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 0-18278
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PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
Registrant
California 68-0191380
- --------------------------------- ----------------------------------
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
----- -----
6,192,840 Units of Limited Partnership Interest were outstanding as of June 30,
1998.
Transitional small business disclosure format:
Yes No X
----- -----
Page 1 of 13
<PAGE>
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
June 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 8,647 $ 9,218
Accounts receivable (net of allowance for
losses on accounts receivable of $342 and
$389 at June 30, 1998 and December 31, 1997
respectively) 85 509
Notes receivable (net of allowance for
losses on notes receivable of $2,326 and
$2,268 at June 30, 1998 and December 31, 1997,
respectively) 4,964 6,458
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$9,470 and $11,646 at June 30, 1998 and
December 31, 1997, respectively) 201 128
Net investment in financing leases (net of
allowance for early terminations of $754 and
$777 at June 30, 1998 and December 31, 1997,
respectively) 6,066 9,631
Investment in joint ventures 463 680
Capitalized acquisition fees (net of
accumulated amortization of $10,454 and
$10,252 at June 30, 1998 and December 31, 1997,
respectively) 477 680
Other assets 175 86
------- -------
Total Assets $21,078 $27,390
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,205 $ 1,216
------- -------
Total Liabilities 1,205 1,216
------- -------
Partners' Capital
General Partner -- --
Limited Partners, 6,500,000 units authorized,
6,492,727 units issued, 6,192,840 and
6,208,563 units outstanding at June 30, 1998
and December 31, 1997, respectively 19,779 26,169
Unrealized gain on available-for-sale securities 94 5
------- -------
Total Partners' Capital 19,873 26,174
------- -------
Total Liabilities and Partners' Capital $21,078 $27,390
======= =======
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME
Rental income $ 576 $ 480 $ 1,023 $ 1,386
Earned income, financing leases 280 605 644 1,259
Gain on sale of equipment 28 164 155 666
Equity in earnings from joint ventures, net 132 60 205 174
Interest income, notes receivable 173 253 462 476
Other income 167 170 304 333
------- ------- ------- -------
Total Income 1,356 1,732 2,793 4,294
------- ------- ------- -------
EXPENSES
Depreciation 146 217 235 525
Amortization of acquisition fees 96 131 202 289
Lease related operating expenses 19 97 54 178
Management fees to General Partner 111 149 244 353
Reimbursed administrative costs
to General Partner 73 150 164 319
Provision for losses on receivables 27 195 89 195
Legal expenses 118 70 185 151
General and administrative expenses 50 59 107 112
------- ------- ------- -------
Total Expenses 640 1,068 1,280 2,122
------- ------- ------- -------
NET INCOME BEFORE INCOME TAXES $ 716 $ 664 $ 1,513 $ 2,172
Income tax benefit (expense) -- 2 (2) 3
------- ------- ------- -------
NET INCOME $ 716 $ 666 $ 1,511 $ 2,175
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .08 $ .08 $ .18 $ .29
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .60 $ .60 $ 1.20 $ 1.20
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 196 $ 198 $ 392 $ 395
Limited Partners 520 468 1,119 1,780
------- ------- ------- -------
$ 716 $ 666 $ 1,511 $ 2,175
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
----- -----
Operating Activities:
Net income $ 1,511 $ 2,175
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 235 525
Amortization of acquisition fees 202 289
Gain on sale of equipment (155) (666)
Equity in earnings from joint ventures, net (205) (174)
Provision for early termination, financing leases 31 113
Provision for losses on notes receivable 58 82
Gain on sale of securities (37) --
Decrease in accounts receivable 424 136
Increase (decrease) in accounts payable and
accrued expenses (8) 44
Decrease (increase) in deferred income tax asset 2 (3)
Decrease (increase) in other assets (2) 30
-------- --------
Net cash provided by operating activities 2,056 2,551
-------- --------
Investing Activities:
Principal payments, financing leases 3,146 4,719
Principal payments, notes receivable 1,486 1,330
Proceeds from sale of equipment 188 975
Proceeds from sale of securities 37 --
Distributions from joint ventures 422 1,099
Investment in financing leases -- (1,986)
Investment in notes receivable -- (4,708)
Payment of acquisition fees (5) (165)
-------- --------
Net cash provided by investing activities 5,274 1,264
-------- --------
Financing Activities:
Redemptions of capital (60) (150)
Distributions to partners (7,841) (7,889)
-------- --------
Net cash used by financing activities (7,901) (8,039)
-------- --------
Decrease in cash and cash equivalents (571) (4,224)
Cash and cash equivalents, beginning of period 9,218 12,134
-------- --------
Cash and cash equivalents, end of period $ 8,647 $ 7,910
======== ========
The accompanying notes are an integral part of these statements.
4
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
The accompanying unaudited condensed financial statements have been
prepared by the Partnership in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Although management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Partnership's Financial Statement, as filed with the
SEC in the latest annual report on Form 10-K.
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.
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.
The Subsidiary is a corporation subject to state and federal tax
regulations. The Subsidiary reports to the taxing authority on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes than for income tax purposes, deferred taxes are
provided for such differences using the liability method.
Note 4. Notes Receivable.
Impaired Notes Receivable. At June 30, 1998, the Partnership has
investments in notes receivable, before allowance for losses, of $7,290,000 of
which $2,075,000 is considered to be impaired. The Partnership has an allowance
for losses of $2,326,000 as of June 30, 1998. The average recorded investment in
impaired loans during the six months ended June 30, 1998 and 1997 was
approximately $2,031,000 and $1,965,000, 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 $ 2,268 $ 2,224
Provision for losses 58 82
Write downs -- (110)
-------- --------
Ending balance $ 2,326 $ 2,196
======== ========
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 6,198,399 and 6,234,148 for the three
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 Venture
The aggregate financial information of the equipment joint venture is
presented as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $ 314 $ 730
Liabilities 78 156
Partners' Capital 236 574
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 374 $ 237 $ 556 $ 582
Expenses 27 97 47 181
Net Income 347 140 509 401
6
<PAGE>
Financing Joint Venture
The aggregate financial information of the financing joint venture is
presented as follows:
June 30, December 31,
1998 1997
---- ----
(Amounts in Thousands)
Assets $ 680 $ 803
Liabilities 141 136
Partners' Capital 539 667
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 22 $ 33 $ 48 $ 68
Expenses 4 3 8 17
Net Income 18 30 40 51
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 $ 832 $ 909
Liabilities 238 240
Partners' Capital 594 669
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Amounts in Thousands)
Revenue $ 23 $ 102 $ 123 $ 162
Expenses 88 122 198 244
Net Loss (65) (20) (75) (82)
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
7
<PAGE>
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 $75,000 in connection with the above litigation
as indemnification to the General Partner.
8
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Leasing Cash Distribution Fund IV, a California limited
partnership (the "Partnership"), reported net income of $716,000 and $1,511,000
during the three and six months ended June 30, 1998, respectively, as compared
to net income of $666,000 and $2,175,000 during the three and six months ended
June 30, 1997, respectively. The increase in net income for the three months
ended June 30, 1998, compared to the same period in 1997, is a result of a
decrease in total expenses which exceeded the decrease in total revenues. In
contrast, the Partnership experienced a decline in net income during the six
months ended June 30, 1998, compared to the same period in 1997, due to a
decrease in total revenues that exceeded the decrease in total expenses.
The decrease in total revenues of $376,000 and $1,501,000 for the three
and six months ended June 30, 1998, respectively, as compared to the same
periods in 1997, is primarily the result of declines in earned income from
financing leases and gain on sale of equipment. The decrease in earned income
from financing leases of $325,000 and $615,000 for the three and six months
ended June 30, 1998, respectively, compared to the same periods in the prior
year, is due to a decrease in the net investment in financing leases. The net
investment in financing leases was $6.1 million at June 30, 1998, as compared to
$14.2 million at June 30, 1997. The investment in financing leases, as well as
earned income from financing leases, will decrease over the lease term as the
Partnership amortizes income over the lease term using the interest method of
accounting. During the six months ended June 30, 1998, the Partnership made no
new investments in financing leases, compared to $2 million for the same period
in 1997.
Gain on sale of equipment decreased by $136,000 and $511,000 for the
three and six months ended June 30, 1998, respectively, compared to the same
periods in 1997, as a result of a decrease in sales activity of the
Partnership's equipment portfolio. Correspondingly, proceeds from the sale of
equipment also decreased. The Partnership sold equipment with an aggregate
original cost of $9.5 million for the six months ended June 30, 1998, compared
to $22.4 million for the same period in 1997.
An additional factor contributing to the decline in total revenues for
the six months ended June 30, 1998, compared to the same period in 1997, is the
decrease in rental income. Rental income decreased by $363,000 for the six
months ended June 30, 1998, compared to the same period in 1997. The decrease in
rental income for the six months ended June 30, 1998 is reflective of a decrease
in the size of the equipment portfolio. The Partnership owned equipment with an
aggregate original cost of $36 million at June 30, 1998, as compared to $56.3
million at June 30, 1997. Another factor contributing to the decrease in rental
income is off lease equipment. As of June 30, 1998, the Partnership owned
equipment held for lease with an original purchase price of $13 million and a
net book value of $166,000, compared to $10.3 million and $346,000,
respectively, at June 30, 1997. The General Partner is actively engaged, on
behalf of the Partnership, in remarketing and selling the Partnership's
equipment as it becomes available. Until new lessees or buyers of equipment can
be found, the equipment will continue to generate depreciation expense without
any corresponding rental income. The effect of this will be a reduction of the
Partnership earnings during this remarketing period.
In contrast, rental income increased for the three months ended June
30, 1998, compared to the same period in the prior year, by $96,000. During the
quarter ended June 30, 1998, the Partnership received settlements from defaulted
lessees which more than mitigated the factors contributing to the decline in
rental income for the six months ended June 30, 1998.
9
<PAGE>
Total expenses decreased by $428,000 and $842,000 during the three and
six months ended June 30, 1998, as compared to the same periods in 1997. The
decrease in total expenses for the three and six months ended June 30, 1998,
compared to the same periods in the previous year, is a result of a decrease in
all items of total expense with the exception of legal fees. This decrease is
result of the continued decrease in the size of the equipment portfolio.
The increase in legal fees of $48,000 and $34,000 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 in Note 7.
Liquidity and Capital Resources
The Partnership's primary source of liquidity is derived from its
contractual obligations with lessees for fixed lease terms at fixed rental
amounts, and from payments of principal and interest on outstanding notes
receivable. As the initial lease terms expire, the Partnership will re-lease the
equipment or sell the equipment. The future liquidity of the Partnership will
depend upon the General Partner's success in collecting the contractual amounts
owed, as well as re-leasing and selling the Partnership's equipment as it comes
off lease.
The Partnership reported net cash generated by equipment leasing and
financing activities of $6,688,000 and $8,600,000 during the six months ended
June 30, 1998 and 1997, respectively. The net decrease in cash generated is due
to a decrease in rental income and payments on financing leases, as previously
discussed above in the Results of Operations.
The Partnership received cash distributions from joint ventures of
$422,000 during the six months ended June 30, 1998, as compared to cash
distributions of $1,099,000 during the same period in 1997. The decrease in
distributions from joint ventures is attributable to a decline in the amount of
cash available for distribution from one equipment joint venture as a result of
a decrease in rental income and proceeds from sale of equipment.
The Partnership made no new investments in financing leases or notes
receivable during the six months ended June 30, 1998, compared to $2 million in
new investments in financing leases and $4.7 million in new notes receivable at
June 30, 1997.
The total cash distributed to partners for the six months ended June
30, 1998 was $7,841,000, as compared to $7,889,000 for the same period in 1997.
In accordance with the partnership agreement, the limited partners are entitled
to 95% of the cash available for distribution and the General Partner is
entitled to 5%. As a result, the limited partners received $7,449,000 and
$7,494,000 in distributions during the six months ended June 30, 1998 and 1997,
respectively. The General Partner received $392,000 and $395,000 for its share
of the cash available for distribution during the six months ended June 30, 1998
and 1997, respectively.
Because the Partnership is in its final years of liquidation, the
Partnership plans to decrease its distribution rate to approximately 5% from 12%
beginning on the January 15, 1999 distribution, in line with its reduced cash
flow.
As provided for by the partnership agreement, the General Partner has
determined to exercise its discretion that no further redemptions in the
Partnership will be permitted after March 31, 1998.
10
<PAGE>
The cash to be generated from leasing and financing operations is
anticipated to be sufficient to meet the Partnership's continuing operational
expenses.
11
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
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
12
<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 IV,
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
13
<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> 8,647
<SECURITIES> 0
<RECEIVABLES> 7,717
<ALLOWANCES> 2,668
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,671
<DEPRECIATION> 9,470
<TOTAL-ASSETS> 21,078
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,873
<TOTAL-LIABILITY-AND-EQUITY> 21,078
<SALES> 0
<TOTAL-REVENUES> 2,793
<CGS> 0
<TOTAL-COSTS> 1,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,513
<INCOME-TAX> 2
<INCOME-CONTINUING> 1,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,511
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
</TABLE>
