<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
________________
For Quarter Ended September 30, 1997 Commission File No. 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
- ---------------------------------------------------------------------------
(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 September 30, 1997
and December 31, 1996 3
Statement of Operations for the three and nine months
ended September 30, 1997 and 1996 4
Statement of Cash Flows for the nine months ended
September 30, 1997 and 1996 5
Notes to the Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
PART II. OTHER INFORMATION:
Items 1--6 17
2
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
ASSETS 1997 1996
- ---------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Cash and cash equivalents............................................. $ 1,349,912 $ 1,187,478
Rents receivable...................................................... 269,471 469,090
Accounts receivable--affiliate........................................ 1,172,546 89,539
Note receivable--Banyan............................................... 459,729 --
Investment in Banyan.................................................. 313,146 --
Equipment at cost, net of accumulated depreciation of $8,609,391 and
$13,677,519 at September 30, 1997 and December 31, 1996,
respectively........................................................ 8,917,404 12,102,782
------------- -------------
Total assets...................................................... $ 12,482,208 $ 13,848,889
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable......................................................... $ 4,660,762 $ 6,547,519
Accrued interest...................................................... 37,647 79,752
Accrued liabilities................................................... 22,500 22,750
Accrued liabilities--affiliate........................................ 31,878 33,067
Deferred rental income................................................ 64,694 133,044
Cash distributions payable to partners................................ 211,436 211,436
------------- -------------
Total liabilities................................................. 5,028,917 7,027,568
------------- -------------
Partners' capital (deficit):
General Partner..................................................... (509,875) (541,473)
Limited Partnership Interests (803,454.56 Units;
initial purchase price of $25 each)............................... 7,963,166 7,362,794
------------- -------------
Total partners' capital........................................... 7,453,291 6,821,321
------------- -------------
Total liabilities and partners' capital........................... $ 12,482,208 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 nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Lease revenue............................................ $ 989,660 $ 1,095,573 $ 3,250,664 $ 3,113,111
Interest income.......................................... 20,340 6,574 45,957 72,635
Interest income-affiliate................................ -- 4,656 -- 13,876
Gain on sale/exchange of equipment....................... 611,574 197,843 276,963 348,717
---------- ------------ ------------ ------------
Total income........................................... 1,621,574 1,304,646 3,573,584 3,548,339
---------- ------------ ------------ ------------
Expenses:
Depreciation and amortization............................ 445,432 694,735 1,708,872 2,473,795
Interest expense......................................... 97,647 128,993 294,645 392,281
Equipment management--affiliate fees..................... 45,600 37,870 128,958 100,689
Operating expenses--affiliate............................ 90,355 52,167 174,833 142,868
---------- ------------ ------------ ------------
Total expenses......................................... 679,034 913,765 2,307,308 3,109,633
---------- ------------ ------------ ------------
Net income................................................. $ 942,540 $ 390,881 $ 1,266,276 $ 438,706
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net income per limited partnership unit.................... $ 1.11 $ 0.46 $ 1.50 $ 0.52
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Cash distributions declared per limited partnership unit... $ 0.25 $ 0.37 $ 0.75 $ 1.12
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</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
nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income............................................................................ $ 1,266,276 $ 438,706
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization..................................................... 1,708,872 2,473,795
Gain on sale/exchange of equipment................................................ (276,963) (348,717)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable.................................................................. 199,619 98,330
accounts receivable--affiliate.................................................... (1,083,007) (178,846)
Decrease in:
accrued interest.................................................................. (42,105) (4,751)
accrued liabilities............................................................... (250) (138,252)
accrued liabilities--affiliate.................................................... (1,189) (5,757)
deferred rental income............................................................ (68,350) (5,541)
----------- ------------
Net cash from operating activities.............................................. 1,702,903 2,328,967
----------- ------------
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....................................................... 1,753,469 671,454
----------- ------------
Net cash from investing activities.............................................. 980,594 628,157
----------- ------------
Cash flows used in financing activities:
Principal payments--notes payable................................................... (1,886,757) (2,121,269)
Distributions paid.................................................................. (634,306) (951,459)
----------- ------------
Net cash used in financing activities........................................... (2,521,063) (3,072,728)
----------- ------------
Net increase (decrease) in cash and cash equivalents.................................. 162,434 (115,604)
Cash and cash equivalents at beginning of period...................................... 1,187,478 799,133
----------- ------------
Cash and cash equivalents at end of period............................................ $ 1,349,912 $ 683,529
----------- ------------
----------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................................. $ 336,750 $ 397,032
----------- ------------
----------- ------------
</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
September 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 September 30, 1997 and December 31, 1996 and results of operations
for the three and nine month periods ended September 30, 1997 and 1996 have been
made and are reflected.
NOTE 2--CASH
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 $6,348,787 are due as follows:
For the year ending September 30, 1998 $2,008,450
1999 1,477,656
2000 900,510
2001 762,750
2002 762,750
Thereafter 436,671
--------
Total $6,348,787
--------
--------
6
<PAGE>
AMERICAN INCOME FUND I-C
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, 1997. In the opinion of Equis Financial Group Limited Partnership
("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
- -------------- -------------- ------------
<S> <C> <C>
Aircraft......................................... 22-63 $ 8,318,862
Materials handling............................... 0-19 3,995,290
Trailers/intermodal containers................... 63-69 2,138,234
Tractors & heavy duty trucks..................... 0-6 1,287,221
Retail store fixtures............................ 0 517,488
Construction & mining............................ 3-9 426,263
Motor vehicles................................... 0 394,669
Communications................................... 0-3 270,278
Research & test.................................. 3 116,406
Manufacturing.................................... 0 35,218
Computers & peripherals.......................... 0 26,866
------------
Total equipment cost 17,526,795
Accumulated depreciation (8,609,391)
------------
Equipment, net of accumulated depreciation $ 8,917,404
------------
------------
</TABLE>
At September 30, 1997, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $10,819,194, representing
approximately 62% of total equipment cost.
The summary above includes equipment held for sale or release with a cost
and net book value of approximately $280,000 and $8,000, respectively, at
September 30, 1997. The General Partner is actively seeking the sale or re-lease
of all equipment not on lease. In addition, the summary above also includes
equipment being leased on a month-to-month basis.
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, at the time of
the exchange transaction, held certain real estate investments, the only one of
which remained unsold at September 30, 1997 being a 274 acre site near Malibu,
California ("Rancho Malibu").
7
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
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, 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. The Banyan Note will be amortized over
three years and bear an annual interest rate of 10%.
Cash equal to the amount of the Banyan Note was placed 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. On October 21, 1997, such Consent was
obtained from Banyan's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in size of the Board to as many as nine members, provided
a majority of the Board shall consist of members independent of Banyan, EFG or
any affiliate; and (ii) an amendment extending Banyan's life to perpetual and
changing its name. Contemporaneously with the Consent being obtained, Banyan
declared a $0.20 per share dividend to be paid on all shares, including those
beneficially owned by the Partnership. A dividend of $41,753 is scheduled to be
paid to the Partnership on or before November 15, 1997.
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 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 nine month periods ended
September 30, 1997 and 1996 which were paid or accrued by the Partnership to EFG
or its Affiliates, are as follows:
1997 1996
---------- ----------
Equipment management fees.................. $ 128,958 $ 100,689
Administrative charges..................... 46,857 15,750
Reimbursable operating expenses due to
third parties............................. 127,976 127,118
---------- ----------
Total.................................. $ 303,791 $ 243,557
---------- ----------
---------- ----------
8
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
During the nine months ended September 30, 1996, the Partnership earned
interest income of $13,876 on a note receivable from EFG resulting from a
settlement with ICCU Containers S.p.A., a former lessee of the Partnership whose
affiliate was a former partner in American Finance Group.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At September 30, 1997, the Partnership was owed $1,172,546 by EFG for such funds
and the interest thereon. This balance includes rents and sale proceeds of
approximately $613,000 related to the settlement of certain litigation
concerning The Helen Mining Company, a lessee of the Partnership, in September
1997 (refer to Note 8 to the financial statements herein). These funds were
remitted to the Partnership in October 1997.
NOTE 7--NOTES PAYABLE
Notes payable at September 30, 1997 consisted of installment notes of
$4,660,762 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 (5.66% at September 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 the Finnair Aircraft and the Reno Aircraft of
$1,127,840 and $679,276, respectively. The carrying value of notes payable
approximates fair value at September 30, 1997.
The annual maturities of the installment notes payable are as follows:
For the year ending September 30, 1998 $ 995,857
1999 1,948,372
2000 381,241
2001 302,148
2002 326,757
Thereafter 706,387
----------
Total $4,660,762
----------
----------
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 specific performance and alleging, among other things,
breach of contract and breach of the implied covenant of good faith and fair
dealing. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the
9
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
negotiations have been unsuccessful. Notwithstanding these discussions, EFG
recently filed an Amended and Supplemental Complaint alleging a further
default by National Steel under the MLA and EFG recently filed a motion for
Summary Judgment on all claims and counterclaims. The matter remains pending
before the Court and is scheduled for a hearing on EFG's motion in December
1997. The Partnership has not experienced any material losses as a result of
this action.
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 sought to recover unpaid rents of approximately
$205,000 and other damages equal to the casualty value of the underlying
equipment which had a net carrying value of approximately $192,000 upon
disposition. The case was settled in September 1997 for approximately $613,000.
For financial statement purposes, the Partnership recognized a gain on
disposition of this equipment during the three months ended September 30, 1997
of $129,098.
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
Notes to the Financial Statements
(Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
ability of EFG to collect all rents due under the attendant lease agreements and
successfully remarket the Partnership's equipment upon the expiration of such
leases.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1996:
OVERVIEW
The Partnership was organized in 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 nine months ended September 30, 1997, the Partnership
recognized lease revenue of $989,660 and $3,250,664, respectively, compared to
$1,095,573 and $3,113,111 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 exchange 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 nine months
ended September 30, 1996 reflected only a portion of the rents ultimately earned
from the like-kind exchange. In aggregate, the replacement aircraft generated
approximately $972,000 of lease revenue during the nine months ended September
30, 1997 compared to approximately $661,000 for the same period 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 nine months ended September 30, 1997, the Partnership
earned interest income of $20,340 and $45,957, respectively, compared to $6,574
and $72,635 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 nine
months ended September 30, 1996, the Partnership also earned interest income of
$4,656 and $13,876, respectively, on a note receivable from EFG resulting from a
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 nine months ended September 30, 1997, the Partnership
sold or exchanged equipment having a net book value of $246,378 and $1,476,506,
respectively, to existing lessees and third parties. These transactions resulted
in a net gain, for financial statement purposes, of $611,574 and $276,963,
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, at the time of
the exchange transaction, held certain real estate investments, the only one of
which remained unsold at September 30, 1997 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").
12
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 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 Banyan Note will be amortized over
three years and bear an annual interest rate of 10%.
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. On October 21, 1997, such Consent was
obtained from Banyan's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in size of the Board to as many as nine members, provided
a majority of the Board shall consist of members independent of Banyan, EFG or
any affiliate; and (ii) an amendment extending Banyan's life to perpetual and
changing its name. Contemporaneously with the Consent being obtained, Banyan
declared a $0.20 per share dividend to be paid on all shares, including those
beneficially owned by the Partnership. A dividend of $41,753 is scheduled to be
paid to the Partnership on or before November 15, 1997.
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 nine months ended September 30, 1996, the Partnership
sold equipment having a net book value of $140,061 and $322,737, respectively,
to existing lessees and third parties. These sales resulted in net gains, for
financial statement purposes, of $197,843 and $348,717, 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 nine months ended
September 30, 1997 was $445,432 and $1,708,872, respectively, compared to
$694,735 and $2,473,795 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
13
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
Interest expense was $97,647 and $294,645, or 9.9% and 9.1% of lease revenue
for the three and nine months ended September 30, 1997, respectively, compared
to $128,993 and $392,281 or 11.8% and 12.6% of lease revenue for the same
periods in 1996. Interest expense in future periods will decline in amount and
as a percentage of lease revenue as the principal balance of notes payable is
reduced through the application of rent receipts to outstanding debt. In
addition, the General Partner expects to use a portion of the Partnership's
available cash and future cash flow to retire indebtedness (see Overview).
Management fees were approximately 4.6% and 4% of lease revenue for the
three and nine months ended September 30, 1997, respectively, compared to 3.5%
and 3.2% 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 9.1%
and 5.4% of lease revenue for the three and nine months ended September 30,
1997, respectively, compared to 4.8% and 4.6% of lease revenue for the same
periods in 1996. The increase in operating expenses from 1996 to 1997
resulted primarily due to increases in administrative charges and
professional service costs. 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 $1,702,903 and $2,328,967 for the nine months
ended September 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 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.
14
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 nine months ended September 30,
1997, the Partnership realized net cash proceeds of $1,753,469, including
proceeds from the exchange transaction, compared to $671,454 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. During the nine months ended
September 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 nine months ended September 30, 1997, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $634,306. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Limited Partners were allocated 95% of these distributions, or $602,591, and the
General Partner was allocated 5%, or $31,715. The third quarter 1997 cash
distribution was paid on October 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset
15
<PAGE>
AMERICAN INCOME FUND I-C
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
16
<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 to the financial statements herein.
Item 2. Changes in Securities Response: None
Item 3. Defaults upon Senior Securities Response: None
Item 4. Submission of Matters to a Vote of Security
Holders Response: None
Item 5. Other Information Response: None
Item 6(a). Exhibits Response: None
Item 6(b). Reports on Form 8-K Response: None
17
<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: November 14, 1997
------------------------------------------
By: /s/ Gary M. Romano
------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 14, 1997
-----------------------------------------
18
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,349,912
<SECURITIES> 313,146
<RECEIVABLES> 1,901,746
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,564,804
<PP&E> 17,526,795
<DEPRECIATION> 8,609,391
<TOTAL-ASSETS> 12,482,208
<CURRENT-LIABILITIES> 368,155
<BONDS> 4,660,762
0
0
<COMMON> 0
<OTHER-SE> 7,453,291
<TOTAL-LIABILITY-AND-EQUITY> 12,482,208
<SALES> 0
<TOTAL-REVENUES> 3,573,584
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,012,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,643
<INCOME-PRETAX> 1,266,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,266,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,266,276
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
