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, 1998
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
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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
preceding requirements for the past 90 days.
Yes __X__ No _____
345,431 Units of Limited Partnership Interest were outstanding as of June 30,
1998.
Transitional small business disclosure format:
Yes _____ No __X__
Page 1 of 12
<PAGE>
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,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $1,159 $ 333
Accounts receivable (net of allowance
for losses on accounts receivable of $17
and $37 at June 30, 1998 and December 31,
1997, respectively) 26 33
Notes receivable (net of allowance for losses
on notes receivable of $0 and $55 at June 30,
1998 and December 31, 1997, respectively) -- 601
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$484 and $715 at June 30, 1998 and December
31, 1997, respectively) -- --
Property, cable systems and equipment (net
of accumulated depreciation of $546 and
$472 at June 30, 1998 and December 31,
1997, respectively) 713 774
Cable subscriber lists and franchise rights
(net of accumulated amortization of $754
and $660 at June 30, 1998 and December 31,
1997, respectively) 538 632
Investment in joint ventures 402 410
Other assets 210 179
------ ------
Total Assets $3,048 $2,962
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 352 $ 352
Liquidation fees payable to General Partner 953 953
------ ------
Total Liabilities 1,305 1,305
------ ------
Partners' Capital
General Partner 360 348
Limited Partners, 480,000 units
authorized, 366,432 units issued and
345,431 and 345,496 units outstanding
at June 30, 1998 and December 31, 1997,
respectively 1,364 1,298
Unrealized gains on available-for-sale securities 19 11
------ ------
Total Partners' Capital 1,743 1,657
------ ------
Total Liabilities and Partners' Capital $3,048 $2,962
====== ======
The accompanying notes are an integral part of these statements.
2
<PAGE>
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,
1998 1997 1998 1997
---- ---- ---- ----
INCOME
Cable subscriber revenues $ 150 $ 154 $ 299 $ 300
Rental income 7 7 48 81
Equity in earnings from joint
ventures, net 10 75 15 107
Interest income, notes receivable -- -- 151 18
Other income 18 21 33 35
----- ----- ----- -----
Total Income 185 257 546 541
----- ----- ----- -----
EXPENSES
Depreciation and amortization 72 72 168 144
Lease related operating expenses -- -- -- 2
Cable systems operations 75 73 146 152
Management fees to General Partner 6 9 60 21
Provision for losses on receivables 1 2 3 3
Reimbursed administrative cost to
General Partner 2 -- 3 --
General and administrative expenses 51 50 110 110
----- ----- ----- -----
Total Expenses 207 206 490 432
----- ----- ----- -----
Net income (loss) before income taxes (22) 51 56 109
Income tax benefit 1 -- 22 3
----- ----- ----- -----
NET INCOME (LOSS) $ (21) $ 51 $ 78 $ 112
===== ===== ===== =====
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $(.05) $ .12 $ .19 $ .27
===== ===== ===== =====
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ -- $3.78
===== ===== ===== =====
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (3) $ 8 $ 12 $ 17
Limited Partners (18) 43 66 95
----- ----- ----- -----
$ (21) $ 51 $ 78 $ 112
===== ===== ===== =====
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
---- ----
Operating Activities:
Net income $ 78 $ 112
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 168 144
Gain on sale of equipment (1) (2)
Equity in earnings from joint ventures, net (15) (107)
Provision for losses on accounts receivable 3 3
Decrease (increase) in accounts receivable 4 (10)
Decrease in accounts payable and accrued expenses -- (18)
Increase in deferred income tax asset (22) (2)
Increase in other assets (1) (12)
------- -------
Net cash provided by operating activities 214 108
------- -------
Investing Activities:
Principal payments, notes receivable 601 --
Proceeds from sale of equipment 1 2
Distributions from joint ventures 23 202
Property, cable systems and equipment (13) (27)
------- -------
Net cash provided by investing activities 612 177
------- -------
Financing Activities:
Distributions to partners -- (1,307)
------- -------
Net cash used by financing activities -- (1,307)
------- -------
Increase (decrease) in cash and cash equivalents 826 (1,022)
Cash and cash equivalents, beginning of period 333 2,155
------- -------
Cash and cash equivalents, end of period $ 1,159 $ 1,133
======= =======
The accompanying notes are an integral part of these statements.
4
<PAGE>
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.
The Partnership Agreement stipulates the methods by which income will
be allocated to the General Partner and the limited partners. Such allocations
will be made using income or loss calculated under Generally Accepted Accounting
Principles for book purposes, which varies from income or loss calculated for
tax purposes.
The calculation of items of income and loss for book and tax purposes
may result in book basis capital accounts that vary from the tax basis capital
accounts. The requirement to restore any deficit capital balances by the General
Partner will be determined based on the tax basis capital accounts. At
liquidation of the Partnership, the General Partner's remaining book basis
capital accounts will be reduced to zero through the allocation of income or
loss.
Phoenix Cablevision of Oregon, Inc. has entered into an Asset Purchase
Agreement dated July 9, 1998 to sell all or substantially all of its assets with
a net carrying value of $1.3 million at June 30, 1998 for $2 million. Cash,
accounts receivable, marketable securities and similar investments will be
excluded from the sale.
Note 2. Reclassification.
----------------
Reclassification - Certain 1997 amounts have been reclassified to
conform to the 1998 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, 1998, the net investment in
notes is $0. The average recorded investment in impaired loans during the six
5
<PAGE>
months ended June 30, 1998 and 1997 was approximately $27,000 and $661,000,
respectively.
The activity in the allowance for losses on notes receivable during the
six months ended June 30, is as follows:
1998 1997
---- ----
(Amounts in Thousands)
Beginning balance $ 55 $359
Provision for losses -- --
Write downs (55) --
---- ----
Ending balance $-- $359
==== ====
The Partnership wrote-off the outstanding note receivable balance of
$55,000 during the three months ended June 30, 1998 from a cable television
system operator which was considered to be impaired. This note receivable had
been fully reserved for in a previous year.
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 partners' share of net income (loss) and distributions, and
the weighted average number of units outstanding of 345,431 and 345,974 for the
six months ended June 30, 1998 and 1997, respectively. 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 as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $942 $988
Liabilities 50 58
Partners' Capital 892 930
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 18 $466 $ 48 $952
Expenses 2 252 16 461
Net Income 16 214 32 491
6
<PAGE>
Financing Joint Ventures
- ------------------------
The aggregate financial information of the equipment joint ventures is
presented as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $49 $39
Liabilities 10 11
Partners' Capital 39 28
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $42 $ 6 $62 $20
Expenses 2 2 3 5
Net Income 40 4 59 15
Foreclosed Cable Systems Joint Venture
- --------------------------------------
The aggregate financial information of the foreclosed cable systems
joint ventures is presented as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $1,795 $1,809
Liabilities 343 358
Partners' Capital 1,452 1,451
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 229 $ 225 $ 448 $ 436
Expenses 222 225 447 448
Net Income (Loss) 7 -- 1 (12)
7
<PAGE>
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 IV and Subsidiary (the Partnership)
reported a net loss of $21,000 and net income of $78,000 during the three and
six months ended June 30, 1998, respectively, as compared to net income of
$51,000 and $112,000 during the same periods in the preceding year.
Total revenues decreased by $72,000 for the three months ended June 30,
1998, as compared to the same period in the previous year. This decrease is
primarily the result of a decrease in earnings from joint ventures. In contrast,
total revenues increased by $5,000 for the six months ended June 30, 1998, as
compared to the same period in the previous year. This increase is due to an
increase in interest income from notes receivable of $133,000, offset by a
decrease in rental income of $33,000 and earnings from joint ventures of
$92,000.
The increase in interest income from notes receivable of $133,000 for
the six months ended June 30, 1998, compared to the same period in the prior
year, is due to the Partnership receiving settlement proceeds from a defaulted
notes receivable. The Partnership received proceeds of $752,000 as a settlement
on a note with a carrying value of $601,000.
The decline in rental income for the six months ended June 30, 1998,
compared to the same period in the prior year, 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
$599,000 at June 30, 1998, as compared to $2.1 million at June 30, 1997.
Total expenses increased by $1,000 and $58,000 for the three and six
months ended June 30, 1998, respectively, as compared to the same periods in the
prior year. The increase in expenses, for the six months ended June 30, 1998, is
primarily attributable to an increase in management fees to the General Partner
of $39,000 and an increase in depreciation expense of $24,000. The increase in
management fees is attributable to the settlement proceeds received from a
defaulted notes receivable, previously discussed. Depreciation and amortization
increased due to an increase in the cable system depreciation.
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.
Cable System
- ------------
The Partnership acquired a cable system in satisfaction of a defaulted
note receivable held by the Partnership. Both cable subscriber revenue and cable
system operations expenses remained relatively the same for the six months ended
June 30, 1998, as compared to the same period in 1997.
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
8
<PAGE>
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
liquidated.
Earnings from equipment and financing joint ventures decreased by
$65,000 and $92,000 for the three and six months ended June 30, 1998,
respectively, as compared to the same periods in the prior year. The decrease in
earnings from equipment joint ventures of $70,000 and $99,000, for the three and
six months ended June 30, 1998, respectively, is a result of one equipment joint
venture having sold its remaining equipment and note receivable during the year
ended December 31, 1997. The increase in earnings from financing joint ventures
of $5,000 and $7,000, for the three and six months ended June 30, 1998,
respectively, is due to the increase in interest income from notes receivable.
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. 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, 1998, the net cash provided by
leasing, financing and cable television activities was $815,000, compared to
$108,000 for the same period in the year. The net increase in cash generated is
due to the receipt of a note receivable settlement during the six months ended
June 30, 1998.
Distributions from joint ventures is another source of cash generated
by the Partnership. The Partnership received distributions from joint ventures
of $23,000 for the six months ended June 30, 1998, compared to $202,000 for the
same period in 1997. Distributions from equipment joint ventures decreased
$182,000 for the six months ended June 30, 1998, compared to the same period in
the prior year, due to the closure of one equipment joint venture as well as
another equipment joint venture experiencing a decline in cash available for
distributions as a result of a reduction in rental income and sales proceeds
received. Distributions from financing joint ventures were $7,000 and $4,000 for
the six months ended June 30, 1998 and 1997, respectively.
As of June 30, 1998, the Partnership owned equipment held for lease
with a purchase price of $561,000 and a net book value of $0 compared to
$1,859,000 and $0, respectively at June 30, 1997. 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 $0 and $1,307,000 for
the six months ended June 30, 1998 and 1997, respectively. As a result, the
cumulative cash distributions to the Limited Partners are $84,744,000 and
$83,887,000 at June 30, 1998 and 1997, respectively. The General Partner did not
receive distributions during the six months ended June 30, 1998 and 1997.
As the Partnership's asset portfolio continues to decline as a result
of the on-going liquidation of assets, it is expected that the cash generated
from leasing operations will also decline. It is anticipated that the
Partnership will be fully liquidated by its termination date of December 31,
1998.
9
<PAGE>
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.
10
<PAGE>
PHOENIX LEASING INCOME FUND VII
June 30, 1998
Part II. Other Information.
-----------------
Item 1. Legal Proceedings.
-----------------
On October 28, 1997 a Class Action Complaint was filed against
Phoenix Leasing Incorporated, Phoenix Leasing Associates, II and III L.P.,
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 seeks 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 fidicuary
duty and breach of contract by the Companies as general partners of the
Partnerships. Plaintiffs are expected to serve an amended complaint on August
14, 1998. Discovery has not commenced. The Companies intend to vigorously defend
the Complaint.
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
11
<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 INCOME FUND VII
-------------------------------
(Registrant)
Date Title Signature
---- ----- ---------
August 13, 1998 Executive Vice President, /S/ GARY W. MARTINEZ
- --------------- Chief Operating Officer --------------------
and a Director of (Gary W. Martinez)
Phoenix Leasing Incorporated
General Partner
August 13, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- --------------- Treasurer and a Director of --------------------
Phoenix Leasing Incorporated (Howard Solovei)
General Partner
August 13, 1998 Senior Vice President, /S/ BRYANT J. TONG
- --------------- Financial Operations --------------------
(Principal Accounting Officer) (Bryant J. Tong)
and a Director of
Phoenix Leasing Incorporated
General Partner
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,159
<SECURITIES> 0
<RECEIVABLES> 43
<ALLOWANCES> 17
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,743
<DEPRECIATION> 1,030
<TOTAL-ASSETS> 3,035
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,730
<TOTAL-LIABILITY-AND-EQUITY> 3,035
<SALES> 0
<TOTAL-REVENUES> 546
<CGS> 0
<TOTAL-COSTS> 490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56
<INCOME-TAX> (22)
<INCOME-CONTINUING> 78
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
