UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
_____________________
For Quarter Ended June 30, 1997 Commission File No. 0-20031
American Income Fund I-C, a Massachusetts Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3077437
- ---------------------------------------- -------------------
(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
98 North Washington Street, Boston, MA 02114
- --------------------------------------------------------------------------------
(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-C,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1997 and December 31, 1996 3
Statement of Operations
for the three and six months ended June 30, 1997 and 1996 4
Statement of Cash Flows
for the six months ended June 30, 1997 and 1996 5
Notes to the Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION:
Items 1 - 6 16
2
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
June 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 973,537 $ 1,187,478
Rents receivable 376,003 469,090
Accounts receivable - affiliate 222,710 89,539
Note receivable - Banyan 459,729 --
Investment in Banyan 313,146 --
Equipment at cost, net of accumulated depreciation
of $12,767,240 and $13,677,519 at June 30, 1997
and December 31, 1996, respectively 9,609,214 12,102,782
------------ ------------
Total assets $ 11,954,339 $ 13,848,889
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 4,885,878 $ 6,547,519
Accrued interest 39,532 79,752
Accrued liabilities 15,000 22,750
Accrued liabilities - affiliate 24,453 33,067
Deferred rental income 55,855 133,044
Cash distributions payable to partners 211,436 211,436
------------ ------------
Total liabilities 5,232,154 7,027,568
------------ ------------
Partners' capital (deficit):
General Partner (546,430) (541,473)
Limited Partnership Interests
(803,454.56 Units; initial purchase price of $25 each) 7,268,615 7,362,794
------------ ------------
Total partners' capital 6,722,185 6,821,321
------------ ------------
Total liabilities and partners' capital $ 11,954,339 $ 13,848,889
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Lease revenue $ 1,221,576 $1,029,011 $ 2,261,004 $2,017,538
Interest income 9,138 11,008 25,617 66,061
Interest income - affiliate -- 4,610 -- 9,220
Gain (loss) on sale/exchange
of equipment (370,886) 89,228 (334,611) 150,874
----------- ---------- ----------- ----------
Total income 859,828 1,133,857 1,952,010 2,243,693
----------- ---------- ----------- ----------
Expenses:
Depreciation and amortization 596,009 862,406 1,263,440 1,779,060
Interest expense 119,977 168,273 196,998 263,288
Equipment management fees
- affiliate 42,816 32,684 83,358 62,819
Operating expenses - affiliate 58,300 61,742 84,478 90,701
----------- ---------- ----------- ----------
Total expenses 817,102 1,125,105 1,628,274 2,195,868
----------- ---------- ----------- ----------
Net income $ 42,726 $ 8,752 $ 323,736 $ 47,825
=========== ========== =========== ==========
Net income
per limited partnership unit $ 0.05 $ 0.01 $ 0.38 $ 0.06
=========== ========== =========== ==========
Cash distributions declared
per limited partnership unit $ 0.25 $ 0.37 $ 0.50 $ 0.75
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 323,736 $ 47,825
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 1,263,440 1,779,060
(Gain) loss on sale/exchange of equipment 334,611 (150,874)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 93,087 (131,040)
accounts receivable - affiliate (133,171) (102,800)
Increase (decrease) in:
accrued interest (40,220) 45,768
accrued liabilities (7,750) (4,930)
accrued liabilities - affiliate (8,614) (7,806)
deferred rental income (77,189) (10,983)
----------- -----------
Net cash from operating activities 1,747,930 1,464,220
----------- -----------
Cash flows from (used in) investing activities:
Investment in Banyan stock (313,146) --
Note receivable - Banyan (459,729) --
Purchase of equipment -- (43,297)
Proceeds from equipment sales/exchange 895,517 333,550
----------- -----------
Net cash from investing activities 122,642 290,253
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (1,661,641) (1,380,864)
Distributions paid (422,872) (634,308)
----------- -----------
Net cash used in financing activities (2,084,513) (2,015,172)
----------- -----------
Net decrease in cash and cash equivalents (213,941) (260,699)
Cash and cash equivalents at beginning of period 1,187,478 799,133
----------- -----------
Cash and cash equivalents at end of period $ 973,537 $ 538,434
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 237,218 $ 217,520
=========== ===========
</TABLE>
Supplemental disclosure of investing and financing activities:
At December 31, 1995, the Partnership held $1,562,463 in a special-purpose
escrow account pending the completion of an aircraft exchange (See Results
of Operations). The Partnership completed the exchange in March 1996
obtaining interests in aircraft at an aggregate cost of $6,217,805,
utilizing cash of $1,605,760 (including the escrowed funds) and
third-party financing of $4,612,045.
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
June 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1996 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1997 and December 31, 1996 and results of operations for
the three and six month periods ended June 30, 1997 and 1996 have been made and
are reflected.
NOTE 2 - CASH
The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight maturities. The reverse repurchase
agreements are secured by U.S. Treasury Bills or interests in U.S. Government
securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage of
time. Rents from Reno Air, Inc. ( " Reno Air " ), as provided for in the lease
agreement, are adjusted monthly for changes in the London Inter-Bank Offered
Rate ( " LIBOR " ). Future rents for Reno Air, included below, reflect the most
recent LIBOR effected rental payment. The leases are accounted for as operating
leases and are noncancellable. Rents received prior to their due dates are
deferred. Future minimum rents of $6,796,995 are due as follows:
For the year ending June 30,1998 $ 2,057,510
1999 1,588,997
2000 1,002,030
2001 760,950
2002 760,950
Thereafter 626,558
------------
Total $ 6,796,995
============
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at June
30, 1997. In the opinion of Equis Financial Group Limited Partnership ("EFG"),
the acquisition cost of the equipment did not exceed its fair market value.
6
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
- ------------------------------ ---------- ------------
Aircraft 39-81 $ 8,318,862
Materials handling 4-60 5,878,753
Trailers/intermodal containers 66-99 2,180,987
Tractors & heavy duty trucks 3-78 1,945,458
Furniture & fixtures 90 1,914,145
Construction & mining 18-60 752,357
Retail store fixtures 48 517,488
Motor vehicles 6-60 394,669
Communications 12-60 295,245
Research & test 24 116,406
Manufacturing 72 35,218
Computers & peripherals 6-37 26,866
------------
Total equipment cost 22,376,454
Accumulated depreciation (12,767,240)
Equipment, net of accumulated depreciation $ 9,609,214
============
At June 30, 1997, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $10,819,194, representing approximately
48% of total equipment cost.
The summary above includes equipment held for sale or release with a cost
and net book value of approximately $940,000 and $34,000, respectively, at June
30, 1997. The General Partner is actively seeking the sale or re-lease of all
equipment not on lease.
NOTE 5 - INVESTMENT IN BANYAN
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan holds certain
real estate investments, the most significant being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on
7
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
May 6, 1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and
delivery of a $4,419,500 note from Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 33.85% beneficial
ownership interest in Dove Arrow, one of the three Vessels, the Partnership
received $430,187 in cash, is the beneficial owner of 208,764 shares of Banyan
common stock valued at $313,146 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $459,729.
Cash equal to the amount of the Banyan Note is being held in escrow for
the benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed to
seek consent (" Consent ") from its shareholders to: (1) amend its certificate
of incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. If the Consent is not obtained,
repayment of the Banyan Note will be accelerated and repaid from the cash held
in the segregated account. If the Consent is obtained, the Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The agreement also provides that a majority of the Board of Directors
remain independent of Banyan and EFG. Provided Consent is received by December
31, 1997, Banyan has agreed to declare a $0.20 per share dividend to be paid on
all shares, including those beneficially owned by the Partnership.
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Ranch Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
NOTE 6 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the six month periods ended
June 30, 1997 and 1996 which were paid or accrued by the Partnership to EFG or
its Affiliates, are as follows:
1997 1996
-------- --------
Equipment management fees $ 83,358 $ 62,819
Administrative charges 29,844 10,500
Reimbursable operating expenses
due to third parties 54,634 80,201
-------- --------
Total $167,836 $153,520
======== ========
During the six months ended June 30, 1996, the Partnership earned interest
income of $9,220 on a note receivable from EFG resulting from a settlement with
ICCU Containers S.p.A., a former lessee of the Partnership and an affiliate of
which was a former partner in American Finance Group.
8
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 June 30, 1997, the Partnership was owed $222,710 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in July 1997.
NOTE 7 - NOTES PAYABLE
Notes payable at June 30, 1997 consisted of installment notes of
$4,885,878 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 8.65% and 8.89%, except one note which bears
a fluctuating interest rate based on LIBOR plus a margin (5.69% at June 30,
1997). All of the installment notes are non-recourse and are collateralized by
the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to aircraft leased by Finnair OY and the Reno Air of
$1,127,840 and $679,276, respectively. The carrying value of notes payable
approximates fair value at June 30, 1997.
The annual maturities of the installment notes payable are as follows:
For the year ending June 30, 1998 $ 942,937
1999 2,029,176
2000 508,252
2001 296,291
2002 320,423
Thereafter 788,799
Total $ 4,885,878
============
NOTE 8- LEGAL PROCEEDINGS
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the County
of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On August
30, 1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7, 1995,
National Steel filed its Answer to EFG's Complaint along with Affirmative
Defenses and Counterclaims, seeking declaratory relief and alleging breach of
contract, implied covenant of good faith and fair dealing and specific
performance. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the negotiations have been unsuccessful. Notwithstanding
these discussions, EFG recently filed an Amended and Supplemental Complaint
alleging a further default by National Steel under the MLA and EFG recently
filed a Summary Judgment on all claims and counterclaims. The matter remains
pending before the Court. The Partnership has not experienced any material
losses as a result of this action.
9
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
On March 28, 1997, a complaint was filed by EFG, on behalf of the
Partnership, in Suffolk Superior Court in the state of Massachusetts against
Quaker State Corporation as Guarantor of The Helen Mining Company, a lessee of
the Partnership. The complaint seeks to recover unpaid rents of approximately
$205,000 and other damages equal to the casualty value of the underlying
equipment which has a net carrying value for financial reporting purposes of
approximately $230,000. The parties have agreed to the terms of a Mutual Release
and Settlement Agreement, which Agreement is expected to be finalized by August
20, 1997, and pursuant to which the Partnership will receive approximately
$554,000.
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited
partner units or beneficiary interests in eight investment programs sponsored by
EFG filed a lawsuit, as a derivative action, on behalf of the Partnership and 27
other investment programs (collectively, the "Nominal Defendants") in the
Superior Court of the Commonwealth of Massachusetts for the County of Suffolk
against EFG and certain of EFG's affiliates, including the General Partner of
the Partnership and four other wholly-owned subsidiaries of EFG which are the
general partner or managing trustee of one or more of the investment programs,
(collectively, the "Managing Defendants"), and certain other entities and
individuals that have control of the Managing Defendants and the Nominal
Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of
breach of fiduciary duty, breach of contract, unjust enrichment, and equitable
relief and seek various remedies, including compensatory and punitive damages to
be determined at trial.
The General Partner and EFG are in the early stages of evaluating the
nature and extent of the claims asserted in this lawsuit and cannot predict its
outcome with any degree of certainty. However, based upon all of the facts
presently being considered by management, the General Partner and EFG do not
believe that any likely outcome will have a material adverse effect on the
Partnership. The General Partner, EFG and their affiliates intend to vigorously
defend against the lawsuit.
10
<PAGE>
AMERICAN INCOME FUND I-C,
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 that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
ability of EFG to collect all rents due under the attendant lease agreements and
successfully remarket the Partnership's equipment upon the expiration of such
leases.
Three and six months ended June 30, 1997 compared to the three and six months
ended June 30, 1996:
Overview
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind up its
operations within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment value in equipment
declines from asset disposals occurring in the normal course of business. As a
result of the Partnership's age and a declining equipment portfolio, the General
Partner is evaluating a variety of transactions that will reduce the
Partnership's prospective costs to operate as a publicly registered limited
partnership and, therefore, enhance overall cash distributions to the limited
partners. Such a transaction may involve the sale of the Partnership's remaining
equipment or a transaction that would allow for the consolidation of the
Partnership's expenses with other similarly-organized equipment leasing
programs. In order to increase the marketability of the Partnership's remaining
equipment, the General Partner expects to use the Partnership's available cash
and future cash flow to retire indebtedness. This will negatively effect
short-term cash distributions.
Results of Operations
For the three and six months ended June 30, 1997, the Partnership
recognized lease revenue of $1,221,576 and $2,261,004, respectively, compared to
$1,029,011 and $2,017,538 for the same periods in 1996. The increase in lease
revenue from 1996 to 1997 reflects the receipt in 1997 of prepaid contractual
rental obligations of $400,631 associated with the sale of its interest in a
vessel (see discussion below) and an aircraft exchange which concluded in March
1996 offset by lease term expirations and equipment sales. As a result of the
exchange, the Partnership replaced its ownership interest in a Boeing 747-SP
aircraft, with interests in six other aircraft (three Boeing 737 aircraft leased
by Southwest Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased by
Finnair OY and one McDonnell Douglas MD-87 leased by Reno Air, Inc.). The
Southwest Aircraft were exchanged into the Partnership in 1995, while the
Finnair Aircraft and Reno Aircraft were exchanged into the Partnership on March
25 and March 26, 1996, respectively. Accordingly, revenue for the six months
ended June 30, 1996 reflected only a portion of the rents ultimately earned from
the like-kind exchange. In aggregate, the replacement aircraft generated
approximately $321,000 and $647,000 of lease revenue during the three and six
months ended June 30, 1997, respectively, compared to approximately $238,000 and
$342,000 for the same periods in 1996. In the future, lease revenue will decline
due to primary and renewal lease term expirations and the sale of equipment.
11
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by EFG or an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
For the three and six months ended June 30, 1997, the Partnership earned
interest income of $9,138 and $25,617, respectively, compared to $11,008 and
$66,061 for the same periods in 1996. Interest income is typically generated
from temporary investment of rental receipts and equipment sales proceeds in
short-term instruments. Interest income in 1996 included interest of $44,994
earned on cash held in a special-purpose escrow account in connection with the
like-kind exchange transactions, discussed above. During the three and six
months ended June 30, 1996, the Partnership also earned interest income of
$4,610 and $9,220, respectively, on a note receivable from EFG resulting from
the settlement with ICCU Containers S.p.A., a former lessee of the Partnership
whose affiliate was a former partner in American Finance Group. All amounts due
from EFG pursuant to this note were received at December 31, 1996. The amount of
future interest income is expected to fluctuate in relation to prevailing
interest rates, the collection of lease revenue, and the proceeds from equipment
sales.
During the three and six months ended June 30, 1997, the Partnership sold
or exchanged equipment having a net book value of $1,188,103 and $1,230,128,
respectively, to existing lessees and third parties. These transactions resulted
in a net loss, for financial statement purposes, of $370,886 and $334,611,
respectively. The equipment transactions included the Partnership's interest in
a vessel with an original cost and net book value of $2,605,381 and $1,180,755,
respectively. In connection with this transaction, the Partnership realized sale
proceeds of $802,431, which resulted in a net loss, for financial statement
purposes, of $378,324. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received prepayment of the
remaining contracted rent due under the vessel's lease agreement, as described
above. See below for further discussion related to the vessel.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan holds certain
real estate investments, the most significant being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 33.85% beneficial
ownership interest in Dove Arrow, one of the three Vessels, the Partnership
received $430,187 in cash and is the beneficial owner of 208,764 shares
12
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
of Banyan common stock valued at $313,146 ($1.50 per share) and holds a
beneficial interest in the Banyan Note of $459,729.
Cash equal to the amount of the Banyan Note is being held in escrow for
the benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed to
seek consent (" Consent ") from its shareholders to: (1) amend its certificate
of incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. If the Consent is not obtained,
repayment of the Banyan Note will be accelerated and repaid from the cash held
in the segregated account. If the Consent is obtained, the Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Ranch Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
During the three and six months ended June 30, 1996, the Partnership sold
equipment having a net book value of $87,628 and $160,982 to existing lessees
and third parties. These sales resulted in net gain, for financial statement
purposes, of $89,228 and $150,874 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 revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation and amortization expense for the three and six months ended
June 30, 1997 was $596,009 and $1,263,440, respectively, compared to $862,406
and $1,779,060 for the same periods in 1996. For financial reporting purposes,
to the extent that an asset is held on primary lease term, the Partnership
depreciates the difference between (i) the cost of the asset and (ii) the
estimated residual value of the asset at the date of primary lease expiration on
a straight-line basis over such term. For the purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that equipment 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.
13
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Interest expense was $119,977 and $196,998, or 9.8% and 8.7% of lease
revenue for the three and six months ended June 30, 1997, respectively, compared
to $168,273 and $263,288 or 16.4% and 13.1% of lease revenue for the same
periods in 1996. Interest expense in future periods will continue to decline in
amount and as a percentage of lease revenue as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.
In addition, the General Partner expects to use a portion of the Partnership's
available cash and future cash flow to retire indebtedness (see Overview).
Management fees were approximately 3.5% and 3.7% of lease revenue for the
three and six months ended June 30, 1997, respectively, compared to 3.2% and
3.1% of lease revenue for the same periods in 1996. Management fees are based on
5% of gross lease revenue generated by operating leases and 2% of gross lease
revenue generated by full payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented 4.8% and 3.7% of lease
revenue for the three and six months ended June 30, 1997, respectively, compared
to 6% and 4.5% of lease revenue for the same periods in 1996. The amount of
future operating expenses cannot be predicted with certainty; however, such
expenses are usually higher during the acquisition and liquidation phases of a
partnership. Other fluctuations typically occur in relation to the volume and
timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $1,747,930 and $1,464,220 for the six
months ended June 30, 1997 and 1996, respectively. Future renewal, re-lease and
equipment sale activities will cause a decline in the Partnership's lease
revenue and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will continue to decline as the Partnership
experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. For the six months ended June 30, 1997,
the Partnership realized net cash proceeds of $895,517, including proceeds from
the exchange transaction, compared to $333,550 for the same period in 1996.
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.
14
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
During the six months ended June 30, 1996, the Partnership expended $43,297 in
cash in connection with the like-kind exchange transactions referred to above.
There were no equipment acquisitions during the same period in 1997.
As a result of the exchange transaction (see Results of Operations) the
Partnership became the beneficial owner of 208,764 shares of Banyan common stock
valued at $313,146 ($1.50 per share) and holds a beneficial interest in the
Banyan Note of $459,729.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future periods, the amount of cash used to repay
debt obligations is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. However, the
amount of cash used to repay debt obligations may fluctuate due to the use of
the Partnership's available cash and future cash flow to retire indebtedness
(see Overview). In addition, the Partnership has balloon payment obligations at
the expiration of the respective primary lease terms related to the Finnair
Aircraft and Reno Aircraft of $1,127,840 and $679,276, respectively.
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 six months ended June 30, 1997, the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $422,872. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 95% of these distributions, or $401,728, and the General Partner
was allocated 5%, or $21,144. The second quarter 1997 cash distribution was paid
on July 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contractual rents
and the outcome of residual activities. The General Partner anticipates that
cash proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
15
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 8 herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
16
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
--------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 1997
By: /s/ Gary M. Romano
--------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1997
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 973,537
<SECURITIES> 313,146
<RECEIVABLES> 1,058,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,345,125
<PP&E> 22,376,454
<DEPRECIATION> 12,767,240
<TOTAL-ASSETS> 11,954,339
<CURRENT-LIABILITIES> 346,276
<BONDS> 4,885,878
0
0
<COMMON> 0
<OTHER-SE> 6,722,185
<TOTAL-LIABILITY-AND-EQUITY> 11,954,339
<SALES> 0
<TOTAL-REVENUES> 1,952,010
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,431,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,998
<INCOME-PRETAX> 323,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 323,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323,736
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
