Page 1 of 11
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 0-15287
-------
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 September
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 CASH DISTRIBUTION FUND II AND SUBSIDIARY
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1997 1996
------ ------
ASSETS
Cash and cash equivalents $6,017 $3,077
Accounts receivable (net of allowance for
losses on accounts receivable of $59 and $18
at September 30, 1997 and December 31, 1996,
respectively) 96 137
Notes receivable (net of allowance for losses on
notes receivable of $26 and $358 at September 30,
1997 and December 31, 1996, respectively) -- 1,263
Equipment on operating leases and held for lease
(net of accumulated depreciation of $903 and
$3,674 at September 30, 1997 and December 31,
1996, respectively) 1 81
Investment in joint ventures 304 703
Cable systems, property and equipment (net of
accumulated depreciation of $943 and $808 at
September 30, 1997 and December 31, 1996,
respectively) 828 895
Deferred income tax asset 113 115
Other assets 190 242
------ ------
Total Assets $7,549 $6,513
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 665 $ 558
Minority interest in subsidiary 441 447
------ ------
Total Liabilities 1,106 1,005
------ ------
Partners' Capital
General Partner 125 111
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units
outstanding at September 30, 1997 and
December 31, 1996 6,244 5,328
Unrealized gains on available-for-sale securities 74 69
------ ------
Total Partners' Capital 6,443 5,508
------ ------
Total Liabilities and Partners' Capital $7,549 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
INCOME
Rental income $ 56 $ 180 $ 265 $ 473
Gain on sale of equipment 13 32 134 78
Equity in earnings (losses)from
joint ventures (208) 87 (69) 282
Cable subscriber revenue 150 142 448 424
Interest income, notes receivable 1,209 48 1,222 103
Other income 79 35 163 98
------- ------- ------- -------
Total Income 1,299 524 2,163 1,458
------- ------- ------- -------
EXPENSES
Depreciation and amortization 108 78 277 216
Lease related operating expenses 24 38 111 120
Program services, cable systems 49 45 149 138
Management fees to General Partner
and affiliate 104 17 133 49
Provision for (recovery of) losses
on receivables (294) 2 (291) 4
Reimbursed administrative costs to
General Partner 16 36 81 103
Legal expense 54 14 109 59
General and administrative expenses 66 63 198 212
------- ------- ------- -------
Total Expenses 127 293 767 901
------- ------- ------- -------
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 1,172 $ 231 $ 1,396 $ 557
Minority interest in losses (earnings)
of subsidiary 2 (5) 6 --
Income tax benefit (expense) of
subsidiary 3 (3) 2 (2)
------- ------- ------- -------
NET INCOME $ 1,177 $ 223 $ 1,404 $ 555
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 3.07 $ .58 $ 3.66 $ 1.45
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ 1.25 $ .63
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 12 $ 1 $ 14 $ 5
Limited Partners 1,165 222 1,390 550
------- ------- ------- -------
$ 1,177 $ 223 $ 1,404 $ 555
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
------- -------
Operating Activities:
Net income $ 1,404 $ 555
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 277 216
Gain on sale of equipment (134) (78)
Equity in losses (earnings) from joint ventures 69 (282)
Provision for losses on accounts receivable 41 4
Recovery of losses on notes receivable (332) --
Decrease (increase) in deferred income tax asset 2 (1)
Minority interest in earnings of subsidiary (6) --
Increase in accounts receivable -- (46)
Increase (decrease) in accounts payable
and accrued expenses 107 (19)
Increase in other assets (18) (2)
------- -------
Net cash provided by operating activities 1,410 347
------- -------
Investing Activities:
Principal payments, financing leases -- 153
Principal payments, notes receivable 1,595 36
Proceeds from sale of equipment 148 75
Distribution from joint ventures 330 543
Cable systems, property and equipment (69) (61)
Payment of acquisition fees -- (1)
------- -------
Net cash provided by investing activities 2,004 745
------- -------
Financing Activities:
Distributions to partners (474) (239)
------- -------
Net cash used by financing activities (474) (239)
------- -------
Increase in cash and cash equivalents 2,940 853
Cash and cash equivalents, beginning of period 3,077 1,951
------- -------
Cash and cash equivalents, end of period $ 6,017 $ 2,804
======= =======
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 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 September 30, 1997, the recorded
investment in notes that are considered to be impaired are $26,000, for which
the related allowance for losses is $26,000. The average recorded investment in
impaired loans during the nine months ended September 30, 1997 and 1996 was
approximately $1,044,000 and $1,164,000, 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 $ 358 $ 358
Provision for losses (332) -
Write downs - -
-------- -------
Ending balance $ 26 $ 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 nine month periods 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.
Note 6. Investment in Joint Ventures.
Equipment Joint Venture
The aggregate combined financial information of the equipment joint
venture is presented below:
September 30, December 31,
1997 1996
------- -------
(Amounts in Thousands)
Assets $ 1,341 $ 2,851
Liabilities 514 733
Partners' Capital 827 2,118
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
(Amounts in Thousands)
Revenue $ 240 $ 757 $ 1,431 $ 2,644
Expenses 901 383 1,569 1,471
Net Income (Loss) (661) 374 (138) 1,173
<PAGE>
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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 $1,177,000 and $1,404,000 for the three and
nine months ended September 30, 1997, respectively, as compared to net income of
$223,000 and $555,000 during the same periods in 1996.
Total revenues increased by $775,000 and $705,000 during the three and
nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996. The primary factor contributing to the increase in revenues for
both periods is an increase in interest income from notes receivable of
$1,162,000 and $1,119,000 for the three and nine months ended September 30,
1997, respectively. This is partially offset by a decrease in equity in earnings
from joint ventures of $295,000 and $351,000, and a decline in rental income of
$124,000 and $208,000 for the three and nine months ended September 30, 1997,
respectively, as compared to the same period in 1996.
The increase in interest income from notes receivable during 1997 is a
result of a payoff of an impaired note receivable of $949,000, as well as the
receipt of additional settlement proceeds of $258,000 on another impaired note
receivable. The additional settlement proceeds was from a defaulted note
receivable with a net carrying value of $0. Management fees to the General
Partner increased by $87,000 and $84,000 for the three and nine months ended
September 30, 1997, compared to the same period in 1996, attributable to the
receipt of the payoff and settlement.
The decline in rental income is a result of a reduction in the amount of
equipment owned by the Partnership. At September 30, 1997, the Partnership owned
equipment with an aggregate original cost of $1 million, compared to $5.6
million at September 30, 1996.
The small increase in other income was attributable to an increase in
interest income earned on cash and cash equivalents, a result of the Partnership
maintaining a higher average cash balance during the three and nine months ended
September 30, 1997, as compared to the same periods in 1996.
Total expenses decreased by $166,000 and $134,000 during the three and
nine months ended September 30, 1997, as compared to the same periods in 1996.
The decrease in total expenses for the three and nine months ended September 30,
1997 is attributable to a $332,000 recovery of provision for losses on notes
receivable due to the receipt of a payoff which exceeded the net investment on
the Partnership's remaining impaired note receivable which was considered to be
impaired.
Partially offsetting the decrease in provision for losses on receivables
for the three and nine months ended September 30, 1997, compared to the same
periods in the prior year, are the increases in depreciation and amortization
expense, management fees to the General Partner and affiliate and legal expense.
The increase in depreciation and amortization of $33,000 and $61,000 for the
three and nine months ended September 30, 1997, respectively, compared to the
same periods in 1996, is a result of an increase in additional depreciation
expense. Included in depreciation and amortization is additional depreciation
expense of $5,000 and $47,000 for the three and nine months ended September 30,
<PAGE>
Page 8 of 11
1997, respectively, compared to $14,000 for the three and nine months ended
September 30, 1997.
Legal expenses also increased for the three and nine months ended
September 30, 1997 by $40,000 and $50,000, respectively, as compared to the same
periods in the previous year. This increase is attributable to the legal costs
associated with the two notes receivable in which the Partnership received a
payoff and additional settlement proceeds during 1997.
Cable Television System:
The Partnership reported cable subscriber revenues of $150,000 and
$448,000 for the three and nine months ended September 30, 1997, respectively,
and program services expense of $49,000 and $149,000, compared to cable
subscriber revenues of $142,000 and $424,000 for the three and nine months ended
September 30, 1996, and program services expense of $45,000 and $138,000. 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 reported a decrease in earnings from joint ventures of
$295,000 and $351,000 during the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. The decrease in earnings
is attributable to an equipment joint venture recording provisions for
additional depreciation and losses on notes receivable.
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 also received payments
on its 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 $3,006,000 during the nine months ended September
30, 1997, as compared to $536,000 during the same period in 1996. The net cash
generated by equipment leasing and financing activities was higher than usual
during the period ended September 30, 1997 as a result of a payoff of an
impaired note receivable and the receipt of additional settlement proceeds.
<PAGE>
Page 9 of 11
The Partnership owned equipment held for lease with an original cost of
$47,000 and a net book value of $0 at September 30, 1997, as compared to
$1,401,000 and $0, 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 cash distributed to partners was $474,000 and $239,000 for the nine
months ended September 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 nine months ended September 30, 1997 and 1996. The cumulative cash
distributions to limited partners are $80,677,000 and $80,203,000 at September
30, 1997 and 1996, respectively. The General Partner did not receive payment for
its share of cash distributions for the nine months ended September 30, 1997 and
1996. While the 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 September 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
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>
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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
---- ----- ---------
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> 6,017
<SECURITIES> 0
<RECEIVABLES> 181
<ALLOWANCES> 85
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,675
<DEPRECIATION> 1,846
<TOTAL-ASSETS> 7,549
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,443
<TOTAL-LIABILITY-AND-EQUITY> 7,549
<SALES> 0
<TOTAL-REVENUES> 2,163
<CGS> 0
<TOTAL-COSTS> 767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (291)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,402
<INCOME-TAX> (2)
<INCOME-CONTINUING> 1,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,404
<EPS-PRIMARY> 3.66
<EPS-DILUTED> 0
</TABLE>
