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 March 31, 1999
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 March 31,
1999.
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
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
March 31, December 31,
1999 1998
---- ----
ASSETS
Cash and cash equivalents $ 7,073 $ 6,877
Accounts receivable (net of allowance for losses
on accounts receivable of $245 and $308 at
March 31, 1999 and December 31, 1998,
respectively) 120 106
Notes receivable (net of allowance for losses
on notes receivable of $2,396 and $2,375 at
March 31, 1999 and December 31, 1998,
respectively) 3,510 4,018
Equipment on operating leases and held for lease
(net of accumulated depreciation of $5,299 and
$5,378 at March 31, 1999 and December 31, 1998,
respectively) 78 36
Net investment in financing leases (net of allowance
for early terminations of $661 at March 31, 1999
and December 31, 1998) 2,152 3,352
Investment in joint ventures 282 327
Capitalized acquisition fees (net of accumulated
amortization of $10,682 and $10,615 at March
31, 1999 and December 31, 1998, respectively) 249 316
Other assets 338 450
------- -------
Total Assets $13,802 $15,482
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,018 $ 1,073
------- -------
Total Liabilities 1,018 1,073
------- -------
Partners' Capital
General Partner -- --
Limited Partners, 6,500,000 units authorized,
6,492,727 units issued, 6,192,840 units
outstanding at March 31, 1999 and December 31,
1998 12,502 14,027
Accumulated other comprehensive income 282 382
------- -------
Total Partners' Capital 12,784 14,409
------- -------
Total Liabilities and Partners' Capital $13,802 $15,482
======= =======
The accompanying notes are an integral part of these statements.
2
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
INCOME
Rental income $ 128 $ 574
Earned income, financing leases 132 364
Interest income, notes receivable 146 289
Equity in earnings from joint ventures, net 22 73
Other income 88 137
------ ------
Total Income 516 1,437
------ ------
EXPENSES
Depreciation 81 89
Amortization of acquisition fees 67 106
Lease related operating expenses 3 36
Management fees to General Partner 69 132
Reimbursed administrative costs to General Partner 58 91
Provision for losses on receivables 20 68
Legal expense 75 62
General and administrative expenses 36 58
------ ------
Total Expenses 409 642
------ ------
NET INCOME 107 795
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (100) 96
Less: reclassification adjustment for gains (losses)
included in net income -- --
------ ------
Other comprehensive income (100) 96
------ ------
COMPREHENSIVE INCOME $ 7 $ 891
------ ------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ -- $ .10
====== ======
DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ .25 $ .60
====== ======
ALLOCATION OF NET INCOME:
General Partner $ 82 $ 196
Limited Partners 25 599
------ ------
$ 107 $ 795
====== ======
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 107 $ 795
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 81 89
Amortization of acquisition fees 67 106
Equity in earnings from joint ventures, net (22) (73)
Gain on sale of equipment (13) (127)
Provision for early termination, financing leases -- 31
Provision for losses on notes receivable 20 31
Decrease (increase) in accounts receivable (14) 77
Increase (decrease) in accounts payable and accrued
expenses (58) 8
Decrease in deferred income tax asset -- 1
Decrease in other assets 12 12
------- -------
Net cash provided by operating activities 180 950
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 1,080 1,730
Principal payments, notes receivable 488 802
Proceeds from sale of equipment 10 161
Distributions from joint ventures 67 239
Payment of acquisition fees 3 (3)
------- -------
Net cash provided by investing activities 1,648 2,929
------- -------
Financing Activities:
- --------------------
Redemptions of capital -- (43)
Distributions to partners (1,632) (3,924)
------- -------
Net cash used in financing activities (1,632) (3,967)
------- -------
Increase (decrease) in cash and cash equivalents 196 (88)
Cash and cash equivalents, beginning of period 6,877 9,218
------- -------
Cash and cash equivalents, end of period $ 7,073 $ 9,130
======= =======
The accompanying notes are an integral part of these statements.
4
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
-------
The accompanying unaudited condensed consolidated 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 1998 amounts have been reclassified to
conform to the 1999 presentation.
Note 3. Income Taxes.
------------
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
Note 4. Notes Receivable.
----------------
Impaired Notes Receivable. At March 31, 1999, the Partnership has
investments in notes receivable, before allowance for losses, of $5,906,000 of
which $2,192,000 is considered to be impaired. The Partnership has an allowance
for losses of $2,396,000 as of March 31, 1999. The average recorded investment
in impaired loans during the three months ended March 31, 1999 and 1998 was
approximately $2,192,000 and $1,988,000, respectively.
5
<PAGE>
The activity in the allowance for losses on notes receivable during the
three months ended March 31, is as follows:
1999 1998
---- ----
(Amounts in Thousands)
Beginning balance $2,375 $2,268
Provision for losses 21 31
Write downs - -
------ ------
Ending balance $2,396 $2,299
====== ======
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 6,192,840 and 6,203,101 for the three
months ended March 31, 1999 and 1998, 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:
March 31, December 31,
1999 1998
---- ----
(Amounts in Thousands)
Assets $101 $184
Liabilities 65 117
Partners' Capital 36 67
Three Months Ended
March 31,
1999 1998
---- ----
(Amounts in Thousands)
Revenue $101 $181
Expenses 9 20
Net Income 92 161
6
<PAGE>
Financing Joint Venture
- -----------------------
The aggregate financial information of the financing joint venture is
presented as follows:
March 31, December 31,
1999 1998
---- ----
(Amounts in Thousands)
Assets $466 $550
Liabilities 144 151
Partners' Capital 322 399
Three Months Ended
March 31,
1999 1998
---- ----
(Amounts in Thousands)
Revenue $ 1 $ 25
Expenses 51 4
Net Income (Loss) (50) 21
Foreclosed Cable Systems Joint Ventures
- ---------------------------------------
The aggregate combined financial information of the foreclosed cable
systems joint ventures is presented as follows:
March 31, December 31,
1999 1998
---- ----
(Amounts in Thousands)
Assets $610 $626
Liabilities 99 97
Partners' Capital 511 529
Three Months Ended
March 31,
1999 1998
---- ----
(Amounts in Thousands)
Revenue $ 60 $100
Expenses 79 110
Net Loss (19) (10)
Phoenix Pacific North West Cable Joint Venture has accepted and agreed
to the terms stated on a Letter of Intent dated April 5, 1999 to sell all or
substantially all of its assets on or before the closing date of July 1, 1999.
Cash, accounts receivables and certain other miscellaneous items, currently
owned by Phoenix Pacific North West Cable Joint Venture are excluded from this
sale. This Letter of Intent is subject to a definitive asset purchase agreement
which is currently being negotiated with the potential buyer.
7
<PAGE>
Note 7. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., 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 sought declaratory and other relief including accounting,
receivership, imposition of a constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Marin Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the"Sacramento Action").
Plaintiffs have amended the Marin Action twice. Defendants have not yet
answered the complaint and may file a demurrer to dismiss the claims. Discovery
has not commenced. The Companies intend to vigorously defend the Complaint.
In February 1999, plaintiffs requested a transfer of the Sacramento
Action to Marin County. The Court granted that request, and the case was
transferred in March 1999. Defendants have not yet responded to the Complaint.
Discovery has not commenced. The Companies intend to vigorously defend the
Complaint.
During the three months ended March 31, 1999, the Partnership recorded
legal expenses of approximately $25,000 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 $107,000 and $795,000
during the three months ended March 31, 1999 and 1998, respectively. The
decrease in net income for the three months ended March 31, 1999, compared to
the same period in 1998, is a result of a decrease in earned income from
financing leases and rental income.
The decrease in total income of $921,000 for the three months ended
March 31, 1999, as compared to the same period in 1998, is primarily the result
of declines in earned income from financing leases and rental income. The
decrease in earned income from financing leases of $232,000 for the three months
ended March 31, 1999, compared to the same period in the prior year, is due to a
decrease in the net investment in financing leases. The net investment in
financing leases was $2.2 million at March 31, 1999, as compared to $7.5 million
at March 31, 1998. 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.
Rental income decreased by $446,000 for the three months ended March
31, 1999, compared to the same period in 1998. The decrease in rental income for
the three months ended March 31, 1999 is reflective of a decrease in the size of
the equipment portfolio. The Partnership owned equipment with an aggregate
original cost of $19.3 million at March 31, 1999, as compared to $41 million at
March 31, 1998.
An additional factor contributing to the decline in total revenues is
the decrease in interest income from notes receivable. Interest income from
notes receivable decreased by $143,000 for the three months ended March 31,
1999, compared to the same period in 1998. The decrease in interest income from
notes receivable is attributable to the decline in net investment in notes
receivable. At March 31, 1999, the net investment in notes receivable was
$3,510,000, compared to $5,625,000 at March 31, 1998.
Total expenses decreased by $233,000 during the three months ended
March 31, 1999, as compared to the same period in 1998. The decrease in total
expenses for the three months ended March 31, 1999, compared to the same period
in the previous year, is a result of a decrease in nearly all of the items
comprising total expenses. These decreases are the result of the continued
decrease in the size of the equipment portfolio.
Liquidity and Capital Resources
The Partnership's primary source of liquidity is derived from its
contractual obligations with a diversified group of lessees for fixed lease
terms at fixed rental amounts, and from payments of principal and interest on
its outstanding notes receivable. As the initial lease terms expire, the
Partnership will re-lease or sell the equipment. The future liquidity of the
9
<PAGE>
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 $1,748,000 and $3,482,000 during the three months ended
March 31, 1999 and 1998, respectively. The net decrease in cash generated is due
to a decrease in payments on financing leases and notes receivable, as well as
rental income.
The Partnership received cash distributions from joint ventures of
$67,000 during the three months ended March 31, 1999, as compared to cash
distributions of $239,000 during the same period in 1998. 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.
Proceeds from the sale of equipment decreased as result of a decline in
sales activity of the Partnership's equipment portfolio. The Partnership sold
equipment with an aggregate original cost of $3.1 million for the three months
ended March 31, 1999, compared to $4.3 million for the same period in 1998.
As of March 31, 1999, the Partnership owned equipment held for lease
with an original purchase price of $8 million and a net book value of $55,000,
compared to $12.7 million and $291,000, respectively, at March 31, 1998. 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.
The total cash distributed to partners for the three months ended March
31, 1999 was $1,632,000, as compared to $3,924,000 for the same period in 1998.
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 $1,550,000 and
$3,727,000 in distributions during the three months ended September 30, 1998 and
1997, respectively. The cumulative distributions to the Limited Partners are
$118,852,000 and $106,908,000 as of March 31, 1999 and 1998, respectively. The
General Partner received $82,000 and $197,000 for its share of the cash
available for distribution during the three months ended March 31, 1999 and
1998, respectively. The Partnership plans to make distributions in 1999 at a
decreased rate of 5%, compared to the December 1998 distribution rate of 12%.
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.
The cash to be generated from leasing and financing operations is
anticipated to be sufficient to meet the Partnership's continuing operational
expenses.
Impact of the Year 2000 Issue
ReSource/Phoenix, Inc. ("ReSource/Phoenix"), an affiliate of the parent
to the General Partner does all local computer processing for the General
Partner. And as such Resource/Phoenix manages the Year 2000 project on behalf of
the General Partner.
10
<PAGE>
Resource/Phoenix has a Year 2000 project plan in place. The Year 2000
project team has identified risks, and has implemented remediation procedures
for its Year 2000 issues. ReSource/Phoenix has budgeted for the necessary
changes, built contingency plans, and has progressed along the scheduled
timeline. Installation of all remediation changes to software and hardware is
planned to be completed by September 15, 1999.
Costs incurred by the Partnership will be expensed as incurred and are
not currently anticipated to be material to the Partnership's financial position
or results of operations.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have exposure to any individual customer that would
materially impact the Partnership should the customer experience a significant
Year 2000 problem.
Costs incurred by the Partnership will be expensed as incurred and are
not currently anticipated to be material to the Partnership's financial position
or results of operations.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have exposure to any individual customer that would
materially impact the Partnership should the customer experience a significant
Year 2000 problem, however, cumulative exposure to multiple individual customers
could materially impact the Partnership should multiple customers experience a
significant Year 2000 problem.
11
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
March 31, 1999
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 LP., 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 sought declaratory and other relief including accounting,
receivership, imposition of a constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Marin Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the"Sacramento Action").
Plaintiffs have amended the Marin Action twice. Defendants have not yet
answered the complaint and may file a demurrer to dismiss the claims. Discovery
has not commenced. The Companies intend to vigorously defend the Complaint.
In February 1999, plaintiffs requested a transfer of the Sacramento
Action to Marin County. The Court granted that request, and the case was
transferred in March 1999. Defendants have not yet responded to the Complaint.
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
---- ----- ---------
May 13, 1999 Executive Vice President, /S/ GARY W. MARTINEZ
- ------------ Chief Operating Officer --------------------
and a Director of (Gary W. Martinez)
Phoenix Leasing Incorporated
General Partner
May 13, 1999 Chief Financial Officer, /S/ HOWARD SOLOVEI
- ------------ Treasurer and a Director of --------------------
Phoenix Leasing Incorporated (Howard Solovei)
General Partner
May 13, 1999 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
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,073
<SECURITIES> 282
<RECEIVABLES> 6,271
<ALLOWANCES> 2,641
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,377
<DEPRECIATION> 5,299
<TOTAL-ASSETS> 13,802
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,784
<TOTAL-LIABILITY-AND-EQUITY> 13,802
<SALES> 0
<TOTAL-REVENUES> 516
<CGS> 0
<TOTAL-COSTS> 409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 107
<INCOME-TAX> 0
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
