UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 September 30, 1997: 14,555
Page 1 of 12
<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>
September 30, December 31,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated
depreciation of $1,419 and $1,423 at
September 30, 1997 and December 31,
1996 , respectively $ 4,846 $ 4,954
Rental property held for sale 1,113 1,104
-------------- --------------
Net real estate investments 5,959 6,058
Cash and cash equivalents 686 426
Deferred costs, net of accumulated amortization
of $29 and $196 at September 30, 1997 and
December 31, 1996, respectively 15 19
Other assets 50 28
-------------- --------------
Total assets $ 6,710 $ 6,531
============== ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and other liabilities $ 112 $ 86
-------------- --------------
Partners' equity (deficit):
General Partner (176) (178)
Limited Partners, 14,555 limited partnership
units outstanding at September 30, 1997
and December 31, 1996 6,774 6,623
-------------- --------------
Total partners' equity 6,598 6,445
-------------- --------------
Total liabilities and partners' equity $ 6,710 $ 6,531
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 12
<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 Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------- ----- ---- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 283 $ 261 $ 842 $ 848
Interest and other income 4 19 11 118
---------- ---------- --------- ----------
Total revenue 287 280 853 966
---------- ---------- --------- ----------
Expenses:
Operating 102 126 327 413
Depreciation and amortization 44 57 135 174
General and administrative 62 69 196 218
---------- ---------- --------- ----------
Total expenses 208 252 658 805
---------- ---------- --------- ----------
Net income $ 79 $ 28 $ 195 $ 161
========== ========== ========= ==========
Net income per limited partnership unit $ 5.36 $ 1.92 $ 13.26 $ 10.92
========== ========== ========= ==========
Distributions per limited partnership unit:
From net income $ 1.92 $ 0.96 $ 2.88 $ 6.05
Representing return of capital --- --- --- ---
---------- ---------- --------- ----------
Total distributions per limited
partnership unit $ 1.92 $ 0.96 $ 2.88 $ 6.05
========== ========== ========= ==========
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 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the nine months ended September 30, 1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (178) $ 6,623 $ 6,445
Net income 2 193 195
Distributions --- (42) (42)
------------- ------------ -------------
Balance at September 30, 1997 $ (176) $ 6,774 $ 6,598
============= ============ =============
Balance at December 31, 1995 $ (164) $ 8,105 $ 7,941
Net income 2 159 161
Distributions --- (88) (88)
------------- ------------ -------------
Balance at September 30, 1996 $ (162) $ 8,176 $ 8,014
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 195 $ 161
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 135 174
Changes in certain assets and liabilities:
Deferred costs (1) ---
Other assets (22) 5
Accounts payable and other liabilities 26 (15)
------------ -----------
Net cash provided by operating activities 333 325
------------ -----------
Cash flows from investing activities:
Additions to real estate (31) (143)
------------ -----------
Cash flows from financing activities:
Distributions to partners (42) (88)
------------ -----------
Net increase in cash and cash equivalents 260 94
Cash and cash equivalents at beginning of period 426 274
------------ -----------
Cash and cash equivalents at end of period $ 686 $ 368
============ ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(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), 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 September 30, 1997 and December 31,
1996, and the related statements of income for the three and nine months ended
September 30, 1997 and 1996, and changes in partners' equity (deficit) and cash
flows for the nine months ended September 30, 1997 and 1996.
Allocation of the profits and losses from operations are made pursuant to the
terms of the Partnership Agreement. Generally, net income from operations is
allocated to the general partner and limited partners in proportion to the
amounts of cash from operations distributed to the partners for each fiscal
year. If there are no distributions of cash from operations during such fiscal
year, net income shall be 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 income or
net loss 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.
In December, 1994, RFC entered into an agreement with Glenborough Corporation
(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. According to the
contract, the Partnership will pay Glenborough for its services as follows: (i)
a specified asset administration fee of $208,000 per year, which is fixed for
five years subject to reduction in the year following the sale of assets; (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
Page 6 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(Unaudited)
substitute itself as the Sponsor for the Rancon Partnerships. This agreement was
effective January 1, 1995. Glenborough is not an affiliate of RFC or the
Partnership.
Reclassifications - Certain amounts in the 1996 financial statements have been
reclassified to conform to the current year presentation.
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1996 audited
financial statements.
Note 3. INVESTMENTS IN REAL ESTATE
At September 30, 1997, the Partnership owned three properties: Wakefield
Industrial Center (a 44,200 square foot light industrial building in Temecula,
California), Bristol Medical Center (two office buildings totaling 52,311 square
feet in Santa Ana, California) and Aztec Village Shopping Center (a 23,789
square foot retail center in San Diego, California). Management is currently
soliciting offers for the sale of Aztec Village Shopping Center; accordingly,
this rental property is classified as property held for sale on the
Partnership's September 30, 1997 and December 31, 1996 balance sheets.
Page 7 of 12
<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
September 30, 1997 and its results of operations for the nine months ended
September 30, 1997 and 1996. This information should be read in conjunction with
the Partnership's audited December 31, 1996 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 September
30, 1997. As of September 30, 1997 the Partnership had cash and cash equivalents
of $686,000. The remainder of the Partnership's assets consist primarily of its
investments in real estate, which totaled approximately $5,959,000 at September
30, 1997.
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. Another
source of funds is the interest earned on cash balances.
All of the Partnership's assets are located in Southern California and have been
directly affected by the economic weakness of the region. Management believes,
however, that while prices have not increased significantly, the Southern
California real estate market appears to be improving. Management continues to
evaluate the real estate market in which the Partnership's assets are located in
an effort to determine the optimal time to dispose of them and realize their
maximum value.
At September 30, 1997, the Partnership owned three properties: Wakefield
Industrial Center (a 44,200 square foot light industrial building in Temecula,
California), Bristol Medical Center (two office buildings totaling 52,311 square
feet in Santa Ana, California) and Aztec Village Shopping Center (a 23,789
square foot retail center in San Diego, California). Management is currently
soliciting offers for the sale of Aztec Village Shopping Center; accordingly,
this rental property is classified as property held for sale on the
Partnership's September 30, 1997 and December 31, 1996 balance sheets.
Page 8 of 12
<PAGE>
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. As the Partnership's
properties are owned free of mortgage indebtedness, the long term operations of
the properties and the Partnership are expected to be comparable to the current
operations.
RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 1997 to the nine months ended
September 30, 1996
Rental income remained consistent in the nine months ended September 30, 1997
compared to the same period in 1996. Occupancy rates as of September 30, 1997
were 82%, 46%, 100% for the Bristol Medical Center, Aztec Village Shopping
Center and Wakefield Building properties, respectively, compared to 85%, 38% and
100%, respectively, as of September 30, 1996. St. Jude's Heritage Health, a
tenant representing 48% of the space at Bristol Medical Center, has signed a one
year lease extension to September 30, 1998.
Interest and other income decreased $107,000, or 91%, primarily due to a
one-time legal settlement of $110,000 in 1996 from a former tenant at the
Bristol Medical Center.
Operating expenses decreased $86,000, or 21%, for the nine months ended
September 30, 1997 compared to the same period in 1996 primarily due to $42,000
of legal fees incurred in 1996 in connection with the settlement of a former
tenant at Bristol Medical Center. The remaining decrease is comprised of $9,000
of costs incurred in 1996 when the Partnership obtained appraisals of the rental
properties, a $15,000 decrease in property taxes as a result of a reduction in
the assessed value of the Partnership's Aztec Village property, and the
write-off of uncollectable receivables in 1996 of $14,000.
Depreciation and amortization expense for the nine months ended September 30,
1997 decreased $39,000, or 22%, as compared to the same period in 1996. Of the
decrease, $22,000 is a result of certain lease commissions and tenant
improvements becoming fully amortized/depreciated and $17,000 relates to a
decrease in depreciation of the Aztec Village Shopping Center as such property
was classified as held for sale at December 31, 1996 and accordingly,
depreciation of the asset ceased.
General and administrative expenses decreased $22,000, or 10%, for the nine
months ended September 30, 1997 compared to the nine months ended September 30,
1996. The decrease is primarily due to a payment of $6,000 for professional
services in 1996 rendered in connection with the valuation of the limited
partner interests combined with a decrease in the tax preparation fees of
$13,000 as a result of additional one-time services incurred in 1996.
Comparison of the three months ended September 30, 1997 to the three months
ended September 30, 1996
Rental income increased $22,000, or 8%, during the three months ended September
30, 1997 compared to the same period in 1996 primarily due to a reclassification
of $10,000 in 1996 (from rental income to other income) received from a one-time
legal settlement. Of the remaining increase, $5,000 relates to an increase in
rent by a tenant at Bristol Medical Center and $7,000 relates to one-time rent
abatements given to a tenant in 1996.
Page 9 of 12
<PAGE>
Interest and other income decreased $15,000, or 79%, due to a one-time legal
settlement of $15,000 in 1996 from a former tenant at the Bristol Medical
Center.
Operating expenses decreased $24,000, or 19%, for the three months ended
September 30, 1997 compared to the same period in 1996 due to $5,000 of legal
fees incurred in 1996 in connection with the settlement of a former tenant at
Bristol Medical Center, an $8,000 decrease in property taxes as a result of a
reduction in the assessed value of the Partnership's Aztec Village property and
an $8,000 decrease in related tax appeal fees. Additionally, $3,000 of the 1996
expense related to the write-off of uncollectable receivables.
Depreciation and amortization expense for the three months ended September 30,
1997 decreased $13,000, or 23%, as compared to the same period in 1996. Of the
decrease, $6,000 is a result of certain lease commissions and tenant
improvements becoming fully amortized/depreciated and $7,000 relates to a
decrease in depreciation of the Aztec Village Shopping Center as such property
was classified as held for sale at December 31, 1996 and accordingly,
depreciation of the asset ceased.
General and administrative expenses decreased $7,000, or 10%, for the three
months ended September 30, 1997 compared to the three months ended September 30,
1996. The decrease is primarily due to a decrease in tax preparation fees of
$15,000 as a result of additional one-time services incurred in 1996 combined
with a $2,000 decrease in data processing charges.
Page 10 of 12
<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 11 of 12
<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: January 28, 1998 By: /s/ Daniel L. Stephenson
-------------------------
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 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000791996
<NAME> Rancon Income Fund I
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 686
<SECURITIES> 0
<RECEIVABLES> 33
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 736
<PP&E> 7,717
<DEPRECIATION> (1,758)
<TOTAL-ASSETS> 6,710
<CURRENT-LIABILITIES> 112
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,598
<TOTAL-LIABILITY-AND-EQUITY> 6,710
<SALES> 0
<TOTAL-REVENUES> 853
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 195
<INCOME-TAX> 0
<INCOME-CONTINUING> 195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
