<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 33-35148-02
------------------------
AMERICAN INCOME FUND I-B , A MASSACHUSETTS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3106525
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
88 BROAD ST., SIXTH FLOOR, BOSTON, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant(1)s telephone number, including area code (617) 854-5800
Securities registered pursuant to Section 12(b) of the Act NONE
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
---------------------------------------- ---------------------------------
Securities registered pursuant to Section 12(g) of the Act:
286,711 UNITS REPRESENTING LIMITED PARTNERSHIP INTEREST
(Title of class)
(Title of class)
------------------------
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 / /
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1998 (Part I and II)
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<PAGE>
AMERICAN INCOME FUND I-B,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
Item 1. Business................................................................................... 3
Item 2. Properties................................................................................. 4
Item 3. Legal Proceedings.......................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders........................................ 5
PART II
Item 5. Market for the Partnership(1)s Securities and Related Security Holder Matters.............. 5
Item 6. Selected Financial Data.................................................................... 7
Item 7. Management(1)s Discussion and Analysis of Financial Condition and Results of Operations.... 7
Item 8. Financial Statements and Supplementary Data................................................ 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 7
PART III
Item 10. Directors and Executive Officers of the Partnership........................................ 8
Item 11. Executive Compensation..................................................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 10
Item 13. Certain Relationships and Related Transactions............................................. 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 13-14
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
American Income Fund I-B, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on December 31, 1990 for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On March 1, 1991, the
Partnership issued 286,711 units of limited partnership interest (the "Units")
to 453 investors. The Partnership has one General Partner, AFG Leasing VI
Incorporated, a Massachusetts corporation formed in 1990 and an affiliate of
Equis Financial Group Limited Partnership (formerly known as American Finance
Group), a Massachusetts limited partnership ("EFG" or the "Manager"). The
General Partner is not required to make any other capital contributions except
as may be required under the Uniform Act and Section 6.1(b) of the Amended and
Restated Agreement and Certificate of Limited Partnership (the "Restated
Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate undiscounted, noncancellable rents equal or exceed the acquisition
cost of the leased equipment. Operating leases are those in which the aggregate
undiscounted, noncancellable rental payments are less than the acquisition cost
of the leased equipment. Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives were to acquire and lease
equipment that would:
1. Generate quarterly cash distributions;
2. Preserve and protect Partnership capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the offering of Units of the Partnership was March 1,
1991. Significant operations commenced coincident with the Partnership's initial
purchase of equipment and the associated lease commitments on March 1, 1991. The
acquisition of the equipment and its associated leases is described in Note 3 to
the financial statements included in Item 14, herein. The Restated Agreement, as
amended, provides that the Partnership will terminate no later than December 31,
2002. However, 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 accompanying
financial statements.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates. The Manager's role,
among other things, is to (i) evaluate, select, negotiate, and consummate the
acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and
refinancing of equipment, and (iii) arrange the resale of equipment. The Manager
is compensated for
3
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such services as provided for in the Restated Agreement, as amended, described
in Item 13 herein, and in Note 4 to the financial statements included in Item
14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenue and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
In addition, the leasing industry is very competitive. The Partnership is
subject to considerable competition when equipment is re-leased or sold at the
expiration of primary lease terms. The Partnership must compete with lease
programs offered directly by manufacturers and other equipment leasing
companies, including limited partnerships and trusts organized and managed
similarly to the Partnership, and including other EFG-sponsored partnerships and
trusts, which may seek to re-lease or sell equipment within their own portfolios
to the same customers as the Partnership. Many competitors have greater
financial resources and more experience than the Partnership, the General
Partner and the Manager. In addition, default by a lessee under a lease may
cause equipment to be returned to the Partnership at a time when the General
Partner or the Manager is unable to arrange for the re-lease or sale of such
equipment. This could result in the loss of anticipated revenue.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is
incorporated herein by reference to Note 2 to the financial statements in the
1998 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle
established Equis Corporation and GDE LP in December 1994 for the sole purpose
of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name American Finance
Group,(2) and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
Not applicable.
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1998 Annual Report.
4
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ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 6 to the financial statements in
the 1998 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1998, there were 443 record holders in the Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the amount of
cash distributions to be declared and paid to the Partners is determined on a
quarterly basis. Each quarter's distribution may vary in amount and is made 95%
to the Limited Partners and 5% to the General Partner. Generally, cash
distributions are paid within 30 days after the completion of each calendar
quarter.
Distributions in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
---------- --------- ----------
<S> <C> <C> <C>
Total 1998 distributions........................................... $ 226,351 $ 11,318 $ 215,033
Total 1997 distributions........................................... 282,941 14,147 268,794
---------- --------- ----------
Total........................................................ $ 509,292 $ 25,465 $ 483,827
---------- --------- ----------
---------- --------- ----------
</TABLE>
Distributions payable were $56,588 at both December 31, 1998 and 1997.
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 assets.
In addition, the Partnership is a Nominal Defendant in a Class Action
Lawsuit described in Note 6 to the accompanying financial statements. A
preliminary settlement agreement will allow the Partnership to invest in new
equipment or other activities, subject to certain limitations, effective March
22, 1999. Until the Class Action Lawsuit is adjudicated, the General Partner
does not expect that the level of future quarterly cash distributions paid by
the Partnership will be increased above amounts paid in the fourth quarter of
1998. 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 6 to the accompanying
financial statements.
5
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Cash distributions consist of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) general expenses and current liabilities of
the Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) any
reserves for working capital and contingent liabilities funded from such cash to
the extent deemed reasonable by the General Partner and (ii) increased by any
portion of such reserves deemed by the General Partner not to be required for
Partnership operations. In the event the Partnership accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Partnership with respect to such note shall be included
in Cash From Sales or Refinancings, regardless of the treatment of such payments
by the Partnership for tax or accounting purposes. If the Partnership receives
purchase money obligations in payment for equipment sold, which are secured by
liens on such equipment, the amount of such obligations shall not be included in
Cash From Sales or Refinancings until the obligations are fully satisfied.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution of 11% (compounded quarterly and calculated beginning with the last
day of the month of the Partnership's Closing Date) on their aggregate
unreturned capital contributions. For purposes of this definition, capital
contributions shall be deemed to have been returned only to the extent that
distributions of cash to the Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' aggregate unreturned capital contributions, such calculation
to be based on the aggregate unreturned capital contributions outstanding on the
first day of each fiscal quarter.
6
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ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b)Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of this
report, AFG Leasing VI Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties. The
Limited Partners have no right to participate in the control of the
Partnership's general operations, but they do have certain voting rights, as
described in Item 12 herein. The names, titles and ages of the Directors and
Executive Officers of the General Partner as of March 15, 1999 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (SEE ITEM 13)
<TABLE>
<CAPTION>
NAME TITLE AGE TERM
- --------------------------------- --------------------------------- --- ---------------------------------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a successor is duly elected
Executive Committee of EFG and and qualified
President and a Director of the
General Partner 50
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 50
Gary M. Romano Executive Vice President and
Chief Operating Officer of EFG
and Clerk of the General Partner 39
James A. Coyne Executive Vice President of EFG 38
Michael J. Butterfield Senior Vice President, Finance
and Treasurer of EFG and
Treasurer of the General Partner 39
Sandra L. Simonsen Senior Vice President,
Information Systems of EFG 48
Gail D. Ofgant Senior Vice President, Lease
Operations of EFG 33
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
(e) Business Experience
8
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Mr. MacDonald, age 50, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald was also a co-founder, Director, and Senior Vice President of
EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition Limited Partnership ("AALP") and Old North Capital Limited
Partnership ("ONC"). Prior to co-founding EFG's predecessors, Mr. MacDonald held
various executive and management positions in the leasing and pharmaceutical
industries. Mr. MacDonald holds a M.B.A. from Boston College and a B.A. degree
from the University of Massachusetts (Amherst).
Mr. Engle, age 50, is President and Chief Executive Officer of EFG and sole
shareholder and Director of its general partner, Equis Corporation and a member
of the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle joined EFG in 1990 as Executive Vice President and acquired control of EFG
and its subsidiaries in December 1994. Mr. Engle is Vice President and a
Director of certain of EFG(1)s subsidiaries and affiliates, a limited partner in
AALP and ONC and controls the general partners of AALP and ONC. Mr. Engle is
also Chairman, Chief Executive Officer, and a member of the Board of Directors
of Semele Group, Inc. ("Semele"). From 1987 to 1990, Mr. Engle was a principal
and co-founder of Cobb Partners Development, Inc., a real estate and mortgage
banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and
Chief Financial Officer of Arvida Disney Company, a large-scale community
development company owned by Walt Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities.
Mr. Engle has a MBA from Harvard University and a BS degree from the University
of Massachusetts (Amherst).
Mr. Romano, age 39, became Executive Vice President and Chief Operating
Officer of EFG, and Secretary of Equis Corporation in 1996 and is Secretary or
Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano joined EFG in
November 1989, became Vice President and Controller in April 1993 and Chief
Financial Officer in April 1995. Mr. Romano assumed his current position in
April 1996. Mr. Romano is also Vice President and Chief Financial Officer of
Semele. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately held real estate development and mortgage origination company that he
joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst & Whinney
(now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr. Romano is
a Certified Public Accountant and holds a B.S. degree from Boston College.
Mr. Coyne, age 38, is Executive Vice President, Capital Markets of EFG and
President, Chief Operating Officer and a member of the Board of Directors of
Semele. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG
in November 1994. In September 1997, Mr. Coyne was appointed Executive Vice
President of EFG. Mr. Coyne is a limited partner in AALP and ONC. From May 1993
through November 1994, he was employed by the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to 1985,
he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He
has a BS in Business Administration from John Carroll University, a Masters
Degree in Accounting from Case Western Reserve University and is a Certified
Public Accountant.
Mr. Butterfield, age 39, is Senior Vice President, Finance and Treasurer of
EFG and certain of its affiliates and is Treasurer of the General Partner and
Semele. Mr. Butterfield joined EFG in June 1992, became Vice President, Finance
and Treasurer of EFG and certain of its affiliates in April 1996 and was
promoted to Senior Vice President, Finance and Treasurer of EFG and certain of
its affiliates in July 1998. Prior to joining EFG, Mr. Butterfield was an Audit
Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was
employed in public accounting and industry positions in New Zealand and London
(UK) prior to coming to the United States in 1987. Mr. Butterfield attained his
Associate Chartered Accountant (A.C.A.) professional qualification in New
Zealand and has completed his CPA requirements in the United States. He holds a
Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand.
9
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Ms. Simonsen, age 48, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
Ms. Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company, which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a BA degree from Wilson
College.
Ms. Ofgant, age 33, is Senior Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in July 1989, was promoted to
Manager Lease Operations in April 1994, and became Vice President of Lease
Operations in April 1996. In July 1998, Ms. Ofgant was promoted to Senior Vice
President of Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by
Security Pacific National Trust Company. Ms. Ofgant holds a BS degree in Finance
from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of the
Restated Agreement, as amended, the Partnership is obligated to pay all costs of
personnel employed full or part-time by the Partnership, including officers or
employees of the General Partner or its Affiliates. There is no plan at the
present time to make any officers or employees of the General Partner or its
Affiliates employees of the Partnership. The Partnership has not paid and does
not propose to pay any options, warrants or rights to the officers or employees
of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership. A
description of the remuneration paid by the Partnership to the Manager for such
services is included in Item 13, herein and in Note 4 to the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as
10
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amended (subject to Sections 10.2(b) and 10.3), a majority interest of the
Limited Partners has voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all, of the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 286,711 outstanding Units as of March 1, 1999.
The ownership and organization of EFG is described in Item 1 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner of the Partnership is AFG Leasing VI Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
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 years ended December 31,
1998, 1997 and 1996, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment management fees.............................................. $ 13,384 $ 28,733 $ 34,740
Administrative charges................................................. 57,048 53,604 31,872
Reimbursable operating expenses due to third parties................... 393,632 61,100 46,947
---------- ---------- ----------
Total............................................................ $ 464,064 $ 143,437 $ 113,559
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG is compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenue and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are subject to
certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG at actual cost.
All equipment was purchased from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's acquisition cost was determined by the method described in Note 2
to the financial statements included in Item 14, herein.
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 December 31, 1998, the Partnership was owed $41,508 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1999.
11
<PAGE>
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
AFFILIATE UNITS OWNED OUTSTANDING UNITS
- ------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership............... 11,442 3.99%
Old North Capital Limited Partnership.................. 990 0.35%
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests of
ONC are owned by Semele Group, Inc. ("Semele"). Gary D. Engle is Chairman and
CEO of Semele.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
12
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
<TABLE>
<S> <C>
Report of Independent Auditors........................................ *
Statement of Financial Position at December 31, 1998 and 1997......... *
Statement of Operations for the years ended December 31, 1998, 1997
and 1996............................................................ *
Statement of Changes in Partners' Capital for the years ended December
31, 1998, 1997 and 1996............................................. *
Statement of Cash Flows for the years ended December 31, 1998, 1997
and 1996............................................................ *
Notes to the Financial Statements..................................... *
</TABLE>
- ------------------------
(2) Financial Statement Schedules:
None Required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set forth in Item
601 of Regulation S-K, are not applicable.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the
Prospectus, which is included in Registration Statement on Form S-1 (No. 33-35148).
13 The 1998 Annual Report to security holders, a copy of which is furnished for the information of the
Securities and Exchange Commission. Such Report, except for those portions thereof which are
incorporated herein by reference, is not deemed filed(2) with the Commission.
23 Consent of Independent Auditors.
99(a) Lease agreement with Horizon Air Industries, Inc. was filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 as Exhibit 28 (a) and is incorporated herein by reference.
</TABLE>
13
<PAGE>
* Incorporated herein by reference to the appropriate portion of the 1998
Annual Report to security holders for the year ended December 31, 1998 (see Part
II).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
99(b) Lease agreement with Fred Meyer, Inc. was filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991 as Exhibit 28 (b) and is incorporated herein by reference.
99(c) Lease agreement with General Motors Corporation was filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 as Exhibit 99 (d) and is incorporated herein by reference.
99(d) Lease agreement with Awin Leasing Company, Inc. was filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 as Exhibit 99 (e) and is incorporated herein by reference.
99(e) Lease agreement with Enseco Incorporated is filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 and is included herein.
</TABLE>
- ------------------------
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
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.
<TABLE>
<S> <C> <C>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated
-----------------------------------------
a Massachusetts corporation and the
General Partner of the Registrant.
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ GEOFFREY A. MACDONALD By: /s/ GARY D. ENGLE
--------------------------------------- ---------------------------------------
Geoffrey A. MacDonald Gary D. Engle
CHAIRMAN AND A MEMBER OF THE EXECUTIVE PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMMITTEE OF EFG AND PRESIDENT AND A AND A MEMBER OF THE EXECUTIVE COMMITTEE
DIRECTOR OF THE GENERAL PARTNER OF EFG (PRINCIPAL EXECUTIVE OFFICER)
Date: March 31, 1999 Date: March 31, 1999
By: /s/ GARY M. ROMANO By: /s/ MICHAEL J. BUTTERFIELD
--------------------------------------- ---------------------------------------
Gary M. Romano Michael J. Butterfield
EXECUTIVE VICE PRESIDENT AND CHIEF SENIOR VICE PRESIDENT, FINANCE AND
OPERATING OFFICER OF EFG AND CLERK OF TREASURER OF EFG AND TREASURER OF THE
THE GENERAL PARTNER (PRINCIPAL FINANCIAL GENERAL PARTNER (PRINCIPAL ACCOUNTING
OFFICER) OFFICER)
Date: March 31, 1999 Date: March 31, 1999
</TABLE>
15
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1998
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1998 and 1997 9
Statement of Operations
for the years ended December 31, 1998, 1997 and 1996 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1998, 1997 and 1996 11
Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 12
Notes to the Financial Statements 13-22
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 23
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancing 24
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 25
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
Summary of
Operations 1998 1997 1996 1995 1994
- --------------------------- -------------- -------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 352,921 $ 658,262 $ 779,404 $ 1,645,094 $ 2,323,015
Net income (loss) $ (235,711) $ 238,231 $ 609,579 $ (16,951) $ 262,463
Per Unit:
Net income (loss) $ (0.78) $ 0.79 $ 2.02 $ (0.06) $ 0.87
Cash distributions $ 0.75 $ 0.94 $ 1.38 $ 2.25 $ 3.00
Financial Position
- ---------------------------
Total assets $ 2,480,535 $ 2,782,171 $ 3,576,563 $ 3,746,642 $ 4,648,253
Total long-term
obligations $ -- $ 22,990 $ 726,096 $ 1,022,276 $ 1,056,876
Partners' capital $ 2,194,998 $ 2,657,060 $ 2,701,770 $ 2,507,170 $ 3,203,173
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1998 compared to
the year ended December 31, 1997 and the year
ended December 31, 1997
compared to the year ended December 31, 1996
Certain statements in this annual report of American Income Fund I-B, 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 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 6 to the accompanying
financial statements, the collection of all rents due under the Partnership's
lease agreements and the 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 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 completed substantially all of its Year 2000 project by December 31, 1998 at
an aggregate cost of less than $50,000 and at a di minimus cost to the
Partnership. Remaining items are expected to be minor and be completed by March
31, 1999. 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.
3
<PAGE>
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 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. 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 accompanying financial statements.
Pursuant to the Restated Agreement, as amended, the Partnership is scheduled to
be dissolved by December 31, 2001.
RESULTS OF OPERATIONS
For the year ended December 31, 1998, the Partnership recognized lease
revenue of $352,921, compared to $658,262 and $779,404 for the years ended
December 31, 1997 and 1996, respectively. The decrease in lease revenue from
1996 to 1998 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 an affiliated equipment leasing program
sponsored by 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 report, in proportion
to their respective ownership interests, their respective shares of assets,
liabilities, revenues, and expenses associated with the equipment.
In 1998, the Partnership sold equipment having a net book value of $671,684
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $6,520 compared to a net gain in 1997 of
$115,379 on equipment having a net book value of $8,564 and a net gain in 1996
of $563,113 on equipment having a net book value of $99,407.
During July 1996, the Partnership transferred its ownership interest in
certain trailers 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 certain of
these trailers with comparable trailers and leased such to a new lessee. The
transaction was structured as a like-kind exchange for income tax reporting
purposes. The net carrying value of the new trailers, $385,063, was net of
$41,241, representing the proportionate amount of gain, for financial statement
purposes, deferred on the original trailers. The Partnership funded this
transaction with $66,307 of the cash consideration and long-term financing of
$359,997. The unused consideration of $19,650 was recognized as proceeds from
equipment sales and the remainder of the net gain on sale of $12,222 was
recognized as Gain on Sale of Equipment on the Statement of Operations during
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
4
<PAGE>
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 was $213,530, $431,940 and $642,750 for the years
ended December 31, 1998, 1997 and 1996, respectively. 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.
Interest expense was $39,438 or 6% of lease revenue in 1997 and $71,964 or
9.2% of lease revenue in 1996. The Partnership's notes payable were fully
amortized at January 1, 1998.
Management fees were approximately 3.8%, 4.4% and 4.5% of lease revenue
during the years ended December 31, 1998, 1997 and 1996, respectively.
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 $450,680, $114,704 and $78,819 for the years ended
December 31, 1998, 1997 and 1996, respectively. During the year ended December
31, 1998, the Partnership incurred or accrued approximately $261,200 for certain
legal and administrative expenses related to the Class Action Lawsuit described
in Note 6 to the financial statements. In addition, the Partnership incurred
certain remarketing expenses in 1998 related to the sale of its interest in an
aircraft. The increase in operating expenses from 1996 to 1997 was due primarily
to an increase in administrative charges. Other operating expenses consist
principally of administrative charges, professional service costs, such as audit
and other 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.
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. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used first to satisfy debt service obligations associated with
leveraged leases, if any, and next to pay management fees and operating costs.
Operating activities generated net cash inflows of $187,610, $460,812 and
$1,526,591 in 1998, 1997 and 1996, respectively. 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 also will decline as the Partnership experiences a
higher frequency of remarketing events.
Cash expended for asset acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During 1997, the Partnership expended $75,957 to
upgrade certain research and test equipment. There were no equipment
acquisitions during 1996 and 1998. For the year ended December 31, 1998, the
Partnership realized $678,204 in equipment sale proceeds compared to $123,943
and $682,170 in 1997 and 1996, 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.
At December 31, 1998, the Partnership was due aggregate future minimum
lease payments of $397,847 from contractual lease agreements (see Note 2 to the
financial statements). At the expiration of the individual primary and renewal
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
5
<PAGE>
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. 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 have cash needs to pay management
fees and operating expenses.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. The Partnership's indebtedness
was fully amortized on January 1, 1998.
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 assets.
In addition, the Partnership is a Nominal Defendant in a Class Action
Lawsuit described in Note 6 to the accompanying financial statements. A
preliminary settlement agreement will allow the Partnership to invest in new
equipment or other activities, subject to certain limitations, effective March
22, 1999. Until the Class Action Lawsuit is adjudicated, the General Partner
does not expect that the level of future quarterly cash distributions paid by
the Partnership will be increased above amounts paid in the fourth quarter of
1998. 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 6 to the accompanying
financial statements.
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 year ended December 31, 1998, the Partnership declared total
cash distributions of $226,351. In accordance with the Restated Agreement, as
amended, the Limited Partners were allocated 95% of these distributions, or
$215,033 and the General Partner was allocated 5%, or $11,318. The fourth
quarter 1998 cash distribution was paid on January 15, 1999.
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). 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 December 31, 1998. 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
6
<PAGE>
the General Partner for financial reporting purposes is not indicative of any
further capital obligations to the Partnership by the General Partner. The
Amended and Restated Agreement and Certificate of Limited Partnership 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 positive tax capital account
balance.
The future liquidity of the Partnership will be influenced by, among other
factors, prospective market conditions, technological changes, the ability of
EFG to manage and remarket the assets, and many other events and circumstances,
that could enhance or detract from individual asset yields and the collective
performance of the Partnership's equipment portfolio. However, the outcome of
the Class Action Lawsuit described in Note 6 to the accompanying financial
statements will be the principal factor in determining the future of the
Partnership's operations.
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Fund I-B,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-B, a Massachusetts Limited Partnership, as of December
31, 1998 and 1997, and the related statements of operations, changes in
partners' capital, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Income Fund I-B, a
Massachusetts Limited Partnership at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
8
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,059,328 $ 1,442,855
Rents receivable 32,020 30,351
Accounts receivable - affiliate 41,508 76,072
Equipment at cost, net of accumulated
depreciation of $1,512,283 and $3,333,813
at December 31, 1998 and 1997, respectively 347,679 1,232,893
------------------- -------------------
Total assets $ 2,480,535 $ 2,782,171
------------------- -------------------
------------------- -------------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ -- $ 22,990
Accrued interest -- 195
Accrued liabilities 222,500 9,200
Accrued liabilities - affiliate 6,449 15,272
Deferred rental income -- 20,866
Cash distributions payable to partners 56,588 56,588
------------------- -------------------
Total liabilities 285,537 125,111
------------------- -------------------
Partners' capital (deficit):
General Partner (207,621) (184,517)
Limited Partnership Interests
(286,711 Units; initial purchase
price of $25 each) 2,402,619 2,841,577
------------------- -------------------
Total partners' capital 2,194,998 2,657,060
------------------- -------------------
Total liabilities and partners' capital $ 2,480,535 $ 2,782,171
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
9
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Income:
Lease revenue $ 352,921 $ 658,262 $ 779,404
Interest income 82,442 79,405 83,113
Gain on sale of equipment 6,520 115,379 575,335
------------------ ------------------ ------------------
Total income 441,883 853,046 1,437,852
------------------ ------------------ ------------------
Expenses:
Depreciation 213,530 431,940 642,750
Interest expense -- 39,438 71,964
Equipment management fees
- affiliate 13,384 28,733 34,740
Operating expenses - affiliate 450,680 114,704 78,819
------------------ ------------------ ------------------
Total expenses 677,594 614,815 828,273
------------------ ------------------ ------------------
Net income (loss) $ (235,711) $ 238,231 $ 609,579
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net income (loss)
per limited partnership unit $ (0.78) $ 0.79 $ 2.02
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Cash distributions declared
per limited partnership unit $ 0.75 $ 0.94 $ 1.38
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
10
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
General Limited Partners
Partner ----------------------------------
Amount Units Amount Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (192,012) 286,711 $ 2,699,182 $ 2,507,170
Net income - 1996 30,479 -- 579,100 609,579
Cash distributions declared (20,749) -- (394,230) (414,979)
-------------- -------------- -------------- --------------
Balance at December 31, 1996 (182,282) 286,711 2,884,052 2,701,770
Net income - 1997 11,912 -- 226,319 238,231
Cash distributions declared (14,147) -- (268,794) (282,941)
-------------- -------------- -------------- --------------
Balance at December 31, 1997 (184,517) 286,711 2,841,577 2,657,060
Net loss - 1998 (11,786) -- (223,925) (235,711)
Cash distributions declared (11,318) -- (215,033) (226,351)
-------------- -------------- -------------- --------------
Balance at December 31, 1998 $ (207,621) 286,711 $ 2,402,619 $ 2,194,998
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
11
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- -----------
Cash flows from (used in) operating activities:
<S> <C> <C> <C>
Net income (loss) $ (235,711) $ 238,231 $ 609,579
Adjustments to reconcile net income (loss)
to net cash from operating activities:
<S> <C> <C> <C>
Depreciation 213,530 431,940 642,750
Gain on sale of equipment (6,520) (115,379) (575,335)
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable (1,669) (28,842) 331,314
Accounts receivable - affiliate 34,564 (37,425) 549,057
Increase (decrease) in:
Accrued interest (195) (3,688) (24,437)
Accrued liabilities 213,300 (13,550) (45,860)
Accrued liabilities - affiliate (8,823) (5,176) 13,358
Deferred rental income (20,866) (5,299) 26,165
---------------- ---------------- ----------------
Net cash from operating activities 187,610 460,812 1,526,591
---------------- ---------------- ----------------
Cash flows used in investing activities
Purchase of equipment -- (75,957) --
Proceeds from equipment sales 678,204 123,943 682,170
---------------- ---------------- ----------------
Net cash from investing activities 678,204 47,986 682,170
---------------- ---------------- ----------------
Cash flows used in financing activities:
Principal payments - notes payable (22,990) (703,106) (656,177)
Distributions paid (226,351) (301,804) (452,704)
---------------- ---------------- ----------------
Net cash used in financing activities (249,341) (1,004,910) (1,108,881)
---------------- ---------------- ----------------
Net increase (decrease) in cash
and cash equivalents 616,473 (496,112) 1,099,880
Cash and cash equivalents at beginning of year 1,442,855 1,938,967 839,087
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,059,328 $ 1,442,855 $ 1,938,967
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 195 $ 43,126 $ 96,401
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental disclosure of non-cash investing and financing activity:
See Note 3 to the financial statements.
</TABLE>
The accompanying notes are an integral part of
these financial statements.
12
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-B, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on December 31, 1990, for
the purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On March 1, 1991, the
Partnership issued 286,711 units of limited partnership interest (the "Units")
to 453 investors. The Partnership's General Partner, AFG Leasing VI
Incorporated, is a Massachusetts corporation formed in 1990 and an affiliate of
Equis Financial Group Limited Partnership (formerly known as American Finance
Group), a Massachusetts limited partnership ("EFG"). The General Partner is not
required to make any other capital contributions except as may be required under
the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and
Certificate of Limited Partnership ("Restated Agreement, as amended").
Significant operations commenced March 1, 1991 when the Partnership made
its initial equipment purchase. Pursuant to the Restated Agreement, as amended,
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services (see Note 4).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group", and its acronym, to a third-party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
13
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in federal agency
discount notes and reverse repurchase agreements with overnight maturities.
Under the terms of the agreements, title to the underlying securities passes to
the Partnership. The securities underlying the agreements are book entry
securities. At December 31, 1998, the Partnership had $1,950,200 invested in
federal agency discount notes and in reverse repurchase agreements secured by
U.S. Treasury Bills or interests in U.S. Government securities.
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 $397,847
are due as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending December 31, 1999 $ 185,182
2000 116,936
2001 74,445
2002 21,284
-------------
Total $ 397,847
-------------
-------------
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
General Motors Corporation $ 94,977 $ 110,455 $ 175,380
Awin Leasing Company, Inc. $ 91,622 $ 91,622 $ --
Horizon Air Industries, Inc. $ 44,050 $ 278,208 $ 278,206
Enseco Incorporated $ 38,616 $ -- $ --
Fred Meyer, Inc. $ -- $ -- $ 149,291
</TABLE>
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
EQUIPMENT ON LEASE
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. Equipment Cost means the actual cost paid by the
Partnership to acquire the equipment, including acquisition fees. Where
equipment was acquired from EFG or an Affiliate, Equipment Cost reflects the
actual price paid for the equipment by EFG or the Affiliate plus all actual
costs incurred by EFG or the Affiliate while carrying the equipment, including
all liens and encumbrances, less the amount of all primary term rents earned by
EFG or the Affiliate prior to selling the equipment. Where the seller of the
equipment was a third party, Equipment Cost reflects the seller's invoice price.
14
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
DEPRECIATION
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, 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.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
To the extent that such adjustments have been recorded, they are reflected
separately on the accompanying Statement of Operations as Write-Down of
Equipment.
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.
ACCRUED LIABILITIES - AFFILIATE
Unpaid operating expenses and fees paid by EFG on behalf of the Partnership
and accrued but unpaid administrative charges and management fees are reported
as Accrued Liabilities - Affiliate (see Note 4).
ALLOCATION OF PROFITS AND LOSSES
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the Limited
Partners and 5% to the General Partner). See Note 5 for allocation of income or
loss for income tax purposes.
NET INCOME (LOSS) AND CASH DISTRIBUTIONS PER UNIT
Net income (loss) and cash distributions per Unit are based on 286,711
Units outstanding during each of the three years in the period ended December
31, 1998 and computed after allocation of the General Partner's 5% share of net
income (loss) and cash distributions.
PROVISION FOR INCOME TAXES
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1998. Remaining Lease Term (Months), as used below, represents the
number of months remaining from December 31, 1998 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-
15
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at cost Location
- ------------------------------ ------------- ----------------- ------------------------
<S> <C> <C> <C>
Materials handling 0-17 $ 672,612 GA/MI/NV/OH/TX/UT
Trailers/intermodal containers 0-48 620,259 GA/MI/OK
Research and test 12-13 458,822 CA/CO
Communications 0 68,603 CO/FL/ID/WA
Construction and mining 3 39,666 IL
-----------------
Total equipment cost 1,859,962
Accumulated depreciation (1,512,283)
-----------------
Equipment, net of accumulated depreciation $ 347,679
-----------------
-----------------
</TABLE>
During July 1996, the Partnership transferred its ownership interest in
certain trailers 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 certain of
these trailers with comparable trailers and leased such to a new lessee. The
transaction was structured as a like-kind exchange for income tax reporting
purposes. The net carrying value of the new trailers, $385,063, was net of
$41,241, representing the proportionate amount of gain, for financial statement
purposes, deferred on the original trailers. The Partnership funded this
transaction with $66,307 of the cash consideration and long-term financing of
$359,997. The unused consideration of $19,650 was recognized as proceeds from
equipment sales and the remainder of the net gain on sale of $12,222 was
recognized as Gain on Sale of Equipment during 1996.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. 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. 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. At December 31, 1998, the
Partnership's equipment portfolio included equipment having a proportionate
original cost of $151,529, representing approximately 8% of total equipment
cost.
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership. As
equipment is sold to third parties, or otherwise disposed of, the Partnership
recognizes a gain or loss equal to the difference between the net book value of
the equipment at the time of sale or disposition and the proceeds realized upon
sale or disposition. The ultimate realization of estimated residual value in the
equipment is dependent upon, among other things, EFG's ability to maximize
proceeds from selling or re-leasing the equipment upon the expiration of the
primary lease terms. At December 31, 1998, 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.
16
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 4 - 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 years ended December 31,
1998, 1997 and 1996, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Equipment management fees $ 13,384 $ 28,733 $ 34,740
Administrative charges 57,048 53,604 31,872
Reimbursable operating
expenses due to third parties 393,632 61,100 46,947
------------------ ------------------ ------------------
Total $ 464,064 $ 143,437 $ 113,559
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG is compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental
revenues received by the Partnership. Both acquisition and management fees are
subject to certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG at actual cost.
All equipment was purchased from EFG, one of its affiliates, including
other equipment leasing programs sponsored by EFG, or from third-party sellers.
The Partnership's Purchase Price is determined by the method described in Note
2, Equipment on Lease.
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 December 31, 1998, the Partnership was owed $41,508 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1999.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
-------------------------------------------- ------------------------ -----------------------
Number of Percent of Total
Affiliate Units Owned Outstanding Units
-------------------------------------------- ------------------------ -----------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership 11,442 3.99%
-------------------------------------------- ------------------------ -----------------------
Old North Capital Limited Partnership 990 0.35%
-------------------------------------------- ------------------------ -----------------------
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests
of ONC are owned by Semele Group, INc. ("Semele"). Gary D. Engle is Chairman
and CEO of Semele.
17
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 5 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or
loss to each class of partner according to their respective ownership
percentages (95% to the Limited Partners and 5% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon 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 positive tax
capital account balance.
The following is a reconciliation between net income or loss reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net income (loss) $ (235,711) $ 238,231 $ 609,579
Financial statement depreciation in
excess of (less than) tax depreciation (11,073) 34,752 61,886
Deferred rental income (20,866) (5,299) 26,165
Other 649,684 (9,136) 123,033
------------------ ------------------ ------------------
Net income for federal income tax
Reporting purposes $ 382,034 $ 258,548 $ 820,663
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain or loss on equipment disposals and the financial statement gain or loss
on disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
<S> <C> <C>
Partners' capital $ 2,194,998 $ 2,657,060
Add back selling commissions and organization
and offering costs 801,375 801,375
Financial statement distributions in excess of
tax distributions 2,829 2,829
Cumulative difference between federal income tax
and financial statement income (loss) (208,606) (826,351)
------------------ ------------------
Partners' capital for federal income tax reporting purposes $ 2,790,596 $ 2,634,913
------------------ ------------------
------------------ ------------------
</TABLE>
18
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 6 - 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 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.
19
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 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 $50,500, 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 $210,700, all of
which was accrued and expensed by the Partnership in 1998.
20
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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. The following action had not been finally adjudicated at
December 31, 1998:
ACTION INVOLVING NATIONAL STEEL CORPORATION
EFG, on behalf of the Partnership and certain affiliated investment
programs (collectively, the "Plaintiffs"), filed an action in the Commonwealth
of Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Partnership, National Steel Corporation ("National Steel"). The
Complaint seeks reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on September 29, 1995. The parties discussed
settlement with respect to this matter for some time; however, the negotiations
were unsuccessful. The Plaintiffs filed an Amended and Supplemental Complaint
alleging further default under the MLA and filed a motion for Summary Judgment
on all claims and Counterclaims. The Court held a hearing on the Plaintiff's
motion in December 1997 and later entered a decision dismissing certain of
National Steel's Counterclaims, finding in favor of the Plaintiffs on certain
issues and in favor of National Steel on other issues. In March 1999, the
Plaintiffs obtained payment for certain of the disputed items and have resumed
settlement discussions to resolve remaining issues. The General Partner does not
believe that the resolution of the remaining claims will have a material adverse
effect on the Partnership's financial position or results of operations.
21
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1998, 1997 and 1996
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 2,119,870 $ 531,173 $ 3,329,290
Sale proceeds realized upon disposition
of equipment 678,204 123,943 682,170
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 2,798,074 655,116 4,011,460
Original acquisition cost of equipment
disposed 2,706,744 567,366 3,411,228
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 91,330 $ 87,750 $ 600,232
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
23
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1998
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net income (loss) $ (242,231) $ 6,520 $ (235,711)
Add:
Depreciation 213,530 -- 213,530
Management fees 13,384 -- 13,384
Book value of disposed equipment -- 671,684 671,684
Less:
Principal reduction of notes payable (22,990) -- (22,990)
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings (38,307) 678,204 639,897
Less:
Management fees (13,384) -- (13,384)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings (51,691) 678,204 626,513
Other sources and uses of cash:
Cash at beginning of year 1,442,855 -- 1,442,855
Net change in receivables and
accruals 216,311 -- 216,311
Less:
Cash distributions paid -- (226,351) (226,351)
------------------ ------------------ ------------------
Cash at end of year $ 1,607,475 $ 451,853 $ 2,059,328
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
24
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1998
For the year ended December 31, 1998, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
<TABLE>
<CAPTION>
<S> <C>
Operating expenses $ 242,875
</TABLE>
25
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Fund I-B, a Massachusetts Limited Partnership, of our
report dated March 10, 1999, included in the 1998 Annual Report to the Partners
of American Income Fund I-B, a Massachusetts Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
-15-
<PAGE>
ADDENDUM NO. 1
TO
RENEWAL RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NO. A-10RN1
TO MASTER LEASE AGREEMENT NO. 9003NJG407 (the "Master Lease")
DATED AS OF APRIL 20, 1990
This Addendum No. 1 hereby amends and renames Renewal Rental Schedule and
Acceptance Certificate No. A-10RN1 (the "Renewal Rental Schedule") between
American Income Fund I-B, a Massachusetts Limited Partnership, as lessor and
Quanterra Inc., as lessee.
The Renewal Rental Schedule is hereby renamed Renewal Rental Schedule and
Acceptance Certificate No. A-10RN2 (the "Renamed Renewal Rental Schedule").
As set forth on the attached Schedule A, the Lease expiration date is
changed from May 31, 1999 to December 31, 1999, and the Periodic Rent is
adjusted from $3,250.00 to $3,093.00 beginning with the payment of Basic Rent
due on January 1, 1997 and continuing monthly in advance thereafter through and
including December 1, 1999 with respect to the Equipment leased hereunder as
described on the attached Schedule B.
IN WITNESS WHEREOF the parties hereto have caused this Addendum No. 1 to
be executed and delivered by their duly authorized representatives as of this
1st day of January, 1997.
AMERICAN INCOME FUND I-B
LIMITED PARTNERSHIP
Lessor
By: AFG Leasing VI Inc.
Title: General Partner
By: /s/ Gail Ofgant
-------------------------------
Title: VP & Authorized Signer
----------------------------
QUANTERRA INC.
Lessee
By: /s/ Debbie Pentik
-------------------------------
Title: Purchasing Manager
----------------------------
<PAGE>
LLR4OD-O1 EQUIS FINANCIAL GROUP 1/10/97 17:11:54 PAGE 1
Schedule A - Rental Schedule Economics
LESSEE: ENSECO INCORPORATED
LESSOR: EQUIS FINANCIAL GROUP
RENTAL SCHEDULE: A-10RN2
LEASE TERM (months): 36
PRIMARY START DATE: 1/01/1997
LEASE EXPIRATION DATE: 12/31/1999
PAYMENT FREQUENCY: MONTHLY
ADVANCE/ARREARS: ADVANCE
LEASE RATE: .008160950
PER DIEM LEASE RATE: .000272032
PERIODIC RENT: $3,093.00
NUMBER OF PAYMENTS: 36
TOTAL INTERIM RENT: $.00
PAYMENT COMMENCEMENT DATE: 1/01/1997
TOTAL EQUIPMENT COST: $379,000.00
DOCUMENTATION FEE: $20.00
--------------------
DP LESSEE INITIALS
- ----------
GDO LESSOR INITIALS
- ----------
ATF#: ENS-95RMKT
<PAGE>
EXHIBIT 2
RENEWAL RENTAL SCHEDULE NO. A-7RN1 (the "Renewal Rental Schedule")
DATED AS OF JANUARY 1, 1996
TO MASTER LEASE AGREEMENT NO. 9003NJG407 (the "Master Lease")
DATED AS OF APRIL 20, 1990
LESSOR LESSEE
AMERICAN INCOME FUND I-B, QUANTERRA INCORPORATED
A MASSACHUSETTS LIMITED PARTNERSHIP 4955 YARROW ST
c/o AMERICAN FINANCE GROUP ARVADA, CO 80002
98 NORTH WASHINGTON ST
BOSTON, MA 02114
1. LEASE TERM. PAYMENT DATES.
This Renewal Rental Schedule, between American Finance Group, as lessor,
lessor's interest therein having been previously sold and assigned to the
above-referenced Lessor and Lessee incorporates by reference the terms and
conditions of the Master Lease. Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor those items of Equipment described on the attached Schedule
B, for the Renewal Lease Term and at the Renewal Term Basic Rent payable on the
Payment Dates hereinafter set forth on the attached Schedule A, on the terms and
conditions set forth in the Master Lease.
2. BASIC RENT.
Renewal Term Basic Rent is computed by multiplying the Total Equipment
Cost by the Renewal Lease Rate set forth on the attached Schedule A.
3. STIPULATED LOSS VALUE.
Notwithstanding the provision of Section 5 of the Master Lease, the Stipulated
Loss Value for the Equipment during the Renewal Lease Term shall be equal to
$10,000.00.
4. LESSEE'S OPTION AT RENTAL SCHEDULE EXPIRATION.
At the expiration of the Renewal Lease Term, upon (60) days prior written
notice to Lessor, Lessee has the option to purchase all, but not less than all,
items of Equipment leased pursuant to this Rental Schedule for $995.O0. If
Lessee fails to give Lessor (60) days written notice, the Renewal Lease Term
may, at Lessor's option, be extended and continue until (60) days from the date
Lessor receives written notice of Lessee's decision to purchase the Equipment.
5. ENTIRE AGREEMENT. MODIFICATION AND WAIVERS. EXECUTION IN COUNTERPARTS.
This Renewal Rental Schedule and the Master Lease constitute the entire
agreement between Lessee and Lessor with respect to the leasing of the
Equipment. Lessee hereby represents, warrants and certifies that the
representations and warranties of Lessee set forth in the Master Lease are true
and correct as of the date hereof. Capitalized terms not defined herein shall
have the meanings assigned to them in the Master Lease. To the extent any of the
terms and conditions set forth in this Renewal Rental Schedule conflict with or
are inconsistent with the Master Lease, this Renewal Rental Schedule shall
govern and control. No amendment, modification or waiver of this Renewal Rental
Schedule or the Master Lease will be effective unless evidenced in writing
signed by the party to be charged. This Renewal Rental Schedule may be executed
in counterparts, all of which together shall constitute one and the same
instrument. <PAGE>
RENEWAL RENTAL SCHEDULE NO. A-7RN1
PAGE TWO
The undersigned, being the duly authorized representative of the Lessee, hereby
certifies that the items of Equipment described on the attached Schedule B have
been duly delivered to the Lessee in good order and duly inspected and accepted
by the Lessee as conforming in all respects with the requirements and provisions
of the Master Lease, as of the Renewal Term Commencement Date stated on the
attached Schedule A.
AMERICAN INCOME FUND I-B,
A MASSACHUSETTS LIMITED PARTNERSHIP QUANTERRA INCORPORATED
Lessor Lessee
By: AFG LEASING VI INCORPORATED By: /s/ [Illegible]
---------------------------
Title: General Partner Title: Director of Purchasing
------------------------
By: /s/ [Illegible]
---------------------------
Title: Manager
------------------------
COUNTERPART NO. 1 OF 2 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS.
TO THE EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER
THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH
THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1
<PAGE>
LLR40D-01 AMERICAN FINANCE GROUP 1/17/96 15:39:33 PAGE 1
Schedule A - Rental Schedule Economics
LESSEE: ENSECO INCORPORATED
LESSOR: AMERICAN FINANCE GROUP
RENTAL SCHEDULE: A-7RN1
LEASE TERM (months): 24
PRIMARY START DATE: 1/01/1996
LEASE EXPIRATION DATE: 12/31/1997
PAYMENT FREQUENCY: MONTHLY
ADVANCE/ARREARS: ADVANCE
LEASE RATE: .006880734
PER DIEM LEASE RATE: .000229358
PERIODIC RENT: $375.00
NUMBER OF PAYMENTS: 24
TOTAL INTERIM RENT: $.00
PAYMENT COMMENCEMENT DATE: 1/01/1996
TOTAL EQUIPMENT COST: $54,500.00
DOCUMENTATION FEE:
--------------------------
/s/ E H LESSEE INITIALS
- ----------
/s/ GDO LESSOR INITIALS
- ----------
<PAGE>
LLR41D-01 AMERICAN FINANCE GROUP 1/17/96 15:39:37 PAGE 1
Schedule B Equipment Description
LESSEE: ENSECO INCORPORATED
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: A-7RN1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Acceptance
Equipment Cost Serial Number Year Manufacturer Model Type Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
13,500.00 VG INSTRUMENTS A/D PN CS4001 1 FOUR CHANNEL CHROM SERV 1/01/1996
13,500.00 VG INSTRUMENTS A/D PN CS4001 1 FOUR CHANNEL CHROM SERV 1/01/1996
13,500.00 VG INSTRUMENTS A/D PN CS4001 1 FOUR CHANNEL CHROM SERV 1/01/1996
14,000.00 VG INSTRUMENTS PN CS1618 GC CONTROL BOARD 1/01/1996
- -------------------
54,500.00 Total for Location 2200 COTTONTAIL LN SOMERSET NJ 08873
- -------------------
- -------------------
54,500.00 Total Equipment cost
</TABLE>
<PAGE>
L2R13D AMERICAN FINANCE GROUP 12/27/95 10:16:57 PAGE 1
ASSET ACTIVITY CHECKLIST REPORT
PREPARED BY: DEBORAH SIMPSON
APPROVALS: GDO /
----------- -----------
TYPE 0F TRANSACTION
(X) RENEWAL LEASE ( ) CASUALTY AT STIPULATED LOSS VALUE
( ) SALE TO ORIGINAL USER ( ) EARLY TERMINATION
( ) SALE TO THIRD PARTY USER ( ) WAREHOUSE OF ASSETS
( ) OTHER
--------------------------
PRIMARY TERM DATA
ORIGINAL LESSEE ENSECO INCORPORATED
STREET ADDRESS 1 2200 COTTONTAIL LN
STREET ADDRESS 2
CITY, STATE, ZIP SOMERSET NJ 08873
CONTACT NAME BOB GEORGE
PHONE NUMBER 216-497-9396 FAX NUMBER
MASTER LEASE NUMBER 9003NJG407
LEASE DATE 4/20/1990
RENTAL SCHEDULE A-9
START DATE 3/01/1991
EXPIRATION DATE 2/28/1995
PAYMENT FREQUENCY M/ADV
LEASE RATE FACTOR .022420000
ASSUMED DEBT RATE 8.8500
TREASURY RATE .00
LENDER/LOAN NUMBER
EQUITY OWNER(S) 1063
100.000000000
1 (X) ORIGINAL TITLES NA 3 (X) STOP BILL FORM
2 (X) PRODUCE IRR REPORT 4 (X) COLLATERAL DOCS REQUESTED NA
I. WAREHOUSE DATA (SEE ATTACHED EQUIPMENT LIST)
WAREHOUSE COST $
----------------
DATE WAREHOUSED STOP BILL DATE
------------------ ------------------
<PAGE>
L2R13D AMERICAN FINANCE GROUP 12/27/95 10:16:57 PAGE 2
ASSET ACTIVITY CHECKLIST REPORT
II. EQUIPMENT SALE DATA (SEE ATTACHED EQUIPMENT AND PRICE LIST)
NEW LESSEE OR BUYER
STREET ADDRESS 1
STREET ADDRESS 2
CITY, STATE, ZIP
CONTACT NAME
PHONE NUMBER FAX NUMBER
SALE TYPE BS LS OS RS
TAX EXEMPTION STATUS YES NO EXEMPTION NUMBER
TOTAL SALE PRICE $ BROKERAGE FEE $
------------ ------------
SALE DATE/STOP BILL DATE
--------------
1 ( ) CREATE MEMO CODE 6 ( ) CHANGE MEMO CODE
2 ( ) AS/400 INPUT 7 ( ) REMOVE RS COUNTERPART
3 ( ) MISCELLANEOUS INVOICE IF ALL ASSETS ARE SOLD
4 ( ) PRODUCE DOCUMENTS/SEND TO BUYER 8 ( ) PREP FOR SCANNING
5 ( ) RECEIPT OF PAYMENT 9 ( ) FINAL DOCUMENTS TO BUYER
III. RENEWAL DATA (ATF MAY NEED TO BE CREATED)
NEW RENTAL SCHEDULE A-9RN1 TERM 24
--------------- ----------------
START DATE 1-1-96 EXPIRATION DATE 12-31-97
--------------- ----------------
PAYMENT FREQUENCY M/ADV [Circled] Q/ADV S/ADV A/ADV M/ARR
Q/ARR S/ARR A/ARR
STIPULATED LOSS VALUE $ 30,000.00 LRF/RENT $ /$ 1150.00
--------------- ---------------
SEND DOCUMENTS TO LESSEE END OF LEASE OPTIONS purchase option-
--------------- ----------------
$2500.00 1-1-98
----------------
1 (X) AS/400 INPUT 5 ( ) ACTIVATION REPORT
2 (X) UPDATE EQUITY OWNER 6 ( ) PREP FOR SCANNING
3 (X) PRODUCE DOCUMENTS/SEND TO LESSEE 2/7/96 7 ( ) FINAL DOCUMENTS TO LESSEE
4 (X) REQUEST UPDATED INSURANCE on file
IV. NOTES, COMMENTS AND OTHER INFORMATION
(*) Need to credit 86586 & 84383
------------------------------------------------------------
------------------------------------------------------------
<PAGE>
L2R14D AMERICAN FINANCE GROUP 12/27/95 10:16:58 PAGE 1
ASSET ACTIVITY REPORT -- EQUIPMENT DESCRIPTION
LESSEE: ENSECO INCORPORATED
RENTAL SCHEDULE: A-9
<TABLE>
<CAPTION>
Asset Equipment Cost Serial Number Manufacturer Model Type Status Bill Code
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0010342 119,911.00 ICAP 61E AIR SPECTROMETER LEASE C000l
--------------
119,911.00 Total for Location 4955 YARROW ST ARVADA CO 80002 CODE C0001
--------------
--------------
119,911.00 Total Equipment Cost
</TABLE>
** END OF REPORT **
<PAGE>
====================
Facsimile Quanterra Incorporated [Quanterra LOGO]
Transmittal 4955 Yarrow Street Environmental
Arvada, CO 80002 Services
Phone: (303) 421-6611
Fax: (303) 467-9136
Date: 12/6/95
--------------------------------------------------------------------
Deliver To: Debbie Simpson
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
Company: Amer. Finance Group
--------------------------------------------------------------------
Fax Number: (617) 523-1410
--------------------------------------------------------------------
From: E. [Illegible]
--------------------------------------------------------------------
Number of Pages (Including This Page) 1
-------
If you did not receive all pages, please call (303) 421-6611.
Comments:
Please Review Rental Schedule A-9 (ICAP 61E) For A 2 Yr
- --------------------------------------------------------------------------------
Term And Schedule A-7 For The Same, If Possible. If Not
- --------------------------------------------------------------------------------
Then A-7 For 1 Yr. Our Preference, If At All Possible, For A-7
- --------------------------------------------------------------------------------
Is Two Yrs.
- --------------------------------------------------------------------------------
Can We Have These Effective 1-1-96??? We Must! Please let me know
- --------------------------------------------------------------------------------
Thanks
- --------------------------------------------------------------------------------
[Illegible]
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Confidentiality Notice:
The documents accompanying this telecopy transmission contains confidential
information which is [Illegible] privileged. The information is intended only
for use of the recipient [Illegible] above. If you [Illegible] received
[Illegible] in error, please notify us immediately by telephone to arrange for
the return of the documents to us, and you are hereby notified that any
[Illegible] distribution, [Illegible] is strictly prohibited.
- --------------------------------------------------------------------------------
<PAGE>
PERFORMANCE SUMMARY SHEET
ACCT MGR: DEBBIE SIMPSON
LSCODE: ENSECO (QUANTERRA INC.)
RSCODE: A-9
EOCODE: 1063-AIF I-C LP
EQTYPE: 17
DESC: AIR SPECTROMETER
ORIGINAL OEC: $119,911.00
CURRENT OEC: $119,911.00
TERM: 48
FRQ (M/12 Q/4 S/2 A/1): 12
ADV (1) ARR (2): 1
LEASE RATE: 0.02242
T-RATE: 7.56%
T-RATE + SPREAD 8.30%
PRESENT VALUE: 92.00%
HISTORICAL IRR: 11.14%
HISTORICAL % OEC: 29.32%
<TABLE>
<CAPTION>
OVER TOTAL
- ------SCENARIO------- ---OUTFLOW--- -----CASH FLOWS----- ----IRR---- --T-RATE-- CASH FLOWS
<S> <C> <C> <C> <C> <C> <C>
BASE 119,911 48 2,688 3.64% -3.92% 129,043
CB (THROUGH 12/31/95) 11 2,688 11.80% 4.24% 29,568
RNWL 24 1,150 16.06% 8.50% 27,600
PJCTDISP 1 2,500 16.33% 8.77% 2,500
0
0
0
0
0
- --------------------------------------------------------------------------------------------------------
OVERALL RESULTS: REV/ % OEC $188,711.42 157.38%
RESIDUAL RESULTS: REV/ % OEC $59,668.00 49.76%
HISTORICAL COMPARISON: +/- % OEC 20.44%
</TABLE>
<PAGE>
[GE LOGO]
GE Motors & Industrial Systems
- -----------------------------------------------------
Installation & Service Engineering Department
General Electrical Company
1 River Road, Schenectady, NY 12345
June 27, 1995
Brian Norton
American Finance Group
98 North Washinton St
Boston, MA 02114
Brian;
Be advised that the material on lease schedule #1 routed through our
warehouse in Illinois to locations outside that state should have the equipment
location as One River Road, Schenectady, NY, 12345. This is Installation &
Service Engineering Headquarters; whereas, Albany is a regional office. Please
adjust your invoices accordingly.
Regards,
/s/ R. E. Wittnebel
R. E. Wittnebel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000868678
<NAME> AIE-IA
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,059,328
<SECURITIES> 0
<RECEIVABLES> 73,528
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,132,856
<PP&E> 1,859,932
<DEPRECIATION> 1,512,283
<TOTAL-ASSETS> 2,480,535
<CURRENT-LIABILITIES> 285,537
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,194,998
<TOTAL-LIABILITY-AND-EQUITY> 2,480,535
<SALES> 0
<TOTAL-REVENUES> 441,883
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 667,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (235,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (235,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,711)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
