UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
--------------------
For Quarter Ended June 30, 1997 Commission File No. 33-35148
American Income Fund I-A, a Massachusetts Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3097216
- ------------------------------- -------------------------------
(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
98 North Washington Street, Boston, MA 02114
- --------------------------------------------------------------------------------
(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 |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court 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 |_| No |_|
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1997 and December 31, 1996 3
Statement of Operations
for the three and six months ended June 30, 1997 and 1996 4
Statement of Cash Flows
for the six months ended June 30, 1997 and 1996 5
Notes to the Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION:
Items 1 - 6 13
2
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
June 30, 1997 and December 31, 1996
(Unaudited)
June 30, December 31,
1997 1996
----------- -----------
ASSETS
Cash and cash equivalents $ 1,687,120 $ 1,721,388
Rents receivable 42,582 27,902
Accounts receivable - affiliate 59,000 61,144
Equipment at cost, net of accumulated depreciation
of $3,708,092 and $3,836,846 at June 30, 1997
and December 31, 1996, respectively 377,795 530,926
----------- -----------
Total assets $ 2,166,497 $ 2,341,360
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities $ 15,000 $ 30,870
Accrued liabilities - affiliate 10,235 22,945
Deferred rental income 5,512 6,445
Cash distributions payable to partners 75,335 75,335
----------- -----------
Total liabilities 106,082 135,595
----------- -----------
Partners' capital (deficit):
General Partner (213,864) (206,597)
Limited Partnership Interests
(286,274 Units; initial purchase price of $25 each) 2,274,279 2,412,362
----------- -----------
Total partners' capital 2,060,415 2,205,765
----------- -----------
Total liabilities and partners' capital $ 2,166,497 $ 2,341,360
=========== ===========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1997 and 1996
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Income:
Lease revenue $126,104 $135,066 $251,977 $276,219
Interest income 20,171 19,552 40,263 39,137
Gain on sale of equipment 4,355 8,689 10,578 21,244
-------- -------- -------- --------
Total income 150,630 163,307 302,818 336,600
-------- -------- -------- --------
Expenses:
Depreciation
68,647 86,989 142,333 175,127
Equipment management fees
- affiliate 6,275 6,678 12,480 15,562
Operating expenses - affiliate 45,990 32,369 142,685 143,558
-------- -------- -------- --------
Total expenses 120,912 126,036 297,498 334,247
-------- -------- -------- --------
Net income $ 29,718 $ 37,271 $ 5,320 $ 2,353
======== ======== ======== ========
Net income
per limited partnership unit $ 0.10 $ 0.12 $ 0.02 $ 0.01
======== ======== ======== ========
Cash distributions declared
per limited partnership unit $ 0.25 $ 0.38 $ 0.50 $ 0.75
======== ======== ======== ========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from (used in) operating activities:
Net income $ 5,320 $ 2,353
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 142,333 175,127
Gain on sale of equipment (10,578) (21,244)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable (14,680) 44,827
accounts receivable - affiliate 2,144 (30,049)
Increase (decrease) in:
accrued interest -- (135)
accrued liabilities (15,870) 31,985
accrued liabilities - affiliate (12,710) (2,928)
deferred rental income (933) (2,947)
----------- -----------
Net cash from operating activities 95,026 196,989
----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment -- (127,020)
Proceeds from equipment sales 21,376 36,725
----------- -----------
Net cash from (used in) investing activities 21,376 (90,295)
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable -- (5,186)
Distributions paid (150,670) (226,006)
----------- -----------
Net cash used in financing activities (150,670) (231,192)
----------- -----------
Net decrease in cash and cash equivalents (34,268) (124,498)
Cash and cash equivalents at beginning of period 1,721,388 1,595,008
----------- -----------
Cash and cash equivalents at end of period $ 1,687,120 $ 1,470,510
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 135
=========== ===========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
June 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements 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 1996 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1997 and December 31, 1996 and results of operations for
the three and six month periods ended June 30, 1997 and 1996 have been made and
are reflected.
NOTE 2 - CASH
At June 30, 1997, the Partnership had $1,585,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly or quarterly and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of $332,683
are due as follows:
For the year ending June 30, 1998 $ 245,466
1999 87,217
---------
Total $ 332,683
=========
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at June
30, 1997. In the opinion of Equis Financial Group Limited Partnership ("EFG"),
the acquisition cost of the equipment did not exceed its fair market value.
6
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
- ---------------------------- ---------- -----------
Aircraft 10 - 36 $ 2,288,254
Materials handling 2 - 60 1,215,497
Communications 23 - 60 383,676
Computers & peripherals 1 - 51 137,424
Tractors & heavy duty trucks 78 61,036
-----------
Total equipment cost 4,085,887
Accumulated depreciation (3,708,092)
----------
Equipment, net of accumulated depreciation $ 377,795
===========
At June 30, 1997, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $2,415,273, representing approximately
59% of total equipment cost.
The summary above includes equipment held for sale or re-lease which had
been fully depreciated with a cost of approximately $1,700 at June 30, 1997. The
General Partner is actively seeking the sale or re-lease of all equipment not on
lease.
NOTE 5 - 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 each of the six month periods
ended June 30, 1997 and 1996, which were paid or accrued by the Partnership to
EFG or its Affiliates, are as follows:
1997 1996
-------- --------
Equipment management fees $ 12,480 $ 15,562
Administrative charges 25,260 6,276
Reimbursable operating expenses
due to third parties 117,425 137,282
-------- --------
Total $155,165 $159,120
======== ========
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 June 30, 1997, the Partnership was owed $59,000 by EFG for such funds and the
interest thereon. These funds were remitted to the Partnership in July 1997.
7
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 6 - LEGAL PROCEEDINGS
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited
partner units or beneficiary interests in eight investment programs sponsored by
EFG filed a lawsuit, as a derivative action, on behalf of the Partnership and 27
other investment programs (collectively, the "Nominal Defendants") in the
Superior Court of the Commonwealth of Massachusetts for the County of Suffolk
against EFG and certain of EFG's affiliates, including the General Partner of
the Partnership and four other wholly-owned subsidiaries of EFG which are
general partner or managing trustee of one or more of the investment programs,
(collectively, the "Managing Defendants"), and certain other entities and
individuals that have control of the Managing Defendants and the Nominal
Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of
breach of fiduciary duty, breach of contract, unjust enrichment, and equitable
relief and seek various remedies, including compensatory and punitive damages to
be determined at trial.
The General Partner and EFG are in the early stages of evaluating the
nature and extent of the claims asserted in this lawsuit and cannot predict its
outcome with any degree of certainty. However, based upon all of the facts
presently being considered by management, the General Partner and EFG do not
believe that any likely outcome will have a material adverse effect on the
Partnership. The General Partner, EFG and their affiliates intend to vigorously
defend against the lawsuit.
8
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements in this quarterly report 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 important 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
ability of EFG to collect all rents due under the attendant lease agreements and
successfully remarket the Partnership's equipment upon the expiration of such
leases.
Three and six months ended June 30, 1997 compared to the three and six months
ended June 30, 1996:
Overview
The Partnership was organized in 1990 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind-up its
operations within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment value in equipment
declines from asset disposals occurring in the normal course of business. As a
result of the Partnership's age and a declining equipment portfolio, the General
Partner is evaluating a variety of transactions that will reduce the
Partnership's prospective costs to operate as a publicly registered limited
partnership and, therefore, enhance overall cash distributions to the limited
partners. Such a transaction may involve the sale of the Partnership's remaining
equipment or a transaction that would allow for the consolidation of the
Partnership's expenses with other similarly-organized equipment leasing
programs.
Results of Operations
For the three and six months ended June 30, 1997, the Partnership
recognized lease revenue of $126,104 and $251,977, respectively, compared to
$135,066 and $276,219 for the same periods in 1996. The decrease in lease
revenue from 1996 to 1997 was expected and resulted principally from lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
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 EFG or an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
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.
For the three months ended June 30, 1997, the Partnership sold equipment
having a net book value of $1,145 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $4,355
compared to a net gain of $8,689 on equipment having a net book value of $7,137
for the same period in 1996.
9
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
For the six months ended June 30, 1997, the Partnership sold equipment
having a net book value of $10,798 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $10,578
compared to a net gain of $21,244 on equipment having a net book value of
$15,481 for the same period in 1996.
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 is
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. The Partnership classifies
such residual rental payments as lease revenue. 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 and six months ended June 30, 1997 was
$68,647 and $142,333, respectively, compared to $86,989 and $175,127 for the
same periods in 1996. 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 purposes of this policy,
estimated residual values represent estimates of equipment values at the date of
primary lease expiration. To the extent that an asset 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.
Management fees were approximately 5% of lease revenue for each of the
three and six months ended June 30, 1997, respectively, compared to 4.9% and
5.6% of lease revenue for the same periods in 1996. Management fees during the
six months ended June 30, 1996 included $2,088 resulting from an underaccrual in
1995. 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 consist principally of administrative charges,
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. Significant operating expenses were incurred in 1996 and 1997 due to
heavy maintenance and airframe overhaul costs incurred or accrued in connection
with the Partnership's interests in two Boeing 727 aircraft. Certain of the
costs incurred in the first quarter of 1996 were subsequently reimbursed by the
former lessee of the related aircraft. In 1996, the Partnership entered into a
new 36-month lease agreement with Sunworld International Airlines, Inc. to
re-lease one of the aircraft at a base rent to the Partnership of $7,540 per
month. In April 1997, the Partnership entered into a new 18-month lease
agreement with Transmeridian Airlines to re-lease the second aircraft at a base
10
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
rent to the Partnership of $9,280 per month for 8 months and $8,120 per month
for 10 months. The amount of future operating expenses cannot be predicted with
certainty; however, such expenses are usually higher during the acquisition and
liquidation phases of partnership. Other fluctuations typically occur in
relation to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, 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. For the six
months ended June 30, 1997, operating activities generated net cash inflows of
$95,026 compared to $196,989 for the same period in 1996. Future renewal,
re-lease and equipment sale activities will continue to cause a decline in the
Partnership's lease revenue 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 experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During the six months ended June 30, 1996,
the Partnership expended $127,020 to replace certain aircraft engines to
facilitate the re-lease of this aircraft to Transmeridian Airlines, discussed
above. There were no equipment acquisitions during the same period in 1997.
During the six months ended June 30, 1997, the Partnership realized $21,376 in
equipment sale proceeds compared to $36,725 for the same period in 1996. 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.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. The Partnership's notes payable
were fully amortized during the six months ended June 30, 1996.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the six months ended June 30, 1997, the Partnership declared
total cash distributions of Distributable Cash from Operations and Distributable
Cash From Sales and Refinancings of $150,670. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 95% of these distributions, or $143,137, and the General Partner
was allocated 5%, or $7,533. The second quarter 1997 cash distribution was paid
on July 14, 1997.
11
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Cash distributions paid to the Limited Partners 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, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contracted rents
and the outcome of residual activities. The General Partner anticipates that
cash proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
12
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 6 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
13
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-A, 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 Accounting Officer)
Date: August 14, 1997
By: /s/ Gary M. Romano
----------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1997
14