<PAGE> 1
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 0-18650
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
__________________________________________
(Exact name of Registrant as specified in its charter)
Delaware 36-3639399
___________________ ___________________
State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization
1300 E. Woodfield Road, Suite 312, Schaumburg, Illinois 60173
_____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 240-6200
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
___________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
_____________________________________
(Title of class)
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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
<PAGE> 2
PART I
Item 1 - Business
Datronic Equipment Income Fund XVIII, L.P. (the "Partnership"), a Delaware
Limited Partnership, was formed on April 12, 1989. The Partnership offered
Units of Limited Partnership Interests (the "Units") during 1989 and early 1990
raising $99,999,500 of limited partner funds.
As more fully described in Part II, Item 8, Notes 1, 5 and 8, during the second
calendar quarter of 1992, it was learned that Edmund J. Lopinski, Jr., the
president, director and majority stockholder of Datronic Rental Corp.("DRC"),
the then general partner, in conjunction with certain other parties, may have
diverted approximately $13.3 million of assets from the Datronic Partnerships
and Transamerica Equipment Leasing Income Fund, L. P. ("TELIF") for his/their
direct or indirect benefit. During 1992, a class action lawsuit was filed and
subsequently certified on behalf of the limited partners in the Datronic
Partnerships against DRC, various officers of DRC and various other parties. On
March 4, 1993, a settlement was approved to resolve certain portions of the suit
to enable the operations of the Datronic Partnerships to continue while
permitting the ongoing pursuit of claims against alleged wrongdoers(the
"Settlement"). In connection with the Settlement, DRC was replaced by Lease
Resolution Corporation ("LRC") as General Partner of the Partnership.
The Partnership was formed to acquire a variety of low-technology,
high-technology and other equipment for lease to unaffiliated third parties
under full payout leases as well as to acquire equipment subject to existing
leases. The cash generated during the Partnership's Operating Phase from such
investments was used to pay the operating costs of the Partnership, make
distributions to the limited partners and the general partner (subject to
certain limitations) and reinvest in additional equipment for lease. During the
Partnership's Liquidating Phase, which began April 12, 1995, the cash generated
from such investments is used to pay the liquidating costs of the Partnership
and make cash distributions to the limited partners and the general partner
(subject to certain limitations). Concurrent with the commencement of the
Liquidating Phase, the Partnership ceased reinvestment in equipment and leases
and began the orderly liquidation of the Partnership's assets.
A presentation of information about industry segments, geographic regions, raw
materials or seasonality is not applicable and would not be material to an
understanding of the Partnership's business taken as a whole. Since the
Partnership ceased investing in leases effective April 12, 1995, a discussion of
sources and availability of leases, backlog and competition is not material to
an understanding of the Partnership's future activity.
2
<PAGE> 3
The Partnership has no employees. LRC, the General Partner, employed 27 persons
at December 31, 1998 all of whom attend to the operations of the Datronic
Partnerships.
Item 2 - Properties
The Partnership's operations are located in leased premises of approximately
15,000 square feet in Schaumburg, Illinois.
LRC occupies approximately 3,800 square feet of office space in Schaumburg,
Illinois in a real estate property that is a Recovered Asset (see Part II, Item
8, Note 5) held for the benefit of the Datronic Partnerships.
Item 3 - Legal Proceedings
Reference is made to Part II, Item 8, Note 8 for a discussion of material legal
proceedings involving the Partnership.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of limited partners during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
3
<PAGE> 4
PART II
Item 5 - Market for the Registrant's Limited Partnership Units and
Related Limited Partner and General Partner Matters
Market Information
The Units are not listed on any exchange or national market system, and there is
no established public trading market for the Units. To the best of LRC's
knowledge, no trading market exists for the Units that would jeopardize the
Partnership's status for federal income tax purposes.
As of March 16, 1999, the Partnership estimates that there were approximately
6,487 record owners of Units.
Distributions
Reference is made to Part II, Item 8, Notes 7 and 10 for a discussion of classes
of limited partners and distributions paid to limited partners and the general
partner.
Item 6 - Selected Financial Data
The following table sets forth selected financial data as of December 31, 1998,
1997, 1996, 1995, and 1994 and for the five years then ended. The amounts
presented are aggregated for all Classes (A, B, and C) of Limited Partners,
unless otherwise noted. This information should be read in conjunction with the
financial statements included in Item 8 which also reflect amounts for each of
the classes of limited partners.
4
<PAGE> 5
STATEMENTS OF REVENUE AND EXPENSES DATA
(in thousands, except for Unit amounts)
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 1,492 $ 678 $ 2,432 $ 2,456 $ 3,102
Total expenses 1,188 666 2,768 3,609 5,392
------- ------- ------- -------- -------
Net earnings (loss) $ 304 $ 12 $ (336) $ (1,153) $(2,290)
------- ------- ------- -------- -------
Net earnings (loss)
per Unit
Class A $ .80 $ (.51) $ (3.72) $ (8.06) $(12.28)
------- ------- ------- -------- -------
Class B $ 1,70 $ .22 $ (1.07) $ (5.03) $(11.07)
------- ------- ------- -------- -------
Class C $ 1.70 $ .22 $ (1.07) $ (5.03) $(11.07)
------- ------- ------- -------- -------
Distributions per Unit
(per year)
Class A $ - $ - $ - $ 6.25 $ 49.71
------- ------- ------- -------- -------
Class B $ - $ - $ 11.30 $ 44.47 $ 54.99
------- ------- ------- -------- -------
Class C $ - $ - $ 11.30 $ 44.47 $ 54.99
------- ------- ------- -------- -------
Weighted average number
of Units outstanding
Class A 44,468 44,468 44,468 44,468 44,468
------- ------- ------- -------- -------
Class B 155,489 155,489 155,489 155,489 155,489
------- ------- ------- -------- -------
Class C 20 20 20 20 20
------- ------- ------- -------- -------
</TABLE>
BALANCE SHEET DATA
(in thousands, except for Unit amounts)
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $10,753 $10,495 $10,823 $13,079 $21,650
------- ------- ------- ------- -------
Total liabilities $ 151 $ 197 $ 537 $ 692 $ 645
------- ------- ------- ------- -------
Partners' equity $10,602 $10,298 $10,286 $12,387 $21,005
------- ------- ------- ------- -------
Book value per Unit
Class A $ 59.68 $ 58.88 $ 59.38 $ 63.10 $ 76.92
------- ------- ------- ------- -------
Class B $ 53.38 $ 51.70 $ 51.48 $ 63.86 $113.86
------- ------- ------- ------- -------
Class C $ 58.15 $ 57.27 $ 57.05 $ 69.43 $119.43
------- ------- ------- ------- -------
</TABLE>
5
<PAGE> 6
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis presents information pertaining to the
Partnership's operating results and financial condition.
Results of Operations
The Partnership had net income of $304,000 in 1998 in the aggregate for all
classes of partners. This compares to aggregate net income in 1997 of $12,000
and a net loss in 1996 of $336,000. Differences in operating results between
Liquidating and Continuing Limited Partners are attributable to lease income and
expenses associated with new lease investments made since the March 4, 1993
Settlement. Liquidating Limited Partners do not participate in these post
Settlement activities. Significant factors affecting overall operating results
for the three years ended December 31, 1998 include the following:
Lease income:
Since April 1995, the Partnership has been in its Liquidating Phase which
prohibits investing in any new leases. Accordingly, the lease portfolio has
continued to decrease as collections are made, resulting in a continued decline
in lease income over the three years ended December 31, 1998. This trend will
continue as the Partnership liquidates its remaining leases. The following 1996
transactions also affect the year-to-year comparison of lease income: (i) income
was reduced by $400,000 due to the return of lease overpayments that were
recognized as revenue in earlier periods and (ii) income was increased by
$324,000 from the full and final settlement of a sublease agreement with
Personal Computer Rental Corporation.
Litigation Proceeds:
Litigation proceeds represent the Partnership's proportionate share of
recoveries received in connection with the resolution of litigation against its
former accountants. See Note 8 to the Partnership's financial statements
included in Item 8.
Recovery of Datronic Assets:
Recovery of Datronic Assets represents the Partnership's 22.2% share of
previously reserved cash balances held by a nominee company for the benefit of
the Datronic Partnerships. During 1998, potential claims against these funds
were resolved and a total of $750,000 was distributed proportionately to each of
the Datronic Partnerships. See Note 6 to the Partnership's financial statements
included in Item 8.
Interest income:
Interest income for all three years includes earnings on invested cash balances.
In addition, 1996 includes interest earned on an installment contract, including
$1.3 million of previously unrecorded
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interest income recorded in connection with the payoff of the remaining balance
due. Interest income for 1998 was higher than 1997 because of higher average
invested cash balances.
Management fees - New Era:
These fees were paid to New Era Funding for managing the day-to-day operations
of the Partnership under a Management Agreement that was terminated effective
June 30, 1996. Accordingly, 1998 and 1997 reflect no New Era management fees
and 1996 results reflect only six months of such fees plus $830,000 in
termination and non-compete fees. Effective July 1, 1996, LRC assumed
responsibility for the day-to-day management of the Partnership and the related
expenses are included in General Partner's expense reimbursement (see Note 9 to
the Partnership's financial statements included in Item 8).
General Partner's expense reimbursement:
General Partner's expense reimbursement includes payments to LRC for expenses it
incurred as general partner in excess of those covered by its partner
distributions. Effective July 1, 1996, these expenses include additional
expenses incurred by LRC in its management of the day-to-day operations of the
Partnership. The decrease in 1998 is due to the effects of staff reductions and
other cost savings realized during 1998. Included in 1997 expenses is $120,000
of insurance premiums for coverage that extends through the ultimate liquidation
of the Partnership and $66,000 of one-time charges for relocating the former New
Era staff to reduced office space. See Note 10 to the Partnership's financial
statements included in Item 8.
Professional fees - litigation:
Professional fees - litigation represent fees paid in connection with the
Partnership's litigation which is described in Note 8 to the Partnership's
financial statements included in Item 8. The 1998 and 1997 increases reflect
fees paid in connection with the litigation against the Partnership's former
accountants. Included in the 1998 amount are contingent fees paid or accrued
based on amounts recovered.
Professional fees - other:
Professional fees - other for the three years ended December 31, 1998 reflect a
decreasing level of professional services required as a result of the decrease
in the Partnership's lease portfolio and related activities.
Credit for lease loss:
This credit reflects Management's ongoing assessment of the potential losses
inherent in the lease portfolio. The credits in 1996, 1997 and 1998 reflect net
recoveries of lease balances previously reserved, including recoveries on the
Master Lease agreement with CRCA of $155,000, $815,000 and $384,000,
respectively. See Note 4 to the Partnership's financial statements included in
Item 8.
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<PAGE> 8
Provision (credit) for loss on Diverted and other assets:
This provision (credit) represents the Partnership's share of any decrease
(recovery) in the estimated net realizable value of various assets held for the
benefit of the Datronic Partnerships. The credit in 1997 reflects a recovery of
amounts previously reserved for in 1995. Because of the fluctuating nature of
real estate values and the inherent difficulty of estimating the affects of
future events, the amounts ultimately realized from these assets could differ
significantly from their recorded amounts. See Note 5 to the Partnership's
financial statements included in Item 8.
Liquidity and Capital Resources
During 1998, Partnership assets continued to be converted to cash in order to
pay Partnership operating expenses and to provide for the ultimate liquidation
of the Partnership. During the year, Partnership cash and cash equivalents
increased by $1,595,000 to $9,512,000 at December 31, 1998 from $7,917,000 at
December 31, 1997. This increase is primarily due to cash receipts from
collections on leases of $1,316,000 (including approximately $585,000 from
leases that were fully reserved) and a distribution of Diverted and other assets
of $739,000, partially offset by cash used in operations of $461,000.
The Partnership's sources of future liquidity are expected to come from
cash-on-hand, the cash receipts from leases owned by the Partnership as well as
the disposition of the remaining Diverted Assets. The ultimate liquidation date
of the Partnership and its associated costs are not yet certain due to various
timing issues relating to the liquidation of the Partnership's remaining assets.
The lease portfolio is scheduled to be fully liquidated by May 2000 and the
remaining Diverted Assets (consisting primarily of an office building in
Schaumburg, Illinois) are expected to be liquidated during 1999.
Through the second quarter of 1998, it appeared unlikely that the Partnership
would make any additional distributions until such time as its remaining assets
were liquidated and the pending litigation resolved. Now that additional assets
have been liquidated, the General Partner has determined that an interim cash
distribution will be paid to the limited partners shortly after the end of the
first quarter 1999. The General Partner is in the process of determining the
amount that will be available for this distribution and its allocation among
each class of Limited Partner. This distribution will be made to owners of
record as of December 31, 1998 even if their units are subsequently sold.
Impact of Inflation and Changing Prices
Inflation is not expected to have any significant direct, determinable effect on
the Partnership's business or financial condition.
8
<PAGE> 9
Impact of Year 2000 Issue
LRC has conducted a comprehensive review of the computer systems used to support
the Partnership's operations to determine whether any systems could be affected
by the Year 2000 Issue. The Year 2000 Issue relates to computer programs that
use two digits rather than four to define the year. This could cause
date-sensitive software to recognize the digits "00" as the year 1900 rather
than 2000. LRC does not expect the Partnership to be affected by the Year 2000
Issue because the systems used to support the Partnership's operations are
already substantially able to meet the reduced operating requirements of the
Partnership in the Year 2000. Furthermore, the only material relationships the
Partnership has with third parties that could be affected by the Year 2000 are
those with the Partnership's banking institutions. LRC has been advised by the
Partnership's banking institutions that they are Year 2000 compliant.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
The information called for in this disclosure is not applicable to the
Registrant.
9
<PAGE> 10
Item 8 - Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Audited Financial Statements: Page(s)
-------
<S> <C>
Independent Auditors' Report 11-12
Balance Sheets
In Total for All Classes
of Limited Partners at December 31,
1998 and 1997 13
By Class of Limited Partner
December 31, 1998 14
December 31, 1997 15
Statements of Revenue and Expenses
In Total for All Classes of Limited Partners
for the years ended December 31,
1998, 1997 and 1996 16
By Class of Limited Partner for the years ended
December 31, 1998 17
December 31, 1997 18
December 31, 1996 19
Statements of Changes in Partners' Equity
for the years ended December 31,
1998, 1997 and 1996 20
Statements of Cash Flows
In Total for All Classes of Limited Partners
for the years ended December 31,
1998, 1997 and 1996 21
By Class of Limited Partner for the years ended
December 31, 1998 22
December 31, 1997 23
December 31, 1996 24
Notes to Financial Statements 25-36
</TABLE>
10
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
The Partners of Datronic
Equipment Income Fund XVIII, L.P.
We have audited the accompanying balance sheets in total for all classes of
limited partners of DATRONIC EQUIPMENT INCOME FUND XVIII, L.P. ("the
Partnership") as of December 31, 1998 and 1997 and the related statements of
revenue and expenses in total for all classes of limited partners, of changes in
partners' equity and of cash flows in total for all classes of limited partners
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1998 and 1997, and the results of its operations in total for all classes of
limited partners and its cash flows in total for all classes of limited partners
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the Partnership's
financial statements taken as a whole. As described in Note 2, the accounting
records of the Partnership are maintained to reflect the interests of each of
the classes of limited partners. Additional information consisting of the
balance sheets by class of limited partner as of December 31, 1998 and 1997, the
statements of revenue and expenses by class of limited partner and the
statements of cash flows by class of limited partner for the three years in the
period ended December 31, 1998 have been prepared by management solely for the
information of the limited partners and are not a required part of the financial
statements. This additional information has been subjected to the auditing
11
<PAGE> 12
procedures applied in the audit of the Partnership's financial statements and,
in our opinion, has been allocated to the respective classes of limited partners
in accordance with the terms of the Amended Partnership Agreement described in
Note 10 and is fairly stated in all material respects in relation to the
Partnership's financial statements taken as a whole.
As explained more fully in Notes 1 and 5, the former President and Majority
Stockholder of Datronic Rental Corporation ("DRC"), the general partner of the
Partnership until March 4, 1993, and others are alleged to have diverted, for
their benefit, approximately $13 million from the Partnership and related
entities -- Datronic Equipment Income Fund XVI, XVII, XIX, XX, L.P., Datronic
Finance Income Fund I, L.P. and Transamerica Equipment Leasing Income Fund, L.P.
(collectively "the Partnerships"). Substantially all of the assets known to
have been improperly acquired with the diverted funds have been recovered for
the benefit of the Partnerships.
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
March 9, 1999
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
BALANCE SHEETS
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,511,921 $ 7,916,860
Judgment receivable, net 133,420 -
Net investment in direct financing leases 314,607 1,045,601
Residual interest in CRCA - -
Diverted and other assets, net 792,838 1,532,318
Datronic assets, net - -
----------- -----------
$10,752,786 $10,494,779
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 88,555 $ 83,514
Lessee rental deposits 62,674 113,488
----------- -----------
Total liabilities 151,229 197,002
Total partners' equity 10,601,557 10,297,777
----------- -----------
$10,752,786 $10,494,779
=========== ===========
</TABLE>
See accompanying notes to financial statements.
13
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
BALANCE SHEETS
BY CLASS OF LIMITED PARTNER
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $2,417,775 $7,094,146 $9,511,921
Judgment receivable, net 29,673 103,747 133,420
Net investment in direct financing
leases - 314,607 314,607
Residual interest in CRCA - - -
Diverted and other assets, net 176,327 616,511 792,838
Datronic assets, net - - -
---------- ---------- -----------
$2,623,775 $8,129,011 $10,752,786
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued
expenses $ 17,395 $ 71,160 $ 88,555
Lessee rental deposits 9,434 53,240 62,674
---------- ---------- -----------
Total liabilities 26,829 124,400 151,229
Total partners' equity 2,596,946 8,004,61 10,601,557
---------- ---------- -----------
$2,623,775 $8,129,011 $10,752,786
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
BALANCE SHEETS
BY CLASS OF LIMITED PARTNER
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $2,253,955 $5,662,905 $ 7,916,860
Net investment in direct financing
leases - 1,045,601 1,045,601
Residual interest in CRCA - - -
Diverted and other assets, net 340,788 1,191,530 1,532,318
Datronic assets, net - - -
---------- ---------- -----------
$2,594,743 $7,900,036 $10,494,779
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued
expenses $ 15,101 $ 68,413 $ 83,514
Lessee rental deposits 18,786 94,702 113,488
---------- ---------- -----------
Total liabilities 33,887 163,115 197,002
Total partners' equity 2,560,856 7,736,921 10,297,777
---------- ---------- -----------
$2,594,743 $7,900,036 $10,494,779
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF REVENUE AND EXPENSES
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Lease income $ 155,065 $ 313,851 $ 720,709
Litigation proceeds 762,767 - -
Recovery of Datronic assets 166,500 - -
Interest income 407,535 364,777 1,711,794
---------- ----------- ----------
1,491,867 678,628 2,432,503
---------- ----------- ----------
Expenses:
Management fees - New Era - - 1,506,648
General Partner's expense
reimbursement 836,454 1,254,994 712,459
Professional fees - litigation 763,399 442,186 340,469
Professional fees - other 113,143 124,043 207,277
Other operating expenses 60,568 54,646 64,198
Credit for lease losses (585,477) (1,080,652) (154,655)
Provision (credit) for loss on
Diverted and other assets - (128,772) 91,980
---------- ----------- ----------
1,188,087 666,445 2,768,376
---------- ----------- ----------
Net earnings (loss) $ 303,780 $ 12,183 $ (335,873)
========== =========== ==========
Net earnings (loss) -
General Partner $ 3,038 $ 122 $ (3,359)
========== =========== ==========
Net earnings (loss) -
Limited Partners $ 300,742 $ 12,061 $ (332,514)
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
16
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Lease income $ 11,065 $ 144,000 $ 155,065
Litigation proceeds 169,640 593,127 762,767
Recovery of Datronic assets 37,030 129,470 166,500
Interest income 85,836 321,699 407,535
--------- ---------- -----------
303,571 1,188,296 1,491,867
--------- ---------- -----------
Expenses:
General Partner's expense
reimbursement 166,129 670,325 836,454
Professional fees - litigation 169,780 593,619 763,399
Professional fees - other 19,974 93,169 113,143
Other operating expenses 13,341 47,227 60,568
Credit for lease losses (101,743) (483,734) (585,477)
--------- ---------- -----------
267,481 920,606 1,188,087
--------- ---------- -----------
Net earnings $ 36,090 $ 267,690 $ 303,780
========= ========== ===========
Net earnings - General Partner $ 361 $ 2,677 $ 3,038
========= ========== ===========
Net earnings - Limited Partners $ 35,729 $ 265,013 $ 300,742
========= ========== ===========
Net earnings per limited
partnership unit $ 0.80 $ 1.70
========= ==========
Weighted average number of limited
partnership units outstanding 44,468 155,509
========= ==========
</TABLE>
See accompanying notes to financial statements.
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Lease income $ 8,502 $ 305,349 $ 313,851
Interest income 75,046 289,731 364,777
---------- ---------- -----------
83,548 595,080 678,628
---------- ---------- -----------
Expenses:
General Partner's expense
reimbursement 263,409 991,585 1,254,994
Professional fees - litigation 98,342 343,844 442,186
Professional fees - other 25,106 98,937 124,043
Other operating expenses 11,817 42,829 54,646
Credit for lease losses (263,689) (816,963) (1,080,652)
Credit for loss on Diverted
and other assets (28,639) (100,133) (128,772)
---------- ---------- -----------
106,346 560,099 666,445
---------- ---------- -----------
Net earnings (loss) $ (22,798) $ 34,981 $ 12,183
========== ========== ===========
Net earnings (loss) -
General Partner $ (228) $ 350 $ 122
========== ========== ===========
Net earnings (loss) -
Limited Partners $ (22,570) $ 34,631 $ 12,061
========== ========== ===========
Net earnings (loss) per limited
partnership unit $ (0.51) $ 0.22
========== ==========
Weighted average number of limited
partnership units outstanding 44,468 155,509
========== ==========
</TABLE>
See accompanying notes to financial statements.
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DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Lease income $ 33,318 $ 687,391 $ 720,709
Interest income 354,821 1,356,973 1,711,794
--------- ---------- ----------
388,139 2,044,364 2,432,503
--------- ---------- ----------
Expenses:
Management fees - New Era 308,322 1,198,326 1,506,648
General Partner's expense
reimbursement 155,152 557,307 712,459
Professional fees - litigation 75,720 264,749 340,469
Professional fees - other 43,939 163,338 207,277
Other operating expenses 13,819 50,379 64,198
Credit for lease losses (62,195) (92,460) (154,655)
Provision for loss on Diverted
and other assets 20,456 71,524 91,980
--------- ---------- ----------
555,213 2,213,163 2,768,376
--------- ---------- ----------
Net loss $(167,074) $ (168,799) $ (335,873)
========= ========== ==========
Net loss - General Partner $ (1,671) $ (1,688) $ (3,359)
========= ========== ==========
Net loss - Limited Partners $(165,403) $ (167,111) $ (332,514)
========= ========== ==========
Net loss per limited
partnership unit $ (3.72) $ (1.07)
========= ==========
Weighted average number
of limited partnership units
outstanding 44,468 155,509
========= ==========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the three years ended December 31, 1998
<TABLE>
<CAPTION>
Liquidating Continuing
General Limited Limited Total
Partner's Partners' Partners' Partners'
Equity Equity Equity Equity
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $2,750,728 $9,636,561 $12,387,289
Distributions to partners (8,570) - (1,757,252) (1,765,822)
Net loss (3,359) (165,403) (167,111) (335,873)
Allocation of General
Partner's Equity 11,929 (1,671) (10,258) -
-------- ---------- ---------- -----------
Balance, December 31, 1996 - 2,583,654 7,701,940 10,285,594
-------- ---------- ---------- -----------
Net earnings (loss) 122 (22,570) 34,631 12,183
Allocation of General
Partner's Equity (122) (228) 350 -
-------- ---------- ---------- -----------
Balance, December 31, 1997 - 2,560,856 7,736,921 10,297,777
-------- ---------- ---------- -----------
Net earnings 3,038 35,729 265,013 303,780
Allocation of General
Partner's Equity (3,038) 361 2,677 -
-------- ---------- ---------- -----------
Balance, December 31, 1998 $ - $2,596,946 $8,004,611 $10,601,557
======== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 21
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF CASH FLOWS
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 303,780 $ 12,183 $ (335,873)
Adjustments to reconcile net
earnings (loss) to net cash used
in operating activities:
Credit for lease losses (585,477) (1,080,652) (154,655)
Provision (credit) for loss on
Diverted and other assets - (128,772) 91,980
Changes in assets and
liabilities:
Judgment receivable, net (133,420) - -
Accounts payable and
accrued expenses 5,041 (208,302) (16,729)
Lessee rental deposits (50,814) (131,672) (138,490)
Due from management company - 59,676 (59,950)
---------- ----------- -----------
(460,890) (1,477,539) (613,717)
---------- ----------- -----------
Cash flows from investing activities:
Principal collections on leases 1,316,471 3,050,927 4,253,902
Distribution of Diverted and
other assets 739,480 - -
Release of restricted cash - - 90,612
Principal collections on installment
contracts receivable - - 968,866
---------- ----------- -----------
2,055,951 3,050,927 5,313,380
---------- ----------- -----------
Cash flows from financing activities:
Distributions to Limited Partners - - (1,757,252)
Distributions to General Partner - - (8,570)
---------- ----------- -----------
- - (1,765,822)
---------- ----------- -----------
Net increase in cash and
cash equivalents 1,595,061 1,573,388 2,933,841
Cash and cash equivalents:
Beginning of year 7,916,860 6,343,472 3,409,631
---------- ----------- -----------
End of year $9,511,921 $ 7,916,860 $6,343,472
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 36,090 $ 267,690 $ 303,780
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Credit for lease losses (101,743) (483,734) (585,477)
Changes in assets and
liabilities:
Judgment receivable, net (29,673) (103,747) (133,420)
Accounts payable and
accrued expenses 2,294 2,747 5,041
Lessee rental deposits (9,352) (41,462) (50,814)
---------- ---------- ----------
(102,384) (358,506) (460,890)
---------- ---------- ----------
Cash flows from investing activities:
Principal collections on leases 101,743 1,214,728 1,316,471
Distribution of Diverted
and other assets 164,461 575,019 739,480
---------- ---------- ----------
266,204 1,789,747 2,055,951
---------- ---------- ----------
Net increase in cash and
cash equivalents 163,820 1,431,241 1,595,061
Cash and cash equivalents:
Beginning of year 2,253,955 5,662,905 7,916,860
---------- ---------- ----------
End of year $2,417,775 $7,094,146 $9,511,921
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (22,798) $ 34,981 $ 12,183
Adjustments to reconcile net earnings
(loss) to net cash used in
operating activities:
Credit for lease losses (263,689) (816,963) (1,080,652)
Credit for loss on Diverted
and other assets (28,639) (100,133) (128,772)
Changes in assets and liabilities:
Accounts payable and
accrued expenses (42,888) (165,414) (208,302)
Lessee rental deposits (26,315) (105,357) (131,672)
Due from management company 12,674 47,002 59,676
---------- ---------- ----------
(371,655) (1,105,884) (1,477,539)
---------- ---------- ----------
Cash flows from investing activities:
Principal collections on leases 268,180 2,782,747 3,050,927
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (103,475) 1,676,863 1,573,388
Cash and cash equivalents:
Beginning of year 2,357,430 3,986,042 6,343,472
---------- ---------- ----------
End of year $2,253,955 $5,662,905 $7,916,860
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
23
<PAGE> 24
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (167,074) $ (168,799) $ (335,873)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Credit for lease losses (62,195) (92,460) (154,655)
Provision for loss on
Diverted and other assets 20,456 71,524 91,980
Changes in assets and
liabilities:
Accounts payable and
accrued expenses (4,409) (12,320) (16,729)
Lessee rental deposits (30,511) (107,979) (138,490)
Due from management
company (12,736) (47,214) (59,950)
---------- ---------- ----------
(256,469) (357,248) (613,717)
---------- ---------- ----------
Cash flows from investing
activities:
Principal collections on leases 401,060 3,852,842 4,253,902
Release of restricted cash 20,152 70,460 90,612
Principal collections on installment
contracts receivable 215,476 753,390 968,866
---------- ---------- ----------
636,688 4,676,692 5,313,380
---------- ---------- ----------
Cash flows from financing activities:
Distributions to Limited Partners - (1,757,252) (1,757,252)
Distributions to General Partner - (8,570) (8,570)
---------- ---------- ----------
- (1,765,822) (1,765,822)
---------- ---------- ----------
Net increase in cash and
cash equivalents 380,219 2,553,622 2,933,841
Cash and cash equivalents:
Beginning of year 1,977,211 1,432,420 3,409,631
---------- ---------- ----------
End of year $2,357,430 $3,986,042 $6,343,472
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
NOTE 1 - ORGANIZATION:
Datronic Equipment Income Fund XVIII, L.P., a Delaware Limited Partnership (the
"Partnership"), was formed on April 12, 1989 for the purpose of acquiring and
leasing both high- and low-technology equipment. Through March 4, 1993,
Datronic Rental Corporation ("DRC") was the general partner of the Partnership
and Datronic Equipment Income Funds XVI, XVII, XIX, XX and Datronic Finance
Income Fund I, (collectively, the "Datronic Partnerships") and was co-general
partner of Transamerica Equipment Leasing Income Fund, L.P. ("TELIF").
In 1992, it was alleged that the chairman of DRC (who was also its president and
majority stockholder), in conjunction with various other parties, had
misappropriated and commingled $13.3 million of funds belonging to this and the
other Datronic Partnerships and TELIF. The Partnership's portion of these funds
was $2.4 million. In connection with a partial settlement of a class action
lawsuit arising from these allegations, Lease Resolution Corporation ("LRC")
replaced DRC as general partner of this and the other Datronic Partnerships on
March 4, 1993. LRC is a Delaware non-stock corporation formed for the sole
purpose of acting as general partner of the Datronic Partnerships.
On April 12, 1995, the Partnership began its Liquidating Phase under which it
has ceased investing in new leases and began the orderly liquidation of its
assets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Financial Statements - The accounting records of the Partnership are
being maintained to reflect the interests of each of the classes of limited
partners (see Note 10). Each class of limited partner is not a separate legal
entity holding title to individual assets nor the obligor of individual
liabilities. Accordingly, assets allocated to a specific class of limited
partner are available to settle claims of the Partnership as a whole. Additional
information consisting of the balance sheets by class of limited partner as of
December 31, 1998 and 1997, the statements of revenue and expenses by class of
limited partner and the statements of cash flows by class of limited partner for
the three years ended December 31, 1998 have been prepared to present
allocations of the various categories of assets, liabilities, revenue, expenses
and cash flows of the Partnership to each of the classes of limited partners in
accordance with the Amended Partnership Agreement. In addition, the general
partner's equity has been allocated to each class of limited partner for
25
<PAGE> 26
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
purposes of additional information because the equity attributable to the
general partner will be allocated to the limited partners upon final dissolution
of the Partnership. For purposes of this additional information, the interests
of the Class B and Class C Limited Partners have been combined as "Continuing
Limited Partners." At December 31, 1998, the amounts per Unit relating to these
two classes are identical with the exception that the per Unit value of Class C
Limited Partners is $4.77 per Unit higher than the Class B Limited Partners
because, in accordance with the 1993 Settlement, Class Counsel fees and expenses
related to the Settlement, net of Datronic Assets, were not allocated to the
Class C Limited Partners (see Note 6).
Cash and Cash Equivalents - Cash and cash equivalents consist principally of
overnight investments in high quality, short-term corporate demand notes
(commercial paper). Due to the nature of the Partnership's commercial paper
investments, Management does not believe there is any significant market risk
associated with such investments. Amounts due (to) from the general partner
(LRC) and other Datronic Partnerships are also included.
Net Investment in Direct Financing Leases - Net investment in direct financing
leases consists of the present value of future minimum lease payments and
residuals under non-cancelable lease agreements. Residuals are valued at the
estimated fair market value of the underlying equipment at lease termination.
Leases are classified as non-performing when it is determined that the only
remaining course of collection is litigation. All balances relating to the
lease are netted together and no further income is accrued when a lease is
classified as non-performing.
Lease income includes interest earned on the present value of lease payments and
residuals (recognized over the term of the lease to yield a constant periodic
rate of return), interest collected on non-performing leases, late fees, and
other lease related items.
Allowance for Lease Losses - An allowance is recorded to reflect estimated
losses inherent in the existing portfolio of leases. Additions to the allowance
are made by means of a provision for lease losses, which is charged to expense.
Recoveries of amounts previously reserved are reflected as credits to the
provision for lease loss. The amounts shown in the accompanying Statements of
Revenue and Expenses reflect the net effect of provisions and recoveries.
Write-offs are deducted from the allowance.
26
<PAGE> 27
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
Due (to) from General Partner and Other Datronic Partnerships - In the ordinary
course of the Partnership's day-to-day operations, there are occasions when the
general partner and/or other Datronic Partnerships owe amounts to, and are owed
amounts from, the Partnership. It is the Partnership's policy not to charge
(credit) interest on these payable (receivable) balances and to include them as
cash equivalents.
Net Earnings (Loss) per Limited Partnership Unit - Net earnings (loss) per unit
is based on net earnings (loss) after giving effect to a 1% allocation to the
general partner. The remaining 99% of net earnings (loss) for each of the
Liquidating and Continuing Limited Partners is divided by the weighted-average
number of units outstanding to arrive at net earnings (loss) per limited
partnership unit for each class of limited partner.
Use of Estimates - In preparing financial statements in conformity with
generally accepted accounting principles, Management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - NET INVESTMENT IN DIRECT FINANCING LEASES:
The components of the net investment in direct financing leases at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- ---------
<S> <C> <C> <C>
Performing leases
Minimum lease payments
receivable $ 1,608 $ 319,317 $ 320,925
Unearned income - (17,386) (17,386)
-------- ---------- ----------
Total performing leases 1,608 301,931 303,539
Non-performing leases 94,904 832,246 927,150
-------- ---------- ----------
Net investment in direct financing
leases before allowance 96,512 1,134,177 1,230,689
Allowance for lease losses (96,512) (819,570) (916,082)
-------- ---------- ----------
Net investment in direct
financing leases $ - $ 314,607 $ 314,607
======== ========== ==========
Billed and outstanding balances
included in net investment
in direct financing leases $ 1,608 $ 4,790 $ 6,398
======== ========== ==========
</TABLE>
27
<PAGE> 28
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
Performing leases
Minimum lease payments
receivable $ 5,397 $ 1,248,096 $ 1,253,493
Unearned income - (98,647) (98,647)
Estimated residuals 232 810 1,042
----------- ----------- -----------
Total performing leases 5,629 1,150,259 1,155,888
Non-performing leases 120,854 1,065,325 1,186,179
----------- ----------- -----------
Net investment in direct
financing leases before
allowance 126,483 2,215,584 2,342,067
Allowance for lease losses (126,483) (1,169,983) (1,296,466)
----------- ----------- -----------
Net investment in direct
financing leases $ - $ 1,045,601 $ 1,045,601
=========== =========== ===========
Billed and outstanding balances
included in net investment
in direct financing leases $ 5,397 $ 40,795 $ 46,192
=========== =========== ===========
</TABLE>
An analysis of the changes in the allowance for lease losses by Class of Limited
Partner for 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 1,857,588 $ 7,169,350 $ 9,026,938
Recoveries (62,195) (92,460) (154,655)
Write-offs (58,556) (263,747) (322,303)
----------- ---------- ----------
Balance at December 31, 1996 1,736,837 6,813,143 8,549,980
Recoveries (263,689) (816,963) (1,080,652)
Write-offs (1,346,665) (4,826,197) (6,172,862)
----------- ---------- ----------
Balance at December 31, 1997 126,483 1,169,983 1,296,466
Recoveries (16,441) (185,486) (201,927)
Write-offs (13,530) (164,927) (178,457)
----------- ---------- ----------
Balance at December 31, 1998 $ 96,512 $ 819,570 $ 916,082
=========== ========== ==========
</TABLE>
The 1996 and 1997 recoveries and the 1997 write-offs relate primarily to a
Master Lease Agreement between the Partnership and CRCA. See Note 4.
28
<PAGE> 29
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
The Partnership leased equipment with lease terms generally ranging from two to
five years. Minimum payments scheduled to be received on performing leases for
each of the succeeding years ending after December 31, 1998 by Class of Limited
Partner are as follows:
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ---------- ---------
<S> <C> <C> <C>
1999 $ 1,608 $301,767 $303,375
2000 - 17,550 17,550
-------- -------- --------
$ 1,608 $319,317 $320,925
======== ======== ========
</TABLE>
NOTE 4 - RESIDUAL INTEREST IN CRCA
Residual interest in CRCA represents the Partnership's fully-reserved, 65%
interest in the remaining assets of Computer Rental Corporation of America, Inc.
("CRCA"). Fund XX holds the remaining 35% interest. All of the stock of CRCA
was obtained by LRC for the benefit of the Partnership and Fund XX as a result
of CRCA's 1992 default on a master lease agreement between it and the two
Partnerships.
At December 31, 1998, CRCA's assets consisted of a $4.2 million subordinated
note receivable from Personal Computer Rental Corp. ("PCR") and $136,000 of
cash. The note, which was due in November 1997, is now in default and was one
of two notes comprising the $6.2 million consideration received by CRCA for the
1996 sale of its assets to PCR. The note is subordinated to a $14 million
security interest held by another PCR creditor.
During the period 1996 through 1998, $2.08 million of principal and interest
have been collected against the PCR notes of which $1.35 million was
distributed to the Partnership and the balance to Fund XX. The Partnership
credited these recoveries against its provision (credit) for lease losses in the
year's received (1996 - $154,655, 1997 - $815,074, and 1998 - $383,549). Any
additional recoveries against the remaining note balance will also be credited
against the provision.
Prior to 1997, the Partnership included the fully-reserved, unpaid balance of
the master lease agreement with its Net Investment in Direct Financing Leases.
In 1997 the remaining $6 million balance was written-off against the allowance
for lease losses since the Partnership's sole means of recovery is from the
liquidation of CRCA's remaining assets.
29
<PAGE> 30
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - DIVERTED AND OTHER ASSETS:
The $13.3 million of funds allegedly misappropriated from the Datronic
Partnerships and TELIF (collectively, the "Partnerships") (see Note 1) were
commingled by the alleged wrongdoers with $10.3 million of funds and used to
acquire various assets. $20.7 million of such assets (collectively, "Diverted
and other assets" or "Recovered assets") were subsequently recovered for the
benefit of the Partnerships and each Partnership was assigned an undivided,
pro-rata interest in them. These assets are held by a nominee company.
Since 1993, LRC has been liquidating these assets and distributing available
funds to the Partnerships. The Partnership's 18.4% interest in the remaining
Diverted and other assets is reflected in the accompanying balance sheets at
cost, less valuation allowances established in prior years. At December 31,
1998, these assets consisted of a seven-story office building in Schaumburg,
Illinois and cash of $1.3 million.
During 1998, $4.0 million of cash (Partnership's share, $739,480) was
transferred from the nominee company to the Partnerships. These proceeds were
recorded as a reduction of "Diverted and other assets, net" in the Partnership's
Balance Sheet. The Partnership's Statements of Revenue and Expenses reflect a
1997 recovery ($128,772) of previously reserved balances and a 1996 loss
($91,980) from the settlement of claims against the Diverted and other assets.
LRC is continuing its efforts to market and sell the Schaumburg, Illinois office
building. The net sales proceeds, along with other available cash balances will
be distributed to the Partnerships. Due to the fluctuating nature of real estate
values, the ultimate net realizable value of the office building cannot be
predicted.
NOTE 6 - DATRONIC ASSETS:
At December 31, 1998, Datronic Assets consisted of the Partnership's 22.2%
interest in fully-reserved residual cash of $46,000 held by a nominee company
for the benefit of the Class A and B Limited Partners of the Datronic
Partnerships. The reserves are in anticipation of future costs or claims that
may be paid by the nominee.
30
<PAGE> 31
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
Originally, Datronic Assets consisted of all of DRC's net assets which were
transferred to an LRC nominee company for the purpose of reimbursing the Class A
and B Limited Partners for legal fees paid in connection with the 1993
court-approved partial settlement of class action litigation (see Notes 1, 2 and
8). Since then, all but $46,000 of the $1,732,000 (Partnership's share
$385,000) realized from the liquidation of the Datronic Assets has been
distributed to the Partnerships, including $750,000 (Partnership's share
$166,500) during 1998. The $166,500 realized by the Partnership this year was
previously fully-reserved for claims that were ultimately resolved during 1998
and is shown in the accompanying Statements of Revenue and Expenses as "Recovery
of Datronic Assets". The $166,500 and all previously realized Datronic Assets
have been allocated to the Class A and B Limited Partners.
Upon dissolution of the nominee company, any portion of the $46,000 which is
realized in excess of its fully reserved balance of zero, will be distributed
proportionately to the Partnerships.
NOTE 7 - PARTNERS' EQUITY:
Distributions per Unit to the Limited Partners for 1996 were:
Class A $ -
Class B $11.30
Class C $11.30
No distributions were made in 1997 or 1998.
At December 31, 1998, 1997 and 1996, there were 44,468 Class A Units, 155,489
Class B Units, 20 Class C Units, and one General Partner Unit outstanding.
Funds raised by each Class and cumulative distributions to limited partner by
Class from the Partnership's formation through December 31, 1998 are:
<TABLE>
<CAPTION>
Funds Cumulative
Raised Distributions
------ -------------
<S> <C> <C>
Class A $22,234,000 $14,055,325
Class B 77,744,500 51,086,383
Class C 10,000 6,572
----------- -----------
Total $99,988,500 $65,148,280
=========== ===========
</TABLE>
31
<PAGE> 32
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - LITIGATION:
CLAIMS AGAINST PROFESSIONALS
During 1992, various class action lawsuits and Partnership cross-claims were
filed against the Partnerships' former securities counsel (Siegan, Barbakoff,
Gomberg & Kane - "Siegan") alleging breach of fiduciary duty and the
Partnerships' former independent accountants (Weiss and Company and Price
Waterhouse) alleging professional negligence, breach of contract, and violations
of Section 11 of the Securities Act of 1933.
The claims against Siegan were settled in 1995 pursuant to which Siegan paid a
total of $1.78 million (of which $426,000 went to the Partnership). Costs,
consisting primarily of legal fees, incurred by the Partnerships in pursuing
their claim against Siegan totaled approximately $683,000 (including $164,000
paid by the Partnership).
During 1998, the claims against the Partnerships' former accountants were
resolved. In May, LRC reached a settlement with Weiss under which Weiss agreed
to pay the Partnerships $2.4 million (Partnership's share is $585,000) in
exchange for a release from all Partnership claims and dismissal of the class
claims against it. The settlement was consummated in September and the
settlement proceeds, along with $37,000 of interest earned since May, were
transferred to LRC for the benefit of the Partnerships. After payment of
$609,000 in contingent legal fees (Partnership's share is $146,000), $1.83
million of net proceeds were made available to the Partnerships. The
Partnership's share of the gross proceeds has been included in its 1998
Statements of Revenue and Expenses as "Litigation proceeds." The contingent
legal fees are included in the Statements of Revenue and Expenses as part of
"Professional fees - litigation."
In June, a jury verdict was rendered against Price Waterhouse finding them
negligent in the conduct of their prior audits of the Datronic Partnerships.
The jury awarded damages of $739,300. In January 1999, the court entered final
judgment and awarded an additional $2,000 for trial costs. The Partnership's
share ($178,000) of the total award has been included in its 1998 Statements of
Revenue and Expenses as "Litigation proceeds." These damages bear 9% interest
until paid by the defendant. Contingent fees of 25% of the recovery will be due
upon receipt of the damages and are reflected in the Statements of Revenue and
Expenses as part of "Professional fees - litigation." The proceeds due to the
Partnership are included in its December 31, 1998 Balance Sheet, net of
contingent legal fees, as "Judgment receivable, net."
32
<PAGE> 33
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
Legal fees and trial expenses incurred by the Partnership in pursuing its claims
against the former accountants have totaled $1,320,000 since 1993.
Other Claims
During 1994, a suit was filed on behalf of certain of the Datronic Partnerships
(including the Partnership) arising out of their 1990 acquisition of a lease
portfolio. The suit charges fraud and breach of contract against the original
owner. During 1995, the Court dismissed the claim for lack of jurisdiction
without ruling on its merits. LRC, on behalf of the affected partnerships,
filed a revised complaint in the Circuit Court of Cook County, Illinois for
fraud and breach of contract in the amount of $5.5 million plus punitive damages
and interest. This action is expected to come to trial in 1999.
NOTE 9 - PARTNERSHIP MANAGEMENT:
Since July 1, 1996, LRC has directly managed the day-to-day operations of the
Datronic Partnerships. The cost of the day-to-day management services is
allocated to each partnership based on the level of services performed for each
partnership. These expenses are reimbursed to LRC pursuant to the terms of the
Amended Partnership Agreement (see Note 10).
Prior to July 1, 1996, the Datronic Partnerships were managed by New Era Funding
under the direction of LRC pursuant to a Management Agreement. Effective June
30, 1996, this agreement was terminated and, pursuant to the Management
Termination Agreement, New Era and its principals were paid an aggregate amount
of $4.2 million. The Partnership's share of these payments was $830,304, and is
included in the 1996 Statements of Revenue and Expenses as part of "Management
fees - New Era".
As part of the Management Termination Agreement, two of New Era's principals
have been retained as consultants to the Datronic Partnerships through March 31,
1999 for an annual fee of $200,000 each. These payments are allocated to each of
the Datronic Partnerships based on the services performed for each Partnership
and are included in the accompanying Statements of Revenue and Expenses as part
of "General Partner's expense reimbursement".
33
<PAGE> 34
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - PARTNERSHIP AGREEMENT:
As part of the 1993 Settlement, each limited partner elected to become a Class
A, B or C Limited Partner.
Class A Limited Partners
This class elected to begin liquidating their interest in the Partnership as of
the Settlement date. Accordingly, each Class A Limited Partner is entitled to
receive cash distributions equal to their pro rata share of the net proceeds
from the disposition of assets owned by the Partnership on the Settlement Date,
plus their pro rata interest in the net proceeds from the disposition of
Datronic Assets, Diverted and other assets, and temporary investments. In
addition, Class A Limited Partners participated in the Class Action.
Class B Limited Partners
This class elected not to begin liquidation of their interest in the Partnership
as of the Settlement Date. Until the Liquidating Phase of the Partnership began
on April 12, 1995, each Class B Limited Partner received cash distributions
equal to 11% annually of their Adjusted Capital Contributions (as that term is
defined in the Amended Partnership Agreement). Available cash in excess of that
required to pay these distributions was invested in equipment and equipment
leases ("New Investments") and temporary investments on behalf of the Class B
Limited Partners. In addition, Class B Limited Partners participated in the
Class Action.
Class C Limited Partners
This class elected not to participate in the Class Action. Therefore, each Class
C Limited Partner: (i) preserved their individual claims against DRC and the
other defendants, (ii) did not participate in the Class Action, and (iii) did
not participate in the Settlement. In all other respects, including
distributions from the Partnership, Class C Limited Partners are the same as
Class B Limited Partners.
Concurrent with the beginning of the Liquidating Phase on April 12, 1995, the
Partnership ceased making New Investments and the General Partner (LRC) began
the orderly liquidation of Partnership assets. Pursuant to this, cash reserves
are to be maintained sufficient to satisfy all liabilities of the Partnership
and provide for future contingencies. Cash available for distribution after
satisfying such requirements ("Cash Flow Available for Distribution") will be
distributed to the General and Limited Partners as described below.
34
<PAGE> 35
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
During the Liquidating Phase, net Partnership proceeds from all sources, less
cash reserves needed to satisfy Partnership liabilities and provide for future
contingencies will be apportioned among the Class A, B and C Limited Partners,
each class as a group, in accordance with each class' interest in each type of
asset. Then, Liquidating Distributions will be made to the Limited Partners
within each class in accordance with the positive Capital Account balance of
each Limited Partner until all Limited Partners' Capital Account balances are
zero, and thereafter, pro rata based on the number of units outstanding.
The Amended Partnership Agreement provides for the General Partner (LRC) to
receive quarterly distributions equal to 1% of the Cash Flow Available for
Distribution. In addition, LRC receives reimbursement for expenses incurred in
excess of those covered by the 1% distribution. These expense reimbursements
are paid one quarter in advance and are adjusted based on LRC's actual expenses.
LRC allocates its expenses to each of the Datronic Partnerships based on its
activities performed for each Partnership. Beginning July 1, 1996, LRC's
expense reimbursement includes expenses incurred in managing the day-to-day
operations of this and the other Datronic Partnerships. LRC is entitled to no
other fees or reimbursements from the Partnership.
The following summarizes the total of all payments to LRC during the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
1% Distribution $ - $ 21,233 $ 104,304
Expense Reimbursement in excess
of the 1% Distribution 4,079,994 5,369,846 2,955,260
---------- ---------- ----------
Total $4,079,994 $5,391,079 $3,059,564
========== ========== ==========
</TABLE>
The Partnership's share of these payments were:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
1% Distribution $ - $ - $ 8,570
Expense Reimbursement in excess
of the 1% Distribution 836,454 1,254,994 712,459
---------- ---------- ----------
Total $ 836,454 $1,254,994 $ 721,029
========== ========== ==========
</TABLE>
35
<PAGE> 36
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
NOTES TO THE FINANCIAL STATEMENTS - CONCLUDED
NOTE 11 - CONCENTRATION OF CREDIT RISK:
Leasing activity was conducted throughout the United States, with emphasis in
certain states such as California, Florida, Nevada, New York, and Texas. The
cost of equipment under lease typically ranges from $15,000 to $30,000. Such
equipment includes, but is not limited to: general purpose plant/office
equipment, printing and photo processing equipment, machine tool and
manufacturing equipment, computers and terminals for management information
systems, telecommunications equipment, medical equipment, and automotive repair
equipment. At December 31, 1998, there are no significant concentrations of
business activity in any industry or with any one lessee. The Partnership
maintains a security interest in all equipment until the lessee's obligations
are fulfilled.
NOTE 12 - INCOME TAXES:
The Partnership is not subject to Federal income taxes and, accordingly, no
provision or credit for such taxes is reflected in the accompanying financial
statements. Instead, the tax effects of the Partnership's activities are
includable in the individual tax returns of its partners. The following table
reconciles the Partnership's net operating results determined in accordance with
generally accepted accounting principles with those reported for Federal income
tax purposes in total for all Partners and by Class of Partner for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
Liquidating Continuing
General Limited Limited
Partner Partners Partners Total
------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net earnings per
accompanying statements $ 3,038 $ 35,729 $ 265,013 $ 303,780
Effect of leases treated
as operating leases for
tax purposes (11,093) (244,212) (854,033) (1,109,338)
Effect of principal
repayments treated as
income for tax purposes (10,335) (225,585) (797,570) (1,033,490)
Provision for recovery of
Diverted and other assets 1,949 42,899 150,021 194,869
Provision for Class Counsel
fees and expenses, net - 31,215 109,149 140,364
Other, net (350) (7,389) (27,176) (34,915)
-------- --------- ------------ -----------
Loss for Federal income
tax purposes in total $(16,791) $(367,343) $ (1,154,596) $(1,538,730)
======== ========= ============ ===========
</TABLE>
36
<PAGE> 37
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no employees or directors. LRC was formed in December 1992
in contemplation of the Settlement for the sole purpose of acting as the general
partner for each of the Datronic Partnerships. LRC became general partner in
1993. LRC has a nominal net worth.
LRC, as a non-stock, not-for-profit corporation, does not have stockholders.
The executive officers of LRC are also the members of the Board of Directors of
LRC. None of the executive officers of LRC were previously affiliated with
Datronic. While LRC's duration is perpetual, it is anticipated that it will
liquidate and dissolve following the liquidation and dissolution of the last
remaining Datronic Partnership.
LRC's Board of Directors and executive officers, together with certain pertinent
information regarding their background, are set forth below:
<TABLE>
<CAPTION>
Director
Name Position and Office Since
- ----------------- ------------------------------ -----
<S> <C> <C>
Donald D. Torisky Chairman of the Board and
Chief Executive Officer 12/92
Robert P. Schaen Vice-Chairman of the Board and
Chief Financial Officer 12/92
Arthur M. Mintz Vice-Chairman of the Board and
General Counsel 12/92
</TABLE>
Donald D. Torisky, age 60, has been associated with LRC since its inception in
1992. Mr. Torisky is also President of Barrington Management and Consulting,
Inc. where, prior to March 1993, he coordinated management consulting
opportunities for national and international Fortune 500 finance companies.
From 1987 to 1990, Mr. Torisky worked with the TransAmerica Corporation as an
Executive Vice-President and board member of the TransAmerica Finance Group.
Mr. Torisky also served as the President and Chief Executive Officer of
TransAmerica Commercial Finance Corporation. With TransAmerica, Mr. Torisky
managed and directed a diversified financial services portfolio of $4.6 billion
with branches in the United States, Canada,
37
<PAGE> 38
the United Kingdom and Australia. From 1962 to 1987, Mr. Torisky was with the
Borg-Warner Corporation. In 1983 he became President and Chief Executive
Officer of Borg-Warner Financial Services and an officer of Borg-Warner Corp.
Mr. Torisky has completed the Advanced Management Program at the Harvard
Graduate School of Business Administration. Mr. Torisky served honorably in the
United States Marine Corps, and holds a license in life, accident, and health
insurance and a Series 6 NASD license.
Robert P. Schaen, age 72, has been associated with LRC since its inception in
1992. Prior to his association with LRC, Mr. Schaen retired from Ameritech in
1991 after 39 years of service with the Bell System and Ameritech. At his
retirement he was the Vice-President and Comptroller of Ameritech. He started
his Bell System career with New York Telephone Company in 1952, was promoted and
transferred to AT&T in 1962, and thereafter, promoted and transferred to
Illinois Bell Telephone Company in 1965 where he managed personnel, accounting,
data systems and general operations prior to being elected Comptroller and
Assistant Secretary. In 1983, Mr. Schaen was named Vice-President and
Comptroller of Ameritech. Mr. Schaen served as a naval officer in the Pacific
Theater during World War II and retired from the Naval Reserve Intelligence
Service in 1968 with the rank of Commander. He graduated from Hobart College in
Geneva, New York in 1948 and after graduation remained there as a mathematics
and statistics instructor. In 1967 Mr. Schaen completed the Advanced Management
Program at the Harvard Graduate School of Business Administration.
Arthur M. Mintz, age 62, has been associated with LRC since its inception in
1992. Mr. Mintz is also Chairman of the Board of Olicon Imaging Systems, Inc.,
which was founded in 1991. Olicon Imaging Systems, Inc. is a teleradiology
company serving approximately 800 hospitals nationwide. Since 1987, he has also
served as President of AMRR Leasing Corporation and Vice President and General
Counsel of Mobile M.R. Venture, Ltd. In 1983, Mr. Mintz was a founder of
Diasonics, Incorporated and served as its Corporate Counsel. Diasonics was
listed on the New York Stock Exchange prior to its acquisition by Elsinth in
1995. In 1957, Mr. Mintz obtained a Bachelor of Arts Degree from Northwestern
University and in 1959, obtained his J.D. from Northwestern University School of
Law. Thereafter, Mr. Mintz served in the United States Army and was honorably
discharged. From 1965 to 1982, Mr. Mintz was a principal with the law firms of
Mintz, Raskin, Rosenberg, Lewis & Cohen (1965-1975), Mintz, Raskin and Lewis
(1975-1979), and Arthur M. Mintz, Ltd., P.C. (1979-1982).
Any change in the compensation of a director of LRC must be approved by the
other two non-interested members of the Board of Directors.
38
<PAGE> 39
Item 11 - Management Remuneration
The Partnership has no officers or directors and instead is managed by the
general partner, LRC.
The Partnership Agreement, as amended, provides for LRC to receive reimbursement
for its operating expenses incurred in relation to its functions as General
Partner of the Datronic Partnerships. These reimbursements are detailed in Note
10 to the Partnership's financial statements included in Item 8.
Compensation paid to the Chief Executive Officer of LRC during 1998 was as
follows:
<TABLE>
<CAPTION>
Chairman of the
Board and Chief All Other
Executive Officer Salary Compensation(b)
----------------- -------- ------------
<S> <C> <C>
Donald D. Torisky $463,409 $3,200(a)
</TABLE>
(a) Represents the value of LRC's contribution to LRC's Savings and Retirement
Plan allocable to Mr. Torisky for services rendered during 1998.
(b) Information concerning Bonus, Other Annual Compensation, Restricted Stock
Award, Option/SARs and LTIP Payouts is not applicable.
This compensation was included in LRC's operating expenses reimbursed by all
Datronic Partnerships. The Partnership's share of such expense reimbursements,
including the 1% of Cash Flow Available for Distribution, was 20.50%.
The compensation of the other four highly compensated LRC executives, when
allocated to the Partnership, individually do not exceed $100,000.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
None.
Item 13 - Certain Relationships and Related Transactions
The Partnership has no officers or directors and instead is managed by the
general partner, LRC.
The Partnership Agreement, as amended, provides for LRC to receive reimbursement
for its operating expenses incurred in relation to its functions as General
Partner of the Datronic Partnerships. These reimbursements are detailed in Note
10 to the Partnership's financial statements included in Item 8.
39
<PAGE> 40
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements See index to Financial Statements included in
Item 8 of this report.
(2) Financial Statement Schedules None.
(3) Exhibits
The Exhibits listed in the Exhibit Index immediately following the
signature page are filed as a part of this report.
(b) Reports on Form 8-K
None
40
<PAGE> 41
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 on the 30th day of March
1999.
DATRONIC EQUIPMENT INCOME FUND XVIII, L.P.
March 30, 1999 By: Lease Resolution Corporation, General Partner
By: /s/ Donald D. Torisky
------------------------------------
Donald D. Torisky
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated and on the dates indicated.
By: /s/ Donald D. Torisky March 30, 1999
-------------------------------------
Donald D. Torisky
Chairman and Chief Executive Officer,
Lease Resolution Corporation,
General Partner of Datronic
Equipment Income Fund XVIII, L.P.
By: /s/ Robert P. Schaen March 30, 1999
-------------------------------------
Robert P. Schaen
Vice-Chairman and
Chief Financial Officer,
Lease Resolution Corporation,
General Partner of Datronic
Equipment Income Fund XVIII, L.P.
By: /s/ Arthur M. Mintz March 30, 1999
-------------------------------------
Arthur M. Mintz
Vice-Chairman and General Counsel,
Lease Resolution Corporation,
General Partner of Datronic
Equipment Income Fund XVIII, L.P.
41
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission
for information only and not filed.
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENTS OF REVENUE AND EXPENSES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,511,921
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,752,786
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,601,557
<TOTAL-LIABILITY-AND-EQUITY> 10,752,786
<SALES> 0
<TOTAL-REVENUES> 1,491,867
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 60,568
<LOSS-PROVISION> (585,477)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303,780
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
