.10
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.07
    %
    
    
    0.10
    %
    
    
    0.05
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.04
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.04
    %6
    
    
    0.21
    %
    
    
    0.27
    %
    
    
    0.28
    %
    
    
    0.15
    %
    
    
    0.18
    %
    
    
    0.17
    %
    
    
    0.11
    %
    
    
    0.15
    %
    
    
    0.12
    %
    
    
    0.18
    %
    
    
    0.11
    %
    
    
    0.08
    %
    
    
    0.07
    %
    
    
    0.10
    %
    
    
    0.11
    %
    
    
    0.07
    %
    
    
    0.07
    %7
    
    
    0.35
    %
    
    
    0.43
    %
    
    
    0.47
    %
    
    
    0.24
    %
    
    
    0.37
    %
    
    
    0.30
    %
    
    
    0.26
    %
    
    
    0.26
    %
    
    
    0.20
    %
    
    
    0.30
    %
    
    
    0.18
    %
    
    
    0.14
    %
    
    
    0.12
    %
    
    
    0.17
    %
    
    
    0.17
    %
    
    
    0.15
    %
    
    
    0.11
    %8
    
    
    0.49
    %
    
    
    0.60
    %
    
    
    0.64
    %
    
    
    0.43
    %
    
    
    0.63
    %
    
    
    0.44
    %
    
    
    0.41
    %
    
    
    0.39
    %
    
    
    0.31
    %
    
    
    0.39
    %
    
    
    0.29
    %
    
    
    0.22
    %
    
    
    0.19
    %
    
    
    0.23
    %
    
    
    0.26
    %
    
    
    0.30
    %
    
    
    0.17
    %9
    
    
    0.63
    %
    
    
    0.85
    %
    
    
    0.83
    %
    
    
    0.59
    %
    
    
    0.87
    %
    
    
    0.67
    %
    
    
    0.65
    %
    
    
    0.50
    %
    
    
    0.47
    %
    
    
    0.50
    %
    
    
    0.38
    %
    
    
    0.32
    %
    
    
    0.26
    %
    
    
    0.33
    %
    
    
    0.34
    %
    
    
    0.37
    %
    
    
    0.24
    %10
    
    
    0.81
    %
    
    
    1.07
    %
    
    
    1.09
    %
    
    
    0.76
    %
    
    
    1.05
    %
    
    
    0.90
    %
    
    
    0.85
    %
    
    
    0.65
    %
    
    
    0.60
    %
    
    
    0.65
    %
    
    
    0.48
    %
    
    
    0.44
    %
    
    
    0.34
    %
    
    
    0.41
    %
    
    
    0.42
    %
    
    
    0.44
    %11
    
    
    1.04
    %
    
    
    1.34
    %
    
    
    1.31
    %
    
    
    0.99
    %
    
    
    1.27
    %
    
    
    1.11
    %
    
    
    1.08
    %
    
    
    0.85
    %
    
    
    0.77
    %
    
    
    0.77
    %
    
    
    0.59
    %
    
    
    0.51
    %
    
    
    0.39
    %
    
    
    0.49
    %
    
    
    0.51
    %
    
    
    0.51
    %12
    
    
    1.29
    %
    
    
    1.56
    %
    
    
    1.47
    %
    
    
    1.20
    %
    
    
    1.59
    %
    
    
    1.38
    %
    
    
    1.29
    %
    
    
    1.03
    %
    
    
    0.95
    %
    
    
    0.89
    %
    
    
    0.70
    %
    
    
    0.59
    %
    
    
    0.48
    %
    
    
    0.58
    %
    
    
    0.60
    %
    
    
    0.59
    %13
    
    
    1.49
    %
    
    
    1.79
    %
    
    
    1.62
    %
    
    
    1.41
    %
    
    
    1.82
    %
    
    
    1.57
    %
    
    
    1.42
    %
    
    
    1.25
    %
    
    
    1.14
    %
    
    
    1.04
    %
    
    
    0.78
    %
    
    
    0.69
    %
    
    
    0.56
    %
    
    
    0.68
    %
    
    
    0.70
    %14
    
    
    1.72
    %
    
    
    1.90
    %
    
    
    1.77
    %
    
    
    1.52
    %
    
    
    2.03
    %
    
    
    1.84
    %
    
    
    1.65
    %
    
    
    1.41
    %
    
    
    1.31
    %
    
    
    1.19
    %
    
    
    0.89
    %
    
    
    0.77
    %
    
    
    0.64
    %
    
    
    0.75
    %
    
    
    0.79
    %15
    
    
    1.90
    %
    
    
    2.08
    %
    
    
    2.00
    %
    
    
    1.70
    %
    
    
    2.25
    %
    
    
    2.08
    %
    
    
    1.93
    %
    
    
    1.62
    %
    
    
    1.47
    %
    
    
    1.33
    %
    
    
    1.00
    %
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    0.84
    %
    
    
    0.89
    %16
    
    
    2.10
    %
    
    
    2.23
    %
    
    
    2.08
    %
    
    
    2.00
    %
    
    
    2.48
    %
    
    
    2.26
    %
    
    
    2.16
    %
    
    
    1.86
    %
    
    
    1.64
    %
    
    
    1.43
    %
    
    
    1.11
    %
    
    
    0.94
    %
    
    
    0.83
    %
    
    
    0.93
    %17
    
    
    2.26
    %
    
    
    2.42
    %
    
    
    2.29
    %
    
    
    2.17
    %
    
    
    2.64
    %
    
    
    2.42
    %
    
    
    2.42
    %
    
    
    2.04
    %
    
    
    1.78
    %
    
    
    1.55
    %
    
    
    1.23
    %
    
    
    1.03
    %
    
    
    0.91
    %
    
    
    1.02
    %18
    
    
    2.46
    %
    
    
    2.63
    %
    
    
    2.48
    %
    
    
    2.40
    %
    
    
    2.80
    %
    
    
    2.69
    %
    
    
    2.65
    %
    
    
    2.20
    %
    
    
    1.96
    %
    
    
    1.67
    %
    
    
    1.34
    %
    
    
    1.10
    %
    
    
    1.00
    %
    
    
    1.10
    %19
    
    
    2.59
    %
    
    
    2.71
    %
    
    
    2.61
    %
    
    
    2.61
    %
    
    
    2.98
    %
    
    
    2.96
    %
    
    
    2.97
    %
    
    
    2.41
    %
    
    
    2.10
    %
    
    
    1.80
    %
    
    
    1.45
    %
    
    
    1.19
    %
    
    
    1.12
    %20
    
    
    2.71
    %
    
    
    2.89
    %
    
    
    2.73
    %
    
    
    2.87
    %
    
    
    3.25
    %
    
    
    3.20
    %
    
    
    3.25
    %
    
    
    2.60
    %
    
    
    2.25
    %
    
    
    1.94
    %
    
    
    1.58
    %
    
    
    1.30
    %
    
    
    1.20
    %21
    
    
    2.83
    %
    
    
    3.08
    %
    
    
    2.92
    %
    
    
    3.05
    %
    
    
    3.52
    %
    
    
    3.44
    %
    
    
    3.48
    %
    
    
    2.75
    %
    
    
    2.36
    %
    
    
    2.09
    %
    
    
    1.71
    %
    
    
    1.39
    %
    
    
    1.27
    %22
    
    
    2.88
    %
    
    
    3.21
    %
    
    
    3.07
    %
    
    
    3.20
    %
    
    
    3.69
    %
    
    
    3.69
    %
    
    
    3.70
    %
    
    
    2.92
    %
    
    
    2.49
    %
    
    
    2.23
    %
    
    
    1.84
    %
    
    
    1.51
    %23
    
    
    3.03
    %
    
    
    3.31
    %
    
    
    3.22
    %
    
    
    3.33
    %
    
    
    3.91
    %
    
    
    3.94
    %
    
    
    3.95
    %
    
    
    3.03
    %
    
    
    2.61
    %
    
    
    2.35
    %
    
    
    1.92
    %
    
    
    1.59
    %24
    
    
    3.21
    %
    
    
    3.43
    %
    
    
    3.32
    %
    
    
    3.53
    %
    
    
    4.12
    %
    
    
    4.18
    %
    
    
    4.18
    %
    
    
    3.16
    %
    
    
    2.75
    %
    
    
    2.47
    %
    
    
    2.02
    %
    
    
    1.67
    %25
    
    
    3.28
    %
    
    
    3.55
    %
    
    
    3.43
    %
    
    
    3.70
    %
    
    
    4.32
    %
    
    
    4.39
    %
    
    
    4.37
    %
    
    
    3.32
    %
    
    
    2.86
    %
    
    
    2.57
    %
    
    
    2.13
    %26
    
    
    3.34
    %
    
    
    3.67
    %
    
    
    3.65
    %
    
    
    3.88
    %
    
    
    4.52
    %
    
    
    4.57
    %
    
    
    4.54
    %
    
    
    3.45
    %
    
    
    3.01
    %
    
    
    2.67
    %
    
    
    2.25
    %27
    
    
    3.47
    %
    
    
    3.77
    %
    
    
    3.79
    %
    
    
    4.03
    %
    
    
    4.71
    %
    
    
    4.74
    %
    
    
    4.74
    %
    
    
    3.59
    %
    
    
    3.12
    %
    
    
    2.77
    %
    
    
    2.33
    %28
    
    
    3.61
    %
    
    
    3.88
    %
    
    
    3.90
    %
    
    
    4.22
    %
    
    
    4.87
    %
    
    
    4.91
    %
    
    
    4.88
    %
    
    
    3.71
    %
    
    
    3.27
    %
    
    
    2.87
    %29
    
    
    3.67
    %
    
    
    4.01
    %
    
    
    4.03
    %
    
    
    4.42
    %
    
    
    5.04
    %
    
    
    5.07
    %
    
    
    5.03
    %
    
    
    3.86
    %
    
    
    3.41
    %
    
    
    2.96
    %30
    
    
    3.78
    %
    
    
    4.14
    %
    
    
    4.19
    %
    
    
    4.58
    %
    
    
    5.23
    %
    
    
    5.22
    %
    
    
    5.18
    %
    
    
    4.00
    %
    
    
    3.52
    %31
    
    
    3.85
    %
    
    
    4.25
    %
    
    
    4.28
    %
    
    
    4.71
    %
    
    
    5.35
    %
    
    
    5.36
    %
    
    
    5.33
    %
    
    
    4.09
    %
    
    
    3.60
    %32
    
    
    3.96
    %
    
    
    4.37
    %
    
    
    4.43
    %
    
    
    4.84
    %
    
    
    5.48
    %
    
    
    5.53
    %
    
    
    5.43
    %
    
    
    4.20
    %
    
    
    3.69
    %33
    
    
    4.07
    %
    
    
    4.49
    %
    
    
    4.60
    %
    
    
    4.98
    %
    
    
    5.61
    %
    
    
    5.67
    %
    
    
    5.57
    %
    
    
    4.28
    %34
    
    
    4.18
    %
    
    
    4.55
    %
    
    
    4.71
    %
    
    
    5.11
    %
    
    
    5.74
    %
    
    
    5.80
    %
    
    
    5.67
    %
    
    
    4.39
    %35
    
    
    4.25
    %
    
    
    4.66
    %
    
    
    4.83
    %
    
    
    5.21
    %
    
    
    5.85
    %
    
    
    5.91
    %
    
    
    5.77
    %
    
    
    4.47
    %36
    
    
    4.32
    %
    
    
    4.79
    %
    
    
    4.95
    %
    
    
    5.32
    %
    
    
    5.96
    %
    
    
    6.04
    %
    
    
    5.90
    %37
    
    
    4.37
    %
    
    
    4.86
    %
    
    
    5.00
    %
    
    
    5.46
    %
    
    
    6.06
    %
    
    
    6.15
    %
    
    
    5.99
    %38
    
    
    4.44
    %
    
    
    4.94
    %
    
    
    5.07
    %
    
    
    5.55
    %
    
    
    6.16
    %
    
    
    6.24
    %
    
    
    6.09
    %39
    
    
    4.51
    %
    
    
    5.00
    %
    
    
    5.15
    %
    
    
    5.63
    %
    
    
    6.25
    %
    
    
    6.35
    %
    
    
    6.17
    %40
    
    
    4.56
    %
    
    
    5.05
    %
    
    
    5.22
    %
    
    
    5.71
    %
    
    
    6.33
    %
    
    
    6.43
    %41
    
    
    4.66
    %
    
    
    5.12
    %
    
    
    5.30
    %
    
    
    5.78
    %
    
    
    6.41
    %
    
    
    6.53
    %42
    
    
    4.69
    %
    
    
    5.17
    %
    
    
    5.36
    %
    
    
    5.84
    %
    
    
    6.48
    %
    
    
    6.60
    %43
    
    
    4.72
    %
    
    
    5.21
    %
    
    
    5.42
    %
    
    
    5.89
    %
    
    
    6.54
    %44
    
    
    4.77
    %
    
    
    5.23
    %
    
    
    
    
    
    
    5.95
    %
    
    
    6.59
    %


17



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##### Table of Contents



CREDIT ENHANCEMENT ASSETS

Credit enhancement assets consisted of the following:

September 30,
    
    December 31,2003
    
    2002(In Thousands)Trust receivables
    
    $
    5,000
    
    
    $
    3,506RISA
    
    
    172,923
    
    
    
    173,602Total
    
    $
    177,923
    
    
    $
    177,108


Trust receivables represents initial deposits in spread accounts.

Retained interest in securitized assets (RISA) capitalized upon
securitization of Contracts represent the present value of the estimated future
earnings to be received by the Company from the excess spread created in
securitization transactions. Excess spread is calculated by taking the
difference between the weighted average coupon rate of the Contracts sold and
the weighted average security rate paid to the investors less contractually
specified servicing and guarantor fees and projected credit losses, after
giving effect to estimated prepayments.

Prepayment and credit loss assumptions are utilized to project future
earnings and are based on historical experience. Credit losses are estimated
using cumulative loss frequency and severity estimates by management. All
assumptions are evaluated each quarter and adjusted, if appropriate, to reflect
the actual performance of the underlying Contracts. Future earnings are
discounted at a rate management believes to be representative of market at the
time of securitization.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires substantial cash and capital resources to operate its
business. Its primary uses of cash include: (i) acquisition of Contracts; (ii)
payments of dealer participation; (iii) securitization costs; (iv) settlements
of hedging transactions; (v) operating expenses; and (vi) interest expense. The
capital resources available to the Company include: (i) interest income during
the warehousing period; (ii) servicing fees; (iii) releases from spread
accounts; (iv) settlements of hedging transactions; (v) sales of Contracts in
securitizations; and (vi) borrowings under its credit facilities. Management
believes that the resources available to the Company will provide the needed
capital to fund Contract purchases, investments in origination and servicing
capabilities, and ongoing operations.

The Companys primary source of funds from continuing operations is
securitization proceeds. The Company uses the cash generated from
securitizations to pay down outstanding warehouse facilities. These facilities
are then used to fund the purchase of Contracts. The Company has historically
operated on a negative cash flow basis, excluding the effects of securitization
transactions, from operating activities, but expects to generate positive cash
flow on a monthly basis by year-end 2003, provided the volume of Contract
purchases remains steady on an annual basis. The Company finances dealer
participation payments and daily operations principally through credit
facilities collateralized by its retained interest in securitized assets, as
well as through proceeds from subordinated debt offerings. Cash used
in operating activities was $8.4 million for the nine months
ended September 30, 2003, compared to $9.1 million used
during the same period in 2002, a decrease of approximately $700,000.
The change in cash used in operating activities is largely dependent
upon the amount of cash released from spread accounts, the timing and
size of securitization transactions including whether they include
pre-funding agreements, the relative size of clean-up calls executed
during the respective periods and the size of securitizations
executed relative to the volume of Contracts originated during the
warehouse period.

The Company continued to focus its efforts on building and maintaining its
dealer relations through its existing branch locations and has not opened any
new branches in 2003. Management is currently reviewing market conditions in
both Ohio and New York and is exploring other east-coast locations as the
overall economic environment improves in the forthcoming periods. Capital
expenditures of $975 thousand and $998 thousand during the nine-month periods
ended September 30, 2003 and 2002, respectively, were due to the ongoing
maintenance and upgrade of the Companys servicing infrastructure.

18



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##### Table of Contents



CP Facilities:As of September 30, 2003, the Company was party to two
Contract warehousing programs (the CP Facilities), a $300 million warehousing
facility (the Triple-A CP Facility) with Triple-A One Funding Corporation
(Triple-A), guaranteed by MBIA Insurance Corporation (MBIA) and a $150
million warehouse facility (the CDC CP Facility) with CDC Financial Products
Inc. (CDC), guaranteed by XL Capital Assurance Inc. Onyx Acceptance Financial
Corporation (Finco), a special purpose subsidiary of the Company, is the
borrower under the Triple-A CP Facility and Onyx Acceptance Receivables
Corporation (Recco), a special purpose subsidiary of the Company, is the
borrower under the CDC CP facility. Triple-A is a rated commercial paper
asset-backed conduit sponsored by MBIA. The CP Facilities are used to fund the
purchase or origination of Contracts. The Company pledges certain of its
Contracts held for sale to borrow from the CP Facilities. The Triple-A CP
Facility was renewed in November 2001 for a three-year term, subject to annual
renewals by liquidity providers. The CDC CP Facility expires in January 2004
but may be renewed by agreement of the parties.

The Residual Lines:As of September 30, 2003, the Company, through a
special purpose subsidiary of the Company, Onyx Acceptance Funding Corporation
(Fundco), had two residual financing facilities: a $35.0 million line with
Merrill Lynch International, as buyer (MLI), and Merrill Lynch, Pierce,
Fenner & Smith Inc., as agent (Merrill) and a $35.0 million facility with
Credit Suisse First Boston (Europe) Limited, as buyer (CSFB-Europe), and
Credit Suisse First Boston Corporation, as agent (CSFB). (The MLI facility
together with the CSFB-Europe facility are sometimes referred to herein as the
Residual Lines). The Residual Lines are used by the Company to finance
operating requirements. The lines utilize collateral-based formulas that set
borrowing availability to a percentage of the value of excess cash flow to be
received from certain securitizations. Each loan under the MLI line matures one
year after the date of the loan. The CSFB-Europe line was renewed in October
2003 until January, 2004; the size of the CSFB-Europe facility was reduced to $21.4 million
to align with the Companys borrowing requirements. The MLI facility was
executed in April of 2003.

Residual Securitizations:As an additional source of funds, the Company
has utilized residual securitizations to pay down its residual financing
facilities to increase the Companys liquidity. During the first quarter of
2000, the Company securitized the residual cash flows from 15 of its then
outstanding securitizations. The proceeds of this transaction were used by the
Company to pay down two residual financing facilities and pay off another
residual financing facility. The Company refinanced this residual
securitization in the amount of $21.0 million during the second quarter of 2002
and in the amount of $9.2 million during the fourth quarter of 2002. During the
first quarter of 2002, the Company completed its second residual interest
securitization for the purpose of providing additional borrowing capacity under
its then existing residual lines. This transaction generated approximately
$75.0 million in proceeds; the Company executed a clean-up call on this
transaction in August 2003.

Subordinated Debt:As of September 30, 2003, the Company had outstanding
approximately $45.4 million of subordinated debt. $12.0 million of subordinated
debt has a stated interest rate of 12.5% and a maturity of June 2006. The
remaining balance of $33.4 million was raised through the Companys renewable
unsecured subordinated note program launched during the first quarter of 2002.
The weighted average interest rate on the balance of the renewable notes
outstanding as of September 30, 2003 was 8.83%. The renewable notes have
varying maturities ranging from three months to 10 years.

The facilities and lines above contain affirmative, negative and financial
covenants typical of such credit facilities. The Company was in compliance with
these covenants as of September 30, 2003.

SECURITIZATIONS

Off balance sheet arrangements are used in the ordinary course of
business. Generally, these transactions are structured as off balance sheet
sales of Contracts. One of the most common forms of off balance sheet
arrangements is Contract securitizations. Regular Contract securitizations are
an integral part of the Companys business plan because they allow the Company
to increase its liquidity, provide for redeployment of its capital and reduce
risks associated with interest rate fluctuations. The Company has developed a
securitization program that involves selling interests in pools of its
Contracts to investors through the public issuance of AAA/Aaa rated
asset-backed securities. Automobile securitizations are used by many financial
institutions and are part of a multi-billion dollar annual market for
asset-backed securities. As part of this process, management considers the
relative risks and returns prior to initiating each securitization. These risks
include, but are not limited to, interest rate fluctuations during the
warehouse period, increased prepayments speeds and losses, loss of credit
enhancement for the underlying securitization, loss of servicing rights and
adverse economic conditions. These factors are explained in further detail in
the section Risk Factors. The table below provides information about the
trusts assets and liabilities as of September 30, 2003 and December 31, 2002.

September 30,
    
    December 31,2003
    
    2002(In millions)Total assets
    
    $
    2,763
    
    
    $
    2,805Total liabilities
    
    $
    2,657
    
    
    $
    2,695


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The Company completed one AAA/Aaa rated publicly underwritten asset-backed
securitization in the amount of $400 million during the third quarter of 2003.
Since 1994, the Company has securitized $9.6 billion of its Contracts in 33
separate transactions. In each of its securitizations, the Company has sold its
Contracts to a newly formed grantor or owner trust, which issued certificates
or notes in an amount equal to the aggregate principal balance of the
Contracts. The net proceeds of these securitizations were used to pay down
outstanding indebtedness incurred under the Companys warehouse financing
facilities to purchase Contracts, thereby creating availability for the
purchase of additional Contracts.

To improve the level of profitability from the sale of securitized
Contracts, the Company arranges for credit enhancement to achieve an improved
credit rating on the asset-backed securities issued. This credit enhancement
has taken the form of a financial guaranty insurance policy (the Financial
Guarantee Insurance Policy) insuring the payment of principal and interest due
on the asset-backed securities. The insurance policy has been issued by MBIA
Insurance Corporation or a predecessor except for the securitizations executed
during the first, third and fourth quarters of 2003, which were insured by XL
Capital Assurance Inc.

The Company receives servicing fees for its duties relating to the
accounting for and collection of the Contracts. In addition, the Company is
entitled to the future excess cash flows arising from the trusts. Generally,
the Company sells the Contracts at face value and without recourse, except that
certain representations and warranties with respect to the Contracts are
provided by the Company as the servicer and Finco as the seller to the trusts.

Gains on sale of Contracts arising from securitizations provide a
significant portion of the Companys revenues. Several factors affect the
Companys ability to complete securitizations of its Contracts, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of the Companys portfolio
of Contracts and the Companys ability to obtain credit enhancement.

INTEREST RATE EXPOSURE AND HEDGING

The
Company is able, through the use of varying maturities on advances from
the CP Facilities, to lock in rates during the warehousing period, when in
managements judgment it is appropriate to limit interest rate exposure during
such warehousing period (See Risk Factors  Interest Rate Risk).

The Company has the ability to move rates upward in response to rising
borrowing costs because the Company currently does not originate loans near the
maximum rates permitted by law. Further, the Company employs a hedging strategy
which primarily consists of the execution of forward interest rate swaps. These
hedges are entered into by the Company in numbers and amounts which generally
correspond to the anticipated principal amount of the related securitization.
Gains and losses relative to these hedges are recognized in full at the time of
securitization as an adjustment to the gain on sale of the Contracts. The
Company has only used counterparties with investment grade debt ratings from
national rating agencies for its hedging transactions.

Management monitors the Companys hedging activities on a frequent basis
to ensure that the value of hedges, their correlation to the Contracts being
hedged and the amounts being hedged continue to provide effective protection
against interest rate risk. The Companys hedging strategy requires estimates
by management of monthly Contract acquisition volume and timing of its
securitizations. If such estimates are materially inaccurate, then the
Companys gain on sales of Contracts and results of operations and cash flows
could be adversely affected. The amount and timing of hedging transactions are
determined by senior management based upon the amount of Contracts purchased
and the interest rate environment. Senior management currently expects to hedge
substantially all of its Contracts pending securitization.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys earnings are affected by changes in interest rates as a
result of its dependence upon the issuance of interest-bearing securities and
the incurrence of debt to fund its lending activities. Several factors can
influence the Companys ability to manage interest rate risk. First, Contracts
are purchased at fixed interest rates, while the amounts borrowed under the
warehouse credit facilities bear interest at variable rates that are subject to
frequent adjustment to reflect prevailing market interest rates. Second, the
interest rate demanded by investors in a securitization is a function of
prevailing market rates for comparable transactions and the general interest
rate environment. Because the Contracts originated by the Company have fixed
interest rates, the Company bears the

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##### Table of Contents



risk of smaller gross interest rate spreads in the event interest rates
increase during the period between the date Contracts are purchased and the
pricing and completion of securitization transactions.

The Company uses several strategies to minimize interest rate risk,
including the utilization of derivative financial instruments, the regular
securitization of Contracts and pre-funding of securitization transactions.
Pre-funding securitizations is the practice of issuing more asset-backed
securities than the amount of Contracts initially sold to the Trust. The
proceeds from the pre-funded portion are held in an escrow account until
additional Contracts are sold to the Trust in amounts up to the balance of the
pre-funded escrow account. In pre-funded securitizations, borrowing costs are
locked in with respect to the Contracts subsequently delivered 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 the subsequent delivery of Contracts and the interest rate paid
on the asset-backed securities outstanding.

Derivative financial instruments are utilized to manage the gross interest
rate spread on the Companys securitization transactions. The Company sells
fixed rate Contracts to the trusts that, in turn, sell fixed rate securities to
investors. The fixed rates on securities issued by the trusts are priced off
index Swap rates on U.S. Treasury Notes with similar average maturities or
various London Interbank Offered Rates (LIBOR). The Company periodically
executes the sale of forward swap agreements to lock in the indexed rate for
specific anticipated securitization transactions. The Company utilizes these
derivative financial instruments to modify its net interest sensitivity to
levels deemed appropriate by management based on the Companys risk tolerance.
All transactions are entered into for purposes other than trading, and are
settled quarterly upon pricing of the securitization.




ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to
the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and the
Companys Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on the
foregoing, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective.

There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

As a consumer finance company, the Company is subject to various consumer
claims and litigation seeking damages and statutory penalties based upon, among
other things, disclosure inaccuracies and wrongful repossession, which could
take the form of a plaintiffs class action complaint. The Company, as the
assignee of finance Contracts originated by dealers, may also be named as a
co-defendant in lawsuits filed by consumers principally against dealers.
Finally, the Company also is subject to other litigation common to the motor
vehicle finance industry and businesses in general. The damages and penalties
claimed by consumers and others in these types of matters can be substantial.
The relief requested by the plaintiffs varies but includes requests for
compensatory, statutory and punitive damages.

Management believes that the Company has taken prudent steps to address
the litigation risks associated with the Companys business. However, there can
be no assurance that the Company will be able to successfully defend against
all such claims or that the determination of any such claim in a manner adverse
to the Company would not have a material adverse effect on the Companys
automobile finance business.

21



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##### Table of Contents






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

No matters were submitted during the third quarter of the fiscal year
covered by this Quarterly Report on Form 10-Q to a vote of security holders,
through the solicitation of proxies or otherwise.




ITEM 5. OTHER INFORMATION

FORWARD LOOKING STATEMENTS

The preceding Managements Discussion and Analysis of the Companys
Financial Condition and Results of Operations contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, which provides a safe harbor for these types of statements. This
Quarterly Report on Form 10-Q contains forward-looking statements which reflect
the current views of Onyx Acceptance Corporation with respect to future events
and financial performance. These forward looking statements are subject to
certain risks and uncertainties, including those identified below which could
cause actual results to differ materially from historical results or those
anticipated. Forward-looking terminology can be identified by the use of terms
such as may, will, expect, anticipate, estimate, should or
continue or the negative thereof or other variations thereon or comparable
terminology. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. Except as
required by law, Onyx Acceptance Corporation undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. The following factors among
others, could cause actual results to differ materially from historical results
or those anticipated: (1) the level of demand for auto contracts, which is
affected by such external factors as the level of interest rates, the strength
of the various segments of the economy, debt burden held by consumers and
demographics of the lending markets of Onyx Acceptance Corporation; (2)
continued dealer relationships; (3) fluctuations between consumer interest
rates and the cost of funds; (4) federal and state regulation of auto finance
operations; (5) competition within the consumer lending industry; (6) the
availability and cost of securitization transactions and (7) the availability
and cost of warehouse and residual financing.

RISK FACTORS

We Need Substantial Liquidity.

We require a substantial amount of liquidity to operate our business.
Among other things, we use such liquidity to:



| |  |  | acquire Contracts;
| | - |  | ------------------



| |  |  | pay dealer participation;
| | - |  | -------------------------



| |  |  | pay securitization costs and fund related accounts;
| | - |  | ---------------------------------------------------



| |  |  | settle hedge transactions;
| | - |  | --------------------------



| |  |  | satisfy working capital requirements and pay operating expenses; and
| | - |  | --------------------------------------------------------------------



| |  |  | pay interest expense.
| | - |  | ---------------------

A substantial portion of our revenues in any period is represented by gain
on sale of Contracts generated by a securitization in such period, but the cash
underlying such revenues is received over the life of the Contracts.

We have historically operated on a negative cash flow basis but expect to
generate positive cash flow on a monthly basis by year-end 2003, provided the
volume of Contract purchases remains steady on an annual basis. We have
historically funded these negative operating cash flows principally through
borrowings from financial institutions, sales of equity securities and sales of
subordinated notes. We cannot assure you, however, that (1) we will have access
to the capital markets in the future for equity, debt issuances or
securitizations, or (2) financing through borrowings or other means will be
available on acceptable terms to satisfy our cash requirements. If we are
unable to access the capital markets or obtain acceptable financing, our
results of operations, financial condition and cash flows would be materially
and adversely affected. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources.

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We Depend on Warehouse Financing.

We depend on warehouse facilities with financial institutions to finance
the purchase or origination of Contracts pending securitization. See Business
Financing and Sale of Contracts. Our business strategy requires that such
financing continue to be available during the warehousing period.

Whether the CP Facilities continue to be available to us depends on, among
other things, whether we maintain a target net yield for the Contracts financed
under the CP Facilities and comply with certain financial covenants contained
in the sale and servicing agreements between us, as seller, and our respective
wholly-owned special purpose subsidiary, Finco or Recco, as purchaser. These
financial covenants include:



| |  |  | a minimum ratio of net worth plus subordinated debt to total assets;
| | - |  | --------------------------------------------------------------------



| |  |  | a maximum ratio of credit enhancement assets to tangible net worth; and
| | - |  | -----------------------------------------------------------------------



| |  |  | earnings before interest, depreciation and taxes coverage ratio.
| | - |  | ----------------------------------------------------------------

We cannot assure you that our CP Facilities will be available to us or
that they will be available on favorable terms. If we are unable to arrange new
warehousing credit facilities or extend our existing credit facilities when
they expire, our results of operations, financial condition and cash flows
could be materially and adversely affected.

We May Depend on Residual Financing.

When we sell our Contracts in securitizations, we receive cash and a
residual interest in the securitized assets (RISA). The RISA represents the
future cash flows to be generated by the Contracts in excess of the interest
paid on the securities issued in the securitization and other costs of
servicing the Contracts and completing the securitization. (See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Securitizations). We typically use the RISA from each securitization as
collateral to borrow cash under our Residual Lines to finance our operations.
The amount of cash advanced by our lenders under our Residual Lines depends on
a collateral formula that is determined in large part by how well our
securitized Contracts perform. If our portfolio of securitized Contracts
experience higher delinquency and loss ratios than expected, then the amount of
money we can borrow under the Residual Lines would be reduced. The reduction in
availability under these Residual Lines could materially and adversely affect
our operations, financial condition and cash flows. Additionally, we are
subject, under the documentation governing the Residual Lines, to certain
financial covenants. During the quarter, the Company recorded a $0.45 million
write-down of the Companys RISA asset stemming from higher than expected
losses and delinquency on certain securitizations. The Company attributes a
portion of the higher losses and delinquency experienced to the general
economic slow-down the nation is experiencing.

We Depend on Residual Securitizations.

At times, we securitize future cash flows generated by RISA to pay off
balances on our Residual Lines and increase liquidity. If our portfolio of
securitized Contracts experience higher delinquency and loss ratios than
expected, then the proceeds of a residual securitization could be significantly
reduced, and the resulting risk associated with the securities could command a
higher yield. The inability to successfully market a residual securitization
could materially and adversely affect our operations, financial condition and
cash flows.

We Depend on Securitizations to Generate Revenue.

We rely significantly upon securitizations to generate cash proceeds for
repayment of our warehouse and our residual credit facilities and to create
availability to purchase additional Contracts. Further, gain on sale of
Contracts generated by our securitizations represents a significant portion of
our revenues. Our ability to complete securitizations of our Contracts is
affected by the following factors, among other things:



| |  |  | conditions in the securities markets generally;
| | - |  | -----------------------------------------------



| |  |  | conditions in the asset-backed securities market specifically;
| | - |  | --------------------------------------------------------------



| |  |  | the credit quality of our portfolio of Contracts; and
| | - |  | -----------------------------------------------------

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##### Table of Contents





| |  |  | our ability to obtain credit enhancement.
| | - |  | -----------------------------------------

If we were unable to profitably securitize a sufficient number of our
Contracts in a particular financial reporting period, then our revenues for
such period could decline and could result in lower net income or a loss for
such period. In addition, unanticipated delays in closing a securitization
could also increase our interest rate risk by increasing the warehousing period
for our Contracts. See Managements Discussion and Analysis of Results of
Operations and Financial Condition  Liquidity and Capital Resources, and
Business Financing and Sale of Contracts.

We Depend on Credit Enhancement.

From inception through September 30, 2003, each of our securitizations has
utilized credit enhancement in the form of a financial guarantee insurance
policy in order to achieve AAA/Aaa ratings. This form of credit enhancement
reduces the cost of the securitizations relative to alternative forms of credit
enhancement currently available to us. We cannot assure you that:



| |  |  | we will be able to continue to obtain credit enhancement in any form from our current providers;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | we will be able to obtain credit enhancement from any other provider of credit enhancement on acceptable terms; or
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | future securitizations will be similarly rated.
| | - |  | -----------------------------------------------

We also rely on financial guarantee insurance policies to reduce our
borrowing cost under the CP Facilities. If our current providers credit
ratings are downgraded or if they withdraw the credit enhancement, we could be
subject to higher interest costs for our future securitizations and financing
costs during the warehousing period. Such events could have a material adverse
effect on our results of operations, financial condition and cash flows.

We Are Subject to Interest Rate Fluctuations.

Our profitability is largely determined by the difference, or spread,
between the effective rate of interest received by us on the Contracts acquired
and the interest rates payable under our credit facilities during the
warehousing period and for securities issued in securitizations.

Several factors affect our ability to manage interest rate risk. First,
the Contracts are purchased or originated at fixed interest rates, while
amounts borrowed under our credit facilities bear interest at variable rates
that are subject to frequent adjustment to reflect prevailing rates for
short-term borrowings. Our policy is to increase the buy rates we issue to
dealerships in response to increases in our cost of funds during the
warehousing period. However, there is generally a time lag before such
increased borrowing costs can be offset by increases in the buy rates for
Contracts and, in certain instances, the rates charged by our competitors may
limit our ability to pass through our increased costs of warehouse financing.

Second, the spread can be adversely affected after a Contract is purchased
or originated and while it is held during the warehousing period by increases
in the prevailing rates in the commercial paper markets. While the CP
Facilities permit us to select maturities to coincide with the projected end of
the warehouse period, if we selected a shorter maturity or have a delay in
completing a securitization, we would face this risk.

Third, the interest rate demanded by investors in securitizations is a
function of prevailing market rates for comparable transactions and the general
interest rate environment. Because the Contracts purchased or originated by us
have fixed rates, we bear the risk of spreads narrowing because of
interest-rate increases during the period from the date the Contracts are
purchased until the pricing of our securitization of such Contracts. We employ
a hedging strategy that is intended to minimize this risk and which
historically has involved the execution of forward interest rate swaps or use
of a pre-funding structure for our securitizations. However, we cannot assure
you that this strategy will consistently or completely offset adverse
interest-rate movements during the warehousing period or that we will not
sustain losses on hedging transactions. Our hedging strategy requires estimates
by management of monthly Contract acquisition volume and timing of our
securitizations. If such estimates are significantly inaccurate, then our gains
on sales of Contracts, results of operations and cash flows could be materially
and adversely affected.

We also have exposure to interest rate fluctuations under the Residual
Lines. In periods of increasing interest rates, our cash flows, results of
operations and financial condition could be materially adversely affected.

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In addition, we have some interest rate exposure to falling interest rates
to the extent that the interest rates charged on Contracts sold in a
securitization with a pre-funding structure decline below the rates prevailing
at the time that the securitization prices. Such a rate decline would reduce
the interest rate spread because the interest rate on the notes and/or the
certificates would remain fixed. This would negatively impact the gain on sale
of Contracts and our results of operations and cash flows.

We Will Be Adversely Affected When Contracts are Prepaid or Defaulted.

Our results of operations, financial condition, cash flows, and liquidity
depend, to a material extent, on the performance of Contracts purchased,
originated, warehoused, and securitized by us. A portion of the Contracts
acquired by us may default or prepay during the warehousing period. We bear the
risk of losses resulting from payment defaults during the warehousing period.
In the event of payment default, the collateral value of the financed vehicle
may not cover the outstanding Contract balance and costs of recovery. We
maintain an allowance for credit losses on Contracts held for investment, which
reflects managements estimates of anticipated credit losses during such
period. If the allowance is inadequate, then we would recognize as an expense
the losses in excess of such allowance, and our results of operations could be
adversely affected. In addition, under the terms of the CP Facilities, we are
not able to borrow against defaulted Contracts.

Our servicing income can also be adversely affected by prepayments of or
defaults under Contracts in the serviced portfolio. Our contractual servicing
revenue is based on a percentage of the outstanding principal balance of such
Contracts. Thus, if Contracts are prepaid or charged-off, then our servicing
revenue will decline to the extent of such prepaid or charged-off Contracts.

The gain on sale of Contracts recognized by us in each securitization and
the value of the retained interest in securitized assets (RISA) in each
transaction reflects managements estimate of future credit losses and
prepayments for the Contracts included in such securitization. If actual rates
of credit loss or prepayments, or both, on such Contracts exceed those
estimated, the value of the RISA would be impaired. We periodically review our
credit loss and prepayment assumptions relative to the performance of the
securitized Contracts and to market conditions. Our results of operations and
liquidity could be adversely affected if credit loss or prepayment levels on
securitized Contracts substantially exceed anticipated levels. Under certain
circumstances, we would be required to record an impairment charge through a
reduction to gain-on-sale. Further, any impairment of RISA could reduce the
amount available to us under our Residual Lines, thus possibly requiring us to
pay down amounts outstanding under these facilities or provide additional
collateral to cure any borrowing base deficiency.

During the quarter and nine-month period ended September 30, 2003, the
Company recorded an impairment loss of $0.45 million and $8.7 million,
respectively, compared to $5.5 million and $9.9 million for the quarter and
nine-month period ended September 30, 2002. The impairments principally reflect
the adverse performance of securitizations executed during 1999 and 2000,
stemming from higher than expected losses and delinquency.

Effects of Terrorist Attacks and Military Response.

The long-term economic impact of the events of September 11, 2001 and the
United States continuing military response, remain uncertain, but could have a
material effect on general economic conditions, consumer confidence, and market
liquidity. No assurance can be given as to the effect of these events on the
performance of the Contracts. Any adverse impact resulting from these events
could materially affect our results of operations, financial condition and cash
flows.

In addition, activation of a substantial number of U.S. military
reservists or members of the National Guard may significantly increase the
proportion of Contracts whose interest rates are reduced by the application of
the Soldiers and Sailors Civil Relief Act of 1940 (the Relief Act). The
Relief Act provides, generally, that an obligor who is covered by the Relief
Act may not be charged interest on the related Contract in excess of 6%
annually during the period of the obligors active duty.

We Will Be Adversely Affected If We Lose Servicing Rights.

Our results of operations, financial condition and cash flows would be
materially and adversely affected if any of the following were to occur:



| |  |  | loss of the servicing rights under our sale and servicing agreements for the CP Facilities; or
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | loss of the servicing rights under the applicable sale and servicing agreement of an owner trust.
| | - |  | -------------------------------------------------------------------------------------------------

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We are entitled to receive servicing income only while we act as servicer
under the applicable sale and servicing agreement. Under the CP Facilities, our
right to act as servicer can be terminated by our lender or financial insurer,
upon the occurrence of certain events.

Our Quarterly Earnings May Fluctuate.

Our revenues have fluctuated in the past and are expected to fluctuate in
the future principally as a result of the following factors:



| |  |  | the timing and size of our securitizations;
| | - |  | -------------------------------------------



| |  |  | the performance of our serviced portfolio;
| | - |  | ------------------------------------------



| |  |  | variations in the volume of our Contract acquisitions;
| | - |  | ------------------------------------------------------



| |  |  | the interest rate spread between our cost of funds and the average interest rate of purchased Contracts;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the effectiveness of our hedging strategies;
| | - |  | --------------------------------------------



| |  |  | the investor rate for securitizations; and
| | - |  | ------------------------------------------



| |  |  | a trigger event that would block release of excess cash flows from a securitization trusts spread account.
| | - |  | -----------------------------------------------------------------------------------------------------------

Any significant decrease in our quarterly revenues could have a material
adverse effect on our results of operations, financial condition, cash flows
and stock price.

We Depend on Key Personnel.

Our future operating results depend in significant part upon the continued
service of our key senior management personnel, none of whom is bound by an
employment agreement. Our future operating results also depend in part upon our
ability to attract and retain qualified management, technical, and sales and
support personnel for our operations. We cannot assure you that we will be
successful in attracting or retaining such personnel. The loss of any key
employee, the failure of any key employee to perform in his or her current
position or our inability to attract and retain skilled employees, as needed,
could materially and adversely affect our results of operations, financial
condition and cash flows.

Our Industry is Highly Competitive.

Competition in the field of financing retail motor vehicle sales is
intense. The automobile finance market is highly fragmented and historically
has been serviced by a variety of financial entities including the captive
finance affiliates of major automotive manufacturers, as well as banks, savings
associations, independent finance companies, credit unions and leasing
companies. Several of these competitors have greater financial resources than
we do. Many of these competitors also have long-standing relationships with
automobile dealerships, and offer dealerships or their customers other forms of
financing or services not provided by us. Our ability to compete successfully
depends largely upon our relationships with dealerships and the willingness of
dealerships to offer those Contracts that meet our underwriting criteria to us
for purchase. We cannot assure you that we will be able to continue to compete
successfully in the markets we serve.

We May Be Harmed by Adverse Economic Conditions.

We are a motor vehicle consumer auto finance company whose activities are
dependent upon the sale of motor vehicles. Our ability to continue to acquire
Contracts in the markets in which we operate and to expand into additional
markets is dependent upon the overall level of sales of new and used motor
vehicles in those markets. A prolonged downturn in the sale of new and used
motor vehicles, whether nationwide or in the California market, could have a
material adverse impact upon us, our results of operations and our ability to
implement our business strategy.

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The automobile industry generally is sensitive to adverse economic
conditions both nationwide and in California, where we have our largest
single-state exposure. Periods of rising interest rates, reduced economic
activity or higher rates of unemployment generally result in a reduction in the
rate of sales of motor vehicles and higher default rates on motor vehicle
contracts. We cannot assure you that such economic conditions will not occur,
or that such conditions will not result in severe reductions in our revenues or
the cash flows available to us to permit us to remain current on our credit
facilities.

We Are Subject to System Risks.

In July 2001, the Company converted from an external service provider for
its loan accounting and collections system to an in-house system. If issues
with the in-house system arise in the future, we may be unable to acquire
Contracts and service the outstanding portfolio. The failure of this system
could materially and adversely affect our results of operations, financial
condition and cash flows.

We Are Subject to Many Regulations.

Our business is subject to numerous federal and state consumer protection
laws and regulations, which, among other things:



| |  |  | require us to comply with certain requirements due to our being a publicly traded company;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | require us to obtain and maintain certain licenses and qualifications;
| | - |  | ----------------------------------------------------------------------



| |  |  | limit the interest rates, fees and other charges we are allowed to charge;
| | - |  | --------------------------------------------------------------------------



| |  |  | limit or prescribe certain other terms of our Contracts;
| | - |  | --------------------------------------------------------



| |  |  | require us to protect the privacy of consumer information;
| | - |  | ----------------------------------------------------------



| |  |  | require specific disclosures; and
| | - |  | ---------------------------------



| |  |  | define our rights to repossess and sell collateral.
| | - |  | ---------------------------------------------------

We believe that we are in compliance, in all material respects, with all
such laws and regulations, and that such laws and regulations have had no
material adverse effect on our ability to operate our business. However, we
will be materially and adversely affected if we fail to comply with:



| |  |  | applicable laws and regulations;
| | - |  | --------------------------------



| |  |  | changes in existing laws or regulations;
| | - |  | ----------------------------------------



| |  |  | changes in the interpretation of existing laws or regulations; or
| | - |  | -----------------------------------------------------------------



| |  |  | any additional laws or regulations that may be enacted in the future.
| | - |  | ---------------------------------------------------------------------

We Are Subject to Litigation Risks.

We are party to various legal proceedings, similar to actions brought
against other companies in the motor vehicle finance industry and other
businesses. Companies in the motor vehicle finance industry have also been
named as defendants in an increasing number of class action lawsuits brought by
purchasers of motor vehicles and others claiming violation of various federal
and state consumer credit, as well as similar and other, laws and regulations.

While we intend to vigorously defend ourselves against such proceedings,
there is a chance that our results of operations, financial condition and cash
flows could be materially and adversely affected by unfavorable outcomes.

ITEM 2. PROPERTIES

The Company did not own any real property at September 30, 2003. The
Companys leases approximately 82,000 square feet of office space for its
headquarters located in Foothill Ranch, California. The Company also leases
office space for its Auto Finance

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Centers and its Hazelwood, Missouri service center; the average size of an
Auto Finance Center is generally four to five thousand square feet. The
Hazelwood service center is in approximately 20,000 square feet. One Auto
Finance Center is located in the corporate headquarters building.




ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K

(a) Exhibits

EXHIBITNUMBER
    
    EXHIBIT TITLE10.132
    
    Sale and Servicing Agreement dated January 9, 2003, between Onyx Acceptance
Corporation, a Delaware corporation, as seller and as servicer, and Onyx Acceptance
Receivables Corporation, a Delaware corporation, as purchaser.10.133
    
    Credit Agreement, dated January 9, 2003, among Onyx Acceptance Receivables
Corporation, a Delaware corporation (Recco), EIFFEL Funding, LLC, a Delaware
limited liability company, as conduit lender and CDC Financial Products Inc., a
Delaware corporation, as a lender and as program manager.10.134
    
    Security Agreement, dated January 9, 2003, among Onyx Acceptance Receivables
Corporation, a Delaware corporation, Onyx Acceptance Corporation, as servicer and
JP Morgan Chase Bank, a New York state banking corporation, as collateral agent on
behalf of and for the benefit of the holders of the obligations.10.135
    
    Subordinated Security Agreement dated January 9, 2003 between Onyx Acceptance
Receivables Corporation, a Delaware corporation, and Onyx Acceptance Corporation, a
Delaware corporation.10.136
    
    Definitions List dated January 9, 2003, for the Recco, Onyx, Eiffel Funding LLC,
CDC Financial Products Inc. and XL Capital Assurance Inc. commercial
paper facility.21.1
    
    Subsidiaries of the Registrant.31
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.


(b) REPORTS ON FORM 8-K

None.

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SIGNATURE

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

ONYX ACCEPTANCE CORPORATIONDate: November 14, 2003
    
    By:
    
    /s/ JOHN W. HALLJohn W. Hall
President, CEO and Principal
Executive OfficerDate: November 14, 2003
    
    By:
    
    /s/ DON P. DUFFYDon P. Duffy
Executive Vice President,
CFO and Principal Financial Officer


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EXHIBIT INDEX

10.132
    
    Sale and Servicing Agreement dated January 9, 2003, between Onyx Acceptance
Corporation, a Delaware corporation, as seller and as sevicer, and Onyx Acceptance
Receivables Corporation, a Delaware corporation, as purchaser.10.133
    
    Credit Agreement, dated January 9, 2003, among Onyx Acceptance Receivables
Corporation, a Delaware corporation (Recco), EIFFEL Funding, LLC, a Delaware
limited liability company, as conduit lender and CDC Financial Products Inc., a
Delaware corporation, as a lender and as program manager.10.134
    
    Security Agreement, dated January 9, 2003, among Onyx Acceptance Receivables
Corporation, a Delaware corporation, Onyx Acceptance Corporation, as servicer and
JP Morgan Chase Bank, a New York state banking corporation, as collateral agent on
behalf of and for the benefit of the holders of the obligations.10.135
    
    Subordinated Security Agreement dated January 9, 2003 between Onyx Acceptance
Receivables Corporation, a Delaware corporation, and Onyx Acceptance Corporation, a
Delaware corporation.10.136
    
    Definitions List dated January 9, 2003, for the Recco, Onyx, Eiffel Funding LLC,
CDC Financial Products Inc. and XL Capital Assurance Inc. commercial
paper facility.21.1
    
    Subsidiaries of the Registrant.31
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.


30