-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALeKKjGyeczYwTrAKZXBZaKR2GZx76S+qF6aRNXusbbrKj/fKz9nLA8pxM5hd+N6 5VrsdmZz+ZpBa5nAY++4nA== 0001047469-98-031419.txt : 19980817 0001047469-98-031419.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031419 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME PARTNERS V A LTD PARTNERSHIP CENTRAL INDEX KEY: 0000847557 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043057303 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18365 FILM NUMBER: 98688167 BUSINESS ADDRESS: STREET 1: 98 NORTH WASHINGTON ST. CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 NORTH WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-Q 1 FORM 10-Q 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, 1998 ------------------------------------------------- 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, 1998 Commission File No. 0-18364 American Income Partners V-A Limited Partnership - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3057303 - ----------------------------------------- -------------------------------- (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 X No ----- ----- AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q INDEX Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Statement of Financial Position at June 30, 1998 and December 31, 1997 3 Statement of Operations for the three and six months ended June 30, 1998 and 1997 4 Statement of Changes in Partners' Capital for the six months ended June 30, 1998 5 Statement of Cash Flows for the six months ended June 30, 1998 and 1997 6 Notes to the Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II. OTHER INFORMATION: Items 1 - 6 17 2 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP STATEMENT OF FINANCIAL POSITION June 30, 1998 and December 31, 1997 (Unaudited)
June 30, December 31, 1998 1997 ---------- ------------ ASSETS - ------ Cash and cash equivalents $ 2,517,322 $ 2,614,272 Rents receivable 22,242 3,971 Accounts receivable - affiliate 26,156 67,828 Note receivable - affiliate 771,450 771,450 Investment securities - affiliate 277,416 256,076 Equipment at cost, net of accumulated depreciation of $5,705,989 and $5,824,458 at June 30, 1998 and December 31, 1997, respectively -- 80,952 ----------- ----------- Total assets $ 3,614,586 $ 3,794,549 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accrued liabilities $ 295,138 $ 9,200 Accrued liabilities - affiliate 1,653 16,868 Deferred rental income 10,005 10,358 Cash distributions payable to partners 136,250 136,250 ----------- ----------- Total liabilities 443,046 172,676 ----------- ----------- Partners' capital (deficit): General Partner (1,372,395) (1,349,878) Limited Partnership Interests (1,380,661 Units; initial purchase price of $25 each) 4,543,935 4,971,751 ----------- ----------- Total partners' capital 3,171,540 3,621,873 ----------- ----------- Total liabilities and partners' capital $ 3,614,586 $ 3,794,549 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP STATEMENT OF OPERATIONS for the three and six months ended June 30, 1998 and 1997 (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 --------- ---------- --------- ---------- Income: Lease revenue $ 125,701 $1,085,914 $ 243,317 $1,331,361 Interest income 32,284 23,172 65,599 48,112 Interest income - affiliate 19,501 -- 38,787 -- Gain on sale of equipment 2,300 20,000 2,300 64,300 Loss on exchange of equipment -- (358,649) -- (358,649) --------- ---------- --------- ---------- Total income 179,786 770,437 350,003 1,085,124 --------- ---------- --------- ---------- Expenses: Depreciation -- 99,248 80,952 219,579 Interest expense -- 1,025 -- 3,388 Equipment management fees - affiliate 6,193 54,296 12,074 66,568 Operating expenses - affiliate 416,400 69,904 456,150 179,503 --------- ---------- --------- ---------- Total expenses 422,593 224,473 549,176 469,038 --------- ---------- --------- ---------- Net income (loss) $(242,807) $ 545,964 $(199,173) $ 616,086 ========= ========== ========= ========== Net income (loss) per limited partnership unit $ (0.17) $ 0.38 $ (0.14) $ 0.42 ========= ========== ========= ========== Cash distributions declared per limited partnership unit $ 0.09 $ 0.13 $ 0.19 $ 0.25 ========= ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the six months ended June 30, 1998 (Unaudited)
General Recognized Owners Partner Amount Units Amount Total ----------- --------- ---------- ---------- Balance at December 31, 1997 $(1,349,878) 1,380,661 $4,971,751 $3,621,873 Net loss (9,959) -- (189,214) (199,173) Unrealized gain on investment securities - affiliate 1,067 -- 20,273 21,340 ----------- --------- ---------- ---------- Comprehensive loss (8,892) -- (168,941) (177,833) ----------- --------- ---------- ---------- Cash distributions declared (13,625) -- (258,875) (272,500) ----------- --------- ---------- ---------- Balance at June 30, 1998 $(1,372,395) 1,380,661 $4,543,935 $3,171,540 =========== ========= ========== ==========
The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS for the six months ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---------- ---------- Cash flows from (used in) operating activities: Net income (loss) $ (199,173) $ 616,086 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation 80,952 219,579 Gain on sale of equipment (2,300) (64,300) Loss on exchange of equipment -- 358,649 Non-cash proceeds on termination rents -- (256,502) Changes in assets and liabilities Decrease (increase) in: rents receivable (18,271) 211,786 accounts receivable - affiliate 41,672 403,534 Increase (decrease) in: accrued interest -- (1,836) accrued liabilities 285,938 (23,430) accrued liabilities - affiliate (15,215) (85,603) deferred rental income (353) (1,306) ---------- ---------- Net cash from operating activities 173,250 1,376,657 ---------- ---------- Cash flows from investing activities: Proceeds from equipment sales 2,300 64,300 ---------- ---------- Net cash from investing activities 2,300 64,300 ---------- ---------- Cash flows used in financing activities: Principal payments - notes payable -- (144,594) Distributions paidx (272,500) (363,330) ---------- ---------- Net cash used in financing activities (272,500) (507,924) ---------- ---------- Net increase (decrease) in cash and cash equivalents (96,950) 933,033 Cash and cash equivalents at beginning of period 2,614,272 1,709,301 ---------- ---------- Cash and cash equivalents at end of period $2,517,322 $2,642,334 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ -- $ 5,224 ========== ========== Supplemental disclosure of non-cash investing and financing activities: See Note 5 to the financial statements.
The accompanying notes are an integral part of these financial statements. 6 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP Notes to the Financial Statements June 30, 1998 (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 1997 Annual Report. Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 1997 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, 1998 and December 31, 1997 and results of operations for the three and six months ended June 30, 1998 and 1997 have been made and are reflected. As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Partnership's net income or partners' capital. Statement 130 requires unrealized gains or losses on the Partnership's available-for-sale securities, which prior to adoption were reported separately in partners' capital, to be included in comprehensive income. During the six months ended June 30, 1998, total comprehensive loss amounted to $177,833. Certain reclassifications have been made to the financial statements for the six months ended June 30, 1997 to conform to the 1997 Annual Report presentation. NOTE 2 - CASH - ------------- At June 30, 1998, the Partnership had $2,409,658 invested in federal agency discount notes and reverse repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities. NOTE 3 - REVENUE RECOGNITION - ---------------------------- Rents are payable to the Partnership monthly or quarterly and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. Future minimum rents of $157,472 are due as follows: For the year ending June 30, 1999 $154,562 2000 2,910 -------- Total $157,472 ========
7 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) NOTE 4 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Partnership at June 30, 1998. Remaining Lease Term (Months), as used below, represents the number of months remaining from June 30, 1998 under contracted lease terms and is presented as a range when more than one lease agreement is contained in the stated equipment category. A Remaining Lease Term equal to zero reflects equipment either held for sale or re-lease or being leased on a month-to-month basis. In the opinion of EFG, the acquisition cost of the equipment did not exceed its fair market value.
Remaining Lease Term Equipment Equipment Type (Months) at Cost - ------------------------- ---------- ----------- Aircraft 4-7 $ 4,596,188 Materials handling 0-11 1,059,709 Communications 0 40,997 Furniture and fixtures 0 5,636 Computers and peripherals 0 3,459 ----------- Total equipment cost 5,705,989 Accumulated depreciation (5,705,989) ----------- Equipment, net of accumulated depreciation $ -- ===========
At June 30, 1998, the Partnership's equipment portfolio included equipment having a proportionate original cost of $4,596,188 representing approximately 81% of total equipment cost. The summary above includes equipment held for sale or re-lease which had been fully depreciated with a cost of approximately $3,500. The General Partner is actively seeking the sale or re-lease of all equipment not on lease. In addition, the summary above includes equipment being leased on a month-to-month basis. NOTE 5 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE - ------------------------------------------------------------------------ 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 Gearbulk Shipowning Ltd (formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged their ownership interests in the Vessels for aggregate consideration of $11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987 and has its common stock listed on NASDAQ. At the date of the exchange transaction, the common stock of Semele had a net book value of approximately $1.50 per share and closing market value of $1.00 per share. Semele has one principal real estate asset consisting of an undeveloped 274 acre parcel of land near Malibu, California ("Rancho Malibu"). The exchange was organized through an intermediary company (Equis Exchange LLC, 99% owned by Semele 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 Semele 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 8 AMERICAN INCOME PARTNERS V-A 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 Semele (the "Semele Note"). As a result of the exchange transaction and its original 46.46% beneficial ownership interest in Larkfield, one of the three Vessels, the Partnership received $735,201 in cash, became the beneficial owner of 341,435 shares of Semele common stock (valued at $512,153 ($1.50 per share) at the time of the exchange transaction) and received a beneficial interest in the Semele Note of $771,450. The Semele Note bears an annual interest rate of 10% and will be amortized over three years with mandatory principal reductions, if and to the extent that net proceeds are received by Semele from the sale or refinancing of Rancho Malibu. The Partnership recognized interest income of $38,787 related to the Semele Note during the six months ended June 30, 1998. The Partnership's interest in the vessel had an original cost and net book value of $3,666,680 and $1,385,750, respectively. The proceeds realized by the Partnership of $1,027,101 resulted in a net loss, for financial statement purposes, of $358,649. In addition, as this vessel was disposed of prior to the expiration of the related lease term, the Partnership received a prepayment of the remaining contracted rent due under the vessel's lease agreement of $991,703. Cash equal to the amount of the Semele Note was placed in escrow for the benefit of Semele in a segregated account pending the outcome of certain shareholder proposals. Specifically, as part of the exchange, Semele 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 Semele's net operating loss carry-forwards, and (3) engage EFG to provide administrative services to Semele, which services EFG will provide at cost. On October 21, 1997, such Consent was obtained from Semele'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 the size of the Board to as many as nine members, provided a majority of the Board shall consist of members independent of Semele, EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual and changing its name from Banyan Strategic Land Fund II. Contemporaneously with the Consent being obtained, Semele declared a $0.20 per share dividend to be paid on all shares, including those beneficially owned by the Partnership. A dividend of $68,287 was paid to the Partnership on November 17, 1997. This dividend represented a return of equity to the Partnership, which proportionately reduced the Partnership's investment in Semele. Subsequent to the exchange transaction, Gary D. Engle, President and Chief Executive Officer of EFG, was elected to the Board of Directors and appointed Chief Executive Officer of Semele and James A. Coyne, Executive Vice President of EFG was appointed Semele's President and Chief Operating Officer, and elected to the Board of Directors. In accordance with the Financial Accounting Standard Board's Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, marketable equity securities classified as available-for-sale are required to be carried at fair value. On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed by a 30-for-1 forward stock split resulting in a reduction of the number of shares of Semele common stock owned by the Partnership to 34,144 Shares. During the six months ended June 30, 1998, the Partnership increased the carrying value of its investment in Semele common stock to $8.125 per share (the quoted price of the Semele stock on NASDAQ at June 30, 1998) resulting in an unrealized gain in 1998 of $21,340. This gain was reported as a component of comprehensive loss, included in partners' capital. 9 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) NOTE 6 - RELATED PARTY TRANSACTIONS - ----------------------------------- All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during each of the six month periods ended June 30, 1998 and 1997, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
1998 1997 -------- -------- Equipment management fees $ 12,074 $ 66,568 Administrative charges 29,418 26,250 Reimbursable operating expenses due to third parties 426,732 153,253 -------- -------- Total $468,224 $246,071 ======== ========
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, 1998, the Partnership was owed $26,156 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in July 1998. NOTE 7 - LEGAL PROCEEDINGS - -------------------------- On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court for the Southern District of Florida (the "Court") on behalf of a proposed class of investors in 28 equipment leasing programs sponsored by EFG, including the Partnership (collectively, the "Nominal Defendants"), against EFG and a number of its affiliates, including the General Partner, as defendants (collectively, the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the Commonwealth of Massachusetts on behalf of the Nominal Defendants against the Defendants. Both actions are referred to herein collectively as the "Class Action Lawsuit." The Plaintiffs have asserted, among other things, claims against the Defendants on behalf of the Nominal Defendants for violations of the Securities Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary duty, and violations of the partnership or trust agreements that govern each of the Nominal Defendants. The Defendants have denied, and continue to deny, that any of them have committed or threatened to commit any violations of law or breached any fiduciary duties to the Plaintiffs or the Nominal Defendants. On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a Stipulation of Settlement setting forth the terms pursuant to which a settlement of the Class Action Lawsuit is intended to be achieved and which, among other things, is expected to reduce the burdens and expenses attendant to continuing litigation. The Stipulation of Settlement was based upon and supersedes a Memorandum of Understanding between the parties dated March 9, 1998 which outlined the terms of a possible settlement. 10 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) The Stipulation of Settlement was filed with the Court on July 23, 1998 and remains pending. Ultimately, the Court must review and approve the Stipulation of Settlement prior to its becoming effective. The Stipulation of Settlement contemplates various changes that, if effected, would alter the future operations of the Nominal Defendants. With respect to the Partnership and 10 affiliated partnerships (hereafter referred to as the "Exchange Partnerships"), the Stipulation of Settlement provides for the restructuring of their respective business operations into a single successor company whose securities would be listed and traded on a national securities exchange. The partners of the Exchange Partnerships would receive both common stock in the new company and a cash distribution in exchange for their existing partnership interests. Such a transaction would, among other things, allow for the consolidation of the Partnership's operating expenses with other similarly organized equipment leasing programs. The Stipulation of Settlement prescribes certain conditions necessary to effecting the settlement, including providing the partners of the Exchange Partnerships with the opportunity to vote on the participation of their partnership in the restructuring. To the extent that the Stipulation of Settlement is approved by the Court, the complete terms thereof will be communicated to all of the partners of the Exchange Partnerships to enable them to vote on the restructuring. There can be no assurance that the Stipulation of Settlement will be approved by the Court, or that the outcome of the voting by the partners of the Exchange Partnerships, including the Partnership, will result in a settlement finally being effected or in the Partnership being included in the restructuring. The General Partner and its affiliates, in consultation with counsel, concur that there is a reasonable basis to believe that the Stipulation of Settlement will be approved by the Court. In the absence of a Stipulation of Settlement approved by the Court, the Defendants intend to defend vigorously against the claims asserted in the Class Action Lawsuit. The General Partner and its affiliates cannot predict with any degree of certainty the ultimate outcome of such litigation. 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 discussed settlement with respect to this matter for some time, the negotiations were unsuccessful. Notwithstanding these discussions, EFG filed an Amended and Supplemental Complaint alleging further default under the MLA and filed a motion for Summary Judgment on all claims and counterclaims. The Court held a hearing on EFG's motion in December 1997 and the Court recently entered a decision dismissing certain of National Steel's counterclaims and finding in favor of EFG on certain issues and in favor of National Steel on other issues. The parties have since resumed settlement discussions. The Partnership does not anticipate that it will experience any material losses as a result of this action. 9 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements in this quarterly report of American Income Partners V-A Limited Partnership (the "Partnership") that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements and the ability of Equis Financial Group Limited Partnership (formerly American Finance Group), a Massachusetts limited partnership ("EFG"), to collect all rents due under the attendant lease agreements and successfully remarket the Partnership's equipment upon the expiration of such leases. The Year 2000 Issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. EFG's computer programs were designed and written using four digits to define the applicable year. As a result, EFG does not anticipate system failure or miscalculations causing disruptions of operations. Based on recent assessments, EFG determined that minimal modification of software is required so that its network operating system will function properly with respect to dates in the year 2000 and thereafter. EFG believes that with these modifications to the existing operating system, the Year 2000 Issue will not pose significant operational problems for its computer systems. EFG will utilize internal resources to upgrade software for Year 2000 modifications and anticipates completing the Year 2000 project by December 31, 1998, which is prior to any anticipated impact on its operating system. The total cost of the Year 2000 project is expected to be insignificant and have no effect on the results of operations of the Partnership. THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997: OVERVIEW The Partnership was organized in 1989 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The value of the Partnership's equipment portfolio decreases over time due to depreciation resulting from age and usage of the equipment, as well as technological changes and other market factors. In addition, the Partnership does not replace equipment as it is sold; therefore, its aggregate investment value in equipment declines from asset disposals occurring in the normal course. The Partnership's stated investment objectives and policies contemplated that the Partnership would wind-up its operations within approximately seven years of its inception. Presently, the Partnership is a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action Lawsuit could alter the nature of the Partnership's organization and its future business operations. See Note 7 to the accompanying financial statements. RESULTS OF OPERATIONS For the three and six months ended June 30, 1998, the Partnership recognized lease revenue of $125,701 and $243,317, respectively, compared to $1,085,914 and $1,331,361 for the same periods in 1997. The decrease in lease revenue from 1997 to 1998 reflects the effects of lease term expirations, the sale of equipment and the exchange in the second quarter of 1997 of the Partnership's interest in a vessel for consideration consisting of newly issued shares of common stock in Semele Group, Inc. (formerly Banyan Strategic Land Fund II)("Semele"), a note receivable from Semele and cash (see Note 5 to the financial statements herein). During the six months ended June 30, 1997, the Partnership recognized lease revenue of $1,110,453 related to this vessel. In the 12 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION future, lease revenue will continue to decline due to primary and renewal lease term expirations and the sale of equipment. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by an affiliated equipment leasing program sponsored by EFG. Proportionate equipment ownership 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, 1998, the Partnership earned interest income of $51,785 and $104,386, respectively, compared to $23,172 and $48,112 for the same periods in 1997. Interest income during the three and six months ended June 30, 1998 included $19,501 and $38,787, respectively earned on the note receivable from Semele. Interest income is typically generated from temporary investment of rental receipts and equipment sales proceeds in short-term instruments. 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, 1998, the Partnership sold equipment that had been fully depreciated to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes of $2,300. During the three and six months ended June 30, 1997, the Partnership sold equipment that had been fully depreciated to existing lessees and third parties. These transactions resulted in a net gain, for financial statement purposes, of $20,000 and $64,300, respectively. During the three months ended June 30, 1997, the Partnership also exchanged its interest in a vessel with an original cost and net book value of $3,666,680 and $1,385,750, respectively. In connection with this transaction, the Partnership realized proceeds of $1,027,101, which resulted in a net loss for financial statement purposes, of $358,649. In addition, as this vessel was disposed of prior to the expiration of the related lease term, the Partnership received a prepayment of the remaining contracted rent due under the vessel's lease agreement in the amount of $991,703. 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 Gearbulk Shipowning Ltd (formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged their ownership interests in the Vessels for aggregate consideration of $11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987 and has its common stock listed on NASDAQ. At the date of the exchange transaction, the common stock of Semele had a net book value of approximately $1.50 per share and closing market value of $1.00 per share. Semele has one principal real estate asset consisting of an undeveloped 274 acre parcel of land near Malibu, California ("Rancho Malibu"). The exchange was organized through an intermediary company (Equis Exchange LLC, 99% owned by Semele 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 Semele 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 13 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION 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 Semele (the "Semele Note"). As a result of the exchange transaction and its original 46.46% beneficial ownership interest in Larkfield, one of the three Vessels, the Partnership received $735,201 in cash, became the beneficial owner of 341,435 shares of Semele common stock (valued at $512,153 ($1.50 per share) at the time of the exchange transaction) and received a beneficial interest in the Semele Note of $771,450. The Semele Note bears an annual interest rate of 10% and will be amortized over three years with mandatory principal reductions, if and to the extent that net proceeds are received by Semele from the sale or refinancing of Rancho Malibu. Cash equal to the amount of the Semele Note was placed in escrow for the benefit of Semele in a segregated account pending the outcome of certain shareholder proposals. Specifically, as part of the exchange, Semele 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 Semele's net operating loss carry-forwards, and (3) engage EFG to provide administrative services to Semele, which services EFG will provide at cost. On October 21, 1997, such Consent was obtained from Semele'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 the size of the Board to as many as nine members, provided a majority of the Board shall consist of members independent of Semele, EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual and changing its name from Banyan Strategic Land Fund II. Contemporaneously with the Consent being obtained, Semele declared a $0.20 per share dividend to be paid on all shares, including those beneficially owned by the Partnership. A dividend of $68,287 was paid to the Partnership on November 17, 1997. This dividend represented a return of equity to the Partnership, which proportionately reduced the Partnership's investment in Semele. Subsequent to the exchange transaction, Gary D. Engle, President and Chief Executive Officer of EFG, was elected to the Board of Directors and appointed Chief Executive Officer of Semele and James A. Coyne, Executive Vice President of EFG was appointed Semele's President and Chief Operating Officer, and elected to the Board of Directors. 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 expense for the six months ended June 30, 1998 was $80,952 compared to $219,579 for the same period in 1997. For the three months ended June 30, 1997, depreciation expense was $99,248. The Partnership's equipment portfolio became fully depreciated during the first quarter of 1998. 14 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION Interest expense was $1,025 and $3,388, or less than 1% of lease revenue for the three and six months ended June 30, 1997. The Partnership's notes payable were fully amortized during 1997. Management fees were approximately 5% of lease revenue for each of the three and six month periods ended June 30, 1998 and 1997. 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. Operating expenses were $416,400 and $456,150 for the three and six months ended June 30, 1998, respectively, compared to $69,904 and $179,503 for the same periods in 1997. During the six months ended June 30, 1998, the Partnership incurred or accrued approximately $290,000 for certain legal and administrative expenses related to the Class Action Lawsuit described in Note 7 to the financial statements. In addition, during the six months ended June 30, 1998, the Partnership incurred legal fees related to certain other ongoing legal proceedings as described in Note 7 to the 1997 Annual Report. 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 generally provided by the collection of periodic rents. These cash inflows are used to pay management fees and operating costs. In addition, in 1997 such cash inflows were used to satisfy debt service obligations associated with leveraged leases. Operating activities generated net cash inflows of $173,250 and $1,376,657 for the six months ended June 30, 1998 and 1997, 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 also decline as the Partnership experiences a higher frequency of remarketing events. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During the six months ended June 30, 1998, the Partnership realized net cash proceeds of $2,300 compared to $64,300 for the same period in 1997. 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. As a result of the exchange transaction (see Results of Operations) the Partnership holds a beneficial interest in the Semele Note of $771,450 and became the beneficial owner of 341,435 shares of Semele common stock valued at $512,153 ($1.50 per share) at the date of the transaction. 15 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION In accordance with the Financial Accounting Standard Board's Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, marketable equity securities classified as available-for-sale are required to be carried at fair value. On June 30, 1998 Semele effected a 1-for-300 reverse stock split followed by a 30-for-1 forward stock split resulting in a reduction of the number of shares of Semele common stock owned by the Partnership to 34,144 shares. During the six months ended June 30, 1998, the Partnership increased the carrying value of its investment in Semele common stock to $8.125 per share (the quoted price of the Semele stock on NASDAQ at June 30, 1998) resulting in an unrealized gain in 1998 of $21,340. This gain was reported as a component of comprehensive loss, included in partners' capital. The General Partner believes that the underlying tangible assets of Semele, particularly the Rancho Malibu property, can be sold or developed on a tax free basis due to Semele's net operating loss carry forwards and can provide an attractive economic return to the Partnership. The Partnership obtained long-term financing in connection with certain equipment leases. The repayments of principal related to such indebtedness are reported as a component of financing activities. The Partnership's notes payable were fully amortized during 1997. Cash distributions to the General Partner and Recognized Owners 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, 1998, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $272,500. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Recognized Owners were allocated 95% of these distributions, or $258,875, and the General Partner was allocated 5%, or $13,625. The second quarter 1998 cash distribution was paid on July 14, 1998. Cash distributions paid to the Recognized Owners 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 Partnership's future cash distributions will be adversely affected by the bankruptcy of a former lessee of the Partnership, Midway Airlines, Inc. ("Midway"). In 1993, the Partnership's interests in two DC-9-30 aircraft leased by Midway were transferred to a designee of the lender in lieu of foreclosure. Although this bankruptcy had no immediate adverse effect on the Partnership's cash flow, as the Partnership had almost fully leveraged its ownership interest in the underlying aircraft, this event resulted in the Partnership's loss of any future interest in the residual value of the aircraft. Notwithstanding such adverse impact, the overall investment results to be achieved by the Partnership will be dependent upon the collective performance results of all of the Partnership's equipment leases. The future liquidity of the Partnership will be influenced by the foregoing, as well as the outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements. The General Partner anticipates that cash proceeds resulting from the collection of contractual rents, the outcome of residual activities and the Partnership's available cash 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 future quarterly cash distributions are anticipated. 16 AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: Refer to Note 7 to the financial statements herein. Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits Response: None Item 6(b). Reports on Form 8-K Response: None 17 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 PARTNERS V-A LIMITED PARTNERSHIP By: AFG Leasing IV Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: -------------------------------------------- Michael J. Butterfield Treasurer of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: -------------------------------------------- By: -------------------------------------------- Gary M. Romano Clerk of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: -------------------------------------------- 18 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 PARTNERS V-A LIMITED PARTNERSHIP By: AFG Leasing IV Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: /S/ Michael J. Butterfield -------------------------------------------- Michael J. Butterfield Treasurer of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: August 14, 1998 -------------------------------------------- By: /S/ Gary Romano -------------------------------------------- Gary M. Romano Clerk of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: August 14, 1998 -------------------------------------------- 19 EX-27 2 FDS
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 2,517,322 277,416 819,848 0 0 3,614,586 5,705,989 5,705,989 3,614,586 443,046 0 0 0 0 3,171,540 3,614,586 0 350,003 0 0 549,176 0 0 (199,173) 0 (199,173) 0 0 0 (199,173) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----