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, 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
requirements for the past 90 days.
Yes __X__ No _____
345,431 Units of Limited Partnership Interest were outstanding as of March 31,
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)
March 31, December 31,
ASSETS 1998 1997
---- ----
Cash and cash equivalents $1,158 $ 333
Accounts receivable (net of allowance
for losses on accounts receivable of $23
and $37 at March 31, 1998 and December 31,
1997, respectively) 25 33
Notes receivable (net of allowance for
losses on notes receivable of $55 at
March 31, 1998 and December 31, 1997) - 601
Equipment on operating leases and held for
lease (net of accumulated depreciation
of $660 and $715 at March 31, 1998
and December 31, 1997, respectively) - -
Property, cable systems and equipment
(net of accumulated depreciation of $514
and $472 at March 31, 1998 and December
31, 1997, respectively) 739 774
Cable subscriber lists and franchise rights
(net of accumulated amortization of
$713 and $660 at March 31, 1998 and
December 31, 1997, respectively) 578 632
Investment in joint ventures 407 410
Other assets 218 179
------ ------
Total Assets $3,125 $2,962
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 390 $ 352
Liquidation fees payable to General Partner 953 953
------ ------
Total Liabilities 1,343 1,305
------ ------
Partners' Capital
General Partner 363 348
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,431 and
345,496 units outstanding at March 31,
1998 and December 31, 1997, respectively 1,382 1,298
Unrealized gains on available-for-sale securities 37 11
------ ------
Total Partners' Capital 1,782 1,657
------ ------
Total Liabilities and Partners' Capital $3,125 $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
March 31,
1998 1997
---- ----
INCOME
Cable subscriber revenue $ 150 $ 146
Interest income, notes receivable 151 18
Rental income 41 73
Equity in earnings from joint ventures, net 5 32
Other income 15 15
----- -----
Total Income 362 284
----- -----
EXPENSES
Depreciation and amortization 96 72
Cable system operations 72 79
Management fees to General Partner 54 13
Lease related operating expenses - 1
Reimbursed administrative costs to General Partner 1 -
Provision for losses on receivables 1 -
General and administrative expenses 59 61
----- -----
Total Expenses 283 226
----- -----
Net income before income taxes 79 58
Income tax benefit 20 3
----- -----
NET INCOME $ 99 $ 61
===== =====
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .24 $ .15
===== =====
DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ - $3.78
===== =====
ALLOCATION OF NET INCOME:
General Partner $ 15 $ 9
Limited Partners 84 52
----- -----
$ 99 $ 61
===== =====
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)
Three Months Ended
March 31,
1998 1997
---- ----
Operating Activities:
Net income $ 99 $ 61
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 96 72
Gain on sale of equipment (1) (1)
Equity in earnings from joint ventures, net (5) (32)
Provision for losses on accounts receivable 1 -
Decrease (increase) in accounts receivable 7 (27)
Increase (decrease) in accounts payable
and accrued expenses 38 (26)
Increase in deferred income tax asset (20) (3)
Decrease (increase) in other assets 6 (8)
------- -------
Net cash provided by operating activities 221 36
------- -------
Investing Activities:
Principal payments, notes receivable 601 -
Proceeds from sale of equipment 1 1
Distributions from joint ventures 8 118
Property, plant and equipment, cable systems (6) (23)
------- -------
Net cash provided by investing activities 604 96
------- -------
Financing Activities:
Distributions to partners - (1,307)
------- -------
Net cash used by financing activities - (1,307)
------- -------
Increase (decrease) in cash and cash equivalents 825 (1,175)
Cash and cash equivalents, beginning of period 333 2,155
------- -------
Cash and cash equivalents, end of period $ 1,158 $ 980
======= =======
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.
Phoenix Cablevision of Oregon, Inc. has accepted and agreed to the
terms stated on a Letter of Intent dated February 11, 1998 to sell all or
substantially all of its assets, with a net carrying value of $1.5 million at
December 31, 1997 for $2 million. Cash, accounts receivable, marketable
securities and similar investments will be excluded from the sale. This Letter
of Intent is subject to a definitive asset purchase agreement which is currently
being negotiated with the potential buyer.
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 March 31, 1998 the recorded investment in
notes that are considered to be impaired was $55,000, for which the related
allowance for losses is $55,000. The average recorded investment in impaired
loans during the three months ended March 31, 1998 and 1997 was approximately
$55,000 and $662,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
three months ended March 31, is as follows:
1998 1997
---- ----
(Amounts In Thousands)
Beginning balance $ 55 $359
Provision for losses - -
Write downs - -
---- ----
Ending balance $ 55 $359
==== ====
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 345,431 and 345,974 for the three months
ended March 31, 1998 and 1997. 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,
1998 1997
---- ----
(Amounts in Thousands)
Assets $ 983 $ 988
Liabilities 49 58
Partners' Capital 934 930
Three Months Ended
March 31,
1998 1997
---- ----
(Amounts in Thousands)
Revenue $ 30 $ 486
Expenses 14 209
Net Income 16 277
6
<PAGE>
Financing Joint Ventures
The aggregate financial information of the financing joint venture is
presented below:
March 31, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $ 35 $ 39
Liabilities 10 11
Partners' Capital 25 28
Three Months Ended
March 31,
1998 1997
---- ----
(Amounts in Thousands)
Revenue $ 19 $ 14
Expenses 0 3
Net Income 19 11
Foreclosed Cable Systems Joint Venture
The aggregate financial information of the financing joint venture is
presented below:
March 31, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $ 1,785 $ 1,809
Liabilities 340 358
Partners' Capital 1,445 1,451
Three Months Ended
March 31,
1998 1997
---- ----
(Amounts in Thousands)
Revenue $ 220 $ 210
Expenses 226 223
Net Loss (6) (13)
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 VII and Subsidiary (the Partnership)
reported net income of $99,000 during the three months ended March 31, 1998, as
compared to net income of $61,000 during the same period in the preceding year.
Total revenues increased by $78,000 for the three months ended March
31, 1998, as compared to the previous year. This increase is primarily the
result of a $133,000 increase in interest income from notes receivable. This was
partially offset by a decrease in rental income with respect to the
Partnership's leasing activities, which 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 million at March 31,
1998, as compared to $2.1 million at March 31, 1997.
The increase in interest income from notes receivable of $133,000 for
the three months ended March 31, 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 settlement on
a note with a net carrying value of $601,000.
Total expenses for the three months ended March 31, 1998 increased by
$57,000, as compared to the same period in 1997. The increase is primarily
attributable to an increase in management fees to the General Partner of
$41,000. This increase in management fees is directly attributable to the
previously mentioned settlement proceeds received from a defaulted notes
receivable. Depreciation and amortization increased $24,000, compared to the
same period in the prior year, 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 as the portfolio is liquidated.
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. Both cable subscriber revenue and cable
system operations expenses remained relatively the same for the three months
ended March 31, 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
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.
8
<PAGE>
Earnings from equipment and financing joint ventures decreased by
$27,000 for the three months ended March 31, 1998, as compared to same period in
the prior year. The decrease in earnings of $28,000 from equipment joint
ventures for the three months ended March 31, 1998, is a result of one equipment
joint venture having sold its remaining equipment and notes receivable during
the year ended December 31, 1997. The increase in earnings from financing joint
ventures of $1,000 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 three months ended March 31, 1998, the net cash provided by
leasing, financing and cable television activities was $823,000, compared to
$36,000 for the same period in the prior year. The net increase in cash
generated is due to the receipt of a note receivable settlement during the three
months ended March 31, 1998.
Distributions from joint ventures is another source of cash generated
by the Partnership. The Partnership received distributions from equipment joint
ventures of $4,000 for the three months ended March 31, 1998, compared to
$115,000 for the same period in 1997. Distributions from joint ventures
decreased $111,000 for the three months ended March 31, 1998 compared to the
same period in the prior year, due to the closure of one joint venture as well
as another 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 $4,000 and $3,000 for
the three months ended March 31, 1998 and 1997, respectively.
As of March 31, 1998, the Partnership owned equipment held for lease
with a purchase price of $974,000 and a net book value of $0 compared to
$959,000 and $0, respectively at March 31, 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 three months ended March 31, 1998 and 1997, respectively. As a result, the
cumulative cash distributions to the Limited Partners are $84,744,000 and
$83,887,000 at March 31, 1998 and 1997, respectively. The General Partner did
not receive distributions during the three months ended March 31, 1998 and 1997.
The Partnership will not be making any further distributions until its
termination at which time a final distribution of excess cash, if any, will be
distributed.
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. 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
March 31, 1998
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
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
---- ----- ---------
May 13, 1998 Executive Vice President, /S/ GARY W. MARTINEZ
- --------------- Chief Operating Officer --------------------
and a Director of (Gary W. Martinez)
Phoenix Leasing Incorporated
General Partner
May 13, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- --------------- Treasurer and a Director of --------------------
Phoenix Leasing Incorporated (Howard Solovei)
General Partner
May 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
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,158
<SECURITIES> 0
<RECEIVABLES> 103
<ALLOWANCES> 78
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,913
<DEPRECIATION> 1,174
<TOTAL-ASSETS> 3,125
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,782
<TOTAL-LIABILITY-AND-EQUITY> 3,125
<SALES> 0
<TOTAL-REVENUES> 362
<CGS> 0
<TOTAL-COSTS> 283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 79
<INCOME-TAX> (20)
<INCOME-CONTINUING> 99
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
