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, 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
----- -----
1,572,654 Units of Limited Partnership Interest were outstanding as of June 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)
June 30, December 31,
1999 1998
---- ----
ASSETS
Cash and cash equivalents $ 3,251 $ 4,536
Accounts receivable (net of allowance for losses
on accounts receivable of $289 and $306 at
June 30, 1999 and December 31, 1998, respectively) 354 363
Notes receivable (net of allowance for losses on notes
receivable of $595 and $602 at June 30, 1999 and
December 31, 1998, respectively) 8,016 7,765
Net investment in financing leases (net of allowance for
early terminations of $40 and $231 at June 30, 1999
and December 31, 1998, respectively) 6,452 7,898
Equipment on operating leases and held for lease (net of
accumulated depreciation of $1,969 and $1,790 at
June 30, 1999 and December 31, 1998, respectively) 428 166
Capitalized acquisition fees (net of accumulated
amortization of $2,160 and $1,961 at June 30, 1999
and December 31, 1998, respectively) 602 647
Other assets 133 401
------- -------
Total Assets $19,236 $21,776
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 809 $ 939
Notes payable 143 1,125
------- -------
Total Liabilities 952 2,064
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Partners' Capital
General Partner 53 47
Limited Partners, 2,500,000 units authorized,
1,603,335 units issued and 1,572,654 and
1,573,129 units outstanding at June 30, 1999
and December 31, 1998, respectively 18,229 19,476
Accumulated other comprehensive income 2 189
------- -------
Total Partners' Capital 18,284 19,712
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Total Liabilities and Partners' Capital $19,236 $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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
INCOME
Earned income, financing leases $ 247 $ 471 $ 511 $ 969
Interest income, notes receivable 310 332 624 716
Rental income 181 315 277 655
Gain on sale of equipment 64 226 123 366
Gain (loss) on sale of securities 275 (3) 275 4
Other income 19 51 73 91
------- ------- ------- -------
Total Income 1,096 1,392 1,883 2,801
------- ------- ------- -------
EXPENSES
Depreciation and amortization 226 158 383 348
Amortization of acquisition fees 97 119 199 254
Lease related operating expenses 22 22 48 47
Management fees to General Partner 61 79 121 168
Reimbursed administrative costs to
General Partner 67 87 133 171
Interest expense 4 64 23 147
Provision for losses on receivables 65 92 133 180
Legal expense 60 35 110 68
General and administrative expenses 23 30 43 67
------- ------- ------- -------
Total Expenses 625 686 1,193 1,450
------- ------- ------- -------
NET INCOME 471 706 690 1,351
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains arising
during period 43 15 88 113
Less: reclassification adjustment
for losses (gains) included
in net income (275) 3 (275) (4)
------- ------- ------- -------
Other comprehensive income (232) 18 (187) 109
------- ------- ------- -------
COMPREHENSIVE INCOME $ 239 $ 724 $ 503 $ 1,460
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .27 $ .42 $ .39 $ .80
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .60 $ .55 $ 1.18 $ 1.10
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 44 $ 43 $ 82 $ 85
Limited Partners 427 663 608 1,266
------- ------- ------- -------
$ 471 $ 706 $ 690 $ 1,351
======= ======= ======= =======
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,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 690 $ 1,351
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 383 348
Amortization of acquisition fees 199 254
Gain on sale of equipment (123) (366)
Equity in losses (earnings) from joint ventures, net 39 (10)
Gain on sale of securities (275) (4)
Provision for early termination, financing leases 51 90
Provision for losses on notes receivable 82 90
Decrease in accounts receivable 9 107
Decrease in accounts payable and accrued expenses (193) (70)
Decrease in other assets 5 (3)
------- -------
Net cash provided by operating activities 867 1,787
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 2,496 3,918
Principal payments, notes receivable 1,751 1,643
Proceeds from sale of equipment 149 498
Distributions from joint ventures 38 42
Proceeds from sale of securities 275 10
Investment in financing leases (1,772) (2,025)
Investment in notes receivable (2,084) (2,116)
Payment of acquisition fees (92) (134)
------- -------
Net cash provided by investing activities 761 1,836
------- -------
Financing Activities:
- --------------------
Payments of principal, notes payable (982) (1,990)
Redemptions of capital (5) (18)
Distributions to partners (1,926) (1,809)
------- -------
Net cash used in financing activities (2,913) (3,817)
------- -------
Decrease in cash and cash equivalents (1,285) (194)
Cash and cash equivalents, beginning of period 4,536 1,666
------- -------
Cash and cash equivalents, end of period $ 3,251 $ 1,472
======= =======
Supplemental Cash Flow Information:
- ----------------------------------
Cash paid for interest expense $ 23 $ 123
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 June 30, 1999, the Partnership has
investments in notes receivable, before allowance for losses, of $8,611,000 of
which $487,000 is considered to be impaired. The Partnership has an allowance
for losses of $595,000 as of June 30, 1999. The average recorded investment in
impaired loans during the six months ended June 30, 1999 and 1998 was
approximately $484,000 and $205,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
six months ended June 30, is as follows:
1999 1998
---- ----
(Amounts In Thousands)
Beginning balance $602 $315
Provision for losses 82 90
Write downs (89) -
---- ----
Ending balance $595 $405
==== ====
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 1,572,869 and 1,578,124 for the six
months ended June 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 $471,000 and $690,000 during the three and six months ended June
30, 1999, as compared to net income of $706,000 and $1,351,000 during the same
periods in 1998. The decrease in net income for the three and six months ended
June 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 decreased by $296,000 and $918,000 for the three and six
months ended June 30, 1999, respectively, as compared to the same periods in
1998. The primary factor contributing to the decline in total revenues for the
three and six months ended June 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 six months
ended June 30, 1999 of $224,000 and $458,000, 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 $6.4
million at June 30, 1999, as compared to $11.6 million at June 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 $134,000 and $378,000 for the three and six
months ended June 30, 1999, compared to the same period in 1998. Rental income
for the three and six months ended June 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.
The decrease in gain on sale of equipment of $162,000 and $243,000 for
the three and six months ended June 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 $149,000 for the six
months ended June 30, 1999, compared to $498,000 for the six months ended June
30, 1998. The Partnership sold equipment with an aggregate original cost of $6.7
million for the six months ended June 30, 1999, compared to $6 million for the
same period in 1998. At June 30, 1999, the Partnership owned equipment with an
aggregate original cost of $20 million, as compared to the $30.3 million of
equipment owned at June 30, 1998.
Total expenses decreased by $61,000 and $257,000 for the three and six
months ended June 30, 1999, as compared to the same period in the prior year.
Most line items decreased for the three and six months ended June 30, 1999;
however depreciation and amortization increased $68,000 and $35,000 for the
three and six months ended June 30, 1999, as compared to the same period in
7
<PAGE>
1998, due to $4.3 million of equipment held at June 30, 1999, compared to $2.4
million of equipment held at June 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 $60,000 and $124,000 for the
three and six months ended June 30, 1999, as compared to the same period in the
previous year, is a result of a decline in the Partnership's outstanding debt.
As of June 30, 1999, the Partnership's outstanding notes payable balance was
$143,000 compared to $2 million as of June 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 $5,114,000 during the six months ended June 30, 1999, as compared
to $7,348,000 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 six months ended June 30, 1999, the Partnership invested
$1,772,000 in financing leases and $2,084,000 in notes receivable, as compared
to investments of $2,025,000 in financing leases and $2,116,000 in notes
receivable during the same period in 1998.
The Partnership owned equipment held for lease with an original cost of
$4,298,000 and a net book value of $428,000 at June 30, 1999, as compared to
$2,424,000 and $292,000, respectively, at June 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
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 $982,000 on its
outstanding debt during the six months ended June 30, 1999, as compared to
$1,990,000 during the six months ended June 30, 1998.
The cash distributed to partners during the six months ended June 30,
1999 was $1,926,000, as compared to $1,809,000 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 $1,850,000
and $1,736,000 in cash distributions during the six months ended June 30, 1999
and 1998, respectively. The total cumulative cash distributions to limited
partners as of June 30, 1999 was $15,452,000, as compared to $11,870,000 at June
30, 1998. The General Partner received $76,000 and $73,000 during the six months
ended June 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.
8
<PAGE>
Impact of the Year 2000 Issue
ReSource/Phoenix, Inc. ("ReSource/Phoenix"), an affiliate of the parent
to the General Partner does all local computer processing for the General
Partner. And as such Resource/Phoenix manages the Year 2000 project on behalf of
the General Partner.
Resource/Phoenix 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. ReSource/Phoenix 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 is planned to be completed by October 31, 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 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.
June 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 not yet responded to the Ash Complaint, which
plaintiffs amended twice. 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
---- ----- ---------
August 13, 1999 Senior Vice President /S/ GARY W. MARTINEZ
- --------------- and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Gary W. Martinez)
August 13, 1999 Chief Financial Officer, /S/ HOWARD SOLOVEI
- --------------- Treasurer and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Howard Solovei)
August 13, 1999 Senior Vice President, /S/ BRYANT J. TONG
- --------------- Financial Operations of --------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Associates III, Inc.
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,251
<SECURITIES> 2
<RECEIVABLES> 9,254
<ALLOWANCES> 884
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,397
<DEPRECIATION> 1,969
<TOTAL-ASSETS> 19,236
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,284
<TOTAL-LIABILITY-AND-EQUITY> 19,236
<SALES> 0
<TOTAL-REVENUES> 1,883
<CGS> 0
<TOTAL-COSTS> 1,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 133
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 690
<INCOME-TAX> 0
<INCOME-CONTINUING> 690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 690
<EPS-BASIC> .39
<EPS-DILUTED> 0
</TABLE>
