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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 March 31, 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 0-12593
-------
PHOENIX LEASING INCOME FUND VII
- --------------------------------------------------------------------------------
Registrant
California 68-0001202
- ----------------------------- ----------------------------------
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
requirements for the past 90 days.
Yes __X__ No _____
345,974 Units of Limited Partnership Interest were outstanding as of March 31,
1997.
Transitional small business disclosure format:
Yes __X__ No _____
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Part I. Financial Information
-----------------------------
Item 1. Financial Statements
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
------ ------
Cash and cash equivalents $ 980 $2,155
Accounts receivable (net of allowance for
losses on accounts receivable of $41 at
March 31, 1997 and December 31, 1996,
respectively) 57 30
Notes receivable (net of allowance for losses
on notes receivable of $359 at March 31, 1997
and December 31, 1996) 302 302
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,308 and
$1,316 at March 31, 1997 and December 31, 1996,
respectively) 1 2
Property, cable systems and equipment (net of
accumulated depreciation of $389 and $358 at
March 31, 1997 and December 31, 1996,
respectively) 833 841
Cable subscriber lists and franchise rights (net
of accumulated amortization of $552 and $512 at
March 31, 1997 and December 31, 1996, respectively) 740 780
Investment in joint ventures 644 730
Other assets 160 151
------ ------
Total Assets $3,717 $4,991
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $1,324 $1,350
------ ------
Total Liabilities 1,324 1,350
------ ------
Partners' Capital
General Partner 331 322
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units
outstanding at March 31, 1997 and December
31, 1996 2,058 3,312
Unrealized gains on available-for-sale securities 4 7
------ ------
Total Partners' Capital 2,393 3,641
------ ------
Total Liabilities and Partners' Capital $3,717 $4,991
====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended
March 31,
1997 1996
------ ------
INCOME
Rental income $ 73 $ 118
Equity in earnings from joint ventures, net 32 49
Interest income, notes receivable 18 --
Cable subscriber revenue 146 146
Other income 15 39
------ ------
Total Income 284 352
------ ------
EXPENSES
Depreciation and amortization 72 134
Lease related operating expenses 1 6
Program service, cable system 41 35
Management fees to General Partner 13 16
Provision for (recovery of) losses on receivables -- (16)
General and administrative expenses 99 95
------ ------
Total Expenses 226 270
------ ------
Net income before income taxes 58 82
Income tax benefit (expense) 3 (1)
------ ------
NET INCOME $ 61 $ 81
====== ======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .15 $ .20
====== ======
DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 3.78 $ 3.78
====== ======
ALLOCATION OF NET INCOME:
General Partner $ 9 $ 12
Limited Partners 52 69
------ ------
$ 61 $ 81
====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1996
------- -------
Operating Activities:
Net income $ 61 $ 81
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 72 134
Gain on sale of equipment (1) (5)
Equity in earnings from joint ventures, net (32) (49)
Provision for (recovery of) early
termination, financing leases -- (17)
Provision for losses on accounts receivable -- 1
Decrease (increase) in accounts receivable (27) 4
Decrease in accounts payable and accrued
expenses (26) (156)
Decrease (increase) in deferred income
tax asset (3) 1
Increase in other assets (8) (1)
------- -------
Net cash provided (used) by operating activities 36 (7)
------- -------
Investing Activities:
Principal payments, financing leases -- 17
Principal payments, notes receivable -- 9
Proceeds from sale of equipment 1 5
Distributions from joint ventures 118 126
Property, plant and equipment, cable systems (23) (12)
------- -------
Net cash provided by investing activities 96 145
------- -------
Financing Activities:
Distributions to partners (1,307) (1,307)
------- -------
Net cash used by financing activities (1,307) (1,307)
------- -------
Decrease in cash and cash equivalents (1,175) (1,169)
Cash and cash equivalents, beginning of period 2,155 3,940
------- -------
Cash and cash equivalents, end of period $ 980 $ 2,771
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
NOTES TO CONSOLIDATED 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.
Phoenix Cablevision of Oregon, Inc. (the Subsidiary) is a corporation
subject to state and federal tax regulations. The Subsidiary reports to the
taxing authority on the accrual basis. When income and expenses are recognized
in different periods for financial reporting purposes than for income tax
purposes, deferred taxes are provided for such differences using the liability
method.
Note 4. Notes Receivable.
Impaired Notes Receivable. At March 31, 1997 the recorded investment in
notes that are considered to be impaired was $662,000, for which the related
allowance for losses is $235,000. At March 31, 1996 the recorded investment in
notes that are considered to be impaired was $613,000. Included in this amount
is $113,000 of impaired notes for which the related allowance for losses is
$11,000 and $500,000 of impaired notes for which there is no allowance. The
average recorded investment in impaired loans during the three months ended
March 31, 1997 and 1996 was approximately $662,000 and $613,000, respectively.
The activity in the allowance for losses on notes receivable during the
three months ended March 31, is as follows:
1997 1996
----- ----
(Amounts In Thousands)
Beginning balance $ 359 $ 359
Provision for losses - -
Write downs - -
----- -----
Ending balance $ 359 $ 359
===== =====
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Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on
the limited partner's share of net income and distributions, and the weighted
average number of units outstanding of 345,974 for the three months ended March
31, 1997 and 1996. For purposes of allocating income (loss) and distributions to
each individual limited partner, the Partnership allocates net income (loss) and
distributions based upon each respective limited partner's ending capital
account balance. The use of this method accurately reflects each limited
partner's participation in the partnership including reinvestment through the
Capital Accumulation Plan. As a result, the calculation of net income (loss) and
distributions per limited partnership unit is not indicative of per unit income
(loss) and distributions due to reinvestments through the Capital Accumulation
Plan.
Note 6. Investment in Joint Ventures.
Equipment Joint Venture
The aggregate financial information of the equipment joint venture is
presented below:
March 31, December 31,
1997 1996
------ ------
(Amounts in Thousands)
Assets $2,429 $2,700
Liabilities 333 372
Partners' Capital 2,096 2,328
Three Months Ended
March 31,
1997 1996
------ ------
(Amounts in Thousands)
Revenue $ 486 $ 563
Expenses 209 333
Net Income 277 230
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Financing Joint Ventures
The aggregate financial information of the financing joint venture is
presented below:
March 31, December 31,
1997 1996
------ ------
(Amounts in Thousands)
Assets $ 34 $ 44
Liabilities 11 10
Partners' Capital 23 34
Three Months Ended
March 31,
1997 1996
------ ------
(Amounts in Thousands)
Revenue $ 14 $ 19
Expenses 3 4
Net Income 11 15
Foreclosed Cable Systems Joint Venture
The aggregate financial information of the financing joint venture is
presented below:
March 31, December 31,
1997 1996
------ ------
(Amounts in Thousands)
Assets $ 1,637 $ 1,635
Liabilities 288 265
Partners' Capital 1,349 1,370
Three Months Ended
March 31,
1997 1996
------- -------
(Amounts in Thousands)
Revenue $ 210 $ 205
Expenses 223 215
Net Loss (13) (10)
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Phoenix Leasing Income Fund VII and Subsidiary (the Partnership)
reported net income of $61,000 during the three months ended March 31, 1997, as
compared to net income of $81,000 during the same period in the preceding year.
Total revenues decreased by $68,000 for the three months ended March 31,
1997, as compared to the previous year. This decrease is primarily the result of
a $45,000 decline in rental income, a $17,000 decline in earnings from joint
ventures, which will be discussed under "Joint Ventures", offset by a $18,000
increase in interest income from notes receivable. The decrease in rental income
and depreciation expense with respect to the Partnership's leasing activities,
is the result of an overall reduction in the size of the equipment portfolio due
to ongoing sales. The aggregate original cost of equipment owned directly by the
Partnership is $2.1 million at March 31, 1997, as compared to $4.4 million at
March 31, 1996.
The increase in interest income from notes receivable of $18,000 for the
three months ended March 31, 1997, compared to the same period in the prior
year, is due to the Partnership receiving 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 notes receivable was placed into
escrow to cover unanticipated liabilities which may have arisen after the
payoff.
Total expenses for the three months ended March 31, 1997 decreased by
$44,000, as compared to the same period in 1996. The decline is attributable to
decreases in depreciation and amortization expense of $62,000, lease related
operating expenses of $5,000 and management fees to the General Partner of
$3,000. Lease related operating expenses, like rental income, is expected to
decline as a result of the ongoing sale of the equipment portfolio. Management
fees are also affected by the liquidation of the equipment portfolio. As the
equipment portfolio is liquidated, gross revenues decline causing management
fees to be reduced.
The decrease in total expenses for the period ended March 31, 1997, was
offset by the absence of a provision for losses on receivables as compared to an
adjustment to the allowance for losses on receivables of $16,000 for the three
months ended March 31, 1996. This is a result of a portion of an allowance for
early terminations of finance leases being reversed and being recognized as
income at March 31, 1996.
Because Phoenix Leasing Income Fund VII is in its liquidation stage, it
is not expected that the Partnership will acquire any additional equipment for
its leasing activities. As a result, revenues from leasing activities are
expected to continue to decline as the portfolio is liquidated and the remaining
equipment is released at lower rental rates.
Cable System
The Partnership acquired a cable system in satisfaction of a defaulted
<PAGE>
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note receivable held by the Partnership. The Partnership assumed ownership of
this cable system on October 28, 1993. The Partnership reported cable subscriber
revenues of $146,000 and program services expense of $41,000 during the three
months ended March 31, 1997, as compared to cable subscriber revenues of
$146,000 and program services expense of $35,000 during the same period in 1996.
Both cable subscriber revenue and program services expense remained relatively
the same for the three months ended March 31, 1997 compared to 1996.
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
investments are anticipated to continue to decline as the portfolios are
re-leased at lower rental rates and eventually liquidated.
The decrease in earnings from equipment joint ventures of $17,000 for
the three months ended March 31, 1997, as compared to the same period in 1996,
is the result of the closure of several equipment joint ventures during the
fourth quarter of 1996.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from equipment
leasing and financing activities. The Partnership has contractual obligations
with lessees for fixed lease terms at fixed rental amounts and will also receive
payments on its outstanding notes receivable. The Partnership's future liquidity
is dependent upon its receiving payment of such contractual obligations. As the
initial lease terms expire, the Partnership will continue to renew, remarket or
sell the equipment. The future liquidity in excess of the remaining contractual
obligations will depend upon the General Partner's success in re-leasing and
selling the Partnership's equipment as it comes off lease. The Partnership also
owns a cable television system and has investments in equipment leasing and
foreclosed cable television system joint ventures.
During the three months ended March 31, 1997, the net cash provided by
leasing, financing and cable television activities was $36,000, compared to
$19,000 for the same period in the prior year. The net increase in cash
generated is due to a decrease in payments on accounts payable.
Distributions from joint ventures has become one of the primary sources
of cash generated by the Partnership. Distributions from joint ventures
decreased slightly for the three months ended March 31, 1997 compared to the
same period in the prior year. The Partnership received distributions from joint
ventures of $118,000 for the three months ended March 31, 1997, compared to
$126,000 for the same period in 1996.
As of March 31, 1997, the Partnership owned equipment held for lease
with a purchase price of $959,000 and a net book value of $0 compared to
$1,847,000 and $34,000, respectively at March 31, 1995. 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 distributions of $1,307,000 for the three
months ended March 31, 1997 and 1996. As a result, the cumulative cash
distributions to the Limited Partners are $83,887,000 and $81,288,000 at March
<PAGE>
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31, 1997 and 1996, respectively. The General Partner did not receive
distributions during the three months ended March 31, 1997 and 1996.
As the Partnership's asset portfolio continues to decline as a result of
the ongoing liquidation of assets, it is expected that the cash generated from
leasing operations will also decline. Due to the decrease in cash generated by
leasing and financing activities, the Partnership is no longer making quarterly
distributions to partners. Distributions are being made semi-annually in January
and July. The Partnership will reach the end of its term on December 31, 1998.
Cash on hand and cash generated from cable television, equipment leasing
and financing operations has been and is anticipated to continue to be
sufficient to meet the Consolidated Partnership's ongoing operational expenses.
<PAGE>
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PHOENIX LEASING INCOME FUND VII
March 31, 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>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX LEASING INCOME FUND VII
-------------------------------
(Registrant)
Date Title Signature
---- ----- ---------
May 13, 1997 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- ----------------- Senior Vice President, ----------------------
Treasurer and a Director of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
May 13, 1997 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations of ----------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
May 13, 1997 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- and a Director of ----------------------
Phoenix Leasing Incorporated (Gary W. Martinez)
General Partner
May 13, 1997 Partnership Controller of /S/ MICHAEL K. ULYATT
- ----------------- Phoenix Leasing Incorporated ----------------------
General Partner (Michael K. Ulyatt)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 980
<SECURITIES> 0
<RECEIVABLES> 759
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,531
<DEPRECIATION> 1,697
<TOTAL-ASSETS> 3,717
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,393
<TOTAL-LIABILITY-AND-EQUITY> 3,717
<SALES> 0
<TOTAL-REVENUES> 284
<CGS> 0
<TOTAL-COSTS> 226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58
<INCOME-TAX> (3)
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
