UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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: 0-16645
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0157561
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
--------------------- ----------
(Address of principal executive offices) (Zip Code)
(650) 343-9300
--------------
(Registrant's telephone number)
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 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
--- ---
Total number of units outstanding as of June 30, 1998: 14,555
Page 1 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Assets
- ------
Investments in real estate:
Rental property, net of accumulated
depreciation of $1,545 and $1,463
at June 30, 1998 and December 31,
1997, respectively $ 4,727 $ 4,803
Rental property held for sale, at estimated fair value 675 675
-------------- --------------
Net real estate investments 5,402 5,478
Cash and cash equivalents 976 749
Accounts receivable 18 70
Deferred costs, net of accumulated amortization
of $33 and $30 at June 30, 1998 and
December 31, 1997, respectively 12 15
Other assets 17 11
Total assets $ 6,425 $ 6,323
============== ==============
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Accounts payable and other liabilities $ 110 $ 85
-------------- --------------
Partners' equity (deficit):
General Partner (179) (180)
Limited Partners, 14,555 limited partnership
units outstanding at June 30, 1998
and December 31, 1997 6,494 6,418
-------------- --------------
Total partners' equity 6,315 6,238
-------------- --------------
Total liabilities and partners' equity $ 6,425 $ 6,323
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Income
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------- ----------- ----------- -----------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 267 $ 256 $ 544 $ 559
Interest and other income 8 4 14 7
---------- ---------- --------- ----------
Total revenue 275 260 558 566
---------- ---------- --------- ----------
Expenses:
Operating 104 107 225 225
Depreciation and amortization 41 45 85 91
General and administrative 79 67 143 134
---------- ---------- --------- ----------
Total expenses 224 219 453 450
---------- ---------- --------- ----------
Net income $ 51 $ 41 $ 105 $ 116
Net income per limited partnership unit $ 3.51 $ 2.82 $ 7.15 $ 7.90
========== =========== ========== ==========
Distributions per limited partnership unit:
From net income $ 1.92 $ 0.96 $ 1.92 $ 0.96
Representing return of capital -- -- -- --
---------- ----------- ---------- ----------
Total distributions per limited
partnership unit $ 1.92 $ 0.96 $ 1.92 $ 0.96
========== =========== ========== ==========
Weighted average number of limited partnership
units outstanding during the period used to
compute net income and distributions per
limited partnership unit 14,555 14,555 14,555 14,555
========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the six months ended June 30, 1998 and 1997
(in thousands)
(Unaudited)
General Limited
Partner Partners Total
Balance at December 31, 1997 $ (180) $ 6,418 $ 6,238
Net income 1 104 105
Distributions -- (28) (28)
------------- ------------ -------------
Balance at June 30, 1998 $ (179) $ 6,494 $ 6,315
============= ============ =============
Balance at December 31, 1996 $ (178) $ 6,623 $ 6,445
Net income 1 115 116
Distributions -- (14) (14)
------------- ------------ -------------
Balance at June 30, 1997 $ (177) $ 6,724 $ 6,547
============= ============ =============
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
Six months ended
June 30,
----------------
1998 1997
-------------------------
Cash flows from operating activities:
Net income $ 105 $ 116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 85 91
Changes in certain assets and liabilities:
Account receivable 52 --
Deferred costs -- (2)
Other assets (6) (27)
(2)
--------- ---------
Net cash provided by operating activities 261 176
--------- ---------
Cash flows from investing activities:
Additions to real estate (6) (27)
--------- --------
Cash flows from financing activities:
Distributions to partners (28) (14)
--------- -------
Net increase in cash and cash equivalents 227 135
Cash and cash equivalents at beginning of period 749 426
--------- ------
Cash and cash equivalents at end of period $ 976 $ 561
========= ======
See accompanying notes to financial statements.
Page 5 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1998
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
In the opinion of Rancon Financial Corporation (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Corporation (successor by merger with Glenborough
Inland Realty Corporation) ("Glenborough"), the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of Rancon Income Fund I, a
California Limited Partnership, (the Partnership) as of June 30, 1998 and
December 31, 1997, and the related statements of income, for the three and six
months ended June 30, 1998 and 1997, and the changes in partners' equity
(deficit) and cash flows for the six months ended June 30, 1998 and 1997.
Allocation of the profits and losses from operations are made pursuant to the
terms of the Partnership Agreement. Generally, net income and distributions from
operations are allocated 90% to the limited partners and 10% to the general
partner. Net losses from operations are allocated 90% to the limited partners
and 10% to the general partner until such time as a partner's account is reduced
to zero. Additional losses will be allocated entirely to those partners with
positive account balances until such balances are reduced to zero. In no event
will the general partner be allocated less than 1% of net losses for any period.
Distributions of cash from operations are generally allocated as follows: (i)
first to the Limited Partners until they receive a noncumulative 6% return per
annum on their unreturned capital contributions and (ii) the remainder, if any
in a given year, shall be divided in the ratio of 90% to the Limited Partners
and 10% to the General Partner.
Effective January 1, 1995, RFC entered into an agreement with Glenborough
whereby RFC sold to Glenborough the contract to perform the rights and
responsibilities under RFC's agreement with the Partnership and other related
Partnerships (collectively, the Rancon Partnerships) to perform or contract on
the Partnership's behalf for financial, accounting, data processing, marketing,
legal, investor relations, asset and development management and consulting
services for the Partnership for a period of ten years or until the liquidation
of the Partnership, whichever comes first. Effective January 1, 1998 the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relation services and Preferred Partnership Services, Inc. ("PPS"), a
California Corporation unaffiliated with the Partnership, contracted to assume
these services. According to the contract, the Partnership will pay Glenborough
for its services as follows: (i) a specified annual asset administration fee
($187,000 in 1998); (ii) sales fees of 2% for improved properties and 4% for
land; (iii) a refinancing fee of 1% and (iv) a management fee of 5% of gross
rental receipts. As part of this agreement, Glenborough will perform certain
responsibilities for the General Partner of the Rancon Partnerships and RFC
agreed to cooperate with Glenborough, should Glenborough attempt to obtain a
majority vote of the limited partners to substitute itself as the Sponsor for
the Rancon Partnerships. Glenborough is not an affiliate of the Partnership or
RFC.
Page 6 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1998
(Unaudited)
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1997 audited
financial statements.
Page 7 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
INTRODUCTION
- ------------
The following discussion addresses the Partnership's financial condition at June
30, 1998 and its results of operations for the six months ended June 30, 1998
and 1997. This information should be read in conjunction with the Partnership's
audited December 31, 1997 Financial Statements, notes thereto and other
information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of April 21, 1989, Rancon Income Fund I (the Partnership) was funded from the
sale of 14,559 limited partnership units (Units) in the amount of $14,559,000.
Four Units were retired in 1990 and 14,555 Units remain outstanding at June 30,
1998. As of June 30, 1998 the Partnership had cash and cash equivalents of
$976,000. The remainder of the Partnership's assets consist primarily of its
investments in properties, which totaled approximately $5,402,000 at June 30,
1998.
The Partnership's primary source of funds consisted of the proceeds of its
public offering of Units. As the Partnership was organized for the purpose of
acquiring income producing properties, the cash generated from such properties,
net of costs incurred in operating the properties, has also been a significant
source of funds for the Partnership. Such cash flows from operating activities
have been sufficient to provide funds to reinvest in the properties by way of
improvements, as well as to fund distributions to the limited partners.
The Partnership currently owns three properties: Wakefield Industrial Center (a
44,200 square foot light industrial building in Temecula, California), Bristol
Medical Center (a 52,311 square foot office building in Santa Ana, California)
and Aztec Village Shopping Center (a 23,789 square foot retail center in San
Diego, California).
Management believes that the Partnership's available cash together with the cash
generated by the operations of the Partnership's properties will be sufficient
to finance the Partnership's continued operations. The Partnership is currently
soliciting offers for the sale of Aztec Village Shopping Center. This rental
property is classified as property held for sale on the Partnership's June 30,
1998 and December 31, 1997 balance sheets.
The decrease in accounts receivable from December 31, 1997 to June 30, 1998 is
primarily due to the collection of tenant rent receivables from Bristol Medical
Center and Wakefield Industrial Center.
The increase in accounts payable and other liabilities from December 31, 1997 to
June 30, 1998 is due to the accrual of property taxes and audit fees.
RESULTS OF OPERATIONS
- ---------------------
Rental income decreased only 2.7% in the six months ended June 30, 1998 compared
to the same period in 1997. Occupancy rates as of June 30, 1998 were 75%, 46%,
100% for the Bristol Medical
Page 8 of 11
<PAGE>
Center, Aztec Village Shopping Center and Wakefield Building properties,
respectively, compared to 83%, 42% and 100%, respectively,as of June 30, 1997.
Interest income increased in the six months ended June 30, 1998 compared to the
same period in 1997, primarily due to the interest earned on a higher invested
cash balance.
Operating expense, depreciation and amortization expense and general and
administrative expense experienced only minimal variances during the three and
six months ended June 30, 1998 compared to the three and six months ended June
30, 1997.
YEAR 2000 COMPLIANCE
- --------------------
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given the information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 9 of 11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
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
(a) Exhibits:
#27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 10 of 11
<PAGE>
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.
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: August 14, 1998 By:____________________________________
Daniel L. Stephenson
Director, President, Chief
Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of Rancon Income
Partners I, L.P.
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000791996
<NAME> RANCON INCOME FUND I
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 976
<SECURITIES> 0
<RECEIVABLES> 18
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 993
<PP&E> 5,402
<DEPRECIATION> 1,545
<TOTAL-ASSETS> 6,425
<CURRENT-LIABILITIES> 110
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,315
<TOTAL-LIABILITY-AND-EQUITY> 6,425
<SALES> 0
<TOTAL-REVENUES> 275
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 51
<INCOME-TAX> 0
<INCOME-CONTINUING> 51
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
