<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998 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 33-5144-D
--------------------------------------------------------
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2669147
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1120 NW 63rd, Suite G-108, Oklahoma City, Oklahoma 73116
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(405) 843-3135
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 123 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 PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No Not Applicable.
------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
1,000 shares of Common Stock
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
BALANCE SHEET
As of September 30, 1998 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, September 30,
1998 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 3,925,174 $ 4,065,044
Contracts receivable 20,459,862 20,015,583
Capitalized note offering and organization costs 3,722,761 3,782,423
Other 22,175 20,207
------------ ------------
TOTAL ASSETS $ 28,129,972 $ 27,883,257
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 219,917 $ 219,917
Notes payable 23,997,000 23,997,000
Unearned interest, contract purchase discounts and allowance for losses 4,816,153 4,866,693
Other 13,700 13,700
------------ ------------
TOTAL LIABILITIES 29,046,770 29,097,310
------------ ------------
Commitments
Stockholders' equity:
Common Stock $1.00 par value 3,000
shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 49,000 49,000
Retained earnings (deficit) (966,798) (1,264,053)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (916,798) (1,214,053)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,129,972 $ 27,883,257
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 3
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
For the three months and the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
Sept. 30, 1998 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Interest income $ 654,096 $ 1,977,848
Interest expense 655,959 1,916,348
----------- -----------
Net interest income (expense) (1,863) 61,500
General and administrative expenses 295,392 843,827
----------- -----------
Net loss $ (297,255) $ (782,327)
=========== ===========
Net loss per share of common stock $ (297.26) $ (782.33)
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 4
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
For the three months and the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 1,000 $ 1,000 $ 49,000 $ (481,726) $ (431,726)
Net loss six months
June 30, 1998 -0- -0- -0- (485,072) (485,072)
----------- ----------- ----------- ----------- -----------
Balances, June 30, 1998 1,000 $ 1,000 $ 49,000 $ (966,798) $ (916,798)
Net loss three months
September 30, 1998 -0- -0- -0- (297,255) (297,255)
----------- ----------- ----------- ----------- -----------
Balances, September 30, 1998 1,000 $ 1,000 $ 49,000 $(1,264,053) $(1,214,053)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 5
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
For the three months and the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
Sept. 30, 1998 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (297,255) $ (782,327)
Adjustments to reconcile net income
(loss)to cash provided by operating
activities:
(Increase) decrease in other assets 1,968 (18,236)
Increase in accrued interest
payable and other liabilities -0- 53,520
----------- -----------
Cash used by operating
activities (295,287) (747,043)
----------- -----------
Cash flows from investing activities:
Finance contracts purchased (163,271) (8,770,997)
Finance contracts principal collections 607,550 1,690,489
Unearned interest, discounts and deferred
dealer collection fees 50,540 1,862,610
----------- -----------
Cash (used) by investing
activities 494,819 (5,217,898)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable -0- 5,014,000
Capitalized offering and organization
costs (59,662) (1,438,268)
----------- -----------
Cash provided (used) by
financing activities (59,662) 3,575,732
----------- -----------
Increase (decrease) in cash
and cash equivalents 139,870 (2,389,209)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,925,174 6,454,253
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,065,044 $ 4,065,044
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
GENERAL - U.S. Automobile Acceptance SNP-III, Inc. (herein referred to as
"Company" or "SNP-III") was incorporated on June 7, 1996 as a Texas
Corporation. The Company was formed to purchase, collect and service retail
installment sale financing contracts created by the sale of used automobiles
and light trucks ("Contracts"). The Company targets automobile purchasers who
are typically unable to obtain credit from traditional sources (sub-prime
credit customers). The contracts generally have APR interest rates at or near
the maximum rate allowed by the state in which the automobile sale was
originated and the payment terms are generally from 24 to 60 months. The
Contracts are originated by used car divisions of new car dealerships and by
independent used car dealerships ("Dealers"), with the Company's type financing
arrangement generally being referred to as indirect consumer lending.
To date, all contract purchases have been financed through the issuance of
publicly registered notes ("Notes") of the Company. The Notes are
collateralized by individual motor vehicle retail installment Contracts. The
Contracts are secured by liens on used automobile and light trucks and are
generally purchased at discounts ranging from 2% to 25% below the total future
net principal balance owed on such Contracts. Purchase discounts vary depending
on the credit worthiness of the individual borrower and financial strength
added by additional credit support agreements provided by the Dealers from
which Contracts have been purchased. The Dealer credit support agreements are
usually in the form of Contract replacement agreements, direct dealer recourse
agreements, limited guarantee agreements or some other form of cash hold-back
arrangement.
DEVELOPMENT STAGE ENTERPRISE - The Company is considered to be in the
"development stage" as substantially all of its efforts have been expended in
establishing the new business, raising capital and purchasing initial
Contracts. The Company began purchasing Contracts in the late first quarter of
1997 and expects to be fully operational in late 1998 or early 1999.
ASSET-BACKED NOTE OFFERING - The Company filed a Registration Statement in 1996
with the Securities and Exchange Commission and various state security boards
with respect to its offering of up to $24,000,000 of 11% Promissory Notes due
December 31, 2001. The $100,000 minimum required subscription amount was
reached in November 1996 and the offering became effective. Subscriptions of
$23,997,000 had been received at June 30, 1998.
The Notes are issued under the terms of an Indenture Agreement between the
Company and Chase Bank of Texas (formerly Texas Commerce Bank National
Association), as Trustee. The Notes are secured by the Contracts and proceeds
thereof.
<PAGE> 7
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices
within the finance industry.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosures regarding contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses reported during
the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all investments with a
maturity of three months or less, when purchased, to be cash equivalents.
RESTRICTED CASH - The use of cash of SNP-III is restricted by the terms of an
indenture agreement between the Company and Chase Bank of Texas, as Indenture
Trustee, to initially purchase Contracts and for payment of allowed Expenses,
trustee's fees and expenses, interest paid by transfers to Note Redemption
Account for payment to Noteholders and before Note Redemption Trigger Date
(January 1, 2001), any remaining proceeds used to purchase additional eligible
Contracts, and After Note Redemption Trigger Date, any remaining proceeds
deposited into Note Redemption Account for payment of Notes.
FINANCE CONTRACTS AND INCOME RECOGNITION - Upon purchase of a Contract, the
Company records the gross amount of the Contract as a contract receivable and
the difference between gross contract receivable and cost of the Contract is
recorded as unearned interest, discounts and allowance for loan losses. Income
from finance contracts is recognized using the effective interest method.
CAPITALIZED NOTE OFFERING AND ORGANIZATION COSTS - Costs directly related to
note offering are capitalized and will be amortized over the period benefited
after completion of the Note offering. Organization costs will be amortized
over 60 months.
CREDIT LOSSES - The company believes that amounts included in unearned
interest, discounts and allowance for loan losses accounts are sufficient to
cover any loan losses that will be incurred in the future. If management
determines that additional loss reserves are necessary in the future they will
be established at that time.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, Disclosure About Fair Value
of Financial Instruments, requires the disclosure, to the extent practicable,
of the fair value of financial instruments which are recognized or unrecognized
in the balance sheet. In Management's opinion, the fair value of finance
contracts and Notes payable is approximately the same as the carrying value
reflected in the financial statements.
<PAGE> 8
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES - The Company has adopted SFAS No. 109, Accounting for Income
Taxes, whereby deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax reporting
purposes, and (b) net operating loss carry forwards. The Company has incurred
tax and financial reporting losses and accordingly has no income tax liability.
3. CONTRACTS RECEIVABLE
<TABLE>
<CAPTION>
At September 30, 1998 contracts receivable were as follows:
<S> <C>
Cost of Contracts purchased $15,148,890
Unearned interest, purchase
discounts and dealer hold-
backs 4,866,693
-----------
TOTAL ANTICIPATED CONTRACT
PAYMENTS $20,015,583
===========
</TABLE>
Use of proceeds of contract receivable collections is restricted to repayment
of Notes payable described in Note 4, payment of certain allowed expenses of
the Company and the purchase of additional contracts.
4. NOTES PAYABLE
At December 31, 1997, and September 30, 1998 the Company had outstanding notes
payable of $18,983,000 and $23,997,000 respectively. The Notes bear interest at
11% payable monthly, and the principal is due December 31, 2001.
The Notes have been issued under the terms of an Indenture Agreement between
SNP-III and Chase Bank of Texas, as trustee. The Notes are collateralized by
the Contracts and proceeds thereof. SNP-III holds vehicle titles and/or liens
on the vehicles as collateral for Contracts until they are paid in full. Use of
proceeds of contract collections of SNP-III is restricted to payments on the
Notes, payment of certain allowed expenses of SNP-III and the purchase of
additional contracts.
Under the terms of the various agreements Chase holds a security agreement for
the benefit of the noteholders, serves as paying agent, note registrar,
controls the note redemption bank account and serves as
<PAGE> 9
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
escrow agent, initially receiving all funds received as Note subscriptions from
the noteholders of SNP-III. In the event of nonpayment of principal or
interest on the Notes, the Indenture Trustee may declare the principal and
interest payable immediately and may pursue any available remedies by
proceeding at law or in equity to collect or to enforce the performance of any
provision of the Notes or the security agreement.
Noteholders may incur risks and uncertainties including concentration of assets
since SNP-III is not expected to have any significant assets other than
automobile finance contracts and since most of the borrowers and the related
automobile collateral are expected to be located in the states of Oklahoma and
Texas. Other risks include limited operating history of the Servicer and SNP-
III, possible decline in future availability and quality of finance Contracts
to be purchased due to increased competition, possible conflicts of interest
between SNP-III and affiliate entities.
5. STOCKHOLDERS' EQUITY (DEFICIT)
The Company issued 1,000 shares of common stock for $50,000 in connection with
the organization of the Company.
The Company has incurred operating losses through September 30, 1998, and
expects to continue to incur losses until purchase of the initial contract
portfolio of SNP-III is completed. Management expects the finance operations of
SNP-III will become profitable in 1999.
6. RELATED PARTY TRANSACTIONS - COMMITMENT
U.S. Automobile Acceptance Corporation ("USAAC") contractually administers,
services and collects contracts on behalf of USAA SNP-III and subcontracts a
portion of the servicing and collection functions to certain Automobile Dealers
and other subcontractors. The amount paid to USAAC for such services is
restricted by the terms of various agreements.
Five percent (5%) of the proceeds of the Asset-Backed Note offering were paid
to USAAC as reimbursement of registration, legal, accounting, printing,
trustee, marketing, and other out of pocket fees and expenses and allocated
general and administrative and overhead expenses related to the offering and
organization of the Company.
The Servicer will be paid a servicing fee of $21.50 per month, per contract,
limited to maximum of $85,000 per month. In addition, USAAC will be paid a one
time purchase administration fee of $125 per contract purchased, paid monthly,
and will be paid a monthly investor administration fee of 1/12th of 1% of the
aggregate principal amount of the Notes outstanding, and 1/12th of 1% of
aggregate funds held in investment accounts.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
U.S. Automobile Acceptance SNP-III, Inc. (the "Company") was incorporated on
June 7, 1996 as a Texas Corporation. The Company was formed to purchase,
collect and service retail installment sale financing contracts created by the
sale of used automobiles and light trucks. The Company filed a Registration
Statement in 1996 with the Securities and Exchange Commission and various state
security boards with respect to its offering of up to $24,000,000 of 11%
Promissory Notes due December 31, 2001. The offering became effective in late
1996. Subscriptions of $23,997,000 had been received as of June 30, 1998.
The Company has incurred operating losses through September 30, 1998 which
resulted substantially from payment of interest on investor notes prior to
purchase of interest yielding finance contracts from automobile dealers. This
is referred to as negative interest spread. The Company expects to incur
continued negative interest spread until the initial purchase of the finance
contract portfolio is substantially completed. Accordingly, the Company expects
finance operations will become profitable in 1999.
IMPACT OF YEAR 2000. Many existing computer programs use only two digits to
identify a year in date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, this could result in a system failure or calculations of erroneous
results by or at the Year 2000. The Company's information technology consultant
recently assessed the Company's readiness to manage Year 2000 issues. This
included a review of all current computer systems in use, as well as
communications with significant data processing subcontractors to determine the
extent to which the Company's operations are vulnerable to third parties'
failure to correct their own Year 2000 issues. Based on the overall assessment
performed, the Company has determined that it will not need to significantly
modify or replace any of its current systems in order to comply with Year 2000
issues. In addition, based upon communications with significant third party
data processing subcontractors, the Company is not aware of any material impact
on their systems relating to the transition to the Year 2000. The Company's
total cost of Year
<PAGE> 11
2000 related issues is not expected to have a material adverse effect on the
Company's results of operations. However, should the Company have a significant
failure of its computer systems or its subcontractors' systems related to Year
2000 issues, the Company could be required to account for, manage and
administrate Contract purchases, Contract collections, investor administration
and investor distributions manually or on a reduced computerized basis for a
period of time. Because of management's prior experience utilizing manual and
partially computerized systems and due to the relatively small number of
Contract purchases and investor subscriptions expected by the Company prior to
December 31, 1999, the Company does not expect the Year 2000 issues to be a
significant financial exposure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) U. S. Automobile Acceptance SNP-III, Inc
-----------------------------------------
Date: November 11, 1998 (Signature) /s/ Michael R. Marshall
------------------------ ------------------------------------
Michael R. Marshall,
President and Chief
Financial Officer
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,065,044
<SECURITIES> 0
<RECEIVABLES> 20,015,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,080,627
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,883,257
<CURRENT-LIABILITIES> 5,086,610
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (1,215,053)
<TOTAL-LIABILITY-AND-EQUITY> 27,883,257
<SALES> 1,977,848
<TOTAL-REVENUES> 1,977,848
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 843,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,916,348
<INCOME-PRETAX> (782,327)
<INCOME-TAX> (782,327)
<INCOME-CONTINUING> (782,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (782,327)
<EPS-PRIMARY> (782,327)
<EPS-DILUTED> (782.33)
</TABLE>
