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, 1995
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, 1995 Commission File No. 0-14415
American Income 2 Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2809330
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
(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 ____
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 2 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Net Assets in Liquidation
at June 30, 1995 and December 31, 1994 3
Statement of Changes in Net Assets in Liquidation
for the six months ended June 30, 1995 4
Statement of Operations
for the three and six months ended June 30, 1994 5
Statement of Cash Flows
for the six months ended June 30, 1994 6
Notes to the Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION:
Items 1 - 6 10
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
June 30, 1995 and December 31, 1994
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 492,434 $ 768,694
Accounts receivable - affiliate -- 1,092
Total assets $ 492,434 $ 769,786
LIABILITIES
Accrued liabilities $ 74,000 $ 61,090
Accrued liabilities - affiliate 738 12,169
Cash distributions payable to partners 62,799 62,799
Total liabilities 137,537 136,058
NET ASSETS $ 354,897 $ 633,728
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
for the six months ended June 30, 1995
(Unaudited)
Interest income $ 16,522
Cash distributions (125,598)
Operating expenses - affiliate (169,755)
Net decrease in net assets in
liquidation during the period (278,831)
Net assets in liquidation at
the beginning of the period 633,728
Net assets in liquidation at
the end of the period $ 354,897
Cash distributions declared
per limited partnership unit $ 2.25
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1994
(Unaudited)
Three Months Six Months
Ended Ended
June 30, 1994 June 30,1994
Income:
Lease revenue $ 22,932 $109,424
Interest income 5,564 5,728
Gain on sale of equipment 127,954 127,954
Total income 156,450 243,106
Expenses:
Depreciation -- 87,173
Equipment management fees
- affiliate 1,146 5,471
Operating expenses - affiliate 57,944 83,209
Total expenses 59,090 175,853
Net income $ 97,360 $ 67,253
Net income
per limited partnership unit $ 1.74 $ 1.20
Cash distributions declared
per limited partnership unit $ 1.13 $ 2.25
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1994
(Unaudited)
Cash flows from (used in) operating activities:
Net income $ 67,253
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 87,173
Gain on sale of equipment (127,954)
Changes in assets and liabilities
Decrease in:
accounts receivable - affiliate 19,117
Increase (decrease) in:
accrued liabilities 3,250
accrued liabilities - affiliate (87,867)
Net cash used in operating activities (39,028)
Cash flows from investing activities:
Proceeds from equipment sales 949,402
Net cash from investing activities 949,402
Cash flows used in financing activities:
Distributions paid (125,598)
Net cash used in financing activities (125,598)
Net increase in cash and cash equivalents 784,776
Cash and cash equivalents at beginning of period 27,816
Cash and cash equivalents at end of period $ 812,592
AMERICAN INCOME 2 LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1995
(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 1994 Annual
Report. Except as disclosed herein, there has been no material
change to the information presented in the footnotes to the 1994
Annual Report.
Beginning July 1, 1994, the General Partner initiated the
liquidation of the Partnership in accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership (the
"Restated Agreement, as amended"). Accordingly, the financial
statements herein for the six months ended June 30, 1995
have been prepared on a liquidation basis of accounting.
In the opinion of management, all adjustments (consisting of
normal and recurring adjustments) considered necessary to present
fairly the Partnership's net assets in liquidation at June 30, 1995
and December 31, 1994, its changes in net assets in liquidation for
the six months ended June 30, 1995, its results of operations for
the three and six months ended June 30, 1994, and its cash flows
for the six months ended June 30, 1994 have been made and are
reflected.
NOTE 2 - CASH
At June 30, 1995, the Partnership had $490,000 invested in
reverse repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities.
NOTE 3 - REVENUE RECOGNITION
All of the Partnership's primary and renewal leases had expired
and all of the associated equipment was sold as of December 31,
1994. No future rents are due.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by
American Finance Group ("AFG") on behalf of the Partnership and AFG
is reimbursed at its actual cost for such expenditures. Fees and
other costs incurred during the six month periods ended June 30,
1995 and 1994, which were paid or accrued by the Partnership to AFG
or its Affiliates, are as follows:
1995 1994
Equipment management fees -- $ 5,471
Administrative charges $ 6,738 6,000
Reimbursable operating expenses
due to third parties 163,017 77,209
Total $ 169,755 $ 88,680
AMERICAN INCOME 2 LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 5 - LEGAL PROCEEDINGS
On February 24, 1992 Investors Asset Holding Corp.
("I.A.H.C."), as trustee of a trust of which the Partnership is the
sole beneficiary, commenced an action in the United States District
Court for the District of Puerto Rico (the "District Court")
against L.A.P.S.A., Inc. to recover possession of a Shorts SD-330
aircraft pursuant to a defaulted conditional sales agreement and
for related monetary damages. I.A.H.C., on behalf of the
Partnership, also commenced action to recover the aircraft in the
Dominican Republic, which action resulted in the recovery of the
aircraft and its removal to the U.S. in February, 1993. L.A.P.S.A.
filed counterclaims and one of its principals, Louis Perez Gonzales
("Perez"), filed a second action in the District Court against
I.A.H.C. and AFG seeking monetary damages in excess of $1,000,000.
On July 18, 1994, the Partnership sold the aircraft to a third
party for $150,000, which event resulted in a net gain of equal
amount, for financial statement purposes. On December 23, 1994,
the District Court dismissed all of L.A.P.S.A.'s claims as a result
of L.A.P.S.A.'s failure to comply with several discovery requests
and a discovery order. On January 31, 1995, the District Court
confirmed its position by denying L.A.P.S.A.'s motion for
reconsideration.
In a jury trial held in District Court in San Juan, Puerto Rico
between April 24, 1995 and May 1, 1995, I.A.H.C., obtained a
favorable verdict in its case against L.A.P.S.A. and was awarded
approximately $569,000 for lost profits, costs to repossess the
aircraft and legal fees. In the separate case of Perez vs.
I.A.H.C. and AFG, the jury entered a verdict for Perez and against
I.A.H.C. in the amount of $125,000. Immediately following the
verdicts, L.A.P.S.A. filed for protection under Chapter 7 of the
Bankruptcy Code in the District of Puerto Rico and, through post-
verdict discovery I.A.H.C. made the determination that L.A.P.S.A.
is judgment-proof. The parties agreed to settle the matter for a
mutual cancellation of the claims and a settlement agreement was
executed on July 20, 1995.
Additionally, Victoria Air, an unauthorized user of the
aircraft, commenced an action against I.A.H.C. in the Dominican
Republic demanding monetary damages in the amount of approximately
$1,000,000 for loss of revenues from use of the aircraft and
related damages. Currently, Victoria Air is not pursuing its
claims and any further prosecution of this matter is considered
unlikely. The term for prescription of this case for inactivity
runs through July 1996.
On August 8, 1995 AFG, on behalf of the Partnership, commenced
an action in the United States District Court for the Eastern
District of Wisconsin against Air Cargo Carriers, Inc. and its
President, James M. Germek, for damages in connection with an
alleged breach in the parties' agreement pursuant to which Air
Cargo Carriers, Inc. assumed custody and control of the aircraft
while it was stored at Miami International Airport and promised to
maintain, preserve and protect the plane. Currently, it is not
possible to determine the ultimate outcome of this matter.
The Partnership's accrued liabilities include $66,000 reserved
for anticipated legal expenses associated with these actions.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
On July 1, 1994, the General Partner initiated the liquidation
of the Partnership. The Partnership was organized in 1985 to
acquire and lease a diversified portfolio of capital equipment to
third-party lessees and to distribute the net proceeds from
operating and remarketing activities, after satisfaction of all
expenses and debt service obligations, to the Partners. The
Partnership was capitalized with $13,815,750 of equity from the
Limited Partners and $50,000 of equity from the General Partner and
acquired $24,676,869 of equipment, subject to related indebtedness.
All of the Partnership's equipment has been sold. Dissolution of
the Partnership will not occur until all of the litigation
described in Note 5 to the financial statements herein is
concluded.
Results of Operations
The Statement of Changes in Net Assets in Liquidation is
presented for the six months ended June 30, 1995 and reflects
the liquidation of assets during the period. As a result, a
comparison between current and prior year reporting periods is not
meaningful.
For the period ended June 30, 1995, the Partnership recognized
$16,522 of interest income generated from the temporary investment
of cash. Operating expenses consisted principally of administrative
charges, professional service costs, such as audit and legal fees,
as well as printing and distribution expenses. These charges
amounted to $34,300 during the period ended June 30, 1995. In
addition, the Partnership incurred $135,455 of legal costs related
to the aircraft described in Note 5 to the financial statements
herein. The Partnership will continue to incur distribution,
accounting and administrative costs until the Partnership is
dissolved.
Liquidity and Capital Resources
Aggregate cash distributions were adversely affected by the
loss of stipulated rent payments associated with the aircraft
described in Note 5 to the financial statements included herein and
the cost of associated legal actions. Future cash distributions to
the Partners will be reduced by the amount of any additional legal
costs which may result from these actions. At June 30, 1995, the
Partnership had $492,434 of cash, substantially all of which was
invested in interest-bearing investments. See Note 2 to the
financial statements herein.
For the six months ended June 30, 1995, the Partnership
declared total distributions of $125,598. In accordance with
the Restated Agreement, as amended, the Limited Partners were
allocated 99% of these distributions, or $124,342 and the General
Partner was allocated 1%, or $1,256. The second quarter 1995 cash
distribution was paid on July 14, 1995. Since inception, the
Partnership has distributed $14,894,751 to the Limited Partners and
$150,452 to the General Partner.
Cash distributions paid to the Limited Partners consist of both
a return of and a return on capital. To the extent that cash
distributions consist of Cash From Sales or Refinancings,
substantially all of such cash distributions should be viewed as a
return of capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment will
be determined coincident with the final cash distribution payment
to the Partners.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 5 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,
this report has been signed below on behalf of the registrant and in
the capacity and on the date indicated.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
By: AFG Leasing Associates, a
Massachusetts general partnership
and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a
Massachusetts corporation and
general partner in such general
partnership.
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 11, 1995
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<PERIOD-END> JUN-30-1995
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