Exhibit 21 - Page 1 of 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Leasing Incorporated:
We have audited the accompanying consolidated balance sheets of Phoenix
Leasing Incorporated (a California corporation) and Subsidiaries as of June 30,
1996 and 1995. These consolidated balance sheets are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated balance sheets 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 consolidated balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheets. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
balance sheet presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheets referred to above
present fairly, in all material respects, the financial position of Phoenix
Leasing Incorporated and Subsidiaries as of June 30, 1996 and 1995, in
conformity with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSON LLP
September 4, 1996
Exhibit 21 - Page 2 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1996 1995
---- ----
Cash and cash equivalents $ 3,767,098 $ 4,100,325
Investments in marketable securities 1,287,323 7,298,771
Trade accounts receivable, net of allowance for doubtful accounts
of $31,246 and $237,458 at June 30, 1996 and 1995, respectively 989,030 913,437
Receivables from Phoenix Leasing Partnerships and other affiliates 3,955,935 3,975,262
Notes receivable from related party 8,767,694 5,574,452
Equipment inventory 2,240,448 --
Equipment subject to lease 17,792,847 17,044,686
Investments in Phoenix Leasing Partnerships 1,773,887 1,577,419
Property and equipment, net of accumulated depreciation of $11,398,438
and $10,457,763 at June 30, 1996 and 1995, respectively 6,933,608 7,669,302
Other assets 3,011,229 2,366,983
----------- -----------
TOTAL ASSETS $50,519,099 $50,520,637
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Short-term lines of credit $ 1,750,000 $ --
Warehouse lines of credit 16,930,044 17,644,012
Payables to affiliates 2,155,626 5,832,765
Accounts payable and accrued expenses 3,205,932 2,829,490
Deferred revenue 328,676 1,059,736
Long-term debt 620,899 229,390
Deficit in investments in Phoenix Leasing Partnerships 761,214 1,164,445
----------- -----------
TOTAL LIABILITIES 25,752,391 28,759,838
----------- -----------
Minority Interests in Consolidated Subsidiaries 27,615 37,639
----------- -----------
Commitments and Contingencies (Note 14)
SHAREHOLDER'S EQUITY:
Common stock, without par value, 30,000,000 shares
authorized, 5,433,600 issued and outstanding at
June 30, 1996 and 1995, respectively 20,369 20,369
Additional capital 11,466,920 5,508,800
Retained earnings 13,251,804 16,193,991
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 24,739,093 21,723,160
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $50,519,099 $50,520,637
=========== ===========
Exhibit 21 - Page 3 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of Significant Accounting Policies:
a. Organization - Phoenix Leasing Incorporated and subsidiaries (the
Company), a wholly owned subsidiary of Phoenix American Incorporated (PAI), is
engaged in the organization and management of partnerships which specialize in
the purchase and lease of primarily high-technology and data processing
equipment. The partnerships purchase equipment directly from equipment vendors
for lease to financial, commercial and industrial businesses and governmental
agencies. The partnerships also finance transactions in the areas of
microcomputers and emerging growth companies. The Company has also engaged in
similar leasing activities for its own account. The Company also provides
ongoing equipment maintenance services for end-users of high-technology data
processing equipment and graphic plotters.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of Phoenix Leasing Incorporated and its wholly or
majority-owned subsidiaries and subsidiaries over which the Company exerts
control. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Except as otherwise explained below, minority interests in the net
assets and net income or loss of majority-owned subsidiaries are allocated on
the basis of the proportionate ownership interests of the minority owners.
Four of the consolidated subsidiaries are California limited
partnerships (the Partnerships) which are general partners of four of the
Phoenix Leasing Partnerships. As of June 30, 1996, the Company held a 50%
general partner ownership interest in two of the Partnerships and a 62.5%
interest in one and a 70% interest in the fourth. Under the terms of the
partnership agreements, profits and losses attributable to acquisition fees paid
to the Partnerships from Phoenix Leasing Partnerships are allocated to the
limited partner (the minority owner in the Partnerships) in proportion to the
limited partner's ownership interest. All remaining profits and losses are
allocated to the Company. Distributions to the partners are made in accordance
with the terms of the partnership agreement. The limited partner of each of the
Partnerships is Lease Management Associates, Inc., a Nevada corporation
controlled by an officer of the Company, who is the owner of PAI.
c. Management, Acquisition and Incentive Fee Income - As of June 30,
1996, the Company is the corporate general partner in 13 actively operating
limited partnerships and manager of 9 actively operating joint ventures, all of
which own and lease equipment. Eight of the partnership agreements provide for
payment of management fees based on partnership revenues and acquisition fees
when the partnerships' assets are acquired. Five of the limited partnership
agreements provide for payment of management fees and liquidation fees (see
discussion later in this footnote). Most of the joint venture agreements provide
for payment of management fees based on joint venture revenues.
These partnerships and the joint ventures are collectively referred to
as the "Phoenix Leasing Partnerships."
d. Investments - Investments in Phoenix Leasing Partnerships reflect
the Company's equity basis in the Phoenix Leasing Partnerships. Under the equity
method of accounting the original investment is recorded at cost and is adjusted
periodically to recognize the Company's share of earnings, losses and
distributions after the date of acquisition. The Company has adopted the equity
method of accounting on the basis of its control and significant influence over
the Phoenix Leasing Partnerships.
Exhibit 21 - Page 4 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of Significant Accounting Policies (continued):
e. Liquidation Fee Income - The Company earns liquidation fees not to
exceed 15% of the net contributed capital from seven of the partnerships in
consideration for the services and activities performed in connection with the
disposition of the partnerships' assets. Management of the Company concluded
that the total liquidation fees to be earned over the life of these partnerships
may not be fully realizable. Accordingly, the Company recognizes liquidation fee
income when the fees are paid by the partnerships. The Company received and
recognized $1,062,046 and $3,221,000 in liquidation fees from these partnerships
during the years ended June 30, 1996 and 1995, respectively.
In three other partnerships, cash distributions received in excess of
the allocated cumulative net profits represent a liquidation fee which cannot
exceed, in the aggregate, 7.792% of the net contributed capital.
f. Lease Accounting - The Company's leasing operations consist of both
financing and operating leases. The finance 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 over the cost of the leased
equipment. Unearned income is amortized 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 originating new
leases are capitalized and amortized over the initial lease term.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset, at cost, and is depreciated on a
straight-line basis over its estimated useful life, ranging up to six years.
Rental income represents the rental payments due during the period under the
terms of the lease.
The Company is the lessor in leveraged lease agreements under which
computer equipment having an estimated useful life of 5 years was leased for
periods from 4-5 years. The Company is the equity participant and equipment
owner. A portion of the purchase price was furnished by third-party financing in
the form of long-term debt that provides no recourse to the Company and is
secured by a first lien on the financed equipment.
g. Property and Equipment - Property and equipment which the Company
holds for its own use are recorded at cost and depreciated on a straight-line
basis over estimated useful lives ranging up to 45 years.
h. Income Taxes - The Company is included in consolidated and combined
tax returns filed by PAI.
i. Deferred Revenue - Deferred revenue is the result of selling
maintenance contracts which provide service over a specific period of time.
Deferred revenue is amortized on a straight-line basis over the service period
not to exceed 5 years.
j. Investments in Marketable Securities - Investments in marketable
securities, are stated at cost and consist primarily of United States government
obligations. Interest is recognized when earned.
k. 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 amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Exhibit 21 - Page 5 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of significant Accounting Policies (continued):
l. Reclassification - Certain 1995 balances have been reclassified to
conform to the 1996 presentation.
Note 2. Receivables from Phoenix Leasing Partnerships and Other Affiliates:
Receivables from Phoenix Leasing Partnerships and other affiliates
consist of the following for the years ended June 30:
1996 1995
---- ----
Management fees $ 416,149 $ 330,158
Acquisition fees 74,099 102,994
Other receivables from Phoenix Leasing Partnerships 3,458,687 3,535,110
Other receivables from corporate affiliates 7,000 7,000
---------- ----------
$3,955,935 $3,975,262
========== ==========
Note 3. Investments in Phoenix Leasing Partnerships:
The Company records its investments in Phoenix Leasing Partnerships
under the equity method of accounting. The ownership interest percentages vary,
ranging from .5% up to 25%. As general partner, the Company has complete
authority in, and responsibility for, the overall management and control of each
partnership, which includes responsibility for supervising partnership
acquisition, leasing, remarking and sale of equipment. Distributions of cash
from the partnerships are made at the discretion of the general partner;
historically, a significant portion of the partnerships' earnings has been
distributed annually.
A shareholder of PAI and officers of the Company also have general and
limited partner interests in several of the partnerships.
The activity in the investments in Phoenix Leasing Partnerships for the
years ended June 30 are as follows:
1996 1995
---- ----
Balance, beginning of year $ 412,974 $(1,120,980)
Additional investments 830,085 688,615
Equity in earnings 2,093,488 2,412,056
Cash distributions (2,323.874) (1,566,717)
----------- -----------
Balance, end of year $ 1,012,673 $ 412,974
=========== ===========
The Company's total investments in Phoenix Leasing Partnerships are
comprised of investments in certain partnerships which are subject to
fluctuations due to partnerships' performances and timing of cash distributions.
At times the investment in those partnerships will be a deficit.
Certain of the partnership agreements require the Company to restore any
deficit in its capital account to zero at the dissolution of the partnership.
This deficit is a result of cash distributions received and losses allocated to
the Company. The Company has determined that in certain partnerships it will be
Exhibit 21 - Page 6 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 3. Investments in Phoenix Leasing Partnerships (continued):
unlikely that the deficit investment will reverse and as a result during the
year ended June 30, 1993 the Company elected to make capital contributions prior
to partnership dissolution totaling $2,028,733. As of April 1, 1992, the Company
elected to forgo any future cash distributions from, and will not record its
share of future earnings generated from the operations of, one of these
partnerships. The Company has deferred any future cash distributions from two
other partnerships. The Company believes that it would be likely that any future
cash distributions received from these partnerships would have to be paid back
at the dissolution of the partnerships. The Company will continue to record fee
income earned from the management of, and acquisition of equipment for these
partnerships.
The aggregate positive investment and aggregate deficit investment
balances are presented separately on the balance sheets as of June 30, 1996 and
1995.
The partnerships own and lease equipment. All debt of the partnerships
is secured by the equipment and is without recourse to the general partners. The
unaudited financial statements of the partnerships reflect the following
combined, summarized financial information as of June 30, 1996 and for the
twelve months then ended:
Assets $182,995,000
Liabilities 29,989,000
Partners' Capital 153,006,000
Revenue 46,353,000
Net Income 18,826,000
Note 4. Equipment Subject to Lease:
Equipment subject to lease includes the Company's investments in
leveraged leases, investments in financing leases, operating leases and notes
receivable.
Equipment subject to lease consists of the following at June 30:
1996 1995
---- ----
Equipment on lease, net of accumulated
depreciation of $258,102 $ 92,008 $ --
Leverage leases 1,589,772 1,696,703
Equipment held for resale 305,840 --
Investment in financing leases 12,036,604 13,284,177
Operating leases 207,793 --
Notes receivable 3,560,830 2,063,806
----------- -----------
$17,792,847 $17,044,686
=========== ===========
Leverage Leases:
The Company's net investment in leveraged leases is composed of the
following elements at June 30:
Exhibit 21 - Page 7 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 4. Equipment Subject to Lease (continued):
1996 1995
---- ----
Rental receivable (net of principal and interest
on the nonrecourse debt) $ -- $ --
Estimated residual value of leased assets 2,498,233 2,759,783
Less: Unearned and deferred income (908,461) (1,063,080)
-----------
Investment in leveraged leases 1,589,772 1,696,703
Less: Deferred taxes arising from leveraged leases (2,651,124) (2,960,190)
-----------
Net investment in leveraged leases $(1,061,352) $(1,263,487)
=========== ===========
Investment in Financing Leases:
The Company has entered into direct lease arrangements with companies
engaged in the development of technologies and other growth industry businesses
operating in different industries located throughout the United States.
Generally, it is the responsibility of the lessee to provide maintenance on
leased equipment.
The Company's net investment in financing leases consists of the
following at June 30:
1996 1995
---- ----
Minimum lease payments to be received $ 16,089,868 $ 17,731,628
Less: unearned income (4,053,263) (4,447,451)
------------ ------------
Net investment in financing leases $ 12,036,605 $ 13,284,177
============ ============
Minimum rentals to be received on noncancellable financing leases for
the years ended June 30, are as follows:
1997 $ 4,161,068
1998 4,171,699
1999 4,248,885
2000 2,367,834
2001 1,080,674
Thereafter 59,708
--------------
Total $ 16,089,868
===========
Notes Receivable:
Notes receivable for the years ended June 30, are as follows:
1996 1995
---- ----
Notes receivable from emerging growth and
other companies with stated interest ranging
from 10% to 22.6% per annum receivable in
installments ranging from 36 to 85 months
collateralized by the equipment financed $3,560,830 $2,063,806
========== ==========
Exhibit 21 - Page 8 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 5. Sale of Leased Assets and Notes Receivable:
The Company acquires leased or financed equipment with the intent to
subsequently sell those assets to a trust which issues lease backed
certificates. As of June 30, 1996, the Company has acquired $15,805,227 is such
leased or financed equipment which is included in equipment subject to lease.
The Company uses proceeds from its two warehouse lines of credit to purchase or
finance this equipment. During the holding period the Company recognizes the
revenues generated from these leases or notes and the interest expense related
to the drawdowns from the warehouse lines of credit.
On November 29, 1995, the Company entered into an agreement to sell
certain assets and notes receivables with a net carrying value of $27,337,402 to
a trust for the purpose of the trust issuing lease backed certificates in
exchange for cash proceeds. The Company recognized a gain on this transaction of
$459,632. The leased backed certificates are recourse only to the assets used to
collateralize the obligation. Under the terms of the agreement, the Company will
continue to acquire and sell additional assets to the trust over the twelve
month period beginning November 30, 1995 and ending November 28, 1996. During
the period November 30, 1995 through June 30, 1996, the Company sold additional
assets to the trust for $4,807,746. These assets had a net carrying value of
$4,225,596, resulting in a gain of $582,150.
Note 6. Property and Equipment:
Major classes of property and equipment at June 30 are as follows:
1996 1995
---- ----
Land $ 1,077,830 $ 1,077,830
Buildings 7,352,608 7,345,648
Office furniture, fixtures and equipment 8,573,547 8,259,319
Other 843,450 766,975
------------ ------------
17,847,435 17,449,772
Less accumulated depreciation and amortization (11,398,438) (10,457,763)
Inventory held for resale 484,611 677,293
------------ ------------
Net Property and Equipment $ 6,933,608 $ 7,669,302
------------ ------------
PAI owns its headquarters building in San Rafael, California. The
Company paid $7,749,476 to purchase the land and construct the building. The
cost of construction was paid for with a combination of $2,749,476 in cash from
the Company's operations and a $5,000,000 advance from PAI. The $5,000,000
advance is included as a reduction in receivable from Phoenix Leasing
Partnerships and other affiliates. PAI has pledged the market value of the
building as security for a $5,000,000 Industrial Revenue Bond ("IDB") which PAI
has with the City of San Rafael, California. The principal of the IDB is payable
in a lump sum payment on October 1, 2004. The Company paid $248,325 and $206,798
in interest payments related to the IDB during the year ended June 30, 1996 and
1995, respectively.
As of June 30, 1996, a portion of the Company's headquarters has been
leased to third parties. The remaining lease term is for less than one year and
the minimum lease payments receivable are as follows:
1997 $370,093
========
Exhibit 21 - Page 9 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 7. Investments in Marketable Securities:
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115 - Accounting for Certain Investments
in Debt and Equity Securities (SFAS 115). The Company adopted this statement on
July 1, 1994. This pronouncement prescribes specific accounting treatment for
investments based on their classification as either held-to-maturity securities
(HTM), available-for-sale securities (AFS) or trading securities, as defined in
the statement.
As of June 30, 1996, all securities held by the Company are classified
as AFS and are reported at their amortized cost of $1,287,323, which
approximates fair value. This value includes Class C Equipment Investment Trust
Certificates (Class C Shares) valued at $1,248,843 and equities valued at
$38,479. As of June 30, 1995, all securities are classified as HTM and are
reported at amortized cost of $7,298,771, which approximated fair value. Gross
unrealized gains and gross unrealized losses on such securities as of June 30,
1996 and 1995 were immaterial.
As of June 30, 1996, none of the securities held by the Company had
specified contractual maturities. Contractual maturities of securities held as
of June 30, 1995, are as follows:
1995
----
Held-To-Maturity Securities
Due in one year or less $4,202,115
Due after one through five years 3,096,656
----------
Total $7,298,771
==========
During fiscal year 1996, the Company sold $3,000,000 in face value of
U.S. Treasury Notes, which were classified as HTM as of June 30, 1995. As a
result of the sale, the Company changed the classification of all of its U.S.
Treasury Notes from HTM to AFS in accordance with SFAS No. 115. The sale
resulted in an immaterial gain, and proceeds were used for general corporate
purposes.
Note 8. Fair Value of Financial Instruments:
Marketable Securities
The carrying amounts of marketable securities reported in the balance
sheets approximate their fair values.
Leases, Notes Receivable, and Debt
The fair values of the Company's leases, notes receivable, and debt are
estimated based on the market prices of similar instruments or on the current
market interest rates for instruments with similar terms, maturities, and risks.
The estimated fair values of the Company's leases, notes receivable, and debt
approximate the carrying amounts reported in the balance sheets.
Note 9. Short-Term and Warehouse Lines of Credit:
To provide interim financing for equipment and working capital needs,
the Company executes lines of credit which consist of short-term notes with
banks with interest rates equal to the prime rate or the banks' index rate. All
lines of credit are renewable annually at the banks' option.
Exhibit 21 - Page 10 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 9. Short-Term and Warehouse Lines of Credit (continued):
As of June 30, 1996, the Company, through PAI, had access to one
short-term line of credit totaling $2.5 million. of which $750,000 was available
for borrowing at June 30, 1996. Draw downs under this credit line are secured by
the Company's receivable from Phoenix Leasing Partnerships.
In addition, the Company has two secured short-term warehouse lines of
credit totaling $37.5 million, which are used to provide interim financing for
the acquisition of equipment and the financing of notes receivable. As of June
30, 1996, $16.9 million of these lines have been drawn down. The draw downs
under these lines are collateralized by investments in financing leases and
notes receivable included in equipment subject to lease. The interest rate is
tied to the IBOR (Eurodollar) rate. The initial commitment period for these
lines of credit is 18 months and may be extended to 36 months at the discretion
of the bank. Principal payments are based on the lesser of the aggregate
payments received by the Company on its leases and notes receivable or the
aggregate principal and interest amount outstanding on the payment date of the
credit line.
In connection with the Company's lines of credit, various financial
ratios and other covenants must be maintained. The Company has guaranteed its
right, title and interest in certain of its assets and the future receipts from
these assets in order to secure payment and performance of these credit lines.
Additional information relating to the Company's short-term bank lines
follows:
1996 1995
---- ----
Balance at June 30 $18,680,044 $17,644,012
Maximum amount outstanding 32,111,837 17,644,012
Average amount outstanding 13,828,284 2,522,340
Weighted average interest rate during the period 7.56% 7.9%
Note 10. Long-Term Debt:
Long-term debt consists of the following at June 30:
1996 1995
---- ----
Mortgage payable at varying interest rates
with an initial rate of 8.75% secured by a first
deed of trust on real property with a cost of
$250,000. Note is amortized over 83 months
with monthly payments of $559 with a final
payments of $122,151 $154,238 $160,944
Note payable to a bank, collateralized
by the assets of Phoenix Leasing Liquidation
Corporation, a subsidiary of the Company,
with a variable rate of interest tied to the
bank's prime rate payable in 30 consecutive
monthly installments 466,661 --
Exhibit 21 - Page 11 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 10. Long-Term Debt (continued):
Note payable at 9.75% secured by
computer equipment with a cost of
$668,994. Note is amortized over 46
months with monthly payments of $16,887 -- 68,446
-------- --------
Total long-term debt $620,899 $229,390
======== ========
The aggregate long-term debt maturities for the fiscal years ended June
30, are as follows:
1997 $ 440,034
1998 40,039
1999 6,706
2000 6,706
2001 5,588
2002 and thereafter 121,826
-------------
Total. $ 620,899
============
Note 11. Profit Sharing Plan:
The Company has a profit sharing plan covering substantially all
employees who meet certain age and service requirements. Contributions to the
plan by the Company are made at the discretion of the board of directors. The
profit sharing expense was $600,000 for the years ended June 30, 1996 and 1995,
respectively.
Note 12. Leased Facilities:
The Company leases office and warehouse space in various parts of the
country and had annual rental expense of approximately $417,000 and $402,000 for
the years ended June 30, 1996 and 1995, respectively.
Note 13. Transactions with Related Parties:
The Company provides an interest bearing line of credit totaling
$8,000,000 to PAI's controlling shareholder which is secured by common stock of
Phoenix Precision Graphics, Inc. (an unaffiliated Nevada corporation). As of
June 30, 1996 and 1995, $6,646,209 and $4,837,814 of this line of credit has
been drawn down and is included in notes receivable from related party. As of
June 30, 1996 and 1995, Phoenix Precision Graphics is in a start-up mode and has
cumulative losses of $9,120,711 and $5,959,708, respectively.
The Company provides an interest bearing line of credit to PAI's
controlling shareholder, which is secured by common stock of Phoenix Fiberlink
Inc. (an unaffiliated Nevada Corporation). As of June 30, 1996 and 1995,
$2,121,484 and $736,638 of this line of credit has been drawn down and is
included in notes receivable from related party.
The Company earned a management fee from an affiliate of $556,453 and
$678,947 for the years ended June 30, 1996 and 1995, respectively. This
management fee is included in Portfolio management fees.
The Company paid an affiliate an asset management fee of $305,770 and
$1,026,714 for the years ended June 30, 1996 and 1995, respectively. These asset
management fees are included in equipment lease operations, maintenance,
remarking and administrative fees.
Exhibit 21 - Page 12 of 19
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 14. Commitments and Contingencies:
The Company has entered into agreements which contain specific purchase
commitments. The Company may satisfy these commitments by purchasing equipment
for its own account or by assigning equipment purchases to its affiliated
partnerships. At June 30, 1996 the Company anticipates being able to satisfy its
future obligations under the agreements and intends to assign most of the
purchases under the agreements to its affiliated partnerships.
The Company enters into commitments to purchase and sell
high-technology equipment on behalf of a corporate affiliate. The Company is
reimbursed for these services.
The Company is party to legal actions which arise as part of the normal
course of its business. The Company believes, after consultation with counsel,
that it has meritorious defenses in these actions, and that the liability, if
any, will not have a material adverse effect on the financial position of the
Company.
Exhibit 21 - Page 13 of 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Venturers of
Phoenix Black Rock Cable J. V.
We have audited the accompanying balance sheet of Phoenix Black Rock Cable J. V.
(a California general partnership) as of December 31, 1996 and the related
statements of operations, venturers' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Joint Venture's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Black Rock Cable J. V.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California
January 17, 1997
Exhibit 21 - Page 14 of 19
PHOENIX BLACK ROCK CABLE J. V.
BALANCE SHEET
ASSETS
December 31,
1996
----
Total Assets $ --
======
LIABILITIES AND VENTURERS' CAPITAL
Total Liabilities $ --
------
Venturers' Capital: --
Total Liabilities and Venturers' Capital $ --
======
Exhibit 21 - Page 15 of 19
PHOENIX BLACK ROCK CABLE J. V.
STATEMENT OF OPERATIONS
For the Year
Ended
December 31,
1996
------------
INCOME
Gain on sale of cable system $1,184,850
Cable subscriber revenue 50,457
Interest income 8,674
----------
Total Income 1,243,981
EXPENSES
Depreciation and amortization 12,968
Program service 11,850
Management fees 120,756
General and administrative expenses 19,178
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Total Expenses 164,752
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NET INCOME $1,079,229
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Exhibit 21 - Page 16 of 19
PHOENIX BLACK ROCK CABLE J. V.
STATEMENTS OF VENTURERS' CAPITAL
Capital Retained Cash
Contributions Earnings Distributions Total
------------- -------- ------------- -----
Balance, December 31, 1995 $1,994,650 $ 404,151 $ (750,000) $ 1,648,801
Cash distributions -- -- (2,728,030) (2,728,030)
Net income -- 1,079,229 -- 1,079,229
---------- ---------- ----------- -----------
Balance, December 31, 1996 $1,994,650 $1,483,380 $(3,478,030) $ --
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Exhibit 21 - Page 17 of 19
PHOENIX BLACK ROCK CABLE J. V.
STATEMENT OF CASH FLOW
For the Year
Ended
December 31,
1996
----
OPERATING ACTIVITIES:
Net income $ 1,079,229
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 12,968
Gain on sale of cable system (1,184,850)
Decrease in other assets 620
Decrease in accounts receivable 617
Decrease in subscriber prepayments and deposits (116)
Decrease in accounts payable and accrued expenses (22,401)
-----------
Net cash used in operating activities (113,933)
-----------
INVESTING ACTIVITIES:
Purchase of cable systems and equipment (607)
Proceeds from sale of cable systems 2,588,503
-----------
Net cash provided by investing activities 2,587,896
-----------
FINANCING ACTIVITIES:
Payments to affiliates (3,793)
Cash distribution to venturers (2,728,030)
-----------
Net cash used in financing activities (2,731,823)
-----------
Decrease in cash and cash equivalents (257,860)
Cash and cash equivalents, beginning of period 257,860
-----------
Cash and cash equivalents, end of period $ --
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Exhibit 21 - Page 18 of 19
PHOENIX BLACK ROCK CABLE J. V.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Organization.
Phoenix Black Rock Cable J. V. (the "Joint Venture") was formed under
the laws of California on January 10, 1992 by several affiliated Limited
Partnerships (the "Venturers") managed by Phoenix Leasing Incorporated to own
and operate the Black Rock Cable Television System located in the States of
Nevada and California that was acquired through foreclosure on a defaulted note
receivable.
Income or loss is allocated to each Venturer based upon their
respective interest in the Joint Venture. Distributions are made in the same
manner.
The cable television system is located in the counties of Clark and Nye
in the State of Nevada and in the county of Inyo in the State of California. The
cable television system consists of headend equipment in five locations and 156
miles of plant passing, approximately 2,900 homes and approximately 1,820 cable
subscribers. The cable television system serves the communities of Parumph,
Beatty and Blue Diamond in Nevada and Cow Creek and Grapevine in California. It
operates under one non-exclusive franchise agreement with the county of Nye in
Nevada and a National Park Service Permit for Death Valley, California.
Phoenix Cable Management Inc. (PCMI) provides day to day management
services in connection with the operation of the cable system. The cable system
pays a management fee equal to four and one-half percent of the System's monthly
gross revenue for these services.
Note 2. Summary of Significant Accounting Policies.
Property, Cable Systems and Equipment
Depreciation of property, cable systems and equipment was provided
using the straight-line method over the following estimated service lives:
Distribution systems 13 years
Headend equipment 13 years
Equipment and tools 13 years
Vehicles and other 5 years
Replacements, renewals and improvements were capitalized, and
maintenance and repairs were charged to expense as incurred.
Intangible Assets
Costs assigned to intangible assets were amortized using the
straight-line method over the following estimated useful lives:
Franchise rights 10 years
Subscriber lists 8 years
Revenue Recognition
Services were billed monthly in advance. Revenue was deferred and
recognized as the services were provided.
Exhibit 21 - Page 19 of 19
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 3. Sale of Cable System.
On January 17, 1996, Phoenix Black Rock Cable J. V. sold its cable
television system receiving net proceeds of $2,588,503 resulting in a net gain
of $1,184,850. At the time of the sale of the system, the cable system had
approximately 1,820 subscribers.
Note 4. Accounts Receivable.
The activity of the allowance for doubtful accounts receivable is as
follows:
December 31,
1996
----
Beginning balance $ 6,464
Recovery of losses (6,464)
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Ending balance $ --
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Note 5. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Joint Venture are reportable by the Venturers on their
individual income tax return. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
Note 6. Related Entities.
The Joint Venture is sponsored and funded by various partnerships
managed by Phoenix Leasing Incorporated (PLI). PLI serves in the capacity of the
general partner and managing venturer in other joint ventures.