Page 1 of 10 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-QSB X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ----- ACT OF 1934 For the quarterly period ended September 30, 1997 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 0-8868 ------ PHOENIX LEASING INCOME FUND 1977 - -------------------------------------------------------------------------------- Registrant California 94-2446904 - ------------------------------- ---------------------------------- State of Jurisdiction I.R.S. Employer Identification No. 2401 Kerner Boulevard, San Rafael, California 94901-5527 - -------------------------------------------------------------------------------- Address of Principal Executive Offices Zip Code Registrant's telephone number, including area code: (415) 485-4500 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing preceding requirements for the past 90 days. Yes __X__ No _____ 16,521 Units of Limited Partnership Interest were outstanding as of September 30, 1997. Transitional small business disclosure format: Yes _____ No __X__ Page 2 of 10 Part I. Financial Information ----------------------------- Item 1. Financial Statements PHOENIX LEASING INCOME FUND 1977 BALANCE SHEETS (Amounts in Thousands Except for Unit Amounts) (Unaudited) September 30, December 31, ASSETS 1997 1996 ------ ------ Cash and cash equivalents $ 239 $ 369 Accounts receivable -- 17 Notes receivable (net of allowance for losses on notes receivable of $274 at September 30, 1997 and December 31, 1996) 525 525 Equipment on operating leases and held for lease (net of accumulated depreciation of $0 and $15 at September 30, 1997 and December 31, 1996, respectively) -- -- Investment in joint ventures 20 44 Other assets 7 4 ------ ------ Total Assets $ 791 $ 959 ====== ====== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities Accounts payable and accrued expenses $ 23 $ 39 ------ ------ Total Liabilities 23 39 ------ ------ Partners' Capital (Deficit) General Partners (44) (26) Limited Partners, 20,000 units authorized and issued, 16,521 units outstanding at September 30, 1997 and December 31, 1996 811 945 Unrealized gains on available-for-sale securities 1 1 ------ ------ Total Partners' Capital (Deficit) 768 920 ------ ------ Total Liabilities and Partners' Capital (Deficit) $ 791 $ 959 ====== ====== The accompanying notes are an integral part of these statements. Page 3 of 10 PHOENIX LEASING INCOME FUND 1977 STATEMENTS OF OPERATIONS (Amounts in Thousands Except for Per Unit Amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------ INCOME Rental income $ 1 $ 1 $ 4 $ 5 Equity in earnings (losses) from joint ventures, net (12) 6 1 22 Interest income, notes receivable -- -- 4 -- Interest income 4 6 14 17 Other income -- -- 9 2 ------ ------ ------ ------ Total Income (7) 13 32 46 ------ ------ ------ ------ EXPENSES Management fees to General Partner -- -- 2 1 Liquidation fees to General Partner -- -- -- 22 Legal expense 110 18 165 77 General and administrative expenses 4 8 17 26 ------ ------ ------ ------ Total Expenses 114 26 184 126 ------ ------ ------ ------ NET LOSS $ (121) $ (13) $ (152) $ (80) ====== ====== ====== ====== NET LOSS PER LIMITED PARTNERSHIP UNIT $(6.45) $ (.71) $(8.11) $(4.42) ====== ====== ====== ====== DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ -- $ -- $ -- $ 9.95 ====== ====== ====== ====== ALLOCATION OF NET LOSS: General Partners $ (14) $ (2) $ (18) $ (7) Limited Partners (107) (11) (134) (73) ------ ------ ------ ------ $ (121) $ (13) $ (152) $ (80) ====== ====== ====== ====== The accompanying notes are an integral part of these statements. Page 4 of 10 PHOENIX LEASING INCOME FUND 1977 STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) Nine Months Ended September 30, 1997 1996 ------ ------ Operating Activities: Net loss $ (152) $ (80) Adjustments to reconcile net loss to net cash used by operating activities: Gain on sale of equipment (1) (1) Equity in earnings from joint ventures, net (1) (22) Decrease in accounts receivable 17 -- Decrease in accounts payable and accrued expenses (16) (6) Gain on sale of securities -- (1) Increase in other assets (3) (1) ------ ------ Net cash used by operating activities (156) (111) ------ ------ Investing Activities: Proceeds from sale of equipment 1 1 Proceeds from sale of securities -- 2 Distributions from joint ventures 25 41 ------ ------ Net cash provided by investing activities 26 44 ------ ------ Financing Activities: Distributions to partners -- (164) ------ ------ Net cash used by financing activities -- (164) ------ ------ Decrease in cash and cash equivalents (130) (231) Cash and cash equivalents, beginning of period 369 595 ------ ------ Cash and cash equivalents, end of period $ 239 $ 364 ====== ====== The accompanying notes are an integral part of these statements. Page 5 of 10 PHOENIX LEASING INCOME FUND 1977 NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1. General. The accompanying unaudited condensed financial statements have been prepared by the Partnership in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes included in the Partnership's Financial Statement, as filed with the SEC in the latest annual report on Form 10-K. Note 2. Reclassification. Reclassification - Certain 1996 amounts have been reclassified to conform to the 1997 presentation. Note 3. Income Taxes. Federal and state income tax regulations provide that taxes on the income or loss of the Partnership are reportable by the partners in their individual income tax returns. Accordingly, no provision for such taxes has been made in the accompanying financial statements. Note 4. Notes Receivable. Impaired Notes Receivable. At September 30, 1997, the recorded investment in notes that are considered to be impaired was $798,000 for which the related allowance for losses was $274,000. The average recorded investment in impaired loans during the nine months ended September 30, 1997 and 1996 was approximately $798,000. The activity in the allowance for losses on notes receivable during the nine months ended September 30, is as follows: 1997 1996 ------- -------- (Amounts in Thousands) Beginning balance $ 274 $ 92 Provision for losses - - Write downs - - ------- -------- Ending balance $ 274 $ 92 ======= ======== Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit. Net loss and distributions per limited partnership unit were based on the limited partners' share of net loss and distributions, and the weighted average number of units outstanding of 16,521 for the nine month periods ended September 30, 1997 and 1996. Page 6 of 10 Note 6. Investment in Joint Ventures. Equipment Joint Ventures The aggregate combined financial information of the equipment joint ventures is presented below: September 30, December 31, 1997 1996 ------- ------- (Amounts in Thousands) Assets $ 1,213 $ 2,700 Liabilities 155 372 Partners' Capital 1,058 2,328 Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------- ------- ------- (Amounts in Thousands) Revenue $ 44 $ 535 $ 996 $ 1,786 Expenses 685 275 1,146 917 Net Income (Loss) (641) 260 (150) 869 Financing Joint Ventures The aggregate combined financial information of the financing joint ventures is presented below: September 30, December 31, 1997 1996 ------- ------- (Amounts in Thousands) Assets $ 10 $ 17 Liabilities -- -- Partners' Capital 10 17 Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------- ------- ------- (Amounts in Thousands) Revenue $ 4 $ 5 $ 11 $ 25 Expenses -- 5 1 6 Net Income 4 -- 10 19 Page 7 of 10 PHOENIX LEASING INCOME FUND 1977 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Phoenix Leasing Income Fund 1977 (the Partnership) reported a net loss of $121,000 and $152,000 for the three and nine months ended September 30, 1997, respectively, as compared to a net loss of $13,000 and $80,000 during the same periods in 1996. The increased net loss for the three and nine months ended September 30, 1997, compared to the prior year, is a result of an increase in legal expenses. Total revenues decreased by $20,000 and $14,000 for the three and nine months ended September 30, 1997, respectively, compared to the same periods in 1996. The decrease in total revenues is due to a decrease in earnings from joint ventures of $18,000 and $21,000 for the three and nine months ended September 30, 1997, as compared to the same period in 1996. This decrease is discussed below under Joint Ventures. The decrease in earnings from joint ventures is partially offset by an increase in interest income from notes receivable for the nine months ended September 30, 1997 of $4,000. During the nine months ended September 30, 1997, the Partnership received a disbursement of proceeds which were held in escrow for a note receivable which was paid off in 1995. In 1995, a portion of the proceeds from the payoff of this note receivable was placed in escrow to cover unanticipated liabilities which may have arisen after the payoff. Because the Partnership is in its liquidation stage, it is not expected that the Partnership will acquire additional equipment. As a result, revenues from equipment leasing activities are expected to decline as the portfolio is liquidated. The Partnership will reach the end of its term on December 31, 1997, at which time it will liquidate its remaining assets, pay its remaining liabilities and distribute the remaining cash, if any, to the limited partners. At September 30, 1997, the Partnership owned equipment with an aggregate original cost, excluding the Partnership's pro rata interest in joint ventures, of $0 at September 30, 1997, compared to $47,000 at September 30, 1996. Total expenses increased by $88,000 and $58,000 for the three and nine months ended September 30, 1997, respectively, compared to the same periods in 1996. The increase in total expenses is a result of an increase in legal expenses of $92,000 and $88,000 for the three and nine months ended September 30, 1997, respectively, as compared to the same periods in 1996. The Partnership's legal expenses are primarily related to a default on the Partnership's one remaining outstanding note receivable. The increase in legal expenses for the nine months ended September 30, 1997, compared to the same period in 1996, was partially offset by the absence of liquidation fees to the General Partner compared to $22,000 in the prior year. The absence of liquidation fees to the General Partner is a result of no further distribution to partners being made until the termination of the Partnership. Distributions in excess of the General Partner's capital account are considered to be liquidation fees. Joint Ventures The Partnership has made investments in various equipment and financing joint ventures along with other affiliated partnerships managed by the General Partner for the purpose of spreading the risk of investing in certain equipment leasing and financing transactions. These joint ventures are not currently making any significant additional investments in new equipment leasing or financing transactions. As a result, the earnings and cash flow from such Page 8 of 10 investments are anticipated to continue to decline as the portfolios are re-leased at lower rental rates and eventually liquidated. Earnings from joint ventures decreased by $18,000 and $21,000 for the three and nine months ended September 30, 1997, compared to the same periods in 1996. The decrease in earnings from joint ventures for the three and nine months ended September 30, 1997, as compared to 1996, is attributable to an equipment joint venture making provisions for additional depreciation and losses on notes receivables. Liquidity and Capital Resources The Partnership's primary source of liquidity comes from its contractual obligations with lessees and borrowers for fixed terms at fixed payment amounts. The Partnership also has investments in equipment leasing and financing joint ventures in which it receives a share of the profits and receives cash distributions. The future liquidity of the Partnership will depend upon the General Partner's success in collecting contractual amounts owed. The Partnership reported net cash used by leasing and financing activities of $156,000 for the nine months ended September 30, 1997, as compared to $111,000 for the same period in 1996. This increase in net cash used is due to a decrease in accounts payable and accrued expenses. This is partially offset by a decrease in accounts receivable. Distributions from joint ventures decreased by $16,000 for the nine months ended September 30, 1997, compared to the same period in 1996. The decline in distributions is attributable to the closure of one equipment joint venture, and a decline in rental income and proceeds from sale of equipment in another equipment joint venture. The Partnership owned equipment held for lease with a purchase price of $0 and $31,000 at September 30, 1997 and 1996, respectively, and a net book value of $0 at September 30, 1997 and 1996. The General Partner is actively engaged, on behalf of the Partnership, in remarketing and selling the Partnership's off-lease equipment portfolio. The Limited Partners received $0 and $164,000 in cash distributions during the nine months ended September 30, 1997 and 1996, respectively. As a result, the cumulative cash distributions to the Limited Partners are $28,604,000 as of September 30, 1997 and 1996. The General Partner did not receive cash distributions during the nine months ended September 30, 1997 and 1996. Accordingly, the General Partner did not receive any payments of liquidation fees during the nine months ended September 30, 1997, but did receive a payment of liquidation fees of $22,000 during the nine months ended September 30, 1996. Due to the decrease in the cash generated by leasing operations, the Partnership is no longer making quarterly cash distributions to Partners. Distributions were being made on an annual basis with the annual distribution date being January 15. However, since the Partnership is closing this year the next distribution to partners is expected to be made at the termination of the Partnership. The amount of the distribution will be dependent upon the amount of cash available after the Partnership liquidates its remaining assets and liabilities. The Partnership will reach the end of its term on December 31, 1997. The General Partner is entitled to 11.688% of all cash distributions. Distributions in excess of the General Partners' capital account are characterized as liquidation fees. The total liquidation fee paid to the General Partner will not exceed 11.688% of the sum of the net contributed capital and cumulative net profits and losses. The fee represents an expense of the Partnership and is specially allocated to the Limited Partners. Cash generated from leasing and financing operations has been and is anticipated to continue to be sufficient to meet the Partnership's on-going operational expenses. Page 9 of 10 PHOENIX LEASING INCOME FUND 1977 September 30, 1997 Part II. Other Information. Item 1. Legal Proceedings. Inapplicable. Item 2. Changes in Securities. Inapplicable Item 3. Defaults Upon Senior Securities. Inapplicable Item 4. Submission of Matters to a Vote of Securities Holders. Inapplicable Item 5. Other Information. Inapplicable Item 6. Exhibits and Reports on 8-K: a) Exhibits: (27) Financial Data Schedule b) Reports on 8-K: None Page 10 of 10 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 INCOME FUND 1977 -------------------------------- (Registrant) Date Title Signature ---- ----- --------- November 12, 1997 Senior Vice President /S/ GARY W. MARTINEZ - ----------------------- and a Director of ---------------------- Phoenix Leasing Incorporated (Gary W. Martinez) General Partner November 12, 1997 Chief Financial Officer, /S/ PARITOSH K. CHOKSI - ----------------------- Senior Vice President, ---------------------- Treasurer and a Director of (Paritosh K. Choksi) Phoenix Leasing Incorporated General Partner November 12, 1997 Senior Vice President, /S/ BRYANT J. TONG - ----------------------- Financial Operations of ---------------------- (Principal Accounting Officer) (Bryant J. Tong) Phoenix Leasing Incorporated General Partner