UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number 0-25278
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0293258
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of 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.
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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
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The Registrant's revenue for its most recent fiscal year was $5,633,000.
As of December 31, 1997, 1,578,705 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes No X
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Page 1 of 25
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 4
Item 3. Legal Proceedings................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............... 5
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters.................................................. 5
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 6
Item 7. Financial Statements and Supplementary Data....................... 9
Item 8. Disagreements on Accounting and Financial Disclosure Matters...... 22
PART III
Item 9. Directors and Executive Officers of the Registrant................ 22
Item 10. Executive Compensation............................................ 23
Item 11. Security Ownership of Certain Beneficial Owners and Management.... 23
Item 12. Certain Relationships and Related Transactions.................... 24
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 24
Signatures................................................................. 25
2
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PART I
Item 1. Business.
General Development of Business.
Phoenix Leasing American Business Fund, L.P., a California limited
partnership (the "Partnership"), was organized on December 3, 1992. The
Partnership was registered with the Securities and Exchange Commission with an
effective date of October 19, 1993 and shall continue to operate until its
termination date unless dissolved sooner due to the sale of substantially all of
the assets of the Partnership or a vote of the Limited Partners. The Partnership
will terminate on December 31, 2007. The General Partner is a California limited
partnership, Phoenix Leasing Associates III L.P., the general partner of which
is Phoenix Leasing Associates III, Inc., a Nevada corporation and a wholly-owned
subsidiary of Phoenix Leasing Incorporated, a California corporation. The
General Partner or its affiliates also is or has been a general partner in other
limited partnerships formed to invest in capital equipment and other assets.
The registration was for 2,500,000 units of limited partnership
interest at a price of $20 per unit. The Partnership completed its public
offering on October 6, 1996. The Partnership sold 1,603,335 units for a total
capitalization of $32,066,700. Of the proceeds received through the offering,
the Partnership has incurred $4,808,933 in organizational and offering expenses
for a net capitalization of $27.3 million.
From the initial formation of the Partnership through December 31,
1997, the total investments in equipment leases and financing transactions
(loans) including the Partnership's pro rata interest in an investment made by a
joint venture, approximate $61,012,000. The average initial firm term of
contractual payments from equipment subject to lease was 48 months, and the
average initial net monthly payment rate as a percentage of the original
purchase price was 2.88%. The average initial firm term of contractual payments
from loans was 46 months and the weighted average interest was 16.34%.
The Partnership has acquired siginificant amounts of equipment or
assets with the net offering proceeds. In addition, the Partnership has acquired
equipment through the use of debt financing, however, the ratio of the
outstanding debt to net capital contributions less any investment in Leveraged
Joint Ventures at the end of the Partnership's offering period will not exceed
four to five (80%). The cash flow generated by such investments in equipment
leases or financing transactions will be used to provide for debt service, to
provide cash distributions to the Partners and the remainder will be reinvested
in capital equipment or other assets.
The Partnership will maintain working capital reserves in an amount
which will fluctuate from time to time depending upon the needs of the
Partnership, but which will be at least one percent of the gross offering
proceeds during the Partnership's operational phase.
Narrative Description of Business.
The objectives of the Partnership are to: (1) produce cash
distributions on a continuing basis over the life of the Program through leasing
equipment and financing assets primarily to companies engaged in the development
of technologies and other growth industry businesses, franchisees, and other
third party lessees and customers; (2) reinvest, during the operating phase of
the Program (after payment of expenses, including debt service requirements, and
distributions to the Partners), in additional equipment and assets to increase
the overall size of the portfolio; and (3) commence liquidation of the
Partnership's portfolio of investments seven years after the close of the
offering of units of limited partnership interests.
To achieve these objectives the Partnership has invested and will
invest in various types of capital equipment and other assets, and provide
leasing and secured financing of the same to third parties on either a long-term
or short-term basis. The Partnership has invested and will invest in, or have
collateral in, various types of assets including: (1) production, manufacturing,
fabrication and test equipment; (2) lab and medical equipment; (3) furniture and
fixtures; (4) personal computers and workstations, computer peripheral
equipment, computer mainframes, CAE/CAD/CAM equipment, communications equipment,
office systems and computer software products; (5) property management systems,
including computer reservations systems, and phone and telecommunications
systems; and (6) various types of other equipment, furnishings, fixtures,
3
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leasehold improvements and assets, including to a limited extent certain
intangible assets.
A substantial portion of the net offering proceeds of the Partnership
has been invested in equipment leases subject to full payout leases. Full payout
leases are leases under which the noncancellable rental payments due during the
initial term of the lease are at least sufficient to recover the purchase price
of the equipment. Operating leases, which generally have terms of shorter
duration than full payout leases, are leases that will return to the lessor an
amount less than the purchase price of the equipment from rental payments over
the initial term of the lease. Upon the expiration of the initial lease term, it
is necessary to extend the lease term with the existing lessee, enter into a new
lease with another lessee or sell the equipment.
Competition. The Partnership will be competing for equipment leasing
and financing business with many well-established companies having substantially
greater financial resources. The types of businesses the Partnership competes
with will be banks, finance companies, leasing companies and other institutional
or governmental lenders. Competitive factors include pricing, technological
innovation, payment terms, collateral requirements and methods of financing. The
General Partner intends to concentrate the Partnership's activities in markets
in which the General Partner and its affiliates have developed an expertise.
Other.
A brief description of the type of assets in which the Partnership has
invested in through December 31, 1997, together with information concerning the
uses of assets is set forth in Item 2.
Item 2. Properties.
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership are its investments in
leases and loans to businesses located throughout the United States.
As of December 31, 1997, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $47,649,000.
The following table summarizes the type of equipment owned or financed by the
Partnership, including its pro rata interest in a joint venture, at December 31,
1997:
Percentage of
Asset Types Cost of Assets(1) Total Assets
- ----------------------- -------------------- -------------
(Amounts in Thousands)
Equipment:
Computer Hardware $ 12,519 26%
Furniture and Fixtures 5,735 12
Lab Test Equipment 4,721 10
Leasehold Improvements 3,519 7
Commercial Equipment 2,706 6
Miscellaneous Equipment 2,424 5
Manufacturing Equipment 1,176 2
Communications Equipment 781 2
Software 791 2
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Total Equipment 34,372 72
Financing:
Financing to Emerging Growth Companies 9,793 21
Financing to Other Businesses 3,484 7
---------- ------
Total Financing 13,277 28
---------- ------
Total Assets $ 47,649 100%
========== ======
(1) These amounts include the Partnership's pro rata interest in a
financing joint venture of $290,000 and cost of equipment on financing
leases of $29,038,000 at December 31, 1997.
4
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Item 3. Legal Proceedings.
The Registrant is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the fourth quarter.
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters.
(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited
partnership interests and it is unlikely that any will develop.
(b) Approximate number of equity security investments:
Number of Unit Holders
Title of Class as of December 31, 1997
------------------ -----------------------
Limited Partners 1,624
General Partner 1
5
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Phoenix Leasing American Business Fund, L.P. (the Partnership) became
effective with the Securities and Exchange Commission on October 9, 1993 and met
its minimum investment requirements of $1,200,000 on January 27, 1994. The
Partnership concluded its public offering on October 6, 1996 and has sold
1,603,335 units of limited partnership interest, resulting in total capital
contributions of $32,067,000 as of December 31, 1997.
The Partnership reported net income of $1,438,000 during the year ended
December 31, 1997, as compared to net income of $1,973,000 during 1996. The
decreased net income during 1997, as compared to 1996, resulted from a decrease
in earnings from financing leases and the decline in gain on sale of
securities.
Total revenues decreased by $855,000 during the year ended December 31,
1997, as compared to the same period in 1996. Earned income from financing
leases decreased by $1,139,000 during the year ended December 31, 1997, as
compared to the same period in 1996. The decrease in earned income from
financing leases is a result of a decline in the Partnership's investment in
financing leases. The Partnership's net investment in financing leases was $14
million at December 31, 1997, as compared to $21.8 million at December 31, 1996.
The investment in financing leases, as well as earned income from financing
leases, will decrease over the lease term as the Partnership amortizes income
over the life of the lease using the interest method. This decrease will be
offset in part by a continuous investment of the excess cash flows of the
Partnership in new leasing and financing transactions over the life of the
Partnership.
Another factor contributing to the decline in total revenues for year
ended December 31, 1997, compared to 1996, is the decrease in gain on sale of
securities of $798,000. The gain on sale of securities of $460,000 and
$1,258,000, recognized during the years ended December 31, 1997 and 1996,
respectively, was due to the exercise and sale of stock warrants held by the
Partnership, in which $455,000 and $1,274,000 of proceeds was received for the
years ended December 31, 1997 and 1996, respectively. The Partnership has been
granted stock warrants as part of its lease or financing agreements with certain
emerging growth companies. As of December 31, 1997, the Partnership had
remaining investments in stock warrants with unrealized gains of $57,000,
compared to $228,000 at December 31, 1996. These stock warrants contain certain
restrictions, but are generally exercisable within one year.
The decrease in earned income from financing leases for the year ended
December 31, 1997, and the decrease in gain on sale of securities for the year
ended December 31, 1997, were partially offset by an increase in interest income
from notes receivable. Interest income from notes receivable increased by
$419,000 for the year ended December 31, 1997, compared to the same period in
the previous year. This increase in interest income is attributable to new
investments made during 1997.
Total expenses decreased by $320,000 for the year ended December 31,
1997, as compared to the same period in the prior year. The decrease in expenses
is primarily due to a decrease in interest expense of $449,000 during the year
ended December 31, 1997, as compared 1996. The decrease in interest expense is a
result of a decline in the Partnership's outstanding debt. As of December 31,
1997, the Partnership's outstanding notes payable balance is $4,015,000 compared
to $9,765,000 as of December 31, 1996.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the Partnership.
Liquidity and Capital Resources
During the public offering stage, which concluded on October 6, 1996,
the Partnership's primary source of liquidity came from capital contributions
and borrowings. As another source of liquidity, the Partnership has entered into
contractual obligations with lessees and borrowers for fixed terms at fixed
payment amounts. The future liquidity of the Partnership is dependent upon the
payment of the Partnership's contractual obligations from its lessees and
borrowers.
The Partnership reported net cash from leasing and financing activities
of $15,929,000 during the year ended December 31, 1997, as compared to
$13,462,000 during the same period in 1996. This increase is reflective of the
increase in the Partnership's portfolio of leases and notes receivable.
6
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The Partnership received capital contributions from investors of
$8,077,000 and incurred organizational and offering costs of $1,200,000 during
the year ended December 31, 1996.
The Partnership combined these funds with proceeds from borrowings to
invest in equipment leases and notes receivable. During the year ended December
31, 1997, the Partnership invested $3.1 million in equipment leases and $7.3
million in notes receivable, as compared to investments of $8.5 million in
equipment leases and $1.7 million in notes receivable (including its pro rata
interest in joint ventures) during the same period in 1996.
As of December 31, 1997, the Partnership had acquired leased equipment
with an aggregate original cost of $45.3 million and invested $15.7 million in
notes receivable (including its pro rata interest in joint ventures), as
compared to acquisitions of $42.3 million of leased equipment and investments of
$8.3 million in notes receivable (including its pro rata interest in joint
ventures) at December 31, 1996.
As of December 31, 1997, the Partnership reported equipment being held
for lease with an original cost of $2,545,000 and a net book value of $246,000,
as compared to equipment being held for lease with an original cost of
$1,913,000 and a net book value of $674,000 at December 31, 1996. The General
Partner, on behalf of the Partnership, is actively engaged in the remarketing
and selling of the Partnership's equipment as it comes available. Until new
leases 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 Partnership received proceeds from the sale of equipment of
$292,000 for the year ended December 31, 1997, compared to $766,000 for the same
period in the previous year. The net book value of the equipment sold during the
year ended December 31, 1997 was $135,000, compared to $717,000 for the
equipment sold in 1996.
The Partnership negotiated a $20 million term line of credit from a
bank in November 1993 for the purchase of equipment and other property subject
to lease and is to be repaid in 49 equal monthly installments of principal and
interest at a variable rate. The $20 million term line of credit was fully
utilized by the Partnership prior to its expiration date of November 30, 1995.
As of December 31, 1997, the Partnership had repaid approximately $17.1 million
of this loan.
The Partnership entered into a second line of credit in the amount of
$6 million on November 15, 1994 with another bank, which expired on December 31,
1996. This credit line was for the purchase of equipment and other personal
property assets subject to lease with interest tied to the lender's prime rate.
As of December 31, 1996, the Partnership had borrowed $3 million under this loan
agreement, approximately $1.9 million of which has been repaid.
Payments of the Partnership's borrowings discussed above are payable
monthly. The Partnership made payments of principal of $5,750,000 on its
outstanding debt during the year ended December 31, 1997, as compared to
$5,729,000 during the year ended December 31, 1996.
The cash distributed to partners during the year ended December 31,
1997 was $3,628,000, as compared to $4,285,000 during the same period in 1996.
In accordance with the partnership agreement, the limited partners are entitled
to 96% of the cash available for distribution and the General Partner is
entitled to four percent. As a result, the limited partners received $3,483,000
and $4,119,000 in cash distributions during the years ended December 31, 1997
and 1996, respectively. As of December 31, 1997, the cumulative cash
distributions to limited partners was $10,133,000 as compared to $6,650,000 at
December 31, 1996. respectively. The General Partner received $145,000 and
$166,000 during the years ended December 31, 1997 and 1996, respectively. The
Partnership plans to make distributions to partners during 1998 at the same rate
as the current distribution.
On April 15, 1996, the Partnership made a special distribution, in
addition to the regular distribution, to partners of record as of March 31,
1996. The amount of this distribution was approximately 2.5% of the partners'
original contribution. This special distribution was made as the result of
proceeds received from the sale of marketable securities.
The cash to be generated from leasing and financing operations is
anticipated to be sufficient to meet the Partnership's continuing operational
expenses and debt service.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
7
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made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following:
(I) the Partnership's plans are subject to change at any time at the discretion
of the General Partner of the Partnership, (ii) future technological
developments in the industry in which the Partnership operates, (iii)
competitive pressure on pricing or services, (iv) substantial customer defaults
or cancellations, (v) changes in business conditions and the general economy,
(vi) changes in government regulations affecting the Partnership's core
businesses and (vii) the ability of the Partnership to sell its remaining
assets.
In accordance with section 13.2(a) of the amended and restated
agreement of limited partnership, the estimated annual average Unit valuation
(unaudited) is estimated by the General Partner to be $19.05 per limited
partnership unit at December 31, 1997.
8
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Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
--------------------------------------------
YEAR ENDED DECEMBER 31, 1997
----------------------------
9
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix Leasing American Business Fund, L.P.:
We have audited the accompanying balance sheet of Phoenix Leasing American
Business Fund, L.P. (a California limited partnership) as of December 31, 1997,
and the related statements of operations, partners' capital and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statements of operations, partners'
capital and cash flows of Phoenix Leasing American Business Fund, L.P. as of
December 31, 1996, were audited by other auditors whose report dated January 20,
1997, expressed an unqualified opinion on these statements.
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 that 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 Phoenix Leasing American
Business Fund, L.P. as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
January 23, 1998
10
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1997
-----------------
ASSETS
Cash and cash equivalents $ 1,666
Accounts receivable (net of allowance for losses on
accounts receivable of $194) 397
Notes receivable (net of allowance for losses on
notes receivable of $315) 8,794
Net investment in financing leases (net of allowance
for early terminations of $394) 13,966
Equipment on operating leases and held for lease (net
of accumulated depreciation of $1,899) 388
Capitalized acquisition fees (net of accumulated
amortization of $1,487) 942
Other assets 399
---------
Total Assets $ 26,552
=========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,132
Notes payable 4,015
---------
Total Liabilities 5,147
---------
Partners' Capital:
General Partner 30
Limited Partners, 2,500,000 units authorized, 1,603,335
units issued and 1,578,705 units outstanding 21,318
Unrealized gain on marketable securities available for
sale 57
---------
Total Partners' Capital 21,405
---------
Total Liabilities and Partners' Capital $ 26,552
=========
The accompanying notes are an integral
part of these statements.
11
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1997 1996
---- ----
INCOME
Earned income, financing leases $ 2,698 $ 3,837
Interest income, notes receivable 1,215 796
Rental income 962 262
Gain on sale of securities 460 1,258
Other income 298 335
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Total Income 5,633 6,488
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EXPENSES
Depreciation and amortization 1,238 1,340
Amortization of acquisition fees 585 497
Lease related operating expenses 165 149
Management fees to General Partner 367 345
Reimbursed administrative costs to
General Partner 383 403
Interest expense 636 1,085
Provision for losses on receivables 527 487
General and administrative expenses 294 209
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Total Expenses 4,195 4,515
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NET INCOME $ 1,438 $ 1,973
======= =========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .81 $ 1.28
======= =========
ALLOCATION OF NET INCOME:
General Partner $ 158 $ 184
Limited Partners 1,280 1,789
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$ 1,438 $ 1,973
======= =========
The accompanying notes are an
integral part of these statements.
12
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<TABLE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
General
Partner's Limited Partner's Unrealized Total
Amount Units Amount Gains Amount
----- ---------------------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 3 1,197,927 $ 19,316 $ 998 $ 20,317
Partners' contributions -- 403,878 8,077 -- 8,077
Syndication costs (4) -- (1,207) -- (1,211)
Redemptions of capital -- (13,124) (194) -- (194)
Change for the year in unrealized gains on
available-for-sale securities -- -- -- (770) (770)
Distributions to partners ($2.94 per limited
partnership unit) (166) -- (4,119) -- (4,285)
Net income 184 -- 1,789 -- 1,973
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 17 1,588,681 23,662 228 23,907
Redemptions of capital -- (9,976) (141) -- (141)
Change for the year in unrealized gains on
available-for-sale securities -- -- -- (171) (171)
Distributions to partners ($2.20 per limited
partnership unit) (145) -- (3,483) -- (3,628)
Net income 158 -- 1,280 -- 1,438
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 $ 30 1,578,705 $ 21,318 $ 57 $ 21,405
========== ========== ========== ========== ==========
The accompanying notes are an
integral part of these statements
</TABLE>
13
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<TABLE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 1,438 $ 1,973
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,238 1,340
Amortization of acquisition fees 585 497
Gain on sale of equipment (157) (49)
Provision for early termination, financing
leases 249 354
Provision for losses on notes receivable 166 97
Provision for losses on accounts receivable 112 36
Equity in earnings from joint venture, net (27) (39)
Gain on sale of securities (460) (1,258)
Increase in accounts receivable (185) (69)
Increase (decrease) in accounts payable and
accrued expenses (94) 120
Decrease in other assets 174 130
------- -------
Net cash provided by operating activities 3,039 3,132
------- -------
Investing Activities:
Principal payments, financing leases 9,883 8,387
Principal payments, notes receivable 3,007 1,943
Distributions from joint ventures 83 86
Proceeds from sale of equipment 292 766
Proceeds from sale of securities 455 1,274
Investment in financing leases (3,069) (8,488)
Investment in notes receivable (7,324) (1,720)
Investment in securities -- (16)
Payment of acquisition fees (315) (656)
------- -------
Net cash provided by investing activities 3,012 1,576
------- -------
Financing Activities:
Proceeds from notes payable -- 1,000
Payments of principal, notes payable (5,750) (5,729)
Partners' contributions -- 8,077
Syndication costs -- (1,200)
Distributions to partners (3,628) (4,285)
Redemptions of capital (141) (194)
------- -------
Net cash used by financing activities (9,519) (2,331)
------- -------
Increase (decrease) in cash and cash equivalents (3,468) 2,377
Cash and cash equivalents, beginning of period 5,134 2,757
------- -------
Cash and cash equivalents, end of period $ 1,666 $ 5,134
======= =======
Supplemental Cash Flow Information:
Cash paid for interest expense $ 588 $ 1,037
The accompanying notes are an
integral part of these statements.
</TABLE>
14
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Note 1. Organization and Partnership Matters.
Phoenix Leasing American Business Fund, L.P., a California limited
partnership (the "Partnership"), was formed on December 3, 1992, to invest in
capital equipment of various types and to lease such equipment to or provide
financing to, on either a long-term or short-term basis, companies engaged in
the development of technologies and other growth industry businesses,
franchisees, and additional third party lessees and customers. The Partnership
met minimum investment requirements on January 27, 1994. The Partnership's
termination date is December 31, 2007.
For financial reporting purposes, Partnership net income and net losses
will be allocated 99% to the Limited Partners and 1% to the General Partner. In
addition, the General Partner will be allocated gross rental and interest income
in amounts equal to the distributions that it receives from the Partnership.
Syndication costs will be allocated 1% to the General Partner and 99% to the
Limited Partners.
The General Partner is entitled to receive 4% of all distributions
until the Limited Partners have recovered the greater of 177% of their initial
capital contributions or 100% of their initial capital contributions plus a
cumulative return of 11% per annum. Thereafter, the General Partner will receive
15% of all cash distributions. From inception of the Partnership until December
31, 1999, the General Partner's interest in Cash Available for Distribution is
subordinated in any calendar quarter until the Limited Partners receive
quarterly distributions equal to 2.75% of their capital contributions (i.e., 11%
per annum), prorated for any partial period.
In the event the General Partner has a deficit balance in its capital
account at the time of Partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services, the General Partner receives a
fee, payable monthly, subject to certain limitations, in an amount equal to 2%
of the Partnership's gross revenues for the quarter from which such payment is
being made, which revenues shall include, but are not limited to, rental
receipts, maintenance fees, proceeds from the sale of equipment and interest
income.
The General Partner will be compensated for services performed in
connection with the analysis of assets available to the Partnership, the
selection of such assets and the acquisition thereof, including obtaining
lessees for the equipment, negotiating and concluding master lease agreements
with certain lessees. As compensation for such acquisition services, the General
Partner will receive a fee equal to 4%, subject to certain limitations, of (a)
the purchase price of equipment acquired by the Partnership or equipment leased
to customers by manufacturers, the financing for which is provided by the
Partnership, or (b) financing provided to businesses payable upon such
acquisition or financing, as the case may be. Acquisition fees are amortized
over the life of the assets principally on a straight-line basis.
Phoenix Securities, Inc., an affiliate of the General Partner, has
contracted with or employs certain persons who will receive certain compensation
for wholesaling activities performed in connection with the offering of the
units through broker-dealers.
A schedule of compensation paid and distributions made to the General
Partner for the years ended December 31, follows:
15
<PAGE>
1997 1996
---- ----
(Amounts in Thousands)
Management fees $ 367 $ 345
Acquisition fees 416 408
Wholesaling activities in connection
with the offering of units - 162
Cash distributions 145 166
--------- ---------
$ 928 $ 1,081
========= =========
Redemptions of Limited Partner units will only be made to the extent
permitted by applicable laws and regulations, the Partnership Agreement and if,
in the opinion of the General Partner, it is in the best interest of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the Partnership to be categorized as a publicly traded partnership for
federal income tax purposes.
The Partnership will acquire such limited partnership units for an
amount equal to 85% of the "accrual basis capital account" relating to the
redeemed units. The Partnership will retain the remaining 15% of the "accrual
basis capital account" relating to the redeemed units. Redemptions retained by
the Partnership were $21,000 and $26,000 during the years ended December 31,
1997 and 1996, respectively. "Accrual basis capital account" is computed in
accordance with the books and records regularly maintained by the Partnership
for financial reporting purposes, utilizing the accrual method of accounting.
Note 2. Summary of Significant Accounting Policies.
Cash and Cash Equivalents. Cash and cash equivalents includes deposits
at banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days.
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified
as impaired and the accrual of interest on such notes are discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
Leasing Operations. The Partnership's leasing operations currently
consist of financing and operating leases. The financing method of accounting
for leases records as unearned income at the inception of the lease, the excess
of net rentals receivable and estimated residual value at the end of the lease
term, over the cost of equipment leased. Unearned income is credited to income
monthly over the term of the lease on a declining basis to provide an
approximate level rate of return on the unrecovered cost of the investment.
Initial direct costs of consummating new leases are capitalized and included in
the cost of equipment. The Partnership reviews its estimates of residual value
16
<PAGE>
at least annually. If a decline in value has occurred which is other than
temporary, a reduction in the investment is recognized currently.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated on a straight-line
basis over the estimated useful life, ranging up to three years. Rental income
for the year is determined on the basis of rental payments due for the period
under the terms of the lease. Maintenance and repairs of the leased equipment
are charged to expense.
The Partnership's policy is to review periodically the expected
economic life of its rental equipment in order to determine the probability of
recovering its undepreciated cost. Such reviews address, among other things,
recent and anticipated technological developments affecting high technology
equipment and competitive factors within the high technology marketplace. Should
subsequent reviews of the equipment portfolio indicate that rentals plus
anticipated sales proceeds will not exceed expenses in any future period, the
Partnership will revise its depreciation policy as appropriate. As a result of
such periodic reviews, the Partnership recognized additional depreciation
expense of $39,000 and $271,000 ($.02 and $.19 per limited partnership unit) for
the years ended December 31, 1997 and 1996, respectively).
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
Investment in Available-for-Sale Securities. The Partnership has
investments in stock and stock warrants in public companies that have been
determined to be available for sale. Available-for-sale securities are stated at
their fair market value, with the unrealized gains and losses reported in a
separate component of partners' capital.
Reclassification. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Lease payments $ 357
General Partner and Affiliates 89
Interest 15
Property tax 130
---------
591
Less: allowance for losses on accounts receivable (194)
---------
Total $ 397
=========
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Notes receivable from emerging growth
companies with stated interest ranging
from 13% to 23% per annum, receivable in
installments ranging from 36 to 49 months,
collateralized by the equipment financed. $ 6,136
17
<PAGE>
Notes receivable from other businesses
with stated interest ranging from
14% to 17% per annum, receivable
in installments rangingfrom 48 to
85 months, collateralized by the
equipment financed. 2,973
----------
9,109
Less: allowance for losses on notes receivable (315)
----------
Total $ 8,794
==========
Minimum payments to be received on non-cancelable notes receivable for
the years ended December 31, are as follows:
(Amounts in Thousands)
1998............................................. $ 3,862
1999............................................. 3,268
2000............................................. 2,817
2001............................................. 1,233
2002............................................. 462
Thereafter....................................... 110
----------
Total minimum payments to be received............ 11,752
Impaired notes receivable........................ --
Less: unearned interest......................... (2,643)
Less: allowance for losses...................... (315)
----------
Net investment in notes receivable............... $ 8,794
==========
Generally, notes receivable are classified as impaired and the accrual
of interest on such notes are discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of the contractual payments. Any payments
received subsequent to the placement of the note receivable on to impaired
status will generally be applied towards the reduction of the outstanding note
receivable balance, which may include previously accrued interest as well as
principal. Once the principal and accrued interest balance has been reduced to
zero, the remaining payments will be applied to interest income.
At December 31, 1997 there were no notes that were considered to be
impaired. The average recorded investment in impaired loans during the years
ended December 31, 1997 and 1996 were approximately $40,000 and $23,000,
respectively. The Partnership recognized interest income of $0 and $8,000 on
impaired notes receivable during the years ended December 31, 1997 and 1996,
respectively.
The activity in the allowance for losses on notes receivable during the
year ended December 31, is as follows:
1997
----
(Amounts in Thousands)
Beginning balance $ 241
Provision for losses 128
Write downs (54)
----------
Ending balance $ 315
==========
Note 5. Net Investment in Financing Leases and Equipment on Operating Leases.
Equipment on lease consists primarily of furniture, fixtures, computer
hardware and other capital equipment.
The Partnership has entered into direct lease arrangements with
franchised businesses, companies engaged in the development of technologies and
other growth industry businesses such as the semiconductor, biotechnology,
medical device, software, communications, data storage, computer, retail,
hospitality and others, located throughout the United States. Generally, it is
the responsibility of the lessee to provide maintenance on leased equipment. The
General Partner administers the equipment portfolio of leases acquired through
the direct leasing program. Administration includes the collection of rents from
the lessees and remarketing of the equipment.
18
<PAGE>
The net investment in financing leases consists of the following at
December 31:
1997
----
(Amounts in Thousands)
Minimum lease payments to be received $ 16,922
Less: unearned income (2,562)
allowance for early terminations (394)
----------
Net investment in financing leases $ 13,966
=========
Minimum rentals to be received on noncancelable financing and operating
leases for the years ended December 31, are as follows:
Financing Operating
--------- ---------
(Amounts in Thousands)
1998..................................... $ 8,437 $ 506
1999..................................... 5,395 272
2000..................................... 2,148 88
2001..................................... 716 73
2002..................................... 226 67
---------- -------
Total $ 16,922 $ 1,006
========== =======
Equipment held for lease generally consists of financing leases that
have been placed into default. As a result, the leases have been reclassified to
equipment, held at net realizable value and will be depreciated over the
remaining estimated useful life of up to three years. The General Partner is
making every effort to pursue remedies that will maximize recovery of the
Partnership's investment. The net carrying value of the equipment held for lease
at December 31, 1997 was $246,000.
Note 6. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1997
(Amounts in Thousands)
Equipment lease operations $ 437
Security deposits 362
General Partner and Affiliates 236
Other 97
----------
Total $ 1,132
==========
Note 7. Notes Payable.
Notes payable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Notes payable to banks, collateralized
by all assets of the Partnership
with variable rates of interest
tied to the banks' base rate or
IBOR rate, with payment terms of
48 months. $ 4,015
==========
19
<PAGE>
Principal payments due for the years ended December 31, are as follows:
(Amounts in Thousands)
1998 ......................................... $ 2,890
1999 ......................................... 1,104
2000 ......................................... 21
--------
Total.................................... $ 4,015
========
Interest on the notes payable is tied to various indexes. The weighted
average interest rate for these notes is 8.27% at December 31, 1997. The terms
of the Partnership's outstanding notes payable contain, among other covenants,
requirements for maintaining certain financial ratios and restrictions on cash
distributions to partners in the event of default.
The amounts borrowed under the loan agreements are secured by any and
all assets of the Partnership, whether now owned or hereafter acquired and
regardless of whether such assets were acquired with funds borrowed pursuant to
the loan agreement. The loan agreements impose certain restrictions regarding
the Partnership's ability to borrow additional funds from other lenders,
including a restriction requiring intercreditor agreements with respect to any
such borrowings. In this regard, the respective lenders under the Partnership's
loan agreements have entered into an intercreditor agreement relating to
borrowings by the Partnership under the loan agreements.
Note 8. 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 accompanying financial statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31, 1997:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $ 26,552 $ 24,205 $ 2,347
Liabilities 5,147 4,702 445
The following is a reconciliation between net income for financial
reporting purposes and net income for federal income tax purposes for the year
ended December 31:
1997
----
(Amounts in Thousands)
Net income for financial reporting purposes $ 1,438
Adjustments for tax purposes:
Tax depreciation in excess of book (5,564)
Difference in rental income recognition 9,848
Excess of book gain on sale of equipment over tax
gain on sale of equipment (2,498)
Book valuation allowances not recognized for tax
purposes 431
Other (21)
--------
Net income for federal income tax purposes $ 3,634
========
20
<PAGE>
Note 9. Related Entities.
Affiliates of the General Partner serve in the capacity of general
partners in other partnerships, all of which are engaged in the equipment
leasing and financing business.
Note 10. Net Income and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on
the Limited Partner's share of net income and distributions and the weighted
average number of units outstanding of 1,582,654 and 1,399,791 for the years
ended December 31, 1997 and 1996, respectively. For the purposes of allocating
income (loss) to each individual Limited Partner, the Partnership allocates net
income (loss) based upon each respective Limited Partner's net capital
contributions.
Note 11. Reimbursed Costs to the General Partner and Affiliates.
The General Partner and affiliates incur certain adminstrative costs
such as data processing, investor and lessee communications, lease
administration, accounting, equipment storage and equipment remarketing, for
which it is reimbursed by the Partnership. These expenses incurred by the
General Partner and affiliates are to be reimbursed at the lower of the actual
costs or an amount equal to 90% of the fair market value for such services.
The reimbursed costs to the General Partner are $541,000 and $537,000
at December 31, 1997 and 1996, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 12. Fair Value of Financial Instruments.
The carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities, notes receivable and notes payable
approximate the fair values.
Note 13. Subsequent Events.
In January 1998, cash distributions of $36,000 and $412,000 were made
to the General and Limited Partners, respectively.
21
<PAGE>
Item 8. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The registrant is a limited partnership and, therefore, has no
executive officers or directors. The General Partner of the Registrant is
Phoenix Leasing Associates III L.P., a California limited partnership, the
Corporate General Partner of which is Phoenix Leasing Associates III, Inc., a
Nevada corporation and a wholly-owned subsidiary of Phoenix Leasing Incorporated
(PLI), a California corporation. The directors and executive officers of Phoenix
Leasing Associates III, Inc.
(PLA) are as follows:
GUS CONSTANTIN, age 60, is President, and a Director of PLA III. Mr.
Constantin received a B.S. degree in Engineering from the University of Michigan
and a Master's Degree in Management Science from Columbia University. From 1969
to 1972, he served as Director, Computer and Technical Equipment of DCL
Incorporated (formerly Diebold Computer Leasing Incorporated), a corporation
formerly listed on the American Stock Exchange, and as Vice President and
General Manager of DCL Capital Corporation, a wholly-owned subsidiary of DCL
Incorporated. Mr. Constantin was actively engaged in marketing manufacturer
leasing programs to computer and medical equipment manufacturers and in
directing DCL Incorporated's IBM System/370 marketing activities. Prior to 1969,
Mr. Constantin was employed by IBM as a data processing systems engineer for
four years. Mr. Constantin is an individual general partner in four active
partnerships and is an NASD registered principal. Mr. Constantin is the founder
of PLI and the beneficial owner of all of the common stock of Phoenix American
Incorporated.
GARY W. MARTINEZ, age 47, is Senior Vice President and a Director of
PLA III. He has been associated with PLI since 1976. He manages the Asset
Management Department, which is responsible for lease and loan portfolio
management. This includes credit analysis, contract terms, documentation and
funding; remittance application, change processing and maintenance of customer
accounts; customer service, invoicing, collection, settlements and litigation;
negotiating lease renewals, extensions, sales and buyouts; and management
information reporting. From 1973 to 1976, Mr. Martinez was a Loan Officer with
Crocker National Bank, San Francisco. Prior to 1973, he was an Area Manager with
Pennsylvania Life Insurance Company. Mr. Martinez is a graduate of California
State University, Chico.
HOWARD SOLOVEI, age 36, is the Chief Financial Officer, Treasurer and a
Director of PLA III. He has been associated with PLI since 1984. Mr. Solovei
oversees the Finance Department. He is responsible for the structuring,
planning, and monitoring of the partnerships sponsored by the General Partner
and its affiliates, as well as maintaining the banking relationships. Mr.
Solovei graduated with a B.S. in Business Administration from the University of
California, Berkeley.
BRYANT J. TONG, age 43, is Senior Vice President, Financial Operations
of PLA III. He has been with PLI since 1982. Mr. Tong is responsible for
investor services and overall company financial operations. He is also
responsible for the technical and administrative operations of the cash
management, corporate accounting, partnership accounting, accounting systems,
internal controls and tax departments, in addition to Securities and Exchange
Commission and other regulatory agency reporting. Prior to his association with
PLI, Mr. Tong was Controller-Partnership Accounting with the Robert A. McNeil
Corporation for two years and was an auditor with Ernst & Whinney (succeeded by
Ernst & Young) from 1977 through 1980. Mr. Tong holds a B.S. in Accounting from
the University of California, Berkeley, and is a Certified Public Accountant.
CYNTHIA E. PARKS, age 42, is Senior Vice President, General Counsel and
Secretary of PLA III. Prior to joining PLI in 1984, she was with GATX Leasing
Corporation, and had previously been Corporate Counsel for Stone Financial
Companies, and an Assistant Vice President of the Bank of America, Bank
Amerilease Group. She has a bachelor's degree from Santa Clara University, and
earned her J.D. from the University of San Francisco School of Law.
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
22
<PAGE>
Phoenix Leasing Incorporated and subsidiaries and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P.
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund IV
Phoenix Leasing Cash Distribution Fund III and
Phoenix Leasing Income Fund VII
Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:
The General Partner (and any corporate general partner of the General
Partner) of the Registrant, and the executive officers of the General Partner
(or any corporate general partner of the General Partner) of the Registrant,
file reports pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended. Based solely on the Registrant's review of the copies of such forms
received by the Registrant, the Registrant believes that, during 1997, all such
required reports were filed on a timely basis, except for reports on Form 3
(Initial Statement of Beneficial Ownership of Securities) filed late by Howard
Solovei and Cynthia E. Parks, each an executive officer of the General Partner
(or any corporate general partner of the General Partner) of the Registrant. No
units of limited partnership interest are held by such executive officers.
Certain Legal Proceedings.
On October 28, 1997 a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III L.P., 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 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. The Companies received an extension of time to answer the
Complaint and formal discovery has not commenced. The Companies intend to
vigorously defend the Complaint.
<TABLE>
Item 10. Executive Compensation.
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------ ----------------------------------------------------- ---------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
-------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C>
Phoenix Leasing
Associates III L.P. General Partner $ 782(1) $ 0 $ 0
===== ===== =====
<FN>
(1) Consists of management and acquisition fees.
</FN>
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
23
<PAGE>
(b) The General Partner or its affiliates owns the equity securities of
the Registrant set forth in the following table:
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 4% interest in 100%
the Registrant's profits and
distributions, until the Limited
Partners have recovered their
capital contributions plus a
cumulative return of 11% per
annum, compounded quarterly,
on the unrecovered portion
thereof. Thereafter, the General
Partner will receive 15%interest
in the Registrant's profits and
distributions.
Limited Partner Interest 950 units .06
Item 12. Certain Relationships and Related Transactions.
None.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
(a) 1. Financial Statements: --------
Balance Sheet as of December 31, 1997 11
Statements of Operations for the year ended
December 31, 1997 and 1996 12
Statements of Partners' Capital for the year
ended December 31, 1997 and 1996 13
Statements of Cash Flows for the year ended
December 31, 1997 and 1996 14
Notes to Financial Statements 15-21
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended December 31,
1997.
(c) Exhibits
21. Additional Exhibits
a) Balance Sheets of Phoenix Leasing Associates III, Inc. E21 1-4
Balance Sheets of Phoenix Leasing Associates III L.P E21 5-8
27. Financial Data Schedule
24
<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 LEASING AMERICAN BUSINESS FUND, L.P.,
a California limited partnership
(Registrant)
By: PHOENIX LEASING ASSOCIATES III L.P.,
a California limited partnership,
General Partner
By: PHOENIX LEASING ASSOCIATES III, INC.,
a Nevada corporation,
General Partner
Date: March 24, 1998 By: /S/ GUS CONSTANTIN
-------------- -------------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
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/ GUS CONSTANTIN President and a Director March 24, 1998
- --------------------- of Phoenix Leasing Associates III, Inc. --------------
(Gus Constantin)
/S/ GARY W. MARTINEZ Senior Vice President and a Director of March 24, 1998
- --------------------- Phoenix Leasing Associates III, Inc. --------------
(Gary W. Martinez)
Chief Financial Officer, March 24, 1998
/S/ HOWARD SOLOVEI Treasurer and a Director of --------------
- --------------------- Phoenix Leasing Associates III, Inc.
(Howard Solovei)
/S/ BRYANT J. TONG Senior Vice President, March 24, 1998
- --------------------- Financial Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Associates III, Inc.
25
Exhibit 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Leasing Associates III, Inc.:
We have audited the accompanying consolidated balance sheets of Phoenix Leasing
Associates III, Inc. (a Nevada corporation) and Subsidiary as of June 30, 1997
and 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the sheets referred to above present fairly, in all material
respects, the financial position of Phoenix Leasing Associates III, Inc. and
Subsidiary as of June 30, 1997 and 1996, in conformity with generally accepted
accounting principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 5, 1997
Page 1 of 8
<PAGE>
<TABLE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
---------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Cash and cash equivalents.................................. $ 870 $ 1,282
Deferred organizational and syndication costs,
net of amortization of $172,800 and $86,400
at June 30, 1997 and 1996, respectively................... 698,898 622,469
Due from Phoenix Leasing American Business Fund, L.P....... 171,423 118,065
Investment in American Business Fund, L.P.................. 20,493 -
--------------- --------------
Total Assets...................................... $ 891,684 $ 741,816
=============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses................... $ 4,798 $ 4,400
Due to PLI.............................................. 431,535 434,111
Deficit investment in American Business Fund, L.P....... - 47,036
--------------- --------------
Total Liabilities................................. 436,333 485,547
--------------- --------------
Minority Interest in Consolidated Subsidiary............... 78,139 20,072
--------------- --------------
Shareholder's Equity:
Common Stock, without par value, 100 shares
authorized and outstanding............................ 1,562,343 1,391,325
Retained earnings....................................... 377,112 236,097
Less:
Note receivable from PLI.............................. (1,562,243) (1,391,225)
--------------- --------------
Total Shareholder's Equity........................ 377,212 236,197
--------------- --------------
Total Liabilities and Shareholder's Equity........ $ 891,684 $ 741,816
=============== ==============
The accompanying notes are an
integral part of these balance sheets.
</TABLE>
2
<PAGE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 1. Organization:
Phoenix Leasing Associates III, Inc., (the Company), was formed under the
laws of Nevada on November 12, 1992. The Company and its subsidiary have June 30
fiscal year-ends. The Company is a wholly-owned subsidiary of Phoenix Leasing
Incorporated (PLI), a California corporation, and was originally formed to serve
as the general partner of Phoenix Leasing American Business Fund, L.P. (the
Program), a California limited partnership.
On December 14, 1992, the Company organized Phoenix Leasing Associates III
L.P., a California limited partnership (PLAIIILP) to replace the Company as the
general partner in the Program. The limited partner of PLAIIILP is Lease
Management Associates, Inc., a Nevada corporation controlled by an officer of
the Company, who also owns the parent company of PLI. As the general partner of
the Program, PLAIIILP will earn the acquisition and management fees and receive
the profits, losses and distributions which are to be allocated to the Company
(Note 7). The Company is the general partner of PLAIIILP and, as of December 31,
1996 and June 30, 1997 has a 62.5% ownership interest. This ownership interest
is subject to change in accordance with the PLAIIILP Partnership Agreement.
Profits, losses and distributions attributable to acquisition fees paid to
PLAIIILP by the Program are allocated in proportion to the partners' ownership
interests. All other profits, losses and distributions are allocated to the
Company. The financial statements as of June 30, 1997 and 1996 are presented on
a consolidated basis as discussed in Note 2.
Note 2. Principles of Consolidation:
The consolidated financial statements as of June 30, 1997 and 1996, include
the accounts of the Company and its subsidiary, PLAIIILP. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The minority interest in consolidated subsidiary represents the limited
partner's interest in PLAIIILP.
PLAIIILP will record its investment in the Program under the equity method
of accounting. As general partner of PLAIIILP, the Company has complete
authority in, and responsibility for, the overall management and control of the
Program, which includes responsibility for supervising the Program's
acquisition, leasing, remarketing activities and its sale of equipment.
Note 3. Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements. Actual results could differ from those estimates.
Note 4. Note Receivable from Affiliate:
PLI, the sole shareholder of the Company, as of June 30, 1997 and 1996, has
issued a demand promissory note to the Company totaling $1,562,243 and
$1,391,225, respectively. The note provides that its principal amount
automatically increases to five percent of the aggregate capital contributions
to the Program by its limited partners. There are no restrictions or covenants
associated with this note which would preclude the Company from receiving the
principal or interest amounts under the terms of the notes. The note bears
interest at a rate equal to the lesser of ten percent or the prime rate as
determined by Citibank, N.A., New York, New York, plus one percent. Interest is
payable by PLI on the first business day of each calendar quarter. The principal
amount is due and payable upon demand by the Company.
Note 5. Income Taxes:
The Company's income or loss for tax reporting purposes is included in the
consolidated and combined tax returns filed by Phoenix American Incorporated
(PAI), an affiliated Nevada corporation. These returns are prepared on the
accrual basis of accounting.
3
<PAGE>
Under "Statement of Financial Accounting Standards No. 109 - Accounting for
Income Taxes," the Company computes taxes as if it was a stand alone company.
The resulting tax provisions of $55,858 and $113,031, as of June 30, 1997 and
1996, respectively, were transferred to PAI in accordance with a Tax Sharing
Agreement between the Company and PAI.
Note 6. Organization and Syndication Costs:
Prior to the organization of PLAIIILP, the Company, on behalf of the
Program, paid certain organization and syndication costs associated with the
formation and initial equity raising of the Program. The Company funded these
reimbursable costs through an advance from PLI. Beginning December 14, 1992,
PLAIIILP began paying these reimbursable costs through advances from the
Company. Any costs in excessof 15% of equity raised at the termination of the
offering period will be paid by PLAIIILP through advances from the Company. The
Company has funded these advances from PLI and earnings.
On a consolidated basis, the Company has paid unreimbursed costs totaling
$871,697 as of June 30, 1997. Management has estimated that the 15% cap on total
organization and syndication costs would be exceeded and that the $871,697 would
not be reimbursed from the Program at the termination of the offering period.
The Company does expect to recover the $871,697 over the remaining 10 years life
of the Program through earnings and management fees. In order to match the
offering expenses with the resulting earnings, the Company has elected to
amortize the $871,697 excess organization and syndication costs on a straight
line basis over the 10 year remaining life of the Program.
Note 7. Compensation and Fees:
PLAIIILP receives acquisition fees equal to four percent of the purchase
price of assets acquired or financed by the Program in connection with the
analysis, selection and acquisition or financing of assets, and the continuing
analysis of the overall portfolio of the Program's assets, and management fees
equal to two percent of the Program's gross revenues in connection with managing
the operations of the Program. In addition, PLAIIILP will receive an interest in
the Program's profits, losses and distributions. Management fees of $27,637 and
$65,660 and acquisition fees of $143,786 and $52,406 are included in Due from
Phoenix Leasing American Business Fund, L.P. as of June 30, 1997 and 1996,
respectively.
Note 8. Related Parties:
Phoenix Securities, Inc., an affiliate of the Company, received a fee for
wholesaling activities performed in connection with the offering of the limited
partnership units of the Program.
The Company has entered into an agreement with PLI, whereby PLI will
provide management services to PLAIIILP in connection with the operation and
administration of the Program. In consideration for the services and activities
to be performed by PLI pursuant to this agreement, the Company pays PLI fees in
an amount equal to: two percent of the Program's cumulative gross revenues plus
the lesser of two and one-half percent of the purchase price of equipment
acquired by and financing provided to businesses by the Program or 100% of the
net cash attributable to the acquisition fee which has been distributed to the
Company plus 100% of all other net cash from operations of PLAIIILP. Management
fees paid to PLI equal $759,338 and $990,452 for the year ended June 30, 1997
and 1996, respectively.
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Phoenix Leasing Associates III L.P.:
We have audited the accompanying balance sheets of Phoenix Leasing Associates
III L.P. (a California limited partnership) as of June 30, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Phoenix Leasing Associates III L.P.
as of June 30, 1997 and 1996, in conformity with generally accepted accounting
principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 5, 1997
5
<PAGE>
<TABLE>
PHOENIX LEASING ASSOCIATES III L.P.
BALANCE SHEETS
ASSETS
June 30,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash and cash equivalents................................... $ 646 $ 976
Deferred organizational and syndication
costs, net of amortization of $172,800
and $86,400 as of June 30, 1997 and 1996, respectively..... 698,897 622,469
Investment in American Business Fund, L.P................... 20,493 -
Due from Phoenix Leasing American Business Fund, L.P........ 171,423 118,065
--------------- --------------
Total Assets....................................... $ 891,459 $ 741,510
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses.................... $ 2,399 $ 2,200
Due to General Partner................................... 810,221 671,502
Deficit investment in American Business Fund, L.P........ - 47,036
--------------- --------------
Total Liabilities.................................. 812,620 720,738
Partners' Capital:
General Partner (70 partnership units)................... 700 700
Limited Partner (42 partnership units)................... 78,139 20,072
--------------- --------------
Total Partners' Capital............................ 78,839 20,772
--------------- --------------
Total Liabilities and Partners' Capital............ $ 891,459 $ 741,510
=============== ==============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
6
<PAGE>
PHOENIX LEASING ASSOCIATES III L.P.
NOTES TO THE BALANCE SHEETS
JUNE 30, 1997
Note 1. Organization:
Phoenix Leasing Associates III L.P., a California limited partnership (the
Partnership), was formed under the laws of the State of California on December
14, 1992, to act as the general partner of Phoenix Leasing American Business
Fund, L.P. (the Program), a California limited partnership. The Partnership has
a June 30 fiscal year-end. The general partner of the Partnership is Phoenix
Leasing Associates III, Inc. (PLAIII), a Nevada corporation and wholly-owned
subsidiary of Phoenix Leasing Incorporated, a California corporation. The
limited partner of the Partnership is Lease Management Associates, Inc., a
Nevada corporation controlled by an officer of PLAIII, who owns the ultimate
parent of PLAIII.
The Partnership records its investment in the Program under the equity
method of accounting. As general partner, the Partnership has complete authority
in, and responsibility for, the overall management and control of the Program,
which includes responsibility for supervising the Program's acquisition, leasing
and remarketing activities, and its sale of equipment.
Note 2. Income Taxes:
The Partnership is not subject to federal and state income taxes on its
income. Federal and state income tax regulations provide that items of income,
gain, loss and deductions, credits and tax preference items of limited
partnerships are reportable by the individual partners in their respective
income tax returns. Accordingly, no liability for such taxes will be recorded on
the Partnership's balance sheets.
Note 3. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 4. Organization and Syndication Costs:
The Partnership on behalf of the Program pays certain organization and
syndication costs associated with the formation and initial equity raising of
the Program. The Partnership funded these reimbursable costs primarily through
advances from PLAIII. Any costs in excess of 15% of equity raised at the
termination of the offering period will be paid by the Partnership. As of June
30, 1997 the Partnership has paid unreimbursed costs of $871,697. Management has
estimated that the 15% cap on total organization and syndication costs would be
exceeded and that the $871,697 would not be reimbursed from the Program at the
termination of the offering period. The Company does expect to recover the
$871,697 over the remaining 10 years life of the Program through earnings and
management fees. In order to match the offering expenses with the resulting
earnings, the Company has elected to amortize the $871,697 excess organization
and syndication costs on a straight line basis over the 10 year remaining life
of the Program.
Note 5. Compensation and Fees:
The Partnership receives acquisition fees equal to four percent of the
purchase price of assets acquired or financed by the Program in connection with
the analysis, selection and acquisition or financing of assets, and the
continuing analysis of the overall portfolio of the Program's assets, and
management fees equal to two percent of the Program's gross revenues in
connection with managing the operations of the Program. In addition, the
Partnership will receive an interest in the Program's profits, losses and
distributions. Management fees of $27,637 and $65,660 and acquisition fees of
$143,786 and $52,406 are included in Due from Phoenix Leasing American Business
Fund, L.P. as of June 30, 1997 and 1996, respectively.
7
<PAGE>
Note 6. Allocation of Profits, Losses and Distributions:
Profits and losses attributable to acquisition fees paid to the Partnership
by the Program are allocated to the partners in proportion to their ownership
interests. All other profits and losses are allocated to PLAIII. Distributions
are made in accordance with the terms of the partnership agreement.
Note 7. Related Parties:
Phoenix Securities, Inc., an affiliate of the Partnership, receives a fee
for wholesaling activities performed in connection with the offering of the
limited partnership units of the Program.
PLAIII has entered into an agreement with Phoenix Leasing Incorporated
(PLI), whereby PLI will provide management services to the Partnership in
connection with the operations and administration of the Program. In
consideration for the services and activities to be performed by PLI pursuant to
this agreement, PLAIII shall pay PLI fees in an amount equal to: two percent of
the Program's cumulative gross revenues plus the lesser of two and one-half
percent of the purchase price of equipment acquired by and financing provided to
businesses by the Program or 100% of the net cash attributed to the acquisition
fee which has been distributed to PLAIII plus 100% of all other net cash from
operations of the Partnership. Management fees paid to PLI equal $758,833 and
$990,452 for the years ended June 30, 1997 and 1996, respectively.
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,666
<SECURITIES> 57
<RECEIVABLES> 9,700
<ALLOWANCES> 509
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,287
<DEPRECIATION> 1,899
<TOTAL-ASSETS> 26,552
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,405
<TOTAL-LIABILITY-AND-EQUITY> 26,552
<SALES> 0
<TOTAL-REVENUES> 5,633
<CGS> 0
<TOTAL-COSTS> 4,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> 1,438
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,438
<EPS-PRIMARY> .81
<EPS-DILUTED> 0
</TABLE>
