<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 DECEMBER 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-4072
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SOVEREIGN CREDIT FINANCE I
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(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
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(Address of principal executive offices) (Zip Code)
972-960-5500
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(Registrant's telephone number, including area code)
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(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 No X
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING 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
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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
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Transitional Small Business Disclosure Format (Check One): Yes No X
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SOVEREIGN CREDIT FINANCE I
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
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Condensed Balance Sheet at December 31, 1996 (Unaudited) . . . . 3
Condensed Income Statements for the three and six months
ended December 31, 1996 (Unaudited). . . . . . . . . . . . 4
Condensed Statement of Cash Flows for the
six months ended December 31, 1996 (Unaudited) . . . . . . 5
Notes to Condensed Financial Statements (Unaudited). . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . 8
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
December 31,
1996
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ASSETS
Cash $ 829
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Total Assets $ 829
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STOCKHOLDER'S EQUITY
Common Stock - $0.01 par value, 50,000
shares authorized; 1,000 shares issued
and outstanding $ 10
Additional Paid-in Capital 990
Retained Deficit (171)
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Total Stockholder's Equity $ 829
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The accompanying notes are an integral part of the
condensed financial statements.
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SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED INCOME STATEMENTS
(UNAUDITED)
Three months Six months
ended ended
December 31, December 31,
1996 1996
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REVENUE $ - $ -
EXPENSES
Service Charges $ 30 $ 60
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Net Loss $(30) $(60)
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The accompanying notes are an integral part of the
condensed financial statements.
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SOVEREIGN CREDIT FINANCE I, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six months
ended
December 31,
1996
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Cash flows from operating activities:
Net (Loss) $ (60)
Cash flows from investing activities: $ -
Cash flows from financing activities:
Issuance of Common Stock $ -
Net increase (decrease) in cash $ (60)
Cash at beginning of period 889
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Cash at end of period $ 829
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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.
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SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and six month periods ended December 31, 1996 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 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. Interest begins to accrue on the Notes upon
release of escrowed subscription funds to the Company, which will
not occur until a minimum of $500,000 of the Notes are 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 to pay 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 will also pay 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 will pay Sovereign a monthly fee
equal to 1/12 of 0.5% of the outstanding principal amount of the
Notes. These payments to Sovereign are contingent on the
successful completion of the Company's public offering. If the
offering is not successful, the Company is not obligated to
reimburse Sovereign for any expenses incurred. 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 to be used for the foregoing
commissions, fees and expenses.
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SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company will enter into a note purchasing and servicing
agreement with SAI. The Contracts will be initiated by a network
of automobile dealers which finance the sale of motor vehicles,
some of whom may be 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 will receive 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
will receive 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.
The Company intends to enter into an Indenture agreement with a
trust company which will govern the collection of the Contract
proceeds and repayment of the notes.
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
PLAN OF OPERATION
Sovereign Credit Finance I, Inc. (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. As such, operations have not
commenced as of December 31, 1996. The Company is subsidiary of
Sovereign Credit Holdings, Inc. (Parent). 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.
The proceeds from the sale of the Notes will be held in escrow
until such amount reaches $500,000, the minimum offering amount.
After such amount is attained the Company will begin purchasing,
collecting and servicing retail installment sales and lease
contracts (the "Contracts") secured by motor vehicles, and
accruing interest on the Notes. 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 has 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 December 31, 1996 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.
Management anticipates the cash flow from Contract installments
and sales of the Notes to be sufficient to fund the future cash
requirements of the Company. In addition, the Company intends to
enter into a senior line of credit agreement which will provide
additional capital for the acquisition of Notes and to fund
day-to-day operations of the Company. At this time, no such
line of credit agreement has been reached.
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<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
Number Description
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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 not applicable
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 333-4072
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<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
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/s/ A. Starke Taylor, III President, March 10, 1997
- ------------------------------ (principal executive
A. Starke Taylor, III officer) and director
/s/ Christopher R. Frattaroli Treasurer March 10, 1997
- ------------------------------ (principal financial
Christopher R. Frattaroli officer and chief
accounting officer)
and director
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<PAGE>
EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-B
Number Description
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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 not applicable
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 333-4072
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 829
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 829
<PP&E> 0
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0
0
<COMMON> 1,000
<OTHER-SE> (171)
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<NET-INCOME> (60)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
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