1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1996
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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: 33-16599
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WALNUT EQUIPMENT LEASING CO., INC.
----------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1712443
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
SUITE 200, ONE BELMONT AVENUE, BALA CYNWYD, PENNSYLVANIA 19004
--------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(610) 668-0700
(800) 866-0809
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(Registrant's telephone number, including area code)
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 / /
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of August 31, 1996: $1.00 par value common stock - 1,000
shares.
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WALNUT EQUIPMENT LEASING CO., INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. Financial Statements
Consolidated Balance Sheets; July 31, 1996
(unaudited) and April 30, 1996 1-2
Consolidated Statements of Operations;
Three months ended July 31, 1996 and
1995 (unaudited) 3
Consolidated Statement of Changes in
Shareholders' Deficit; Three months ended
July 31, 1996 (unaudited) 4
Consolidated Statements of Cash Flows;
Three months ended July 31, 1996 and
1995 (unaudited) 5-6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
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Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1996 April 30, 1996
------------- --------------
(unaudited)
ASSETS
Direct finance Leases:
Aggregate future amounts
receivable under lease contracts $ 18,736,272 $ 18,423,816
Estimated residual value of equipment 1,631,252 1,704,915
Initial direct costs, net 480,155 474,059
Less:
Unearned income under lease contracts (3,933,214) ( 3,829,859)
Advance payments ( 571,903) ( 568,715)
------------ ------------
16,342,562 16,204,216
Allowance for doubtful lease receivables (1,409,495) ( 1,529,143)
------------ ------------
14,933,067 14,675,073
Operating Leases:
Equipment at cost,
Less accumulated depreciation of
$17,968 and $14,413, respectively 23,759 19,420
Accounts receivable 2,861 1,112
Cash and cash equivalents 8,474,513 9,207,905
Other assets (Includes $618,293 paid
to or receivable from related
parties at April 30, 1996) 1,185,888 1,132,587
------------ ------------
Total assets $ 24,620,088 $ 25,036,097
============ ============
See accompanying notes
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
July 31, 1996 April 30, 1996
------------- --------------
(unaudited)
LIABILITIES
Amounts payable to equipment suppliers $ 763,871 $ 802,956
Other accounts payable and accrued expenses 235,180 268,169
Demand, Fixed Rate and
Money Market Thrift Certificates
(Includes $183,805 at April 30, 1996
payable to related parties) 26,560,094 26,407,959
Senior Thrift Certificates
(includes $812,773 at April 30, 1996
payable to related parties) 22,125,214 21,394,687
Subordinated Thrift Certificates
(Includes $397,136 at April 30, 1996
payable to related parties) 5,460,388 5,523,118
Accrued interest 6,629,392 6,309,733
Subordinated debentures (Includes $4,000 at
April 30, 1996 payable to related parties) --- 4,000
------------ ------------
61,774,139 60,710,622
------------ ------------
SHAREHOLDERS' DEFICIT
Prime Rate Cumulative Preferred Shares,
$1 par value, $100 per share liquidation
preference, 50,000 shares authorized,
281 shares, issued and outstanding
(liquidation preference $28,100) 281 281
Adjustable Rate Cumulative Preferred Shares,
$1 par value, $1000 per share liquidation
preference. 1,000 shares authorized, 275
shares issued and outstanding
(liquidation preference $275,000) 275 275
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding 101,500 101,500
Accumulated Deficit (37,256,107) (35,776,581)
------------ ------------
(37,154,051) (35,674,525)
------------ ------------
Total liabilities and shareholders' deficit $ 24,620,088 $ 25,036,097
============ ============
See accompanying notes
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5
WALNUT EQUIPMENT LEASING CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended July 31,
1996 1995
------------ -----------
(unaudited) (unaudited)
Revenue:
Income earned under direct
finance lease contracts $ 919,872 $ 974,965
Operating lease rentals 6,823 6,751
----------- -----------
Total revenue 926,695 981,716
----------- -----------
Costs and expenses:
Interest expense, net 1,294,988 1,182,359
Lease origination expenses 359,076 269,514
General and administrative expenses 550,939 504,515
Provision for doubtful lease receivables 197,663 190,196
Depreciation of operating lease equipment 3,555 1,384
----------- -----------
Total costs and expenses 2,406,221 2,147,968
----------- -----------
Loss from operations before provision for
federal and state income taxes (1,479,526) (1,166,252)
Provision for federal and state income taxes
(See Note 2) --- ---
----------- -----------
Net Loss (See Note 2) $(1,479,526) $(1,166,252)
=========== ===========
SEE ACCOMPANYING NOTES
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
Prime Rate Adjustable Rate Total
Cumulative Cumulative Common Accumulated Shareholders'
Preferred Shares Preferred Shares Stock Deficit Deficit
---------------- ---------------- ------ ----------- ------------
No. of Shares No. of Share
Issued Amount Issued Amount
------ ------ ------ ------
Balance, April 30, 1996 281 $ 281 275 $ 275 $101,500 $(35,776,581) $(35,674,525)
Net loss for the three month
period ended July 31, 1996
(unaudited) --- --- --- --- --- (1,479,526) (1,479,526)
---- ------- ----- ------- -------- ------------ ------------
Balance, July 31, 1996 (unaudited) 281 $ 281 275 $ 275 $101,500 $(37,256,107) $(37,154,051)
==== ======= ===== ======= ======== ============ ============
SEE ACCOMPANYING NOTES
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended July 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
OPERATING ACTIVITIES
- --------------------
Net Loss $(1,479,526) $(1,166,252)
Adjustments to Reconcile
Net Loss to Net Cash
Used in Operating Activities:
Depreciation --- 1,384
Amortization of Deferred Debt
Registration Expenses 30,444 34,011
Provision for doubtful
lease receivables 197,663 190,196
Effects of Changes
in other Operating Items:
Accrued Interest 319,659 228,942
Amounts Payable to Equipment Suppliers (39,085) 108,860
Other (net), principally
increase in other Assets (113,179) (94,483)
----------- ------------
Net Cash used in Operating Activities (1,084,024) (697,342)
----------- ------------
INVESTING ACTIVITIES
- --------------------
Excess of Cash Received Over
Lease Income Recorded 1,820,829 1,879,096
Increase (Decrease) in Advance Payments 3,188 (9,764)
Purchase of Equipment for Lease (2,289,317) (1,926,095)
----------- ------------
Net Cash Used in Investing Activities $ (465,300) $ (56,763)
----------- ------------
See accompanying notes
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
For the Three Months Ended July 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
FINANCING ACTIVITIES
- --------------------
Proceeds from Issuance of:
Demand, and Fixed Rate Certificates $ 2,363,448 $ 3,014,550
Senior Thrift Certificates 1,399,289 1,712,013
Redemption of:
Demand, Fixed Rate, and Money
Market Thrift Certificates (2,211,313) (1,779,062)
Subordinated Thrift Certificates
and Debentures (66,730) (182,270)
Senior Thrift Certificates (668,762) (825,439)
----------- -----------
Net Cash Provided By
Financing Activities 815,932 1,939,792
----------- -----------
Increase (decrease) in cash
and cash equivalents (733,392) 1,185,687
Cash and cash equivalents,
Beginning of Year 9,207,905 8,957,949
----------- -----------
Cash and cash equivalents,
End of Period $ 8,474,513 $10,143,636
=========== ===========
See accompanying notes
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Walnut Equipment Leasing Co., Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
Three Months Ended July 31, 1996 and 1995
1. FINANCIAL STATEMENT PRESENTATION
The unaudited interim financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the audited financial statements and notes thereto for the year ended April
30, 1996. The accompanying interim financial statements have not been
audited by independent certified public accountants, but in the opinion of
management, such financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to summarize fairly the
results of operations, and are not necessarily indicative of the results to
be expected for the full year.
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. Although these estimates are based on management's knowledge of
current events and actions it may undertake in the future, they may
ultimately differ from actual results.
2. ACCOUNTING POLICIES
METHOD OF CONSOLIDATION
The unaudited interim consolidated financial statements of Walnut
Equipment Leasing Co., Inc. for the three month periods ended July 31, 1996
and 1995, respectively, include the operating results of its wholly-owned
subsidiary, Equipment Leasing Corporation of America ("ELCOA"). All
intercompany items have been eliminated for purposes of preparing the
consolidated financial statements contained herein.
ACCOUNTING FOR LEASES
The Company's lease contracts provide for total noncancellable rentals
which exceed the cost of the leased equipment plus anticipated financing
charges and, accordingly, are accounted for as financing leases. At the
inception of each new lease, the Company records the gross lease receivable,
the estimated residual value of the leased equipment, and the unearned lease
income. The unearned lease income represents the excess of the gross lease
receivable at inception of the contract plus the estimated residual value
over the cost of the equipment being leased. For leases originated after
April 30, 1988, the Company has changed its method of accounting to conform
with the requirements of FAS No. 91 "Accounting for Non Refundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Cost
of Leases". Under this method, a portion of commissions, processing and
credit approval costs in the amounts of $92,106 and $84,401 for the three
months ended July 31, 1996 and 1995, respectively, have been deferred as part
of the Investment in Direct Financing leases.
Unearned income is earned and initial direct costs are amortized to
direct finance lease income using the interest (or "effective") method over
the term of each lease.
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An allowance for doubtful direct finance lease receivables has been
maintained at a level considered adequate to provide for estimated losses
that will be incurred in the collection of these receivables. The allowance
is increased by provisions charged to operating expense and reduced by
charge-offs based upon a periodic evaluation, performed at least quarterly,
of delinquent finance lease receivables. Pursuant to FAS 91, reserves are
established to reflect losses anticipated from delinquencies and impairments
that have already occurred rather than ultimate losses expected over the life
of the lease portfolio. Total write-offs charged against the reserve for the
three months ended July 31, 1996 and 1995 were $317,311 and $217,638,
respectively, while the Company increased these reserves by charges of
$197,663 and $190,196, respectively, to maintain reserves considered adequate
for losses anticipated from remaining outstanding delinquent lease
receivables.
INCOME TAXES EXPENSE
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109), which
requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expenses is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
The net deferred tax asset as of April 30, 1996 includes deferred tax
assets (liabilities) attributable to the following temporary deductible
(taxable) differences:
Operating lease method vs. direct finance method $ 2,889,500
Provision for doubtful lease receivables 596,600
Operating loss carryforward 9,173,000
Other (32,600)
-----------
Net deferred tax asset 12,626,500
Valuation allowance (12,626,500)
-----------
Net deferred tax asset after valuation allowance $ ---
===========
A valuation allowance was considered necessary since it is more likely
than not that the Company will not realize the tax benefits of the deductible
differences and operating loss carryforward. A valuation allowance was
required as of April 30, 1996 due to the net operating loss carryover of
approximately $26,979,000 and investment tax credit carryover of
approximately $1,075,000, and due to the valuation allowance for the
carryforwards there is no net change in deferred tax assets for the three
months ended July 31, 1996.
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JULY 31, 1996 AND 1995
REVENUES FROM LEASE CONTRACTS
Total revenues from direct finance leases for the three months ended July
31, 1996 decreased 5.7% or $55,093 as compared to the three months ended July
31, 1995. This decrease resulted from a decrease in the average amount of
outstanding lease receivables, offset in part by an increase in late charges
and other fees recognized from collection of delinquent lease receivables
during the three months ended July 31, 1996 in comparison to the prior year.
Aggregate new lease receivables entered increased $583,454 or 23.3% to
$3,084,225 for the three months ended July 31, 1996 from $2,500,771 for the
three months ended July 31, 1995. Management attributes this increase to the
marketing strategy that began during the fourth quarter of the fiscal year
ended April 30, 1995 that emphasizes the "private label" leasing programs
with manufacturers. The Company expects this increase to continue throughout
the fiscal year to further increase lease volume beyond current levels. See
"Further Refinements in Marketing Strategy and Efforts to Reduce Operating
Losses", below.
Unearned income during the three months ended July 31, 1996 increased by
$103,355 after having decreased during the three months ended July 31, 1995.
During the three month periods ended July 31, 1996 and 1995, the gross rents
charged over the "net investment" in direct finance leases were 142%. The
recognition of direct finance lease income reflects the composite aging of
the underlying leases in the portfolio, as well as application of FAS No. 91,
to outstanding leases after May 1, 1988 which affects leases originated after
April 30, 1988, and changes the method used to recognize income and expense
items. FAS No. 91 does not change the total income and expenses ultimately
to be recognized from each transaction. Further increases in new lease
volume are expected to increase the levels of unearned income in the future.
During a period in which the rate of growth of new lease volume increases,
the growth rate of net lease revenue in that period will be less than the
rate of growth in new lease volume, as income earned from new lease volume is
recognized over the term of each lease contract and not necessarily in the
year the contract is entered.
The Company is continuing to increase its efforts to contact new
equipment vendors to further increase the level of new business. As noted
below, in an effort to further increase new business during the current
fiscal year, the Company is in the process of contacting equipment
manufacturers with the expectation that it will jointly market its leasing
services to the equipment manufacturer by using its in-house printing and
direct-mail facilities, and when warranted, create a "private label lease
program" specifically for a given manufacturer. See "Further Refinements in
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Marketing Strategy and Efforts to Reduce Operating Losses", below. As the
number of new lease applications increase, the Company will be employing
additional vendor account executives in its sales department.
The limited use of the operating lease equipment program resulted in
$7,894 of equipment being purchased for operating leases for the three months
ended July 31, 1996, and $4,958 for the three months ended July 31, 1995.
Operating lease rental income increased by $72 in the three months ended July
31, 1996 as compared to the three months ended July 31, 1995.
INTEREST EXPENSE
For the three months ended July 31, 1996, interest expense increased
$112,629 or 9.5% as compared to the three months ended July 31, 1995.
Management attributes the increase to additional debt securities outstanding
and the excess funds on hand from sale of debt securities awaiting investment
in new lease receivables, offset in part by the increase in interest income
from its investment in short-term U.S. government securities having
maturities of three months or less. Total interest expense (disregarding
interest income of $98,374 and $119,383, respectively, during the three month
periods ended July 31, 1996 and 1995) averaged 9.3% on average total
borrowings (including accrued interest) of $60,207,293 for the three months
ended July 31, 1996 as compared to 9.3% on average total borrowings
(including accrued interest) of $55,832,792 for the three months ended July
31, 1995. The interest rate on three month U.S. Treasury bills was 5.2% at
July 31, 1996, which represents a decrease of 0.3% over the 5.5% rate at July
31, 1995.
OTHER EXPENSES
Lease origination expenses increased 33.2% or $89,562 for the three
months ended July 31, 1996, compared to the corresponding period ended a year
earlier. Lease origination expenses, including capitalized commissions paid,
were 12.2% of new direct financing lease receivables during the three months
ended July 31, 1996 as compared to 11.5% for the three months ended July 31,
1995. The increased percentage and amount in the period ended July 31, 1996
is directly attributable to the costs associated with the Company's direct
mail efforts in cooperation with equipment manufacturers during the three
months ended July 31, 1996. These include postage, printing and other direct
mail solicitation costs. The Company's efforts in increasing new lease
volume are continuing, and at the same time the Company is attempting to
reduce these costs whenever possible without compromising its goals. See
"Further Refinements in Marketing Strategy and Efforts to Reduce Operating
Losses". During the three months ended July 31, 1996 and 1995, commissions
of $18,512 and $17,972, respectively, were paid and included as lease
origination expenses during the period. The Company believes that increasing
new leases generated from repeat vendors and increasing the number of new
vendors utilizing its leasing services that are being attracted through its
marketing efforts, will assist to decrease the overall percentage of total
lease origination costs in comparison to new lease volume in the future.
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General and administrative expenses increased by $46,424 or 9.2% for the
three months ended July 31, 1996, as compared to the corresponding period in
1994, due in part to increased recognition of amortized expenses associated
with the sale of debt securities by the Company and ELCOA, and routine salary
increases to employees.
An allowance for doubtful direct finance lease receivables is maintained
at a level considered adequate to provide for estimated losses that will be
incurred in the collection of these receivables. The allowance is increased
by the provisions charged to operating expense and reduced by charge-offs.
See Footnote 2 to the Interim Consolidated Financial Statements for a more
detailed discussion of the accounting for the provision for doubtful
accounts.
FURTHER REFINEMENTS IN MARKETING STRATEGY AND EFFORTS TO REDUCE OPERATING
LOSSES
Management initiated certain measures to refine its marketing strategy
during the fiscal year ended April 30, 1996 that it believes may result in an
increase in the levels of new leases to be generated in the future. The
Company must increase the level of new leases and control its costs of lease
origination and administration in order to reduce its operating losses. As
discussed in Form 10-K for the fiscal year ended April 30, 1996 as further
updated below, these efforts are continuing.
During the fiscal year April 30, 1995, the Company focused on increasing
the number of manufacturers to develop mutual relationships in promoting
leasing as a tool to increase sales of equipment manufactured by these
cooperative companies. Although the Company attempted to hire additional
in-house personnel to handle the solicitation efforts in locating and
nurturing relationships with equipment manufacturers, management determined
that personal face-to-face contact with senior level management of equipment
manufacturers was necessary to initiate an ongoing relationship. During the
end of the fourth quarter of the fiscal year ended April 30, 1996, the
Company began to advertise nationally for individuals in major metropolitan
areas to represent the Company locally promoting this program on a
face-to-face basis with manufacturer prospects developed through the Company.
As of September 16, 1996, four individuals agreed to represent the Company as
part of this program. They will be compensated on a fee basis for each
additional manufacturer added to the cooperative program. Additional
representatives in other areas will be added during the next fiscal year in
an effort to expedite the addition of more manufacturers into this program.
As of August 30, 1996, 81 manufacturers have entered into co-operative
manufacturer agreements with the Company, of which 56 have adopted the
private label lease program. The Company is unable to quantify with any
certainty the specific results of new leases generated from direct mail or
telephone contact, but maintains records reflecting the amount of new leases
generated from it cooperative efforts with equipment manufacturers. While
for the fiscal year ended April 30, 1995, the results of these efforts were
negligible, during the 12 months ended April 30, 1996, 213 leases aggregating
$1,479,131 or 15% of total new leases were generated directly from
cooperative manufacturers and those adopting the private label lease program.
As there is a delay between the time that a manufacturer agrees to the
Company's efforts and when new leases begin to be generated of at least
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six months in order to initiate the program throughout each manufacturer's
distribution network, monthly lease volume is expected to increase during
fiscal year 1997. While the average new lease receivables entered monthly
were approximately $835,000 per month during the fiscal year ended April 30,
1996, new lease volume during the month of May, 1996 was approximately
$1,125,000. During May, 1996, 24 leases aggregating $169,056 or 15% of total
new leases were generated directly from cooperative manufacturers and those
adopting the private label lease program. Most manufacturers have minimum
sales of $5,000,000 annually, and range as high as $1 billion or more. The
Company expects to continue these specific marketing efforts to increase the
number of manufacturers who will utilized these services through the efforts
of its in-house personnel and through representatives located throughout the
United States who will represent the Company on a fee basis for purposes of
engaging new manufacturers. In this way, the Company accepts responsibility
for the origination, servicing, and funding for lease transactions from each
manufacturer for new leases from the manufacturers' distributors using the
Company's forms and documentation customized with the equipment
manufacturers' name. The Company uses its in-house printing and direct mail
facilities to produce flyers and brochures to be distributed throughout each
manufacturer's sales distribution network illustrating the benefits of
leasing, to facilitate sales of the manufacturer's equipment.
The Company estimates that the time delay between the first solicitation
of a manufacturer's sales distribution network and the receipt of new lease
applications can range from three to six months as the solicitation process
to newly engaged manufacturers is initiated. Although the lack of
significant new lease growth during the fiscal year ended April 30, 1996 can
be attributed in part to this delay, the Company is encourage by the initial
positive reaction received from the equipment manufacturers, and intends to
further emphasize this program during the fiscal year ended April 30, 1997 as
a means towards increasing new lease volume. The average new lease
receivable entered during the three fiscal years ended April 30, 1996
increased from $4,536 to $5,333, representing an increase of approximately
18% over the period. During the three months ended July 31, 1996, the
average new lease receivable further increased to $5,712. This growth in the
average size of new leases is directly attributable to the size of new leases
being generated from the efforts of co-operative equipment manufacturers,
some of which sell equipment retailing in excess of $25,000 to larger
companies. Management expects the size of its average new lease receivables
to increase during the fiscal year ending April 30, 1997 as a result of the
size and types of equipment sold by the manufacturers that have entered into
agreements with the Company to solicit their sales distribution network.
CAPITAL RESOURCES AND LIQUIDITY
The Company has financed its growth to date primarily from proceeds of
debt securities offered to the public. The Company has not experienced any
difficulty in financing the purchase of equipment that it leases at current
levels.
Taking into consideration new business, the Company's cash and
unhypothecated leases on hand, cash available from sale of leases to ELCOA,
anticipated renewal of a portion of the Company's borrowings, anticipated
sales of senior debt and other resources, it is management's opinion that its
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cash will be sufficient to conduct its business and meet its anticipated
obligations during the current fiscal year. The Company attributes the
increased redemptions of its Senior Thrift Certificates during the three
months ended July 31, 1995 to increased debt outstanding, and to a lesser
extent to rates of return in the equity markets and mutual funds in general.
No assurance can be given that the redemption of senior and subordinated
borrowings will not exceed the Company's expectation or that a substantial
portion of its offering of Senior Thrift Certificates or the offering by
Equipment Leasing Corporation of America of its Demand and Fixed Rate
Certificates will be sold.
In view of the Company's history of losses, the uncertainty with respect
to future interest rates to holders of its unsecured borrowings, the
potential redemption of senior and subordinated borrowings and the
uncertainty as to the sale of its offering of Senior Thrift Certificates, and
of the sale of the Demand and Fixed Rate Certificates, management is unable
to estimate the Company's future profitability and liquidity beyond the
current fiscal year. If the Company continues to have losses, it may have
difficulty in servicing its debt in future years. Management attributes its
losses during the current fiscal year to the size of its lease portfolio
relative to its fixed costs, including interest on outstanding debt.
Management is currently exploring various means of increasing its new leases
entered and the outstanding lease portfolio. See "Consolidated Statements of
Cash Flows" on page 5 of this report for an analysis of the sources and uses
of cash by the Company during the three month periods ended July 31, 1996 and
1995, respectively. See also "Further Refinements in Marketing Strategy and
Efforts to Reduce Operating Losses on page 11 of this report on Form 10-Q.
For a complete discussion of liquidity and capital resources for the
fiscal year ending April 30, 1996, reference is made to the "Capital
Resources and Liquidity" section of Form 10-K filed on July 26, 1996 and
amended on September 11, 1996, for the fiscal year ended April 30, 1996.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 30, 1996 and September 11, 1996, the Company filed a new
registration statement and an amendment, respectively, to register for sale
to the public the principal amount of $40,000,000 in principal amount of
Senior Thrift Certificates. (SEC File #333-09145). The offering of these
debt securities is expected to be declared effective during September, 1996
after which the offering to the public will re-commence.
On July 30, 1996 and September 11, 1996, the Company's wholly-owned
subsidiary, ELCOA, filed post-effective amendments to its registration
statement to register for sale to the public the remaining $45,200,000 in
principal amount of its Demand and Fixed Rate Certificates (SEC File
#333-02497). The offering of these debt securities is expected to be
declared effective during September, 1996, after which the offering to the
public will re-commence.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three month period
ended July 31, 1996.
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SIGNATURES
Pursuant to the requirements 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.
September 16, 1996 WALNUT EQUIPMENT LEASING CO., INC.
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Date
/s/ William Shapiro
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William Shapiro, President and
Chief Financial Officer