UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from ______________ to______________.
Commission file number 0-25278
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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
----- -----
1,565,229 Units of Limited Partnership Interest were outstanding as of September
30, 1999.
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,
1999 1998
---- ----
ASSETS
Cash and cash equivalents $ 3,303 $ 4,536
Accounts receivable (net of allowance for losses
on accounts receivable of $310 and $306 at
September 30, 1999 and December 31, 1998,
respectively) 360 363
Notes receivable (net of allowance for losses on
notes receivable of $451 and $602 at September
30, 1999 and December 31, 1998, respectively) 7,966 7,765
Net investment in financing leases (net of
allowance for early terminations of $37 and
$231 at September 30, 1999 and December 31,
1998, respectively) 5,968 7,898
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,613
and $1,790 at September 30, 1999 and December
31, 1998, respectively) 440 166
Capitalized acquisition fees (net of accumulated
amortization of $2,239 and $1,961 at
September 30, 1999 and December 31, 1998,
respectively) 581 647
Other assets 321 401
------- -------
Total Assets $18,939 $21,776
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 906 $ 939
Notes payable 80 1,125
------- -------
Total Liabilities 986 2,064
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Partners' Capital
General Partner 57 47
Limited Partners, 2,500,000 units authorized,
1,603,335 units issued and 1,565,229 and
1,573,129 units outstanding at September 30,
1999 and December 31, 1998, respectively 17,680 19,476
Accumulated other comprehensive income 216 189
------- -------
Total Partners' Capital 17,953 19,712
------- -------
Total Liabilities and Partners' Capital $18,939 $21,776
======= =======
The accompanying notes are an integral part of these statements.
2
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
INCOME
Earned income, financing leases $ 231 $ 361 $ 742 $ 1,330
Interest income, notes receivable 482 349 1,106 1,065
Rental income 158 234 435 889
Gain on sale of equipment 136 39 259 405
Gain on sale of securities 7 -- 282 4
Other income 56 44 129 135
------- ------- ------- -------
Total Income 1,070 1,027 2,953 3,828
------- ------- ------- -------
EXPENSES
Depreciation and amortization 123 113 506 462
Amortization of acquisition fees 79 122 278 376
Lease related operating expenses 4 24 51 71
Management fees to General Partner 54 76 176 244
Reimbursed administrative costs to
General Partner 54 59 187 230
Interest expense 3 51 25 198
Provision for losses on receivables 202 168 336 348
Legal expense 49 50 159 118
General and administrative expenses 29 22 72 88
------- ------- ------- -------
Total Expenses 597 685 1,790 2,135
------- ------- ------- -------
NET INCOME 473 342 1,163 1,693
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (loss)
arising during period 221 (79) 309 3
Less: reclassification adjustment
for gains included in net
income (7) -- (282) (4)
------- ------- ------- -------
Other comprehensive income (loss) 214 (79) 27 (1)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 687 $ 263 $ 1,190 $ 1,692
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .27 $ .19 $ .66 $ .99
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .60 $ .55 $ 1.78 $ 1.65
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 43 $ 40 $ 125 $ 125
Limited Partners 430 302 1,038 1,568
------- ------- ------- -------
$ 473 $ 342 $ 1,163 $ 1,693
======= ======= ======= =======
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,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 1,163 $ 1,693
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 506 462
Amortization of acquisition fees 278 376
Gain on sale of equipment (259) (405)
Equity in losses (earnings) from joint ventures, net 38 (14)
Gain on sale of securities (282) (4)
Provision for early termination, financing leases 152 126
Provision for losses on notes receivable 125 135
Provision for losses on accounts receivable 59 87
Decrease (increase) in accounts receivable (56) 3
Decrease in accounts payable and accrued expenses (128) (190)
Decrease in other assets 7 16
------- -------
Net cash provided by operating activities 1,603 2,285
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 3,577 6,000
Principal payments, notes receivable 2,385 2,343
Proceeds from sale of equipment 283 569
Distributions from joint ventures 62 63
Proceeds from sale of securities 282 10
Investment in financing leases (2,603) (2,025)
Investment in notes receivable (2,711) (2,439)
Payment of acquisition fees (117) (267)
------- -------
Net cash provided by investing activities 1,158 4,254
------- -------
Financing Activities:
- --------------------
Payments of principal, notes payable (1,045) (2,471)
Redemptions of capital (41) (66)
Distributions to partners (2,908) (2,711)
------- -------
Net cash used in financing activities (3,994) (5,248)
------- -------
Increase (decrease) in cash and cash equivalents (1,233) 1,291
Cash and cash equivalents, beginning of period 4,536 1,666
------- -------
Cash and cash equivalents, end of period $ 3,303 $ 2,957
======= =======
Supplemental Cash Flow Information:
- ----------------------------------
Cash paid for interest expense $ 25 $ 194
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 1998 amounts have been reclassified to
conform to the 1999 presentation.
Note 3. Income Taxes.
------------
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the financial statements of the Partnership.
Note 4. Notes Receivable.
----------------
Impaired Notes Receivable. At September 30, 1999, the Partnership has
investments in notes receivable, before allowance for losses, of $8,417,000.
This amount includes impaired notes receivable, net of specific write-downs, of
$745,000. The Partnership has an allowance for losses of $451,000 as of
September 30, 1999. The average recorded investment in impaired loans during the
nine months ended September 30, 1999 and 1998 was approximately $475,000 and
$236,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1999 1998
---- ----
(Amounts In Thousands)
Beginning balance $ 602 $ 315
Provision for losses 125 135
Write downs (276) --
----- -----
Ending balance $ 451 $ 450
===== =====
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 1,572,152 and 1,577,067 for the nine
months ended September 30, 1999 and 1998, 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 $473,000 and $1,163,000 during the three and nine months ended
September 30, 1999, as compared to net income of $342,000 and $1,693,000 during
the same periods in 1998. The increase in net income for the three months ended
September 30, 1999 is primarily the result of an increase in interest income
from notes receivable and gain on sale of equipment as compared to the same
period in 1998. The decrease in net income for the nine months ended September
30, 1999 is primarily due to a decrease in earned income from financing leases,
rental income and gain on sale of equipment as compared to the same period in
the previous year.
Total revenues increased by $43,000 for the three months ended
September 30, 1999, as compared to the same period in 1998, primarily due to an
increase in interest income from notes receivable and the gain on sale of
equipment. The increase in interest income from notes receivable of $133,000, as
compared to the same period in 1998, resulted from the recognition of interest
income on the early payoff of various notes receivable during the three months
ended September 30, 1999. The increase in gain on sale of equipment of $97,000
for the three months ended September 30, 1999, as compared to the same period in
1998, also contributed to higher revenues for the period. Decreases in earned
income of $130,000 and rental income of $76,000 for the three months ended
September 30, 1999, as compared to the same period in 1998, reduced the total
increase in revenues for the period, as further discussed below.
Total revenues decreased by $875,000 for the nine months ended
September 30, 1999, as compared to the same period in 1998. The primary factor
contributing to the decline in total revenues for the nine months ended
September 30, 1999, compared to the same period in 1998, is the decreases in
earned income from financing leases and rental income. The decrease in earned
income from financing leases for the three and nine months ended September 30,
1999 of $130,000 and $588,000, respectively, compared to the same periods in
1998, is a result of a decline in the Partnership's investment in financing
leases. The Partnership's net investment in financing leases was $6 million at
September 30, 1999, as compared to $9.4 million at September 30, 1998. 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.
Rental income decreased by $76,000 and $454,000 for the three and nine
months ended September 30, 1999, compared to the same periods in 1998. Rental
income for the three and nine months ended September 30, 1998 was higher than
usual as a result of 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 was also a result of
settlements from defaulted leases.
7
<PAGE>
The decrease in gain on sale of equipment of $146,000 for the nine
months ended September 30, 1999, compared to the same period in 1998, also
contributed to the decline in total revenues for the period. The Partnership
received proceeds from the sale of equipment of $283,000 for the nine months
ended September 30, 1999, compared to $569,000 for the nine months ended
September 30, 1998. The Partnership sold equipment with an aggregate original
cost of $9.9 million for the nine months ended September 30, 1999, compared to
$10 million for the same period in 1998. At September 30, 1999, the Partnership
owned equipment with an aggregate original cost of $17.6 million, as compared to
the $26.3 million of equipment owned at September 30, 1998.
Total expenses decreased by $88,000 and $345,000 for the three and nine
months ended September 30, 1999, as compared to the same periods in the prior
year. Most line items decreased for the three and nine months ended September
30, 1999, as compared to the same periods in 1998. Depreciation and
amortization, however, increased $10,000 and $44,000 for the three and nine
months ended September 30, 1999, as compared to the same periods in 1998, due to
an increase in the amount of equipment held at September 30, 1999 compared to
the same period in 1998. As of September 30, 1999, the Partnership had $2.7
million of equipment held compared to $2.6 million of equipment held at
September 30, 1998. Until new leases or buyers of equipment can be found, the
equipment will continue to generate depreciation expense without any
corresponding rental income.
The decrease in interest expense of $48,000 and $173,000 for the
three and nine months ended September 30, 1999, 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, 1999, the Partnership's outstanding notes payable
balance was $80,000 compared to $1.5 million as of September 30, 1998.
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 $7,565,000 during the nine months ended September 30, 1999, as
compared to $10,628,000 during the same period in 1998. 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, 1999, the Partnership
invested $2,603,000 in financing leases and $2,711,000 in notes receivable, as
compared to investments of $2,025,000 in financing leases and $2,439,000 in
notes receivable during the same period in 1998.
The Partnership owned equipment held for lease with an original cost of
$2,708,000 and a net book value of $96,000 at September 30, 1999, as compared to
$2,569,000 and $231,000, respectively, at September 30, 1998. 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
8
<PAGE>
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 $1,045,000 on its
outstanding debt during the nine months ended September 30, 1999, as compared to
$2,471,000 during the nine months ended September 30, 1998.
The cash distributed to partners during the nine months ended September
30, 1999 was $2,908,000, as compared to $2,711,000 during the same period in
1998. 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
$2,793,000 and $2,602,000 in cash distributions during the nine months ended
September 30, 1999 and 1998, respectively. The total cumulative cash
distributions to limited partners as of September 30, 1999 was $16,395,000, as
compared to $12,736,000 at September 30, 1998. The General Partner received
$115,000 and $109,000 during the nine months ended September 30, 1999 and 1998,
respectively. The Partnership plans to make distributions to partners during
1999 at a slightly higher rate than in 1998.
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
ReSourcePhoenix.com ("ReSourcePhoenix"), an affiliate of the parent to
the General Partner, does all local computer processing for the General Partner.
And as such ReSourcePhoenix manages the Year 2000 project on behalf of the
General Partner.
ReSourcePhoenix has a Year 2000 project plan in place. The Year 2000
project team has identified risks, and has implemented remediation procedures
for its Year 2000 issues. ReSourcePhoenix has budgeted for the necessary
changes, built contingency plans, and has progressed along the scheduled
timeline. Installation of all remediation changes to critical software and
hardware was completed on November 5, 1999.
Costs incurred by the Partnership will be expensed as incurred and are
not currently anticipated to be material to the Partnership's financial position
or results of operations.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have knowledge of any exposure to any individual customer
that would materially impact the Partnership should the customer experience a
significant Year 2000 problem, however, cumulative exposure to multiple
individual customers could materially impact the Partnership should multiple
customers experience a significant Year 2000 problem.
9
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
September 30, 1999
Part II. Other Information.
-----------------
Item 1. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., Phoenix
Securities Inc. and Phoenix American Incorporated (the "Companies") in
California Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution Funds I through V (the
"Partnerships"). The Companies were served with the Complaint on December 9,
1997. The Complaint sought declaratory and other relief including accounting,
receivership, imposition of a constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Berger Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the "Ash Action"). That complaint was subsequently
transferred to Marin County as well.
Plaintiffs have amended the Berger Action twice. Defendants recently
answered the complaint. Discovery has recently commenced. The Companies intend
to vigorously defend the Complaint.
Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times. Discovery has not commenced. The Companies intend to
vigorously defend the Complaint.
Item 2. Changes in Securities. Inapplicable
---------------------
Item 3. Defaults Upon Senior Securities. Inapplicable
-------------------------------
Item 4. Submission of Matters to a Vote of Securities Holders. Inapplicable
-----------------------------------------------------
Item 5. Other Information. Inapplicable
-----------------
Item 6. Exhibits and Reports on 8-K:
---------------------------
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None.
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 10, 1999 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Gary W. Martinez)
November 10, 1999 Chief Financial Officer, /S/ HOWARD SOLOVEI
- ----------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Howard Solovei)
November 10, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,303
<SECURITIES> 216
<RECEIVABLES> 9,087
<ALLOWANCES> 761
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,053
<DEPRECIATION> 1,613
<TOTAL-ASSETS> 18,939
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,953
<TOTAL-LIABILITY-AND-EQUITY> 18,939
<SALES> 0
<TOTAL-REVENUES> 2,953
<CGS> 0
<TOTAL-COSTS> 1,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 336
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,163
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,163
<EPS-BASIC> .66
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</TABLE>
