Page 1 of 12
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 0-12593
--------
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 September
30, 1997.
Transitional small business disclosure format:
Yes _____ No __X__
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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)
September 30, December 31,
ASSETS 1997 1996
------ ------
Cash and cash equivalents $ 329 $2,155
Accounts receivable (net of allowance for losses
on accounts receivable of $39 and $41 at
September 30, 1997 and December 31, 1996,
respectively) 28 30
Notes receivable (net of allowance for losses on
notes receivable of $276 and $359 at September
30, 1997 and December 31, 1996, respectively) 272 302
Equipment on operating leases and held for lease
(net of accumulated depreciation of $726 and
$1,316 at September 30, 1997 and December 31,
1996, respectively) -- 2
Property, cable systems and equipment (net of
accumulated depreciation of $451 and $358 at
September 30, 1997 and December 31, 1996,
respectively) 781 841
Cable subscriber lists and franchise rights (net
of accumulated amortization of $633 and $512
at September 30, 1997 and December 31, 1996,
respectively) 659 780
Investment in joint ventures 471 730
Other assets 167 151
------ ------
Total Assets $2,707 $4,991
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 355 $ 397
Liquidation fees payable to General Partner 953 953
------ ------
Total Liabilities 1,308 1,350
------ ------
Partners' Capital
General Partner 321 322
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units
outstanding at September 30, 1997 and
December 31, 1996 1,071 3,312
Unrealized gains on available-for-sale securities 7 7
------ ------
Total Partners' Capital 1,399 3,641
------ ------
Total Liabilities and Partners' Capital $2,707 $4,991
====== ======
The accompanying notes are an integral part of these statements.
<PAGE>
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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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
INCOME
Rental income $ 36 $ 73 $ 117 $ 256
Cable subscriber revenues 156 145 456 438
Equity in earnings (losses) from
joint ventures, net (125) 60 (17) 193
Interest income, notes receivable -- 16 17 16
Other income 7 27 42 124
------- ------- ------- -------
Total Income 74 321 615 1,027
------- ------- ------- -------
EXPENSES
Depreciation and amortization 72 77 216 325
Lease related operating expenses -- 2 1 15
Program service, cable system 37 35 117 106
Management fees to General Partner 15 12 37 45
Provision for (recovery of) losses
on receivables 8 28 11 (3)
General and administrative expenses 130 102 312 305
------- ------- ------- -------
Total Expenses 262 256 694 793
------- ------- ------- -------
Net income (loss) before income taxes (188) 65 (79) 234
Income tax benefit (expense) (3) 2 -- 1
------- ------- ------- -------
NET INCOME (LOSS) $ (191) $ 67 $ (79) $ 235
======= ======= ======= =======
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (.04) $ .17 $ .23 $ .58
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ 2.47 $ 3.74 $ 6.25 $ 7.52
======= ======= ======= =======
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (18) $ 10 $ (1) $ 36
Limited Partners (173) 57 (78) 199
------- ------- ------- -------
$ (191) $ 67 $ (79) $ 235
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
------- -------
Operating Activities:
Net income (loss) $ (79) $ 235
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation and amortization 216 325
Loss (gain) on sale of equipment (13) 26
Equity in losses (earnings) from joint
ventures, net 17 (193)
Recovery of early termination, financing leases -- (34)
Provision for losses on accounts receivable 11 31
Gain on sale of marketable securities -- (5)
Increase (decrease) in accounts receivable (9) 9
Decrease in accounts payable and accrued expenses (42) (209)
Decrease in deferred income tax asset -- (1)
Increase in other assets (16) (3)
------- -------
Net cash provided by operating activities 85 181
------- -------
Investing Activities:
Principal payments, financing leases -- 34
Principal payments, notes receivable 30 15
Proceeds from sale of equipment 13 24
Proceeds from sale of securities -- 11
Distributions from joint ventures 242 367
Property, cable systems and equipment (33) (38)
------- -------
Net cash provided by investing activities 252 413
------- -------
Financing Activities:
Distributions to partners (2,163) (2,600)
------- -------
Net cash used by financing activities (2,163) (2,600)
------- -------
Decrease in cash and cash equivalents (1,826) (2,006)
Cash and cash equivalents, beginning of period 2,155 3,940
------- -------
Cash and cash equivalents, end of period $ 329 $ 1,934
======= =======
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 September 30, 1997 the recorded
investment in notes that are considered to be impaired was $549,000, for which
the related allowance for losses is $224,000. The average recorded investment in
impaired loans during the nine months ended September 30, 1997 and 1996 was
approximately $624,000 and $610,000, respectively.
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 $ 359 $ 359
Provision for losses - -
Write downs (83) -
-------- --------
Ending balance $ 276 $ 359
======== ========
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Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income (loss) 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 nine months
ended September 30, 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 Ventures
The aggregate 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 $ 1,784
Expenses 685 275 1,146 912
Net Income (Loss) (641) 260 (150) 872
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Financing Joint Ventures
The aggregate financial information of the financing joint ventures is
presented below:
September 30, December 31,
1997 1996
------- -------
(Amounts in Thousands)
Assets $ 37 $ 44
Liabilities 11 10
Partners' Capital 26 34
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
(Amounts in Thousands)
Revenue $ 21 $ 15 $ 40 $ 56
Expenses 1 3 5 11
Net Income 20 12 35 45
Foreclosed Cable Systems Joint Ventures
The aggregate financial information of the financing joint ventures is
presented below:
September 30, December 31,
1997 1996
------- -------
(Amounts in Thousands)
Assets $ 1,653 $ 1,635
Liabilities 317 265
Partners' Capital 1,336 1,370
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
(Amounts in Thousands)
Revenue $ 224 $ 229 $ 660 $ 655
Expenses 234 214 682 640
Net Income (Loss) (10) 15 (22) 15
<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 a net loss of $191,000 and $79,000 during the three and nine months
ended September 30, 1997, respectively, as compared to net income of $67,000 and
$235,000 during the same periods in the preceding year. The net loss for the
three and nine months ended September 30 1997, as compared to net income in the
prior year, is attributable to a decline in total revenues.
Total revenues decreased by $247,000 and $412,000 for the three and
nine months ended September 30, 1997, respectively, as compared to the same
periods in the previous year. This decrease is primarily the result of a
decrease in rental income, equity in earnings from joint ventures and other
income. The decrease in earnings from joint ventures will be discussed under
"Joint Ventures". The decline in rental income of $37,000 and $139,000 for the
three and nine months ended September 30, 1997, respectively, compared to the
same periods in the prior year, as well as the decrease in depreciation expense,
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 $1.1 million at September 30, 1997, as compared to $2.8 million
at September 30, 1996.
The decrease in other income of $20,000 and $82,000 for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in the prior year, also contributed to the reduction in total revenues. The
decline in other income is a result of a decrease in interest income generated
from the Partnership's cash account. This decrease is due to a reduction in the
amount of cash held at September 30, 1997 compared to the prior year.
Total expenses for the three months ended September 30, 1997 increased
by $6,000 but decreased for the nine months ended September 30, 1997 by $99,000,
as compared to the same periods in 1996. The increase in total expenses for the
three months ended September 30, 1997 is due to a $28,000 increase in general
and administrative expenses. This increase is a result of an increase in legal
fees incurred during the three months ended September 30, 1997, compared to the
same period in 1996. This increase was partially offset by a decrease of $20,000
in provision for losses on receivables, due to a decrease in provision for early
terminations of financing leases during the three months ended September 30,
1997 compared to 1996, and a decrease of $5,000 in depreciation and amortization
expense.
The decline in total expenses for the nine months ended September 30,
1997 is primarily attributable to decreases in depreciation and amortization
expense of $109,000, compared to the same periods in the previous year. The
decrease in depreciation expense, with respect to the Partnership's leasing
activities, as discussed previously, is a result of the declining equipment
portfolio.
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.
Cable System
The Partnership acquired ownership of a cable system in satisfaction of
a defaulted note receivable held by the Partnership on October 28, 1993. The
Partnership reported cable subscriber revenues of $156,000 and $456,000 for the
<PAGE>
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three and nine months ended September 30, 1997, respectively, and program
services expense of $37,000 and $117,000 for the same periods in 1997, as
compared to cable subscriber revenues of $145,000 and $438,000 for the three and
nine months ended September 30, 1996, respectively, and program services expense
of $35,000 and $106,000 during the same periods in 1996. Both cable subscriber
revenue and program services expense remained relatively the same for the three
and nine months ended September 30, 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 $185,000 and
$210,000 for the three and nine months ended September 30, 1997, respectively,
as compared to the same periods in 1996, is the result of the closure of several
equipment joint ventures during the fourth quarter of 1996, as well as one
equipment joint venture recording provisions for additional depreciation and
losses for notes receivable during the three and nine months ended September 30,
1997.
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 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 nine months ended September 30, 1997, the net cash provided
by leasing, financing and cable television activities was $115,000, compared to
$230,000 for the same period in the prior year. The net decrease in cash
generated is due to a decrease in rental income.
Distributions from joint ventures has become one of the primary sources
of cash generated by the Partnership. Distributions from joint ventures
decreased for the nine months ended September 30, 1997 compared to the same
period in the prior year. The Partnership received distributions from joint
ventures of $242,000 for the nine months ended September 30, 1997, compared to
$367,000 for the same period in 1996. The decline in distributions for the nine
months ended September 30, 1997, compared to 1996, is due to one equipment joint
venture experiencing a decline in cash available for distributions as a result
of a reduction in rental income and sales proceeds received.
As of September 30, 1997, the Partnership owned equipment held for
lease with a purchase price of $1,048,000 and a net book value of $0 compared to
$1,540,000 and $2,000, respectively at September 30, 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 distributions of $2,163,000 and
$2,600,000 for the nine months ended September 30, 1997 and 1996, respectively.
<PAGE>
Page 10 of 12
As a result, the cumulative cash distributions to the Limited Partners are
$84,744,000 and $82,581,000 at September 30, 1997 and 1996, respectively. The
General Partner did not receive distributions during the nine months ended
September 30, 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
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>
Page 12 of 12
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
---- ----- ---------
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 329
<SECURITIES> 0
<RECEIVABLES> 615
<ALLOWANCES> 315
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,958
<DEPRECIATION> 1,177
<TOTAL-ASSETS> 2,707
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,399
<TOTAL-LIABILITY-AND-EQUITY> 2,707
<SALES> 0
<TOTAL-REVENUES> 615
<CGS> 0
<TOTAL-COSTS> 694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (79)
<INCOME-TAX> 0
<INCOME-CONTINUING> (79)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79)
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
