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, 1999
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
-------
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
----- -----
169,587 Units of Limited Partnership Interest were outstanding as of September
30, 1999.
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,
1999 1998
---- ----
ASSETS
Cash and cash equivalents $4,597 $3,050
Accounts receivable (net of allowance for losses on
accounts receivable of $71 and $109 at September
30, 1999 and December 31, 1998, respectively) 25 23
Notes receivable (net of allowance for losses on notes
receivable of $162 at September 30, 1999 and
December 31, 1998) 68 271
Equipment on operating leases and held for lease (net
of accumulated depreciation of $2,308 and $3,309
at September 30, 1999 and December 31, 1998,
respectively) 3 38
Netinvestment in financing leases (net of allowance
for early terminations of $32 and $89 at
September 30, 1999 and December 31, 1998,
respectively) 32 351
Investment in joint ventures -- 115
Capitalized acquisition fees (net of accumulated
amortization of $3,620 and $3,596 at September 30,
1999 and December 31, 1998, respectively) 2 26
Other assets 10 39
------ ------
Total Assets $4,737 $3,913
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 107 $ 213
------ ------
Total Liabilities 107 213
------ ------
Partners' Capital
General Partner -- --
Limited Partners, 300,000 units authorized, 175,285
units issued and 169,587 and 169,604 units
outstanding at September 30, 1999 and December 31,
1998, respectively 4,621 3,685
Accumulated other comprehensive income 9 15
------ ------
Total Partners' Capital 4,630 3,700
------ ------
Total Liabilities and Partners' Capital $4,737 $3,913
====== ======
The accompanying notes are an integral part of these statements.
2
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
INCOME
Rental income $ 92 $ 629 $ 418 $ 1,280
Earned income, financing leases 2 36 25 155
Gain on sale of securities 473 -- 473 4
Equity in earnings from joint
ventures, net 17 32 40 156
Interest income, notes receivable 7 40 47 103
Other income 52 34 139 93
------- ------- ------- -------
Total Income 643 771 1,142 1,791
------- ------- ------- -------
EXPENSES
Depreciation 1 46 5 187
Amortization of acquisition fees 4 20 24 65
Lease related operating expenses 1 7 14 41
Management fees to General Partner 21 37 51 99
Reimbursed administrative costs to
General Partner 10 17 42 69
Provision for losses on receivables 2 -- -- 10
General and administrative expenses 18 19 70 81
------- ------- ------- -------
Total Expenses 57 146 206 552
------- ------- ------- -------
NET INCOME 586 625 936 1,239
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period 475 (10) 467 (2)
Less: reclassification adjustment
for gains included in net
income (473) -- (473) (4)
------- ------- ------- -------
Other comprehensive income (loss) 2 (10) (6) (6)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 588 $ 615 $ 930 $ 1,233
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 3.46 $ 3.31 $ 5.52 $ 6.48
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ 2.94 $ -- $ 15.86
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ -- 28 -- 140
Limited Partners 586 597 936 1,099
------- ------- ------- -------
$ 586 $ 625 $ 936 $ 1,239
======= ======= ======= =======
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,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 936 $ 1,239
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5 187
Amortization of acquisition fees 24 65
Gain on sale of equipment (50) (52)
Gain on sale of securities (473) (4)
Equity in earnings from joint ventures, net (40) (156)
Recovery of losses in accounts receivable (34) (9)
Provision for early termination, financing leases 34 19
Decrease in accounts receivable 32 206
Decrease in accounts payable and accrued expenses (106) (226)
Decrease in other assets 22 1
------- -------
Net cash provided by operating activities 350 1,270
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 299 934
Principal payments, notes receivable 203 392
Proceeds from sale of equipment 67 52
Proceeds from sale of securities 473 4
Distributions from joint ventures 155 319
------- -------
Net cash provided by investing activities 1,197 1,701
------- -------
Financing Activities:
- --------------------
Redemptions of capital -- (3)
Distributions to partners -- (2,798)
------- -------
Net cash used in financing activities -- (2,801)
------- -------
Increase in cash and cash equivalents 1,547 170
Cash and cash equivalents, beginning of period 3,050 2,693
------- -------
Cash and cash equivalents, end of period $ 4,597 $ 2,863
======= =======
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 1998 amounts have been reclassified to
conform to the 1999 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, 1999, the Partnership has
investments in notes receivable, before allowance for losses, of $230,000. This
amount includes impaired notes receivable, net of specific write-downs, of
$66,000. The Partnership has an allowance for losses of $162,000 as of September
30, 1999. The average recorded investment in impaired loans during the nine
months ended September 30, 1999 and 1998 was approximately $74,000 and $109,000
respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1999 1998
---- ----
(Amounts In Thousands)
Beginning balance $162 $162
Provision for losses -- --
Write downs -- --
---- ----
Ending balance $162 $162
==== ====
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 169,587 and 169,702 for the nine months
ended September 30, 1999 and 1998, 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,
1999 1998
---- ----
(Amounts in Thousands)
Assets $ 61 $184
Liabilities 62 117
Partners' Capital (Deficit) (1) 67
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 71 $133 $404 $689
Expenses 4 8 53 55
Net Income 67 125 351 634
6
<PAGE>
Financing Joint Ventures
- ------------------------
The aggregate financial information of the financing joint venture is
presented below:
September 30, December 31,
1999 1998
---- ----
(Amounts in Thousands)
Assets $ -- $550
Liabilities -- 151
Partners' Capital -- 399
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 7 $ 20 $ 2 $ 68
Expenses -- 5 155 13
Net Income (Loss) 7 15 (153) 55
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 $586,000 and $936,000 during the
three and nine months ended September 30, 1999, as compared to net income of
$625,000 and $1,239,000 during the three and nine months ended September 30,
1998. The Partnership reported an overall decrease in total revenues and
expenses. However, the decreases in revenues exceeded the decreases in expenses,
generating a decrease in net income for the period.
Total revenues decreased by $128,000 and $649,000 for the three and
nine months ended September 30, 1999, as compared to the same periods in 1998. A
gain on sale of securities of $473,000 during the three months ended September
30, 1999 caused a smaller decrease in revenues for this period than there would
have been otherwise. The decrease in total revenues for the three and nine
months ended September 30, 1999 is primarily due to decreases in rental income,
earned income from financing leases, interest income from notes receivable and a
decrease in earnings from joint ventures. The $537,000 and $862,000 decrease in
rental income for the three and nine months ended September 30, 1999 is
attributable to a decrease in the amount of equipment owned that is classified
as operating leases. At September 30, 1999, the Partnership owned equipment with
an aggregate original cost of $3.2 million, as compared to the $8.4 million of
equipment owned at September 30, 1998.
The Partnership reported a gain on sale of securities of $473,000 for
the three and nine months ended September 30, 1999, respectively, compared to $0
and $4,000 for the same periods in the previous year. The securities sold
consisted of common stock received through the exercise of stock warrants
granted to the Partnership as part of financing agreements with emerging growth
companies that are publicly traded. The Partnership received proceeds of
$473,000 and $4,000 from the sale of these securities during the nine months
ended September 30, 1999 and September 30, 1998, respectively.
Earned income from financing leases decreased by $34,000 and $130,000
during the three and nine months ended September 30, 1999, as compared to the
same periods in 1998. This decrease is attributable to the decrease in net
investment in financing leases since September 30, 1998. The Partnership had
investments in financing leases with a net investment of $32,000 at September
30, 1999, as compared to $804,000 at September 30, 1998. The net investment is
amortized to income over the life of the lease until the net investment is $0
using the interest method.
Earnings from joint ventures decreased $15,000 and $116,000 for the
three and nine months ended September 30, 1999, compared to the same periods in
1999. The decrease was due to one joint venture experiencing a loss from the
sale of equipment, as well as another joint venture experiencing a reduction in
rental income.
Interest income from notes receivable decreased by $33,000 and $56,000
for the three and nine months ended September 30, 1999, compared to 1998. The
decrease in interest income from notes receivable is attributable to the decline
in net investment in notes receivable. The net investment in notes receivable
was $68,000 at September 30, 1999, compared to $420,000 at September 30, 1998.
8
<PAGE>
Additionally, no new investments were made during the nine months ended
September 30, 1999 to mitigate the decline in the net investment in notes
receivable.
Total expenses of the Partnership decreased by $89,000 and $346,000
during the three and nine months ended September 30, 1999, compared to the same
periods in 1998. All expense items decreased, with depreciation expense
contributing to the largest decline due to the decrease in the amount of
equipment owned by the Partnership. Depreciation expense decreased by $45,000
and $182,000 for the three and nine months ended September 30, 1999, as compared
to the same periods in 1998. 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 a diversified group of 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, 1999 of
$852,000, as compared to $2,596,000 during the same period in 1998. The decline
in net cash generated from leasing and financing activities for the nine months
ended September 30, 1999, as compared to the same period in the previous year,
is attributable to decreases in rental income from operating leases, principal
payments from financing leases and principal payments from notes receivable, as
previously discussed in the Results of Operations.
The Partnership received distributions from joint ventures of $155,000
and $319,000 for the nine months ended September 30, 1999 and 1998,
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, 1999, the Partnership owned equipment being held
for lease with an original cost of $2,004,000 and a net book value of $0, as
compared to equipment with an original cost of $2,431,000 and a net book value
of $6,000 at September 30, 1998. 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 $0 and $2,798,000 during the nine
months ended September 30, 1999 and 1998, 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 $0 and $2,658,000 in cash distributions
9
<PAGE>
for the nine months ended September 30, 1999 and 1998, respectively. The
cumulative cash distributions to limited partners at September 30, 1999 is
$38,891,000, as compared to $38,357,000 at September 30, 1998. The General
Partner received cash distributions of $0 and $140,000 for its share of the cash
distribution for the nine months ended September 30, 1999 and 1998,
respectively. The Partnership plans to make its next distribution in December
1999.
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.
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
ReSourcePhoenix.com ("ReSourcePhoenix"), an affiliate of the parent to
the General Partner does all local computer processing for the General Partner.
And as such ResourcePhoenix manages the Year 2000 project on behalf of the
General Partner.
ResourcePhoenix has a Year 2000 project plan in place. The Year 2000
project team has identified risks, and has implemented remediation procedures
for its Year 2000 issues. ReSourcePhoenix has budgeted for the necessary
changes, built contingency plans, and has progressed along the scheduled
timeline. Installation of all remediation changes to critical software and
hardware was completed on November 5, 1999.
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 Partnership's customers consist of lessees and borrowers. The
Partnership does not have knowledge of any exposure to any individual customer
that would materially impact the Partnership should the customer experience a
significant Year 2000 problem, however, cumulative exposure to multiple
individual customers could materially impact the Partnership should multiple
customers experience a significant Year 2000 problem.
10
<PAGE>
PHOENIX INCOME FUND, L.P.
September 30, 1999
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 sought 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.
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 "Berger Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the "Ash Action"). That complaint was subsequently
transferred to Marin County as well.
Plaintiffs have amended the Berger Action twice. Defendants recently
answered the complaint. Discovery has recently commenced. The Companies intend
to vigorously defend the Complaint.
Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times. 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 10, 1999 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- and a Director of --------------------
Phoenix Leasing Associates, Inc. (Gary W. Martinez)
November 10, 1999 Chief Financial Officer, /S/ HOWARD SOLOVEI
- ----------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates, Inc. (Howard Solovei)
November 10, 1999 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations of --------------------
Phoenix Leasing Associates, Inc. (Bryant J. Tong)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,597
<SECURITIES> 9
<RECEIVABLES> 326
<ALLOWANCES> 233
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,311
<DEPRECIATION> 2,308
<TOTAL-ASSETS> 4,737
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,630
<TOTAL-LIABILITY-AND-EQUITY> 4,737
<SALES> 0
<TOTAL-REVENUES> 1,142
<CGS> 0
<TOTAL-COSTS> 206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 936
<INCOME-TAX> 0
<INCOME-CONTINUING> 936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 936
<EPS-BASIC> 5.52
<EPS-DILUTED> 0
</TABLE>
