<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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO _______________________
____________________
FOR QUARTER ENDED SEPTEMBER 30, 1997________________COMMISSION FILE NO. 33-35148
<TABLE>
>Caption
American Income Fund I-B, a Massachusetts Limited Partnership
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<S> <C>
Massachusetts 04-3106525
- --------------------------------------------- --------------------
(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-B,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Page
PART I.FINANCIAL INFORMATION:
Item 1.Financial Statements
Statement of Financial Position
at September 30, 1997 and December 31, 1996..................... 3
Statement of Operations
for the three and nine months
ended September 30, 1997 and 1996................................ 4
Statement of Cash Flows for the nine
months ended September 30, 1997 and 1996......................... 5
Notes to the Financial Statements.................................. 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 10-13
PART II.OTHER INFORMATION:
Items 1-6............................................................. 14
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 1,453,832 $1,938,967
Rents receivable................................ 5,132 1,509
Accounts receivable--affiliate.................. 45,135 38,647
Equipment at cost, net of accumulated
depreciation of $3,262,638 and $3,460,675
at September 30, 1997 and December 31, 1996,
respectively................................. 1,338,417 1,597,440
-------------- ------------
Total assets................................ $ 2,842,516 $3,576,563
-------------- ------------
-------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable................................... $ 113,044 $ 726,096
Accrued interest................................ 953 3,883
Accrued liabilities............................. 22,500 22,750
Accrued liabilities--affiliate.................. 7,534 20,448
Deferred rental income.......................... 5,300 26,165
Cash distributions payable to partners.......... 75,451 75,451
-------------- ------------
Total liabilities........................... 224,782 874,793
-------------- ------------
-------------- ------------
Partners' capital (deficit):
General Partner................................ (186,484) (182,282)
Limited Partnership Interests (286,711 Units;
initial purchase price of $25 each).......... 2,804,218 2,884,052
-------------- ------------
Total partners' capital.................... 2,617,734 2,701,770
-------------- ------------
Total liabilities and partners' capital.... $2,842,516 $3,576,563
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and nine months ended
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ---------- ----------
Income:
Lease revenue................................................. $ 158,166 $ 240,493 $ 454,451 $ 618,763
Interest income............................................... 19,952 22,480 61,319 59,440
Gain on sale of equipment..................................... 80,000 69,011 115,379 560,651
---------- ---------- ---------- ----------
Total income................................................ 258,118 331,984 631,149 1,238,854
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization................................. 105,526 111,772 326,416 508,767
Interest expense.............................................. 8,306 17,691 37,516 53,691
Equipment management fees--affiliate........................... 6,843 10,336 19,608 27,911
Operating expenses--affiliate................................. 48,953 20,325 105,292 47,413
---------- ---------- ---------- ----------
Total expenses.............................................. 169,628 160,124 488,832 637,782
---------- ---------- ---------- ----------
Net income...................................................... $ 88,490 $ 171,860 $ 142,317 $ 601,072
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per limited partnership unit......................... $ 0.29 $ 0.57 $ 0.47 $ 1.99
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash distributions declared per limited partnership unit........ $ 0.25 $ 0.38 $ 0.75 $ 1.13
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-B,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income......................................... $ 142,317 $ 601,072
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization.................... 326,416 508,767
Gain on sale of equipment........................ (115,379) (560,651)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable............................... (3,623) 278,513
accounts receivable--affiliate................. (6,488) 536,898
Increase (decrease) in:
accrued interest............................... (2,930) (21,456)
accrued liabilities............................ (250) (49,860)
accrued liabilities--affiliate................. (12,914) (2,028)
deferred rental income......................... (20,865) 21,236
------------ ------------
Net cash from operating activities........... 306,284 1,312,491
------------ ------------
Cash flows from (used in) investing activities:
Purchase of equipment............................ (75,957) --
Proceeds from equipment sales.................... 123,943 652,222
------------ ------------
Net cash from investing activities........... 47,986 652,222
------------ ------------
Cash flows used in financing activities:
Principal payments--notes payable................ (613,052) (569,261)
Distributions paid............................... (226,353) (339,528)
------------ ------------
Net cash used in financing activities.......... (839,405) (908,789)
------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... (485,135) 1,055,924
Cash and cash equivalents at beginning of period... 1,938,967 839,087
------------ ------------
Cash and cash equivalents at end of period......... $ 1,453,832 $ 1,895,011
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 40,446 $ 75,147
------------ ------------
------------ ------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities: See
Note 4 to the Financial Statements
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
September 30, 1997 and December 31, 1996
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
- -----------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in
conjunction with the footnotes presented in the 1996 Annual Report. Except as
disclosed herein, there has been no material change to the information
presented in the footnotes to the 1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1997 and December 31, 1996 and results of
operations for the three and nine month periods ended September 30, 1997 and
1996 have been made and are reflected.
NOTE 2--CASH
- ------------
At September 30, 1997, the Partnership had $1,345,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3--REVENUE RECOGNITION
- ---------------------------
Rents are payable to the Partnership monthly or quarterly and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$742,335 are due as follows:
<TABLE>
<CAPTION>
For the year ending
September 30, 1998
-------------------
<S> <C>
1998..................... $ 298,192
1999..................... 185,182
2000..................... 135,005
2001..................... 97,351
2002..................... 21,284
Thereafter............... 5,321
---------
Total.................. $ 742,335
---------
---------
</TABLE>
NOTE 4--EQUIPMENT
- -----------------
The following is a summary of equipment owned by the Partnership at
September 30, 1997. In the opinion of Equis Financial Group Limited Partnership
("EFG"), the acquisition cost of the equipment did not exceed its fair market
value.
6
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
- -------------- ------------- -------------
<S> <C> <C>
Aircraft...................................... 5 $ 2,641,262
Materials handling............................ 0-29 688,078
Trailers/intermodal containers................ 0-63 620,259
Research & test............................... 3-28 508,837
Communications................................ 0 102,953
Construction & mining......................... 6 39,666
-------------
Total equipment cost.................... 4,601,055
Accumulated depreciation................ (3,262,638)
-------------
Equipment, net of accumulated
depreciation........................ $1,338,417
-------------
-------------
</TABLE>
At September 30, 1997, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $2,792,790, representing
approximately 61% of total equipment cost.
At September 30, 1997, the Partnership was not holding any equipment not
subject to a lease and no equipment was held for sale or re-lease. The summary
above includes equipment being leased on a month-to-month basis.
During July 1996, the Partnership transferred its ownership interest in
certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad,
to a third party for cash consideration of $85,957. The trailers had a net book
value of $32,494 at the time of transfer, resulting in a net gain of $53,463. In
September 1996, the Partnership replaced these trailers with comparable trailers
and leased such to new lessee. The transaction was accounted for as a like-kind
exchange for income tax reporting purposes. The cost of the new trailers,
$385,063, was reduced by $41,241, representing the proportionate amount of gain
deferred on the original trailers. The Partnership funded this transaction with
$66,307 of cash consideration and long-term financing of $359,997. The unused
consideration of $19,650 was recognized as proceeds from equipment sales. The
associated deferred gain of $12,222 was recognized as Gain on Sale of Equipment
on the Statement of Operations for the three months ended September 30, 1996.
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 the nine month periods
ended September 30, 1997 and 1996 which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
7
<PAGE>
AMERICAN INCOME FUND 1-B
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Equipment management fees............................ $ 19,608 $ 27,911
Administrative charges.............................. 39,342 10,629
Reimbursable operating expenses due to third parties. 65,950 36,784
---------- ---------
Total.............................................. $ 124,900 $ 75,324
---------- ---------
---------- ---------
</TABLE>
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At September 30, 1997, the Partnership was owed $45,135 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
October 1997.
NOTE 6--NOTES PAYABLE
Notes payable at September 30, 1997 consisted of two installment notes of
$113,044 payable to an institutional lender. The installment notes are
non-recourse, both with interest rates of 10.12%. The installment notes are
collateralized by the equipment and assignment of the related lease payments and
will be fully amortized by noncancellable rents or the Partnership's available
cash in the year ending September 30, 1998. The carrying value of the notes
approximates face value at September 30, 1997.
NOTE 7--LEGAL PROCEEDINGS
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Partnership, National
Steel Corporation ("National Steel"), under a certain Master Lease Agreement
("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by
National Steel of certain sales and/or use taxes paid to the State of Illinois
and other remedies provided by the MLA. On August 30, 1995, National Steel filed
a Notice of Removal which removed the case to the United States District Court,
District of Massachusetts. On September 7, 1995, National Steel filed its Answer
to EFG's Complaint along with Affirmative Defenses and Counterclaims, seeking
declaratory relief and specific performance and alleging, among other things,
breach of contract and breach of the implied covenant of good faith and fair
dealing. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the negotiations have been unsuccessful. Notwithstanding
these discussions, EFG recently filed an Amended and Supplemental Complaint
alleging a further default by National Steel under the MLA and EFG recently
filed a motion for Summary Judgment on all claims and counterclaims. The matter
remains pending before the Court and is scheduled for a hearing on EFG's motion
in December 1997. The Partnership has not experienced any material losses as a
result of this action.
8
<PAGE>
AMERICAN INCOME FUND 1-B
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 7--LEGAL PROCEEDINGS (Continued)
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited partner
units or beneficiary interests in eight investment programs sponsored by EFG
filed a lawsuit, as a derivative action, on behalf of the Partnership and 27
other investment programs (collectively, the "Nominal Defendants") in the
Superior Court of the Commonwealth of Massachusetts for the County of Suffolk
against EFG and certain of EFG's affiliates, including the General Partner of
the Partnership and four other wholly-owned subsidiaries of EFG which are
general partner or managing trustee of one or more of the investment programs,
(collectively, the "Managing Defendants"), and certain other entities and
individuals that have control of the Managing Defendants and the Nominal
Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of
breach of fiduciary duty, breach of contract, unjust enrichment, and equitable
relief and seek various remedies, including compensatory and punitive damages to
be determined at trial.
The General Partner and EFG are in the early stages of evaluating the nature
and extent of the claims asserted in this lawsuit and cannot predict its outcome
with any degree of certainty. However, based upon all of the facts presently
being considered by management, the General Partner and EFG do not believe that
any likely outcome will have a material adverse effect on the Partnership. The
General Partner, EFG and their affiliates intend to vigorously defend against
the lawsuit.
9
<PAGE>
AMERICAN INCOME FUND 1-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
ability of EFG to collect all rents due under the attendant lease agreements and
successfully remarket the Partnership's equipment upon the expiration of such
leases.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
OVERVIEW
The Partnership was organized in 1990 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind-up its
operations within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment value in equipment
declines from asset disposals occurring in the normal course of business. As a
result of the Partnership's age and a declining equipment portfolio, the General
Partner is evaluating a variety of transactions that will reduce the
Partnership's prospective costs to operate as a publicly registered limited
partnership and, therefore, enhance overall cash distributions to the limited
partners. Such a transaction may involve the sale of the Partnership's remaining
equipment or a transaction that would allow for the consolidation of the
Partnership's expenses with other similarly-organized equipment leasing
programs. In order to increase the marketability of the Partnership's remaining
equipment, the General Partner expects to use the Partnership's available cash
to retire indebtedness. This will negatively effect short-term cash
distributions.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1997, the Partnership
recognized lease revenue of $158,166 and $454,451, respectively, compared to
$240,493 and $618,763 for the same periods in 1996. The decrease in lease
revenue from 1996 to 1997 was expected and resulted principally from lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by EFG or an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
10
<PAGE>
AMERICAN INCOME FUND 1-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART 1. FINANCIAL INFORMATION
For the three months ended September 30, 1997, the Partnership sold fully
depreciated equipment to existing lessees and third parties resulting in a net
gain, for financial statement purposes, of $80,000. For the nine months ended
September 30, 1997, the Partnership sold equipment having a net book value of
$8,564 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $115,379.
For the three and nine months ended September 30, 1996, the Partnership sold
equipment having a net book value of $17,336 and $84,143, respectively, to
existing lessees and third parties. These sales resulted in net gains for
financial statement purposes of $56,789 and $548,429, respectively.
During July 1996, the Partnership transferred its ownership interest in
certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad,
to a third party for cash consideration of $85,957. The trailers had a net book
value of $32,494 at the time of transfer, resulting in a net gain of $53,463. In
September 1996, the Partnership replaced these trailers with comparable trailers
and leased such to a new lessee. The transaction was accounted for as a
like-kind exchange for income tax reporting purposes. The cost of the new
trailers, $385,063, was reduced by $41,241, representing the proportionate
amount of gain deferred on the original trailers. The Partnership funded this
transaction with $66,307 of cash consideration and long-term financing of
$359,997. The unused consideration of $19,650 was recognized as proceeds from
equipment sales. The associated deferred gain of $12,222 was recognized as Gain
on Sale of Equipment on the Statement of Operations for the three months ended
September 30, 1996.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues 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 and amortization expense for the three and nine months ended
September 30, 1997 was $105,526 and $326,416, respectively, compared to $111,772
and $508,767 for the same periods in 1996. For financial reporting purposes, to
the extent that an asset is held on primary lease term, the Partnership
depreciates the difference between (i) the cost of the asset and (ii) the
estimated residual value of the asset on a straight-line basis over such term.
For purposes of this policy, estimated residual values represent estimates of
equipment values at the date of primary lease expiration. To the extent that an
asset is held beyond its primary lease term, the Partnership continues to
depreciate the remaining net book value of the asset on a straight-line basis
over the asset's remaining economic life.
11
<PAGE>
AMERICAN INCOME FUND 1-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART 1. FINANCIAL INFORMATION
Interest expense was $8,306 and $37,516 or 5.3% and 8.3% of lease revenue
for the three and nine months ended September 30, 1997, respectively,
compared to $17,691 and $53,691 or 7.4% and 8.7% of lease revenue for the
same periods in 1996. Interest expense in future periods will decline in
amount and as a percentage of lease revenue as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding
debt. In addition, the General Partner expects to continue to use a portion
of the Partnership's available cash to retire indebtedness (see Overview).
Management fees were approximately 4.3% of lease revenue for each of the
three and nine months ended September 30, 1997, compared to 4.3% and 4.5% of
lease revenue for the same periods in 1996. Management fees are based on 5% of
gross lease revenue generated by operating leases and 2% of gross lease revenue
generated by full payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. The increase in operating expenses from 1996 to 1997 was due
primarily to an increase in administrative charges. The amount of future
operating expenses cannot be predicted with certainty; however, such expenses
are usually higher during the acquisition and liquidation phases of a
partnership. Other fluctuations typically occur in relation to the volume and
timing of remarketing activities.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used to satisfy debt service obligations associated with leveraged
leases, and to pay management fees and operating costs. Operating activities
generated net cash inflows of $306,284 for the nine months ended September 30,
1997. For the nine months ended September 30, 1996, operating activities
generated net cash inflows of $752,491, after reductions for equipment sales
proceeds received of $560,000. Future renewal, re-lease and
equipment sale activities will cause a decline in the Partnership's lease
revenues and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will also decline as the Partnership experiences a
higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third-party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During the nine months ended September 30,
1997, the Partnership expended $75,957 to upgrade certain research and test
equipment. There were no equipment acquisitions during the same period in 1996.
For the nine months ended September 30, 1997, the Partnership realized $123,943
in equipment sale proceeds compared to $652,222 for the same period in 1996.
12
<PAGE>
AMERICAN INCOME FUND 1-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART 1. FINANCIAL INFORMATION
Future inflows of cash from asset disposals will vary in timing and amount
and will be influenced by many factors including, but not limited to, the
frequency and timing of lease expirations, the type of equipment being sold,
its condition and age, and future market conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future periods, the amount of cash used to repay
debt obligations is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. The
Partnership's indebtedness is expected to be fully amortized during the year
ended September 30, 1998 utilizing such rents and the Partnership's available
cash (see Overview).
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the nine months ended September 30, 1997, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $226,353. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Limited Partners were allocated 95% of these distributions, or $215,035 and the
General Partner was allocated 5%, or $11,318. The third quarter 1997 cash
distribution was paid on October 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
13
<PAGE>
AMERICAN INCOME FUND I-B,
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 Response:
None
Item 6(b). Reports on Form 8-K Response:
None
</TABLE>
14
<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-B,
a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts corporation and
the General Partner of the Registrant.
By: Michael J. Butterfield
---------------------------------------
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 1997
----------------------------------------
By: Gary M. Romano
----------------------------------------
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 14, 1997
----------------------------------------
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,453,832
<SECURITIES> 0
<RECEIVABLES> 50,267
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,504,099
<PP&E> 4,601,055
<DEPRECIATION> 3,262,638
<TOTAL-ASSETS> 2,842,516
<CURRENT-LIABILITIES> 111,738
<BONDS> 113,044
0
0
<COMMON> 0
<OTHER-SE> 2,617,734
<TOTAL-LIABILITY-AND-EQUITY> 2,842,516
<SALES> 0
<TOTAL-REVENUES> 631,149
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 451,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,516
<INCOME-PRETAX> 142,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 142,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,317
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
