<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 33-35148-01
----------------
American Income Fund I-A, a Massachusetts Limited Partnership
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 2000 and December 31, 1999............................... 3
Statement of Operations
for the three and six months ended June 30, 2000 and 1999............ 4
Statement of Cash Flows
for the six months ended June 30, 2000 and 1999...................... 5
Notes to the Financial Statements..................................... 6-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 11-15
PART II. OTHER INFORMATION:
Items 1-6...................................................................... 16
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
June 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 859,411 $2,593,713
Rents receivable...................................... 2,370 17,000
Accounts receivable--affiliate........................ 10,071 9,270
Investment in real estate venture..................... 1,639,423 --
Equipment at cost, net of accumulated depreciation of
$360,367 and $423,985 at June 30, 2000 and December
31, 1999, respectively............................... -- --
---------- ----------
Total assets...................................... $2,511,275 $2,619,983
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities................................... $ 166,951 $ 204,068
Accrued liabilities--affiliate........................ 6,280 5,465
Other liabilities..................................... -- 25,000
Cash distributions payable to partners................ -- 56,502
---------- ----------
Total liabilities................................. 173,231 291,035
---------- ----------
Partners' capital (deficit):
General Partner...................................... (199,982) (200,437)
Limited Partnership Interests (286,274 Units; initial
purchase price of $25 each)......................... 2,538,026 2,529,385
---------- ----------
Total partners' capital........................... 2,338,044 2,328,948
---------- ----------
Total liabilities and partners' capital........... $2,511,275 $2,619,983
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
For the three and six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ------------------------
2000 1999 2000 1999
------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Income:
Lease revenue.......... $ 18,582 $ 39,905 $ 35,361 $ 83,687
Interest income........ 13,185 44,352 42,856 72,232
Gain on sale of
equipment............. 1,500 748,757 7,300 756,304
------------- ------------- ----------- ------------
Total income........ 33,267 833,014 85,517 912,223
------------- ------------- ----------- ------------
Expenses:
Depreciation........... -- -- -- 23,214
Equipment management
fees--affiliate....... 929 1,813 1,768 4,002
Operating expenses--
affiliate............. 33,898 66,562 64,076 124,203
Partnership's share of
unconsolidated real
estate venture's
loss.................. 8,964 -- 10,577 --
------------- ------------- ----------- ------------
Total expenses...... 43,791 68,375 76,421 151,419
------------- ------------- ----------- ------------
Net income (loss)....... $ (10,524) $ 764,639 $ 9,096 $ 760,804
============= ============= =========== ============
Net income (loss) per
limited partnership
unit................... $ (.04) $ 2.54 $ .03 $ 2.53
============= ============= =========== ============
Cash distributions
declared per limited
partnership unit....... $ -- $ .19 $ -- $ .38
============= ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows provided by (used in) operating
activities:
Net income........................................ $ 9,096 $ 760,804
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................... -- 23,214
Gain on sale of equipment....................... (7,300) (756,304)
Partnership's share of unconsolidated real
estate venture's loss.......................... 10,577 --
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable................................ 14,630 28,778
Accounts receivable--affiliate.................. (801) 289,229
Increase (decrease) in:
Accrued liabilities............................. (37,117) (65,122)
Accrued liabilities--affiliate.................. 815 41,579
Deferred rental income.......................... -- (4,775)
Other liabilities............................... (25,000) (384,600)
------------ ------------
Net cash used in operating activities......... (35,100) (67,197)
------------ ------------
Cash flows provided by (used in) investing
activities:
Proceeds from equipment sales.................... 7,300 824,344
Investment in real estate venture................ (1,650,000) --
------------ ------------
Net cash provided by (used in) investing
activities................................... (1,642,700) 824,344
------------ ------------
Cash flows used in financing activities:
Distributions paid............................... (56,502) (113,004)
------------ ------------
Net cash used in financing activities......... (56,502) (113,004)
------------ ------------
Net (decrease) increase in cash and cash
equivalents...................................... (1,734,302) 644,143
Cash and cash equivalents at beginning of period.. 2,593,713 1,969,323
------------ ------------
Cash and cash equivalents at end of period........ $ 859,411 $ 2,613,466
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Note 1--Basis of Presentation
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles for interim financial information and
with 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 1999 Annual Report.
Except as disclosed herein, there have been no material changes to the
information presented in the footnotes to the 1999 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, 2000 and December 31, 1999 and results of operations for
the three and six month periods ended June 30, 2000 and 1999 have been made and
are reflected.
Note 2--Cash
At June 30, 2000, American Income Fund I-A, a Massachusetts Limited
Partnership (the "Partnership") had $749,066 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
Note 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. In certain instances, the Partnership
may enter renewal or re-lease agreements which expire beyond the Partnership's
anticipated dissolution date. This circumstance is not expected to prevent the
orderly wind-up of the Partnership's business activities as the General Partner
and Equis Financial Group Limited Partnership ("EFG") would seek to sell the
then-remaining equipment assets either to the lessee or to a third party,
taking into consideration the amount of future noncancellable rental payments
associated with the attendant lease agreements. See also Note 6 to the
financial statements presented in the Partnership's 1999 Annual Report
regarding the Class Action Lawsuit. Future minimum rents of $2,370 are due for
the year ending June 30, 2001.
Note 4--Equipment
The following is a summary of equipment owned by the Partnership at June 30,
2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from June 30, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
6
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment,
Equipment Type (Months) at Cost
-------------- ---------- ----------
<S> <C> <C>
Materials handling.......................... 0-3 $360,367
Accumulated depreciation (360,367)
--------
Equipment, net of
accumulated depreciation $ --
========
</TABLE>
At June 30, 2000, all of the Partnership's equipment was subject to
contracted leases or being leased on a month-to-month basis.
Note 5--Investment in Real Estate Venture
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") collectively loaned $32.0 million to Echelon
Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real
estate development company. Echelon Residential Holdings is owned by several
investors, including James A. Coyne, Executive Vice President of EFG. Mr.
Coyne, in his individual capacity, is the only equity investor in Echelon
Residential Holdings related to EFG.
The Partnership's participation in the loan is $1,650,000. Echelon
Residential Holdings, through a wholly-owned subsidiary (Echelon Residential
LLC), used the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida-based real estate company. The loan has a
term of 30 months, maturing on September 8, 2002, and an annual interest rate
of 14% for the first 24 months and 18% for the final six months. Interest
accrues and compounds monthly and is payable at maturity. In connection with
the transaction, Echelon Residential Holdings has pledged a security interest
in all of its right, title and interest in and to its membership interests in
Echelon Residential LLC to the Exchange Partnerships as collateral.
Using the guidance set forth in the Third Notice to Practitioners by the
American Institute of Certified Public Accountants ("AICPA") in February 1986
entitled "ADC Arrangements" (the "Third Notice"), the Partnership has evaluated
this investment to determine whether loan, joint venture or real estate
accounting is appropriate. Such determination affects the Partnership's balance
sheet classification of the investment and the recognition of revenues derived
therefrom. The Third Notice was issued to address those real estate
acquisition, development and construction arrangements where a lender has
virtually the same risk and potential awards as those of owners or joint
ventures. Emerging Issues Task Force ("EITF") 86-21, "Application of the AICPA
Notice to Practitioners regarding Acquisition, Development and Construction
Arrangements to Acquisition of an Operating Property" expanded the
applicability of the Third Notice to entities other than financial
institutions.
Based on the applicability of the Third Notice, EITF 86-21 and consideration
of the economic substance of the transaction, the loan is considered to be an
investment in a real estate venture for accounting purposes. In accordance with
the provisions of Statement of Position No. 78-9, "Accounting for Investments
in Real Estate Ventures", the Partnership reports its share of income or loss
of Echelon Residential Holdings under the equity method of accounting.
The Partnership's March 31, 2000 Form 10-Q previously reported the
investment in real estate venture as a loan receivable and recorded interest
income and receivable on the Partnership's March 31, 2000 financial statements.
The financial statements below have been adjusted to account
7
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
for the loan as an investment in real estate venture as of and for the three
months ended March 31, 2000. The adjustments to the financial statements
previously filed in the Partnership's March 31, 2000 Form 10-Q represent less
than 1% of the Partnership's capital and include the reversal of $15,400 of
interest income recorded on this loan and a recognition of $1,613 for the
Partnership's share of losses in Echelon Residential Holdings.
STATEMENT OF FINANCIAL POSITION
March 31, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents.......................................... $ 871,097
Rents receivable................................................... 2,396
Accounts receivable--affiliate..................................... 7,887
Investment in real estate venture.................................. 1,648,387
Equipment at cost, net of accumulated depreciation of $382,473..... --
----------
Total assets................................................... $2,529,767
==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities................................................ $ 172,856
Accrued liabilities--affiliate..................................... 3,343
Other liabilities.................................................. 5,000
----------
Total liabilities.............................................. 181,199
----------
Partners' capital (deficit):
General Partner................................................... (199,456)
Limited Partnership Interests (286,274 Units; initial purchase
price of $25 each)............................................... 2,548,024
----------
Total partners' capital........................................ 2,348,568
----------
Total liabilities and partners' capital........................ $2,529,767
==========
</TABLE>
8
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Income:
Lease revenue............................................................ $16,779
Interest income.......................................................... 29,671
Gain on sale of equipment................................................ 5,800
-------
Total income.......................................................... 52,250
-------
Expenses:
Equipment management fees--affiliate..................................... 839
Operating expenses--affiliate............................................ 30,178
Partnership's share of unconsolidated real estate venture's loss......... 1,613
-------
Total expenses........................................................ 32,630
-------
Net income................................................................ $19,620
=======
Net income per limited partnership unit................................... $ .07
=======
Cash distribution declared per limited partnership unit................... $ --
=======
</TABLE>
The Partnership's accompanying financial statements as of and for the six
months ended June 30, 2000, are presented in accordance with the guidance
above. The investment is net of the Partnership's share of losses in this real
estate venture. For the six months ended June 30, 2000 the Partnership's share
of losses is $10,577 and is reflected on the Statement of Operations as
"Partnership's share of unconsolidated real estate venture's loss".
The summarized financial information for Echelon Residential Holdings as of
and for the six months ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Total assets $54,704,360
Total liabilities $50,914,020
Total equity $ 3,790,340
Total revenues $ 905,751
Total expenses $ 2,593,700
Net loss $(1,687,949)
</TABLE>
9
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 6--Related Party Transactions
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the six month periods ended
June 30, 2000 and 1999, which were paid or accrued by the Partnership to EFG or
its Affiliates, are as follows:
<TABLE>
<CAPTION>
For the six months ended
June 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
Equipment management fees ........................... $ 1,768 $ 4,002
Administrative charges............................... 26,548 52,922
Reimbursable operating expenses due to third
parties............................................. 37,528 71,281
----------- ------------
Total.............................................. $ 65,844 $128,205
=========== ============
</TABLE>
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 June 30, 2000, the
Partnership was owed $10,071 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in July 2000.
Note 7--Legal Proceedings
As described more fully in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, 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. In
addition, the Partnership's 1999 Annual Report describes certain other pending
litigation that has arisen out of the conduct of the Partnership's business,
principally involving disputes or disagreements with lessees over lease terms
and conditions.
10
<PAGE>
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 of American Income Fund I-A, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of factors that could cause actual
results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 6 to the financial
statements presented in the Partnership's 1999 Annual Report, the remarketing
of the Partnership's equipment, and the performance of the Partnership's non-
equipment assets.
Three and six months ended June 30, 2000 compared to the three and six months
ended June 30, 1999
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. 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 6 to the financial statements presented in the
Partnership's 1999 Annual Report. Pursuant to the Amended and Restated
Agreement and Certificate of Limited Partnership (the "Restated Agreement, as
amended"), the Partnership is scheduled to be dissolved by December 31, 2001.
Results of Operations
For the three and six months ended June 30, 2000, the Partnership recognized
lease revenue of $18,582 and $35,361, respectively, compared to $39,905 and
$83,687, respectively, for the same periods in 1999. The decrease in lease
revenue between 1999 and 2000 resulted from lease term expirations and the sale
of equipment. In the future, lease revenue will continue to decline due to
lease term expirations and the sale of equipment.
Prior to the second quarter of 1999, the Partnership's equipment portfolio
included certain assets in which the Partnership held a proportionate ownership
interest. In such cases, the remaining interests were owned by an affiliated
equipment leasing program sponsored by Equis Financial Group Limited
Partnership ("EFG"). Proportionate equipment ownership enabled the Partnership
to further diversify its equipment portfolio at inception by participating in
the ownership of selected assets, thereby reducing the general levels of risk
which could have resulted from a concentration in any single equipment type,
industry or lessee. The Partnership and each affiliate individually reported,
in proportion to their respective ownership interests, their respective shares
of assets, liabilities, revenues, and expenses associated with the equipment.
Interest income for the three and six months ended June 30, 2000 was $13,185
and $42,856 compared to $44,352 and $72,232 for the same periods in 1999.
Interest income is typically generated from temporary investment of rental
receipts and equipment sale proceeds in short-term instruments. On March 8,
2000, the Partnership utilized $1,650,000 of available cash for a loan to
Echelon Residential Holdings LLC ("Echelon Residential Holdings"). (See Note 5
to the financial statements herein.) The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the amount of
cash available for investment, among other factors.
11
<PAGE>
During the three and six months ended June 30, 2000, the Parthership sold
fully-depreciated equipment to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes of $1,500 and $7,300,
respectively. During the three and six months ended June 30, 1999, the
Partnership sold equipment with a net book value of $68,040 to existing lessees
and third parties. These sales resulted in a net gain, for financial statement
purposes, of $748,757 and $756,304, respectively. The results of future sales
of equipment will be dependent upon the condition and type of equipment being
sold and its marketability at the time of sale.
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 months ended March 31, 1999 was $23,214.
All of the Partnership's remaining assets became fully depreciated during the
first quarter of 1999. Management fees were $929 and $1,768, respectively, for
the three and six months ended June 30, 2000 compared to $1,813 and $4,002 for
the same periods in 1999. Management fees are based on 5% of gross lease
revenue generated by operating leases and 2% of gross lease revenue generated
by full payout leases.
Operating expenses were $33,898 and $64,076, respectively, for the three and
six months ended June 30, 2000 compared to $66,562 and $124,203, respectively,
for the same periods in 1999. In 1999, operating expenses included
approximately $13,000 related to the refurbishment of an aircraft engine and a
$28,000 adjustment for 1998 actual administration charges and third-party
costs. Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and other remarketing expenses. In certain cases, equipment
storage or repairs and maintenance costs may be incurred in connection with
equipment being remarketed.
For the three and six months ended June 30, 2000, the Partnership's share of
losses of Echelon Residential Holdings were $8,964 and $10,577, respectively,
and are reflected on the Statement of Operations as "Partnership's share of
unconsolidated real estate venture's loss". See further discussion below.
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
asset rental transactions. Historically, the Partnership's principal source of
cash from operations was provided by the collection of periodic rents, however,
beginning in 1999, a significant source of such cash resulted from the receipt
of factors. Future renewal, re-lease and equipment sale activities will cause a
decline in the Partnership's lease revenues and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will decline as
the Partnership experiences a higher frequency of remarketing events. See
additional discussion below regarding the loan made by the Partnership to
Echelon Residential Holdings in March 2000.
12
<PAGE>
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the six months
ended June 30, 2000 and 1999, the Partnership realized equipment sale proceeds
of $7,300 and $824,344, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
In December 1998, the Partnership sold its interest in an aircraft for
proceeds of $504,600, of which $388,600 was deposited into EFG's customary
escrow account and transferred to the Partnership in January 1999. Due to
certain associated contingencies, the Partnership deferred recognition of the
sale until the second quarter of 1999. See the Partnership's 1999 Annual Report
for further discussion of this deferred sale.
At June 30, 2000, the Partnership was due aggregate future minimum lease
payments of $2,370 from contractual lease agreements. At the expiration of the
individual lease terms underlying the Partnership's future minimum lease
payments, the Partnership will sell the equipment or enter re-lease or renewal
agreements when considered advantageous by the General Partner and EFG. Such
future remarketing activities will result in the realization of additional cash
inflows in the form of equipment sale proceeds or rents from renewals and re-
leases, the timing and extent of which cannot be predicted with certainty. This
is because the timing and extent of remarketing events often is dependent upon
the needs and interests of the existing lessees. Some lessees may choose to
renew their lease contracts, while others may elect to return the equipment. In
the latter instances, the equipment could be re-leased to another lessee or
sold to a third-party.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 6 to the financial statements presented in the
Partnership's 1999 Annual Report, the Partnership is permitted to invest in new
equipment or other business activities, subject to certain limitations. On
March 8, 2000, the Partnership and 10 affiliated partnerships (the "Exchange
Partnerships") collectively loaned $32.0 million to Echelon Residential
Holdings, a newly-formed real estate development company owned by several
investors, including James A. Coyne, Executive Vice President of EFG. Mr.
Coyne, in his individual capacity, is the only equity investor in Echelon
Residential Holdings related to EFG.
The Partnership's participation in the loan is $1,650,000. Echelon
Residential Holdings, through a wholly-owned subsidiary (Echelon Residential
LLC), used the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida-based real estate company. The loan has a
term of 30 months, maturing on September 8, 2002, and an annual interest rate
of 14% for the first 24 months and 18% for the final six months. Interest
accrues and compounds monthly and is payable at maturity. In connection with
the transaction, Echelon Residential Holdings has pledged a security interest
in all of its right, title and interest in and to its membership interests in
Echelon Residential LLC to the Exchange Partnerships as collateral.
As discussed in Note 5 in the Partnership's financial statements, the loan
is considered to be an investment in a real estate venture for accounting
purposes. In accordance with the provisions of Statement of Position No. 78-9,
"Accounting for Investments in Real Estate Ventures", the Partnership reports
its share of income or loss of Echelon Residential Holdings under the equity
method of accounting.
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
13
<PAGE>
matures and sells equipment, because the remaining equipment base consists of
fewer revenue-producing assets that are available to cover prospective cash
disbursements. Insufficient liquidity could inhibit the Partnership's ability
to sustain its operations or maximize the realization of proceeds from
remarketing its remaining assets.
Cash distributions to the General and Limited Partners had been declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is reported under financing activities on the
accompanying Statement of Cash Flows. No cash distributions were declared for
the six months ended June 30, 2000.
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.
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 5 to the financial statements presented in the
Partnership's 1999 Annual Report. For instance, selling commissions and
organization and offering costs pertaining to syndication of the Partnership's
limited partnership units are not deductible for federal income tax purposes,
but are recorded as a reduction of partners' capital for financial reporting
purposes. Therefore, such differences are permanent differences between capital
accounts for financial reporting and federal income tax purposes. Other
differences between the bases of capital accounts for federal income tax and
financial reporting purposes occur due to timing differences. Such items
consist of the cumulative difference between income or loss for tax purposes
and financial statement income or loss and the difference between distributions
(declared vs. paid) for income tax and financial reporting purposes. The
principal component of the cumulative difference between financial statement
income or loss and tax income or loss results from different depreciation
policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at June 30, 2000. 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, 1999, the General Partner had a positive tax capital
account balance.
14
<PAGE>
The outcome of the Class Action Lawsuit described in Note 6 to the financial
statements presented in the Partnership's 1999 Annual Report will be the
principal factor in determining the future of the Partnership's operations. The
proposed settlement to that lawsuit, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. In addition, commencing with the first
quarter of 2000, the General Partner suspended the payment of quarterly cash
distributions pending final resolution of the Class Action Lawsuit.
Accordingly, future cash distributions are not expected to be paid until the
Class Action Lawsuit is adjudicated.
15
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
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
27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
Response: None
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
16
<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.
AMERICAN INCOME FUND I-A, a Massachusetts
Limited Partnership
By: AFG Leasing VI Incorporated, a
Massachusetts corporation and the General
Partner of the Registrant.
/s/ Michael J. Butterfield
By: ______________________________________________
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 2000
17
