UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000
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.
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Registrant
California 68-0293258
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State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
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Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
preceding requirements for the past 90 days.
Yes X No
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1,553,576 Units of Limited Partnership Interest were outstanding as of June 30,
2000.
Transitional small business disclosure format:
Yes No X
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Page 1 of 11
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Part I. Financial Information
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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,
2000 1999
---- ----
ASSETS
Cash and cash equivalents $ 5,565 $ 4,309
Accounts receivable (net of allowance for losses on
accounts receivable of $174 and $311 at June 30, 2000
and December 31, 1999, respectively) 221 292
Notes receivable (net of allowance for losses on notes
receivable of $54 and $70 at June 30, 2000 and
December 31, 1999, respectively) 6,863 7,085
Net investment in financing leases (net of allowance for
early terminations of $42 and $52 at June 30, 2000
and December 31, 1999, respectively) 5,175 5,182
Equipment on operating leases and held for lease (net of
accumulated depreciation of $1,131 and $1,649 at
June 30, 2000 and December 31, 1999, respectively) 280 354
Capitalized acquisition fees (net of accumulated
amortization of $2,484 and $2,335 at June 30, 2000
and December 31, 1999, respectively) 499 511
Marketable securities 649 2,337
Other assets 61 104
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Total Assets $19,313 $20,174
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,205 $ 900
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Total Liabilities 1,205 900
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Partners' Capital
General Partner 84 59
Limited Partners, 2,500,000 units authorized,
1,603,335 units issued and 1,553,576 and
1,565,029 units outstanding at June 30, 2000
and December 31, 1999, respectively 17,375 16,878
Accumulated other comprehensive income 649 2,337
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Total Partners' Capital 18,108 19,274
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Total Liabilities and Partners' Capital $19,313 $20,174
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The accompanying notes are an integral part of these statements.
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<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,
2000 1999 2000 1999
---- ---- ---- ----
INCOME
Earned income, financing leases $ 181 $ 247 $ 353 $ 511
Interest income, notes receivable 335 310 642 624
Rental income 85 181 196 277
Gain on sale of equipment 184 64 242 123
Gain on sale of securities 624 275 1,874 275
Other income 100 19 184 73
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Total Income 1,509 1,096 3,491 1,883
------- ------- ------- -------
EXPENSES
Depreciation 43 226 64 383
Amortization of acquisition fees 84 97 149 199
Lease related operating expenses 10 22 24 48
Management fees to General Partner 64 61 133 121
Reimbursed administrative costs to
General Partner 45 67 139 133
Provision for losses on receivables 139 65 229 133
Interest expense -- 4 -- 23
Legal expense 32 60 127 110
General and administrative expenses 22 23 43 43
------- ------- ------- -------
Total Expenses 439 625 908 1,193
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NET INCOME 1,070 471 2,583 690
Other comprehensive income:
Unrealized gains (losses) on
securities:
Unrealized holding gains (losses)
arising during period (112) 43 186 88
Less: reclassification adjustment
for gains included in net
income (624) (275) (1,874) (275)
------- ------- ------- -------
Other comprehensive income (736) (232) (1,688) (187)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 334 $ 239 $ 895 $ 503
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .66 $ .27 $ 1.59 $ .39
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .60 $ .60 $ 1.20 $ 1.18
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 48 $ 44 $ 102 $ 82
Limited Partners 1,022 427 2,481 608
------- ------- ------- -------
$ 1,070 $ 471 $ 2,583 $ 690
======= ======= ======= =======
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,
2000 1999
---- ----
Operating Activities:
--------------------
Net income $ 2,583 $ 690
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 64 383
Amortization of acquisition fees 149 199
Gain on sale of equipment (242) (123)
Gain on sale of securities (1,874) (275)
Equity in losses from joint ventures, net -- 39
Provision for (recovery of) early termination,
financing leases (27) 51
Provision for losses on accounts receivable 71 --
Provision for losses on notes receivable 185 82
Decrease in accounts receivable -- 9
Increase (decrease) in accounts payable and
accrued expenses 247 (193)
Decrease in other assets 43 5
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Net cash provided by operating activities 1,199 867
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Investing Activities:
--------------------
Principal payments, financing leases 1,414 2,496
Principal payments, notes receivable 2,061 1,751
Proceeds from sale of equipment 251 149
Proceeds from sale of securities 1,874 275
Distributions from joint ventures -- 38
Investment in financing leases (1,379) (1,772)
Investment in notes receivable (2,024) (2,084)
Payment of acquisition fees (79) (92)
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Net cash provided by investing activities 2,118 761
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Financing Activities:
--------------------
Payments of principal, notes payable -- (982)
Redemptions of capital (108) (5)
Distributions to partners (1,953) (1,926)
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Net cash used in financing activities (2,061) (2,913)
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Increase (decrease) in cash and cash equivalents 1,256 (1,285)
Cash and cash equivalents, beginning of period 4,309 4,536
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Cash and cash equivalents, end of period $ 5,565 $ 3,251
======= =======
Supplemental Cash Flow Information:
----------------------------------
Cash paid for interest expense $ -- $ 23
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.
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Reclassification - Certain 1999 amounts have been reclassified to
conform to the 2000 presentation.
Note 3. Income Taxes.
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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 $6,917,000 of
which $318,000 is considered to be impaired. The impaired loans of $318,000 are
net of specific write-downs of $553,000. The Partnership has an allowance for
losses of $54,000 as of June 30, 2000. The average recorded investment in
impaired loans during the six months ended June 30, 2000 and 1999 was
approximately $301,000 and $304,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
six months ended June 30, is as follows:
2000 1999
---- ----
(Amounts In Thousands)
Beginning balance $ 70 $ 602
Provision for losses 185 82
Write downs (201) (89)
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Ending balance $ 54 $ 595
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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 1,561,170 and 1,572,869 for the six
months ended June 30, 2000 and 1999, 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.
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<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 $1,070,000 and $2,583,000 during the three and six months ended
June 30, 2000, as compared to net income of $471,000 and $690,000 during the
same periods in 1999. The increase in net income for the three and six months
ended June 30, 2000, is primarily due to an increase in gain on sale securities
and gain on sale of equipment offset by decreases in a majority of the expense
items.
The Partnership reported a gain on sale of securities of $624,000 and
$1,874,000 for the three and six months ended June 30, 2000, respectively,
compared to $275,000 for the same periods in 1999. The securities sold for 2000
consisted of common stock received through the exercise of stock warrants
granted to the Partnership as part of financing agreements with emerging growth
companies that are publicly traded. The Partnership received proceeds of
$1,874,000 and $275,000 from the sale of these securities during the six months
ended June 30, 2000 and 1999, respectively. In addition, at June 30, 2000, the
Partnership owns shares of stock and stock warrants in emerging growth companies
that are publicly traded with an unrealized gain of approximately $649,000.
These stock warrants contain certain restrictions, but are generally exercisable
within one year.
The increase in gain on sale of equipment of $120,000 and $119,000 for
the three and six months ended June 30, 2000, compared to the same period in
1999, also contributed to the increase in total revenues for the period. The
Partnership received proceeds from the sale of equipment of $251,000 for the six
months ended June 30, 2000, compared to $149,000 for the six months ended June
30, 1999. The Partnership sold equipment with an aggregate original cost of $3.3
million for the six months ended June 30, 2000, compared to $6.7 million for the
same period in 1999. At June 30, 2000, the Partnership owned equipment with an
aggregate original cost of $14 million, as compared to the $20 million of
equipment owned at June 30, 1999.
Earned income from financing leases and rental income decreased. The
decrease in earned income from financing leases for the three and six months
ended June 30, 2000 of $66,000 and $158,000, respectively, compared to the same
periods in 1999, is a result of a decline in the Partnership's investment in
financing leases. The Partnership's net investment in financing leases was $5.2
million at June 30, 2000, as compared to $6.4 million at June 30, 1999. 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
the investment of the excess cash flows of the Partnership in new leasing and
financing transactions. During 2000, the Partnership made new investments in
financing leases of $1.4 million, compared to $1.8 million in 1999.
Rental income decreased by $96,000 and $81,000 for the three and six
months ended June 30, 2000, compared to the same period in 1999. Rental income
for the three and six months ended June 30, 1999 was higher 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
7
<PAGE>
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.
Total expenses decreased by $186,000 and $285,000 during the three and
six months ended June 30, 2000, respectively, as compared to the same period in
1999. The decrease in total expenses for the three and six months ended June 30,
2000, compared to the same period in the previous year, is due to a decrease in
nearly all of the items comprising total expenses, with depreciation expense
contributing the largest decrease. This decrease in deprecation is the result of
the continued decrease in the size of the equipment portfolio. Depreciation
expense decreased $183,000 and $319,000 during the three and six months ended
June 30, 2000, respectively, compared to 1999. This decrease is due to a decline
in the amount of depreciable equipment owned by the Partnership, as well as, an
increasing portion of the equipment owned by the Partnership becoming fully
depreciated. The above decrease was offset by an increase in the provision for
losses on receivables of $74,000 and $96,000 for the three and six months ended
June 30, 2000, as compared to the previous year.
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 $4,674,000 during the six months ended June 30, 2000, as compared
to $5,114,000 during the same period in 1999. 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, 2000, the Partnership invested
$1,379,000 in financing leases and $2,024,000 in notes receivable, as compared
to investments of $1,772,000 in financing leases and $2,084,000 in notes
receivable during the same period in 1999.
The Partnership owned equipment held for lease with an original cost of
$2,400,000 and a net book value of $4,000 at June 30, 2000, as compared to
$4,298,000 and $428,000, respectively, at June 30, 1999. 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's outstanding debt was repaid as of December 31, 1999;
therefore no payments of principal were made during the six months ended June
30, 2000, as compared to $982,000 during the six months ended June 30, 1999.
The cash distributed to partners during the six months ended June 30,
2000 was $1,953,000, as compared to $1,926,000 during the same period in 1999.
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 $1,875,000
and $1,850,000 in cash distributions during the six months ended June 30, 2000
and 1999, respectively. The total cumulative cash distributions to limited
8
<PAGE>
partners as of June 30, 2000 was $19,209,000, as compared to $15,452,000 at June
30, 1999. The General Partner received $78,000 and $76,000 during the six months
ended June 30, 2000 and 1999, respectively. The Partnership plans to make
distributions to partners during 2000 at the same rate as in 1999.
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 General Partner has appointed ResourcePhoenix.com. (RPC), an
affiliate of the General Partner, to manage its Year 2000 project.
RPC has a Year 2000 project plan in place and a "Y2K Project Team" has
been appointed. The team has identified risks, and has implemented remediation
procedures for its Year 2000 issues. RPC 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. As of July 31, 2000, RPC has not encountered any
material year 2000 problems with the hardware and software systems used in our
operations. In addition, none of RPC's critical vendors have reported any
material year 2000 problems nor have they experienced any decline in service
levels from such vendors.
RPC will continue to monitor internal and external issues related to
year 2000.
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.
9
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
June 30, 2000
Part II. Other Information.
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Item 1. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint (the "Complaint") was
filed against Phoenix Leasing Inc., Phoenix Leasing Associates, II and III L.P.,
Phoenix Securities Inc. and Phoenix American Inc. (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 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 re-filed them in a separate lawsuit
making similar allegations (the "Ash Action").
In the Ash action, Plaintiffs have filed a fourth amended complaint
which includes six causes of action: breach of fiduciary duty, constructive
fraud, judicial dissolution of Cash Distribution Fund IV, judicial dissolution
of Cash Distribution Fund V, accounting and alter ego. Defendants recently
answered the complaint. Plaintiffs have served four requests for production on
July 25, 2000. The plaintiffs depositions have been taken and plaintiffs
recently took depositions of defendants.
The Berger complaint relates to alleged misrepresentations made in
connection with the offering of Cash Distribution Fund V. Defendants have
answered the complaint and discovery has commenced. A class has been certified.
Plaintiffs have served three requests for production; defendants responded to
the third request for production on July 25, 2000. The plaintiffs deposition has
been taken and plaintiffs recently took depositions of defendants.
The Companies intend to vigorously defend both actions.
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
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Item 6. Exhibits and Reports on 8-K:
---------------------------
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None.
10
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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 11, 2000 Senior Vice President /S/ GARY W. MARTINEZ
--------------- and a Director of --------------------
Phoenix Leasing Associates III, Inc. (Gary W. Martinez)
August 11, 2000 Vice President, Finance, /S/ ANDREW N. GREGSON
--------------- Treasurer and a Director of ---------------------
Phoenix Leasing Associates III, Inc. (Andrew N. Gregson)
11
