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 June 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
----- -----
1,577,361 Units of Limited Partnership Interest were outstanding as of June 30,
1998.
Transitional small business disclosure format:
Yes No X
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Page 1 of 10
<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)
June 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 1,472 $ 1,666
Accounts receivable (net of allowance for
losses on accounts receivable of $153 and
$194 at June 30, 1998 and December 31, 1997,
respectively) 290 397
Notes receivable (net of allowance for losses
on notes receivable of $405 and $315 at
June 30, 1998 and December 31, 1997,
respectively) 9,177 8,794
Net investment in financing leases (net of
allowance for early terminations of $240
and $394 at June 30, 1998 and December 31,
1997, respectively) 11,616 13,966
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$1,560 and $1,899 at June 30, 1998 and
December 31, 1997, respectively) 298 388
Capitalized acquisition fees (net of
accumulated amortization of $1,741 and
$1,487 at June 30, 1998 and December 31,
1997, respectively) 853 942
Other assets 420 399
------- -------
Total Assets $24,126 $26,552
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,093 $ 1,132
Notes payable 2,025 4,015
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Total Liabilities 3,118 5,147
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Partners' Capital
General Partner 43 30
Limited Partners, 2,500,000 units
authorized, 1,603,335 units issued and
1,577,361 and 1,578,705 units outstanding
at June 30, 1998 and December 31, 1997,
respectively 20,829 21,318
Unrealized gain on marketable securities
available-for-sale 136 57
------- -------
Total Partners' Capital 21,008 21,405
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Total Liabilities and Partners' Capital $24,126 $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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
INCOME
Earned income, financing leases $ 471 $ 706 $ 969 $1,507
Interest income, notes receivable 332 230 716 513
Rental income 315 188 655 272
Gain on sale of equipment 226 88 366 20
Other income 48 104 95 198
------ ------ ------ ------
Total Income 1,392 1,316 2,801 2,510
------ ------ ------ ------
EXPENSES
Depreciation and amortization 158 360 348 707
Amortization of acquisition fees 119 136 254 308
Lease related operating expenses 22 58 47 108
Management fees to General Partner 79 81 168 182
Reimbursed administrative costs
to General Partner 87 115 171 218
Interest expense 64 175 147 372
Provision for losses on receivables 92 215 180 215
General and administrative expenses 65 80 135 152
------ ------ ------ ------
Total Expenses 686 1,220 1,450 2,262
------ ------ ------ ------
NET INCOME $ 706 $ 96 $1,351 $ 248
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .42 $ .04 $ .80 $ .11
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .55 $ .55 $ 1.10 $ 1.10
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 43 $ 38 $ 85 $ 75
Limited Partners 663 58 1,266 173
------ ------ ------ ------
$ 706 $ 96 $1,351 $ 248
====== ====== ====== ======
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)
Six Months Ended
June 30,
1998 1997
---- ----
Operating Activities:
Net income $ 1,351 $ 248
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 348 707
Amortization of acquisition fees 254 308
Equity in earnings from joint ventures, net (10) (14)
Gain on sale of equipment (366) (20)
Gain on sale of securities (4) --
Provision for early termination, financing
leases 90 136
Provision for losses on notes receivable 90 79
Decrease in accounts receivable 107 11
Increase (decrease) in accounts payable and
accrued expenses (70) 37
Decrease (increase) in other assets (3) 93
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Net cash provided by operating activities 1,787 1,585
------- -------
Investing Activities:
Principal payments, financing leases 3,918 5,044
Principal payments, notes receivable 1,643 1,658
Distributions from joint ventures 42 40
Proceeds from sale of equipment 498 100
Proceeds from sale of securities 10 --
Investment in financing leases (2,025) (1,758)
Investment in notes receivable (2,116) (4,711)
Payment of acquisition fees (134) (116)
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Net cash provided by investing activities 1,836 257
------- -------
Financing Activities:
Payments of principal, notes payable (1,990) (2,875)
Redemptions of capital (18) (119)
Distributions to partners (1,809) (1,818)
------- -------
Net cash used by financing activities (3,817) (4,812)
------- -------
Decrease in cash and cash equivalents (194) (2,970)
Cash and cash equivalents, beginning of period 1,666 5,134
------- -------
Cash and cash equivalents, end of period $ 1,472 $ 2,164
======= =======
Supplemental Cash Flow Information:
Cash paid for interest expense $ 123 $ 348
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.
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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 June 30, 1998, the Partnership has
investments in notes receivable, before allowance for losses, of $9,582,000 of
which $346,000 is considered to be impaired. The Partnership has an allowance
for losses of $405,000 as of June 30, 1998. The average recorded investment in
impaired loans during the six months ended June 30, 1998 and 1997 was
approximately $205,000 and $57,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
six months ended June 30, is as follows:
1998 1997
---- ----
(Amounts in Thousands)
Beginning balance $ 315 $ 241
Provision for losses 90 79
Write downs - (54)
------ ------
Ending balance $ 405 $ 266
====== ======
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 1,578,124 and 1,585,695 for the six
months ended June 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 $706,000 and $1,351,000 during the three and six months ended June
30, 1998, respectively, as compared to net income of $96,000 and $248,000 during
the same periods in 1997. The increase in net income for both the three and six
months ended June 30, 1998 is primarily due to an increase in total revenues and
a decrease in total expenses as compared to the same periods in the previous
year.
Total revenues increased by $76,000 and $291,000 during the three and
six months ended June 30, 1998, respectively, as compared to the same periods in
1997, due to increases in rental income, gain on sale of equipment and interest
income from notes receivable partially offset by a decrease in earned income
from financing leases.
Rental income increased by $127,000 and $383,000 for the three and six
months ended June 30, 1998, respectively, compared to the same periods in 1997,
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
$138,000 and $346,000 during the three and six months ended June 30, 1998,
respectively, as compared to the same periods 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 $6 million for the six months ended June 30, 1998, compared to
$1.9 million for the same period in 1997. At June 30, 1998, the Partnership
owned equipment with an aggregate original cost of $30.3 million, as compared to
the $38.5 million of equipment owned at June 30, 1997.
The increase in interest income from notes receivable of $102,000 and
$203,000 for the three and six months ended June 30, 1998, respectively, 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 $9.2 million at June 30, 1998, as compared to $7.6 million at
June 30, 1997.
The increases in rental income, gain on sale of equipment and interest
income from notes receivable were partially offset by a decrease in earned
income from financing leases. Earned income from financing leases decreased by
$235,000 and $538,000 during the three and six months ended June 30, 1998,
respectively, as compared to the same periods in 1997. The decrease is a result
of a decline in the Partnership's investment in financing leases. The
Partnership's net investment in financing leases was $11.6 million at June 30,
1998, as compared to $18.5 million at June 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 may 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.
7
<PAGE>
Total expenses decreased by $534,000 and $812,000 for the three and six
months ended June 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 $202,000 and $359,000
for the three and six months ended June 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 $111,000 and $225,000 for
the three and six months ended June 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 June 30, 1998, the Partnership's outstanding notes
payable balance was $2 million compared to $6.9 million as of June 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 $7,348,000 during the six months ended June 30, 1998, as compared
to $8,287,000 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 six months ended June 30, 1998, the Partnership invested $2
million in equipment leases and $2.1 million in notes receivable, as compared to
investments of $1.8 million in equipment leases and $4.7 million in notes
receivable during the same period in 1997. As of June 30, 1998, the Partnership
had acquired leased equipment with an aggregate original cost of $47.4 million
and invested $17.8 million in notes receivable (including its pro rata interest
in joint ventures), as compared to investments of $44 million in leased
equipment and $13.1 million in notes receivable at June 30, 1997.
The Partnership owned equipment held for lease with an original cost of
$2,424,000 and a net book value of $292,000 at June 30, 1998, as compared to
$2,502,000 and $455,000 respectively at June 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 $1,990,000 on its
outstanding debt during the six months ended June 30, 1998, as compared to
$2,875,000 during the six months ended June 30, 1997.
The cash distributed to partners during the six months ended June 30,
1998 was $1,809,000, as compared to $1,818,000 during the same period in 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 $1,736,000
and $1,745,000 in cash distributions during the six months ended June 30, 1998
and 1997, respectively. The total cumulative cash distributions to limited
partners as of June 30, 1998 was $11,870,000, as compared to $8,395,000 at June
30, 1997. The General Partner received $73,000 during the six months ended June
31, 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.
8
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
June 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 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 fidicuary
duty and breach of contract by the Companies as general partners of the
Partnerships. Plaintiffs are expected to serve an amended complaint on August
14, 1998. 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
9
<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
---- ----- ---------
August 12, 1998 Senior Vice President /S/ GARY W. MARTINEZ
- --------------- and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Gary W. Martinez)
August 12, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- --------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Howard Solovei)
August 12, 1998 Senior Vice President, /S/ BRYANT J. TONG
- --------------- Financial Operations of --------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Associates III, Inc.
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,472
<SECURITIES> 0
<RECEIVABLES> 10,025
<ALLOWANCES> 558
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,858
<DEPRECIATION> 1,560
<TOTAL-ASSETS> 24,126
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,008
<TOTAL-LIABILITY-AND-EQUITY> 24,126
<SALES> 0
<TOTAL-REVENUES> 2,801
<CGS> 0
<TOTAL-COSTS> 1,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 1,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,351
<EPS-PRIMARY> .80
<EPS-DILUTED> 0
</TABLE>
