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 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 0-16615
-------
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
Registrant
California 68-0062480
- ------------------------------ -----------------------------------
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 _____
516,716 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 III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1997 1996
-------- --------
ASSETS
Cash and cash equivalents $ 2,794 $ 15,591
Accounts receivable (net of allowance for
losses on accounts receivable of $75 and
$56 at September 30, 1997 and December 31,
1996, respectively) 194 89
Notes receivable (net of allowance for losses
on notes receivable of $604 at September 30,
1997 and December 31, 1996) 45 58
Equipment on operating leases and held for lease
(net of accumulated depreciation of $11,264
and $12,885 at September 30, 1997 and December
31, 1996, respectively) -- 1
Cable systems, property and equipment (net of
accumulated depreciation of $449 and $239 at
September 30, 1997 and December 31, 1996,
respectively) 3,138 3,215
Cable subscriber lists (net of accumulated
amortization of $333 and $189 at September 30,
1997 and December 31, 1996, respectively) 1,182 1,464
Investment in joint ventures 451 547
Capitalized acquisition fees (net of accumulated
amortization of $8,265 at September 30, 1997
and December 31, 1996) 11 11
Other assets 38 15
-------- --------
Total Assets $ 7,853 $ 20,991
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 579 $ 2,847
Minority interest in subsidiary -- 9
-------- --------
Total Liabilities 579 2,856
-------- --------
Partners' Capital (Deficit)
General Partner (18) (25)
Limited Partners, 600,000 units authorized,
528,151 units issued and 516,716 units
outstanding at September 30, 1997 and
December 31, 1996 7,292 18,160
-------- --------
Total Partners' Capital (Deficit) 7,274 18,135
-------- --------
Total Liabilities and Partners' Capital
(Deficit) $ 7,853 $ 20,991
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED 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 $ 106 $ 197 $ 310 $ 785
Gain on sale of cable systems 169 332 169 1,510
Cable subscriber revenue 426 977 1,278 2,709
Interest income, notes receivable 78 11 107 73
Equity in earnings (losses) from
joint ventures, net (40) 68 6 196
Gain on sale of securities 1 102 151 125
Other income 58 122 237 306
------- ------- ------- -------
Total Income 798 1,809 2,258 5,704
------- ------- ------- -------
EXPENSES
Depreciation and amortization 119 308 338 1,482
Lease related operating expenses 5 10 26 82
Program service, cable system 127 270 394 781
Management fees to General Partner
and affiliate 33 410 86 655
Reimbursed administrative costs to
General Partner 25 42 100 130
Provision for (recovery of) losses
on receivables 32 (124) 40 (2,223)
Legal expense 21 22 59 222
General and administrative expenses 150 266 457 729
------- ------- ------- -------
Total Expenses 512 1,204 1,500 1,858
------- ------- ------- -------
NET INCOME BEFORE MINORITY INTEREST 286 605 758 3,846
Minority interest in losses (earnings)
of subsidiary (2) (2) 6 (205)
------- ------- ------- -------
NET INCOME $ 284 $ 603 $ 764 $ 3,641
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .55 $ 1.16 $ 1.47 $ 6.98
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ 22.50 $ 3.78
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 3 $ 6 $ 6 $ 37
Limited Partners 281 597 758 3,604
------- ------- ------- -------
$ 284 $ 603 $ 764 $ 3,641
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
-------- --------
Operating Activities:
Net income $ 764 $ 3,641
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 338 1,482
Gain on sale of cable systems (169) (1,510)
Gain on sale of equipment (51) (51)
Equity in earnings from joint ventures, net (6) (196)
Recovery of losses on notes receivable -- (2,185)
Provision for losses on accounts receivable 40 43
Recovery of early termination, financing leases -- (81)
Gain on sale of securities (151) (125)
Increase in accounts receivable (7) (222)
Decrease in accounts payable and accrued expenses (2,252) (184)
Increase in other assets (23) (4)
Minority interest in earnings (losses)
of subsidiary (6) 205
Other -- 374
-------- --------
Net cash provided (used) by operating activities (1,523) 1,187
-------- --------
Investing Activities:
Principal payments, notes receivable 13 1,585
Proceeds from sale of cable systems 169 11,458
Proceeds from sale of equipment 52 62
Proceeds from sale of securities 151 125
Distributions from joint ventures 102 156
Cable systems, property and equipment (134) (272)
-------- --------
Net cash provided by investing activities 353 13,114
-------- --------
Financing Activities:
Payments of principal, notes payable -- (729)
Distributions to partners (11,625) (1,954)
Distributions to minority partners (2) (632)
-------- --------
Net cash used by financing activities (11,627) (3,315)
-------- --------
Increase (decrease) in cash and cash equivalents (12,797) 10,986
Cash and cash equivalents, beginning of period 15,591 3,619
-------- --------
Cash and cash equivalents, end of period $ 2,794 $ 14,605
======== ========
Supplemental Cash Flow Information:
Cash paid for interest expense $ -- $ 26
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
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.
Note 4. Notes Receivable.
Impaired Notes Receivable. At September 30, 1997, the recorded
investment in notes that are considered to be impaired was $649,000 for which
the related allowance for losses was $604,000. The average recorded investment
in impaired loans during the nine months ended September 30, 1997 and 1996 was
approximately $653,000 and $1,820,000, respectively.
During the quarter ended September 30, 1996, the Partnership received a
settlement on one of its notes receivable from a cable television system
operator which was considered to be impaired under Statement No. 114. The
Partnership received a partial recovery of $1,008,000 as a settlement which was
applied towards the $1,781,000 outstanding note receivable balance. The
remaining balance of $773,000 was written-off through its related allowance for
loan losses provided for in a previous year. Upon receipt of the settlement of
this note receivable, the Partnership reduced the remaining allowance for loan
losses for this note by $150,000 during the quarter ended September 30, 1996.
This reduction in the allowance for loan losses was recognized as income during
the period.
The Partnership also wrote-off the outstanding note receivable balance
of $243,000 during the quarter ended September 30, 1996 from a security
monitoring system company which was considered to be impaired. This note
receivable had been fully reserved for in a previous year.
<PAGE>
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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 $ 604 $ 3,880
Provision for losses - (2,185)
Write downs - (1,016)
--------- ---------
Ending balance $ 604 $ 679
========= =========
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 516,716 for the nine months ended
September 30, 1997 and 1996. For purposes of allocating net income (loss) and
distributions to each individual limited partner, the Partnership allocates net
income (loss) and distributions based upon each respective limited partner's net
capital contributions.
Note 6. Investment in Joint Ventures.
Equipment Joint Ventures
The aggregate combined financial information of the equipment joint
ventures is presented as follows:
September 30, December 31,
1997 1996
------- -------
(Amounts in Thousands)
Assets $ 1,342 $ 2,851
Liabilities 514 733
Partners' Capital 828 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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Foreclosed Cable Systems Joint Ventures
The aggregate combined financial information of the foreclosed cable
systems joint ventures is presented as follows:
September 30, December 31,
1997 1996
------- -------
(Amounts in Thousands)
Assets $ 2,220 $ 2,203
Liabilities 472 377
Partners' Capital 1,748 1,826
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
(Amounts in Thousands)
Revenue $ 257 $ 266 $ 762 $ 783
Expenses 278 262 829 798
Net Income (Loss) (21) 4 (67) (15)
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Phoenix Leasing Cash Distribution Fund III, a California limited
partnership and Subsidiaries (the Partnership) reported net income of $284,000
and $764,000 for the three and nine months ended September 30, 1997,
respectively, as compared to net income of $603,000 and $3,641,000 for the same
periods in 1996. The decrease in net income experienced during the three and
nine months ended September 30, 1997 is primarily attributable to declines in
gain on sale of cable systems, net revenues from cable television system
operations and rental income. Additionally, the Partnership recorded a provision
for losses on receivables for the three and nine months ended September 30,
1997, compared to a recovery of losses on receivables for the same periods in
1996.
During the nine months ended September 30, 1996, Phoenix Black Rock
Cable J.V., a wholly owned subsidiary of Phoenix Leasing Cash Distribution Fund
III, sold the assets of its cable television system for $2.6 million in cash. As
a result of this sale, the Partnership recognized a gain on sale of $1,180,000.
During the nine months ended September 30, 1996, the Partnership
entered into agreements with two cable television system operators to transfer
all of the assets of the cable television systems in satisfaction of defaulted
notes receivable from these cable television system operators. The assets of
these cable television systems were transferred to newly formed limited
liability companies, Phoenix Concept Cablevision of Indiana, L.L.C. and Phoenix
Grassroots Cable Systems, L.L.C. On August 30, 1996, the Partnership
subsequently sold the assets of Phoenix Grassroots Cable Systems, L.L.C.
Upon the transfer of these two cable television systems, the
Partnership reduced its allowance for loan losses by $2,035,000 during the nine
months ended September 30, 1996. This reduction in the allowance for loan losses
was recognized as income during the period.
During the three months ended September 30, 1997, Phoenix Grassroots
Cable Systems, L.L.C. received a disbursement of proceeds of $169,000 which were
held in escrow from the August 30, 1996 sale of assets. At the time of the sale,
a portion of the proceeds were held in escrow to cover liabilities which may
have arisen after the sale. The escrow proceeds has been treated as an
adjustment to the sales price, and as a result, the Partnership recognized an
additional gain on the sale of cable systems for the three and nine months ended
September 30, 1997 of $169,000.
Total revenues decreased by $1,011,000 and $3,446,000 during the three
and nine months ended September 30, 1997, respectively, when compared to the
same periods in 1996. The decline in total revenues for the three and nine
months ended September 30, 1997, compared to 1996, is primarily the result of a
reduction in cable subscriber revenues. In addition to the reduction in cable
subscriber revenues, the decreases in gain on sale of cable systems and rental
income also contributed to the decline in total revenues for the three and nine
months ended September 30, 1997, compared to the same periods in 1997.
The decline in cable subscriber revenue of $551,000 and $1,431,000 for
the three and nine months ended September 30, 1997, respectively, compared to
the same periods in 1996, is attributable to the sale of the assets of the cable
system owned by Phoenix Black Rock Cable J.V. and Phoenix Grassroots Cable
Systems, L.L.C. As a result of the sale of the assets, Phoenix Black Rock Cable
J.V. and Phoenix Grassroots Cable System, L.L.C. ceased operations.
<PAGE>
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Rental income decreased by $91,000 and $475,000 for the three and nine
months ended September 30, 1997, respectively, compared to the same periods in
1996, primarily as the result of a decrease in the amount of equipment owned by
the Partnership. At September 30, 1997, the Partnership owned equipment,
excluding the Partnership's pro rata interest in joint ventures, with an
aggregate original cost of $11.9 million, as compared to $16.1 million at
September 30, 1996.
Total expenses decreased by $692,000 and $358,000 for the three and
nine months ended September 30, 1997, as compared to the same periods in 1996.
During the three and nine months ended September 30, 1997, the Partnership
experienced decreases in depreciation and amortization, program service,
management fees and general and administrative expenses. These factors
contributed to the decrease in total expenses for the three and nine months
ended September 30, 1997, as compared to the prior year. However, the increase
in provision for losses on receivables partially offset these factors for the
three and nine months ended September 30, 1997, compared to the same period in
1996.
The decreases in depreciation and amortization of $189,000 and
$1,144,000, program service of $143,000 and $387,000, management fees of
$377,000 and $569,000, and general and administrative expenses of $116,000 and
$272,000 for the three and nine months ended September 30, 1997, respectively,
compared to the same periods in the prior year, are all a result of the sale of
assets in several Subsidiaries of the Partnership. As a result of the sale of
assets, these Subsidiaries ceased operations. The decrease in depreciation and
amortization expense for the three and nine months ended September 30, 1997 is
also a result of the Partnership's equipment being fully depreciated.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from cable
subscriber revenues and from its contractual obligations with lessees and
borrowers for fixed payment terms. As the initial lease terms of the leases
expire, the Partnership will continue to renew, remarket or sell the equipment.
The future liquidity of the Partnership will depend upon the General Partner's
success in collecting contractual amounts and releasing and selling the
Partnership's equipment as it comes off lease. As another source of liquidity,
the Partnership owns cable television systems, has investments in foreclosed
cable system joint ventures and investments in leasing joint ventures.
The net cash used by operating activities was $1,510,000 during the
nine months ended September 30, 1997, as compared to net cash provided by
operating activities of $2,772,000 during the same period in 1996. This decrease
is primarily due to a decline in rental income and cable subscriber revenue, as
well as, the payment of outstanding liabilities for reimbursement of costs to
the General Partner.
During the nine months ended September 30, 1997, the Partnership
received proceeds from the sale of cable systems of $11.5 million from two cable
systems owned by Phoenix Black Rock Cable J.V. and Phoenix Grassroots Cable
Systems, L.L.C., both majority owned subsidiaries of the Partnership.
During the nine months ended September 30, 1997, the Partnership
reported a decrease in principal payments from notes receivable of $1,572,000,
compared to the same period in 1996. This is a result of the Partnership
receiving fewer payoffs during 1997 as compared to the prior year.
The Partnership received proceeds from the sale of securities of
$151,000 for the nine months ended September 30, 1997, compared to $125,000 for
the same period in 1996. The securities sold during both 1996 and 1997 consisted
of common stock received through the exercise of stock warrants granted to the
<PAGE>
Page 10 of 12
Partnership as part of a financing agreement with several emerging growth
companies.
As of September 30, 1997, the Partnership owned equipment held for
lease with an aggregate original cost of $2,944,000 and a net book value of $0,
compared to $3,681,000 and $0, respectively, as of September 30, 1996. The
General Partner is actively engaged, on behalf of the Partnership, in
remarketing and selling the Partnership's off-lease portfolio.
The cash distributed to limited partners during both the nine months
ended September 30, 1997 and 1996 was $11,625,000 and $1,954,000, respectively.
As a result, the cumulative cash distributions to the limited partners are
$109,804,000 and $98,179,000 as of September 30, 1997 and 1996, respectively.
The General Partner did not receive cash distributions during the nine months
ended September 30, 1997 and 1996. The General Partner has elected not to
receive payment, at this time, for its share of the cash available for
distribution due to its negative capital account.
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 Partnership leasing operations will also decline. As the cash
generated by operations continues to decline, the rate of cash distributions
made to limited partners will also decline. The Partnership currently
distributes on an annual basis with the first annual distribution being made on
January 15, 1997. As a result of the sale of certain cable television systems
and the settlement of an impaired note receivable during 1996, the Partnership
included the excess cash provided by these events in the January 15, 1997
distribution.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's continuing
operational expenses and to provide for distributions to partners.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
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 III,
-------------------------------------------
A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------
(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> 2,794
<SECURITIES> 0
<RECEIVABLES> 918
<ALLOWANCES> 679
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,851
<DEPRECIATION> 11,713
<TOTAL-ASSETS> 7,853
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,274
<TOTAL-LIABILITY-AND-EQUITY> 7,853
<SALES> 0
<TOTAL-REVENUES> 2,258
<CGS> 0
<TOTAL-COSTS> 1,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 764
<INCOME-TAX> 0
<INCOME-CONTINUING> 764
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 764
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 0
</TABLE>
