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 0-16615
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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 ___
516,662 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 CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
June 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 4,240 $ 3,072
Accounts receivable (net of allowance for losses
on accounts receivable of $50 and $73 at
June 30, 1998 and December 31, 1997,
respectively) 133 192
Notes receivable (net of allowance for losses
on notes receivable of $407 and $604 at
June 30, 1998 and December 31, 1997,
respectively) 44 45
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$3,536 and $10,017 at June 30, 1998 and
December 31, 1997, respectively) -- --
Cable systems, property and equipment (net of
accumulated depreciation of $665 and $521
at June 30, 1998 and December 31, 1997,
respectively) 2,970 3,086
Cable subscriber lists (net of accumulated
amortization of $475 and $380 at June 30,
1998 and December 31, 1997, respectively) 1,040 1,135
Investment in joint ventures 299 310
Other assets 50 48
------- -------
Total Assets $ 8,776 $ 7,888
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 654 $ 608
------- -------
Total Liabilities 654 608
------- -------
Partners' Capital
General Partner 2,054 (18)
Limited Partners, 600,000 units authorized,
528,151 units issued and 516,662 units
outstanding at June 30, 1998 and December
31, 1997 6,068 7,298
------- -------
Total Partners' Capital 8,122 7,280
------- -------
Total Liabilities and Partners' Capital $ 8,776 $ 7,888
======= =======
The accompanying notes are an integral part of these statements.
2
<PAGE>
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
INCOME
Cable subscriber revenue $ 422 $ 436 $ 842 $ 852
Rental income 61 76 131 203
Equity in earnings from joint ventures, net 9 35 20 47
Gain on sale of securities 32 -- 32 150
Other income 44 81 74 208
------ ------ ------ ------
Total Income 568 628 1,099 1,460
------ ------ ------ ------
EXPENSES
Depreciation and amortization 119 118 239 219
Cable system operations 243 232 474 501
Lease related operating expenses 5 8 13 22
Management fees to General Partner
and affiliate 22 23 43 53
Reimbursed administrative costs to
General Partner 25 29 56 74
Legal expense 69 13 110 38
General and administrative expenses 62 44 103 81
------ ------ ------ ------
Total Expenses 545 467 1,038 988
------ ------ ------ ------
NET INCOME BEFORE MINORITY INTEREST 23 161 61 472
Minority interest in losses of subsidiary -- 8 -- 8
------ ------ ------ ------
NET INCOME $ 23 $ 169 $ 61 $ 480
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .05 $ .32 $ .12 $ .92
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ 2.50 $22.50
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 1 $ 1 $ 1 $ 3
Limited Partners 22 168 60 477
------ ------ ------ ------
$ 23 $ 169 $ 61 $ 480
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
---- ----
Operating Activities:
Net income $ 61 $ 480
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 239 219
Gain on sale of equipment (9) (23)
Equity in earnings from joint ventures, net (20) (47)
Provision for losses on accounts receivable 9 9
Gain on sale of securities (32) (150)
Decrease in accounts receivable 50 --
Increase (decrease) in accounts payable and
accrued expenses 46 (103)
Increase in other assets (2) (17)
Minority interest in losses of subsidiary -- (8)
-------- --------
Net cash provided by operating activities 342 360
-------- --------
Investing Activities:
Principal payments, notes receivable 1 8
Proceeds from sale of equipment 9 24
Proceeds from sale of securities 32 150
Distributions from joint ventures 31 70
Cable systems, property and equipment (28) (89)
-------- --------
Net cash provided by investing activities 45 163
-------- --------
Financing Activities:
Contribution from General Partner 2,072 --
Distributions to partners (1,291) (11,625)
-------- --------
Net cash provided (used) by financing activities 781 (11,625)
-------- --------
Increase (decrease) in cash and cash equivalents 1,168 (11,102)
Cash and cash equivalents, beginning of period 3,072 15,591
-------- --------
Cash and cash equivalents, end of period $ 4,240 $ 4,489
======== ========
The accompanying notes are an integral part of these statements.
4
<PAGE>
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.
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.
In March of 1998, Phoenix Concept Cablevision of Indiana, L.L.C. , a
wholly owned subsidiary of the Partnership, entered into an Asset Purchase
Agreement to sell all or substantially all of its assets. The closing date of
the sale had been extended to occur on or before July 31, 1998. As of August 3,
1998, the closing did not occur thereby terminating the Asset Purchase
Agreement.
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.
Note 4. Notes Receivable.
Impaired Notes Receivable. At June 30, 1998, the recorded investment in
notes that are considered to be impaired was $451,000 for which the related
allowance for losses was $407,000. The average recorded investment in impaired
loans during the six months ended June 30, 1998 and 1997 was approximately
$549,000 and $656,000, respectively.
5
<PAGE>
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 $ 604 $ 604
Provision for losses -- --
Write downs (197) --
----- -----
Ending balance $ 407 $ 604
===== =====
The Partnership wrote-off the outstanding note receivable balance of
$197,000 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 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 516,662 and 516,716 for the six months
ended June 30, 1998 and 1997, respectively. 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:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $1,072 $1,055
Liabilities 418 409
Partners' Capital 654 646
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 160 $ 636 $ 295 $1,192
Expenses 74 348 154 669
Net Income 86 288 141 523
6
<PAGE>
Foreclosed Cable Systems Joint Ventures
The aggregate combined financial information of the foreclosed cable
systems joint ventures is presented as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $1,973 $2,071
Liabilities 501 519
Partners' Capital 1,472 1,552
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 180 $ 260 $ 433 $ 505
Expenses 244 274 513 551
Net Loss (64) (14) (80) (46)
Note 7. 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.
During the six months ended June 30, 1998, the Partnership recorded
legal expenses of approximately $76,000 in connection with the above litigation
as indemnification to the General Partner.
7
<PAGE>
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 Subsidiary (the Partnership) reported net income of $23,000 and
$61,000 for the three and six months ended June 30, 1998, respectively, as
compared to net income of $169,000 and $480,000 for the same periods in 1997.
The decrease in net income during the three and six months ended June 30, 1998,
as compared to the same periods in 1997, is primarily attributable to a decline
in total revenues.
Total revenues declined by $60,000 and $361,000 for the three and six
months ended June 30, 1998, respectively, as compared to the same periods in the
prior year. The decline in total revenues for both the three and six months
ended June 30, 1998, compared to the previous year, is attributable to decreases
in rental income, earnings from joint ventures and other income. Additionally
for the six months ended June 30, 1998, compared to 1997, the Partnership
experienced a decrease in gain on sale of securities which also contributed to
reducing total revenues for that period.
Rental income decreased during the three and six months ended June 30,
1998 by $15,000 and $72,000, respectively, compared to the same periods in 1997.
This decrease is the result of a reduction in the amount of equipment owned by
the Partnership. The Partnership sold equipment with an original cost of $6.9
million for the six months ended June 30, 1998, compared to $1.9 million for the
same period in 1997. At June 30, 1998, the Partnership owned equipment,
excluding the Partnership's pro rata interest in joint ventures, with an
aggregate original cost of $3.8 million, as compared to $12.4 million at June
30, 1997.
The decrease in earnings from joint ventures of $26,000 and $27,000 for
the three and six months ended June 30, 1998, is a result of one equipment joint
venture having sold its remaining equipment and notes receivable during the year
ended December 31, 1997, and one foreclosed cable systems joint venture
incurring a loss on the sale of its cable system assets.
The Partnership exercised and sold stock warrants during the six months
ended June 30, 1998 recognizing a gain on securities of $32,000, compared to
$150,000 for the same period in 1997. The Partnership has been granted stock
warrants as part of its lease or financing agreements with certain emerging
growth companies.
The decrease in cash generated from the Partnership's operating and
investing activities, as further discussed under "Liquidity and Capital
Resources", has resulted in a reduction in interest income earned on the
Partnership's cash balance. The decline in other income of $37,000 and $134,000
for the three and six months ended June 30, 1998, respectively, as compared to
the same periods in the prior year, is attributable to the decrease in interest
income.
The increase in legal fees of $56,000 and $72,000 for both the three
and six months ended June 30, 1998, respectively, as compared to the same
periods in 1997, is a result of legal costs associated to a Class Action
Complaint as further discussed on Note 7.
8
<PAGE>
Because the Partnership is in it's liquidation stage, it is not
expected that the Partnership will acquire any additional equipment for its
leasing activities or provide any further financing. As a result, revenues from
leasing and financing activities are expected to continue to decline as the
portfolio is liquidated. The Partnership will reach the end of its term on
December 31, 1998. The Subsidiary's cable operations has become the primary
activity of the Partnership. Cable subscriber revenue and cable system
operations expenses remained relatively the same for the three and six months
ended June 30, 1998, compared to the same periods in 1997.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from cable
subscriber revenues. As another source of liquidity, the Partnership has entered
into contractual obligations with lessees and borrowers for fixed payment terms,
has investments in foreclosed cable system joint ventures and investments in
leasing joint ventures.
The net cash generated by operating activities was $342,000 during the
six months ended June 30, 1998, as compared to $360,000 during the same period
in 1997. The decrease in net cash generated by operating activities for the six
months ended June 30, 1998, compared to the six months ended June 30, 1997, is a
result of an increase in legal fees, a decrease in rental income and a decrease
in interest income from the Partnership's cash accounts, as previously discussed
in "Results of Operations". These factors which contributed to reducing the net
cash generated during 1998 was partially offset by a decrease in accounts
receivable during the six months ended June 30, 1998, compared to 1997. The
decrease in accounts receivable experienced during the six months ended June 30,
1998, compared to 1997 is attributable to the return of a deposit made during
the fourth quarter of 1997.
The net cash generated by investing activities was $45,000 during the
six months ended June 30, 1998, compared to $163,000 during the six months ended
June 30, 1997. This decrease during the six months ended June 30, 1998, compared
to 1997 is primarily due to the decline in proceeds from the sale of securities.
As previously discussed, the Partnership exercised and sold stock warrants
during the six months ended June 30, 1998 and 1997. As a result, the Partnership
received proceeds from the sale of these securities of $32,000 and $150,000 for
the six months ended June 30, 1998 and 1997, respectively.
The decrease in net cash generated by investing activities is also
attributable to the decline in distributions from joint ventures. The
Partnership received distributions from joint ventures of $31,000 for the six
months ended June 30, 1998 compared to $70,000 for the six months ended June 30,
1997. The decline in distributions from joint ventures for the six months ended
June 30, 1998, compared to the same period in 1997, is due to a decrease in cash
available for distribution from one of the equipment joint ventures. This
equipment joint venture sold its remaining equipment and notes receivable during
the year ended December 31, 1997.
During the three months ended June 30, 1998, the Partnership received a
capital contribution of $2,072,000 from the General Partner in order to restore
the General Partner's tax basis deficit capital balance.
The cash distributed to limited partners during the six months ended
June 30, 1998 and 1997 was $1,291,000 and $11,625,000, respectively. As a
result, the cumulative cash distributions to the limited partners are
$111,095,000 and $109,804,000 as of June 30, 1998 and 1997, respectively. The
General Partner did not receive cash distributions during the six months ended
June 30, 1998 and 1997. The General Partner has elected not to receive payment,
9
<PAGE>
at this time, for its share of the cash available for distribution due to its
negative capital account.
The first annual distribution was 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.
As of June 30, 1998, the Partnership owned equipment held for lease
with an aggregate original cost of $2,032,000 and a net book value of $0,
compared to $3,196,000 and $0, respectively, as of June 30, 1997. The General
Partner is actively engaged, on behalf of the Partnership, in remarketing and
selling the Partnership's off-lease portfolio.
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 operations will also decline. Cash generated from leasing and financing
operations has been and is anticipated to continue to be sufficient to meet the
Partnership's on-going operational expenses. It is anticipated that the
Partnership will be fully liquidated by its termination date of December 31,
1998.
10
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
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 CASH DISTRIBUTION FUND III,
-------------------------------------------
A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------
(Registrant)
Date Title Signature
---- ----- ---------
August 12, 1998 Executive Vice President, /S/ GARY W. MARTINEZ
- --------------- Chief Operating Officer --------------------
and a Director of (Gary W. Martinez)
Phoenix Leasing Incorporated
General Partner
August 12, 1998 Chief Financial Officer, /S/ HOWARD SOLOVEI
- --------------- Treasurer and a Director of --------------------
Phoenix Leasing Incorporated (Howard Solovei)
General Partner
August 12, 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> 4,240
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 457
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,171
<DEPRECIATION> 4,201
<TOTAL-ASSETS> 8,776
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,122
<TOTAL-LIABILITY-AND-EQUITY> 8,776
<SALES> 0
<TOTAL-REVENUES> 1,099
<CGS> 0
<TOTAL-COSTS> 1,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 61
<INCOME-TAX> 0
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
