<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NUMBER 333-04072
SOVEREIGN CREDIT FINANCE I, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
TEXAS 75-2645150
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4015 BELTLINE ROAD, BUILDING B, DALLAS, TEXAS 75244
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
972-960-5500
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
1,000 SHARES
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE>
SOVEREIGN CREDIT FINANCE I
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
----
Condensed Balance Sheet at March 31, 1997 (Unaudited) ......... 3
Condensed Income Statement for the three months
ended March 31, 1997 (Unaudited)............................. 4
Condensed Statement of Cash Flows for the
three months ended March 31, 1997 (Unaudited)................ 5
Notes to Condensed Financial Statements (Unaudited)............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 7
PART II. OTHER INFORMATION ............................................. 8
SIGNATURES ............................................................. 9
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
ASSET March 31, 1997
--------------
Installment contracts receivable, net $696,722
Other 127,571
--------
Total Assets $824,293
--------
--------
LIABILITIES & STOCKHOLDER'S EQUITY
Liabilities
Accounts payable $ 73,595
Notes payable and accrued liabilities 840,549
--------
Total Liabilities 914,144
Stockholder's Equity
Common stock - $.01 par value; 50,000 shares
authorized; 1,000 shares issued and outstanding $ 10
Additional Paid-in Capital 990
Retained Deficit (90,851)
--------
Total Stockholder's Equity (89,851)
Total Liabilities & Stockholder's Equity $824,293
--------
--------
The accompanying notes are an integral part of the condensed financial
statements.
-3-
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED INCOME STATEMENT
(UNAUDITED)
Three months
ended
March 31, 1997
--------------
REVENUE
Interest Revenue $ 8,056
Interest Expense 2,511
--------
Net Interest Revenue $ 5,545
--------
EXPENSES
Operating Expense $ 96,224
--------
Net loss $(90,679)
--------
--------
The accompanying notes are an integral part of
the condensed financial statements.
-4-
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three months
ended
March 31, 1997
--------------
Cash flows from operating activities:
Net (Loss) $ (90,679)
(Increase) in other assets, net (127,571)
Increase in accounts payable & accrued liabilities 73,595
Cash flows from investing activities:
Purchase of contract receivables (696,722)
Cash flows from financing activities:
Issuance of notes payable 840,549
Net increase (decrease) in cash (828)
Cash at beginning of period 828
---------
Cash at end of period $ -
---------
---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -
Income Taxes $ -
The accompanying notes are an integral part of
the condensed financial statements.
-5-
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Sovereign Credit
Finance I, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included.
Operating results for the three month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for
future periods.
NOTE 2 - NATURE OF OPERATIONS
The Company was incorporated in March of 1996 as a Texas Corporation.
The Company was formed for the purpose of purchasing, collecting and
servicing retail installment sales and lease contracts (the
"Contracts") secured by motor vehicles. The Company is a subsidiary
of Sovereign Credit Holdings, Inc. ("Parent"). The Company does not
expect to have in the future any significant assets other than the
Contracts and the proceeds thereof.
Sovereign Credit Corporation ("Sovereign"), which is also a subsidiary
of the Company's parent, administers and manages the ongoing operations
of the Company. Sovereign Associates, Inc. ("SAI"), a subsidiary of
Sovereign, provides purchasing and collection services to the Company.
NOTE 3 - DEVELOPMENT STAGE ENTERPRISE
The Company is in the developmental stage, offering on a "best efforts"
basis up to $20,000,000 in principal amount of 11% Notes Payable (the
"Notes") due February 15, 2001. The principal is required to be repaid
in six equal monthly installments beginning September 15, 2000. As of
March 31, 1997 approximately $841,000 of the Notes had been sold.
The Notes are being offered through licensed broker-dealers which
receive sales commissions of 8% of the principal amount of the
Notes sold. The Company also pays up to 2% of the gross proceeds
from the sale of the notes for offering and organizational expenses.
Some of these expenses will be advanced by Sovereign. Sovereign has
agreed to pay such expenses to the extent they exceed 2% of the gross
proceeds from the sale of the Notes. The Company also pays to
Sovereign 5.5% of the gross proceeds from the sale of the Notes (5.0%
of the gross proceeds in excess of $9,000,000) for its services in
administering and managing the ongoing operations of the Company.
Sovereign will also administer Noteholder payments, communications and
relations. For such services, the Company pays Sovereign a monthly
fee equal to 1/12 of 0.5% of the outstanding principal amount of the
Notes. The remainder of the proceeds from the sale of the Notes (84.5%
of the gross proceeds) is to be used to acquire Contracts. No more
than 15.5% of the gross proceeds is used for the foregoing commissions,
fees and expenses.
The Company has entered into a note purchasing and servicing agreement
with SAI. The Contracts are initiated by a network of automobile
dealers which finance the sale of motor vehicles, some of whom are
affiliate entities of the Company. SAI is entitled to a monthly
servicing fee of $20 for each Contract not assigned for repossession,
for administering the collection of payments due under the Contract.
SAI receives a purchase administration fee for each contract purchased
equal to the lesser of $500 or 5% of the total amount of installments
due under the Contract as of the date of purchase. Additionally,
SAI receives a purchase administration fee of $125 for each Financed
Vehicle assigned for repossession, to reimburse for overseeing the
repossession and resale of the vehicle securing any Contract in
default.
Additionally, the Company has entered into an Indenture agreement with
a trust company which will govern Note issuance, collection of
proceeds, and payment of principal and interest on the Notes.
-6-
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
PLAN OF OPERATION
The Company is in the developmental stage, offering on a "best efforts"
basis up to $20,000,000 in principal amount of 11% Notes due February
15, 2001. The Company was formed for the purpose of purchasing,
collecting and servicing retail installment sales and lease Contracts
secured by motor vehicles. Sovereign administers and manages the
ongoing operations of the Company. SAI, a subsidiary of Sovereign,
provides purchasing and collection services to the Company.
The Company will use at least 84.5% of the proceeds from the sale of
the Notes for the purchase of the contracts. No more than 15.5% of
such proceeds will be used for commissions, fees, and expenses.
SAI is a party to an arbitration proceeding in which the other party
filed a counterclaim against SAI requesting unspecified damages, but
which are stated in the counterclaim to be in excess of $1 million.
SAI believes the counterclaim is without merit, and intends to
vigorously defend itself against the counterclaim. Additionally, SAI
intends to vigorously pursue its claims in the arbitration proceeding.
As of March 31, 1997, it is unknown whether an adverse decision with
respect to the counterclaim would have a material effect on SAI's
operations, financial condition, or ability to act as Servicer on
behalf of the Company.
QUARTER ENDED MARCH 31, 1997
On March 21, 1997 the Company attained the minimum offering amount of
$500,000 of Notes sold, as specified in the prospectus. On that date,
escrowed funds were released to the Company for the purchase of Notes
and payment of fees and expenses. As of March 31, 1997 approximately
$841,000 of Notes had been sold.
Net interest revenue reflects the excess of accrued interest income
over accrued interest expense from March 21, 1997 through March 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
Management anticipates that cash flow from Contract installments and
proceeds from the sale of Notes will be sufficient to fund future cash
requirements of the Company. In addition, the Company plans to enter
into a senior line of credit agreement which will provide additional
capital for the acquisition of Contracts and to fund day-to-day
operations of the Company. At this time however, no such line of
credit has been obtained
-7-
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
Number Description
- ------ -----------
2 not applicable
3(i) Articles of Incorporation of Sovereign Credit Finance I, Inc.*
3(ii) Bylaws of Sovereign Credit Finance I, Inc.*
4 Indenture between Sovereign Credit Finance I, Inc. and Sterling Trust
Company, as Trustee*
10.1 Master Contract Purchase Agreement between Sovereign Credit Finance I,
Inc. and Sovereign Associates, Inc.*
10.2 Servicing Agreement between Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.*
10.3 Subscription Escrow Agreement between Sovereign Credit Finance I, Inc.
and River Oaks Trust Company as Escrow Agent*
10.4 Form of Broker-Dealer Selling Agreement*
10.5 Form of Subscription Agreement*
10.6 Form of Promissory Note of Sovereign Credit Corporation*
11 not applicable
15 not applicable
16 not applicable
18 not applicable
19 not applicable
22 not applicable
23 not applicable
24 not applicable
27 Financial Data Schedule
99 not applicable
* Incorporated by reference to the registrant's Registration Statement on
Form S-1, Commission file number 333-04072
-8-
<PAGE>
SIGNATURES
In accordance with 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.
SOVEREIGN CREDIT FINANCE I, INC.
Signature Title Date
--------- ----- ----
/s/ A. Starke Taylor, III President,
A. Starke Taylor, III (principal executive
officer) and director May 12, 1997
/s/ Christopher R. Frattaroli Treasurer
Christopher R. Frattaroli (principal financial officer
and chief accounting
officer) and director May 12, 1997
9
<PAGE>
EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-B
Number Description
- ------ -----------
2 not applicable
3(i) Articles of Incorporation of Sovereign Credit Finance I, Inc.*
3(ii) Bylaws of Sovereign Credit Finance I, Inc.*
4 Indenture between Sovereign Credit Finance I, Inc. and Sterling Trust
Company, as Trustee*
10.1 Master Contract Purchase Agreement between Sovereign Credit Finance I,
Inc. and Sovereign Associates, Inc.*
10.2 Servicing Agreement between Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.*
10.3 Subscription Escrow Agreement between Sovereign Credit Finance I, Inc.
and River Oaks Trust Company as Escrow Agent*
10.4 Form of Broker-Dealer Selling Agreement*
10.5 Form of Subscription Agreement*
10.6 Form of Promissory Note of Sovereign Credit Corporation*
11 not applicable
15 not applicable
16 not applicable
18 not applicable
19 not applicable
22 not applicable
23 not applicable
24 not applicable
27 Financial Data Schedule
99 not applicable
* Incorporated by reference to the registrant's Registration Statement on Form
S-1, Commission file number 333-04072
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 824,293
<DEPRECIATION> 0
<TOTAL-ASSETS> 824,293
<CURRENT-LIABILITIES> 73,595
<BONDS> 840,549
0
0
<COMMON> 1,000
<OTHER-SE> (90,851)
<TOTAL-LIABILITY-AND-EQUITY> 824,293
<SALES> 8,056
<TOTAL-REVENUES> 8,056
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 96,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,511
<INCOME-PRETAX> (90,679)
<INCOME-TAX> 0
<INCOME-CONTINUING> (90,679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,679)
<EPS-PRIMARY> (90.68)
<EPS-DILUTED> (90.68)
</TABLE>
