UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-25278
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0293258
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
_____________
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
requirements for the past 90 days.
Yes X No
------- -------
The Registrant's revenue for its most recent fiscal year was $3,771,000.
As of December 31, 1999, 1,565,029 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes No X
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Page 1 of 25
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PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
1999 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 4
Item 3. Legal Proceedings................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.............. 5
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters................................................. 5
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 6
Item 7. Financial Statements............................................. 9
Item 8. Disagreements on Accounting and Financial Disclosure Matters..... 22
PART III
Item 9. Directors and Executive Officers of the Registrant............... 22
Item 10. Executive Compensation........................................... 23
Item 11. Security Ownership of Certain Beneficial Owners and Management... 23
Item 12. Certain Relationships and Related Transactions................... 24
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 24
Signatures................................................................. 25
2
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PART I
Item 1. Business.
--------
General Development of Business.
Phoenix Leasing American Business Fund, L.P., a California limited
partnership (the "Partnership"), was organized on December 3, 1992. The
Partnership was registered with the Securities and Exchange Commission with an
effective date of October 19, 1993 and shall continue to operate until its
termination date unless dissolved sooner due to the sale of substantially all of
the assets of the Partnership or a vote of the Limited Partners. The Partnership
will terminate on December 31, 2007. The General Partner is a California limited
partnership, Phoenix Leasing Associates III L.P., the general partner of which
is Phoenix Leasing Associates III, Inc., a Nevada corporation and a wholly-owned
subsidiary of Phoenix Leasing Incorporated, a California corporation. The
General Partner or its affiliates also is or has been a general partner in other
limited partnerships formed to invest in capital equipment and other assets.
The registration was for 2,500,000 units of limited partnership
interest at a price of $20 per unit. The Partnership completed its public
offering on October 6, 1996. The Partnership sold 1,603,335 units for a total
capitalization of $32,066,700. Of the proceeds received through the offering,
the Partnership has incurred $4,808,933 in organizational and offering expenses
for a net capitalization of $27.3 million.
From the initial formation of the Partnership through December 31,
1999, the total investments in equipment leases and financing transactions
(loans) including the Partnership's pro rata interest in an investment made by a
joint venture, approximate $71,460,000. The average initial firm term of
contractual payments from equipment subject to lease was 48 months, and the
average initial net monthly payment rate as a percentage of the original
purchase price was 2.86%. The average initial firm term of contractual payments
from loans was 48 months and the weighted average interest was 16.29%.
The Partnership has acquired significant amounts of equipment or assets
with the net offering proceeds. In addition, the Partnership has acquired
equipment through the use of debt financing, however, the ratio of the
outstanding debt to net capital contributions less any investment in Leveraged
Joint Ventures at the end of the Partnership's offering period will not exceed
four to five (80%). The cash flow generated by such investments in equipment
leases or financing transactions will be used to provide for debt service, to
provide cash distributions to the Partners and the remainder will be reinvested
in capital equipment or other assets.
The Partnership will maintain working capital reserves in an amount
which will fluctuate from time to time depending upon the needs of the
Partnership, but which will be at least one percent of the gross offering
proceeds during the Partnership's operational phase.
Narrative Description of Business.
The objectives of the Partnership are to: (1) produce cash
distributions on a continuing basis over the life of the Program through leasing
equipment and financing assets primarily to companies engaged in the development
of technologies and other growth industry businesses, franchisees, and other
third party lessees and customers; (2) reinvest, during the operating phase of
the Program (after payment of expenses, including debt service requirements, and
distributions to the Partners), in additional equipment and assets to increase
the overall size of the portfolio; and (3) commence liquidation of the
Partnership's portfolio of investments seven years after the close of the
offering of units of limited partnership interests.
To achieve these objectives the Partnership has invested and will
invest in various types of capital equipment and other assets, and provide
leasing and secured financing of the same to third parties on either a long-term
or short-term basis. The Partnership has invested and will invest in, or have
collateral in, various types of assets including: (1) production, manufacturing,
fabrication and test equipment; (2) lab and medical equipment; (3) furniture and
fixtures; (4) personal computers and workstations, computer peripheral
equipment, computer mainframes, CAE/CAD/CAM equipment, communications equipment,
office systems and computer software products; (5) property management systems,
including computer reservations systems, and phone and telecommunications
systems; and (6) various types of other equipment, furnishings, fixtures,
leasehold improvements and assets, including to a limited extent certain
intangible assets.
3
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A substantial portion of the net offering proceeds of the Partnership
has been invested in equipment leases subject to full payout leases. Full payout
leases are leases under which the noncancellable rental payments due during the
initial term of the lease are at least sufficient to recover the purchase price
of the equipment. Operating leases, which generally have terms of shorter
duration than full payout leases, are leases that will return to the lessor an
amount less than the purchase price of the equipment from rental payments over
the initial term of the lease. Upon the expiration of the initial lease term, it
is necessary to extend the lease term with the existing lessee, enter into a new
lease with another lessee or sell the equipment.
Competition. The Partnership will be competing for equipment leasing
and financing business with many well-established companies having substantially
greater financial resources. The types of businesses the Partnership competes
with will be banks, finance companies, leasing companies and other institutional
or governmental lenders. Competitive factors include pricing, technological
innovation, payment terms, collateral requirements and methods of financing. The
General Partner intends to concentrate the Partnership's activities in markets
in which the General Partner and its affiliates have developed an expertise.
Other.
A brief description of the type of assets in which the Partnership has
invested in through December 31, 1999, together with information concerning the
uses of assets is set forth in Item 2.
Item 2. Properties.
----------
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership are its investments in
leases and loans to businesses located throughout the United States.
As of December 31, 1999, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $28,396,000.
The following table summarizes the type of equipment owned or financed by the
Partnership at December 31, 1999:
Percentage of
Asset Types Cost of Assets(1) Total Assets
- ---------------------- ----------------- -------------
(Amounts in Thousands)
Equipment:
Computer Hardware $ 6,078 21%
Lab Test Equipment 2,086 7
Furniture and Fixtures 1,610 6
Leasehold Improvements 1,522 5
Miscellaneous Equipment 1,492 5
Commercial Equipment 895 3
Software 782 3
Manufacturing Equipment 744 3
Communications Equipment 284 1
------- ---
Total Equipment 15,493 54
Financing:
Financing to Emerging Growth Companies 8,436 30
Financing to Other Businesses 4,467 16
------- ---
Total Financing 12,903 46
------- ---
Total Assets $28,396 100%
======= ---
(1) These amounts include the cost of equipment on financing leases of
$11,206,000 at December 31, 1999.
4
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Item 3. Legal Proceedings.
-----------------
The Registrant is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the fourth quarter.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
------------------------------------------------------------------
Matters.
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(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited
partnership interests and it is unlikely that any will develop.
(b) Approximate number of equity security investments:
Number of Unit Holders
Title of Class as of December 31, 1999
---------------------------- -----------------------
Limited Partners 1,621
General Partner 1
5
<PAGE>
Item 6. 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 $1,390,000 during the year ended December 31, 1999, as compared to
net income of $1,859,000 during 1998. The decrease in net income during 1999, as
compared to 1998, is primarily due to declines in earned income from financing
leases and rental income as compared to the same period in the previous year.
This decrease was offset by an increase in gain on sale of securities.
Total revenues decreased by $1,020,000 during the year ended December
31, 1999, as compared to the same period in 1998. Earned income from financing
leases decreased by $735,000 during the year ended December 31, 1999, as
compared to the same period in 1998. The decrease in earned income from
financing leases is a result of a decline in the Partnership's investment in
financing leases. The Partnership's net investment in financing leases was $5
million at December 31, 1999, as compared to $8 million at December 31, 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 will 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. During 1999, the Partnership made new investments in financing
leases of $2.9 million, compared to $2 million during 1998.
Rental income decreased by $458,000 for the year ended December 31,
1999, compared to the same period in 1998. The decrease in rental income is
reflective of a reduction in the size of the equipment portfolio. As of December
31, 1999, the Partnership owned equipment with an aggregate original cost of $15
million compared to $25 million at December 31, 1998. Another factor
contributing to the decrease in rental income is the equipment being held for
lease. Until new lessees 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 this remarketing period. As of December 31, 1999, the Partnership owned
equipment being held for lease with an original purchase price of $3,040,000 and
a net book value of $32,000, compared to $2,887,000 and $166,000, respectively,
at December 31, 1998. The General Partner is actively engaged, on behalf of the
Partnership, in remarketing and selling the Partnership's equipment as it
becomes available. Rental income for the year ended December 31, 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 is also a result of
settlements from defaulted leases.
Interest income from notes receivable decreased by $49,000 for the year
ended December 31, 1999, compared to 1998. The decrease in interest income from
notes receivable is attributable to the decline in net investment in notes
receivable; however this decrease was offset by new investments made in notes
receivable during 1999 and 1998. The Partnership made new investments in notes
receivable of $3.1 million and $2.4 million for the years ended December 31,
1999 and 1998, respectively.
The Partnership reported a gain on sale of securities of $322,000 for
the year ended December 31, 1999, compared to $4,000 in 1998. The securities
sold for both 1999 and 1998 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 $322,000 and $10,000 from the sale of these
securities during the year ended December 31, 1999 and 1998, respectively. In
addition, at December 31, 1999, the Partnership owns shares of stock and stock
warrants in emerging growth companies that are publicly traded with an
unrealized gain of approximately $2,337,000. These stock warrants contain
certain restrictions, but are generally exercisable within one year.
Total expenses decreased by $551,000 for the year ended December 31,
1999, as compared to the same period in the prior year. The decrease in expenses
is primarily due to decreases in depreciation and amortization and interest
expense. Depreciation and amortization decreased $130,000 for the year ended
December 31, 1999, as compared to 1998, 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
$210,000 during the year ended December 31, 1999, as compared 1998, is a result
of the Partnership's debt being paid off during the year ended December 31,
1999. As of December 31, 1999, the Partnership's outstanding notes payable
balance is $0 compared to $1,125,000 as of December 31, 1998.
6
<PAGE>
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the Partnership.
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 from leasing and financing activities
of $10,268,000 during the year ended December 31, 1999, as compared to
$13,510,000 during the same period in 1998. This decrease is reflective of the
decrease in payments received from financing leases and rental income offset by
an increase in principal payments from notes receivable, as previously discussed
in the Results of Operations.
During the year ended December 31, 1999, the Partnership invested $2.9
million in finance leases and $3.1 million in notes receivable, as compared to
investments of $2 million in finance leases and $2.4 million in notes receivable
during the same period in 1998.
As of December 31, 1999, the Partnership reported equipment being held
for lease with an original cost of $3,040,000 and a net book value of $32,000,
as compared to equipment being held for lease with an original cost of
$2,887,000 and a net book value of $166,000 at December 31, 1998. The General
Partner, on behalf of the Partnership, is actively engaged in the remarketing
and selling of 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 this
remarketing period.
The Partnership received proceeds from the sale of equipment of
$347,000 for the year ended December 31, 1999, compared to $583,000 for the same
period in the previous year. The net book value of the equipment sold during the
year ended December 31, 1999 was $32,000, compared to $177,000 for the equipment
sold in 1998.
The Partnership negotiated a $20 million term line of credit from a
bank in November 1993 for the purchase of equipment and other property subject
to lease and is to be repaid in 49 equal monthly installments of principal and
interest at a variable rate. The $20 million term line of credit was fully
utilized by the Partnership prior to its expiration date of November 30, 1995.
As of December 31, 1999, the Partnership has repaid the loan.
The Partnership entered into a second line of credit in the amount of
$6 million on November 15, 1994 with another bank, which expired on December 31,
1996. This credit line was for the purchase of equipment and other personal
property assets subject to lease with interest tied to the lender's prime rate.
The Partnership had borrowed $3 million under this loan agreement. As of
December 31, 1999, the Partnership has repaid the loan.
Payments of the Partnership's borrowings discussed above were payable
monthly. The Partnership made payments of principal of $1,125,000 on its
outstanding debt during the year ended December 31, 1999, as compared to
$2,889,000 during the year ended December 31, 1998.
The cash distributed to partners during the year ended December 31,
1999 was $3,887,000, as compared to $3,613,000 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 $3,733,000
and $3,468,000 in cash distributions during the years ended December 31, 1999
and 1998, respectively. As of December 31, 1999, the cumulative cash
distributions to limited partners was $17,334,000 as compared to $13,601,000 at
December 31, 1998, respectively. The General Partner received $154,000 and
$145,000 during the years ended December 31, 1999 and 1998, respectively. The
Partnership anticipates making 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.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
7
<PAGE>
made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following: (i)
the Partnership's plans are subject to change at any time at the discretion of
the General Partner of the Partnership, (ii) future technological developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes in business conditions and the general economy, (vi) changes in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.
In accordance with section 13.2(a) of the amended and restated
agreement of limited partnership, the estimated annual average Unit valuation
(unaudited) is estimated by the General Partner to be $11 per limited
partnership unit at December 31, 1999.
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 January 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 expenses 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.
8
<PAGE>
Item 7. FINANCIAL STATEMENTS
--------------------
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
--------------------------------------------
YEAR ENDED DECEMBER 31, 1999
----------------------------
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix Leasing American Business Fund, L.P.:
We have audited the accompanying balance sheet of Phoenix Leasing American
Business Fund, L.P. (a California limited partnership) as of December 31, 1999,
and the related statements of operations and comprehensive income, partners'
capital and cash flows for the years ended December 31, 1999 and 1998. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing American
Business Fund, L.P. as of December 31, 1999, and the results of its operations
and its cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
January 26, 2000
10
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1999
-----------------
ASSETS
Cash and cash equivalents $ 4,309
Accounts receivable (net of allowance for losses on accounts
receivable of $311) 292
Notes receivable (net of allowance for losses on notes
receivable of $70) 7,085
Net investment in financing leases (net of allowance for early
terminations of $52) 5,182
Equipment on operating leases and held for lease (net of
accumulated depreciation of $1,649) 354
Capitalized acquisition fees (net of accumulated amortization
of $2,335) 511
Marketable securities 2,337
Other assets 104
---------
Total Assets $ 20,174
=========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 900
---------
Total Liabilities 900
---------
Partners' Capital:
General Partner 59
Limited Partners, 2,500,000 units authorized, 1,603,335 units
issued and 1,565,029 units outstanding 16,878
Accumulated other comprehensive income 2,337
---------
Total Partners' Capital 19,274
---------
Total Liabilities and Partners' Capital $ 20,174
=========
The accompanying notes are an integral part of these statements.
11
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1999 1998
---- ----
INCOME
Earned income, financing leases $ 948 $ 1,683
Interest income, notes receivable 1,386 1,435
Rental income 616 1,074
Gain on sale of equipment 315 406
Gain on sale of securities 322 4
Other income 184 189
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Total Income 3,771 4,791
------- -------
EXPENSES
Depreciation and amortization 621 653
Amortization of acquisition fees 375 473
Lease related operating expenses 59 90
Management fees to General Partner 234 306
Reimbursed administrative costs to General
Partner 274 289
Provision for losses on receivables 484 617
Legal fees 212 152
Interest expense 29 239
General and administrative expenses 93 113
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Total Expenses 2,381 2,932
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NET INCOME 1,390 1,859
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during
period 2,470 136
Less: reclassification adjustment for gains
included in net income (322) (4)
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Other comprehensive income 2,148 132
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COMPREHENSIVE INCOME $ 3,538 $ 1,991
======= =======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .78 $ 1.08
======= =======
ALLOCATION OF NET INCOME:
General Partner $ 166 $ 162
Limited Partners 1,224 1,697
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$ 1,390 $ 1,859
======= =======
The accompanying notes are an integral part of these statements.
12
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
<TABLE>
<CAPTION>
Accumulated
General Other
Partner's Limited Partners' Comprehensive Total
Amount Units Amount Income Amount
--------- ------------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 30 1,578,705 $ 21,318 $ 57 $ 21,405
Redemptions of capital -- (5,576) (71) -- (71)
Other comprehensive income -- -- -- 132 132
Distributions to partners ($2.20 per
limited partnership unit) (145) -- (3,468) -- (3,613)
Net income 162 -- 1,697 -- 1,859
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 47 1,573,129 19,476 189 19,712
Redemptions of capital -- (8,100) (89) (89)
Other comprehensive income -- -- -- 2,148 2,148
Distributions to partners ($2.38 per
limited partnership unit) (154) -- (3,733) -- (3,887)
Net income 166 -- 1,224 -- 1,390
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 $ 59 1,565,029 $ 16,878 $ 2,337 $ 19,274
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 1,390 $ 1,859
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 621 653
Amortization of acquisition fees 375 473
Gain on sale of equipment (315) (406)
Provision for early termination, financing
leases 259 157
Provision for losses on notes receivable 125 287
Provision for losses on accounts receivable 100 172
Equity in losses (earnings) from joint
venture, net 38 (17)
Gain on sale of securities (322) (4)
Increase in accounts receivable (30) (138)
Decrease in accounts payable and accrued
expenses (137) (91)
Decrease in other assets 8 26
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Net cash provided by operating activities 2,112 2,971
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 4,482 7,358
Principal payments, notes receivable 3,674 3,181
Distributions from joint ventures 63 84
Proceeds from sale of equipment 347 583
Proceeds from sale of securities 322 10
Investment in financing leases (2,865) (2,025)
Investment in notes receivable (3,119) (2,439)
Payment of acquisition fees (142) (280)
------- -------
Net cash provided by investing activities 2,762 6,472
------- -------
Financing Activities:
- --------------------
Payments of principal, notes payable (1,125) (2,889)
Distributions to partners (3,887) (3,613)
Redemptions of capital (89) (71)
------- -------
Net cash used by financing activities (5,101) (6,573)
------- -------
Increase (decrease) in cash and cash equivalents (227) 2,870
Cash and cash equivalents, beginning of period 4,536 1,666
------- -------
Cash and cash equivalents, end of period $ 4,309 $ 4,536
======= =======
Supplemental Cash Flow Information:
Cash paid for interest expense $ 29 $ 223
The accompanying notes are an integral part of these statements.
14
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1. Organization and Partnership Matters.
------------------------------------
Phoenix Leasing American Business Fund, L.P., a California limited
partnership (the "Partnership"), was formed on December 3, 1992, to invest in
capital equipment of various types and to lease such equipment to or provide
financing to, on either a long-term or short-term basis, companies engaged in
the development of technologies and other growth industry businesses,
franchisees, and additional third party lessees and customers. The Partnership
met minimum investment requirements on January 27, 1994. The Partnership's
termination date is December 31, 2007.
For financial reporting purposes, Partnership net income and net losses
will be allocated 99% to the Limited Partners and 1% to the General Partner. In
addition, the General Partner will be allocated gross rental and interest income
in amounts equal to the excess, if any, of the cumulative distributions to the
General Partner over the cumulative gross rental and interest income allocated
to the General Partner. Syndication costs will be allocated 1% to the General
Partner and 99% to the Limited Partners.
The General Partner is entitled to receive 4% of all distributions
until the Limited Partners have recovered the greater of 177% of their initial
capital contributions or 100% of their initial capital contributions plus a
cumulative return of 11% per annum. Thereafter, the General Partner will receive
15% of all cash distributions. From inception of the Partnership until December
31, 1999, the General Partner's interest in Cash Available for Distribution is
subordinated in any calendar quarter until the Limited Partners receive
quarterly distributions equal to 2.75% of their capital contributions (i.e., 11%
per annum), prorated for any partial period.
In the event the General Partner has a deficit balance in its capital
account at the time of Partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services, the General Partner receives a
fee, payable monthly, subject to certain limitations, in an amount equal to 2%
of the Partnership's gross revenues for the quarter from which such payment is
being made, which revenues shall include, but are not limited to, rental
receipts, maintenance fees, proceeds from the sale of equipment and interest
income.
The General Partner will be compensated for services performed in
connection with the analysis of assets available to the Partnership, the
selection of such assets and the acquisition thereof, including obtaining
lessees for the equipment, negotiating and concluding master lease agreements
with certain lessees. As compensation for such acquisition services, the General
Partner will receive a fee equal to 4%, subject to certain limitations, of (a)
the purchase price of equipment acquired by the Partnership or equipment leased
to customers by manufacturers, the financing for which is provided by the
Partnership, or (b) financing provided to businesses payable upon such
acquisition or financing, as the case may be. Acquisition fees are amortized
over the life of the assets principally on a straight-line basis.
Phoenix Securities, Inc., an affiliate of the General Partner, had
contracted with or employed certain persons who received certain compensation
for wholesaling activities performed in connection with the offering of the
units through broker-dealers.
A schedule of compensation due and distributions made to the General
Partner for the years ended December 31, follows:
15
<PAGE>
1999 1998
---- ----
(Amounts in Thousands)
Management fees $234 $306
Acquisition fees 239 178
Cash distributions 154 145
---- ----
$627 $629
==== ====
Redemptions of Limited Partner units will only be made to the extent
permitted by applicable laws and regulations, the Partnership Agreement and if,
in the opinion of the General Partner, it is in the best interest of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the Partnership to be categorized as a publicly traded partnership for
federal income tax purposes.
The Partnership will acquire such limited partnership units for an
amount equal to 85% of the "accrual basis capital account" relating to the
redeemed units. The Partnership will retain the remaining 15% of the "accrual
basis capital account" relating to the redeemed units. Redemptions retained by
the Partnership were $14,000 and $11,000 during the years ended December 31,
1999 and 1998, respectively. "Accrual basis capital account" is computed in
accordance with the books and records regularly maintained by the Partnership
for financial reporting purposes, utilizing the accrual method of accounting.
Note 2. Summary of Significant Accounting Policies.
------------------------------------------
Cash and Cash Equivalents. Cash and cash equivalents includes deposits
at banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days.
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified
as impaired and the accrual of interest on such notes are discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
Leasing Operations. The Partnership's leasing operations currently
consist of financing and operating leases. The financing method of accounting
for leases records as unearned income at the inception of the lease, the excess
of net rentals receivable and estimated residual value at the end of the lease
term, over the cost of equipment leased. Unearned income is credited to income
monthly over the term of the lease on a declining basis to provide an
approximate level rate of return on the unrecovered cost of the investment.
Initial direct costs of consummating new leases are capitalized and included in
the cost of equipment. The Partnership reviews its estimates of residual value
at least annually. If a decline in value has occurred which is other than
temporary, a reduction in the investment is recognized currently.
16
<PAGE>
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated on a straight-line
basis over the estimated useful life, ranging up to three years. Rental income
for the year is determined on the basis of rental payments due for the period
under the terms of the lease. Maintenance and repairs of the leased equipment
are charged to expense.
The Partnership's policy is to review periodically the expected
economic life of its rental equipment in order to determine the probability of
recovering its undepreciated cost. Such reviews address, among other things,
recent and anticipated technological developments affecting high technology
equipment and competitive factors within the high technology marketplace. Should
subsequent reviews of the equipment portfolio indicate that rentals plus
anticipated sales proceeds will not exceed expenses in any future period, the
Partnership will revise its depreciation policy as appropriate. As a result of
such periodic reviews, the Partnership recognized additional depreciation
expense of $0 and $30,000 ($0 and $.02 per limited partnership unit) for the
years ended December 31, 1999 and 1998 respectively.
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
Investment in Available-for-Sale Securities. The Partnership has
investments in stock and stock warrants in public companies that have been
determined to be available for sale. Available-for-sale securities are stated at
their fair market value, with the unrealized gains and losses reported as other
comprehensive income.
Reclassification. Certain 1998 amounts have been reclassified to
conform to the 1999 presentation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income. As of January 1, 1998, the Partnership adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
For the Partnership, comprehensive income includes net income reported on the
statement of operations and changes in the fair value of its available-for-sale
investments reported as a component of partners' capital.
Note 3. Accounts Receivable.
-------------------
Accounts receivable consist of the following at December 31:
1999
----
(Amounts in Thousands)
Lease payments $ 457
Property tax 129
Interest 17
-----
603
Less: allowance for losses on accounts receivable (311)
-----
Total $ 292
=====
Note 4. Notes Receivable.
----------------
Notes receivable consist of the following at December 31:
1999
----
(Amounts in Thousands)
Notes receivable from emerging growth companies
with stated interest ranging from 14% to 20%
per annum, receivable in installments ranging
from 36 to 54 months, collateralized by the
equipment financed. $4,755
17
<PAGE>
Notes receivable from other businesses with stated
interest ranging from 13% to 17% per annum,
receivable in installments ranging from 47 to 85
months, collateralized by the equipment financed. 2,400
------
7,155
Less: allowance for losses on notes receivable (70)
------
Total $7,085
======
Minimum payments to be received on non-cancelable notes receivable for
the years ended December 31, are as follows:
(Amounts in Thousands)
2000................................................... $3,797
2001................................................... 2,492
2002................................................... 1,426
2003................................................... 429
2004 and thereafter.................................... 82
------
Total minimum payments to be received.................. 8,226
Impaired notes receivable.............................. 344
Less: unearned interest............................... 1,415)
Less: allowance for losses............................ (70)
------
Net investment in notes receivable..................... $7,085
======
Generally, notes receivable are classified as impaired and the accrual
of interest on such notes are discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of the contractual payments. Any payments
received subsequent to the placement of the note receivable on to impaired
status will generally be applied towards the reduction of the outstanding note
receivable balance, which may include previously accrued interest as well as
principal. Once the principal and accrued interest balance has been reduced to
zero, the remaining payments will be applied to interest income.
At December 31, 1999, the recorded investment in notes that are
considered to be impaired was $344,000, net of specific write-downs. The average
recorded investment in impaired loans during the years ended December 31, 1999
and 1998 was approximately $442,000 and $223,000, respectively. The Partnership
recognized $56,000 and $17,000 of interest income on impaired notes receivable
during the years ended December 31, 1999 and 1998, respectively.
The activity in the allowance for losses on notes receivable during the
year ended December 31, is as follows:
1999 1998
---- ----
(Amounts in Thousands)
Beginning balance $ 602 $ 315
Provision for losses 125 287
Write downs (657) --
----- -----
Ending balance $ 70 $ 602
===== =====
Note 5. Net Investment in Financing Leases and Equipment on Operating
-------------------------------------------------------------
Leases.
------
Equipment on lease consists primarily of furniture, fixtures, computer
hardware and other capital equipment.
The Partnership has entered into direct lease arrangements with
franchised businesses, companies engaged in the development of technologies and
other growth industry businesses such as the semiconductor, biotechnology,
medical device, software, communications, data storage, computer, retail,
hospitality and others, located throughout the United States. Generally, it is
the responsibility of the lessee to provide maintenance on leased equipment. The
18
<PAGE>
General Partner administers the equipment portfolio of leases acquired through
the direct leasing program. Administration includes the collection of rents from
the lessees and remarketing of the equipment.
The net investment in financing leases consists of the following at
December 31:
1999
----
(Amounts in Thousands)
Minimum lease payments to be received $ 6,161
Less: unearned income (927)
allowance for early terminations (52)
-------
Net investment in financing leases $ 5,182
=======
Minimum rentals to be received on noncancelable financing and operating
leases for the years ended December 31, are as follows:
Financing Operating
--------- ---------
(Amounts in Thousands)
2000.................................... $2,980 $ 222
2001.................................... 1,880 96
2002.................................... 943 94
2003.................................... 331 131
2004.................................... 27 234
------ ------
Total $6,161 $ 777
====== ======
Equipment held for lease generally consists of financing leases that
have been placed into default. As a result, the leases have been reclassified to
equipment, held at net realizable value and will be depreciated over the
remaining estimated useful life of up to three years. The General Partner is
making every effort to pursue remedies that will maximize recovery of the
Partnership's investment. The net carrying value of the equipment held for lease
at December 31, 1999 was $32,000.
Note 6. Accounts Payable and Accrued Expenses.
-------------------------------------
Accounts payable and accrued expenses consist of the following at
December 31:
1999
----
(Amounts in Thousands)
Security deposits $ 442
Equipment lease operations 244
General Partner and Affiliates 168
Other 46
-----
Total $ 900
=====
Note 7. 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 accompanying financial statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31, 1999:
19
<PAGE>
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $20,174 $17,453 $ 2,721
Liabilities 900 726 174
The following is a reconciliation between net income for financial
reporting purposes and net income for federal income tax purposes for the year
ended December 31:
1999 1998
---- ----
(Amounts in Thousands)
Net income for financial reporting purposes $ 1,390 $ 1,859
Adjustments for tax purposes:
Tax depreciation in excess of book (2,398) (4,286)
Difference in rental income recognition 4,369 7,162
Excess of book gain on sale of equipment
over tax gain on sale of equipment (1,408) (2,221)
Book valuation allowances not recognized
for tax purposes 478 595
Bad debt expense (655) --
Other (14) (12)
------- -------
Net income for federal income tax purposes $ 1,762 $ 3,097
======= =======
Note 8. Related Entities.
----------------
Affiliates of the General Partner serve in the capacity of general
partners in other partnerships, all of which are engaged in the equipment
leasing and financing business.
Note 9. Net Income and Distributions per Limited Partnership Unit.
---------------------------------------------------------
Net income and distributions per limited partnership unit were based on
the Limited Partner's share of net income and distributions and the weighted
average number of units outstanding of 1,570,371 and 1,576,194 for the years
ended December 31, 1999 and 1998, respectively. For the 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.
Note 10. Reimbursed Costs to the General Partner and Affiliates.
------------------------------------------------------
The General Partner and affiliates incur certain administrative costs
such as data processing, investor and lessee communications, lease
administration, accounting, equipment storage and equipment remarketing, for
which it is reimbursed by the Partnership. These expenses incurred by the
General Partner and affiliates are to be reimbursed at the lower of the actual
costs or an amount equal to 90% of the fair market value for such services.
The reimbursed costs to the General Partner are $331,000 and $381,000
at December 31, 1999 and 1998, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 11. Fair Value of Financial Instruments.
-----------------------------------
The carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities, notes receivable and notes payable
approximate their fair values.
20
<PAGE>
Note 12. Subsequent Events.
-----------------
In January 2000, cash distributions of $39,000 and $445,000 were made
to the General and Limited Partners, respectively.
21
<PAGE>
Item 8. Disagreements on Accounting and Financial Disclosure Matters.
------------------------------------------------------------
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The registrant is a limited partnership and, therefore, has no
executive officers or directors. The General Partner of the Registrant is
Phoenix Leasing Associates III L.P., a California limited partnership, the
Corporate General Partner of which is Phoenix Leasing Associates III, Inc., a
Nevada corporation and a wholly-owned subsidiary of Phoenix Leasing Incorporated
(PLI), a California corporation. The directors and executive officers of Phoenix
Leasing Associates III, Inc. (PLA) are as follows:
GUS CONSTANTIN, age 62, is President, and a Director of PLA III. Mr.
Constantin received a B.S. degree in Engineering from the University of Michigan
and a Master's Degree in Management Science from Columbia University. From 1969
to 1972, he served as Director, Computer and Technical Equipment of DCL
Incorporated (formerly Diebold Computer Leasing Incorporated), a corporation
formerly listed on the American Stock Exchange, and as Vice President and
General Manager of DCL Capital Corporation, a wholly-owned subsidiary of DCL
Incorporated. Mr. Constantin was actively engaged in marketing manufacturer
leasing programs to computer and medical equipment manufacturers and in
directing DCL Incorporated's IBM System/370 marketing activities. Prior to 1969,
Mr. Constantin was employed by IBM as a data processing systems engineer for
four years. Mr. Constantin is an individual general partner in four active
partnerships and is an NASD registered principal. Mr. Constantin is the founder
of PLI and the beneficial owner of all of the common stock of Phoenix American
Incorporated.
GARY W. MARTINEZ, age 49, is Senior Vice President and a Director of
PLA III. He has been associated with PLI since 1976. He manages the Asset
Management Department, which is responsible for lease and loan portfolio
management. This includes credit analysis, contract terms, documentation and
funding; remittance application, change processing and maintenance of customer
accounts; customer service, invoicing, collection, settlements and litigation;
negotiating lease renewals, extensions, sales and buyouts; and management
information reporting. From 1973 to 1976, Mr. Martinez was a Loan Officer with
Crocker National Bank, San Francisco. Prior to 1973, he was an Area Manager with
Pennsylvania Life Insurance Company. Mr. Martinez is a graduate of California
State University, Chico.
HOWARD SOLOVEI, age 38, is the Chief Financial Officer, Treasurer and a
Director of PLA III. He has been associated with PLI since 1984. Mr. Solovei
oversees the Finance Department. He is responsible for the structuring,
planning, and monitoring of the partnerships sponsored by the General Partner
and its affiliates, as well as maintaining the banking relationships. Mr.
Solovei graduated with a B.S. in Business Administration from the University of
California, Berkeley.
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
Phoenix Leasing Incorporated and subsidiaries and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P. and
Phoenix Leasing Cash Distribution Fund IV
Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:
The General Partner (and any corporate general partner of the General
Partner) of the Registrant, and the executive officers of the General Partner
(or any corporate general partner of the General Partner) of the Registrant,
file reports pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended. Based solely on the Registrant's review of the copies of such forms
received by the Registrant, the Registrant believes that, during 1998, all such
required reports were filed on a timely basis.
22
<PAGE>
Certain 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 "Marin Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and re-filed them in a separate lawsuit
making similar allegations (the "Sacramento Action").
Plaintiffs have amended the Marin Action twice. Defendants have not yet
answered the Complaint and may file a demurrer to dismiss the claims. Discovery
has not commenced. The Companies intend to vigorously defend the Complaint.
In February 1999, plaintiffs requested a transfer of the Sacramento
Action to Marin County. The Court granted that request, and the case is
currently in transit. Defendants have not yet responded to the Complaint.
Discovery has not commenced. The Companies intend to vigorously defend the
Complaint.
Item 10. Executive Compensation.
----------------------
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
<TABLE>
<CAPTION>
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------ ----------------------------------------------------- ---------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
-------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Phoenix Leasing
Associates III L.P. General Partner $ 473(1) $ 0 $ 0
===== ===== =====
<FN>
(1) Consists of management and acquisition fees.
</FN>
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
(b) The General Partner or its affiliates owns the equity
securities of the Registrant set forth in the following table:
23
<PAGE>
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 4% interest in the 100%
Registrant's profits and
distributions, until the
Limited Partners have recovered
their capital contributions
plus a cumulative return of 11%
per annum, compounded quarterly,
on the unrecovered portion thereof.
Thereafter, the General Partner will
receive 15% interest in the
Registrant's profits and distributions.
Limited Partner Interest 950 units .06
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------
None.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
Page No.
--------
(a) 1. Financial Statements:
Balance Sheet as of December 31, 1999 11
Statements of Operations and Comprehensive Income for
the year ended December 31, 1999 and 1998 12
Statements of Partners' Capital for the year ended
December 31, 1999 and 1998 13
Statements of Cash Flows for the year ended
December 31, 1999 and 1998 14
Notes to Financial Statements 15 - 21
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended December 31,
1999.
(c) Exhibits
21. Additional Exhibits
a)Balance Sheets of Phoenix Leasing Associates III, Inc. E21 1-5
Balance Sheets of Phoenix Leasing Associates III L.P. E21 6-9
27. Financial Data Schedule
24
<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.,
a California limited partnership
(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: March 17, 2000 By: /S/ GUS CONSTANTIN
-------------- -------------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ GUS CONSTANTIN President and a Director March 17, 2000
- --------------------- of Phoenix Leasing Associates III, Inc. --------------
(Gus Constantin)
/S/ GARY W. MARTINEZ Senior Vice President and a Director of March 17, 2000
- --------------------- Phoenix Leasing Associates III, Inc. --------------
(Gary W. Martinez)
Chief Financial Officer, March 17, 2000
/S/ HOWARD SOLOVEI Treasurer and a Director of --------------
- --------------------- Phoenix Leasing Associates III, Inc.
(Howard Solovei)
25
Exhibit 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Leasing Associates III, Inc.:
We have audited the accompanying consolidated balance sheets of Phoenix
Leasing Associates III, Inc. (a Nevada corporation) and subsidiary as of
September 30, 1999 and June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing Associates III,
Inc. and subsidiary as of September 30, 1999 and June 30, 1998, in conformity
with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
December 28, 1999
Page 1 of 9
<PAGE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1999 1998
---- ----
Cash and cash equivalents $ 7,480 $ 546
Deferred organizational and syndication costs,
net of amortization of $367,200 and $259,200
as of September 30, 1999 and June 30, 1998,
respectively 504,497 612,497
Due from Phoenix Leasing American Business
Fund, L.P 126,326 212,578
Due from Phoenix Leasing Incorporated 86,589 --
Investment in Phoenix Leasing American Business
Fund, L.P. 57,943 44,302
----------- -----------
Total Assets $ 782,835 $ 869,923
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 4,270 $ 730
Due to Phoenix Leasing Incorporated -- 319,335
----------- -----------
Total Liabilities 4,270 320,065
----------- -----------
Minority Interest in Consolidated Subsidiary 80,134 26,881
----------- -----------
Shareholder's Equity:
Common stock, without par value, 100 shares
authorized and outstanding 1,562,343 1,562,343
Retained earnings 698,331 522,877
Less:
Note receivable from Phoenix Leasing
Incorporated (1,562,243) (1,562,243)
----------- -----------
Total Shareholder's Equity 698,431 522,977
----------- -----------
Total Liabilities and Shareholder's Equity $ 782,835 $ 869,923
=========== ===========
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
September 30, 1999
Note 1. Organization:
Phoenix Leasing Associates III, Inc. (the Company) was formed under the
laws of Nevada on November 12, 1992. The Company is a wholly owned subsidiary of
Phoenix Leasing Incorporated (PLI), a California corporation, and was originally
formed to serve as the general partner of Phoenix Leasing American Business
Fund, L.P. (the Program), a California limited partnership.
On December 14, 1992, the Company organized Phoenix Leasing Associates
III, L.P., a California limited partnership (PLAIIILP) to replace the Company as
the general partner in the Program. The limited partner of PLAIIILP is Lease
Management Associates, Inc., a Nevada corporation controlled by an officer of
the Company, who also owns the parent company of PLI. As the general partner of
the Program, PLAIIILP will earn the acquisition and management fees and receive
the profits, losses and distributions which were to be allocated to the Company
(Note 7). The Company is the general partner of PLAIIILP and as of September 30,
and June 30, 1998 has a 62.5% ownership interest. This ownership interest is
subject to change in accordance with the PLAIIILP Partnership Agreement. Profits
and distributions attributable to acquisition fees paid to PLAIIILP by the
Program are to be allocated in proportion to the partners' ownership interests.
All other profits, losses and distributions shall be allocated to the Company.
The financial statements as of September 30, 1999 and June 30, 1998 are
presented on a consolidated basis as discussed in Note 2.
Effective July 1, 1998, the Company and its subsidiary changed its
fiscal year end from June 30 to September 30.
Note 2. Principles of Consolidation:
The consolidated financial statements as of September 30, 1999 and June
30, 1998 include the accounts of the Company and its subsidiary PLAIIILP. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The minority interest in consolidated subsidiary represents the
limited partner's interest in PLAIIILP.
PLAIIILP will record its investment in the Program under the equity
method of accounting. As general partner of PLAIIILP, the Company has complete
authority in, and responsibility for, the overall management of the Program,
which includes responsibility for supervising the Program's acquisition, leasing
and remarketing activities, and its sale of equipment.
Note 3. Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements. Actual results could differ from those estimates.
Note 4. Note Receivable from Affiliate:
PLI, the sole shareholder of the Company, as of September 30, 1999 and
June 30, 1998 has issued a demand promissory note to the Company totaling
$1,562,243. The note provides that its principal amount automatically increases
to five percent of the aggregate capital contributions to the Program by its
limited partners. There are no restrictions or covenants associated with this
note which would preclude the Company from receiving the principal or interest
amounts under the terms of the note. The note bears interest at a rate equal to
the lesser of ten percent or the prime rate as determined by Citibank, N.A., New
3
<PAGE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
September 30, 1999
Note 4. Note Receivable from Affiliate (continued):
York, New York, plus one percent. Interest is payable by PLI on the first
business day of each calendar quarter. The principal amount is due and payable
upon demand by the Company.
Note 5. Income Taxes:
Effective July 1, 1998, the Company and its subsidiaries adopted
treatment as a Subchapter "S Corporation pursuant to the Federal Income Tax
Regulations for tax reporting purposes. Federal and state income tax regulations
provide that taxes on the income or loss of the Company are reportable on the
shareholder's individual income tax return.
During the twelve months ended June 30, 1998, the Company's income or
loss for tax reporting purposes is included in the consolidated and combined tax
returns filed by Phoenix American Incorporated (PAI), which are prepared on the
accrual basis of accounting. In accordance with a Tax Sharing Agreement
effective July 1, 1991, between the Company and PAI, PAI has assumed all tax
liabilities and benefits arising from the Company's income or loss. The Company
computes and records its tax attributes and the related benefit or provision is
transferred to PAI. The provision for income taxes, for the year ended June 30,
1998 was $58,306.
Note 6. Organization and Syndication Costs:
Prior to the organization of PLAIIILP, the Company, on behalf of the
Program, paid certain organization and syndication costs associated with the
formation and initial equity raising of the Program. The Company funded these
reimbursable costs through an advance from PLI. Beginning December 14, 1992,
PLAIIILP began paying these reimbursable costs through advances from the
Company. Any costs in excess of 15% of equity raised at the termination of the
offering period will be paid by PLAIIILP through advances from the Company. The
Company has funded these advances from PLI and earnings.
On a consolidated basis, the Company has paid unreimbursed costs
totaling $871,697, as of September 30, 1999. Management has determined that the
15% cap on total organization and syndication costs has been exceeded and the
$871,697 was not reimbursed from the Program at the termination of the offering
period. The Company does expect to recover the $871,697 over the remaining life
of the Program through earnings and management fees. In order to match the
offering expenses with the resulting earnings, the Company has elected to
amortize the $871,697 excess organization and syndication costs on a straight
line basis over the remaining life of the Program.
Note 7. Compensation and Fees:
PLAIIILP receives acquisition fees equal to four percent of the
purchase price of assets acquired for financed by the Program in connection with
the analysis, selection and acquisition or financing of assets, and the
continuing analysis of the overall portfolio of the Program's assets, and
management fees equal to two percent of the Program's gross revenues in
connection with managing the operations of the Program. In addition, PLAIIILP
will receive an interest in the Program's profits, losses and distributions.
Management fees of $39,261 and $79,000 and acquisition fees of $94,633 and
$133,578 are included in Due from Phoenix Leasing American Business Fund, L.P.
on the balance sheet as of September 30, 1999 and June 30, 1998, respectively.
4
<PAGE>
PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
September 30, 1999
Note 8. Related Parties:
Phoenix Securities, Inc., an affiliate of the Company, received a fee
for wholesaling activities performed in connection with the offering of the
limited partnership units of the Program.
The Company has entered into an agreement with PLI, whereby PLI will
provide management services to PLAIIILP in connection with the operation and
administration of the Program. In consideration for the services and activities
to be performed by PLI pursuant to this agreement, the Company shall pay PLI
fees in an amount equal to two percent of the Program's cumulative gross
revenues plus the lesser of two and one half percent of the purchase price of
equipment acquired by and financing provided to businesses by the Program or
100% of the net cash attributable to the acquisition fee which has been
distributed to the Company plus 100% of all other net cash from operations of
PLAIIILP. Management fees paid to PLI equal $442,290 and $635,581 for the twelve
months ended September 30, 1999, and June 30, 1998, respectively, and $101,027
for the three months ended September 30, 1998.
Note 9. Commitments and Contingencies:
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 yet commenced. The Companies intend to
vigorously defend the complaint.
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Phoenix Leasing Associates III L.P.:
We have audited the accompanying balance sheets of Phoenix Leasing
Associates III L.P. (a California limited partnership) as of September 30, 1999
and June 30, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing Associates III
L.P. as of September 30, 1999 and June 30, 1998, in conformity with generally
accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
December 28, 1999
6
<PAGE>
PHOENIX LEASING ASSOCIATES III L.P.
BALANCE SHEETS
ASSETS
September 30, June 30,
1999 1998
---- ----
Cash and cash equivalents $ 547 $ 412
Deferred organizational and syndication costs,
net of amortization of $367,200 and $259,200
as of September 30, 1999 and June 30, 1998,
respectively 504,497 612,497
Investment in Phoenix Leasing American Business
Fund, L.P. 57,944 44,303
Due from Phoenix Leasing American Business Fund, L.P. 133,894 212,578
-------- --------
Total Assets $696,882 $869,790
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 2,135 $ 365
Due to General Partner 613,913 841,844
-------- --------
Total Liabilities 616,048 842,209
-------- --------
Partners' Capital:
General Partner (70 partnership units) 700 700
Limited Partner (42 partnership units) 80,134 26,881
-------- --------
Total Partners' Capital 80,834 27,581
-------- --------
Total Liabilities and Partners' Capital $696,882 $869,790
======== ========
The accompanying notes are an integral part of these balance sheets.
7
<PAGE>
PHOENIX LEASING ASSOCIATES III L.P.
NOTES TO THE BALANCE SHEETS
September 30, 1999
Note 1. Organization:
Phoenix Leasing Associates III L.P., a California limited partnership
(the Partnership), was formed under the laws of the State of California on
December 14, 1992, to act as the general partner of Phoenix Leasing American
Business Fund, L.P. (the Program), a California limited partnership. The general
partner of the Partnership is Phoenix Leasing Associates III, Inc. (PLAIII), a
Nevada corporation and wholly owned subsidiary of Phoenix Leasing Incorporated,
a California corporation. The limited partner of the Partnership is Lease
Management Associates, Inc., a Nevada corporation controlled by an officer of
PLAIII, who owns the ultimate parent of PLAIII.
Effective July 1, 1998, the Partnership changed its fiscal year end
from June 30 to September 30.
The Partnership records its investment in the Program under the equity
method of accounting. As general partner, the Partnership has complete authority
in, and responsibility for, the overall management of the Program, which
includes responsibility for supervising the Program's acquisition, leasing and
remarketing activities, and its sale of equipment.
Note 2. Income Taxes:
The Partnership is not subject to federal and state income taxes on its
income. Federal and state income tax regulations provide that items of income,
gain, loss and deductions, credits and tax preference items of limited
partnerships are reportable by the individual partners in their respective
income tax returns. Accordingly, no liability for such taxes will be recorded on
the Partnership's financial statements.
Note 3. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 4. Organization and Syndication Costs:
The Partnership on behalf of the Program pays certain organization and
syndication costs associated with the formation and initial equity raising of
the Program. The Partnership funded these reimbursable costs primarily through
advances from PLAIII. Any costs in excess of 15% of equity raised at the
termination of the offering period will be paid by the Partnership. As of
September 30, 1999 the Partnership has paid unreimbursed costs of $871,697.
Management has determined that the 15% cap on total organization and syndication
costs has been exceeded and that the $871,697 was not reimbursed from the
Program at the termination of the offering period. The Company does expect to
recover the $871,697 over the remaining life of the Program through earnings and
management fees. In order to match the offering expenses with the resulting
earnings, the Company has elected to amortize the $871,697 excess organization
and syndication costs on a straight line basis over the remaining life of the
Program.
Note 5. Compensation and Fees:
The Partnership receives acquisition fees equal to four percent of the
purchase price of assets acquired or financed by the Program in connection with
the analysis, selection and acquisition or financing of assets, and the
continuing analysis of the overall portfolio of the Program's assets, and
management fees equal to two percent of the Program's gross revenues in
connection with managing the operations of the Program. In addition, the
Partnership will receive an interest in the Program's profits, losses and
8
<PAGE>
PHOENIX LEASING ASSOCIATES III L.P.
NOTES TO THE BALANCE SHEETS
September 30, 1999
Note 5. Compensation and Fees (continued):
distributions. Management fees of $39,261 and $79,000 and acquisition fees of
$94,633 and $133,578 are included in Due from Phoenix Leasing American Business
Fund, L.P. on the Balance Sheet as of September 30, 1999 and June 30, 1998,
respectively.
Note 6. Allocation of Profits, Losses and Distributions:
Profits and losses attributable to acquisition fees paid to the
Partnership by the Program shall be allocated to the partners in proportion to
their ownership interests. All other profits and losses shall be allocated to
PLAIII. Distributions are made in accordance with the terms of the partnership
agreement.
Note 7. Related Parties:
Phoenix Securities, Inc., an affiliate of the Partnership, received a
fee for wholesaling activities performed in connection with the offering of the
limited partnership units of the Program.
PLAIII has entered into an agreement with Phoenix Leasing Incorporated
(PLI), whereby PLI will provide management services to the Partnership in
connection with the operations and administration of the Program. In
consideration for the services and activities to be performed by PLI pursuant to
this agreement, PLAIII shall pay PLI fees in an amount equal to: two percent of
the Program's cumulative gross revenues plus the lesser of two and one half
percent of the purchase price of equipment acquired by and financing provided to
businesses by the Program or 100% of the net cash attributable to the
acquisition fee which has been distributed to PLAIII plus 100% of all other net
cash from operations of the Partnership. Management fees paid to PLI equal
$442,290 and $635,581, for the twelve months ended September 30, 1999 and June
30, 1998 , respectively, and $101,027 for the three months ended September 30,
1998.
Note 8. Commitments and Contingencies:
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 yet commenced. The Companies intend to
vigorously defend the complaint.
9
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<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,309
<SECURITIES> 2,337
<RECEIVABLES> 7,758
<ALLOWANCES> 381
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,003
<DEPRECIATION> 1,649
<TOTAL-ASSETS> 20,174
<CURRENT-LIABILITIES> 900
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,274
<TOTAL-LIABILITY-AND-EQUITY> 20,174
<SALES> 0
<TOTAL-REVENUES> 3,771
<CGS> 0
<TOTAL-COSTS> 2,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 484
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 1,390
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,390
<EPS-BASIC> .78
<EPS-DILUTED> 0
</TABLE>
