<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549
                                           
                                     FORM 10-KSB
                                           
               (Mark One)

               [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED  JUNE 30, 1997
                                                -------------

               [ ]   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.
                    ----------------------------------------------
                    (Name of small business issuer 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
                   ------------------------------------------------
                   (Issuer's telephone number, including area code)


      Securities registered under Section 12(b) of the Exchange Act:    NONE

                                                      Name of exchange on 
            Title of each class                         which registered
      -------------------------------           -------------------------------
      -------------------------------           -------------------------------

      Securities registered under Section 12(g) of the Exchange Act:    NONE

                    -----------------------------------------------
                                   (Title of class)
                                           
                    -----------------------------------------------
                                   (Title of class) 
<PAGE>

                Check whether the issuer (1) filed all reports required to be
             filed by Section 13 or 15(d) of the 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
                                                           ---     ---
                Check if there is no disclosure of delinquent filers in
             response to Item 405 of Regulation S-B contained in this form,
             and no disclosure will be contained this form, and no disclosure
             will be contained, to the best of the registrant's knowledge, in
             definitive proxy or information statements incorporated by
             reference in Part III of this Form 10-KSB or any amendment to
             this Form 10-KSB.[X]
              
             State issuers revenues for its most recent fiscal year  $178,072
                                                                    ----------

                State the aggregate market value of the voting and non-voting
             common equity held by non-affiliates computed by reference to the
             price at which the common equity was sold, or the average bid and
             asked prices of such common equity, as of a specified date within
             the past 60 days.  (See definition of an affiliate in Rule 12b-2
             of the Exchange Act).     NONE

                Note:  If determining whether a person is an affiliate will
             involve an unreasonable effort and expense, the issuer may
             calculate the aggregate market value of the common equity held by
             non-affiliates on the basis of reasonable assumptions, if the
             assumptions are stated.

                      (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                             DURING THE PAST FIVE YEARS)
                                 
                Check whether the issuer has 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 REGISTRANTS)
                                                     
                State the number of shares outstanding of each of the issuer's
             classes of common equity, as of the last practicable date.

                                   1,000 SHARES
                                      
                      DOCUMENTS INCORPORATED BY REFERENCE
                                 
             If the following documents are incorporated by reference, briefly
             describe them and identify the part of the Form 10-KSB (e.g.,
             Part I, Part II, etc.) into which the document is incorporated:
             (1) any annual report to security holders;(2) any proxy or
             information statement; and (3) any prospectus filed pursuant to
             Rule 424(b) or  (c ) of the Securities Act of 1933("Securities
             Act").  The listed documents should be clearly described for
             identification purposes (e.g., annual report to security holders
             for the fiscal year ended December 24, 1990).
             
             Transitional Small Business Disclosure Format (Check One):
        
             Yes       No  X
                 ---      ---

                                             2
<PAGE>

                           SOVEREIGN CREDIT FINANCE I, INC.
                       INDEX TO QUARTERLY REPORT ON FORM 10-QSB

PART I                                                                      PAGE
                                                                            ----
        
               Item 1. Description of Business.                               4

               Item 2. Description of Property.                               5

               Item 3. Legal Proceedings.                                     5

               Item 4. Submission of Matters to a Vote of Security Holders.   5
               
               
PART II
               
               Item 5. Market for Common Equity and Related Stockholder 
                       Matters.                                               6

               Item 6. Management's Discussion and Analysis or Plan of 
                       Operation.                                             6

               Item 7. Financial Statements.                                  7

               Item 8. Changes In and Disagreements With Accountants on 
                       Accounting and Financial Disclosure                    8
                    


PART III

               Item 9. Directors, Executive Officers, Promoters and Control 
                       Persons; Compliance With  Section 16(a) of the 
                       Exchange Act                                           9

               Item 10. Executive Compensation.                              11

               Item 11. Security Ownership of Certain Beneficial Owners 
                        and Management                                       11

               Item 12. Certain Relationships and Related Transactions.      12

               Item 13. Exhibits and Reports on Form 8-K.                    12


                                         3
<PAGE>
PART I

Item 1. Description of Business.

        Sovereign Credit Finance I, Inc. (the "Company") was formed in 1996 
        as a Texas corporation for the purpose of purchasing, collecting 
        and servicing retail installment sales contracts and notes secured 
        by motor vehicles (the "Contracts").  The Company is a subsidiary 
        of Sovereign Credit Holdings, Inc. ("Holdings").  Sovereign Credit 
        Corporation ("Sovereign"), which serves as manager of the Company, 
        is also a Subsidiary of Holdings. Sovereign Associates, Inc. 
        ("SAI") which provides purchasing and collecting services on behalf 
        of the Company, is a subsidiary of Sovereign.  The Company has no 
        employees.
        
        The Contracts are generally entered into by an established network 
        of motor vehicle dealers (the "Dealers") with customers who 
        generally cannot obtain a loan from a local financial institution 
        or from the credit facilities of a major automobile manufacturer. 
        Contracts are purchased and serviced on behalf of the Company under 
        the terms of a Master Purchasing Agreement and a Servicing 
        Agreement (collectively, the "Servicing Agreement").  SAI, as the 
        entity responsible for collection services to the Company, has been 
        in the note purchase and collection business since 1991.  During 
        1997 it has acquired and implemented an automatic dialer that 
        prompts collectors as to when an account is delinquent, displays 
        account history and status on the computer screen, and calls the 
        customer.  The Company believes SAI provides adequate collection 
        services.
        
        Contracts are purchased from Dealers at a discount on the face 
        amount of the note.  Contracts may be purchased in bulk or on an 
        individual or point-of-sale basis.  Because the Dealers sell 
        primarily older vehicles with high mileage to high risk customers, 
        the discount may range from 10% to 60% of the gross projected 
        proceeds of the note.  Such discount is split into interest and 
        discount components, then recognized into income as collections are 
        received from the customer.  A portion of the discount may be set 
        aside as a reserve against future losses, in which case the 
        discount would not be accreted into income.

        Funding for the Company operations comes from various sources.  The 
        Company is offering pursuant to a prospectus up to $20 million in 
        11% Notes Payable (the "Notes") due February 15, 2001.  As of June 
        30, 1997, approximately $5.0 million in Notes had been sold.  From  
        the gross proceeds from the Notes, commissions of eight percent are 
        paid to broker dealers for marketing the Notes.  The Company will 
        use up to two percent of the proceeds to pay offering and 
        organization expenses.   The remaining proceeds are used to 
        purchase contracts.  Proceeds from cash collections are used to pay 
        servicing fees and purchase additional contracts.
        
        The Company or SAI has agreements or business relationships with 
        approximately 75 principal Dealers in fourteen states, primarily in 
        the South and Southwest United States.  Because of the geographic 
        distribution and number of the Dealers, there has been an adequate 
        supply of relatively good quality Contracts available for purchase. 
        No Dealer comprises more than 10% of the total amount of Contracts 
        which the Company has sought for purchase.
        
        There are several relatively large substandard automobile finance 
        companies with which the Company competes.  During the last year 
        there has been significant negative press regarding the performance 
        of companies in this industry.  The presence of these 

                                       4
<PAGE>

        companies has presented opportunities and obstacles to the Company. 
        Because of the financial difficulties of the competition, there 
        has been an increase in the availability of Contracts to purchase 
        in the market.  And because of the closing of one company's 
        regional office, Sovereign was able to hire additional experienced 
        personnel. However because of the negative press, investors have 
        been less inclined to invest in companies in this industry and, at 
        least during the period from February through May, the Company has 
        not sold Notes at the rate it had anticipated.
        
        The Company differentiates itself from and competes with its 
        competition on the basis of  size and quality of service.  Because 
        Sovereign and SAI manage a relatively few number of notes, the 
        collection department is able to at least attempt to contact every 
        customer with a delinquent account. Additionally, SAI has 
        established underwriting criteria and creative dealer agreements 
        which cull a significant amount of Contracts which have a higher 
        probability of defaulting prior to maturity.
          
          
Item 2. Description of Property   
        (not applicable)

Item 3. Legal Proceedings   
        None

Item 4. Submission of Matters to a Vote of Security Holders
        (not applicable)

                                       5
<PAGE>

PART II
 
 
Item 5. Market for Common Equity and Related Stockholder Matters
        (not applicable)
     
Item 6. Management's Discussion and Analysis or Plan of Operation.
     
        For the 12 month period comprising the fiscal year ending June 30,
        1998, management intends to continue to purchase Contracts to the
        extent its sources of liquidity allow.  The Company intends to
        continue to offer the Notes through January 31, 1998 or until the
        offer is terminated, whichever comes first.  For such 12 month period,
        management believes that the anticipated sources of cash flow will be
        sufficient to meet the Company's requirements and does not anticipate
        the need to raise additional capital. 




                                       6
<PAGE>

Item 7. Financial Statements

        Independent Auditors Report
        Balance Sheet
        Statement of Operations
        Statement in Changes in Stockholders' Deficit
        Statement of Cash Flows
        Notes to Financial Statements 




                                       7


<PAGE>



                       INDEPENDENT AUDITOR'S REPORT



Board of Directors
Sovereign Credit Finance I, Inc.


We have audited the accompanying balance sheet of Sovereign Credit Finance I, 
Inc. as of June 30, 1997 and the related statements of operations, changes in 
stockholders' deficit and cash flows for the period from March 19, 1996 
(inception) through June 30, 1997.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe our audit provides a reasonable 
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Sovereign Credit Finance I, 
Inc. as of June 30, 1997 and the results of its operations and its cash flows 
for the period from March 19, 1996 (inception) through June 30, 1997 in 
conformity with generally accepted accounting principles.


                                             BELEW AVERITT LLP

August 26, 1997

<PAGE>

                           SOVEREIGN CREDIT FINANCE I, INC.
 
                                    Balance Sheet

                                    June 30, 1997



                                       ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                     $  158,310
  Installment contracts receivable, net (Note 2)                 3,124,642
  Other current assets                                              86,526
                                                                ----------
     Total current assets                                        3,369,478

DEBT ISSUANCE COSTS, net of accumulated
 amortization of $30,812 (Note 5)                                  590,861
                                                                ----------
                                                                $3,960,339
                                                                ----------
                                                                ----------

                       LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable and accrued expenses                         $  106,242
  Dealer payable                                                    71,401
                                                                ----------
     Total current liabilities                                     177,643

NOTES PAYABLE (Note 3)                                           4,057,861

STOCKHOLDERS' DEFICIT
  Common stock, $.01 par value, 50,000 shares authorized,
   1,000 shares issued and outstanding                                  10
  Additional paid-in capital                                           990
  Deficit                                                         (276,165)
                                                                ----------
                                                                  (275,165)
                                                                ----------
                                                                $3,960,339
                                                                ----------
                                                                ----------

              See accompanying notes to financial statements.
<PAGE>

                        SOVEREIGN CREDIT FINANCE I, INC.

                            Statement of Operations

                     Period from March 19, 1996 (Inception)

                             through June 30, 1997



REVENUES - Interest income                                      $ 178,072

EXPENSES
 Contract purchase fees (Note 5)                                  294,106
 Interest expense                                                  61,894
 General and administrative (Note 5)                               44,925
 Amortization of debt issuance costs (Note 5)                      30,812
 Contract servicing fees (Note 5)                                  22,500
                                                                ---------
    Total expenses                                                454,237
                                                                ---------
LOSS BEFORE INCOME TAXES                                         (276,165)

INCOME TAXES (Note 4)                                                   -
                                                                ---------
NET LOSS                                                        $(276,165)
                                                                ---------
                                                                ---------
NET LOSS PER SHARE                                              $    (276)
                                                                ---------
                                                                ---------
WEIGHTED AVERAGE SHARES OUTSTANDING
 USED IN THE NET LOSS PER SHARE
 CALCULATION                                                        1,000
                                                                ---------
                                                                ---------

             See accompanying notes to financial statements.
<PAGE>

                          SOVEREIGN CREDIT FINANCE I, INC.

                     Statement of Changes in Stockholders' Deficit

                         Period from March 19, 1996 (Inception)

                                through June 30, 1997

                             Common Stock
                              Outstanding    Additional
                            ---------------    paid-in
                            Shares   Amount    capital   Deficit       Total 
                            ------   ------    -------   -------       -----
BALANCE, March 19, 1996
 (Inception)                     -    $ -       $  -    $       -    $       -

ISSUANCE OF COMMON SHARES    1,000     10        990            -        1,000

NET LOSS                         -      -          -     (276,165)    (276,165)
                             -----    ---       ----    ---------    ---------
BALANCE, June 30, 1997       1,000    $10       $990    $(276,165)   $(275,165)
                             -----    ---       ----    ---------    ---------
                             -----    ---       ----    ---------    ---------


                 See accompanying notes to financial statements.
<PAGE>

                         SOVEREIGN CREDIT FINANCE I, INC.

                             Statement of Cash Flows

                       Period from March 19, 1996 (Inception)

                              through June 30, 1997



CASH FLOWS FROM OPERATING ACTIVITIES
  Loss from operations                                         $  (276,165)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Amortization of debt issuance costs                            30,812
     Other current assets                                          (86,526)
     Accounts payable and accrued liabilities                      106,242
                                                               -----------
  Net cash used in operating activities                           (225,637)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of installment contracts                             (3,460,060)
  Collections on installment contracts                             335,418
  Issuance of common stock                                           1,000
                                                               -----------
  Net cash used in investing activities                         (3,123,642)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes payable                                    4,057,861
  Debt issuance costs                                             (621,673)
  Increase in dealer payables                                       71,401
                                                               -----------
  Net cash provided by financing activities                      3,507,589
                                                               -----------
                                                               -----------
NET INCREASE IN CASH                                               158,310

CASH AND CASH EQUIVALENTS, beginning of period                           -
                                                               -----------
CASH AND CASH EQUIVALENTS, end of period                       $   158,310
                                                               -----------
                                                               -----------
SUPPLEMENTAL INFORMATION
  Interest paid                                                $    31,859
                                                               -----------
                                                               -----------

              See accompanying notes to financial statements.

<PAGE>

                         SOVEREIGN CREDIT FINANCE I, INC.

                           Notes to Financial Statements

                                  June 30, 1997



1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    ORGANIZATION

    Sovereign Credit Finance I, Inc. (Company) was incorporated in Texas on 
    March 19, 1996.  The Company is a subsidiary of Sovereign Credit 
    Holdings, Inc. (Parent) and was formed for the purpose of purchasing, 
    collecting and servicing retail installment sales and lease contracts 
    and notes secured by motor vehicles (Contracts).  The Contracts are 
    purchased from various automobile dealers, and typically involve 
    consumers who cannot obtain loans from local financial institutions or 
    from the credit facilities of major automobile manufacturers.  The 
    "creditworthiness grade" of the obligors on the Contracts is usually "C" 
    or "D".  The Company does business primarily in the south and southwest.

    Sovereign Credit Corporation (SCC), which is also a subsidiary of the 
    Company's Parent, administers and manages the ongoing operations of the 
    Company.  The Company has contracted with Sovereign Associates, Inc. 
    (SAI), a subsidiary of SCC, to provide purchasing and collecting 
    services.

    PRESENTATION

    The financial statements present the activity for the period from March 19,
    1996 (inception) through June 30, 1997.  The statements are 
    reflected as such due to the minimal activity occurring from inception 
    through June 30, 1996.

    MANAGEMENT ESTIMATES

    In preparing financial statements in conformity with generally accepted 
    accounting principles, management is required to make estimates and 
    assumptions that affect the reported amounts of assets, liabilities, 
    revenues and expenses during the reporting period.  Actual results may 
    vary from such estimates.

    CONCENTRATIONS OF CREDIT RISK

    The Company's financial instruments exposed to concentrations of credit 
    risk consist primarily of cash and notes receivable.  Cash is maintained 
    in Federally insured financial institutions which are considered to be 
    of high credit quality.  Notes receivable are collateralized by titles 
    to automobiles.  However, these notes receivable are generally with 
    customers whose past credit problems cause the creditworthiness of the 
    loans to carry a grade of "C" or "D".  Some of the notes receivable have 
    been purchased from dealers with full or partial recourse.  Because cash 
    is Federally insured and notes receivable are collateralized by specific 
    automobiles, management considers concentrations of credit risk to be 
    limited.

    FINANCIAL INSTRUMENTS

    The carrying amounts of cash, cash equivalents and contracts receivable, 
    less the associated dealer holdbacks, approximate fair value because of 
    the actual or expected short maturity of these instruments.  The 
    carrying amount of the notes payable may change with market interest 
    rates or approximate market rates.
<PAGE>

    CASH AND CASH EQUIVALENTS

    Time deposits with maturities at date of purchase of three months or 
    less are considered components of cash.
    
    INTEREST INCOME

    Interest income on Contracts is recognized using the interest method of 
    accounting until the underlying obligation becomes 90 days past due or 
    the collateral securing the contract is repossessed, whichever occurs 
    first.  At such time, the Company suspends the accrual of revenue and 
    provides an allowance for possible losses on uncollected interest income 
    previously reported in earnings.
    
    ALLOWANCE FOR CREDIT LOSSES

    The Company maintains an allowance for credit losses which, in the 
    opinion of management, adequately reserves against expected future 
    losses in the portfolio of installment contracts receivable.  The 
    Company's primary business involves purchasing installment receivables 
    at a discount.  A portion of this discount is treated as a nonrefundable 
    reserve against which credit losses are charged.  Additional provisions 
    for credit losses, if necessary, are charged to income in amounts 
    considered by management to be adequate to absorb future credit losses 
    on the outstanding receivables.
    
    Provision for credit losses is dependent on a number of factors, 
    including, but not limited to, the level and trend of net charge-offs 
    and the overall economic conditions in the markets in which the Company 
    operates.  Because of the inherent uncertainty involved in predicting 
    the future performance of those factors, there can be no assurance 
    regarding the future level of provision for credit losses.
    
    DEBT ISSUANCE COSTS

    Debt issuance costs are amortized over the life of the Notes using the 
    interest method.
    
    DEALER PAYABLE
    
    As part of certain contract purchase agreements, the Company establishes 
    a dealer holdback at the time of purchase to protect the Company from 
    potential losses associated with installment contracts.  The dealer 
    holdback is established initially as a reduction to the gross amount 
    receivable under the contract.  As payments on the contract are received 
    from the customer, the portion of the dealer holdback which is earned by 
    the dealer is reclassified as dealer payable.

    EARNINGS PER SHARE
    
    In February 1997, Statement of Financial Accounting Standards No. 128, 
    "Earnings per Share" (SFAS 128), was issued.  SFAS 128 specifies the 
    computation, presentation and disclosure requirements for earnings per 
    share (EPS) for entities with publicly-held common stock or potential 
    common stock.  SFAS 128 simplifies the standards for computing EPS 
    previously found in Accounting Principles Board Opinion No. 15, 
    "Earnings per Share" (APB 15), and makes them comparable to 
    international EPS standards.  It replaces the presentation of primary 
    EPS with a presentation of basic EPS.  It also requires dual 
    presentation of basic and diluted EPS on the face of the statement of 
    operations for all entities with complex capital structures and requires 
    a reconciliation of the numerator and denominator of the basic EPS 
    computation to the numerator and denominator of the diluted EPS 
    computation.  SFAS 128 is effective for financial statements issued for 
    periods ending after December 15, 1997, including interim periods; 
    earlier application is
<PAGE>

    not permitted.  SFAS 128 requires restatement of all prior-period EPS 
    data presented.  The Company will adopt SFAS 128 in its financial 
    statements as of and for the year ending June 30, 1998 and, based on 
    current circumstances, does not believe the effect of adoption will be 
    material.

2.  INSTALLMENT CONTRACTS RECEIVABLE

    Installment contracts receivable consist of net balances receivable on 
    Contracts which are collateralized by the related vehicles and earn 
    interest at rates ranging from 9.16% to 30.83%. The average term of each 
    Contract is approximately 24 months.

    Installment contracts receivable consisted of the following at June 30, 
    1997: 
    
    
    Gross installment contracts receivable at June 30, 1996     $         -
    Additions through acquisition of contracts                    6,169,553
    Reductions from collections on contracts                       (335,418)
    Gross charge-offs                                               (19,794)
                                                                -----------
    Gross installment contracts receivable at June 30, 1997       5,814,341
    
    Unearned finance charges                                     (1,295,584)
    Unearned purchase discounts                                    (504,348)
    Unearned dealer holdback                                       (177,243)
    Allowance for credit losses                                    (712,524)
                                                                -----------
                                                                $ 3,124,642
                                                                -----------
                                                                -----------

    A summary of the changes in the allowance for credit losses is as follows:
    
    Balance at June 30, 1996                                    $         -
    Nonrefundable reserve for loan losses                           724,524
    Installment contracts receivable charged off against   
     allowance for credit losses, net                               (12,000)
                                                                -----------
                                                                $   712,524
                                                                -----------
                                                                -----------

3.  NOTES PAYABLE

    Notes payable (Notes) are unsecured, payable to various entities and 
    individuals and bear interest at 11%, payable monthly.  Principal is 
    payable in 6 equal installments commencing on September 15, 2000.  The 
    Notes mature February 15, 2001, at which time all unpaid principal and 
    interest are due.

    The Company has the option to redeem the Notes, in whole or in part, on 
    any principal payment date.  The redemption price is equal to the 
    outstanding principal balance plus accrued interest through the date of 
    the redemption.
    
4.  INCOME TAXES

    The Company had available at June 30, 1997, unused operating loss 
    carryforwards of approximately $276,000 which may be applied against 
    future taxable income.  The carryforward will expire in 2012 if not 
    previously utilized.  At an assumed tax rate of 34%, this carryforward 
    results in a deferred tax asset.
<PAGE>

    At June 30, 1997, the Company recorded a net long-term deferred tax 
    asset of approximately $94,000, for which a valuation allowance was 
    provided based on uncertainties regarding realization of the related tax 
    benefits.
    
    The components of the deferred tax asset at June 30, 1997 are approximately
    as follows:
    
    Net operating loss carryforward                                $ 94,000
    Less valuation allowance                                        (94,000)
                                                                   --------
                                                                   $      -
                                                                   --------
                                                                   --------

    A reconciliation between the statutory Federal income tax rate and the 
    effective income tax rates is as follows:
    
    Statutory Federal income tax rate                                  34.0%
    Valuation allowance                                               (34.0)%
                                                                      -----
    Provision for income taxes                                            -%
                                                                      -----
                                                                      -----

    The Company is subject to the Texas franchise tax law which includes an 
    income tax provision applicable to all corporations doing business in 
    Texas.  As a result, the Company is required to pay annually, the 
    greater of 4.5% of Federal taxable income or .25% of net taxable capital.
    
    No Federal or state income tax provision was required due to the 
    Company's net operating loss.

5.  RELATED PARTY TRANSACTIONS

    The Company pays SAI a monthly contract servicing fee of $20 for each 
    Contract that is not assigned for repossession and $125 for each 
    financed vehicle assigned for repossession.  The Company be entitled to 
    reimbursement of its expenses incurred in connection with the 
    repossession and resale of vehicles out of the proceeds from such 
    resales.  Contract servicing fees totaled approximately $22,000 for the 
    period from March 19, 1996 (inception) through June 30, 1997.
    
    Additionally, the Company pays SAI a contract purchase fee equal to the 
    lesser of $500 or 5% of the total amount of installments due under each 
    Contract as of the date of purchase for Contracts purchased during the 
    preceding calendar month.  Contract purchase fees totaled approximately 
    $294,000 for the period from March 19, 1996 (inception) through June 30, 
    1997.
    
    SCC manages the ongoing operations of the Company and has agreed to pay 
    certain general, administrative and overhead expenses incurred by the 
    Company.  In addition, SCC pays all offering and organization expenses 
    of the Company, with the exception of broker dealer fees, to the extent 
    such expenses exceed 2% of the gross proceeds from the sale of the 
    Notes. Expenses in excess of 2% of such amounts paid on behalf of the 
    Company through June 30, 1997 were approximately $32,000.
    
    The Company pays SCC 5.5% of the gross proceeds from the sale of the 
    Notes (5% of the gross proceeds in excess of $9,000,000).  Debt issuance 
    costs paid to SCC at June 30, 1997 were approximately $200,000.  These 
    debt issuance costs are stated at cost less accumulated amortization.
    
    SCC also administers noteholder payments, communications and relations 
    for an investor administration fee of 1/12 of .5% of the outstanding 
    principal balance of the Notes.  The Company paid approximately $4,000 
    in investor administration fees to SCC for the period from March 19, 
    1996 (inception) through June 30, 1997.  Investor administration fees 
    are included in general and administrative expenses.
    
<PAGE>

Item 8.   Changes In and Disagreements With Accountants on Accounting 
               and Financial Disclosure
          (not applicable)





                                       8
<PAGE>


PART III
                   
Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance With  Section 16(a) of the Exchange Act 

     The names, ages, backgrounds and principal occupations of the
     directors and executive officers of the Company, Holdings and SAI are
     as follows:

     STARKE (TRACY) TAYLOR, III, age 54, has been President and a Director
     of the Company, Holdings, Sovereign and SAI since the formation of
     such companies.  Mr. Taylor is a Dallas native.  He graduated from
     Southern Methodist University in 1966 with a B.B.B. degree and
     thereafter began a career in professional investment services.  From
     approximately 1970 to 1971 Mr. Taylor was head of the Employee
     Benefits department of Marsh and McClennan's  Dallas office, where he
     specialized in employee benefits.

     Mr. Taylor used his experience in the pension investment field as a
     springboard into a diversified financial career.  As a principal of
     the Watson and Taylor Companies, he was involved in the development
     and management of self storage facilities, business centers, shopping
     centers, real estate holdings nationwide and real estate notes.  He is
     a co-general partner in partnerships holding approximately four and
     one half million square feet of self storage facilities.

     Mr. Taylor was a partner in Lyco Acquisitions Number One, a company
     which purchased all of the oil and gas properties of Bethlehem Steel. 
     Later, he was a principal in Tex-Feld Petroleum Company, which
     operated a significant drilling program in the Southwest.

     Mr. Taylor has been a general partner in over 100 limited partnerships
     which involved real estate or oil and gas investments, with  total
     original investor contributions of approximately $150 million.  The
     investment objectives of these partnerships differes significantly
     with those of the company.  Many of these partnerships have
     experienced adverse business developments and conditions.  Real estate
     revenues have been adversely affected by the overall decline in the
     economy.  Many of these partnerships utilized a significant amount of
     leverage and have experienced significant operating deficits.  The
     properties owned by various of the partnerships were acquired by their
     lenders through foreclosure proceedings.

     Mr. Taylor has also served as a general partner or chief executive
     officer for 35 partnerships formed to acquire financial notes.

     Clearlake, Ltd., of which Mr. Taylor was an individual general
     partner, filed a voluntary petition under Chapter 11 of the Federal
     bankruptcy laws in September 1992.  The plan of reorganization was
     confirmed by the court, and all creditors were paid in full by April
     1994.

     Mr. Taylor is a past Chairman of the Board of Priority One, an
     international missionary organization, is on the Board of Trustees of
     Dallas Theological Seminary, is a past member of the Dallas County
     Advisory Board of the Salvation Army, is a board member of the
     Northeast Texas Regional Board of Young Life, and was the founding
     Chairman of the Board of the Park Central Athletic Association.  He is
     past President of the Dallas fire Fighters Association, past President
     of the North Dallas Chamber of 

                                       9

<PAGE>

     Commerce and a past member of the Board of Directors of the MBank 
     Lincoln Center and MBank Preston.  Mr. Taylor was recognized in 1983 
     by D MAGAZINE as one of Dallas' ten most outstanding business leaders.

     Mr. Taylor is married and has five children.

     WILLIAM P. GLASS, age 39, has been Vice President of  Marketing and a
     director of Sovereign since April, 1990 and Vice President and a
     director of the Company and Holdings since the formation of such
     companies.  Mr. Glass is responsible for all marketing and investor
     relations activities for the Company.  He attended Baylor University
     and was drafted by the Cincinnati Bengals of the National Football
     League in 1980.  Mr. Glass began his business career in 1981 with Hank
     Dickerson & Co. Realtors.  In his position as a Sales Associate he led
     the Office Division in sales for two of the three years he was
     employed the Hank Dickerson & Co.

     In 1993, Mr. Glass formed BDI Commercial Real Estate Inc.,
     specializing in commercial real estate brokerage and the syndication
     of real estate properties.  Mr. Glass was venture manager in over 30
     general partnerships.  In 1989, Mr. Glass sold BGI Commercial Real
     estate and joined Cornerstone Commercial Real Estate, Ltd., as Senior
     vice President.  Cornerstone is a sister company to the Trammell Crow
     Development Company.  In April, 1990, Mr. Glass left Cornerstone and
     became a Vice President of Sovereign.

     Mr. Glass is on the Executive Committee of the Board of Directors of
     his father's prison ministry, the Bill Glass Evangelistic Association. 
     He is a former board member of Young Life of Southwest Dallas County. 
     He is a member of Hope Community Church in Cedar Hill.  He is a member
     of Oak Cliff Country Club in Dallas.  Mr. Glass resides in DeSoto,
     Texas with his wife and three children.

     B. A. BREEDING, age 56, serves as Vice President and Controller of
     Sovereign.  Mr. Breeding is responsible for financial accounting,
     banking and the day-to-day financial duties.  He has been with
     Sovereign since April 1997.  From 1989 to January 1995, he was
     employed by the Lomas Financial Group, a real estate finance,
     investment, and servicing company, in a financial management capacity. 
     Mr. Breeding began a private accounting practice in 1996, where he
     continued until joining Sovereign.

     Immediately prior to joining Sovereign in March 1997, Mr. Breeding had
     his own accounting practice.  Prior to that he was a Vice President
     with the Lomas Financial Group, responsible for the financial
     reporting for some of its publicly traded companies.  Prior to joining
     Lomas, Mr. Breeding was Senior Vice President and Controller of a
     Dallas bank.

     Mr. Breeding is married and has one child.

     CHRISTOPHER R. FRATTAROLI, age 31, is Treasurer and a director of the
     Company, Holdings and Sovereign, and is Treasurer of SAI.  He has been
     with the Company and Holdings since their formations, and with
     Sovereign and SAI since December 1994.  Mr. Frattaroli is responsible
     for marketing to potential institutional investors.  Mr. Frattaroli
     graduated from Duke University in 1988 with a Bachelor of Arts degree
     in Art History.

     In May, 1988, Mr. Frattaroli joined Intermarket Management, Inc. at
     which he attained 

                                       10

<PAGE>

     the office of Vice President and enjoyed a minority interest in the 
     company.  The company's primary business focus was index arbitrage of 
     equity, currency, and commodity markets.  Mr. Frattaroli left the 
     company in February, 1992.

     In March, 1992,  Mr. Frattaroli joined American International group
     Trading, Inc. as a trader/market maker in the foreign exchange market. 
     Mr. Frattaroli left the company in December, 1994.  Mr. Frattaroli
     trade in the spot market as well as arbitraging with the futures
     exchanges. 

     Mr. Frattaroli joined Sovereign in December of 1994.  He is married to
     the daughter of A. Starke Taylor, III and has two children.
     
     The directors and executive officers of the Company have served in
     their respective offices since the organization of the Company.  All
     directors hold office until the next annual meeting of stockholders or
     the election and qualification of their successors

Item 10. Executive Compensation

     No director or officer of the Company has received any compensation
     from the Company since its formation, nor will they receive any
     compensation from the Company prior to satisfaction in full of the
     Notes.
     
Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth information, as of June 30, 1997
     relating to the beneficial ownership of the Company's Common Stock by
     any person or "group", as that term is used in Item 403 of Regulation
     S-B, known to the Company to own beneficially 5% or more of the
     outstanding shares of Common Stock, and known to the Company to be
     owned by each director of the Company and by all officers and
     directors of the Company as a group.  Except as otherwise indicated,
     each of the persons named below is believed by the Company to possess
     sole voting and investment power with respect to the shares of Common
     Stock beneficially owned by such person.

                                                         Amount and Nature of 
                                                        Beneficial Ownership(1)
                                                        -----------------------
     Name of Director or                                Number of          
     Name and Address of                                 Shares     Percentage
     Beneficial Owner                                  Outstanding   of Class
     -------------------                               -----------   --------

     Sovereign Credit Holdings, Inc.(2) . . . . . . . . . 1,000        100%
     4015 Beltline Road
     Building B
     Dallas, Texas 75244
               
     A. Starke Taylor, III  . . . . . . . . . . . . . . .     0(2)      --
     William P. Glass . . . . . . . . . . . . . . . . . .     0(2)      --
     Christopher R. Frattaroli. . . . . . . . . . . . . .     0(2)      --
     Diane D. Taylor, Trustee . . . . . . . . . . . . . .     0(3)      --
     4015 Beltline Road
     Building B
     Dallas, Texas 75244
     All officers and directors as a group (3 persons). .     0(4)      --

---------------
(1)  The information as to beneficial ownership of Common Stock has been
     furnished 

                                       11

<PAGE>

     by the respective shareholders, directors and officers of the Company.
     (2)  The directors of Sovereign Credit Holdings, Inc. ("Holdings")
     could be deemed to share voting and investment powers over the shares
     owned of record by Holdings.  The directors of Holdings are A. Starke
     Taylor, III, William P. Glass and Christopher R. Frattaroli.  Mr.
     Taylor owns 30% of Holding's common stock.  Mr. Glass owns 10% of
     Holding's common stock.  The business address for Mr. Taylor, Mr.
     Glass, and Mr. Frattaroli is Holding's address.
     (3)  Diane D. Taylor, the wife of Mr. A. Starke Taylor, III, serves as
     trustee of the Austin S. Taylor, III investment trust No. 2, which
     owns 43.92% of Holding's common stock and of which Mr. A. Starke
     Taylor, III, is the beneficiary, and of five trusts which each owns 3%
     of Holding's common stock and of which her and A. Starke Taylor, III's
     children (including Mr. Frattaroli's wife) are the beneficiaries.  The
     business address for Ms. Taylor and each of the foregoing trusts is
     Holding's address.
     (4)  This amount excludes shares owned directly by Holdings.

Item 12. Certain Relationships and Related Transactions

     Both the Company and Sovereign are subsidiaries of Holdings.  In addition,
     SAI is a subsidiary of  Sovereign.  Sovereign manages a number of other
     note purchasing entities (the "Securitization Subsidiaries"), including
     entities whose business purposes are or will be, or may include, the
     purchasing and servicing of used motor vehicle retail installment contracts
     and notes.  Purchasing and servicing for such entities will be conducted by
     SAI.  Sovereign or Holdings beneficially own from 50% to 100% of the
     outstanding equity of the Securitization Subsidiaries.  Sovereign manages
     all of the Securitization Subsidiaries in addition to the Company.

     Under the terms of the Servicing Agreement, the Company pays Servicing fees
     of $20 per month per Contract to SAI.  The Company also pays to SAI a
     Purchase Administration Fee equal to the lesser of $500 per Contract
     purchased, or 5% of the total amount of installments due under the Contract
     as of the date of purchase.  SAI will be paid a fee of $125 for each
     vehicle repossessed and will be entitled to reimbursement of its expenses
     incurred in connection with the repossession and resale of vehicles out of
     the proceeds from such resales.

     The Company will pay Sovereign a monthly fee (the "Investor Administration
     Fee") equal to 1/12th of 0.5% of the aggregate outstanding principal amount
     of the Notes to reimburse expenses incurred in the administration of
     Noteholder payments, communications and relations for the Company.  The
     Company will use up to 2% of the gross proceeds from the sale of the Notes
     to pay offering and organizational expenses.  Sovereign has agreed to pay
     such expenses to the extent that they exceed 2% of the gross proceeds from
     the sale of the Notes.  The Company will pay to Sovereign a fee equal to
     5.5% of the gross proceeds from the sale of the Notes (5% of the gross
     proceeds in excess of $9 million) for administering and managing the
     ongoing operations of the Company.

     The Company may purchase Contracts from Sovereign, SAI or its affiliates,
     including affiliates that are Dealers, but only if such Contracts are not
     in default and satisfied the purchasing criteria established in the trust
     indenture and the Servicing agreement at the time of their purchase from
     the original Dealer.  Any qualifying Contracts will be sold by Sovereign,
     SAI or its affiliate to the Company at a price for each Contract equal to
     the Purchase Administration Fee paid by the original purchaser plus an
     amount determined to provide the Company an internal rate of return on its
     investment in the 

                                       12

<PAGE>

     Contract from the remaining unpaid installments equal to the original 
     purchaser's initial internal rate of return on its investment in the 
     Contract, as of its purchase from the Dealer, assuming in both cases
     the Contract was paid in full in accordance with its scheduled
     installments.  Such seller will retain any installments received by it
     prior to purchase by the Company and any profits resulting from the
     difference between such installments and the reduction in the purchase
     price paid to such seller by the Company from the price paid by  such
     seller to the Dealer.
     
Item 13. Exhibits and Reports on form 8-K.
          
     (a) See Exhibits following the signature page.
          
     (b) Reports on Form 8-K.  A report on Form 8-K dated June 24, 1997 was
     filed during the last quarter of the period covered by this report,
     reporting a change in the issuer's certifying accountant. 


                                       13

<PAGE>

SIGNATURES

    In accordance with the Exchange Act, this report has been signed below by
    the following persons on behalf of the registrant and in the capacities and
    on the dates indicated.
    
        Signature                 Title                      Date
        ---------                 -----                      ----

   /s/ A. Starke Taylor, III      President,                 
   -----------------------------  (principal executive       
   A. Starke Taylor, III          officer) and director       September 29, 1997

   /s/ Christopher R. Frattaroli  Treasurer
   -----------------------------  (principal financial officer
   Christopher R. Frattaroli      and chief accounting
                                  officer) and director       September 29, 1997

   /s/ William P. Glass           Director
   -----------------------------                              September 29, 1997
   William P. Glass             

    Supplemental information to be Furnished With Reports Filed Pursuant to
    Section 15(d) of the Exchange Act By Non-reporting Issuers:
    
    No annual report or proxy material has been sent to security holders for
    the period covered by this report, as of September 29, 1997.  The
    registrant intends to send an annual report to its noteholders for such
    period, and shall furnish copies of such material to the Commission when it
    is sent to security holders.
     

                                       14

<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*

10.41     Broker-dealer Selling Agreement Between 
          Sovereign Credit Finance I, Inc. and  
          American Investment Services, Inc.*

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
<PAGE>

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