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 June 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 June 30,
1997.
Transitional small business disclosure format:
Yes _____ No __X__
<PAGE>
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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)
June 30, December 31,
ASSETS 1997 1996
------ ------
Cash and cash equivalents $1,133 $2,155
Accounts receivable (net of allowance for
losses on accounts receivable of $41 at June
30, 1997 and December 31, 1996, respectively) 37 30
Notes receivable (net of allowance for losses on
notes receivable of $359 at June 30, 1997 and
December 31, 1996) 302 302
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,295 and
$1,316 at June 30, 1997 and December 31, 1996,
respectively) -- 2
Property, cable systems and equipment (net of
accumulated depreciation of $420 and $358 at
June 30, 1997 and December 31, 1996,
respectively) 806 841
Cable subscriber lists and franchise rights (net
of accumulated amortization of $592 and $512
at June 30, 1997 and December 31, 1996,
respectively) 700 780
Investment in joint ventures 635 730
Other assets 165 151
------ ------
Total Assets $3,778 $4,991
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 379 $ 397
Liquidation fees payable to General Partner 953 953
------ ------
Total Liabilities 1,332 1,350
------ ------
Partners' Capital
General Partner 338 322
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units
outstanding at June 30, 1997 and December
31, 1996 2,101 3,312
Unrealized gains on available-for-sale
securities 7 7
------ ------
Total Partners' Capital 2,446 3,641
------ ------
Total Liabilities and Partners' Capital $3,778 $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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- -----
INCOME
Rental income $ 7 $ 66 $ 81 $ 183
Cable subscriber revenues 154 147 300 293
Equity in earnings from
joint ventures, net 75 84 107 133
Interest income, notes receivable -- -- 18 --
Other income 21 57 35 97
----- ----- ----- -----
Total Income 257 354 541 706
----- ----- ----- -----
EXPENSES
Depreciation and amortization 72 114 144 248
Lease related operating expenses -- 7 2 13
Program service, cable system 39 37 80 72
Management fees to General Partner 9 17 21 33
Provision for (recovery of) losses
on receivables 2 (16) 3 (31)
General and administrative expenses 84 109 182 203
----- ----- ----- -----
Total Expenses 206 268 432 538
----- ----- ----- -----
Net income before income taxes 51 86 109 168
Income tax benefit (expense) -- -- 3 (1)
----- ----- ----- -----
NET INCOME $ 51 $ 86 $ 112 $ 167
===== ===== ===== =====
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .12 $ .21 $ .27 $ .41
===== ===== ===== =====
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $-- $-- $3.78 $3.78
===== ===== ===== =====
ALLOCATION OF NET INCOME:
General Partner $ 8 $ 13 $ 17 $ 25
Limited Partners 43 73 95 142
----- ----- ----- -----
$ 51 $ 86 $ 112 $ 167
===== ===== ===== =====
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)
Six Months Ended
June 30,
1997 1996
------- -------
Operating Activities:
Net income $ 112 $ 167
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 144 248
Gain (loss) on sale of equipment (2) 28
Equity in earnings from joint ventures, net (107) (133)
Provision for (recovery of) early
termination, financing leases -- (34)
Provision for losses on accounts receivable 3 3
Gain on sale of marketable securities -- (5)
Increase in accounts receivable (10) (13)
Decrease in accounts payable and
accrued expenses (18) (221)
Decrease (increase) in deferred income tax asset (2) 1
Increase in other assets (12) (1)
------- -------
Net cash provided by operating activities 108 40
------- -------
Investing Activities:
Principal payments, financing leases -- 34
Principal payments, notes receivable -- 13
Proceeds from sale of equipment 2 21
Proceeds from sale of securities -- 11
Distributions from joint ventures 202 262
Property, cable systems and equipment (27) (33)
------- -------
Net cash provided by investing activities 177 308
------- -------
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 (1,022) (959)
Cash and cash equivalents, beginning of period 2,155 3,940
------- -------
Cash and cash equivalents, end of period $ 1,133 $ 2,981
======= =======
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 June 30, 1997 the recorded investment in
notes that are considered to be impaired was $661,000, for which the related
allowance for losses is $235,000. The average recorded investment in impaired
loans during the six months ended June 30, 1997 was approximately $661,000.
At June 30, 1996, the recorded investment in notes that are considered
to be impaired was $609,000. Included in this amount was $496,000 of impaired
notes for which the related allowance for losses is $11,000 and $113,000 of
impaired notes for which there is no allowance. The average recorded investment
in impaired loans during the six months ended June 30, 1996 was approximately
$611,000.
The activity in the allowance for losses on notes receivable during the
six months ended June 30, 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 six months ended June 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 Venture
The aggregate financial information of the equipment joint venture is
presented below:
June 30, December 31,
1997 1996
---- ----
(Amounts in Thousands)
Assets $2,304 $2,700
Liabilities 425 372
Partners' Capital 1,879 2,328
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 466 $ 685 $ 952 $1,248
Expenses 252 303 461 636
Net Income 214 382 491 612
Financing Joint Ventures
The aggregate financial information of the financing joint venture is
presented below:
June 30, December 31,
1997 1996
---- ----
(Amounts in Thousands)
Assets $ 32 $ 44
Liabilities 11 10
Partners' Capital 21 34
<PAGE>
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Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 6 $ 22 $ 20 $ 42
Expenses 2 3 5 8
Net Income 4 19 15 34
Foreclosed Cable Systems Joint Venture
The aggregate financial information of the financing joint venture is
presented below:
June 30, December 31,
1997 1996
---- ----
(Amounts in Thousands)
Assets $ 1,673 $ 1,635
Liabilities 323 265
Partners' Capital 1,350 1,370
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 225 $ 226 $ 436 $ 432
Expenses 225 216 448 432
Net Income (Loss) - 10 (12) -
<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 $51,000 and $112,000 during the three and six months
ended June 30, 1997, respectively, as compared to net income of $86,000 and
$167,000 during the same periods in the preceding year. The decrease in net
income for the three and six months ended June 30 1997, as compared to the prior
year, is attributable to a decline in total revenues that exceeded the decline
in total expenses.
Total revenues decreased by $97,000 and $165,000 for the three and six
months ended June 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 and other income. The decline in rental income of $59,000 and $102,000
for the three and six months ended June 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 $2.1 million at June 30, 1997, as compared to $3.1 million at
June 30, 1996.
The decrease in other income of $36,000 and $62,000 for the three and
six months ended June 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 June 30, 1997 compared to the prior year.
The decrease in total revenues as a result of a decline in rental income
and other income is partially offset by an increase in interest income from
notes receivable of $18,000 for the six months ended June 30, 1997, compared to
the same period in the prior year. This is due to the Partnership receiving a
disbursement of proceeds during 1997 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 liabilities
which may have arisen after the payoff.
Total expenses for the three and six months ended June 30, 1997
decreased by $62,000 and $106,000, respectively, as compared to the same periods
in 1996. The decline in total expenses is primarily attributable to decreases in
depreciation and amortization expense of $42,000 and $104,000 for the three and
six months ended June 30, 1997, respectively, 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.
Another factor contributing to the decrease in total expenses is the
decline in general and administrative expenses of $25,000 and $21,000 for the
three and six months ended June 30, 1997, respectively, as compared to the same
periods in 1996. The decrease in general and administrative expenses is a result
of a decline in legal fees incurred during the three and six months ended June
30, 1997, compared to the same periods in 1996.
Partially offsetting the decrease in depreciation and amortization, as
well as, the decrease in general and administrative expenses is an increase in
provision for losses on receivables of $18,000 and $34,000 for the three and six
months ended June 30, 1997, respectively, as compared to the same periods in the
prior year. During the three and six months ended June 30, 1996, the Partnership
made an adjustment to the allowance for losses on receivables of $16,000 and
$31,000, respectively. This was a result of a portion of an allowance
<PAGE>
Page 9 of 12
for early terminations of finance leases being recovered and recognized as
income at June 30, 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
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 $154,000 and $300,000 for the three and six months ended June 30,
1997, respectively, and program services expense of $39,000 and $80,000 for the
same periods in 1997, as compared to cable subscriber revenues of $147,000 and
$293,000 for the three and six months ended June 30, 1996, respectively, and
program services expense of $37,000 and $72,000 during the same periods in 1996.
Both cable subscriber revenue and program services expense remained relatively
the same for the three and six months ended June 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 $9,000 and
$26,000 for the three and six months ended June 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 experiencing declines in rental income and gain on sale
of equipment.
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 six months ended June 30, 1997, the net cash provided by
leasing, financing and cable television activities was $108,000, compared to
$87,000 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 for the six months ended June 30, 1997 compared to the same period in
the prior year. The Partnership received distributions from joint ventures of
$202,000 for the six months ended June 30, 1997, compared to $262,000 for the
same period in 1996. The decline in distributions for the six months ended June
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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 June 30, 1997, the Partnership owned equipment held for lease with
a purchase price of $1,859,000 and a net book value of $0 compared to $1,350,000
and $6,000, respectively at June 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 $1,307,000 for the six
months ended June 30, 1997 and 1996. As a result, the cumulative cash
distributions to the Limited Partners are $83,887,000 and $81,288,000 at June
30, 1997 and 1996, respectively. The General Partner did not receive
distributions during the six months ended June 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
June 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>
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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
---- ----- ---------
August 13, 1997 Senior Vice President /S/ GARY W. MARTINEZ
- -------------------- and a Director of ----------------------
Phoenix Leasing Incorporated (Gary W. Martinez)
General Partner
August 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
August 13, 1997 Senior Vice President, /S/ BRYANT J. TONG
- -------------------- Financial Operations of ----------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,133
<SECURITIES> 0
<RECEIVABLES> 739
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,521
<DEPRECIATION> 1,715
<TOTAL-ASSETS> 3,778
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,446
<TOTAL-LIABILITY-AND-EQUITY> 3,778
<SALES> 0
<TOTAL-REVENUES> 541
<CGS> 0
<TOTAL-COSTS> 432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 109
<INCOME-TAX> (3)
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
