UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-KSB
X 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 0-20133
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0222136
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. _____
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
requirements for the past 90 days.
Yes X No
----- -----
The Registrant's revenue for its most recent fiscal year was $5,353,000.
As of December 31, 1998, 1,902,708 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes No X
----- -----
Page 1 of 26
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
1998 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 4
Item 3. Legal Proceedings............................................... 4
Item 4. Submission of Matters to a Vote of Security Holders............. 5
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters................................................ 5
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 6
Item 7. Financial Statements............................................ 9
Item 8. Disagreements on Accounting and Financial Disclosure Matters.... 23
PART III
Item 9 . Directors and Executive Officers of the Registrant.............. 23
Item 10. Executive Compensation.......................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 25
Item 12. Certain Relationships and Related Transactions.................. 25
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 25
Signatures.................................................................. 26
2
<PAGE>
PART I
Item 1. Business.
--------
General Development of Business.
Phoenix Leasing Cash Distribution Fund V, L.P., a California limited
partnership (the "Partnership"), was organized on July 9, 1990. The Partnership
was registered with the Securities and Exchange Commission with an effective
date of November 4, 1991 and shall continue to operate until its termination
date unless dissolved sooner due to the sale of substantially all of the assets
of the Partnership or a vote of the Limited Partners. The Partnership will
terminate on December 31, 2003. The General Partner is a California limited
partnership, Phoenix Leasing Associates II L.P., the general partner of which is
Phoenix Leasing Associates II, Inc., a Nevada corporation and a wholly-owned
subsidiary of Phoenix Leasing Incorporated, a California corporation. The
General Partner or its affiliates also is or has been a general partner in
several other limited partnerships formed to invest in capital equipment and
other assets.
The registration was for 5,000,000 units of limited partnership
interest at a price of $20 per unit. The Partnership completed its public
offering on October 28, 1993. As of December 31, 1993, the Partnership sold
2,045,838 units for a total capitalization of $40,916,760. Of the proceeds
received through the offering, the Partnership has incurred $6,131,000 in
organizational and offering expenses for a net capitalization of $34.8 million.
From the initial formation of the Partnership through December 31,
1998, the total investments in equipment leases, investments in joint ventures
and financing transactions (loans) approximate $105,293,340. The average initial
firm term of contractual payments from equipment subject to lease was 46.80
months, and the average initial net monthly payment rate as a percentage of the
original purchase price was 2.97%. The average initial firm term of contractual
payments from loans was 52.22 months.
The Partnership's principal objective is to produce cash flow to the
investors on a continuing basis over the life of the Partnership. To achieve
this objective, the Partnership will invest in various types of capital
equipment and other assets to provide leasing or financing of the same to third
parties, including Fortune 1000 companies and their subsidiaries, middle-market
companies, emerging growth companies, franchised businesses, pay television
system operators and others, on either a long-term or short-term basis. The
types of equipment that the Partnership will invest in will include, but is not
limited to, computer peripherals, small computer systems, communications
equipment, IBM mainframes, IBM-software compatible mainframes, office systems,
CAE/CAD/CAM equipment, telecommunications equipment, cable television equipment,
medical equipment, production and manufacturing equipment and software products.
At least 75% of the net offering proceeds has been allocated for the acquisition
of computer peripherals.
The Partnership has acquired significant amounts of equipment or assets
with the net offering proceeds. In addition, the Partnership has acquired
equipment through the use of debt financing, however, the ratio of the
outstanding debt to net capital contributions less any investment in Leveraged
Joint Ventures at the end of the Partnership's offering period will not exceed
one-to-one. The cash flow generated by such investments in equipment leases or
financing transactions will be used to provide for debt service, to provide cash
distributions to the Partners and the remainder will be reinvested in capital
equipment or other assets.
Narrative Description of Business.
The Partnership has acquired and intends to acquire and lease equipment
pursuant to either "Operating" leases or "Financing" leases. At December 31,
1998, approximately 99% of the leased assets owned by the Partnership was
classified as Financing leases. The Partnership has also provided and intends to
provide financing secured by assets in the form of notes receivable. Operating
leases are generally short-term leases under which the lessor will receive
aggregate rental payments in an amount that is less than the purchase price of
the equipment. Financing leases are generally for a longer term under which the
noncancellable rental payments due during the initial term of the lease are at
least sufficient to recover the purchase price of the equipment.
Operating leases represent a greater risk along with a greater
potential return to the Partnership than do Financing leases. In order to
recover its investment in equipment leased pursuant to an Operating lease, the
Partnership will, upon termination of such lease, either have to obtain a
renewal from the original lessee, find a new lessee or sell the equipment. The
terms for Operating leases are for a shorter duration than Financing leases.
Consequently, the revenues derived from the initial term of Operating leases are
generally greater than those of Financing leases. Due to technological,
competitive, market and economic factors, it is anticipated that renewals or
remarkets of leases will be at a lower rental rate than that of the initial
lease terms.
3
<PAGE>
In addition to acquiring equipment for lease to third parties, the
Partnership, either directly or through the investment in joint ventures, has
provided financing to certain emerging growth companies, cable television
operators, manufacturers and their lessees with respect to assets leased
directly by such manufacturers to third parties. The Partnership maintains a
security interest in the assets financed and in the receivables due under any
lease or rental agreement relating to such assets. Such security interests
constitute a lien on the equipment and will give the Partnership the right, upon
default, to obtain possession of the assets.
Competition. The General Partner intends to concentrate the
Partnership's activities in the equipment leasing and financing industry, an
area in which the General Partner has developed an expertise. The computer
equipment leasing industry is extremely competitive. The Partnership competes
with many well established companies having substantially greater financial
resources. Competitive factors include pricing, technological innovation and
methods of financing (including use of various short-term and long-term
financing plans, as well as the outright purchase of equipment). Generally, the
impact of these factors to the Partnership would be the realization of increased
equipment remarketing and storage costs, as well as lower residuals received
from the sale or remarketing of such equipment.
Other.
A brief description of the type of assets in which the Partnership has
invested through December 31, 1998, together with information concerning the
uses of assets is set forth in Item 2.
Item 2. Properties.
----------
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership are its investments in
leases and loans, either directly or through its investment in joint ventures,
to businesses located throughout the United States.
As of December 31, 1998, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $38,716,000.
The following table summarizes the type of equipment owned or financed by the
Partnership, including its pro rata interest in joint ventures, at December 31,
1998.
Percentage of
Asset Types Purchase Price(1) Total Assets
----------- ----------------- -------------
(Amounts in Thousands)
Furniture and Fixtures $ 8,062 21%
Capital Equipment Leased to Emerging Growth
Companies 7,015 18
Computer Peripherals 4,420 11
Financing of Emerging Growth Companies 5,637 14
Financing of Other Businesses 8,171 21
Small Computer Systems 3,319 9
Telecommunications 1,076 3
Miscellaneous 1,016 3
------- ---
TOTAL $38,716 100%
======= ===
(1) These amounts include the Partnership's pro rata interest in equipment
joint ventures of $1,537,000, financing joint ventures of $290,000, cost of
equipment on financing leases of $15,122,000 and original cost of
outstanding loans of $13,518,000 at December 31, 1998.
Item 3. Legal Proceedings.
-----------------
The Registrant is not a party to any pending legal proceedings which would
have a material impact on its financial position.
4
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the year covered by this report.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
------------------------------------------------------------------
Matters.
-------
(a) The Registrant's limited partnership interests are not publicly traded.
There is no market for the Registrant's limited partnership interests
and it is unlikely that any will develop.
(b) Approximate number of equity security investments:
Number of Unit Holders
Title of Class as of December 31, 1998
---------------------------- -----------------------
Limited Partners 2,291
General Partner 1
5
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
Results of Operations
Phoenix Leasing Cash Distribution Fund V, L.P. (the Partnership)
reported net income of $3,234,000 and $3,917,000 during the years ended December
31, 1998 and 1997, respectively. The decrease in net income for the year ended
December 31, 1998, compared to 1997, is attributable to a decrease in gain on
sale of securities.
Total revenues decreased by $1,274,000 for the year ended December 31,
1998, compared to the prior year. The decrease in total revenues in 1998 is due
primarily to decreases in gain on sale of securities as well as earned income
from financing leases. These increases were partially offset by an increase in
interest income from notes receivable.
The Partnership reported a gain on sale of securities of $1,000 for the
year ended December 31, 1998, compared to $1,255,000 in 1997. The securities
sold for both 1998 and 1997 consisted of common stock received through the
exercise of stock warrants granted to the Partnership as part of financing
agreements with emerging growth companies that are publicly traded. The
Partnership received proceeds of $1,000 and $1,255,000 from the sale of these
securities during the year ended December 31, 1998 and 1997, respectively. In
addition, at December 31, 1998, the Partnership owns shares of stock and stock
warrants in emerging growth companies that are publicly traded with an
unrealized gain of approximately $123,000 compared to $4,000 at December 31,
1997. These stock warrants contain certain restrictions, but are generally
exercisable within one year.
The decrease in earned income from financing leases of $498,000 for the
year ended December 31, 1998, compared to the prior year, is a result of a
decline in the Partnership's investment in financing leases. At December 31,
1998, the Partnership had a net investment in financing leases of $7.7 million,
compared to $11 million at December 31, 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 life of the lease using
the interest method. This decrease will be offset in part by a continuous
investment of the excess cash flows of the Partnership in new leasing
transactions over the life of the Partnership. During 1998, the Partnership made
new investments in financing leases of $3.7 million, compared to $3.8 million
during 1997.
The above decreases in revenue were partially offset by the increase in
interest income from notes receivable of $561,000 for the year ended December
31, 1998, compared to 1997, which is attributable to new investments made in
notes receivable during 1997 and 1998. The Partnership made new investments in
notes receivable of $5.4 million and $5.2 million for the years ended December
31, 1998 and 1997, respectively.
Total expenses decreased by $591,000 for the year ended December 31,
1998, compared to the prior year. The decrease in the various items making up
total expenses is primarily attributable to a reduction in the amount of
equipment owned by the Partnership.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the investments of the Partnership.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from contractual
obligations with lessees and borrowers for fixed terms at fixed payment amounts.
The future liquidity of the Partnership is dependent upon the payment of the
Partnership's contractual obligations from its lessees and borrowers. As the
initial lease terms of the Partnership's short term operating leases expire, the
Partnership will re-lease or sell the equipment as it becomes available. 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 when the lease terms expire.
The Partnership reported net cash generated by operating activities of
$3,857,000 for the year ended December 31, 1998, as compared to $3,238,000
during 1997. The increase in net cash generated by operating activities,
compared to the previous year was attributable to the receipt of outstanding
lease receivables as well as an increase in the amount of lessee deposits being
held by the Partnership.
The net cash generated by investing activities was $102,000 during the
year ended December 31, 1998, compared to $2,930,000 during the year ended
6
<PAGE>
December 31, 1997. This decrease during the year ended December 31, 1998,
compared to 1997 is primarily due to the decline in proceeds from the sale of
securities and a decline in distributions from joint ventures. As previously
discussed, the Partnership exercised and sold stock warrants during the year
ended December 31, 1998 and 1997. As a result, the Partnership received proceeds
from the sale of these securities of $1,000 and $1,255,000 for the year ended
December 31, 1998 and 1997, respectively.
Distributions from joint ventures for the year ended December 31, 1998
were $479,000 compared to $1,402,000 for 1997. The decrease in distributions
from joint ventures for the year ended December 31, 1998, compared to the prior
year, is attributable to a decline in the amount of cash available for
distributions from one equipment joint venture as a result of a decrease in
rental income and proceeds from sale of equipment.
As of December 31, 1998, the Partnership owned equipment being held for
lease with an original cost of $3,976,000 and a net book value of $51,000,
compared to $4,347,000 and $233,000, respectively, at December 31, 1997. The
General Partner is actively engaged, on behalf of the Partnership, in
remarketing and selling the Partnership's equipment as it becomes available.
The Partnership received proceeds from the sale of equipment of
$514,000 for the year ended December 31, 1998, compared to $337,000 for 1997.
The increase in proceeds for the year ended December 31, 1998, compared to 1997,
is a result of increased sales activity during 1998 compared to 1997. The
Partnership sold equipment with an aggregate original cost of $15.7 million
during 1998, compared to $9.2 million during 1997.
The cash distributed to partners for the year ended December 31, 1998
was $3,953,000, as compared to $3,996,000 during the year ended December 31,
1997. In accordance with the Partnership Agreement, the Limited Partners are
entitled to 97% of the cash available for distribution and the General Partner
is entitled to 3%. As a result, the limited partners received $3,834,000 and
$3,876,000 in distributions during the year ended December 31, 1998 and 1997,
respectively. The cumulative distributions to the Limited Partners were
$24,060,000 and $20,225,000 as of December 31, 1998 and 1997, respectively. The
General Partner received $119,000 and $120,000 in cash distributions for the
year ended December 31, 1998 and 1997, respectively. The Partnership anticipates
making distributions to partners during 1999 at a higher rate than in 1998.
As stated in the Partnership's prospectus, redemptions were at the
discretion of the General Partner. It has become necessary to discontinue
redemptions to assure that the Partnership does not have to change its
distribution schedules due to unexpected redemptions and also to assure that it
is able to reinvest lease proceeds to maximize returns for those investors who
continue in the Partnership. No further redemptions in the Partnership will be
permitted after July 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 and distributions.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following: (i)
the Partnership's plans are subject to change at any time at the discretion of
the General Partner of the Partnership, (ii) future technological developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes in business conditions and the general economy, (vi) changes in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets .
Impact of the Year 2000 Issue
The General Partner has appointed ReSource/Phoenix, Inc. an affiliate
of the General Partner, to manage its Year 2000 project.
Resource/Phoenix has a Year 2000 project plan in place and a "Y2K
Project Team" has been appointed. If the Year 2000 project is not completed in a
timely manner, the Year 2000 issue could have a material impact on the
Partnership's operations. The Y2K Project Team, however, has identified Y2K
risks and issues and the remediation procedures which need to be implemented.
The Y2K Project Team has budgeted for the necessary changes, built contingency
plans, and has progressed along the scheduled timelines.
Installation of any remediation changes to software and hardware is
planned to be completed by June 30, 1999.
7
<PAGE>
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.
8
<PAGE>
Item 7. FINANCIAL STATEMENTS
--------------------
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
----------------------------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix Leasing Cash Distribution Fund V, L.P.:
We have audited the accompanying balance sheet of Phoenix Leasing Cash
Distribution Fund V, L.P. (a California limited partnership) as of December 31,
1998 and the related statements of operations and comprehensive income,
partners' capital and cash flows for the years ended December 31, 1998 and 1997.
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 Phoenix Leasing Cash
Distribution Fund V, L.P. as of December 31, 1998, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
January 22, 1999
10
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1998
-----------------
ASSETS
Cash and cash equivalents $ 4,834
Accounts receivable (net of allowance for losses on accounts
receivable of $176) 178
Notes receivable (net of allowance for losses on notes receivable
of $595) 9,646
Equipment on operating leases and held for lease (net of
accumulated depreciation of $5,419) 51
Net investment in financing leases (net of allowance for early
terminations of $345) 7,654
Investment in joint ventures 122
Capitalized acquisition fees (net of accumulated amortization
of $2,612) 538
Other assets 194
--------
Total Assets $ 23,217
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 883
--------
Total Liabilities 883
--------
Partners' Capital:
General Partner (7)
Limited Partners, 5,000,000 units authorized, 2,045,838
units issued and 1,902,708 units outstanding 22,218
Accumulated other comprehensive income 123
--------
Total Partners' Capital 22,334
--------
Total Liabilities and Partners' Capital $ 23,217
========
The accompanying notes are an integral part of these statements.
11
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1998 1997
---- ----
INCOME
Rental income $ 1,890 $ 1,879
Earned income, financing leases 1,541 2,039
Interest income, notes receivable 1,332 771
Equity in earnings from joint ventures, net 248 372
Gain on sale of securities 1 1,255
Other income 341 311
------- -------
Total Income 5,353 6,627
------- -------
EXPENSES
Depreciation 419 565
Amortization of acquisition fees 285 311
Lease related operating expenses 49 90
Management fees to General Partner 407 459
Reimbursed administrative costs to General Partner 276 333
Provision for losses on receivables 368 609
Legal expense 181 219
General and administrative expenses 134 124
------- -------
Total Expenses 2,119 2,710
------- -------
NET INCOME 3,234 3,917
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during period 120 890
Less: reclassification adjustment for gains
included in net income (1) (1,255)
------- -------
Other comprehensive income 119 (365)
------- -------
COMPREHENSIVE INCOME $ 3,353 $ 3,552
======= =======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 1.61 $ 1.94
======= =======
ALLOCATION OF NET INCOME:
General Partner $ 150 $ 158
Limited Partners 3,084 3,759
------- -------
$ 3,234 $ 3,917
======= =======
The accompanying notes are an integral part of these statements.
12
<PAGE>
<TABLE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
<CAPTION>
Accumulated
General Other
Partner's Limited Partners' Comprehensive Total
Amount Units Amount Income Amount
--------- ------------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (76) 1,946,243 $ 23,569 $ 369 $ 23,862
Net income 158 -- 3,759 -- 3,917
Distributions to partners ($2.00 per limited
partnership unit) (120) -- (3,876) -- (3,996)
Redemptions of capital -- (20,768) (225) -- (225)
Other comprehensive income -- -- -- (365) (365)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 (38) 1,925,475 23,227 4 23,193
Net income 150 -- 3,084 -- 3,234
Distributions to partners ($2.00 per limited
partnership unit) (119) -- (3,834) -- (3,953)
Redemptions of capital -- (22,767) (259) -- (259)
Other comprehensive income -- -- -- 119 119
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 $ (7) 1,902,708 $ 22,218 $ 123 $ 22,334
========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
13
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1998 1997
---- ----
Operating Activities:
Net income $ 3,234 $ 3,917
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 419 565
Amortization of acquisition fees 285 311
Gain on sale of equipment (274) (124)
Equity in earnings from joint ventures, net (248) (372)
Gain on sale of securities (1) (1,255)
Provision for early termination, financing
leases 141 184
Provision for losses on notes receivable 227 308
Provision for losses on accounts receivable -- 117
Decrease (increase) in accounts receivable 86 (194)
Increase (decrease) in accounts payable and
accrued expenses 21 (308)
Increase (decrease) in other assets (33) 89
------- -------
Net cash provided by operating activities 3,857 3,238
------- -------
Investing Activities:
Principal payments, financing leases 6,460 7,403
Principal payments, notes receivable 2,081 1,733
Proceeds from sale of equipment 514 337
Proceeds from sale of securities 1 1,255
Distributions from joint ventures 479 1,402
Investment in financing leases (3,698) (3,774)
Investment in notes receivable (5,440) (5,222)
Payment of acquisition fees (295) (204)
------- -------
Net cash provided by investing activities 102 2,930
------- -------
Financing Activities:
Redemptions of capital (259) (225)
Distributions to partners (3,953) (3,996)
------- -------
Net cash used in financing activities (4,212) (4,221)
------- -------
Increase (decrease) in cash and cash equivalents (253) 1,947
Cash and cash equivalents, beginning of period 5,087 3,140
------- -------
Cash and cash equivalents, end of period $ 4,834 $ 5,087
======= =======
The accompanying notes are an integral part of these statements.
14
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1. Organization and Partnership Matters.
------------------------------------
Phoenix Leasing Cash Distribution Fund V, L.P., a California limited
partnership (the "Partnership"), was formed on July 9, 1990, to invest in
capital equipment of various types and to lease such equipment to third parties
on either a long-term or short-term basis, and to provide financing to emerging
growth companies and cable television system operators. The Partnership met
minimum investment requirements on January 7, 1992. The Partnership's
termination date is December 31, 2003.
The Partnership has also made investments in joint ventures with
affiliated partnerships managed by the General Partner for the purpose of
reducing the risks of financing or acquiring certain capital equipment leased to
third parties (see Note 6).
For financial reporting purposes, Partnership net income and net losses
will be allocated 99% to the Limited Partners and 1% to the General Partner. In
addition, the General Partner will be allocated gross rental and interest income
in amounts equal to the distributions that it receives from the Partnership.
Syndication costs will be allocated 1% to the General Partner and 99% to the
Limited Partners.
The General Partner is entitled to receive 3% of all distributions
until the Limited Partners have recovered their initial capital contributions
plus a cumulative return of 10% per annum. Thereafter, the General Partner will
receive 15% of all cash distributions. From inception of the Partnership until
December 31, 1998, the General Partner's interest in Cash Available for
Distribution was subordinated in any calendar quarter until the Limited Partners
received quarterly distributions equal to 2.50% of their capital contributions
(i.e., 10% per annum), prorated for any partial period.
In the event the General Partner has a deficit balance in its capital
account at the time of Partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services, the General Partner receives a
fee, payable quarterly, subject to certain limitations, in an amount equal to 3%
of the Partnership's gross revenues for the quarter from which such payment is
being made, which revenues shall include, but are not limited to, rental
receipts, maintenance fees, proceeds from the sale of equipment and interest
income.
The General Partner will be compensated for services performed in
connection with the analysis of assets available to the Partnership, the
selection of such assets and the acquisition thereof, including obtaining
lessees for the equipment, negotiating and concluding master lease agreements
with certain lessees. As compensation for such acquisition services, the General
Partner will receive a fee equal to 3%, subject to certain limitations, of (a)
the purchase price of equipment acquired by the Partnership or equipment leased
to customers by manufacturers, the financing for which is provided by the
Partnership, or (b) financing provided to businesses such as cable operators,
emerging growth companies, or security monitoring system companies, payable upon
such acquisition or financing, as the case may be. Acquisition fees are
amortized over the life of the assets principally on a straight-line basis.
A schedule of compensation due and distributions made to the General
Partner for the years ended December 31, follows:
1998 1997
---- ----
(Amounts in Thousands)
Management fees $407 $459
Acquisition fees 274 270
Cash distributions 119 120
---- ----
Total $800 $849
==== ====
Redemptions of Limited Partner units will only be made to the extent
permitted by applicable laws and regulations, the Partnership Agreement and if,
in the opinion of the General Partner, it is in the best interest of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the Partnership to be categorized as a publicly traded partnership for
federal income tax purposes.
15
<PAGE>
The Partnership will acquire such limited partnership units for an amount
equal to 85% of the "accrual basis capital account" relating to the redeemed
units. The Partnership will retain the remaining 15% of the "accrual basis
capital account" relating to the redeemed units. Redemptions retained by the
Partnership were $39,000 and $34,000 during the years ended December 31, 1998
and 1997, respectively. "Accrual basis capital account" is computed in
accordance with the books and records regularly maintained by the Partnership
for financial reporting purposes, utilizing the accrual method of accounting.
Note 2. Summary of Significant Accounting Policies.
------------------------------------------
Cash and Cash Equivalents. Cash and cash equivalents include deposits at
banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days.
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified as
impaired and the accrual of interest on such notes is discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
Leasing Operations. The Partnership's leasing operations consist of both
financing and operating leases. The financing method of accounting for leases
records as unearned income at the inception of the lease, the excess of net
rentals receivable and estimated residual value at the end of the lease term,
over the cost of equipment leased. Unearned income is credited to income monthly
over the term of the lease on a declining basis to provide an approximate level
rate of return on the unrecovered cost of the investment. Initial direct costs
of consummating new leases are capitalized and included in the cost of
equipment. The Partnership reviews its estimates of residual value at least
annually. If a decline in value has occurred which is other than temporary, a
reduction in the investment is recognized currently.
Under the operating method of accounting for leases, the leased equipment
is recorded as an asset at cost and depreciated. The Partnership's leased
equipment is depreciated primarily using an accelerated depreciation method over
the estimated useful life of six years.
The Partnership's policy is to review periodically the remaining expected
economic life of its rental equipment in order to determine the probability of
recovering its undepreciated cost. Such reviews address, among other things,
recent and anticipated technological developments affecting computer equipment
and competitive factors within the computer marketplace. Where reviews of the
equipment portfolio indicate that rentals plus anticipated sales proceeds will
not exceed expenses in any future period, the Partnership revises its
depreciation policy and will provide additional depreciation as appropriate. As
a result of such periodic reviews, the Partnership provided additional
depreciation expense of $8,000 and $4,000 for the years ended December 31, 1998
and 1997, respectively.
Rental income for the year is determined on a straight-line basis of
rental payments due for the period under the terms of the lease. Maintenance,
repairs and minor renewals of the leased equipment are charged to expense.
16
<PAGE>
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
Investments in Joint Ventures. Minority investments in net assets of the
equipment and financing joint ventures reflect the Partnership's equity basis in
the ventures. Under the equity method of accounting, the original investment is
recorded at cost and is adjusted periodically to recognize the Partnership's
share of earnings, losses, cash contributions and cash distributions after the
date of acquisition.
Investment in Available-for-Sale Securities. The Partnership has
investments in stock and stock warrants in public companies that have been
determined to be available for sale. Available-for-sale securities are stated at
their fair market value, with the unrealized gains and losses reported in other
comprehensive income.
Reclassification. Certain 1997 amounts have been reclassified to conform
to the 1998 presentation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Comprehensive Income. As of January 1, 1998, the Partnership adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
For the Partnership, comprehensive income includes net income reported on the
statement of operations and changes in the fair value of its available-for-sale
investments reported as a component of partners' capital.
Note 3. Accounts Receivable.
-------------------
Accounts receivable consist of the following at December 31:
1998
----
(Amounts in Thousands)
Lease payments $ 289
Property taxes 48
Other 11
Interest 6
-----
354
Less: allowance for losses on accounts receivable (176)
-----
Total $ 178
=====
Note 4. Notes Receivable:
----------------
Notes receivable consist of the following at December 31:
1998
----
(Amounts in Thousands)
Notes receivable from emerging growth companies,
with stated interest ranging from 10% to 22%
per annum, receivable in installments ranging
from 37 to 54 months, collateralized by a
security interest in the equipment financed. $ 3,766
Notes receivable from other businesses, with stated
interest ranging from 13% to 23% per annum,
receivable in installments ranging from
35 to 85 months, collateralized by the
equipment financed. 6,475
--------
10,241
Less: allowance for losses on notes receivable (595)
--------
Total $ 9,646
========
17
<PAGE>
Minimum payments to be received on non-cancelable notes receivable for
the years ended December 31, are as follows:
(Amounts in Thousands)
1999 ........................................... $ 3,706
2000 ........................................... 3,690
2001 ........................................... 2,423
2002 ........................................... 1,389
2003 ........................................... 460
Thereafter ..................................... 238
--------
Total minimum payments to be received .......... 11,906
Impaired notes receivable ...................... 1,039
Less: unearned interest ....................... (2,704)
Less: allowance for losses .................... (595)
--------
Net investment in notes receivable ............. $ 9,646
========
At December 31, 1998, the recorded investment in notes that are
considered to be impaired was $1,039,000. Included in this amount is $871,000 of
impaired notes for which the related allowance for losses is $332,000 and
$168,000 of impaired notes for which there is no allowance. The average recorded
investment in impaired loans during the years ended December 31, 1998 and 1997
was approximately $535,000 and $73,000, respectively. The Partnership recognized
$75,000 and $24,000 of interest income on impaired notes receivable during the
years ended December 31, 1998 and 1997, respectively.
The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:
1998 1997
---- ----
(Amounts in Thousands)
Beginning balance $ 368 $ 124
Provision for (recovery of) losses 227 308
Write downs -- (64)
----- -----
Ending balance $ 595 $ 368
===== =====
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
----------------------------------------------------------------
Equipment on lease consists primarily of computer peripheral equipment
and other capital equipment.
The Partnership's operating leases are for initial lease terms of
approximately 19 to 36 months. During the remaining terms of existing operating
leases, the Partnership will not recover all of the undepreciated cost and
related expenses of its rental equipment, and therefore must remarket a portion
of its equipment in future years.
The Partnership has also entered into direct lease arrangements with
businesses in different industries located throughout the United States.
Generally, it is the responsibility of the lessee to provide maintenance on
leased equipment. The General Partner administers the equipment portfolio of
leases acquired through the direct leasing program. Administration includes the
collection of rents from the lessees and remarketing of the equipment.
The net investment in financing leases consists of the following at
December 31:
18
<PAGE>
1998
----
(Amounts in Thousands)
Minimum lease payments to be received $ 9,701
Less: unearned income (1,702)
allowance for early termination (345)
-------
Net investment in financing leases $ 7,654
=======
Minimum rentals to be received on noncancellable operating and
financing leases for the years ended December 31 are as follows:
Operating Financing
--------- ---------
(Amounts in Thousands)
1999 ......................... $ 210 $4,109
2000 ......................... 43 2,813
2001 ......................... 29 1,785
2002 ......................... 0 760
2003 ......................... 0 234
Thereafter ................... 0 0
------ ------
Total ........................ $ 282 $9,701
====== ======
The net book value of equipment held for lease at December 31, 1998
amounted to $51,000.
Note 6. Investment in Joint Ventures.
----------------------------
Equipment Joint Venture.
- -----------------------
On August 1, 1994, the Partnership entered into an agreement along with
two other affiliated partnerships to contribute certain leased assets and notes
receivable (the "Assets") to Phoenix Acceptance Limited Liability Company, a
Delaware limited liability company (the "Joint Venture") in exchange for a
32.48% equity interest in the Joint Venture. The interest received in the Joint
Venture was accounted for at the historical cost basis of the Assets
transferred. The Partnership has accounted for its net investment in this Joint
Venture using the equity method of accounting. The Joint Venture was organized
to hold title to the assets and subsequently transfer such assets to a trust for
the purpose of the trust issuing two classes of lease backed certificates to
third parties in exchange for cash proceeds. The transaction between the Joint
Venture and the trust has been accounted for as a financing. The Joint Venture
retains a residual interest in the assets transferred through the ownership of a
third class of subordinated trust certificates. The lease backed certificates
are recourse only to the assets used to collateralize the obligation.
The net carrying value of such assets contributed by the Partnership to
the Joint Venture was approximately $7.9 million and the total carrying value of
all of the assets contributed by all three partnerships approximated $24.7
million. The net proceeds from the issuance of the lease backed certificates
were distributed back to the partnerships who contributed to the Joint Venture.
On August 5, 1994, the Joint Venture received proceeds from the issuance of the
7.1% Class A lease backed certificates in the principal amount of $18.5 million.
On August 12, 1994, the Joint Venture received proceeds from the issuance of the
8.25% Class B lease backed certificates in the principal amount of $5.3 million.
In November 1996, the lease backed certificates were paid in full.
The Manager of the Joint Venture is Phoenix Leasing Incorporated. The
manager is responsible for the daily management of the operations of the Joint
Venture. Phoenix Leasing Incorporated also acts as Servicer and Administrator to
the trust. As Servicer, Phoenix Leasing Incorporated is responsible for
servicing, managing and administering the Assets, as well as enforcing and
making collections on the Assets.
An analysis of the Partnership's investment in the equipment joint
venture is as follows:
19
<PAGE>
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- --------- ------------- ----------
(Amounts in Thousands)
Year Ended
December 31, 1997 $1,160 $ -- $ 343 $1,320 $ 183
====== ======= ====== ====== ======
Year Ended
December 31, 1998 $ 183 $ -- $ 231 $ 395 $ 19
====== ======= ====== ====== ======
The aggregate financial information of the equipment joint venture is
presented as follows:
December 31, 1998
-----------------
(Amounts in Thousands)
Assets $184
Liabilities 117
Partners' Capital 67
For the Years Ended December 31,
1998 1997
---- ----
(Amounts in Thousands)
Revenue $ 766 $1,129
Expenses 59 78
Net Income 707 1,051
As of December 31, 1998, the Partnership's pro rata interest in the
equipment joint venture's net book value of off-lease equipment was $0.
The General Partner earns a management fee of 3% of the Partnership's
respective interest in gross revenues of the Joint Venture. Cash proceeds
subject to a management fee at the joint venture level are not subject to
management fees at the Partnership level.
Financing Joint Venture.
- -----------------------
The Partnership owns a 25% interest in Phoenix Joint Venture 1994-2, a
Financing Joint Venture. This investment is accounted for using the equity
method of accounting. The other partners of the venture are entities organized
and managed by the General Partner.
An analysis of the Partnership's investment account in the Financing
Joint Venture is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- --------- ------------- ----------
(Amounts in Thousands)
Year Ended
December 31, 1997 $223 $ - $ 29 $ 82 $170
==== ==== ==== ==== ====
Year Ended
December 31, 1998 $170 $ - $ 17 $ 84 $103
==== ==== ==== ==== ====
The aggregate financial information of the Financing Joint Venture is
presented as follows:
December 31, 1998
-----------------
(Amounts in Thousands)
Assets $550
Liabilities 151
Partners' Capital 399
20
<PAGE>
For the Years Ended December 31,
1998 1997
---- ----
(Amounts in Thousands)
Revenue $ 85 $127
Expenses 17 25
Net Income 68 102
The General Partner earns a management fee of 3% of the Partnership's
respective interest in gross receipts of the Financing Joint Venture. Revenues
subject to a management fee at the joint venture level are not subject to
management fees at the Partnership level.
Note 7. Accounts Payable and Accrued Expenses.
-------------------------------------
Accounts payable and accrued expenses consist of the following at
December 31:
1998
----
(Amounts in Thousands)
Equipment Lease Operations $410
Security Deposits 316
General Partner and Affiliates 76
Trade 3
Other 78
----
Total $883
====
Note 8. 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 net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31, 1998:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $23,217 $19,364 $ 3,853
Liabilities 883 543 340
Note 9. Related Entities.
----------------
Affiliates of the General Partner serve in the capacity of general
partners in other partnerships, all of which are engaged in the equipment
leasing and financing business.
Note 10. Net Income (Loss) and Distributions per Limited Partnership Unit.
----------------------------------------------------------------
Net income and distributions per limited partnership unit were based on
the Limited Partner's share of net income and distributions, and the weighted
average number of units outstanding of 1,914,643 and 1,936,473 for the years
ended December 31, 1998 and 1997, respectively. For the purposes of allocating
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.
21
<PAGE>
Note 11. Reimbursed Costs to the General Partner and Affiliates.
------------------------------------------------------
The General Partner and affiliates incur certain administrative costs
such as data processing, investor and lessee communications, lease
administration, accounting, equipment storage and equipment remarketing, for
which it is reimbursed by the Partnership. These expenses incurred by the
General Partner and affiliates are to be reimbursed at the lower of the actual
costs or an amount equal to 90% of the fair market value for such services.
The reimbursed administrative costs to the General Partner were
$276,000 and $333,000 for the years ended December 31, 1998 and 1997,
respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1998 and
1997 were $62,000 and $87,000, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 12. Fair Value of Financial Instruments.
-----------------------------------
The carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities and notes receivable approximate the
fair values.
Note 13. Legal Proceedings.
-----------------
On October 28, 1997, a Class Action Complaint (the "Complaint") was
filed against Phoenix Leasing Inc., Phoenix Leasing Associates, II and III L.P.,
Phoenix Securities Inc. and Phoenix American Inc. (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 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 re-filed 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 is
currently in transit. Defendants have not yet responded to the Complaint.
Discovery has not commenced. The Companies intend to vigorously defend the
Complaint.
During the year ended December 31, 1998, the Partnerships recorded
legal expenses of approximately $41,000 in connection with the above litigation
as indemnification to the General Partner.
The Partnership is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
Note 14. Subsequent Events.
-----------------
In January 1999, cash distributions of $29,000 and $486,000 were made
to the General and Limited Partners, respectively.
22
<PAGE>
Item 8. Disagreements on Accounting and Financial Disclosure Matters.
------------------------------------------------------------
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The registrant is a limited partnership and, therefore, has no
executive officers or directors. The General Partner of the Registrant is
Phoenix Leasing Associates II L.P., a California limited partnership, the
Corporate General Partner of which is Phoenix Leasing Associates II, Inc., a
Nevada corporation and a wholly-owned subsidiary of Phoenix Leasing Incorporated
(PLI), a California corporation.
The directors and executive officers of Phoenix Leasing Associates II,
Inc. (PLAII) are as follows:
GUS CONSTANTIN, age 61, is President, and a Director of PLAII. Mr.
Constantin received a B.S. degree in Engineering from the University of Michigan
and a Master's Degree in Management Science from Columbia University. From 1969
to 1972, he served as Director, Computer and Technical Equipment of DCL
Incorporated (formerly Diebold Computer Leasing Incorporated), a corporation
formerly listed on the American Stock Exchange, and as Vice President and
General Manager of DCL Capital Corporation, a wholly-owned subsidiary of DCL
Incorporated. Mr. Constantin was actively engaged in marketing manufacturer
leasing programs to computer and medical equipment manufacturers and in
directing DCL Incorporated's IBM System/370 marketing activities. Prior to 1969,
Mr. Constantin was employed by IBM as a data processing systems engineer for
four years. Mr. Constantin is an individual general partner in four active
partnerships and is an NASD registered principal. Mr. Constantin is the founder
of PLI and the beneficial owner of all of the common stock of Phoenix American
Incorporated.
GARY W. MARTINEZ, age 48, is Executive Vice President, Chief Operating
Officer and a Director of PLAII. He has been associated with PLI since 1976. He
manages the Asset Management Department, which is responsible for lease and loan
portfolio management. This includes credit analysis, contract terms,
documentation and funding; remittance application, change processing and
maintenance of customer accounts; customer service, invoicing, collection,
settlements and litigation; negotiating lease renewals, extensions, sales and
buyouts; and management information reporting. From 1973 to 1976, Mr. Martinez
was a Loan Officer with Crocker National Bank, San Francisco. Prior to 1973, he
was an Area Manager with Pennsylvania Life Insurance Company. Mr. Martinez is a
graduate of California State University, Chico.
HOWARD SOLOVEI, age 37, is the Chief Financial Officer, Treasurer and a
Director of PLA II. He has been associated with PLI since 1984. Mr. Solovei
oversees the Finance Department. He is responsible for the structuring,
planning, and monitoring of the partnerships sponsored by the General Partner
and its affiliates, as well as maintaining the banking relationships. Mr.
Solovei graduated with a B.S. in Business Administration from the University of
California, Berkeley.
BRYANT J. TONG, age 44, is Senior Vice President, Financial Operations
of PLAII. He has been with PLI since 1982. Mr. Tong is responsible for investor
services and overall company financial operations. He is also responsible for
the technical and administrative operations of the cash management, corporate
accounting, partnership accounting, accounting systems, internal controls and
tax departments, in addition to Securities and Exchange Commission and other
regulatory agency reporting. Prior to his association with PLI, Mr. Tong was
Controller-Partnership Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from
1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of
California, Berkeley, and is a Certified Public Accountant.
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
23
<PAGE>
Phoenix Leasing American Business Fund, L.P.
Phoenix Income Fund, L.P.
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund IV and
Phoenix Leasing Cash Distribution Fund III
Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:
The General Partner (and any corporate general partner of the General
Partner) of the Registrant, and the executive officers of the General Partner
(or any corporate general partner of the General Partner) of the Registrant,
file reports pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended. Based solely on the Registrant's review of the copies of such forms
received by the Registrant, the Registrant believes that, during 1998, all such
required reports were filed on a timely basis.
Certain Legal Proceedings.
On October 28, 1997, a Class Action Complaint (the "Complaint") was
filed against Phoenix Leasing Inc., Phoenix Leasing Associates, II and III L.P.,
Phoenix Securities Inc. and Phoenix American Inc. (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 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 re-filed 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 is
currently in transit. Defendants have not yet responded to the Complaint.
Discovery has not commenced. The Companies intend to vigorously defend the
Complaint.
Item 10. Executive Compensation.
----------------------
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
<TABLE>
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------- ------------------------------------------- ----------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
------------------------ -----------------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Phoenix Leasing
Associates II L.P. General Partner $ 681(1) $ 0 $ 0
====== ===== =====
<FN>
(1) consists of management and acquisition fees.
</FN>
</TABLE>
24
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
(b) The General Partner or its affiliates of the Registrant owns the
equity securities of the Registrant set forth in the following
table:
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 3% interest in the 100%
Registrant's profits and
distributions, until the Limited
Partners have recovered their
capital contributions plus a
cumulative return of 10% per annum,
compounded quarterly, on the
unrecovered portion thereof.
Thereafter, the General Partner
will receive 15% interest in the
Registrant's profits and distributions.
Limited Partner Interest 1,550 units -
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------
None.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
Page No.
--------
(a) 1. Financial Statements:
Balance Sheet as of December 31, 1998 11
Statements of Operations and Comprehensive Income
for the Years Ended December 31, 1998 and 1997 12
Statements of Partners' Capital for the Years
Ended December 31, 1998 and 1997 13
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 14
Notes to Financial Statements 15 - 22
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended December 31,
1998.
(c) Exhibits
21. Additional Exhibits:
a) Balance Sheet of Phoenix Leasing Associates II, Inc. E21 1-5
Balance Sheet of Phoenix Leasing Associates II L.P. E21 6-9
27. Financial Data Schedule
25
<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 V, L.P.,
a California limited partnership
(Registrant)
By: PHOENIX LEASING ASSOCIATES II L.P.,
a California limited partnership,
General Partner
By: PHOENIX LEASING ASSOCIATES II, INC.,
a Nevada corporation,
General Partner
Date: March 24, 1999 By: /S/ GUS CONSTANTIN
-------------- --------------------------
Gus Constantin, President
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 and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ GUS CONSTANTIN President and a Director of March 24, 1999
- ---------------------- Phoenix Leasing Associates II, Inc. --------------
(Gus Constantin) General Partner
/S/ GARY W. MARTINEZ Senior Vice President and a Director of March 24, 1999
- ---------------------- Phoenix Leasing Associates II, Inc. --------------
(Gary W. Martinez) General Partner
/S/ HOWARD SOLOVEI Chief Financial Officer, March 24, 1999
- ---------------------- Treasurer and a Director of --------------
(Howard Solovei) Phoenix Leasing Associates II, Inc.
General Partner
/S/ BRYANT J. TONG Senior Vice President, March 24, 1999
- ---------------------- Financial Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Associates II, Inc.
General Partner
26
Exhibit 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Phoenix Leasing Associates II, Inc.:
We have audited the accompanying consolidated balance sheets of Phoenix Leasing
Associates II, Inc. (a Nevada corporation) and Subsidiary as of June 30, 1998
and 1997. These financial statements are the responsibility of the Company'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 audits to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. 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 balance sheets referred to above present fairly, in all
material respects, the financial position of Phoenix Leasing Associates II, Inc.
and Subsidiary as of June 30, 1998 and 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
September 9, 1998
Page 1 of 9
<PAGE>
PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1998 1997
---- ----
Cash and cash equivalents .......................... $ 367 $ 172
Due from PLI ....................................... 1,569,493 1,357,879
Due from CDF V ..................................... 268,759 69,225
----------- -----------
Total Assets .............................. $ 1,838,619 $ 1,427,276
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses ........... $ 729 $ 4,798
Deficit investment in CDF V ..................... 20,766 58,197
----------- -----------
Total Liabilities ......................... 21,495 62,995
----------- -----------
Minority Interest in Consolidated Subsidiary ....... 89,649 21,548
----------- -----------
Shareholder's Equity:
Common Stock, without par value, 100 shares
authorized and outstanding .................... 4,000,100 4,000,100
Retained earnings ............................... 1,727,375 1,342,633
Less:
Note receivable from affiliate ................ (4,000,000) (4,000,000)
----------- -----------
Total Shareholder's Equity ................ 1,727,475 1,342,733
----------- -----------
Total Liabilities and Shareholder's Equity $ 1,838,619 $ 1,427,276
=========== ===========
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
June 30, 1998
Note 1. Organization:
Phoenix Leasing Associates II, Inc., (the Company), was formed under
the laws of Nevada on June 14, 1990. The Company has a June 30 fiscal year-end.
The Company is a wholly-owned subsidiary of Phoenix Leasing Incorporated (PLI),
a California corporation, and was originally formed to serve as the general
partner of Phoenix Leasing Cash Distribution Fund V, L.P. (CDF V), a California
limited partnership.
On August 17, 1990, the Company organized Phoenix Leasing Associates II
L.P., a California limited partnership (PLAIILP) to replace the Company as the
general partner in CDF V. The limited partner of PLAIILP is Lease Management
Associates, Inc., a Nevada corporation controlled by an officer of the Company,
who also owns the parent company of PLI. As the general partner of CDF V,
PLAIILP earns acquisition and management fees and receives the profits, losses
and distributions which are to be allocated to the Company (Note 6). The Company
is the general partner of PLAIILP and, as of June 30, 1998 and 1997 has a 50%
ownership interest. This ownership interest is subject to change in accordance
with the PLAIILP Partnership Agreement. Profits, losses and distributions
attributable to acquisition fees paid to PLAIILP by CDF V are allocated in
proportion to the partners' ownership interests. All other profits, losses and
distributions are allocated to the Company. The balance sheets as of June 30,
1998 and 1997 are presented on a consolidated basis as discussed in Note 2.
Note 2. Principles of Consolidation:
The consolidated balance sheets as of June 30, 1998 and 1997, include
the accounts of the Company and its subsidiary, PLAIILP, over which the Company
exerts significant control and influence. All significant intercompany accounts
and transactions have been eliminated in consolidation. The minority interest
represents the limited partner's interest in PLAIILP.
The Company records its investment in CDF V under the equity method of
accounting. As general partner, the Company has complete authority in, and
responsibility for, the overall management of CDF V, which includes
responsibility for supervising CDF V's acquisition, leasing, remarketing
activities and its sale of equipment.
Note 3. Use of Estimates:
The preparation of consolidated balance sheets in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
balance sheets. Actual results could differ from those estimates.
Note 4. Notes Receivable from Affiliate:
PLI, the sole shareholder of the Company, as of June 30, 1998 and 1997,
has issued demand promissory notes to the Company totaling $4,000,000. There are
no restrictions or covenants associated with this note which would preclude the
Company from receiving the principal or interest amounts under the terms of the
notes. The notes bear interest at a rate equal to the lesser of 10% or prime
rate plus 1%, as determined by Citibank, N.A., New York, New York. Interest is
payable by PLI on the first business day of each calendar quarter. The principal
amount is due and payable upon demand by the Company.
3
<PAGE>
PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
June 30, 1998
Note 5. Income Taxes:
The Company's income or loss for tax reporting purposes is included in
the consolidated and combined tax returns filed by Phoenix American Incorporated
(PAI), an affiliated Nevada corporation. These returns are prepared on the
accrual basis of accounting.
Under "Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes", the Company computes taxes as if it was a stand alone
company. The resulting tax liabilities of $165,356 and $160,448 as of June 30,
1998 and 1997, respectively, were transferred to PAI in accordance with a Tax
Sharing Agreement between the Company and PAI.
Note 6. Compensation and Fees:
PLAIILP receives acquisition fees equal to three percent of the
purchase price of assets acquired or financed by CDF V in connection with the
analysis, selection and acquisition or financing of assets, and the continuing
analysis of the overall portfolio of the CDF V's assets, and management fees
equal to three percent of CDF V's gross revenues in connection with managing the
operations of CDF V. In addition, PLAIILP receives an interest in CDF V's
profits, losses and distributions. Management fees of $91,441 and $32,599 and
acquisition fees of $177,318 and $36,626 are included in Due from CDF V as of
June 30, 1998 and 1997, respectively.
Note 7. Related Parties:
Phoenix Securities, Inc., an affiliate of the Company, received a fee
for wholesaling activities performed in connection with the offering of the
limited partnership units of CDF V.
The Company has entered into an agreement with PLI, whereby PLI will
provide management services to PLAIILP in connection with the operations and
administration of CDF V. In consideration for the services and activities to be
performed by PLI pursuant to this agreement, the Company pays PLI fees in an
amount equal to: Three percent of CDF V's cumulative gross revenues plus the
lesser of three percent of the purchase price of equipment acquired by and
financing provided to businesses by CDF V or 100% of the net cash attributable
to the acquisition fee which has been distributed to the Company plus 100% of
all other net cash from operations of PLAIILP. Management fees paid to PLI equal
$753,849 and $704,067 for the years ended June 30, 1998 and 1997, respectively.
Note 8. Commitments and Contingencies:
On October 28, 1997 a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates II L.P., Phoenix Leasing
Associates 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 fiduciary duty and breach of contract by the Companies as
4
<PAGE>
PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
June 30, 1998
general partners of the Partnerships. Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of
Phoenix Leasing Associates II L.P.:
We have audited the accompanying balance sheets of Phoenix Leasing Associates II
L.P. (a California limited partnership) as of June 30, 1998 and 1997. 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 balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. 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 balance sheets referred to above present fairly, in all
material respects, the financial position of Phoenix Leasing Associates II L.P.
as of June 30, 1998 and 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California
September 9, 1998
6
<PAGE>
PHOENIX LEASING ASSOCIATES II L.P.
BALANCE SHEETS
ASSETS
June 30,
1998 1997
---- ----
Cash and cash equivalents .............................. $ 343 $ 77
Due from CDF V ......................................... 268,759 69,225
Due from General Partner ............................... -- 13,832
-------- --------
Total Assets .................................. $269,102 $ 83,134
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses ............... $ 365 $ 2,399
Due to General Partner .............................. 157,332 --
Deficit investment in CDF V ......................... 20,766 58,197
-------- --------
Total Liabilities ............................. 178,463 60,596
-------- --------
Partners' Capital:
General Partner (99 partnership units) .............. 990 990
Limited Partner (99 partnership units) .............. 89,649 21,548
-------- --------
Total Partners' Capital ....................... 90,639 22,538
-------- --------
Total Liabilities and Partners' Capital ....... $269,102 $ 83,134
======== ========
The accompanying notes are an integral part of these balance sheets.
7
<PAGE>
PHOENIX LEASING ASSOCIATES II L.P.
NOTES TO THE BALANCE SHEETS
June 30, 1998
Note 1. Organization:
Phoenix Leasing Associates II L.P., a California limited partnership
(the Partnership), was formed under the laws of the State of California on
August 17, 1990, to act as the general partner of Phoenix Leasing Cash
Distribution Fund V, L.P.(CDF V), a California limited partnership. The
Partnership's fiscal year ends on June 30 of each year. The general partner of
the Partnership is Phoenix Leasing Associates II, Inc. (PLAII), a Nevada
corporation and wholly-owned subsidiary of Phoenix Leasing Incorporated (PLI), a
California corporation. The limited partner of the partnership is Lease
Management Associates, Inc., a Nevada corporation controlled by an officer of
PLAII, who owns the ultimate parent of PLAII.
The Partnership records its investment in CDF V under the equity method
of accounting. As general partner, the Partnership has complete authority in,
and responsibility for, the overall management of CDF V, which includes
responsibility for supervising CDF V's acquisition, leasing, remarketing and
sale of equipment.
Note 2. Income Taxes:
The Partnership is not subject to federal and state income taxes on its
income. Federal and state income tax regulations provide that items of income,
gain, loss and deductions, credits and tax preference items of limited
partnerships are reportable by the individual partners in their respective
income tax returns. Accordingly, no liability for such taxes has been recorded
on the Partnership's balance sheets.
Note 3. Use of Estimates:
The preparation of balance sheets in conformity with generally accepted
accounting principles requires management to makes estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheets.
Actual results could differ from those estimates.
Note 4. Compensation and Fees:
The Partnership receives acquisition fees equal to three percent of the
purchase price of assets acquired or financed by CDF V in connection with the
analysis, selection and acquisition or financing of assets, and the continuing
analysis of the overall portfolio of CDF V's assets, and management fees equal
to three percent of CDF V's gross revenues in connection with managing the
operations of CDF V. In addition, the Partnership receives an interest in CDF
V's profits, losses and distributions. Management fees of $91,441 and $32,599
and acquisition fees of $177,318 and $36,626 are included in Due from CDF V as
of June 30, 1998 and 1997, respectively.
Note 5. Allocation of Profits, Losses and Distributions:
Profits and losses attributable to acquisition fees paid to the
Partnership by CDF V are allocated to the partners in proportion to their
ownership interests. All other profits and losses are allocated to PLAII.
Distributions are made in accordance with the terms of the partnership
agreement.
8
<PAGE>
PHOENIX LEASING ASSOCIATES II L.P.
NOTES TO THE BALANCE SHEETS
June 30, 1998
Note 6. Related Parties:
Phoenix Securities, Inc., an affiliate of the Partnership, received a
fee for wholesaling activities performed in connection with the offering of the
limited partnership units of CDF V.
PLAII has entered into an agreement with PLI whereby PLI will provide
management services to the Partnership in connection with the operations and
administration of CDF V. In consideration for the services and activities to be
performed by PLI pursuant to this agreement, PLAII pays PLI fees in an amount
equal to: Three percent of CDF V's cumulative gross revenues plus the lesser of
three percent of the purchase price of equipment acquired by and financing
provided to businesses by CDF V or 100% of the net cash attributed to the
acquisition fee which has been distributed to PLAII plus 100% of all other net
cash from operations of the Partnership. Management fees paid to PLI equal
$753,849 and $704,067 for the years ended June 30, 1998 and 1997, respectively.
Note 7. Commitments and Contingencies:
On October 28, 1997 a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates II L.P., Phoenix Leasing
Associates 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 fiduciary duty and breach of contract by the Companies as
general partners of the Partnerships. Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,834
<SECURITIES> 123
<RECEIVABLES> 10,595
<ALLOWANCES> 771
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,470
<DEPRECIATION> 5,419
<TOTAL-ASSETS> 23,217
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,334
<TOTAL-LIABILITY-AND-EQUITY> 23,217
<SALES> 0
<TOTAL-REVENUES> 5,353
<CGS> 0
<TOTAL-COSTS> 2,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 368
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,234
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,234
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 0
</TABLE>
