<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-35148-02
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
incorporation or organization) Identification No.)
88 Broad Street, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [_] No [_]
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 2000 and December 31, 1999......................................... 3
Statement of Operations
for the three and nine months ended September 30, 2000 and 1999..................... 4
Statement of Cash Flows
for the nine months ended September 30, 2000 and 1999............................... 5
Notes to the Financial Statements..................................................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 10-13
PART II. OTHER INFORMATION:
Items 1-6...................................................................................... 14
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 819,436 $2,086,622
Rents receivable................................................................. 1,487 2,500
Accounts receivable--affiliate................................................... 13,459 22,736
Investment in real estate venture................................................ 1,280,363 -
Equipment at cost, net of accumulated depreciation of $968,364 and
$995,293 at September 30, 2000 and December 31, 1999, respectively.............. 145,389 213,428
---------- ----------
Total assets................................................................ $2,260,134 $2,325,286
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities.............................................................. $ 218,838 $ 189,816
Accrued liabilities--affiliate................................................... 19,712 6,876
Cash distributions payable to partners........................................... - 56,588
---------- ----------
Total liabilities........................................................... 238,550 253,280
---------- ----------
Partners' capital (deficit):
General Partner................................................................. (216,292) (213,771)
Limited Partnership Interests (286,711 Units; initial purchase price of
$25 each)..................................................................... 2,237,876 2,285,777
---------- ----------
Total partners' capital..................................................... 2,021,584 2,072,006
---------- ----------
Total liabilities and partners' capital..................................... $2,260,134 $2,325,286
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
For the three and nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Lease revenue........................................... $ 29,972 $ 74,004 $155,785 $228,140
Interest income......................................... 13,210 25,402 49,301 74,346
Gain on sale of equipment............................... 4,576 7,661 9,965 17,511
-------- -------- -------- --------
Total income........................................ 47,758 107,067 215,051 319,997
-------- -------- -------- --------
Expenses:
Depreciation............................................ 21,969 25,668 66,108 77,002
Equipment management fees--affiliate.................... 655 2,708 5,252 8,015
Operating expenses--affiliate........................... 87,301 28,448 164,476 142,327
Partnership's share of unconsolidated
real estate venture's loss............................. 21,238 - 29,637 -
-------- -------- -------- --------
Total expenses...................................... 131,163 56,824 265,473 227,344
-------- -------- -------- --------
Net (loss) income........................................ $(83,405) $ 50,243 $(50,422) $ 92,653
======== ======== ======== ========
Net (loss) income per limited partnership unit........... $ (0.28) $ 0.17 $ (0.17) $ 0.31
======== ======== ======== ========
Cash distributions declared per limited
partnership unit........................................ $ - $ 0.19 $ - $ 0.56
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net (loss) income............................................................ $ (50,422) $ 92,653
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation............................................................... 66,108 77,002
Gain on sale of equipment.................................................. (9,965) (17,511)
Partnership's share of unconsolidated real estate venture's loss........... 29,637 -
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable........................................................... 1,013 31,020
Accounts receivable--affiliate............................................. 9,277 (41,333)
Increase (decrease) in:
Accrued liabilities........................................................ 29,022 (79,765)
Accrued liabilities--affiliate............................................. 12,836 50
Deferred rental income............................................... - 18,861
----------- ----------
Net cash provided by operating activities............................... 87,506 80,977
----------- ----------
Cash flows provided by (used in) investing activities:
Proceeds from equipment sales............................................... 11,896 52,691
Investment in real estate venture........................................... (1,310,000) -
----------- ----------
Net cash (used in) provided by investing activities..................... (1,298,104) 52,691
----------- ----------
Cash flows used in financing activities:
Distributions paid.......................................................... (56,588) (169,764)
----------- ----------
Net cash used in financing activities................................... (56,588) (169,764)
----------- ----------
Net decrease in cash and cash equivalents.................................... (1,267,186) (36,096)
Cash and cash equivalents at beginning of period............................. 2,086,622 2,059,328
----------- ----------
Cash and cash equivalents at end of period................................... $ 819,436 $2,023,232
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note 1--Basis of Presentation
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-
X of the Securities and Exchange Commission and are unaudited. As such, these
financial statements do not include all information and footnote disclosures
required under generally accepted accounting principles for complete financial
statements and, accordingly, the accompanying financial statements should be
read in conjunction with the footnotes presented in the 1999 Annual Report.
Except as disclosed herein, there have been no material changes to the
information presented in the footnotes to the 1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 2000 and December 31, 1999 and results of operations
for the three and nine month periods ended September 30, 2000 and 1999 have been
made and are reflected.
Note 2--Cash
At September 30, 2000, American Income Fund I-B, a Massachusetts Limited
Partnership (the "Partnership") had $703,083 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
Note 3--Revenue Recognition
Rents are payable to the Partnership monthly or quarterly and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the
Partnership may enter renewal or re-lease agreements which expire beyond the
Partnership's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Partnership's business activities as the
General Partner and Equis Financial Group Limited Partnership ("EFG") would seek
to sell the then-remaining equipment assets either to the lessee or to a third
party, taking into consideration the amount of future noncancellable rental
payments associated with the attendant lease agreements. See also Note 6 to the
financial statements presented in the Partnership's 1999 Annual Report regarding
the Class Action Lawsuit. Future minimum rents of $123,442 are due as follows:
For the year ending September 30,
2001.......................... $ 96,837
2002.......................... 21,284
2003.......................... 5,321
--------
Total......................... $123,442
========
6
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 4--Equipment
The following is a summary of equipment owned by the Partnership at
September 30, 2000. Remaining Lease Term (Months), as used below, represents the
number of months remaining from September 30, 2000 under contracted lease terms
and is presented as a range when more than one lease agreement is contained in
the stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment,
Equipment Type (Months) at Cost
-------------- -------- ----------
Materials handling................. 0 $ 577,610
Trailers/intermodal containers..... 0-27 536,143
----------
Total equipment cost 1,113,753
Accumulated depreciation 968,364
----------
Equipment, net of
accumulated depreciation $ 145,389
==========
At September 30, 2000, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $144,366 representing
approximately 13% of total equipment cost.
At September 30, 2000, all of the Partnership's equipment was subject to
contracted leases or being leased on a month-to-month basis.
Note 5--Investment in Real Estate Venture
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") collectively loaned $32 million to Echelon
Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real
estate development company. Echelon Residential Holdings is owned by several
investors, including James A. Coyne, Executive Vice President of EFG. Mr. Coyne,
in his individual capacity, is the only equity investor in Echelon Residential
Holdings related to EFG. In addition, certain affiliates of the General Partner
made loans to Echelon Residential Holdings in their individual capacities.
The Partnership's participation in the loan is $1,310,000. Echelon
Residential Holdings, through a wholly-owned subsidiary (Echelon Residential
LLC), used the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida-based real estate company. The loan has a
term of 30 months, maturing on September 8, 2002, and an annual interest rate of
14% for the first 24 months and 18% for the final six months. Interest accrues
and compounds monthly and is payable at maturity. In connection with the
transaction, Echelon Residential Holdings has pledged a security interest in all
of its right, title and interest in and to its membership interests in Echelon
Residential LLC to the Exchange Partnerships as collateral.
7
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 5--Investment in Real Estate Venture (Continued)
Using the guidance set forth in the Third Notice to Practitioners by the
American Institute of Certified Public Accountants ("AICPA") in February 1986
entitled "ADC Arrangements" (the "Third Notice"), the Partnership has
evaluated this investment to determine whether loan, joint venture or real
estate accounting is appropriate. Such determination affects the Partnership's
balance sheet classification of the investment and the recognition of revenues
derived therefrom. The Third Notice was issued to address those real estate
acquisition, development and construction arrangements where a lender has
virtually the same risk and potential awards as those of owners or joint
ventures. Emerging Issues Task Force ("EITF") 86-21, "Application of the
AICPA Notice to Practitioners regarding Acquisition, Development and
Construction Arrangements to Acquisition of an Operating Property" expanded the
applicability of the Third Notice to entities other than financial institutions.
Based on the applicability of the Third Notice, EITF 86-21 and
consideration of the economic substance of the transaction, the loan is
considered to be an investment in a real estate venture for accounting purposes.
In accordance with the provisions of Statement of Position No. 78-9, "Accounting
for Investments in Real Estate Ventures", the Partnership reports its share of
income or loss of Echelon Residential Holdings under the equity method of
accounting.
The Partnership's accompanying financial statements as of and for the three
and nine months ended September 30, 2000 are presented in accordance with the
guidance above. The investment is net of the Partnership's share of losses in
this real estate venture. For the three and nine months ended September 30,
2000, the Partnership's share of losses were $21,238 and $29,637, respectively,
and are reflected on the Statement of Operations as "Partnership's share of
unconsolidated real estate venture's loss".
The summarized financial information for Echelon Residential Holdings as of
September 30, 2000 and for the period March 8, 2000 (commencement of operations)
through September 30, 2000 is as follows:
(Unaudited)
-----------
Total assets............... $63,457,759
Total liabilities.......... $64,221,109
Total deficit.............. $ (763,350)
Total revenues............. $ 1,565,618
Total expenses............. $ 5,109,324
Net loss................... $(3,543,706)
8
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 6--Related Party Transactions
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the nine month periods ended
September 30, 2000 and 1999 which were paid or accrued by the Partnership to EFG
or its Affiliates, are as follows:
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
-------- --------
<S> <C> <C>
Equipment management fees.................................. $ 5,252 $ 8,015
Administrative charges..................................... 59,356 69,705
Reimbursable operating expenses due to third parties....... 105,120 72,622
-------- --------
Total.................................................... $169,728 $150,342
======== ========
</TABLE>
All rents and proceeds from the sale of equipment are paid directly to EFG.
EFG temporarily deposits collected funds in a separate interest-bearing escrow
account prior to remittance to the Partnership. At September 30, 2000, the
Partnership was owed $13,459 by EFG for such funds and interest thereon. These
funds were remitted to the Partnership in October 2000.
Note 7--Legal Proceedings
As described more fully in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, the Partnership is a Nominal Defendant in a
Class Action Lawsuit, the outcome of which could significantly alter the nature
of the Partnership's organization and its future business operations.
9
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this quarterly report of American Income Fund I-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 factors that could cause actual results
to differ materially from those expressed in any forward-looking statements made
herein. These factors include, but are not limited to, the outcome of the Class
Action Lawsuit described in Note 6 to the financial statements presented in the
Partnership's 1999 Annual Report, the remarketing of the Partnership's
equipment, and the performance of the Partnership's non-equipment assets.
Three and nine months ended September 30, 2000 compared to the three and nine
months ended September 30, 1999
The Partnership was organized in 1990 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. Presently, the Partnership is a Nominal
Defendant in a Class Action Lawsuit, the outcome of which could significantly
alter the nature of the Partnership's organization and its future business
operations. See Note 6 to the financial statements presented in the
Partnership's 1999 Annual Report. Pursuant to the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended"),
the Partnership is scheduled to be dissolved by December 31, 2001.
Results of Operations
For the three and nine months ended September 30, 2000, the Partnership
recognized lease revenue of $29,972 and $155,785, respectively, compared to
$74,004 and $228,140, respectively, for the same periods in 1999. The decrease
in lease revenue from 1999 to 2000 is primarily the result of lease term
expirations and the sale of equipment. In the future, lease revenue will
continue to decline due to lease term expirations and equipment sales.
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 Equis Financial Group Limited Partnership ("EFG"). Proportionate
equipment ownership enabled the Partnership to further diversify its equipment
portfolio at inception by participating in the ownership of selected assets,
thereby reducing the general levels of risk which could have resulted from a
concentration in any single equipment type, industry or lessee. The Partnership
and each affiliate individually report, in proportion to their respective
ownership interests, their respective shares of assets, liabilities, revenues,
and expenses associated with the equipment.
Interest income for the three and nine months ended September 30, 2000 was
$13,210 and $49,301 compared to $25,402 and $74,346 for the same periods in
1999. Interest income is typically generated from temporary investment of rental
receipts and equipment sale proceeds in short-term instruments. On March 8,
2000, the Partnership utilized $1,310,000 of available cash for a loan to
Echelon Residential Holdings LLC ("Echelon Residential Holdings"). (See Note 5
to the financial statements herein). The amount of future interest income is
10
<PAGE>
expected to fluctuate as a result of changing interest rates and the amount of
cash available for investment, among other factors.
During the three and nine months ended September 30, 2000, the Partnership
sold equipment with an aggregate net book value of $1,931 resulting in a net
gain, for financial statement purposes, of $4,576 and $9,965, respectively.
During the three and nine months ended September 30, 1999, the Partnership sold
equipment with an aggregate net book value of $35,180 resulting in a net gain,
for financial statement purposes, of $7,661 and $17,511, respectively. It cannot
be determined whether future sales of equipment will result in a net gain or a
net loss to the Partnership, as such transactions will be dependent upon the
condition and type of equipment being sold and its marketability at the time of
sale. In addition, the amount of gain or loss reported for financial statement
purposes is partly a function of the amount of accumulated depreciation
associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense for the three and the nine months ended September 30,
2000 was $21,969 and $66,108, respectively, compared to $25,668 and $77,002,
respectively, for the same periods in 1999. 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.
Management fees were $655 and $5,252 for the three and nine month periods
ended September 30, 2000, respectively, compared to $2,708 and $8,015,
respectively, for the same periods in 1999. Management fees are based on 5% of
gross lease revenue generated by operating leases and 2% of gross lease revenue
generated by full payout leases.
Operating expenses were $87,301 and $164,476, respectively, for the three
and nine months ended September 30, 2000, compared to $28,448 and $142,327,
respectively, for the same periods in 1999. Operating expenses in 2000 include
approximately $40,000 of costs incurred in connection with the Class Action
Lawsuit discussed in Note 6 to the financial statements presented in the
Partnership's 1999 Annual Report. Operating expenses in 1999 include an
adjustment for 1998 actual administrative charges and third-party costs of
approximately $29,000. 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.
For the three and nine months ended September 30, 2000, the Partnership's
share of losses in Echelon Residential Holdings were $21,238 and $29,637,
respectively, and are reflected on the Statement of Operations as
"Partnership's share of unconsolidated real estate venture's loss". See
further discussion below.
11
<PAGE>
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 to pay management fees and operating costs. Operating
activities generated net cash inflows of $87,506 and $80,977 in the nine months
ended September 30, 2000 and 1999, 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 will also decline as the Partnership experiences a
higher frequency of remarketing events. See additional discussion below
regarding the loan made by the Partnership to Echelon Residential Holdings in
March 2000.
Cash realized for asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. For the nine months
ended September 30, 2000, the Partnership realized $11,896 in equipment sales
proceeds compared to $52,691 for the same period in 1999. 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 September 30, 2000, the Partnership was due aggregate future minimum
lease payments of $123,442 from contractual lease agreements. 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 and interests of the existing lessees.
Some lessees may choose to renew their lease contracts, while others may elect
to return the equipment. In the latter instances, the equipment could be re-
leased to another lessee or sold to a third party.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 6 to the financial statements presented in the
Partnership's 1999 Annual Report, the Partnership is permitted to invest in new
equipment or other business activities, subject to certain limitations. On March
8, 2000, the Partnership and 10 affiliated partnerships (the "Exchange
Partnerships") collectively loaned $32 million to Echelon Residential Holdings,
a newly-formed real estate development company owned by several investors,
including James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his
individual capacity, is the only equity investor in Echelon Residential Holdings
related to EFG. In addition, certain affiliates of the General Partner made
loans to Echelon Residential Holdings in their individual capacities.
The Partnership's participation in the loan is $1,310,000. Echelon
Residential Holdings, through a subsidiary (Echelon Residential LLC), used the
loan proceeds to acquire various real estate assets from Echelon International
Corporation, a Florida based real estate company. The loan has a term of 30
months maturing on September 8, 2002 and bears interest at the annual rate of
14% for the first 24 months and 18% for the final six months. Interest accrues
and compounds monthly and is payable at maturity. In connection with the
transaction, Echelon Residential Holdings has pledged a security interest in all
of its right, title and interest in and to its membership interests in Echelon
Residential LLC to the Exchange Partnerships as collateral.
As discussed in Note 5 to the Partnership's financial statements herein,
the loan is considered to be an investment in a real estate venture for
accounting purposes. In accordance with the provisions of Statement of Position
No. 78-9, "Accounting for Investments in Real Estate Ventures", the Partnership
reports its share of income or loss of Echelon Residential Holdings under the
equity method of accounting.
12
<PAGE>
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.
Cash distributions to the General and Limited Partners had been declared
and generally paid within fifteen days following the end of each calendar
quarter. The payment of such distributions is reported under financing
activities on the accompanying Statement of Cash Flows. No cash distributions
were declared for the nine months ended September 30, 2000.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes, generally referred to as permanent or timing differences.
See Note 5 to the financial statements presented in the Partnership's 1999
Annual Report. For instance, selling commissions and organization and offering
costs pertaining to syndication of the Partnership's limited partnership units
are not deductible for federal income tax purposes, but are recorded as a
reduction of partners' capital for financial reporting purposes. Therefore, such
differences are permanent differences between capital accounts for financial
reporting and federal income tax purposes. Other differences between the bases
of capital accounts for federal income tax and financial reporting purposes
occur due to timing differences. Such items consist of the cumulative difference
between income or loss for tax purposes and financial statement income or loss
and the difference between distributions (declared vs. paid) for income tax and
financial reporting purposes. The principal component of the cumulative
difference between financial statement income or loss and tax income or loss
results from different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at September 30, 2000. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 1999, the General Partner had a positive tax capital account
balance.
The outcome of the Class Action Lawsuit described in Note 6 to the
financial statements presented in the Partnership's 1999 Annual Report will be
the principal factor in determining the future of the Partnership's operations.
The proposed settlement to that lawsuit, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. In addition, commencing with the first
quarter of 2000, the General Partner suspended the payment of quarterly cash
distributions pending final resolution of the Class Action Lawsuit. Accordingly,
future cash distributions are not expected to be paid until the Class Action
Lawsuit is adjudicated.
13
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: Refer to Note 7 to the financial statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
Response: None
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
27 Financial Data Schedule
14
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-B, a Massachusetts Limited
Partnership
By: AFG Leasing VI Incorporated, a
Massachusetts corporation and the General
Partner of the Registrant.
/s/ Michael J. Butterfield
By:
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 2000
15
