UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from ______________ to______________.
Commission file number 0-25278
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
- --------------------------------------------------------------------------------
Registrant
California 68-0293258
- -------------------------------- ----------------------------------
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
----- -----
1,573,687 Units of Limited Partnership Interest were outstanding as of September
30, 1998.
Transitional small business disclosure format:
Yes No X
----- -----
Page 1 of 11
<PAGE>
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 2,957 $ 1,666
Accounts receivable (net of allowance for losses on
accounts receivable of $223 and $194 at September
30, 1998 and December 31, 1997, respectively) 307 397
Notes receivable (net of allowance for losses on
notes receivable of $450 and $315 at September 30,
1998 and December 31, 1997, respectively) 8,755 8,794
Net investment in financing leases (net of allowance
for early terminations of $201 and $394 at
September 30, 1998 and December 31, 1997,
respectively) 9,425 13,966
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,605 and
$1,899 at September 30, 1998 and December 31,
1997, respectively) 231 388
Capitalized acquisition fees (net of accumulated
amortization of $1,863 and $1,487 at September
30, 1998 and December 31, 1997, respectively) 745 942
Other assets 298 399
------- -------
Total Assets $22,718 $26,552
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 854 $ 1,132
Notes payable 1,544 4,015
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Total Liabilities 2,398 5,147
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Partners' Capital
General Partner 46 30
Limited Partners, 2,500,000 units authorized,
1,603,335 units issued and 1,573,687 and
1,578,705 units outstanding at September 30,
1998 and December 31, 1997, respectively 20,218 21,318
Unrealized gain on marketable securities
available-for-sale 56 57
------- -------
Total Partners' Capital 20,320 21,405
------- -------
Total Liabilities and Partners' Capital $22,718 $26,552
======= =======
The accompanying notes are an integral part of these statements.
2
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
INCOME
Earned income, financing leases $ 361 $ 618 $1,330 $2,126
Interest income, notes receivable 349 353 1,065 865
Rental income 234 204 889 476
Gain on sale of equipment 39 34 405 54
Other income 44 54 139 253
------ ------ ------ ------
Total Income 1,027 1,263 3,828 3,774
------ ------ ------ ------
EXPENSES
Depreciation and amortization 113 352 462 1,059
Amortization of acquisition fees 122 146 376 454
Lease related operating expenses 24 30 71 138
Management fees to General Partner 76 88 244 270
Reimbursed administrative costs to General
Partner 59 82 230 300
Interest expense 51 147 198 519
Provision for losses on receivables 168 169 348 385
General and administrative expenses 72 70 206 222
------ ------ ------ ------
Total Expenses 685 1,084 2,135 3,347
------ ------ ------ ------
NET INCOME $ 342 $ 179 $1,693 $ 427
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .19 $ .09 $ .99 $ .20
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .55 $ .55 $ 1.65 $ 1.65
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 40 $ 37 $ 125 $ 112
Limited Partners 302 142 1,568 315
------ ------ ------ ------
$ 342 $ 179 $1,693 $ 427
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Operating Activities:
- --------------------
Net income $ 1,693 $ 427
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 462 1,059
Amortization of acquisition fees 376 454
Equity in earnings from joint ventures, net (14) (21)
Gain on sale of equipment (405) (54)
Gain on sale of securities (4) (5)
Provision for early termination, financing
leases 126 196
Provision for losses on notes receivable 135 120
Provision for losses on accounts receivable 87 69
Decrease (increase) in accounts receivable 3 (10)
Increase (decrease) in accounts payable and
accrued expenses (190) 91
Decrease in other assets 16 104
------- -------
Net cash provided by operating activities 2,285 2,430
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 6,000 7,581
Principal payments, notes receivable 2,343 2,240
Distributions from joint ventures 63 62
Proceeds from sale of equipment 569 193
Proceeds from sale of securities 10 --
Investment in financing leases (2,025) (2,107)
Investment in notes receivable (2,439) (5,741)
Payment of acquisition fees (267) (194)
------- -------
Net cash provided by investing activities 4,254 2,034
------- -------
Financing Activities:
- --------------------
Payments of principal, notes payable (2,471) (4,313)
Redemptions of capital (66) (126)
Distributions to partners (2,711) (2,724)
------- -------
Net cash used by financing activities (5,248) (7,163)
------- -------
Increase (decrease) in cash and cash equivalents 1,291 (2,699)
Cash and cash equivalents, beginning of period 1,666 5,134
------- -------
Cash and cash equivalents, end of period $ 2,957 $ 2,435
======= =======
Supplemental Cash Flow Information:
- ----------------------------------
Cash paid for interest expense $ 194 $ 482
The accompanying notes are an integral part of these statements.
4
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
-------
The accompanying unaudited condensed financial statements have been
prepared by the Partnership in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Although management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Partnership's Financial Statement, as filed with the
SEC in the latest annual report on Form 10-K.
The Partnership Agreement stipulates the methods by which income will
be allocated to the General Partner and the limited partners. Such allocations
will be made using income or loss calculated under Generally Accepted Accounting
Principles for book purposes, which varies from income or loss calculated for
tax purposes.
The calculation of items of income and loss for book and tax purposes
may result in book basis capital accounts that vary from the tax basis capital
accounts. The requirement to restore any deficit capital balances by the General
Partner will be determined based on the tax basis capital accounts. At
liquidation of the Partnership, the General Partner's remaining book basis
capital account will be reduced to zero through the allocation of income or
loss.
Note 2. Reclassification.
----------------
Reclassification - Certain 1997 amounts have been reclassified to
conform to the 1998 presentation.
Note 3. Income Taxes.
------------
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the financial statements of the Partnership.
Note 4. Notes Receivable.
----------------
Impaired Notes Receivable. At September 30, 1998, the Partnership has
investments in notes receivable, before allowance for losses, of $9,205,000 of
which $365,000 is considered to be impaired. The Partnership has an allowance
for losses of $450,000 as of September 30, 1998. The average recorded investment
in impaired loans during the nine months ended September 30, 1998 and 1997 was
approximately $259,000 and $54,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1998 1997
---- ----
(Amounts In Thousands)
Beginning balance $ 315 $ 241
Provision for losses 135 120
Write downs -- (54)
----- -----
Ending balance $ 450 $ 307
===== =====
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 1,577,067 and 1,583,894 for the nine
months ended September 30, 1998 and 1997, respectively. For 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.
6
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
--------------------------------------------------------------
and Results of Operations.
---------------------------
Results of Operations
Phoenix Leasing American Business Fund, L.P. (the Partnership) reported
net income of $342,000 and $1,693,000 during the three and nine months ended
September 30, 1998, respectively, as compared to net income of $179,000 and
$427,000 during the same periods in 1997. The increase in net income for both
the three and nine months ended September 30, 1998 is primarily due to a
decrease in total expenses as compared to the same periods in the previous year.
Total revenues decreased by $236,000 for the three months ended
September 30, 1998, but increased by $54,000 during the nine months ended
September 30, 1998, as compared to the same periods in 1997. The primary factor
contributing to the decline in total revenues for the three months ended
September 30, 1998, compared to the same period in 1997, is the decrease in
earned income from financing leases. The increase in total revenues experienced
for the nine months ended September 30, 1998 is due to increases in rental
income, gain on sale of equipment and interest income from notes receivable
which were partially offset by a decrease in earned income from financing
leases.
The decrease in earned income from financing leases for the three
months ended September 30, 1998 of $257,000, compared to the same period in
1997, as well as the decrease for the nine months ended September 30, 1998 of
$796,000, is a result of a decline in the Partnership's investment in financing
leases. The Partnership's net investment in financing leases was $9.4 million at
September 30, 1998, as compared to $15.9 million at September 30, 1997. 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 in part is offset by
a continuous investment of the excess cash flows of the Partnership in new
leasing and financing transactions over the life of the Partnership.
The increase in rental income of $413,000 for the nine months ended
September 30, 1998, compared to the same period in 1997, is due to financing
leases reaching the end of their contractual term and being renewed on a month
to month basis as well as lessees of financing leases exercising their option to
renew their lease for a fixed term in order to purchase the equipment. The
increase in rental income is also a result of settlements from defaulted leases.
The Partnership experienced an increase in gain on sale of equipment of
$351,000 during the nine months ended September 30, 1998, as compared to the
same period in the previous year. The gain on sale of equipment during 1998 is a
result of an increase in sales activity of the Partnership's equipment
portfolio. Correspondingly, proceeds from the sale of equipment also increased.
The Partnership sold equipment with an aggregate original cost of $10 million
for the nine months ended September 30, 1998, compared to $5.3 million for the
same period in 1997. At September 30, 1998, the Partnership owned equipment with
an aggregate original cost of $26.3 million, as compared to the $35.5 million of
equipment owned at September 30, 1997.
7
<PAGE>
The increase in interest income from notes receivable of $200,000 for
the nine months ended September 30, 1998, as compared to the same periods in
1997, is attributable to new investments made in notes receivable in 1997 and
1998. The Partnership's net investment in notes receivable was $8.8 million at
September 30, 1998, as compared to $8 million at September 30, 1997.
Total expenses decreased by $399,000 and $1,212,000 for the three and
nine months ended September 30, 1998, respectively, as compared to the same
periods in the prior year, due to decreases in depreciation and amortization and
interest expense. The decrease in depreciation and amortization of $239,000 and
$597,000 for the three and nine months ended September 30, 1998, respectively,
as compared to the same periods in 1997, is due to the continued sale of the
lease portfolio as well as an increasing portion of the equipment owned by the
Partnership becoming fully depreciated. The decrease in interest expense of
$96,000 and $321,000 for the three and nine months ended September 30, 1998,
respectively, as compared to the same periods in the previous year, is a result
of a decline in the Partnership's outstanding debt. As of September 30, 1998,
the Partnership's outstanding notes payable balance was $1.5 million compared to
$5.5 million as of September 30, 1997.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from 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 generated from leasing and financing
activities of $10,628,000 during the nine months ended September 30, 1998, as
compared to $12,251,000 during the same period in 1997. This decrease is
reflective of the decrease in payments received from financing leases, as
previously discussed in the Results of Operations.
During the nine months ended September 30, 1998, the Partnership
invested $2 million in equipment leases and $2.4 million in notes receivable, as
compared to investments of $2.1 million in equipment leases and $5.7 million in
notes receivable during the same period in 1997.
The Partnership owned equipment held for lease with an original cost of
$2,569,000 and a net book value of $231,000 at September 30, 1998, as compared
to $2,515,000 and $318,000 respectively at September 30, 1997. The General
Partner is actively engaged in remarketing and selling 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 the remarketing period.
The Partnership made payments of principal of $2,471,000 on its
outstanding debt during the nine months ended September 30, 1998, as compared to
$4,313,000 during the nine months ended September 30, 1997.
The cash distributed to partners during the nine months ended September
30, 1998 was $2,711,000, as compared to $2,724,000 during the same period in
8
<PAGE>
1997. 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
$2,603,000 and $2,615,000 in cash distributions during the nine months ended
September 30, 1998 and 1997, respectively. The total cumulative cash
distributions to limited partners as of September 30, 1998 was $12,736,000, as
compared to $9,265,000 at September 30, 1997. The General Partner received
$108,000 and $109,000 during the nine months ended September 30, 1998 and 1997,
respectively. The Partnership anticipates making distributions to partners
during 1998 at the same rate as 1997.
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.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computers and
computer programs do not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, many computer applications could fail or
create erroneous results.
The General Partner has performed an assessment of the computer
programs used to conduct the business of the Partnership that are subject to
Year 2000 risk. The General Partner and its affiliates are currently in the
process of testing, upgrading, modifying and replacing existing computer
programs that have been determined not to be Year 2000 compliant. It is
estimated that this project will be completed in mid 1999. However, if this
project is not completed in a timely matter, the Year 2000 issue could have a
material impact on the Partnership's operations. The costs of these changes are
being incurred by the General Partner or its affiliates. Costs incurred by the
Partnership will be expensed as incurred and are not currently anticipated to be
material to the Partnership's financial position or results of operations. The
General Partner currently does not have a contingency plan, but will continue to
evaluate the need for such plan as systems and programs are tested.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have exposure to any individual customer that would
materially impact the Partnership should the customer experience a significant
Year 2000 problem.
The assessments of the risks and costs of the Year 2000 issue are based
on management's best estimates. However, there can be no guarantee that these
estimates will be achieved and the actual results could differ materially from
those estimates.
9
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
September 30, 1998
Part II. Other Information.
-----------------
Item 1. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., Phoenix
Securities Inc. and Phoenix American Incorporated (the "Companies") in
California Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution Funds I through V (the
"Partnerships"). The Companies were served with the Complaint on December 9,
1997. The Complaint seeks declaratory and other relief including accounting,
receivership, imposition of a constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Marin Action"). Plaintiffs subsequently amended the Marin
Action on August 14, 1998. On October 23, 1998, the Companies filed a demurrer
to the Marin Action, seeking its dismissal. Discovery has not commenced. The
Companies intend to vigorously defend the Complaint.
Item 2. Changes in Securities. Inapplicable
---------------------
Item 3. Defaults Upon Senior Securities. Inapplicable
-------------------------------
Item 4. Submission of Matters to a Vote of Securities Holders. Inapplicable
-----------------------------------------------------
Item 5. Other Information. Inapplicable
-----------------
Item 6. Exhibits and Reports on 8-K:
---------------------------
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None
10
<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
-------------------------------------------
(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 Title Signature
---- ----- ---------
November 11, 1998 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Gary W. Martinez)
November 11, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- ----------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Howard Solovei)
November 11, 1998 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations of --------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Associates III, Inc.
11
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,957
<SECURITIES> 0
<RECEIVABLES> 9,735
<ALLOWANCES> 673
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,836
<DEPRECIATION> 1,605
<TOTAL-ASSETS> 22,718
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,320
<TOTAL-LIABILITY-AND-EQUITY> 22,718
<SALES> 0
<TOTAL-REVENUES> 3,828
<CGS> 0
<TOTAL-COSTS> 2,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 348
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,693
<EPS-PRIMARY> .99
<EPS-DILUTED> 0
</TABLE>
