<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
------------------------------------------------
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 March 31, 1999 Commission File No. 0-19137
AIRFUND II INTERNATIONAL LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3057290
- ------------------------------- --------------------
(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 ___
---
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 ___
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1999 and December 31, 1998 3
Statement of Operations
for the three months ended March 31, 1999 and 1998 4
Statement of Cash Flows
for the three months ended March 31, 1999 and 1998 5
Notes to the Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II. OTHER INFORMATION:
Items 1 - 6 18
2
<PAGE>
AIRFUND II International Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,363,808 $ 3,425,762
Rents receivable -- 39,933
Accounts receivable - affiliate 134,510 71,178
Other assets 43,732 125,734
Equipment at cost, net of accumulated depreciation of
$41,229,029 and $40,968,380 at March 31, 1999
and December 31, 1998, respectively 4,153,313 4,413,962
------------- -------------
Total assets $ 7,695,363 $ 8,076,569
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 1,654,304 $ 1,896,665
Accrued interest 20,446 25,126
Accrued liabilities 413,100 458,485
Accrued liabilities - affiliate 37,424 16,254
Deferred rental income 49,772 47,997
------------- -------------
Total liabilities 2,175,046 2,444,527
------------- -------------
Partners' capital (deficit):
General Partner (2,719,440) (2,713,854)
Limited Partnership Interests
(2,714,647 Units; initial purchase price of $25 each) 8,239,757 8,345,896
------------- -------------
Total partners' capital 5,520,317 5,632,042
------------- -------------
Total liabilities and partners' capital $ 7,695,363 $ 8,076,569
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AIRFUND II International Limited Partnership
STATEMENT OF OPERATIONS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
Income:
Lease revenue $ 708,129 $ 782,442
Interest income 38,418 32,064
--------------- --------------
Total income 746,547 814,506
--------------- --------------
Expenses:
Depreciation 260,649 840,286
Interest expense 38,797 56,803
Equipment management fees - affiliate 35,406 39,122
Operating expenses - affiliate 523,420 141,244
--------------- ---------------
Total expenses 858,272 1,077,455
--------------- ---------------
Net loss $ (111,725) $ (262,949)
--------------- ---------------
--------------- ---------------
Net loss per limited partnership unit $ (0.04) $ (0.09)
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AIRFUND II International Limited Partnership
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------- ------------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ (111,725) $ (262,949)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 260,649 840,286
Changes in assets and liabilities Decrease (increase) in:
Rents receivable 39,933 20,679
Accounts receivable - affiliate (63,332) 129,538
Other assets 82,002 --
Increase (decrease) in:
Accrued interest (4,680) 2,695
Accrued liabilities (45,385) (530)
Accrued liabilities - affiliate 21,170 (7,990)
Deferred rental income 1,775 (90,628)
--------------- ------------
Net cash from operating activities 180,407 631,101
--------------- -------------
Cash flows used in financing activities:
Principal payments - notes payable (242,361) (168,801)
--------------- -------------
Net cash used in financing activities (242,361) (168,801)
--------------- -------------
Net increase (decrease) in cash and cash equivalents (61,954) 462,300
Cash and cash equivalents at beginning of period 3,425,762 2,102,494
--------------- ------------
Cash and cash equivalents at end of period $ 3,363,808 $ 2,564,794
--------------- ------------
--------------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 43,477 $ 54,108
--------------- ------------
--------------- ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
March 31, 1999
(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 1998 Annual Report. Except as
disclosed herein, there has been no material change to the information
presented in the footnotes to the 1998 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1999 and December 31, 1998 and results of operations
for the three month periods ended March 31, 1999 and 1998 have been made and
are reflected.
NOTE 2 - CASH
At March 31, 1999, the Partnership had $3,252,638 invested in federal
agency discount notes and 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 and quarterly and no
significant amounts are calculated on factors other than the passage of time.
All leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$1,190,319 are due as follows:
<TABLE>
<S> <C>
For the year ending March 31, 2000 $ 872,465
2001 317,854
----------
Total $1,190,319
----------
----------
</TABLE>
In December 1998, the Partnership and the other affiliated leasing
programs owning interests in two McDonnell Douglas MD-82 aircraft entered
into lease extension agreements with Finnair OY. The lease extensions,
effective upon the expiration of the existing primary lease terms on April
28, 1999, extended the leases for nine months and two years, respectively. In
aggregate, these lease extensions will provide additional lease revenue of
approximately $876,000 to the Partnership. The lease revenue from these lease
extensions is included in the future minimum rents summary above.
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
March 31, 1999. Remaining Lease Term (Months), as used below, represents the
number of months remaining from March 31, 1999 under contracted lease terms.
In the opinion of Equis Financial Group Limited Partnership ("EFG") the
acquisition cost of the equipment did not exceed its fair market value.
6
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
REMAINING
LEASE
TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
- -------------- --------- -----------
<S> <C> <C>
One Lockheed L-1011-100 0 $16,644,138
One Boeing 727-208 ADV (ATA) 0 12,928,710
One Boeing 727-251 ADV (Transmeridian) 0 9,732,714
Two McDonnell-Douglas MD-82 (Finnair) 10-25 4,157,280
Three Boeing 737-2H4 (Southwest) 9 1,919,500
-----------
Total equipment cost 45,382,342
Accumulated depreciation (41,229,029)
-----------
Equipment, net of accumulated depreciation $ 4,153,313
-----------
-----------
</TABLE>
The costs of the two McDonnell-Douglas MD-82 aircraft and the three
Boeing 737-2H4 aircraft represent proportionate ownership interests. The
remaining interests are owned by other affiliated partnerships sponsored by
EFG. All partnerships individually report, in proportion to their respective
ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the aircraft.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of
equipment includes leveraged equipment having an original cost of
approximately $6,077,000 and a net book value of approximately $4,153,000 at
March 31, 1999. (See Note 6.)
At March 31, 1999, the Partnership's Lockheed L-1011-100, Boeing 727-208
ADV and its Boeing 727-251 ADV were held for sale. Each of these aircraft
were fully depreciated at March 31, 1999. See Note 7 to the financial
statements presented in the Partnership's 1998 Annual Report for additional
discussion regarding the Boeing 727-251 ADV aircraft and the Lockheed
L-1011-100 aircraft. American Trans Air, Inc. ("ATA") has given the
partnership notice of its intention to purchase the Partnership's Boeing
727-208 ADV aircraft for $3,109,500 in April 1999, pursuant to a purchase
option contained in the lease agreement (see Note 8).
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 three month
periods ended March 31, 1999 and 1998, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Equipment management fees $ 35,406 $ 39,122
Administrative charges 13,419 13,419
Reimbursable operating expenses
due to third parties 510,001 127,825
-------- --------
Total $558,826 $180,366
-------- --------
-------- --------
</TABLE>
7
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
All rents and proceeds from the sale of equipment are paid directly to
EFG. EFG temporarily deposits collected funds in a separate interest-bearing
escrow account prior to remittance to the Partnership. At March 31, 1999, the
Partnership was owed $134,510 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in April 1999.
NOTE 6 - NOTES PAYABLE
Notes payable at March 31, 1999 consisted of installment notes payable
to banks of $1,654,304. The installment notes are non-recourse, with interest
rates ranging between 8.65% and 8.89% and are collateralized by the equipment
and assignment of the related lease payments. All of the notes were
originated in connection with the Southwest Aircraft and the Finnair
Aircraft. The installment notes related to the Southwest Aircraft will be
fully amortized by noncancellable rents. The Partnership has a balloon
payment obligation at the expiration of the primary lease term related to the
Finnair Aircraft of $1,411,035. All of the Partnership's installment notes
payable mature during the year ending March 31, 2000. (See Note 8 regarding
the extension of the maturity date of the Finnair indebtedness in April
1999). The carrying amount of notes payable approximates fair value at March
31, 1999.
NOTE 7 - LEGAL PROCEEDINGS
In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and
derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL
GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court for
the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a
number of its affiliates, including the General Partner, as defendants
(collectively, the "Defendants"). Certain of the Plaintiffs, on or about June
24, 1997, had filed an earlier derivative action, captioned LEONARD
ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in
the Superior Court of the Commonwealth of Massachusetts on behalf of the
Nominal Defendants against the Defendants. Both actions are referred to
herein collectively as the "Class Action Lawsuit".
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the
Securities Exchange Act of 1934, common law fraud, breach of contract, breach
of fiduciary duty, and violations of the partnership or trust agreements that
govern each of the Nominal Defendants. The Defendants have denied, and
continue to deny, that any of them have committed or threatened to commit any
violations of law or breached any fiduciary duties to the Plaintiffs or the
Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed
a Stipulation of Settlement setting forth terms pursuant to which a
settlement of the Class Action Lawsuit is intended to be achieved and which,
among other things, is expected to reduce the burdens and expenses attendant
to continuing litigation. The Stipulation of Settlement was based upon and
superseded a Memorandum of Understanding between the parties dated March 9,
1998 which outlined the terms of a possible settlement. The Stipulation of
Settlement was filed with the Court on July 23, 1998 and was preliminarily
approved by the Court on August 20, 1998 when the Court issued its "Order
Preliminarily Approving Settlement, Conditionally Certifying Settlement Class
and Providing for Notice of, and Hearing on, the Proposed Settlement" (the
"August 20 Order"). Prior to issuing a final order, the Court will hold a
fairness hearing that will be open to all interested parties and permit any
party to object to the settlement. The investors of the Partnership and all
other plaintiff class members in the Class Action Lawsuit will receive a
Notice of Settlement and other information pertinent to the settlement of
their claims that will be mailed to them in advance of the fairness hearing.
Since first executing the Stipulation of Settlement, the Court has scheduled
two fairness hearings, the first on December 11, 1998 and the second on March
19, 1999, each of
8
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
which was postponed because of delays in finalizing certain information
materials that are subject to regulatory review prior to being distributed to
investors.
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which
was filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divides
the Class Action Lawsuit into two separate sub-classes that can be settled
individually. This revision is expected to expedite the settlement of one
sub-class by the middle of 1999. However, the second sub-class, involving the
Partnership and 10 affiliated partnerships (collectively referred to as the
"Exchange Partnerships"), is expected to remain pending for a longer period
due, in part, to the complexity of the proposed settlement pertaining to this
class.
Specifically, the settlement of the second sub-class is premised on the
consolidation of the Exchange Partnerships' net assets (the "Consolidation"),
subject to certain conditions, into a single successor company ("Newco").
Under the proposed Consolidation, the partners of the Exchange Partnerships
would receive both common stock in Newco and a cash distribution; and
thereupon the Exchange Partnerships would be dissolved. In addition, EFG
would contribute certain management contracts, operations personnel, and
business opportunities to Newco and cancel its current management contracts
with all of the Exchange Partnerships. Newco would operate as a finance
company specializing in the acquisition, financing and servicing of equipment
leases for its own account and for the account of others on a contract basis.
Newco also would use its best efforts to list its shares on the NASDAQ
National Market or another national exchange or market as soon after the
Consolidation as Newco deems that market conditions and its business
operations are suitable for listing its shares and Newco has satisfied all
necessary regulatory and listing requirements. The potential benefits and
risks of the Consolidation will be presented in a Solicitation Statement that
will be mailed to all of the partners of the Exchange Partnerships as soon as
the associated regulatory review process is completed and at least 60 days
prior to the fairness hearing. A preliminary Solicitation Statement was filed
with the Securities and Exchange Commission on August 24, 1998 and remains
pending. Class members will be notified of the actual fairness hearing date
when it is confirmed.
One of the principal objectives of the Consolidation is to create a
company that would have the potential to generate more value for the benefit
of existing limited partners than other alternatives, including continuing
the Partnership's customary business operations until all of its assets are
disposed in the ordinary course of business. To facilitate the realization of
this objective, the Amended Stipulation provides, among other things, that
commencing March 22, 1999, the Exchange Partnerships may collectively invest
up to 40% of the total aggregate net asset values of all of the Exchange
Partnerships in any investment, including additional equipment and other
business activities that the general partners of the Exchange Partnerships
and EFG reasonably believe to be consistent with the anticipated business
interests and objectives of Newco, subject to certain limitations, including
that the Exchange Partnerships retain sufficient cash balances to pay their
respective shares of the cash distribution referenced above in connection
with the proposed Consolidation.
In the absence of the Court's authorization to enter into such
activities, the Partnership's Restated Agreement, as amended, would not
permit new investment activities without the approval of limited partners
owning a majority of the Partnership's outstanding Units. Accordingly, to the
extent that the Partnership invests in new equipment, the Manager (being EFG)
will (i) defer, until the earlier of the effective date of the Consolidation
or December 31, 1999, any acquisition fees resulting therefrom and (ii) limit
its management fees on all such assets to 2% of rental income. In the event
that the Consolidation is consummated, all such acquisition and management
fees will be paid to Newco. To the extent that the Partnership invests in
other business activities not consisting of equipment acquisitions, the
Manager will forego any acquisition fees and management fees related to such
investments. In the event that the Partnership has acquired new investments,
but the Partnership does
9
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
not participate in the Consolidation, Newco will acquire such new investments
for an amount equal to the Partnership's net equity investment plus an
annualized return thereon of 7.5%. Finally, in the event that the Partnership
has acquired new investments and the Consolidation is not effected, the
General Partner will use its best efforts to divest all such new investments
in an orderly and timely fashion and the Manager will cancel or return to the
Partnership any acquisition or management fees resulting from such new
investments.
The Amended Stipulation and previous Stipulation of Settlement prescribe
certain conditions necessary to effecting final settlements, including
providing the partners of the Exchange Partnerships with the opportunity to
object to the participation of their partnership in the Consolidation.
Assuming the proposed settlement is effected according to present terms, the
Partnership's share of legal fees and expenses related to the Class Action
Lawsuit is estimated to be approximately $76,000 all of which was accrued and
expensed by the Partnership in 1998. In addition, the Partnership's share of
fees and expenses related to the proposed Consolidation is estimated to be
approximately $256,000, all of which was also accrued and expensed by the
Partnership in 1998.
While the Court's August 20 Order enjoined certain class members,
including all of the partners of the Partnership, from transferring, selling,
assigning, giving, pledging, hypothecating, or otherwise disposing of any
Units pending the Court's final determination of whether the settlement
should be approved, the March 22 Order permits the partners to transfer Units
to family members or as a result of the divorce, disability or death of the
partner. No other transfers are permitted pending the Court's final
determination of whether the settlement should be approved. The provision of
the August 20 Order which enjoined the General Partners of the Exchange
Partnerships from, among other things, recording any transfers not in
accordance with the Court's order remains effective.
There can be no assurance that settlement of either sub-class of the
Class Action Lawsuit will receive final Court approval and be effected. There
also can be no assurance that all or any of the Exchange Partnerships will
participate in the Consolidation because if limited partners owning more than
one-third of the outstanding Units of a partnership object to the
Consolidation, then that partnership will be excluded from the Consolidation.
The General Partner and its affiliates, in consultation with counsel, concur
that there is a reasonable basis to believe that final settlements of each
sub-class will be achieved. However, in the absence of final settlements
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.
In addition to the foregoing, the Partnership is a party to other
lawsuits that have arisen out of the conduct of its business, principally
involving disputes or disagreements with lessees over lease terms and
conditions. Refer to the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1998 for a description of these matters. The
following is an update to the Partnership's prior disclosure on Form 10-K for
1998:
ACTION INVOLVING TRANSMERIDIAN AIRLINES
On October 11, 1996, Prime Air Inc. d/b/a Transmeridian Airlines (the
"Plaintiff") filed an action in the 61st Judicial District Court of Harris
County, Texas (the "Court") entitled PRIME AIR, INC. D/B/A TRANSMERIDIAN
AIRLINES V. INVESTORS ASSET HOLDING CORP. ("IAHC"), AS TRUSTEE FOR AIRFUND II
INTERNATIONAL LIMITED PARTNERSHIP, PLM INTERNATIONAL ("PLM"), AND NAVCOM
AVIATION, INC. (collectively, the "Defendants"). In that action, the
Plaintiff claimed damages of more than $3 million for alleged breach of
contract, fraud, civil conspiracy, tortious interference of business
relations, negligent misrepresentation, negligence and gross negligence, and
punitive damages against the Defendants in connection with Transmeridian's
lease of a Boeing 727-251 ADV jet aircraft from the Partnership. On November
7, 1996, PLM removed the action to United States District Court for the
Southern District of Texas. On February 14, 1997, the Defendants answered the
Plaintiff's Complaint denying the allegations made therein and asserting
various defenses.
10
<PAGE>
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
On July 31, 1998, the Court granted IAHC's motion to strike Plaintiff's
fraud and negligent misrepresentation claims due to failure to plead with
particularity. Extensive discovery was conducted on the merits of Plaintiff's
claims. The Plaintiff provided a revised expert report claiming actual
damages of approximately $8.5 million and Plaintiff continued to seek
punitive damages and both pre-judgment and post-judgment interest. On March
18, 1999, the Court entered summary judgment in favor of IAHC and PLM on all
of the Plaintiff's claims. The Plaintiff subsequently filed a motion to alter
or amend the judgment, or in the alternative, to certify the Court's Order
for Interlocutory Appeal. On April 30, 1999, the Court declined to alter or
amend its judgment and entered final judgment in favor of IAHC and PLM on all
of the Plaintiff's claims. The Plaintiff has indicated its intention to
appeal. The General Partner believes that the Plaintiff's claims are without
merit and will continue to defend this action vigorously, in the event
Plaintiff files an appeal. While there is no certainty as to the outcome of
this litigation, the General Partner, in consultation with counsel, believes
that the summary judgments granted will be upheld if appeal is taken by the
Plaintiff. Therefore, the General Partner does not believe that the outcome
of this litigation will adversely affect the Partnership's financial position.
ACTION INVOLVING NORTHWEST AIRLINES, INC.
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and certain affiliated investment
programs (collectively, the "Plaintiffs"), filed an action in United States
District Court for the District of Massachusetts against a lessee of the
Partnership, Northwest Airlines, Inc. ("Northwest"). The Complaint alleges
that Northwest did not fulfill its maintenance obligations under its Lease
Agreements with the Plaintiffs and seeks declaratory judgment concerning
Northwest's obligations and monetary damages. Northwest filed an Answer to
the Plaintiffs' Complaint and a motion to transfer the venue of this
proceeding to Minnesota. The Court denied Northwest's motion. On June 29,
1998, a United States Magistrate Judge recommended entry of partial summary
judgment in favor of the Plaintiffs. Northwest appealed this decision. On
April 15, 1999, the United States District Court Judge adopted the Magistrate
Judge's recommendation and entered partial summary judgment in favor of the
Plaintiffs. The General Partner believes that the Plaintiff's claims
ultimately will prevail and that the Partnership's financial position will
not be adversely affected by the outcome of this action.
NOTE 8 - SUBSEQUENT EVENTS
On April 29, 1999, the Partnership and certain affiliated investment
programs (collectively, the "Programs") entered into agreements with a
third-party lender to extend the maturity date of the Programs' indebtedness
related to the two aircraft leased to Finnair OY (the "Finnair Aircraft").
Under the existing loan agreements, the Programs had balloon payment
obligations scheduled to mature in April 1999. Consistent with the extension
terms of the lease agreements related to the Finnair Aircraft (see Note 3),
the maturity dates of the indebtedness were extended to January 2000 and
April 2001, respectively. The Partnership will have balloon payment
obligations related to this indebtedness on the respective maturity dates of
$499,815 and $133,261.
On April 28, 1999, at the expiration of the aircraft's lease term, the
Partnership sold its proportionate interest in a Boeing 727-208 ADV aircraft,
previously leased to ATA, to the lessee for net proceeds of $3,109,500. The
Partnership's interest in the aircraft was fully depreciated at March 31,
1999.
11
<PAGE>
AIRFUND II International 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 of AIRFUND II International
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 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 outcome of the Class Action Lawsuit described in Note 7 to
the accompanying financial statements, the collection of all rents due under
the Partnership's lease agreements and remarketing of the Partnership's
equipment.
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or
embedded chips that could interpret dates ending in "00" as the year 1900
rather than the year 2000. In certain cases, such errors could result in
system failures or miscalculations that disrupt the operations of the
affected businesses. The Partnership uses information systems provided by
Equis Financial Group Limited Partnership (formerly American Finance Group)
("EFG") and has no information systems of its own. EFG has adopted a plan to
address the Year 2000 Issue that consists of four phases: assessment,
remediation, testing, and implementation and has elected to utilize
principally internal resources to perform all phases. EFG has completed
substantially all of its Year 2000 project at an aggregate cost of less than
$50,000 and at a di minimus cost to the Partnership. All costs incurred in
connection with EFG's Year 2000 project have been expensed as incurred.
EFG's primary information software was coded by IBM at the point of
original design to use a four-digit field to identify calendar year. All of
the Partnership's lease billings, cash receipts and equipment remarketing
processes are performed using this proprietary software. In addition, EFG has
gathered information about the Year 2000 readiness of significant vendors and
third party servicers and continues to monitor developments in this area. All
of EFG's peripheral computer technologies, such as its network operating
system and third-party software applications, including payroll, depreciation
processing, and electronic banking, have been evaluated for potential
programming changes and have required only minor modifications to function
properly with respect to dates in the year 2000 and thereafter. EFG
understands that each of its and the Partnership's significant vendors and
third-party servicers are in the process, or have completed the process, of
making their systems Year 2000 compliant. Substantially all parties queried
have indicated that their systems would be Year 2000 compliant by the end of
1998.
Presently, EFG is not aware of any outside customer with a Year 2000
Issue that would have a material effect on the Partnership's results of
operations, liquidity, or financial position. The Partnership's equipment
leases were structured as triple net leases, meaning that the lessees are
responsible for, among other things, (i) maintaining and servicing all
equipment during the lease term, (ii) ensuring that all equipment functions
properly and is returned in good condition, normal wear and tear excepted,
and (iii) insuring the assets against casualty and other events of loss.
Non-compliance with lease terms on the part of a lessee, including failure to
address Year 2000 Issues could result in lost revenues and impairment of
residual values of the Partnership's equipment assets under a worst-case
scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year
2000 Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's business operations. However, EFG has no means of ensuring that
all customers, vendors and third-party servicers will conform ultimately to
Year 2000 standards. The effect of this risk to the Partnership is not
determinable.
12
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998:
As an equipment leasing partnership, the Partnership was organized to
acquire and lease a portfolio of commercial jet aircraft subject to lease
agreements with third parties. During 1990 and 1991, the Partnership
purchased four commercial jet aircraft and a proportionate interest in two
additional aircraft which were leased by major carriers engaged in passenger
transportation. Initially, each aircraft generated rental revenue pursuant to
primary-term lease agreements. Subsequently, all of the aircraft in the
Partnership's original portfolio have been re-leased, renewed, exchanged for
other aircraft or sold. At March 31, 1999, the Partnership owned three
aircraft and proportionate interests in five additional aircraft. Upon
expiration of the current lease agreements, each aircraft will be re-leased
or sold depending on prevailing market conditions and the assessment of such
conditions by EFG to obtain the most advantageous economic benefit.
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 7 to
the accompanying financial statements. Pursuant to the Restated Agreement, as
amended, the Partnership is scheduled to be dissolved by December 31, 2005.
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, the Partnership recognized
lease revenue of $708,129 compared to $782,442 for the same period in 1998.
The decrease in lease revenue from 1998 to 1999 is primarily the result of
the sale in April 1998 of the Partnership's interest in a Lockheed L-1011-50
aircraft. During the three months ended March 31, 1998, the Partnership
recognized lease revenue of approximately $116,000 related to this aircraft.
See below for discussion of further variances in lease revenue between the
respective periods. In the future, the Partnership's aggregate lease revenue
is scheduled to decline due to the sale of aircraft and the expiration of the
lease terms related to the Partnership's remaining aircraft.
The three Boeing 737-2H4 aircraft (the "Southwest Aircraft") in which
the Partnership holds a proportionate interest are currently on lease to
Southwest Airlines, Inc. These leases are scheduled to expire on December 31,
1999 and provide lease revenue of $31,464 per month to the Partnership.
Additionally, the two McDonnell-Douglas MD-82 aircraft (the "Finnair
Aircraft"), in which the Partnership holds a proportionate interest, are
currently on lease to Finnair OY. These leases were scheduled to expire on
April 28, 1999 and generate lease revenue of $159,981 per quarter to the
Partnership (see further discussion below).
The Partnership's Boeing 727-251 Advanced aircraft is being leased on a
month-to-month basis by Transmeridian Airlines, Inc. ("Transmeridian") (see
below for discussion regarding litigation related to this aircraft). The
Partnership recognized lease revenue related to this aircraft of $210,000 and
$223,333 for the three months ended March 31, 1999 and 1998, respectively
(see further discussion below).
The Partnership's Boeing 727-208 ADV aircraft is under a renewal
agreement with American Trans Air, Inc. The Partnership recognized lease
revenue of $245,533 and $190,500 from this aircraft for the three-months
ended March 31, 1999 and 1998, respectively.
At March 31, 1999, the Partnership held proportionate ownership
interests in the Southwest Aircraft and the Finnair Aircraft (see Note 4 to
the financial statements). The remaining interests are owned by other
affiliated partnerships sponsored by EFG. All partnerships individually
report, in proportion to their respective ownership interests, their
respective shares of assets, liabilities, revenues and expenses associated
with the aircraft.
Interest income for the three months ended March 31, 1999 was $38,418
compared to $32,064 for the same period in 1998. Interest income is typically
generated from temporary investments of rental receipts and equipment sale
proceeds in short-term instruments.
13
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
For the three months ended March 31, 1999 and 1998, the Partnership
incurred interest expense of $38,797 and $56,803, respectively. Interest
expense resulted from financing obtained from third-party lenders in
connection with the acquisition of the Southwest Aircraft and the Finnair
Aircraft. Interest expense in future periods will continue to decline as the
principal balance of notes payable is reduced through the application of rent
receipts to outstanding debt.
Management fees were 5% of lease revenue during each of the periods
ended March 31, 1999 and 1998.
The ultimate realization of residual value for any aircraft will be
dependent upon many factors, including EFG's ability to sell and re-lease the
aircraft. Changes in market conditions, industry trends, technological
advances, and other events could converge to enhance or detract from asset
values at any given time. Accordingly, EFG will attempt to monitor changes in
the airline industry in order to identify opportunities which may be
advantageous to the Partnership and which will maximize total cash returns
for each aircraft.
The total economic value realized upon final disposition of each
aircraft is comprised of all primary lease term revenue generated from that
aircraft, together with its residual value. The latter consists of cash
proceeds realized upon the aircraft's sale in addition to all other cash
receipts obtained from renting the aircraft on a re-lease, renewal or
month-to-month basis. Consequently, the amount of any future gain or loss
reported in the financial statements may not necessarily be indicative of the
total residual value the Partnership achieved from leasing the aircraft.
Operating expenses were $523,420 and $141,244 for the three months ended
March 31, 1999 and 1998, respectively. The increase in operating expenses
from 1998 to 1999 was primarily due to engine leasing costs of $246,000
incurred in 1999 related to the aircraft leased to Transmeridian (refer to
Note 7 to the financial statements presented in the Partnership's 1998 Annual
Report). In addition, in 1999 the Partnership incurred legal fees in
connection with a separate litigation with Transmeridian (see Note 7 to the
financial statements herein). Other operating expenses consist principally of
administrative charges, professional service costs, such as audit and other
legal fees, as well as insurance, printing, distribution and other
remarketing expenses. Depreciation expense was $260,649 for the three months
ended March 31, 1999, compared to $840,286 for the same period in 1998.
Management fees were 5% of lease revenue during each of the periods ended
March 31, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity. As an equipment
leasing program, the Partnership's principal operating activities derive from
aircraft 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 a net cash inflow of $180,407 and $631,101 for
the three months ended March 31, 1999 and 1998, respectively. Future renewal,
re-lease and aircraft sales 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 decline as the Partnership
remarkets its aircraft. Conversely, the Partnership may incur increased costs
to insure the successful remarketing of these aircraft. Ultimately, the
Partnership will dispose of all aircraft under lease. This will occur
principally through sale transactions whereby each aircraft will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each aircraft's primary or renewal/re-lease term.
At March 31, 1999, the Partnership was due aggregate future minimum
lease payments of $1,190,319 from contractual lease agreements (see Note 3 to
the financial statements), a portion of which will be used to amortize the
principal balance of notes payable of $1,654,304 (see Note 6 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
aircraft or enter re-lease or renewal agreements when considered advantageous
by the General Partner and
14
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
EFG. Such future remarketing activities will result in the realization of
additional cash inflows in the form of aircraft 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 aircraft. In the latter instances, the aircraft could be re-leased
to another lessee or sold to a third party. Accordingly, as the terms of the
currently existing contractual lease agreements expire, the cash flows of the
Partnership will become less predictable. In addition, the Partnership will
need cash outflows to satisfy interest on indebtedness and to pay management
fees and operating expenses.
ATA has given the Partnership notice of its intention to purchase the
Partnership's Boeing 727-208 Advanced aircraft for $3,109,500 in April 1999,
pursuant to a purchase option contained in the lease agreement. This aircraft
was fully depreciated at March 31, 1999 (see Note 8 to the financial
statements).
The Partnership's ability to remarket its Boeing 727-251 ADV aircraft
leased by Transmeridian has been impeded by substantial damage caused to the
airframe of this aircraft as the result of an on-ground accident at the
airport in Caracas, Venezuela in October 1998. See Note 7 to the financial
statements presented in the Partnership's 1998 Annual Report for details
regarding legal action undertaken by the Partnership related to this
situation.
In December 1998, the Partnership and the other affiliated leasing
programs owning interests in the Finnair Aircraft entered into lease
extension agreements with Finnair OY. The lease extensions, effective upon
the expiration of the existing primary lease terms on April 28, 1999,
extended the leases for nine months and two years, respectively. In
aggregate, these lease extensions will provide additional lease revenue of
approximately $876,000 to the Partnership (see Note 3 to the financial
statements).
In September 1998, Classic Airways Limited ("Classic") ceased paying
rent to the Partnership with respect to the Lockheed L-1011-100 aircraft. In
October 1998, Classic filed for receivership in the United Kingdom ("UK") and
was placed in liquidation. Prior to its liquidation, Classic had incurred and
failed to pay significant airport ground fees to BAA plc, Eurocontrol, and
CAA (collectively, the "Airport Authorities"). The failure of Classic to pay
such charges resulted in detention of the aircraft by the Airport
Authorities. In addition, the Airport Authorities have continued to charge
incremental ground fees and expenses to the aircraft and have grounded the
aircraft pending collection of such amounts, which are approximately $284,000
in total. Under UK law, the Airport Authorities have the right not only to
detain the aircraft, but to sell the aircraft at auction in order to satisfy
their outstanding fees. Accordingly, it is anticipated that the Partnership
will be required to pay at least a portion of the airport charges in order to
recover the aircraft. The General Partner has engaged counsel to represent
the Partnership's interests in the UK and; presently, counsel is negotiating
with the Airport Authorities to resolve the issue of the unpaid charges so
that the aircraft can be flown to the United States or otherwise remarketed.
The parties have not executed a final settlement agreement; however, the
Airport Authorities have indicated a willingness to reach a compromise. Based
upon recent discussions, the Partnership accrued and expensed approximately
$167,000 to cover the cost of settling the airport charges, all of which was
recorded in 1998. At the date of Classic's liquidation, the Partnership had
accrued $160,000 of rental income which had not been collected from Classic
and all of which was written-off as uncollectible in 1998. The General
Partner does not expect that any funds are likely to be recovered from
Classic in connection with this matter.
The Partnership obtained long-term financing in connection with the
Southwest Aircraft and the Finnair Aircraft. The repayments of principal
related to such indebtedness are reported as a component of financing
activities. The corresponding note agreements are recourse only to the
specific equipment financed and to the minimum rental payments contracted to
be received during the debt amortization period. As rental payments are
collected, a portion or all of the rental payment will be used to repay
principal and interest. The Partnership also has a balloon payment obligation
at the expiration of the primary lease term related to the Finnair Aircraft
of $1,411,035 (see Note 8 to the financial statements regarding the extension
of the maturity date of the Finnair indebtedness in April 1999).
15
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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. 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 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. Individually, these repairs can cost in excess of $1 million
and, collectively, they could require the disbursement of several million
dollars, depending upon the extent of refurbishment. In addition, the
Partnership's equipment portfolio includes two Stage 2 aircraft as well as
proportionate ownership interests in three Stage 2 aircraft. These aircraft
are prohibited from operating in the United States after December 31, 1999
unless they are retro-fitted with hush-kits to meet Stage 3 noise regulations
promulgated by the Federal Aviation Administration. The cost to hush-kit an
aircraft, such as the Partnership's Boeing 727s and Boeing 737s, can approach
$2 million. Although the Partnership is not required to retro-fit its
aircraft with hush-kits, insufficient liquidity could jeopardize the
remarketing of these aircraft and risk their disposal at a depressed value at
a time when a better economic return would be realized from refurbishing the
aircraft and re-leasing them to another user. Collectively, the aggregation
of the Partnership's potential liquidity needs related to aircraft and other
working capital requirements could be significant. Accordingly, the General
Partner has maintained significant cash reserves within the Partnership in
order to minimize the risk of a liquidity shortage.
Finally, the Partnership is a Nominal Defendant in a Class Action
Lawsuit described in Note 7 to the accompanying financial statements. A
preliminary court order has allowed the Partnership to invest in new
equipment or other activities, subject to certain limitations, effective
March 22, 1999. To the extent that the Partnership continues to own aircraft
investments that could require capital reserves, the General Partner does not
anticipate that the Partnership will invest in new assets, regardless of its
authority to do so. Until the Class Action Lawsuit is adjudicated, the
General Partner does not expect to declare any distributions to the Partners.
In addition, the proposed settlement, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. See Note 7 to the accompanying
financial statements.
Cash distributions paid to the Recognized Owners 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 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 aircraft at its disposal date. No
distributions were declared in either of the three months ended March 31,
1999 or 1998.
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 6 to the financial statements presented in the
Partnership's 1998 Annual Report). For instance, selling commissions and
organization and offering costs pertaining to syndication of the
Partnership's limited partnership units are not
16
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 difference between distributions (declared
vs. paid) for income tax and financial reporting purposes, if any. 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, 1999. 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, 1998, the General Partner had a negative
tax capital account balance of approximately $828,000.
The future liquidity of the Partnership will be influenced by, among
other factors, prospective market conditions, aircraft refurbishment
requirements (discussed above), the ability of EFG to manage and remarket the
Partnership's aircraft, and many other events and circumstances, that could
enhance or detract from individual aircraft yields and the collective
performance of the Partnership's aircraft portfolio. However, the outcome of
the Class Action Lawsuit described in Note 7 to the accompanying financial
statements will be the principal factor in determining the future of the
Partnership's operations.
17
<PAGE>
AIRFUND II International Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 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
18
<PAGE>
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.
AIRFUND II International Limited Partnership
By: AFG Aircraft Management Corporation, a
Massachusetts corporation and the General
Partner of the Registrant.
By: /s/ MICHAEL J. BUTTERFIELD
---------------------------
Michael J. Butterfield
Treasurer of AFG Aircraft Management Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: MAY 14, 1999
By: /s/ GARY ROMANO
----------------
Gary M. Romano
Clerk of AFG Aircraft Management Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: MAY 14, 1999
19
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,363,808
<SECURITIES> 0
<RECEIVABLES> 134,510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,542,050
<PP&E> 45,382,342
<DEPRECIATION> (41,229,029)
<TOTAL-ASSETS> 7,695,363
<CURRENT-LIABILITIES> 520,742
<BONDS> 1,654,304
0
0
<COMMON> 0
<OTHER-SE> 5,520,317
<TOTAL-LIABILITY-AND-EQUITY> 7,695,363
<SALES> 0
<TOTAL-REVENUES> 746,547
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 819,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,797
<INCOME-PRETAX> (111,725)
<INCOME-TAX> 0
<INCOME-CONTINUING> (111,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,725)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
