UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-19063
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PHOENIX INCOME FUND, L.P.
- --------------------------------------------------------------------------------
Registrant
California 68-0204588
- ---------------------------------- ----------------------------------
State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
- --------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
--------------
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
preceding requirements for the past 90 days.
Yes X No
----- -----
169,604 Units of Limited Partnership Interest were outstanding as of September
30, 1998.
Transitional small business disclosure format:
Yes No X
----- -----
Page 1 of 12
<PAGE>
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
PHOENIX INCOME FUND, L.P.
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $2,863 $2,693
Accounts receivable (net of allowance for losses
on accounts receivable of $112 and $157 at
September 30, 1998 and December 31, 1997,
respectively) 9 206
Notes receivable (net of allowance for losses
on notes receivable of $162 at September 30,
1998 and December 31, 1997) 420 812
Equipment on operating leases and held for lease
(net of accumulated depreciation of $3,447 and
$6,141 at September 30, 1998 and December 31,
1997, respectively) 18 204
Netinvestment in financing leases (net of allowance
for early terminations of $90 and $80 at
September 30, 1998 and December 31, 1997,
respectively) 804 1,758
Investment in joint ventures 133 296
Capitalized acquisition fees (net of accumulated
amortization of $3,573 and $3,508 at September
30, 1998 and December 31, 1997, respectively) 49 114
Other assets 48 55
------ ------
Total Assets $4,344 $6,138
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 282 $ 508
------ ------
Total Liabilities 282 508
------ ------
Partners' Capital
General Partner -- --
Limited Partners, 300,000 units authorized,
175,285 units issued and 169,604 and
169,972 units outstanding at September 30,
1998 and December 31, 1997, respectively 4,042 5,604
Unrealized gains on available-for-sale
securities 20 26
------ ------
Total Partners' Capital 4,062 5,630
------ ------
Total Liabilities and Partners' Capital $4,344 $6,138
====== ======
The accompanying notes are an integral part of these statements.
2
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
INCOME
Rental income $ 624 $ 336 $1,228 $1,278
Earned income, financing leases 36 95 155 401
Gain on sale of equipment 4 56 52 238
Equity in earnings from joint ventures,
net 32 40 156 142
Interest income, notes receivable 40 53 103 186
Other income 35 40 97 130
------ ------ ------ ------
Total Income 771 620 1,791 2,375
------ ------ ------ ------
EXPENSES
Depreciation 46 105 187 342
Amortization of acquisition fees 20 35 65 128
Lease related operating expenses 7 9 41 90
Management fees to General Partner 37 45 99 172
Reimbursed administrative costs to
General Partner 17 32 69 154
Provision for losses on receivables -- 44 10 68
General and administrative expenses 19 29 81 103
------ ------ ------ ------
Total Expenses 146 299 552 1,057
------ ------ ------ ------
NET INCOME $ 625 $ 321 $1,239 $1,318
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 3.31 $ 1.39 $ 6.48 $ 6.26
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ 2.94 $ 9.35 $15.86 $28.05
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 28 $ 84 $ 140 $ 252
Limited Partners 597 237 1,099 1,066
------ ------ ------ ------
$ 625 $ 321 $1,239 $1,318
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Operating Activities:
- --------------------
Net income $ 1,239 $ 1,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 187 342
Amortization of acquisition fees 65 128
Equity in earnings from joint ventures, net (156) (142)
Gain on sale of equipment (52) (238)
Gain on sale of securities (4) --
Provision for (recovery of) losses in
accounts receivable (9) 34
Provision for early termination, financing
leases 19 34
Decrease (increase) in accounts receivable 206 (68)
Decrease in accounts payable and accrued
expenses (226) (113)
Decrease in other assets 1 39
------- -------
Net cash provided by operating activities 1,270 1,334
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 934 2,341
Principal payments, notes receivable 490 379
Proceeds from sale of equipment 52 351
Distributions from joint ventures 319 815
Proceeds from sale of securities 4 --
Investment in financing leases -- (70)
Investment in notes receivable (98) (300)
------- -------
Net cash provided by investing activities 1,701 3,516
------- -------
Financing Activities:
- --------------------
Redemptions of capital (3) (13)
Distributions to partners (2,798) (5,027)
------- -------
Net cash used by financing activities (2,801) (5,040)
------- -------
Increase (decrease) in cash and cash equivalents 170 (190)
Cash and cash equivalents, beginning of period 2,693 3,323
------- -------
Cash and cash equivalents, end of period $ 2,863 $ 3,133
======= =======
The accompanying notes are an integral part of these statements.
4
<PAGE>
PHOENIX INCOME FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
-------
The accompanying unaudited condensed financial statements have been
prepared by the Partnership in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Although management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Partnership's Financial Statement, as filed with the
SEC in the latest annual report on Form 10-K.
The Partnership Agreement stipulates the methods by which income will
be allocated to the General Partner and the limited partners. Such allocations
will be made using income or loss calculated under Generally Accepted Accounting
Principles for book purposes, which varies from income or loss calculated for
tax purposes.
The calculation of items of income and loss for book and tax purposes
may result in book basis capital accounts that vary from the tax basis capital
accounts. The requirement to restore any deficit capital balances by the General
Partner will be determined based on the tax basis capital accounts. At
liquidation of the Partnership, the General Partner's remaining book basis
capital account will be reduced to zero through the allocation of income or
loss.
Note 2. Reclassification.
----------------
Reclassification - Certain 1997 amounts have been reclassified to
conform to the 1998 presentation.
Note 3. Income Taxes.
------------
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the financial statements of the Partnership.
Note 4. Notes Receivable.
----------------
Impaired Notes Receivable. At September 30, 1998, the Partnership has
investments in notes receivable, before allowance for losses, of $583,000 of
which $110,000 is considered to be impaired. The Partnership has an allowance
for losses of $162,000 as of September 30, 1998. The average recorded investment
in impaired loans during the nine months ended September 30, 1998 and 1997 was
approximately $109,000 and $86,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1998 1997
---- ----
(Amounts In Thousands)
Beginning balance $162 $216
Provision for losses -- --
Write downs -- --
---- ----
Ending balance $162 $216
==== ====
Note 5. Net Income (Loss) and Distributions Per Limited Partnership Unit.
----------------------------------------------------------------
Net income and distributions per limited partnership unit were based on
the limited partners' share of net income and distributions, and the weighted
average number of units outstanding of 169,702 and 170,213 for the nine months
ended September 30, 1998 and 1997, respectively. For purposes of allocating net
income (loss) to each individual limited partner, the Partnership allocates net
income (loss) based upon each respective limited partner's net capital
contributions.
Note 6. Investment in Joint Ventures:
----------------------------
Equipment Joint Venture
- -----------------------
The aggregate financial information of the equipment joint venture is
presented below:
September 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $146 $730
Liabilities 77 156
Partners' Capital 69 574
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $133 $320 $689 $903
Expenses 8 173 55 355
Net Income 125 147 634 548
6
<PAGE>
Financing Joint Ventures
- ------------------------
The aggregate financial information of the financing joint venture is
presented below:
September 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $613 $803
Liabilities 143 136
Partners' Capital 470 667
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $20 $30 $68 $99
Expenses 5 3 13 21
Net Income 15 27 55 78
Foreclosed Cable Systems Joint Venture
- --------------------------------------
The aggregate financial information of the foreclosed cable systems
joint venture is presented below:
September 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $-- $--
Liabilities -- --
Partners' Capital -- --
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ -- $165 $ -- $125
Expenses -- 7 -- 11
Net Income -- 158 -- 114
7
<PAGE>
PHOENIX INCOME FUND, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Results of Operations
The Partnership reported net income of $625,000 and $1,239,000 during
the three and nine months ended September 30, 1998, respectively, as compared to
net income of $321,000 and $1,318,000 during the three and nine months ended
September 30, 1997, respectively. The Partnership reported an overall decrease
in total revenues and expenses for the nine month period ended September 30,
1998. However, the decrease in revenues exceeded the decrease in expenses,
generating a decrease in net income for the period. For the three months ended
September 30, 1998, the Partnership reported an increase in total revenues due
to the increase in rental income.
Total revenues increased by $151,000 for the three months ended
September 30, 1998 and decreased $584,000 during the nine months ended September
30, 1998, as compared to the same periods in 1997. The increase in total
revenues for the three months ended September 30, 1998 is attributable to an
increase in rental income. The $288,000 increase in rental income for the three
months ended September 30, 1998 is due to settlements received from lessees who
had defaulted. The increase in rental income for the three months ended
September 30, 1998, compared to the same period in 1997, is partially offset by
a decrease in earned income from financing leases.
Earned income from financing leases decreased by $59,000 and $246,000
during the three and nine months ended September 30, 1998, respectively, as
compared to the same periods in 1997. This decrease is attributable to the
decline in net investment in financing leases since September 30, 1997. The
Partnership had investments in financing leases of $804,000 at September 30,
1998, as compared to $2,376,000 at September 30, 1997. The net investment in
financing leases will continue to decline over the lease term as the Partnership
amortizes income over the life of the lease using the interest method.
The decrease in total revenues, for the nine months ended September 30,
1998 is due primarily to decreases in earned income from financing leases, as
previously discussed, and gain on sale of equipment. The Partnership reported a
gain on sale of equipment of $52,000 for the nine months ended September 30,
1998, compared $238,000 for the nine months ended September 30, 1997. The
decreased gain on sale of equipment, as well as the decrease in sales proceeds
received, during 1998 is a result of a decrease in sales activity of the
Partnership's equipment portfolio. The Partnership sold equipment with an
aggregate original cost of $7.6 million for the nine months ended September 30,
1998 compared to $9.2 million for the same period in 1997. As a result, at
September 30, 1998, the Partnership owned equipment with an aggregate original
cost of $8.4 million, as compared to the $21.5 million of equipment owned at
September 30, 1997.
Total expenses of the Partnership decreased by $153,000 and $505,000
during the three and nine months ended September 30, 1998, respectively,
compared to the same periods in 1997. All expense items decreased, with
depreciation expense contributing the largest decline, during the three and nine
months ended September 30, 1998, as compared to the same periods in 1997, due to
the decrease in the amount of equipment owned by the Partnership. Depreciation
expense decreased by $59,000 and $155,000 for the three and nine months ended
8
<PAGE>
September 30, 1998, respectively, as compared to the same periods in 1997. This
decrease is attributable to the decline in the amount of equipment owned as
previously discussed, but additionally as a result of an increasing portion of
the equipment portfolio having been fully depreciated.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from its
contractual obligations with lessees and borrowers for fixed lease terms at
fixed payment amounts. As the initial lease terms of the Partnership's short
term operating leases expire, the Partnership will re-lease or sell the
equipment. The future liquidity of the Partnership will depend upon the General
Partner's success in collecting its contractually owed amounts from lessees and
borrowers as well as re-leasing and selling the Partnership's equipment when the
lease terms expire.
The Partnership reported net cash generated by equipment leasing and
financing activities during the nine months ended September 30, 1998 of
$2,694,000, as compared to $4,054,000 during the same period in 1997. The
decline in net cash generated from leasing and financing activities for the nine
months ended September 30, 1998, as compared to the same period in the previous
year, is attributable to a decrease in principal payments from financing leases,
as previously discussed in the Results of Operations.
The Partnership received distributions from joint ventures of $319,000
and $815,000 for the nine months ended September 30, 1998 and 1997,
respectively. The decrease in distributions from joint ventures is attributable
to one joint venture experiencing a decline in cash available for distributions
as a result of a reduction in rental income and sales proceeds received.
As of September 30, 1998, the Partnership owned equipment being held
for lease with an original cost of $2,431,000 and a net book value of $6,000, as
compared to equipment with an original cost of $3,724,000 and a net book value
of $42,000 at September 30, 1997. The General Partner is actively engaged, on
behalf of the Partnership, in remarketing and selling the Partnership's off
lease equipment. Until new lessees or buyers of equipment can be found, the
equipment will continue to generate depreciation expense without any
corresponding rental income. The effect of this will be a reduction of the
Partnership earnings during this remarketing period.
The cash distributed to partners was $2,798,000 and $5,027,000 during
the nine months ended September 30, 1998 and 1997, respectively. In accordance
with the Partnership Agreement, the limited partners are entitled to 95% of the
cash available for distribution and the General Partner is entitled to 5%. As a
result, the limited partners received $2,658,000 and $4,775,000 in cash
distributions for the nine months ended September 30, 1998 and 1997,
respectively. The cumulative cash distributions to limited partners at September
30, 1998 is $38,357,000, as compared to $34,091,000 at September 30, 1997. The
General Partner received cash distributions of $140,000 and $252,000 for its
share of the cash distribution for the nine months ended September 30, 1998 and
1997, respectively. The Partnership made distributions at a lower rate beginning
with the April 15, 1998 distribution.
As provided for by the partnership agreement, the General Partner has
determined to exercise its discretion that no further redemptions in the
Partnership will be permitted after March 31, 1998.
9
<PAGE>
The cash to be generated from leasing and financing operations is
anticipated to be sufficient to meet the Partnership's continuing operational
expenses.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computers and
computer programs do not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, many computer applications could fail or
create erroneous results.
The General Partner has performed an assessment of the computer
programs used to conduct the business of the Partnership that are subject to
Year 2000 risk. The General Partner and its affiliates are currently in the
process of testing, upgrading, modifying and replacing existing computer
programs that have been determined not to be Year 2000 compliant. It is
estimated that this project will be completed in mid 1999. However, if this
project is not completed in a timely matter, the Year 2000 issue could have a
material impact on the Partnership's operations. The costs of these changes are
being incurred by the General Partner or its affiliates. Costs incurred by the
Partnership will be expensed as incurred and are not currently anticipated to be
material to the Partnership's financial position or results of operations. The
General Partner currently does not have a contingency plan, but will continue to
evaluate the need for such plan as systems and programs are tested.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have exposure to any individual customer that would
materially impact the Partnership should the customer experience a significant
Year 2000 problem.
The assessments of the risks and costs of the Year 2000 issue are based
on management's best estimates. However, there can be no guarantee that these
estimates will be achieved and the actual results could differ materially from
those estimates.
10
<PAGE>
PHOENIX INCOME FUND, L.P.
September 30, 1998
Part II. Other Information.
-----------------
Item 1. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., Phoenix
Securities Inc. and Phoenix American Incorporated (the "Companies") in
California Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution Funds I through V (the
"Partnerships"). The Companies were served with the Complaint on December 9,
1997. The Complaint seeks declaratory and other relief including accounting,
receivership, imposition of a constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Marin Action"). Plaintiffs subsequently amended the Marin
Action on August 14, 1998. On October 23, 1998, the Companies filed a demurrer
to the Marin Action, seeking its dismissal. Discovery has not commenced. The
Companies intend to vigorously defend the Complaint.
Item 2. Changes in Securities. Inapplicable
---------------------
Item 3. Defaults Upon Senior Securities. Inapplicable
-------------------------------
Item 4. Submission of Matters to a Vote of Securities Holders. Inapplicable
-----------------------------------------------------
Item 5. Other Information. Inapplicable
-----------------
Item 6. Exhibits and Reports on 8-K:
---------------------------
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PHOENIX INCOME FUND, L.P.
-------------------------
(Registrant)
BY: PHOENIX LEASING ASSOCIATES LP,
a California limited partnership,
General Partner
BY: PHOENIX LEASING ASSOCIATES, INC.
a Nevada corporation,
General Partner
Date Title Signature
---- ----- ---------
November 11, 1998 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- and a Director of --------------------
Phoenix Leasing Associates, Inc. (Gary W. Martinez)
November 11, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- ----------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates, Inc. (Howard Solovei)
November 11, 1998 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations of --------------------
Phoenix Leasing Associates, Inc. (Bryant J. Tong)
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,863
<SECURITIES> 0
<RECEIVABLES> 703
<ALLOWANCES> 274
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,465
<DEPRECIATION> 3,447
<TOTAL-ASSETS> 4,354
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,072
<TOTAL-LIABILITY-AND-EQUITY> 4,354
<SALES> 0
<TOTAL-REVENUES> 1,791
<CGS> 0
<TOTAL-COSTS> 552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,239
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,239
<EPS-PRIMARY> 6.48
<EPS-DILUTED> 0
</TABLE>
