<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM IO-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 June 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
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U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2669147
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(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
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(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 [X] No [ ] Not Applicable.
<PAGE> 2
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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEE ATTACHED
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 June 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 in late 1998. Accordingly, the Company expects finance
operations will become profitable in the fourth quarter of 1998.
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
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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
NONE
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: August 8, 1998 (Signature) /s/ MICHAEL R. MARSHALL
----------------------------------------
Michael R. Marshall, President and Chief
Financial Officer
<PAGE> 4
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
BALANCE SHEET
As of June 30, 1998 and March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 5,755,748 $ 3,925,174
Contracts receivable 18,600,995 20,459,862
Capitalized note offering and
organization costs 3,665,011 3,722,761
Other 17,860 22,175
------------- -------------
TOTAL ASSETS $ 28,039,614 $ 28,129,972
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 219,132 $ 219,917
Notes payable 23,994,000 23,997,000
Unearned interest, contract purchase
discounts and allowance for losses 4,426,780 4,816,153
Other 13,700 13,700
------------- -------------
TOTAL LIABILITIES 28,653,612 29,046,770
------------- -------------
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) (663,998) (966,798)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (613,998) (916,798)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 28,039,614 $ 28,129,972
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 5
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
For the three months and the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Interest income $ 651,501 $ 1,323,752
Interest expense 656,583 1,260,389
------------- -------------
Net interest income (expense) (5,082) 63,363
General and administrative expenses 297,718 548,435
------------- -------------
Net loss $ (302,800) $ (485,072)
============= =============
Net loss per share of common stock $ (302.80) $ (485.07)
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1998, and for
the three months ended June 30, 1998
<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 three months
March 31, 1998 -0- -0- -0- (182,272) (182,272)
---------- ---------- ---------- ---------- ----------
Balances, March 31,
1998 1,000 1,000 49,000 (663,998) (613,998)
Net loss three months
June 30, 1998 -0- -0- -0- (302,800) (302,800)
---------- ---------- ---------- ---------- ----------
Balances, June 30,
1998 1,000 $ 1,000 $ 49,000 $ (966,798) $ (916,798)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
For the three months and the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (302,800) $ (485,072)
Adjustments to reconcile net income
(loss)to cash provided by operating
activities:
(Increase) decrease in other assets (4,315) (20,204)
Increase in accrued interest
payable and other liabilities 785 53,520
------------- -------------
Cash used by operating
activities (306,330) (451,756)
------------- -------------
Cash flows from investing activities:
Finance contracts purchased (2,579,139) (8,607,726)
Finance contracts principal collections 720,272 1,082,939
Unearned interest, discounts and deferred
dealer collection fees 389,373 1,812,070
------------- -------------
Cash (used) by investing
activities (1,469,494) (5,712,717)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 3,000 5,014,000
Capitalized offering and organization
costs (57,750) (1,378,606)
------------- -------------
Cash provided (used) by
financing activities (54,750) 3,635,394
------------- -------------
Increase (decrease) in cash
and cash equivalents (1,830,574) (2,529,079)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,755,748 6,454,253
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,925,174 $ 3,925,174
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 8
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 the third or fourth quarter of 1998.
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> 9
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
<PAGE> 10
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
opinion, the fair value of finance contracts and Notes payable is approximately
the same as the carrying value reflected in the 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
At June 30, 1998 contracts receivable were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cost of Contracts purchased $15,643,709
Unearned interest, purchase
discounts and dealer hold-
backs 4,816,153
-----------
TOTAL ANTICIPATED CONTRACT
PAYMENTS $20,459,862
===========
</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 June 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> 11
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 non payment 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 June 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 the fourth quarter of 1998.
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> 12
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
Ex 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> CT
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<TOTAL-ASSETS> 28,129,972
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,129,972
<TOTAL-REVENUES> 1,323,752
<INCOME-TAX> 0
<INCOME-CONTINUING> (485,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (485,072)
<EPS-PRIMARY> (485.07)
<EPS-DILUTED> (485.07)
</TABLE>
