UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
-------------------
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 No. 0-20031
AMERICAN INCOME FUND I-C, A MASSACHUSETTS LIMITED PARTNERSHIP
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3077437
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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_____
-----
EXPLANATORY NOTE
After American Income Fund I-C Limited, a Massachusetts Limited Partnership
("the Partnership") filed its Annual Report on Form 10-K/A Amendment No. 1 to
Form 10-K (the "2000 10-K") for the year ended December 31, 2000 and its Form
10-Q for the quarter ended March 31, 2001 (the "March 31, 2001 Form 10-Q") with
the United States Securities and Exchange Commission ("SEC"), the Partnership
determined that the accounting treatment for the loan receivable from Echelon
Residential Holdings LLC ("Echelon Residential Holdings") required revision, as
explained below.
As reported in the 2000 10-K and the March 31, 2001 Form 10-Q, on March 8, 2000,
the Partnership and 10 affiliated partnerships (the ''Exchange Partnerships'')
collectively loaned $32 million to Echelon Residential Holdings, a newly formed
real estate company. The Partnership's loan to Echelon Residential Holdings is
$2,780,000. Echelon Residential Holdings, through a wholly owned subsidiary
(Echelon Residential LLC), used the loan proceeds to acquire various real estate
assets from Echelon International Corporation, an unrelated Florida-based real
estate company. The loan has a term of 30 months, maturing on September 8, 2002
and an annual interest rate of 14% for the first 24 months and 18% for the final
six months. Interest accrues and compounds monthly and is payable at maturity.
In connection with the transaction, Echelon Residential Holdings has pledged a
security interest in all of its right, title and interest in and to its
membership interests in Echelon Residential LLC to the Exchange Partnerships as
collateral.
The loan receivable was previously accounted for and reported in accordance with
the guidance for Acquisition, Development and Construction Arrangements ("ADC
arrangements") in the Partnership's financial statements as of and for each of
the quarters ended March 31, 2001 and 2000, respectively. The loan was
presented as an investment in a real estate venture and was presented net of the
Partnership's share of losses in Echelon Residential Holdings. The Partnership
was allocated its proportionate share of the unconsolidated real estate
venture's net loss, excluding the interest expense on the loan, based on the
balance of its loan receivable in relation to the real estate venture's total
equity and notes payable, including the ADC arrangements. For the periods ended
March 31, 2001 and March 31, 2000, the Partnership's share of losses in Echelon
Residential Holdings was $57,054 and $2,720, respectively, and was reflected on
the Statement of Operations as ''Partnership's share of unconsolidated real
estate venture's loss''.
Subsequent to the issuance of the 2000 Form 10-K and the March 31, 2001 Form
10-Q, the Partnership determined that the loan receivable should be accounted
for consistent with its legal form and the Partnership should recognize the
interest income, as calculated per the contractual terms of the loan agreement
to the extent such interest income was evaluated as likely to be collected. The
loan receivable and related interest should be evaluated for impairment under
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan".
Accordingly, the Partnership reversed the proportionate share of losses in
Echelon Residential Holdings of $57,054 and $2,720, respectively, previously
recorded during the quarters ended March 31, 2001 and March 31, 2000, and
recognized interest income of $110,502 and $25,947, respectively. These
adjustments resulted in an increase in the net income for the quarters ended
March 31, 2001 and 2000 of $167,556 and $28,667, respectively, or $0.20 and
$0.03, per limited partnership unit. As a result, the accompanying financial
statements for the quarters ended March 31, 2001 and 2000 and the Partnership's
Statement of Financial Position as of December 31, 2000 have been restated from
the amounts previously reported.
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
A summary of the significant effects of the restatement is as follows:
As of and for the Quarter Ended
March 31, 2001
As
Previously As
Statement of Operations Reported Restated
------------ ------------
Income
Operating lease revenue $ 414,455 $ 414,455
Sales-type lease revenue 3,668 3,668
Interest income 20,300 20,300
Interest income - loan receivable - 110,502
Interest income - affiliate 11,461 11,461
Gain on sale of equipment 5,200 5,200
------------ ------------
Total income 455,084 565,586
------------ ------------
Expenses
Depreciation 147,201 147,201
Interest expense 38,008 38,008
Equipment management fees - affiliate 22,529 22,529
Operating expenses - affiliate 98,950 98,950
Write-down of investment securities - affiliate 16,962 16,962
Partnership's share of unconsolidated
real estate venture's loss 57,054 -
------------ ------------
Total expenses 380,704 323,650
Net income $ 74,380 $ 241,936
============ ============
Net income per limited partnership unit $ 0.09 $ 0.29
============ ============
Balance Sheet Data:
Total assets $10,884,182 $11,603,442
============ ============
Total liabilities $ 2,688,325 $ 2,688,325
Partners' capital (deficit)
General Partner (472,747) (436,784)
Limited Partnership Interests 8,668,604 9,351,901
------------ ------------
Total partners' capital $ 8,195,857 $ 8,915,117
============ ============
As of and for the Quarter Ended
March 31, 2000
As
Previously As
Statement of Operations Reported Restated
------------ ------------
Income
Operating lease revenue $ 360,598 $ 360,598
Interest income 46,426 46,426
Interest income - loan receivable - 25,947
Interest income - affiliate 11,461 11,461
Gain on sale of equipment 11,000 11,000
------------ ------------
Total income 429,485 455,432
------------ ------------
Expenses
Depreciation 182,503 182,503
Interest expense 53,289 53,289
Equipment management fees - affiliate 16,564 16,564
Operating expenses - affiliate 90,230 90,230
Partnership's share of unconsolidated
real estate venture's loss 2,720 -
------------ ------------
Total expenses 345,306 342,586
Net income $ 84,179 $ 112,846
============ ============
Net income per limited partnership unit $ 0.10 $ 0.13
============ ============
Balance Sheet Data:
Total assets $10,959,345 $10,988,012
============ ============
Total liabilities $ 2,701,039 $ 2,701,039
Partners' capital (deficit)
General Partner (469,624) (468,191)
Limited Partnership Interests 8,727,930 8,755,163
------------ ------------
Total partners' capital $ 8,258,306 $ 8,286,973
============ ============
AMERICAN INCOME FUND I-C
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-Q/A
INDEX
PART I. FINANCIAL INFORMATION: Page
----
Item 1. Financial Statements (Restated)
Statement of Financial Position
at March 31, 2001 and December 31, 2000 3
Statement of Operations
for the three months ended March 31, 2001 and 2000 4
Statement of Changes in Partners' Capital
for the three months ended March 31, 2001 5
Statement of Cash Flows
for the three months ended March 31, 2001 and 2000 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II. OTHER INFORMATION:
Item 1 - 6 24
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
March 31, December 31,
. 2001 2000
ASSETS Restated Restated
. (See Note 1) (See Note 1)
------------- --------------
Cash and cash equivalents $ 2,186,167 $ 1,758,608
Rents receivable 125,886 162,064
Accounts receivable - other - 39,178
Accounts receivable - affiliate 138,685 93,661
Interest receivable - affiliate 11,461 -
Prepaid expenses 10,619 -
Interest receivable - loan 451,194 340,692
Loan receivable 2,780,000 2,780,000
Net investment in sales-type lease 202,153 263,060
Note receivable - affiliate 459,729 459,729
Investment securities - affiliate - at fair market value 69,152 79,590
Equipment at cost, net of accumulated depreciation
of $5,640,941 and $5,593,629 at March 31, 2001
and December 31, 2000, respectively 5,168,396 5,315,597
------------- --------------
Total assets $ 11,603,442 $ 11,292,179
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 2,229,662 $ 2,056,682
Accrued interest 19,339 10,135
Accrued liabilities 360,674 496,938
Accrued liabilities - affiliate 37,013 23,742
Deferred rental income 41,637 38,025
------------- --------------
Total liabilities 2,688,325 2,625,522
------------- --------------
Partners' capital (deficit):
General Partner (436,784) (449,207)
Limited Partnership Interests
(803,454.56 Units; initial purchase price of $25 each) 9,351,901 9,115,864
------------- --------------
Total partners' capital 8,915,117 8,666,657
------------- --------------
Total liabilities and partners' capital $ 11,603,442 $ 11,292,179
============= ==============
The accompanying notes are an integral part of these financial statements.
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
. 2001 2000
. Restated Restated
------------- -------------
INCOME (See Note 1) (See Note 1)
Operating lease revenue $ 414,455 $ 360,598
Sales-type lease revenue 3,668 -
Interest income 20,300 46,426
Interest income - loan receivable 110,502 25,947
Interest income - affiliate 11,461 11,461
Gain on sale of equipment 5,200 11,000
------------- -------------
Total income 565,586 455,432
------------- -------------
EXPENSES
Depreciation 147,201 182,503
Interest expense 38,008 53,289
Equipment management fees - affiliate 22,529 16,564
Operating expenses - affiliate 98,950 90,230
Write-down of investment securities - affiliate 16,962 -
------------- -------------
Total expenses 323,650 342,586
------------- -------------
Net income $ 241,936 $ 112,846
============= =============
Net income per limited partnership unit $ 0.29 $ 0.13
============= =============
Cash distributions declared
per limited partnership unit $ -- $ --
============= =============
The accompanying notes are an integral part of these financial statements.
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
General Limited Partners
Partner
Amount Units Amount Total
Balance at December 31, 2000 (Restated) $(449,207) 803,454.56 $9,115,864 $8,666,657
Net income (Restated) 12,097 - 229,839 241,936
Less: Reclassification adjustment
for write-down of investment
securities - affiliate 326 - 6,198 6,524
---------- ---------------- ---------- ----------
Comprehensive income 12,423 - 236,037 248,460
---------- ---------------- ---------- ----------
Balance at March 31, 2001 (Restated) $(436,784) 803,454.56 $9,351,901 $8,915,117
========== ================ ========== ==========
The accompanying notes are an integral part of these financial statements.
23
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
. 2001 2000
. Restated Restated
. (See Note 1) (See Note 1)
------------- -------------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income $ 241,936 $ 112,846
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 147,201 182,503
Sales-type lease revenue (3,668) -
Gain on sale of equipment (5,200) (11,000)
Write-down of investment securities - affiliate 16,962 -
Changes in assets and liabilities:
Rents receivable 36,178 791
Accounts receivable - other 39,178 -
Accounts receivable - affiliate (45,024) 23,915
Interest receivable - affiliate (11,461) -
Prepaid expenses (10,619) -
Interest receivable - loan (110,502) (25,947)
Collections on net investment in sales-type lease 64,575 -
Accrued interest 9,204 (3,892)
Accrued liabilities (136,264) (184,389)
Accrued liabilities - affiliate 13,271 20,726
Deferred rental income 3,612 (20,665)
------------- -------------
Net cash provided by operating activities 249,379 94,888
------------- -------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Proceeds from equipment sales 5,200 11,000
Issuance of loan receivable - (2,780,000)
------------- -------------
Net cash provided by (used in) investing activities 5,200 (2,769,000)
------------- -------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from notes payable 403,669 160,856
Principal payments - notes payable (230,689) (113,649)
Distributions paid - (158,577)
------------- -------------
Net cash provided by (used in) financing activities 172,980 (111,370)
------------- -------------
Net increase (decrease) in cash and cash equivalents 427,559 (2,785,482)
Cash and cash equivalents at beginning of period 1,758,608 3,970,877
------------- -------------
Cash and cash equivalents at end of period $ 2,186,167 $ 1,185,395
============= =============
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 28,804 $ 57,181
============= =============
See Note 7 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities - affiliate during the
three months ended March 31, 2001 and 2000.
See Note 10 to the financial statements regarding the refinancing of one of the
Partnership's notes payable in February 2001.
The accompanying notes are an integral part of these financial statements.
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
NOTE 1 - RESTATEMENT OF FINANCIAL STATEMENTS
- --------------------------------------------------
After American Income Fund I-C Limited, a Massachusetts Limited Partnership
("the Partnership") filed its Annual Report on Form 10-K/A Amendment No. 1 to
Form 10-K (the "2000 10-K") for the year ended December 31, 2000 and its Form
10-Q for the quarter ended March 31, 2001 (the "March 31, 2001 Form 10-Q") with
the United States Securities and Exchange Commission ("SEC"), the Partnership
determined that the accounting treatment for the loan receivable from Echelon
Residential Holdings LLC ("Echelon Residential Holdings") required revision, as
explained below.
As reported in the 2000 10-K and the March 31, 2001 Form 10-Q, on March 8, 2000,
the Partnership and 10 affiliated partnerships (the ''Exchange Partnerships'')
collectively loaned $32 million to Echelon Residential Holdings, a newly formed
real estate company. The Partnership's loan to Echelon Residential Holdings is
$2,780,000. Echelon Residential Holdings, through a wholly owned subsidiary
(Echelon Residential LLC), used the loan proceeds to acquire various real estate
assets from Echelon International Corporation, an unrelated Florida-based real
estate company. The loan has a term of 30 months, maturing on September 8, 2002
and an annual interest rate of 14% for the first 24 months and 18% for the final
six months. Interest accrues and compounds monthly and is payable at maturity.
In connection with the transaction, Echelon Residential Holdings has pledged a
security interest in all of its right, title and interest in and to its
membership interests in Echelon Residential LLC to the Exchange Partnerships as
collateral.
The loan receivable was previously accounted for and reported in accordance with
the guidance for Acquisition, Development and Construction Arrangements ("ADC
arrangements") in the Partnership's financial statements as of and for each of
the quarters ended March 31, 2001 and 2000, respectively. The loan was
presented as an investment in a real estate venture and was presented net of the
Partnership's share of losses in Echelon Residential Holdings. The Partnership
was allocated its proportionate share of the unconsolidated real estate
venture's net loss, excluding the interest expense on the loan, based on the
balance of its loan receivable in relation to the real estate venture's total
equity and notes payable, including the ADC arrangements. For the periods ended
March 31, 2001 and March 31, 2000, the Partnership's share of losses in Echelon
Residential Holdings was $57,054 and $2,720, respectively, and was reflected on
the Statement of Operations as ''Partnership's share of unconsolidated real
estate venture's loss''.
Subsequent to the issuance of the 2000 Form 10-K and the March 31, 2001 Form
10-Q, the Partnership determined that the loan receivable should be accounted
for consistent with its legal form and the Partnership should recognize the
interest income, as calculated per the contractual terms of the loan agreement
to the extent such interest income was evaluated as likely to be collected. The
loan receivable and related interest should be evaluated for impairment under
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan".
Accordingly, the Partnership reversed the proportionate share of losses in
Echelon Residential Holdings of $57,054 and $2,720, respectively, previously
recorded during the quarters ended March 31, 2001 and March 31, 2000, and
recognized interest income of $110,502 and $25,947, respectively. These
adjustments resulted in an increase in the net income for the quarters ended
March 31, 2001 and 2000 of $167,556 and $28,667, respectively, or $0.20 and
$0.03, per limited partnership unit. As a result, the accompanying financial
statements for the quarters ended March 31, 2001 and 2000 and the Partnership's
Statement of Financial Position as of December 31, 2000 have been restated from
the amounts previously reported.
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
NOTE 2 - BASIS OF PRESENTATION
- -----------------------------------
The financial statements, as restated, presented herein are prepared in
conformity with generally accepted accounting principles and the instructions
for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and
Exchange Commission and are unaudited. As such, these financial statements do
not include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in conjunction
with the footnotes presented in the Partnership's 2000 Annual Report included in
Form 10-KA Amendment No. 2. Except as disclosed herein, there has been no
material change to the information presented in the footnotes to the 2000 Annual
Report included in Form 10-KA Amendment No. 2.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 2001 and December 31, 2000 and results of operations for
the three month periods ended March 31, 2001 and 2000 have been made and are
reflected.
NOTE 3 - CASH
- ----------------
At March 31, 2001, the Partnership had $1,896,420 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
NOTE 4 - REVENUE RECOGNITION
- --------------------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
The majority of the Partnership's leases are accounted for as operating leases
and are noncancellable. Rents received prior to their due dates are deferred.
In certain instances, the Partnership may enter renewal or re-lease agreements
which expire beyond the Partnership's anticipated dissolution date. This
circumstance is not expected to prevent the orderly wind-up of the Partnership's
business activities as the General Partner and EFG would seek to sell the
then-remaining equipment assets either to the lessee or to a third party, taking
into consideration the amount of future noncancellable rental payments
associated with the attendant lease agreements. See also Note 11 regarding the
Class Action Lawsuit. Future minimum rents for operating leases of $1,888,517
are due as follows:
For the year ending March 31, 2002 $ 812,599
. 2003 689,095
. 2004 288,879
. 2005 97,944
----------
. Total $1,888,517
==========
Future minimum rents for operating leases does not include the operating leases
for which the lease payments are based on the usage of the equipment leased.
Lease payments for the sales-type lease are due monthly and the related revenue
is recognized by a method which produces a constant periodic rate of return on
the outstanding investment in the lease. Future minimum lease payments for the
sales-type lease of $214,988 are due through the date of the lease expiration in
January 2002.
NOTE 5 - EQUIPMENT
- ---------------------
The following is a summary of equipment owned by the Partnership at March 31,
2001. Remaining Lease Term (Months), as used below, represents the number of
months remaining from March 31, 2001 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost
- ------------------------------------------------------- ----------- ------------
Aircraft 1-44 $ 6,918,159
Trailers/intermodal containers 21-27 1,963,408
Materials handling 0-29 1,778,901
Motor vehicles 0 97,400
Communications 0 51,469
------------
Total equipment cost . 10,809,337
Accumulated depreciation . (5,640,941)
------------
Equipment, net of accumulated depreciation . $ 5,168,396
============
At March 31, 2001, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $8,881,573, representing approximately
82% of total equipment cost.
Certain of the equipment and related lease payment streams were used to secure
the Partnership's loans with third-party lenders. The preceding summary of
equipment includes leveraged equipment having an original cost of approximately
$4,556,000 and a net book value of approximately $3,335,000 at March 31, 2001
(see Note 10).
At March 31, 2001, all of the Partnership's equipment was subject to contracted
leases or being leased on a month to month basis. In April 2001, the lease with
Finnair OY related to a McDonnell-Douglas MD-82 aircraft, in which the
Partnership holds an interest, expired and the aircraft was returned to the
General Partner. The General Partner is attempting to remarket this aircraft,
which had a cost to the Partnership of approximately $1,661,000.
NOTE 6 - LOAN RECEIVABLE
- ----------------------------
On March 8, 2000, the Partnership and 10 affiliated partnerships (the ''Exchange
Partnerships'') collectively loaned $32 million to Echelon Residential Holdings,
a newly formed real estate company. Echelon Residential Holdings is owned by
several investors, including James A. Coyne, Executive Vice President of EFG.
In addition, certain affiliates of the General Partner made loans to Echelon
Residential Holdings in their individual capacities.
The Partnership's original loan was $2,780,000. Echelon Residential Holdings,
through a wholly-owned subsidiary (Echelon Residential LLC), used the loan
proceeds to acquire various real estate assets from Echelon International
Corporation, an unrelated Florida-based real estate company. The loan has a term
of 30 months, maturing on September 8, 2002, and an annual interest rate of 14%
for the first 24 months and 18% for the final six months. Interest accrues and
compounds monthly and is payable at maturity. In connection with the
transaction, Echelon Residential Holdings has pledged a security interest in all
of its right, title and interest in and to its membership interests in Echelon
Residential LLC to the Exchange Partnerships as collateral. Echelon Residential
Holdings has no material business interests other than those connected with the
real estate properties owned by Echelon Residential LLC.
The summarized financial information for Echelon Residential Holdings as of
March 31, 2001 and for the quarter ended March 31, 2001 is as follows:
(Unaudited)
Total assets $72,861,183
Total liabilities $76,780,082
Minority interest $ 1,906,448
Total deficit $(5,825,347)
Total revenues $ 1,063,439
Total expenses, minority interest
and equity in loss of unconsolidated
joint venture. . . . . . . . . . . . $ 3,096,648
Net loss $(2,033,209)
See Note 12, Subsequent Event, for discussion of an impairment recorded by the
Partnership of the loan receivable and related interest receivable during the
second quarter of 2001.
NOTE 7 - NET INVESTMENT IN SALES-TYPE LEASE
- --------------------------------------------------
The Partnership's net investment in a sales-type lease is the result of the
conditional sale of the Partnership's proportionate interest in a Boeing 737
aircraft executed in October 2000. The title to the aircraft transfers to Royal
Aviation Inc., at the expiration of the lease term. The sale of the aircraft
was recorded by the Partnership as a sales-type lease, with a lease term
expiring in January 2002. For the quarter ended March 31, 2001, the Partnership
recognized sales-type lease revenue of $3,668 from this lease. At March 31,
2001, the components of the net investment in the sales-type lease are as
follows:
Total minimum lease payments to be received $214,988
Less: Unearned income 12,835
--------
Total $202,153
========
Unearned income is being amortized to revenue over the lease term, expiring in
January 2002.
NOTE 8 - INVESTMENT SECURITIES - AFFILIATE AND NOTE RECEIVABLE - AFFILIATE
- --------------------------------------------------------------------------------
As a result of an exchange transaction in 1997, the Partnership is the
beneficial owner of 20,876 shares of Semele Group Inc. ("Semele") common stock
and holds a beneficial interest in a note from Semele (the "Semele Note") of
$459,729. The Semele Note matures in April 2003 and bears an annual interest
rate of 10% with mandatory principal reductions prior to maturity, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
its principal real estate asset consisting of an undeveloped 274-acre parcel of
land near Malibu, California. The Partnership recognized interest income of
$11,461 related to the Semele Note during each of the three month periods ended
March 31, 2001 and 2000.
The exchange in 1997 involved the sale by five partnerships and certain other
affiliates of their beneficial interests in three cargo vessels to Semele in
exchange for cash, Semele common stock and the Semele Note. At the time of the
transaction, Semele was a public company unaffiliated with the general partners
and the partnerships. Subsequently, as part of the exchange transaction, Semele
solicited the consent of its shareholders to, among other things, engage EFG to
provide administrative services and to elect certain affiliates of EFG and the
general partners as members of the board of directors. At that point, Semele
became affiliated with EFG and the general partners. The maturity date of the
note has been extended. Since the Semele Note was received as consideration for
the sale of the cargo vessels to an unaffiliated party and the extension of the
maturity of the Semele Note is documented in an amendment to the existing Semele
Note and not as a new loan, the general partners of the owner partnerships do
not consider the Semele Note to be within the prohibition in the Partnership
Agreements against loans to or from the general partner and its affiliates.
Nonetheless, the extension of the maturity date might be construed to be in
violation of the making of a loan to an affiliate of the general partner in
violation of the Partnership Agreements of the owner partnerships and to be a
violation of the court's order with respect to New Investments that all other
provisions of the Partnership Agreements shall remain in full force and effect.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price on the NASDAQ SmallCap Market at March 31, 2000), resulting in an
unrealized loss of $7,829. This loss was reported as a component of
comprehensive income included in the Statement of Changes in Partners' Capital.
At March 31, 2001, the Partnership determined that the decline in the market
value of its Semele common stock was other than temporary. As a result, the
Partnership wrote down the cost of the Semele common stock to $3.3125 per share
(the quoted price of the Semele stock on the NASDAQ SmallCap Market on the date
the stock traded closest to March 31, 2001), for a total realized loss in the
three months ended March 31, 2001 of $16,962.
NOTE 9 - RELATED PARTY TRANSACTIONS
- ----------------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf of
the Partnership and EFG is reimbursed at its actual cost for such expenditures.
Fees and other costs incurred during the three month periods ended March 31,
2001 and 2000 which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
2001 2000
-------- --------
Equipment management fees $ 22,529 $ 16,564
Administrative charges 28,491 44,341
Reimbursable operating expenses
due to third parties 70,459 45,889
-------- --------
Total $121,479 $106,794
======== ========
All rents and proceeds from the sale of equipment are paid directly to either
EFG or to a lender. EFG temporarily deposits collected funds in a separate
interest-bearing escrow account prior to remittance to the Partnership. At
March 31, 2001, the Partnership was owed $138,685 by EFG for such funds and the
interest thereon. These funds were remitted to the Partnership in April 2001.
The discussion of the loan to Echelon Residential Holdings in Note 6 above is
incorporated by reference.
NOTE 10 - NOTES PAYABLE
- ---------------------------
Notes payable at March 31, 2001 consisted of installment notes of $2,229,662
payable to banks and institutional lenders. The installment notes bear an
interest rate of either 7.65% or a fluctuating interest rate based on LIBOR
(approximately 5.19% at March 31, 2001) plus a margin. All of the installment
notes are non-recourse and are collateralized by the equipment and assignment of
the related lease payments. The installment notes amortize monthly and in
addition, the Partnership has balloon payment obligations at the expiration of
the respective lease terms related to aircraft leased to Reno Air, Inc. and
Aerovias de Mexico, S.A. de C.V. of $679,276 in January 2003 and $323,027 in
September 2004, respectively.
In February 2001, the Partnership and certain affiliated investment programs
(collectively "the Programs") refinanced the outstanding indebtedness and
accrued interest related to the aircraft on lease to Aerovias de Mexico, S.A. de
C.V. In addition to refinancing the Programs' total existing indebtedness and
accrued interest of $4,758,845, the Programs received additional debt proceeds
of $3,400,177. The Partnership's aggregate share of the refinanced and new
indebtedness was $968,639 including $564,970 used to repay the existing
indebtedness on the refinanced aircraft. The Partnership used a portion of its
share of the additional proceeds of $403,669 to repay the outstanding balance of
the indebtedness and accrued interest related to the aircraft then on lease to
Finnair OY of $104,590 and certain aircraft reconfiguration costs that the
Partnership had accrued at December 31, 2000.
Management believes that the carrying amount of notes payable approximates fair
value at March 31, 2001 based on its experience and understanding of the market
for instruments with similar terms.
The annual maturities of the note payable are as follows:
For the year ending March 31, 2002 $ 502,029
2003 1,123,193
2004 195,584
2005 408,856
----------
. Total $2,229,662
==========
NOTE 11 - LEGAL PROCEEDINGS
- -------------------------------
As described more fully in the Partnership's Annual Report on Form 10-K/A
Amendment No. 2 for the year ended December 31, 2000, the Partnership is a
Nominal Defendant in a Class Action Lawsuit, the outcome of which could
significantly alter the nature of the Partnership's organization and its future
business operations.
On March 12, 2001, after a status conference and hearing, the Court issued an
order that required the parties, no later than May 15, 2001, to advise the Court
on (a) whether the SEC has completed its review of the solicitation statement
and related materials submitted to the SEC in connection with the proposed
settlement, and (b) whether parties request the Court to schedule a hearing for
final approval of the proposed settlement or are withdrawing the proposed
settlement from judicial consideration and resuming the litigation of the
Plaintiffs' claims.
On May 11, 2001, the general partners of the partnerships that are nominal
defendants in the Class Action Lawsuit received a letter dated May 10, 2001 from
the Associate Director and Chief Counsel of the Division of Investment
Management of the SEC informing the general partners that the staff of the
Division believes that American Income Partners V-A Limited Partnership,
American Income Partners V-B Limited Partnership, American Income Partners V-C
Limited Partnership, American Income Partners V-D Limited Partnership, American
Income Fund I-A, American Income Fund I-B, American Income Fund I-E and AIRFUND
II International Limited Partnership (the "Designated Partnerships") are
investment companies as defined in Section 3(a)(1)(c) of the Investment Company
Act of 1940, as amended (the "1940 Act"). The SEC staff noted that Section 7 of
the 1940 Act makes it unlawful for an unregistered investment company to offer
or sell or purchase any security or engage in any business in interstate
commerce. Accordingly, Section 7 would prohibit any partnership that is an
unregistered investment company from engaging in any business in interstate
commerce, except transactions that are merely incidental to its dissolution. The
letter also stated that the Division is considering enforcement action with
respect to this matter. Noting that the parties to the Class Action Lawsuit are
scheduled to appear before the court in the near future to consider a proposed
settlement, and that the SEC staff's views, as expressed in the letter, are
relevant to the specific matters that will be considered by the court at the
hearing, the SEC staff submitted the letter to the court for its consideration.
On May 15, 2001, Defendants' Counsel filed with the court Defendants' Status
Report pursuant to the court's March 12, 2001 Order. Defendants reported that,
notwithstanding the parties' best efforts, the staff of the SEC has not
completed its review of the solicitation statement in connection with the
proposed settlement of the Class Action Lawsuit. Nonetheless, the Defendants
stated their belief that the parties should continue to pursue the court's final
approval of the proposed settlement. In this regard, the Defendants also have
maintained, on the advice of special 1940 Act counsel that, even if the 1940 Act
applies to the Designated Partnerships, the 1940 Act does not prohibit going
forward with the proposed settlement, as that transaction is merely incidental
to a dissolution of the Partnerships and therefore is not subject to the
prohibitions of Section 7 of the 1940 Act.
The Defendants also referred to the SEC staff's letter of May 10, 2001 asserting
that certain of the partnerships are investment companies and special 1940 Act
counsel's submissions to the SEC staff setting forth the reasons why the 1940
Act does not apply to the Designated Partnerships, noting that counsel had
informed the staff of the Division of Investment Management that, based upon
counsel's understanding of the surrounding circumstances and after an in-depth
analysis of the applicable law, counsel is willing to issue an opinion of the
firm that none of the partnerships is an investment company under the 1940 Act.
The Defendants stated their belief that the proposed settlement is still viable
and in the best interests of the parties and that final approval should be
pursued. The Defendants advised the court that they believe that if the court
were to address the issue of whether or not the 1940 Act applies to the
partnerships and the proposed consolidation, it could remove the major obstacle
to the settlement being finally consummated. The Defendants also requested that
the court schedule a hearing to address on a preliminary basis the objection to
the proposed settlement raised in the staff's May 10, 2001 letter.
Plaintiffs' Counsel also submitted a Plaintiffs' Status Report to the court on
May 15, 2001 in which they reported that the SEC review has not been concluded
and that they notified the Defendants that they would not agree to continue to
stay the further prosecution of the litigation in favor of the settlement and
that they intend to seek court approval to immediately resume active prosecution
of the claims of the Plaintiffs. Plaintiffs' Counsel stated in the Report that
the "[p]laintiffs continue to believe that the settlement is in the best
interests of the Operating Partnership Sub-class. However, since the SEC has
yet to complete its review of the proxy, the Plaintiffs do not believe that the
litigation should continue to be stayed so that the SEC may continue its
regulatory review for an indefinite period of time." Plaintiffs requested a
pre-trial conference to schedule filing of Plaintiffs' motion for class
certification on or before May 29, 2001 and resumption of merits discovery and
discovery related to the class certification motion.
Subsequently, after a status conference on May 31 2001, the court issued an
order on June 4, 2001 setting a trial date of March 4, 2002, referred the case
to mediation and referred discovery to a magistrate judge. The Defendant's and
Plaintiff's Counsel have continued to negotiate toward a settlement and have
reached agreement as to its principal business terms. As part of the
settlement, EFG has agreed to buy the loans made by the Exchange Partnerships to
Echelon Residential Holdings for an aggregate of $32 million plus interest at
7.5% per annum, if they are not repaid prior to or at their scheduled maturity
date. Upon completion of a stipulation of settlement, the parties will submit
the settlement to the court for approval.
There can be no assurance that a settlement of the sub-class involving the
Exchange Partnerships will receive final Court approval and be effected.
However, in the absence of a final settlement approved by the Court, the
Defendants intend to defend vigorously against the claims asserted in the Class
Action Lawsuit. Neither the General Partner nor its affiliates can predict with
any degree of certainty the cost of continuing litigation to the Partnership or
the ultimate outcome.
NOTE 12 - SUBSEQUENT EVENT
- ------------------------------
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
The write-down was precipitated principally by a slowing U.S. economy and its
effects on the real estate development industry. The economic outlook for the
properties that existed when the loan was funded has deteriorated and inhibited
the ability of Echelon Residential Holdings' management to secure low-cost
sources of development capital, including but not limited to joint-venture or
equity partners. In response to these developments and lower risk tolerances in
the credit markets, the management of Echelon Residential Holdings decided in
the second quarter of 2001 to concentrate its prospective development activities
within the southeastern United States and, therefore, to dispose of development
sites located elsewhere. In May 2001, Echelon Residential Holdings closed its
Texas-based development office; and since the beginning of 2001, the company has
sold three of nine properties (two in July 2001 and one in October 2001). As of
November 2001, one additional property is under contract to be sold, subject to
due diligence that remains pending. As a result of these developments, the
General Partner does not believe that Echelon Residential Holdings will realize
the profit levels originally believed to be achievable from either selling these
properties as a group or developing all of them as multi-family residential
communities.
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-Q/A
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- ---------------
Certain statements in this quarterly report of American Income Fund I-C, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of factors that could cause actual
results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 11 to the accompanying
financial statements, the remarketing of the Partnership's equipment, and the
performance of the Partnership's non-equipment assets.
The Investment Company Act of 1940 (the "1940 Act") places restrictions on the
capital structure and business activities of companies registered thereunder.
The Partnership has active business operations in the financial services
industry, including equipment leasing and the loan to Echelon Residential
Holdings LLC ("Echelon Residential Holdings"). The Partnership does not intend
to engage in investment activities in a manner or to an extent that would
require the Partnership to register as an investment company under the 1940 Act.
However, it is possible that the Partnership may unintentionally engage in an
activity or activities that may be construed to fall within the scope of the
1940 Act. The General Partner is engaged in discussions with the staff of the
Securities and Exchange Commission ("SEC") regarding whether or not the
Partnership may be an inadvertent investment company as a consequence of the
above-referenced loan. The 1940 Act, among other things, prohibits an
unregistered investment company from offering securities for sale or engaging in
any business in interstate commerce and, consequently, leases and contracts
entered into by partnerships that are unregistered investment companies may be
voidable. The General Partner has consulted counsel and believes that the
Partnership is not an investment company. If the Partnership were determined to
be an unregistered investment company, its business would be adversely affected.
The General Partner has determined to take action to avoid the Partnership being
deemed an investment company by disposing or acquiring certain assets that it
might not otherwise dispose or acquire.
On May 11, 2001, the general partners of the partnerships that are nominal
defendants in the Class Action Lawsuit received a letter dated May 10, 2001 from
the Associate Director and Chief Counsel of the Division of Investment
Management of the SEC informing the general partners that the staff of the
Division believes that American Income Partners V-A Limited Partnership,
American Income Partners V-B Limited Partnership, American Income Partners V-C
Limited Partnership, American Income Partners V-D Limited Partnership, American
Income Fund I-A, American Income Fund I-B, American Income Fund I-E and AIRFUND
II International Limited Partnership (the "Designated Partnerships") are
investment companies as defined in Section 3(a)(1)(c) of the 1940 Act. The SEC
staff noted that Section 7 of the 1940 Act makes it unlawful for an unregistered
investment company to offer or sell or purchase any security or engage in any
business in interstate commerce. Accordingly, Section 7 would prohibit any
partnership that is an unregistered investment company from engaging in any
business in interstate commerce, except transactions that are merely incidental
to its dissolution. The letter also stated that the Division is considering
enforcement action with respect to this matter. Noting that the parties to the
Class Action Lawsuit are scheduled to appear before the court in the near future
to consider a proposed settlement, and that the SEC staff's views, as expressed
in the letter, are relevant to the specific matters that will be considered by
the court at the hearing, the SEC staff submitted the letter to the court for
its consideration.
On May 15, 2001, Defendants' Counsel filed with the court Defendants' Status
Report pursuant to the court's March 12, 2001 Order. Defendants reported that,
notwithstanding the parties' best efforts, the staff of the SEC has not
completed its review of the solicitation statement in connection with the
proposed settlement of the Class Action Lawsuit. Nonetheless, the Defendants
stated their belief that the parties should continue to pursue the court's final
approval of the proposed settlement. In this regard, the Defendants also have
maintained, on the advice of special 1940 Act counsel that, even if the 1940 Act
applies to the Designated Partnerships, the 1940 Act does not prohibit going
forward with the proposed settlement, as that transaction is merely incidental
to a dissolution of the Partnerships and therefore is not subject to the
prohibitions of Section 7 of the 1940 Act.
The Defendants also referred to the SEC staff's letter of May 10, 2001 asserting
that certain of the partnerships are investment companies and special 1940 Act
counsel's submissions to the SEC staff setting forth the reasons why the 1940
Act does not apply to the Designated Partnerships, noting that counsel had
informed the staff of the Division of Investment Management that, based upon
counsel's understanding of the surrounding circumstances and after an in-depth
analysis of the applicable law, counsel is willing to issue an opinion of the
firm that none of the partnerships is an investment company under the 1940 Act.
The Defendants stated their belief that the proposed settlement is still viable
and in the best interests of the parties and that final approval should be
pursued. The Defendants advised the court that they believe that if the court
were to address the issue of whether or not the 1940 Act applies to the
partnerships and the proposed consolidation, it could remove the major obstacle
to the settlement being finally consummated. The Defendants also requested that
the court schedule a hearing to address on a preliminary basis the objection to
the proposed settlement raised in the SEC staff's May 10, 2001 letter.
Plaintiffs' Counsel also submitted a Plaintiffs' Status Report to the court on
May 15, 2001 in which they reported that the SEC review has not been concluded
and that they notified the Defendants that they would not agree to continue to
stay the further prosecution of the litigation in favor of the settlement and
that they intend to seek court approval to immediately resume active prosecution
of the claims of the Plaintiffs. Plaintiffs' Counsel stated in the Report that
the "[p]laintiffs continue to believe that the settlement is in the best
interests of the Operating Partnership Sub-class. However, since the SEC has
yet to complete its review of the proxy, the Plaintiffs do not believe that the
litigation should continue to be stayed so that the SEC may continue its
regulatory review for an indefinite period of time." Plaintiffs requested a
pre-trial conference to schedule filing of Plaintiffs' motion for class
certification on or before May 29, 2001 and resumption of merits discovery and
discovery related to the class certification motion.
Subsequently, after a status conference on May 31, 2001, the court issued an
order on June 4, 2001 setting a trial date of March 4, 2002, referred the case
to mediation and referred discovery to a magistrate judge. The Defendant's and
Plaintiff's Counsel have continued to negotiate toward a settlement and have
reached agreement as to its principal business terms. As part of the
settlement, EFG has agreed to buy the loans made by the Exchange Partnerships to
Echelon Residential Holdings for an aggregate of $32 million plus interest at
7.5% per annum, if they are not repaid prior to or at their scheduled maturity
date. Upon completion of a stipulation of settlement, the parties will submit
the settlement to the court for approval.
There can be no assurance that a settlement of the sub-class involving the
Exchange Partnerships will receive final Court approval and be effected.
However, in the absence of a final settlement approved by the Court, the
Defendants intend to defend vigorously against the claims asserted in the Class
Action Lawsuit. Neither the General Partner nor its affiliates can predict with
any degree of certainty the cost of continuing litigation to the Partnership or
the ultimate outcome. See Note 8 to the financial statements for additional
discussion.
The loan receivable from Echelon Residential Holdings was previously accounted
for and reported in accordance with the guidance for Acquisition, Development
and Construction Arrangements ("ADC arrangements") in the Partnership's
financial statements as of and for the year December 31, 2000. The loan was
presented as an investment in a real estate venture and was presented net of the
Partnership's share of losses in Echelon Residential Holdings. The Partnership
was allocated its proportionate share of the unconsolidated real estate
venture's net loss, excluding the interest expense on the loan, based on the
balance of its loan receivable in relation to the real estate venture's total
equity and notes payable, including the ADC arrangements.
Subsequent to the issuance of the 2000 Form 10-K and the March 31, 2001 Form
10-Q, the Partnership determined that the loan receivable should be accounted
for consistent with its legal form and the Partnership should recognize the
interest income, as calculated per the contractual terms of the loan agreement
to the extent such interest income was evaluated as likely to be collected. The
loan receivable and related interest should be evaluated for impairment under
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan".
Accordingly, the Partnership reversed the proportionate share of losses in
Echelon Residential Holdings of $57,054 and $2,720, respectively, previously
recorded during the quarters ended March 31, 2001 and March 31, 2000, and
recognized interest income of $110,502 and $25,947, respectively. These
adjustments resulted in an increase in the net income for the quarters ended
March 31, 2001 and 2000 of $167,556 and $28,667, respectively, or $0.20 and
$0.03, per limited partnership unit. As a result, the accompanying financial
statements for the quarters ended March 31, 2001 and 2000 and the Partnership's
Statement of Financial Position as of December 31, 2000 have been restated from
the amounts previously reported.
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
The write-down was precipitated principally by a slowing U.S. economy and its
effects on the real estate development industry. The economic outlook for the
properties that existed when the loan was funded has deteriorated and inhibited
the ability of Echelon Residential Holdings' management to secure low-cost
sources of development capital, including but not limited to joint-venture or
equity partners. In response to these developments and lower risk tolerances in
the credit markets, the management of Echelon Residential Holdings decided in
the second quarter of 2001 to concentrate its prospective development activities
within the southeastern United States and, therefore, to dispose of development
sites located elsewhere. In May 2001, Echelon Residential Holdings closed its
Texas-based development office; and since the beginning of 2001, the company has
sold three of nine properties (two in July 2001 and one in October 2001). As of
November 2001, one additional property is under contract to be sold, subject to
due diligence that remains pending. As a result of these developments, the
General Partner does not believe that Echelon Residential Holdings will realize
the profit levels originally believed to be achievable from either selling these
properties as a group or developing all of them as multi-family residential
communities.
Three months ended March 31, 2001 compared to the three months ended March 31,
- --------------------------------------------------------------------------------
2000
- ----
The Partnership was organized in 1991 as a direct-participation
equipment-leasing program to acquire a diversified portfolio of capital
equipment subject to lease agreements with third parties. Presently, the
Partnership is a Nominal Defendant in a Class Action Lawsuit, the outcome of
which could significantly alter the nature of the Partnership's organization and
its future business operations. (See Note 11 to the financial statements.)
Pursuant to the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended"), the Partnership is scheduled
to be dissolved by December 31, 2002. However, the General Partner does not
expect that the Partnership will be dissolved until such time that the Class
Action Lawsuit is settled or adjudicated.
Results of Operations
- -----------------------
For the three months ended March 31, 2001, the Partnership recognized operating
lease revenue of $414,455 compared to $360,598 for the same period in 2000. The
increase in operating lease revenue from 2000 to 2001 resulted from the re-lease
of a McDonnell-Douglas MD-82 aircraft and a Boeing 737-2H4 aircraft in September
2000. These increases were partially offset by the affects on revenue of lease
term expirations and sales of equipment. In the future, operating lease revenue
is expected to decline due to lease term expirations and equipment sales.
The lease term associated with the Boeing 737-2H4, in which the Partnership
holds an ownership interest, expired in December 1999. The aircraft was
re-leased in September 2000 to Air Slovakia BWJ Ltd., with a lease term expiring
in September 2003. The Partnership recognized operating lease revenue of
$32,288 for the quarter ended March 31, 2001 related to its interest in this
aircraft.
The lease term associated with a McDonnell Douglas MD-82 aircraft, in which the
Partnership holds an ownership interest, expired in January 2000. The aircraft
was re-leased in September 2000 to Aerovias de Mexico S.A. de C.V., with a lease
term expiring in September 2004. The Partnership recognized operating lease
revenue of $58,766 and $23,255 related to this aircraft during the three months
ended March 31, 2001 and 2000, respectively.
In October 2000, the Partnership and certain of its affiliates executed a
conditional sales agreement with Royal Aviation Inc. for the sale of the
Partnership's interest in a Boeing 737-2H4 aircraft. This aircraft had been
stored in the warehouse from January 2000 through the date of the conditional
sale in October 2000. The title to the aircraft transfers to Royal Aviation
Inc., at the expiration of the lease term. The sale of the aircraft has been
recorded by the Partnership as a sales-type lease, with a lease term expiring in
January 2002. For the three months ended March 31, 2001, the Partnership
recognized sales-type lease revenue of $3,668.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership ("EFG"). Proportionate
equipment ownership enabled the Partnership to further diversify its equipment
portfolio at inception by participating in the ownership of selected assets,
thereby reducing the general levels of risk, which could have resulted from a
concentration in any single equipment type, industry or lessee. The Partnership
and each affiliate individually report, in proportion to their respective
ownership interests, their respective shares of assets, liabilities, revenues,
and expenses associated with the equipment.
Interest income for the three months ended March 31, 2001 was $142,263 compared
to $83,834 for the same period in 2000. Interest income is typically generated
from temporary investment of rental receipts and equipment sale proceeds in
short-term instruments and interest earned on the loans receivable from Echelon
Residential Holdings and Semele. The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the amount of
cash available for investment, among other factors.
Interest income included $11,461 in each of the three month periods ended March
31, 2001 and 2000, earned on a note receivable from Semele. The note receivable
from Semele is scheduled to mature in April 2003.
Interest income also included $110,502 and $25,947, respectively, for the three
months ended March 31, 2001 and 2000, earned on the loan receivable from Echelon
Residential Holdings. On March 8, 2000, the Partnership utilized $2,780,000 of
available cash for the loan to Echelon Residential Holdings. The entire
principal and all accrued interest on the loan is due at the loan's maturity on
September 8, 2002.
The loan receivable was previously accounted for and reported in accordance with
the guidance for Acquisition, Development and Construction Arrangements ("ADC
arrangements") in the Partnership's financial statements as of and for the year
December 31, 2000. The loan was presented as an investment in a real estate
venture and was presented net of the Partnership's share of losses in Echelon
Residential Holdings. The Partnership was allocated its proportionate share of
the unconsolidated real estate venture's net loss, excluding the interest
expense on the loan, based on the balance of its loan receivable in relation to
the real estate venture's total equity and notes payable, including the ADC
arrangements.
Subsequent to the issuance of the 2000 Form 10-K and the March 31, 2001 Form
10-Q, the Partnership determined that the loan receivable should be accounted
for consistent with its legal form and the Partnership should recognize the
interest income, as calculated per the contractual terms of the loan agreement
to the extent such interest income was evaluated as likely to be collected. The
loan receivable and related interest should be evaluated for impairment under
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan".
Accordingly, the Partnership reversed the proportionate share of losses in
Echelon Residential Holdings of $57,054 and $2,720, respectively, previously
recorded during the quarters ended March 31, 2001 and March 31, 2000, and
recognized interest income of $110,502 and $25,947, respectively. These
adjustments resulted in an increase in the net income for the quarters ended
March 31, 2001 and 2000 of $167,556 and $28,667, respectively, or $0.20 and
$0.03, per limited partnership unit. As a result, the accompanying financial
statements for the quarters ended March 31, 2001 and 2000 and the Partnership's
Statement of Financial Position as of December 31, 2000 have been restated from
the amounts previously reported.
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
The write-down was precipitated principally by a slowing U.S. economy and its
effects on the real estate development industry. The economic outlook for the
properties that existed when the loan was funded has deteriorated and inhibited
the ability of Echelon Residential Holdings' management to secure low-cost
sources of development capital, including but not limited to joint-venture or
equity partners. In response to these developments and lower risk tolerances in
the credit markets, the management of Echelon Residential Holdings decided in
the second quarter of 2001 to concentrate its prospective development activities
within the southeastern United States and, therefore, to dispose of development
sites located elsewhere. In May 2001, Echelon Residential Holdings closed its
Texas-based development office; and since the beginning of 2001, the company has
sold three of nine properties (two in July 2001 and one in October 2001). As of
November 2001, one additional property is under contract to be sold, subject to
due diligence that remains pending. As a result of these developments, the
General Partner does not believe that Echelon Residential Holdings will realize
the profit levels originally believed to be achievable from either selling these
properties as a group or developing all of them as multi-family residential
communities.
During the three months ended March 31, 2001 and 2000, the Partnership sold
fully-depreciated equipment to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $5,200 and $11,000,
respectively.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment will be
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. Consequently, the amount
of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation expense for the three months ended March 31, 2001 was $147,201
compared to $182,503 for the same period in 2000. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset on a straight-line basis over
such term. For the purposes of this policy, estimated residual values represent
estimates of equipment values at the date of primary lease expiration. To the
extent that equipment is held beyond its primary lease term, the Partnership
continues to depreciate the remaining net book value of the asset on a
straight-line basis over the asset's remaining economic life.
For the three months ended March 31, 2001 and 2000, the Partnership incurred
interest expense of $38,008 and $53,289, respectively. Interest expense in the
near term will increase as a result of the Partnership's debt refinancing in
February 2001 as described below. Subsequently, interest expense will decline
as the principal balance of notes payable is reduced through the application of
rent receipts to outstanding debt.
Management fees were $22,529 and $16,564, respectively, for the three months
ended March 31, 2001 and 2000. Management fees are based on 5% of gross lease
revenue generated by operating leases and 2% of gross lease revenue generated by
full payout leases.
Operating expenses were $98,950 for the three months ended March 31, 2001
compared to $90,230 for the same period in 2000. In 2001, operating expenses
included approximately $27,000 related to the Class Action Lawsuit discussed in
Note 11 to the financial statements herein. Other operating expenses include
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed.
At March 31, 2001, the Partnership determined that the decline in the market
value of its Semele common stock was other than temporary. As a result, the
Partnership wrote down the cost of the Semele common stock to $3.3125 per share
(the quoted price of the Semele stock on the NASDAQ SmallCap Market on the date
the stock traded closest to March 31, 2001), for a total realized loss in the
three months ended March 31, 2001 of $16,962.
Liquidity and Capital Resources and Discussion of Cash Flows
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The Partnership by its nature is a limited life entity. The Partnership's
principal operating activities derive from asset rental transactions.
Accordingly, the Partnership's principal source of cash from operations is
provided by the collection of periodic rents. These cash inflows are used to
satisfy debt service obligations associated with leveraged leases, and to pay
management fees and operating costs. Operating activities generated net cash
inflows of $249,379 and $94,888 for the three months ended March 31, 2001 and
2000, respectively. The amount of future cash from interest income is expected
to fluctuate as a result of changing interest rates and the level of cash
available for investment, among other factors. The loan to Echelon Residential
Holdings and accrued interest thereon are due in full at maturity on September
8, 2002. Future renewal, re-lease and equipment sale activities will cause a
decline in the Partnership's lease revenues and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will also continue
to decline as the Partnership remarkets its assets. The Partnership, however,
may continue to incur significant costs to facilitate the successful remarketing
of its aircraft in the future.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the three months
ended March 31, 2001 and 2000, the Partnership realized equipment sales proceeds
of $5,200 and $11,000, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
At March 31, 2001, the Partnership was due aggregate future minimum lease
payments of $2,103,505 from contractual operating and sales-type lease
agreements (see Note 4 to the financial statements), a portion of which will be
used to amortize the principal balance of notes payable of $2,229,662 (see Note
10 to the financial statements). At the expiration of the individual lease
terms underlying the Partnership's future minimum lease payments, the
Partnership will sell the equipment or enter re-lease or renewal agreements when
considered advantageous by the General Partner and EFG. Such future remarketing
activities will result in the realization of additional cash inflows in the form
of equipment sale proceeds or rents from renewals and re-leases, the timing and
extent of which cannot be predicted with certainty. This is because the timing
and extent of remarketing events often is dependent upon the needs and interests
of the existing lessees. Some lessees may choose to renew their lease
contracts, while others may elect to return the equipment. In the latter
instances, the equipment could be re-leased to another lessee or sold to a third
party.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 11 to the accompanying financial statements, the court
permitted the Partnership to invest in any new investment, including but not
limited to new equipment or other business activities, subject to certain
limitations. On March 8, 2000, the Partnership loaned $2,780,000 to a newly
formed real estate company, Echelon Residential Holdings, to finance the
acquisition of real estate assets by that company. Echelon Residential Holdings,
through a wholly owned subsidiary (Echelon Residential LLC), used the loan
proceeds, along with the loan proceeds from similar loans by ten affiliated
partnerships, representing $32 million in the aggregate, to acquire various real
estate assets from Echelon International Corporation, an unrelated Florida-based
real estate company. Echelon Residential Holding's interest in Echelon
Residential LLC is pledged pursuant to a pledge agreement to the partnerships as
collateral for the loans. The loan has a term of 30 months, maturing on
September 8, 2002, and an annual interest rate of 14% for the first 24 months
and 18% for the final six months. Interest accrues and compounds monthly and is
payable at maturity.
The loan made by the Partnership to Echelon Residential Holdings is, and will
continue to be, subject to various risks, including the risk of default by
Echelon Residential Holdings, which could require the Partnership to foreclose
under the pledge agreement on its interests in Echelon Residential LLC. The
ability of Echelon Residential Holdings to make loan payments and the amount the
Partnership may realize after a default would be dependent upon the risks
generally associated with the real estate lending business including, without
limitation, the existence of senior financing or other liens on the properties,
general or local economic conditions, property values, the sale of properties,
interest rates, real estate taxes, other operating expenses, the supply and
demand for properties involved, zoning and environmental laws and regulations,
rent control laws and other governmental rules. A default by Echelon
Residential Holdings could have a material adverse effect on the future cash
flow and operating results of the Partnership.
During the second quarter of 2001, the General Partner determined that
recoverability of the loan receivable had been impaired and at June 30, 2001
recorded an impairment of $243,250, reflecting the General Partner's current
assessment of the amount of loss that is likely to be incurred by the
Partnership. In addition to the write-down recorded at June 30, 2001, the
Partnership reserved all accrued interest of $451,194 recorded on the loan
receivable through March 31, 2001 and has ceased accruing interest on its loan
receivable from Echelon Residential Holdings, effective April 1, 2001.
The write-down was precipitated principally by a slowing U.S. economy and its
effects on the real estate development industry. The economic outlook for the
properties that existed when the loan was funded has deteriorated and inhibited
the ability of Echelon Residential Holdings' management to secure low-cost
sources of development capital, including but not limited to joint-venture or
equity partners. In response to these developments and lower risk tolerances in
the credit markets, the management of Echelon Residential Holdings decided in
the second quarter of 2001 to concentrate its prospective development activities
within the southeastern United States and, therefore, to dispose of development
sites located elsewhere. In May 2001, Echelon Residential Holdings closed its
Texas-based development office; and since the beginning of 2001, the company has
sold three of nine properties (two in July 2001 and one in October 2001). As of
November 2001, one additional property is under contract to be sold, subject to
due diligence that remains pending. As a result of these developments, the
General Partner does not believe that Echelon Residential Holdings will realize
the profit levels originally believed to be achievable from either selling these
properties as a group or developing all of them as multi-family residential
communities.
The Restated Agreement, as amended, prohibits the Partnership from making loans
to the General Partner or its affiliates. Since the acquisition of the several
parcels of real estate from the owner had to occur prior to the admission of
certain independent third parties as equity owners, Echelon Residential Holdings
and its wholly owned subsidiary, Echelon Residential LLC, were formed in
anticipation of their admission. The General Partner agreed to an officer of
the Manager serving as the initial equity holder of Echelon Residential Holdings
and as an unpaid manager of Echelon Residential Holdings. The officer made a
$185,465 equity investment in Echelon Residential Holdings. His return on his
equity investment is restricted to the same rate of return as the partnerships
realize on their loans. There is a risk that the court may object to the
general partner's action in structuring the loan in this way since the officer
may be deemed an affiliate and the loans in violation of the prohibition against
loans to affiliates and the court's statement in its order permitting New
Investments that all other provisions of the Partnership Agreements governing
the investment objectives and policies of the Partnership shall remain in full
force and effect. The court may require the partnerships to restructure or
divest the loan.
As a result of an exchange transaction in 1997, the Partnership is the
beneficial owner of 20,876 shares of Semele common stock and holds a beneficial
interest in a note from Semele (the "Semele Note") of $459,729. The Semele Note
matures in April 2003 and bears an annual interest rate of 10% with mandatory
principal reductions prior to maturity, if and to the extent that net proceeds
are received by Semele from the sale or refinancing of its principal real estate
asset consisting of an undeveloped 274-acre parcel of land near Malibu,
California.
The exchange in 1997 involved the sale by five partnerships and certain other
affiliates of their beneficial interests in three cargo vessels to Semele in
exchange for cash, Semele common stock and the Semele Note. At the time of the
transaction, Semele was a public company unaffiliated with the general partners
and the partnerships. Subsequently, as part of the exchange transaction, Semele
solicited the consent of its shareholders to, among other things, engage EFG to
provide administrative services and to elect certain affiliates of EFG and the
general partners as members of the board of directors. At that point, Semele
became affiliated with EFG and the general partners. The maturity date of the
note has been extended. Since the Semele Note was received as consideration for
the sale of the cargo vessels to an unaffiliated party and the extension of the
maturity of the Semele Note is documented in an amendment to the existing Semele
Note and not as a new loan, the general partners of the owner partnerships do
not consider the Semele Note to be within the prohibition in the Partnership
Agreements against loans to or from the general partner and its affiliates.
Nonetheless, the extension of the maturity date might be construed to be in
violation of the making of a loan to an affiliate of the general partner in
violation of the Partnership Agreements of the owner partnerships and to be a
violation of the court's order with respect to New Investments that all other
provisions of the Partnership Agreements shall remain in full force and effect.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price on the NASDAQ SmallCap Market at March 31, 2000), resulting in an
unrealized loss of $7,829. This loss was reported as a component of
comprehensive income included in the Statement of Changes in Partners' Capital.
At March 31, 2001, the Partnership determined that the decline in the market
value of its Semele common stock was other-than-temporary. As a result, the
Partnership wrote down the cost of the Semele common stock to $3.3125 per share
(the quoted price of the Semele stock on the NASDAQ SmallCap Market on the date
the stock traded closest to March 31, 2001), for a total realized loss in the
three months ended March 31, 2001 of $16,962.
The Semele Note and the Semele common stock are subject to a number of risks
including, Semele's ability to make loan payments which is dependent upon the
liquidity of Semele and primarily Semele's ability to sell or refinance its
principal real estate asset consisting of an undeveloped 274-acre parcel of land
near Malibu, California. The market value of the Partnership's investment in
Semele common stock has generally declined since the Partnership's initial
investment in 1997. In 1998, the General Partner made the same determination and
wrote down the Partnership's investment. Again in the quarter ended March 31,
2001, the General Partner determined that the decline in the market value of the
stock was other than temporary and wrote down the Partnership's investment.
Subsequently, the market value of the Semele common stock has fluctuated. The
market value of the stock could decline in the future. Gary D. Engle, President
and Chief Executive Officer of EFG and a Director of the General Partner is
Chairman and Chief Executive Officer of Semele and James A. Coyne, Executive
Vice President of EFG is Semele's President and Chief Operating Officer. Mr.
Engle and Mr. Coyne are both members of the Board of Directors of, and own
significant stock in, Semele.
The Partnership obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as components of financing activities on
the accompanying Statement of Cash Flows. Each note payable is recourse only to
the specific equipment financed and to the minimum rental payments contracted to
be received during the debt amortization period (which period generally
coincides with the lease rental term). As rental payments are collected, a
portion or all of the rental payment is used to repay the associated
indebtedness. In the near term, the amount of cash used to repay debt
obligations will increase due to the refinancing discussed below. Subsequently
the amount of cash used will decline as the principal balance of notes payable
is reduced through the collection and application of rents. In addition, to the
obligation described below, the Partnership has a $679,276 balloon payment
obligation to be paid at the expiration of the lease term related to aircraft
leased by Reno Air, Inc. in January 2003.
In February 2001, the Partnership and certain affiliated investment programs
(collectively the "Programs") refinanced the outstanding indebtedness and
accrued interest related to the aircraft on lease to Aerovias de Mexico, S.A. de
C.V. In addition to financing the Programs' total existing indebtedness and
accrued interest $4,758,845, the Programs received additional debt proceeds of
$3,400,177. The Partnership's aggregate share of the refinanced and new
indebtedness was $968,639 including $564,970 used to repay the existing
indebtedness on the refinanced aircraft. The Partnership used a portion of its
share of the additional proceeds of $403,669 to repay the outstanding balance of
the indebtedness and accrued interest related to the aircraft then on lease to
Finnair OY of $104,590 and certain aircraft reconfiguration costs that the
Partnership had accrued at December 31, 2000. The new indebtedness bears a
fixed interest rate of 7.65%, principal is amortized monthly and Partnership has
a balloon payment obligation at the expiration of the lease term of $323,027 in
September 2004. In the three months ended March 31, 2000, the Partnership
refinanced the indebtedness associated with the same aircraft and, in addition
to refinancing the existing indebtedness, received additional debt proceeds of
$160,856.
There are no formal restrictions under the Restated Agreement, as amended, that
materially limit the Partnership's ability to pay cash distributions, except
that the General Partner may suspend or limit cash distributions to ensure that
the Partnership maintains sufficient working capital reserves to cover, among
other things, operating costs and potential expenditures, such as refurbishment
costs to remarket equipment upon lease expiration. In addition to the need for
funds in connection with the Class Action Lawsuit, liquidity is especially
important as the Partnership matures and sells equipment, because the remaining
equipment base consists of fewer revenue-producing assets that are available to
cover prospective cash disbursements. Insufficient liquidity could inhibit the
Partnership's ability to sustain its operations or maximize the realization of
proceeds from remarketing its remaining assets. In particular, the Partnership
must contemplate the potential liquidity risks associated with its investment in
commercial jet aircraft. The management and remarketing of aircraft can
involve, among other things, significant costs and lengthy remarketing
initiatives. Although the Partnership's lessees are required to maintain the
aircraft during the period of lease contract, repair, maintenance, and/or
refurbishment costs at lease expiration can be substantial. For example, an
aircraft that is returned to the Partnership meeting minimum airworthiness
standards, such as flight hours or engine cycles, nonetheless may require heavy
maintenance in order to bring its engines, airframe and other hardware up to
standards that will permit its prospective use in commercial air transportation.
At March 31, 2001, the Partnership's equipment portfolio included ownership
interests in four commercial jet aircraft, one of which is a Boeing 737
aircraft. The Boeing 737 aircraft is a Stage 2 aircraft, meaning that it is
prohibited from operating in the United States unless it is retro-fitted with
hush-kits to meet Stage 3 noise regulations promulgated by the Federal Aviation
Administration. During 2000, this aircraft was re-leased to Air Slovakia BWJ,
Ltd. through September 2003. The remaining three aircraft in the Partnership's
portfolio already are Stage 3 compliant. These aircraft have lease terms
expiring in April 2001, January 2003 and September 2004, respectively. In April
2001 upon its lease expiration, Finnair OY returned a McDonnell Douglas MD-82
aircraft which the General Partner is attempting to remarket.
Cash distributions to the General and Limited Partners had been declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is reported under financing activities on the
accompanying Statement of Cash Flows. No cash distributions were declared for
either of the quarters ended March 31, 2001 or 2000. In any given year, it is
possible that Limited Partners will be allocated taxable income in excess of
distributed cash. This discrepancy between tax obligations and cash
distributions may or may not continue in the future, and cash may or may not be
available for distribution to the Limited Partners adequate to cover any tax
obligation.
Cash distributions when paid to the Limited Partners generally consist of both a
return of and a return on capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, the residual value realized for each asset at its
disposal date and the performance of the Partnership's non-equipment assets.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 10 to the financial statements presented in the Partnership's 2000
Annual Report). For instance, selling commissions and organization and offering
costs pertaining to syndication of the Partnership's limited partnership units
are not deductible for federal income tax purposes, but are recorded as a
reduction of partners' capital for financial reporting purposes. Therefore,
such differences are permanent differences between capital accounts for
financial reporting and federal income tax purposes. Other differences between
the bases of capital accounts for federal income tax and financial reporting
purposes occur due to timing differences. Such items consist of the cumulative
difference between income or loss for tax purposes and financial statement
income or loss and the treatment of unrealized gains or losses on investment
securities for book and tax purposes. The principal component of the cumulative
difference between financial statement income or loss and tax income or loss
results from different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a capital
deficit at March 31, 2001. This is the result of aggregate cash distributions
to the General Partner being in excess of its capital contribution of $1,000 and
its allocation of financial statement net income or loss. Ultimately, the
existence of a capital deficit for the General Partner for financial reporting
purposes is not indicative of any further capital obligations to the Partnership
by the General Partner. The Restated Agreement, as amended, requires that upon
the dissolution of the Partnership, the General Partner will be required to
contribute to the Partnership an amount equal to any negative balance, which may
exist in the General Partner's tax capital account. At December 31, 2000, the
General Partner had a positive tax capital account balance.
The outcome of the Class Action Lawsuit described in Note 11 to the accompanying
financial statements will be the principal factor in determining the future of
the Partnership's operations. Commencing with the first quarter of 2000, the
General Partner suspended the payment of quarterly cash distributions pending
final resolution of the Class Action Lawsuit. Accordingly, future cash
distributions are not expected to be paid until the Class Action Lawsuit is
settled or adjudicated.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------
The Partnership's financial statements include financial instruments that are
exposed to interest rate risks.
The Partnership's exposure to market risk for changes in interest rates at March
31, 2001, related primarily to one note payable for which the interest rate is
based on the London Interbank Offering Rate ("LIBOR"). An annual increase of a
100 basis points in the interest rate on this note payable would not have a
material effect on the Partnership's financial statements.
The Partnership's loan to Echelon Residential Holdings matures on September 8,
2002 and earns interest at a fixed annual rate of 14% for the first 24 months
and a fixed annual rate of 18% for the last 6 months of the loan, with interest
due at maturity. The effect of interest rate fluctuations on the Partnership in
the quarter ended March 31, 2001 was not material.
------
AMERICAN INCOME FUND I-C,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-Q/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
. Response:
. Refer to Note 9 to the financial statements herein.
Item 2. Changes in Securities
. Response: None
Item 3. Defaults upon Senior Securities
. Response: None
Item 4. Submission of Matters to a Vote of Security Holders
. Response: None
Item 5. Other Information
. Response: None
Item 6(a). Exhibits
. Response: None
Item 6(b). Reports on Form 8-K
. Response: None
SIGNATURE PAGE
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.
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
-----------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
Date: November 13, 2001
-------------------