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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 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 0-15287
PHOENIX LEASING CASH DISTRIBUTION FUND II
- --------------------------------------------------------------------------------
Registrant
California 68-0032426
- ----------------------------- ----------------------------------
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 _____
379,583 Units of Limited Partnership Interest were outstanding as of June 30,
1997.
Transitional small business disclosure format:
Yes _____ No __X__
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Part I. Financial Information
Item 1. Financial Statements
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
June 30, December 31,
1997 1996
------ ------
ASSETS
Cash and cash equivalents $3,166 $3,077
Accounts receivable (net of allowance for
losses on accounts receivable of $21 and $18
at June 30, 1997 and December 31, 1996,
respectively) 134 137
Notes receivable (net of allowance for losses
on notes receivable of $358 at June 30, 1997
and December 31, 1996) 1,179 1,263
Equipment on operating leases and held for lease
(net of accumulated depreciation of $2,467 and
$3,674 at June 30, 1997 and December 31, 1996,
respectively) 18 81
Investment in joint ventures 572 703
Cable systems, property and equipment (net of
accumulated depreciation of $898 and $808 at
June 30, 1997 and December 31, 1996, respectively) 863 895
Deferred income tax asset 117 115
Other assets 188 242
------ ------
Total Assets $6,237 $6,513
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 576 $ 558
Minority interest in subsidiary 443 447
------ ------
Total Liabilities 1,019 1,005
------ ------
Partners' Capital
General Partner 113 111
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units
outstanding at June 30, 1997 and December
31, 1996 5,079 5,328
Unrealized gains on available-for-sale securities 26 69
------ ------
Total Partners' Capital 5,218 5,508
------ ------
Total Liabilities and Partners' Capital $6,237 $6,513
====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
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 $ 69 $ 147 $ 209 $ 292
Gain on sale of equipment 88 20 121 47
Equity in earnings from joint
ventures, net 74 120 138 195
Cable subscriber revenue 154 149 297 283
Interest income, notes receivable 1 -- 13 54
Other income 45 37 84 64
------ ------ ------ ------
Total Income 431 473 862 935
------ ------ ------ ------
EXPENSES
Depreciation and amortization 63 67 169 138
Lease related operating expenses 18 39 86 81
Program services, cable systems 51 48 101 93
Management fees to General Partner
and affiliate 13 16 28 32
Reimbursed administrative costs to
General Partner 24 34 65 67
Legal expense 32 21 56 46
General and administrative expenses 66 67 134 151
------ ------ ------ ------
Total Expenses 267 292 639 608
------ ------ ------ ------
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 164 $ 181 $ 223 $ 327
Minority interest in losses (earnings)
of subsidiary -- (1) 4 5
Income tax expense of subsidiary -- (3) -- --
------ ------ ------ ------
NET INCOME $ 164 $ 177 $ 227 $ 332
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .43 $ .47 $ .59 $ .87
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ 1.25 $ .63
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 1 $ 2 $ 2 $ 4
Limited Partners 163 175 225 328
------ ------ ------ ------
$ 164 $ 177 $ 227 $ 332
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
1997 1996
------- -------
Operating Activities:
Net income $ 227 $ 332
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 169 138
Gain on sale of equipment (121) (47)
Equity in earnings from joint ventures, net (138) (195)
Provision for losses on accounts receivable 3 3
Decrease (increase) in deferred income tax asset (2) 3
Minority interest in earnings of subsidiary (4) (5)
Increase in accounts receivable -- (23)
Increase (decrease) in accounts payable
and accrued expenses 18 (12)
Increase in other assets (9) (2)
------- -------
Net cash provided by operating activities 143 192
------- -------
Investing Activities:
Principal payments, financing leases -- 153
Principal payments, notes receivable 84 2
Proceeds from sale of equipment 125 47
Distribution from joint ventures 269 379
Cable systems, property and equipment (58) (33)
Payment of acquisition fees -- --
------- -------
Net cash provided by investing activities 420 548
------- -------
Financing Activities:
Distributions to partners (474) (239)
------- -------
Net cash used by financing activities (474) (239)
------- -------
Increase in cash and cash equivalents 89 501
Cash and cash equivalents, beginning of period 3,077 1,951
------- -------
Cash and cash equivalents, end of period $ 3,166 $ 2,452
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II 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. Notes Receivable.
Impaired Notes Receivable. At June 30, 1997 and 1996, the recorded
investment in notes that are considered to be impaired was $1,537,000 and
$1,746,000, respectively, for which the related allowance for losses was $23,000
and $358,000, respectively. The average recorded investment in impaired loans
during the six months ended June 30, 1997 and 1996 was approximately $1,552,000
and $890,000, respectively.
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 $ 358 $ 358
Provision for losses - -
Write downs - -
------ ------
Ending balance $ 358 $ 358
====== ======
Note 4. 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 Concept Cablevision, 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 tax purposes,
deferred taxes are provided for such differences using the liability method.
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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 partners' share of net income and distributions, and the weighted
average number of units outstanding of 379,583 for the six month periods 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.
Note 6. Investment in Joint Ventures.
Equipment Joint Venture
The aggregate combined financial information of the equipment joint
venture is presented below:
June 30, December 31,
1997 1996
---- ----
(Amounts in Thousands)
Assets $ 2,545 $ 2,851
Liabilities 814 733
Partners' Capital 1,731 2,118
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 636 $ 995 $ 1,192 $ 1,887
Expenses 348 523 669 1,088
Net Income 288 472 523 799
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Phoenix Leasing Cash Distribution Fund II and Subsidiary (the Partnership)
reported net income of $164,000 and $227,000 for the three and six months ended
June 30, 1997, as compared to net income of $177,000 and $332,000 during the
same period in 1996.
Total revenues decreased by $42,000 and $73,000 during the three and six
months ended June 30, 1997, as compared to the same period in 1996. The primary
factors contributing to the decrease in revenues was a decrease in rental income
of $78,000 and $83,000 and a decrease in equity in earnings from joint ventures
of $46,000 and $57,000, for the three and six months ended June 30, 1997,
respectively, as compared to the same period in 1996. This was offset by an
increase in cable subscriber revenue of $5,000 and $14,000, and an increase in
gain on sale of equipment of $68,000 and $74,000, for the three months ended
June 30, 1997, respectively.
The decline in rental income is a result of a reduction in the amount of
equipment owned by the Partnership. At June 30, 1997, the Partnership owned
equipment with an aggregate original cost of $3.6 million, compared to $6
million at June 30, 1996.
The small increase in other income was attributable to increases in
interest income earned on cash and cash equivalents, a result of the Partnership
maintaining a higher average cash balance during the three and six months ended
June 30, 1997, as compared to the same period in 1996.
Total expenses decreased by $25,000 during the three months ended June 30,
1997, but increased by $31,000 for the six months ended June 30, 1997, as
compared to the same period in 1996. The decrease in total expenses, for the
three months ended June 30, 1997, is attributable to a decrease in depreciation
and amortization expense of $4,000 and a decrease in lease related operating
expenses of $21,000. The increase in total expenses, for the six months ended
June 30, 1997, is attributable to an increase in depreciation and amortization
expense of $31,000, an increase in lease related operating expenses of $5,000
and an increase in program services from cable systems of $8,000, offset by a
decrease in general and administrative expenses of $17,000.
Lease related operating expenses increased, for the six months ended June
30, 1997, due to a $46,000 increase in remarketing costs. However, maintenance,
administrative and residual sharing expenses incurred by the Partnership
decreased as a result of the decrease in the revenues received from this
equipment.
The increase in depreciation and amortization expense, for the six months
ended June 30, 1997, is primarily due to additional depreciation of $42,000
booked during the period ended March 31, 1997. Normal monthly depreciation
decreased by $4,000 and $11,000 for the three and six months ended June 30,
1997, due to a reduction in the size of the equipment portfolio due to the
ongoing sale of equipment. The decrease in general and administrative costs of
$17,000 is due to a decrease in audit fees accrued during the six months ended
June 30, 1997. The Partnership is currently in its liquidation stage and is not
expected to acquire any additional equipment. The Partnership will reach the end
of its term on December 31, 1997.
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Cable Television System:
Cable subscriber revenues increased approximately $5,000 and $14,000
during the three and six months ended June 30, 1997, as compared to the same
period in 1996. A special promotion offering free cable service to its cable
subscribers for the month of March 1996 caused cable subscriber revenues to be
lower than usual during the three and six months ended June 30, 1996.
Joint Ventures:
The Partnership reported a decrease in earnings from joint ventures of
$46,000 and $57,000 during the three and six months ended June 30, 1997, as
compared to the same period in 1996. The decrease in earnings is reflective of a
decrease in earnings from one joint venture due to a decrease in rental
revenues. The decrease in rental revenues was caused by a decrease in the amount
of equipment owned by the joint venture due to the ongoing sale of equipment.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from equipment leasing
and financing operations. The Partnership has contractual obligations with
lessees for fixed terms at fixed payment amounts and will also receive payments
on its outstanding notes receivable. The liquidity of the Partnership is
dependent upon its success in collecting these contractual payments owed the
Partnership. 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.
As another source of liquidity, the Partnership owns a majority interest
in a cable television company that it acquired ownership through foreclosure on
a defaulted note receivable. This cable television company is expected to
generate a positive cash flow, which will first be used for capital improvements
and upgrades to the system in order to maximize the value to be received upon
the eventual sale of the system. Any excess cash from operations or the sale of
the system will then be distributed to the Partnership in accordance with its
ownership interest. The cable television system operations are currently being
marketed for sale.
The Partnership reported net cash generated by leasing, financing and
cable television operations of $227,000 during the six months ended June 30,
1997, as compared to $347,000 during the same period in 1996. The net cash
generated by equipment leasing and financing activities decreased, due to the
decline in rental income, which is attributable to the reduction in the amount
of equipment owned by the Partnership.
The Partnership owned equipment held for lease with an original cost of
$2,107,000 and a net book value of $0 at June 30, 1997, as compared to
$1,469,000 and $0, 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 cash distributed to partners was $474,000 and $239,000 for the six
months ended June 30, 1997 and 1996. In accordance with the Limited Partnership
Agreement, the limited partners are entitled to 95% of the cash available for
distribution and the General Partner is entitled to 5%. As a result, the limited
partners received distributions of $474,000 and $239,000 for the six months
ended June 30, 1997 and 1996. The cumulative cash distributions to limited
partners are $80,677,000 and $80,203,000 at June 30, 1997 and 1996,
respectively. The General Partner did not receive payment for its share of cash
distributions for the six months ended June 30, 1997 and 1996. While the
<PAGE>
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General Partner is entitled to receive 5% of the cash distributions, it has
voluntarily elected not to receive payment at this time for its share of the
cash distributions.
The Partnership's asset portfolio continues to decline as a result of the
ongoing liquidation of assets, and therefore it is expected that the cash
generated from operations will also decline. As the cash generated by
Partnership operations continues to decline, the rate of cash distributions made
to limited partners will also decline. The Partnership made its last quarterly
distribution to partners in January of 1997. The Partnership will reach the end
of its term on December 31, 1997, at which time it will sell any remaining
assets at public auction and make a final distribution to partners of the excess
cash, if any. The General Partner is actively marketing for sale the
Partnership's net assets and it is expected, based on current estimates of fair
market value, that the net carrying value of those assets will ultimately be
recovered. However, the amounts the Partnership will ultimately realize from the
disposition of assets could differ from the net carrying value at June 30, 1997.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's ongoing
operational expenses.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II
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 CASH DISTRIBUTION FUND II
-----------------------------------------
(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> 3,166
<SECURITIES> 0
<RECEIVABLES> 1,692
<ALLOWANCES> 379
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,246
<DEPRECIATION> 3,365
<TOTAL-ASSETS> 6,237
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,218
<TOTAL-LIABILITY-AND-EQUITY> 6,237
<SALES> 0
<TOTAL-REVENUES> 862
<CGS> 0
<TOTAL-COSTS> 639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227
<INCOME-TAX> 0
<INCOME-CONTINUING> 227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227
<EPS-PRIMARY> .59
<EPS-DILUTED> 0
</TABLE>
