Exhibit 21





                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors of
Phoenix Leasing Associates II, Inc.
San Rafael, California

         We have audited the accompanying  consolidated balance sheet of Phoenix
Leasing  Associates  II,  Inc.  (a  Nevada  corporation)  and  subsidiary  as of
September  30,  2002.  This  financial  statement is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial  statement  based on our  audit.  The  consolidated  balance  sheet of
Phoenix  Leasing  Associates  II, Inc. as of September 30, 2001,  was audited by
other auditors  whose report dated  November 30, 2001,  expressed an unqualified
opinion on the consolidated balance sheet.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures  in the  balance  sheet.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation.  We
believe that our audit provides a reasonable basis for our opinion.

         In our  opinion,  the  consolidated  balance  sheet  referred  to above
presents fairly,  in all material  respects,  the financial  position of Phoenix
Leasing  Associates  II, Inc.  and  subsidiary  as of  September  30,  2002,  in
conformity with accounting principles generally accepted in the United States.




                                                            ARMANINO McKENNA LLP

San Ramon, California,
December 19, 2002

                                   Page 1 of 8

<PAGE>

               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                            September 30,
                                                         2002           2001
                                                         ----           ----

Cash ...............................................  $      --     $       631
Due from Phoenix Leasing Cash Distribution
  Fund V, L.P. .....................................        7,259       170,986
Investment in Phoenix Leasing Cash Distribution
  Fund V, L.P. .....................................       45,072        53,850
                                                      -----------   -----------

         Total Assets ..............................  $    52,331   $   225,467
                                                      ===========   ===========


                      LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:

     Accounts payable and accrued expenses .........  $     6,000   $     3,334
                                                      -----------   -----------

         Total Liabilities .........................        6,000         3,334
                                                      -----------   -----------

Minority Interest in Consolidated Subsidiary .......          990       159,608
                                                      -----------   -----------


Shareholder's Equity:

     Common Stock, without par value, 100 shares
       authorized and outstanding ..................    4,000,100     4,000,100
     Retained earnings .............................    3,176,635     2,940,612
     Less:
       Notes receivable from Phoenix Leasing
         Incorporated ..............................   (4,000,000)   (4,000,000)
       Due from Phoenix Leasing Incorporated and
         affiliates ................................   (3,131,394)   (2,878,187)
                                                      -----------   -----------

         Total Shareholder's Equity ................       45,341        62,525
                                                      -----------   -----------

         Total Liabilities and Shareholder's Equity   $    52,331   $   225,467
                                                      ===========   ===========

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.


                                       2
<PAGE>

Note 1.  Organization and Significant Accounting Policies:

         Phoenix Leasing  Associates II, Inc.,  (the Company),  was formed under
the laws of Nevada on June 14, 1990. 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  controls 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  allocated to the Company (Note 6). The Company is
the general  partner of PLAIILP and, as of September 30, 2002 and 2001 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 Company  records its investment in CDF V under the equity method of
accounting.  As general  partner,  the Company has complete  authority over, and
responsibility   for,  the  overall   management   of  CDF  V,  which   includes
responsibility  for supervising CDF V's  acquisition,  leasing,  and remarketing
activities and its sale of equipment.

Note 2.  Principles of Consolidation:

         The  consolidated  balance  sheets as of  September  30, 2002 and 2001,
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.

Note 3.  Use of Estimates:

         The preparation of consolidated financial statements in conformity with
accounting   principles   generally  accepted  in  the  United  States  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  financial statements.  Actual results could differ
from those estimates.

Note 4.  Notes Receivable from Affiliate:

         PLI, the sole shareholder of the Company,  as of September 30, 2002 and
2001, has issued demand  promissory  notes to the Company  totaling  $4,000,000.
There are no restrictions  or covenants  associated with these notes 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>

Note 5.  Income Taxes:

         Effective  July  1,  1998,  the  Company  adopted  treatment  as an "S"
Corporation  pursuant to the Federal  Income Tax  Regulations  for tax reporting
purposes.  Federal and state  income tax  regulations  provide that taxes on the
income or loss of the Company are  reportable  on the  shareholder's  individual
return.

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 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 $7,259 and $12,367 and
acquisition  fees  of $0 and  $158,619,  as of  September  30,  2002  and  2001,
respectively, are included in Due from Phoenix Leasing Cash Distribution Fund V,
L.P. on the consolidated balance sheets.

Note 7.  Related Parties:

         The  Company  has  entered  into an  agreement  with PLI,  whereby  PLI
provides  management  services to PLAIILP in connection  with the operations and
administration  of CDF V. In  consideration  for  the  services  and  activities
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
equaled $238,094 and $371,758 for the twelve months ended September 30, 2002 and
2001, respectively.


                                       4
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Partners of
Phoenix Leasing Associates II L.P.
San Rafael, California

         We have  audited  the  accompanying  balance  sheet of Phoenix  Leasing
Associates II L.P. (a California limited  partnership) as of September 30, 2002.
This financial statement is the responsibility of the Partnership's  management.
Our responsibility is to express an opinion on this financial statement based on
our  audit.  The  balance  sheet of Phoenix  Leasing  Associates  II L.P.  as of
September 30, 2001,  was audited by other  auditors  whose report dated November
30, 2001, expressed an unqualified opinion on the balance sheet.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures  in the  balance  sheet.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation.  We
believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the balance sheet referred to above presents fairly, in
all material  respects,  the financial position of Phoenix Leasing Associates II
L.P.  as of  September  30,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States.




                                                            ARMANINO McKENNA LLP

San Ramon, California,
December 19, 2002



                                       5
<PAGE>

                       PHOENIX LEASING ASSOCIATES II L.P.

                                 BALANCE SHEETS

                                     ASSETS


                                                               September 30,
                                                              2002        2001
                                                              ----        ----

Cash ...................................................    $   --      $    252
Due from Phoenix Leasing Cash Distribution
  Fund V, L.P ..........................................       7,259     170,986
Investment in Phoenix Leasing Cash Distribution
  Fund V, L.P. .........................................      45,072      53,850
                                                            --------    --------

         Total Assets ..................................    $ 52,331    $225,088
                                                            ========    ========



                       LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

     Accounts payable and accrued expenses .............    $  3,000    $  1,667
     Due to General Partner ............................      47,668      62,823
                                                            --------    --------

         Total Liabilities .............................      50,668      64,490
                                                            --------    --------

Partners' Capital:

     General Partner (99 partnership units) ............         673         990
     Limited Partner (99 partnership units) ............         990     159,608
                                                            --------    --------

         Total Partners' Capital .......................       1,663     160,598
                                                            --------    --------

         Total Liabilities and Partners' Capital .......    $ 52,331    $225,088
                                                            ========    ========


      The accompanying notes are an integral part of these balance sheets.

                                       6
<PAGE>

               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                           September 30, 2002 and 2001



Note 1.  Organization and Significant Accounting Policies:

         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 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.

         The Partnership records its investment in CDF V under the equity method
of accounting.  As general partner, the Partnership has complete authority over,
and  responsibility  for,  the  overall  management  of  CDF V,  which  includes
responsibility for supervising CDF V's acquisition, leasing, and remarketing and
sale of equipment.

Note 2.  Income Taxes:

         The Partnership is not subject to federal and state income taxes on its
income  except for an $800  minimum  state  tax.  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  accounting
principles  generally accepted in the United States 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 $7,259 and $12,367 and
acquisition  fees  of $0  and  $158,619  as of  September  30,  2002  and  2001,
respectively, are included in Due from Phoenix Leasing Cash Distribution Fund V,
L.P. on the balance sheets.

                                       7
<PAGE>

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.

Note 6.  Related Parties:

         PLAII has entered  into an  agreement  with PLI  whereby  PLI  provides
management  services to the  Partnership  in connection  with the operations and
administration  of CDF V. In  consideration  for  the  services  and  activities
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 equaled
$238,094 and $371,758 for the twelve  months ended  September 30, 2002 and 2001,
respectively.



                                       8