UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the United States Securities Exchange Act of 1934 ----------------------- For Quarter Ended March 31, 1996 Commission File No. 2-95011 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (Exact name of registrant as specified in its charter) Massachusetts 04-2846629 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Financial Center, 21st Floor, Boston, MA 02111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 482-8000 Not Applicable (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 ___ There are no Exhibits. Page 1 of 13 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) INDEX Page No. Part I. FINANCIAL INFORMATION Financial Statements Balance Sheets as of March 31, 1996 and December 31, 1995 3 Statements of Operations For the Quarters Ended March 31, 1996 and 1995 4 Statements of Cash Flows For the Quarters Ended March 31, 1996 and 1995 5 Notes to Financial Statements 6 - 8 Management's Discussion and Analysis of Financial Condition and 9 - 10 Results of Operations Computer Equipment Portfolio 11 Part II. OTHER INFORMATION Items 1 - 6 12 Signature 13 PART I. FINANCIAL INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 3/31/96 12/31/95 Investment property, at cost (note 3): Computer equipment $ 988,954 $ 1,495,761 Less accumulated depreciation 744,193 1,217,633 ---------------- ---------------- Investment property, net 244,761 278,128 Cash and cash equivalents 96,797 58,929 Marketable securities (note 6) 45,922 44,599 Rents receivable, net (note 2) 54,126 25,775 Sales receivable 50 50 ---------------- ---------------- Total assets $ 441,656 $ 407,481 ================ ================ Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 5) $ 24,021 $ 38,051 Accounts payable and accrued expenses - affiliates (note 4) 6,093 8,210 Accounts payable and accrued expenses 173,064 176,888 Unearned rental revenue - 2,176 ---------------- ---------------- Total liabilities 203,178 225,325 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 569,996 540,111 Cumulative cash distributions (627,462) (624,170) Unrealized losses on marketable securities (note 6) (65) (79) ---------------- ---------------- (56,531) (83,138) ---------------- ---------------- Limited Partners (25,020 units): Capital contribution, net of offering costs 11,139,685 11,139,685 Cumulative net income 1,083,587 992,631 Cumulative cash distributions (11,921,780) (11,859,230) Unrealized losses on marketable securities (note 6) (6,483) (7,792) ---------------- ---------------- 295,009 265,294 ---------------- ---------------- Total partners' equity 238,478 182,156 ---------------- ---------------- Total liabilities and partners' equity $ 441,656 $ 407,481 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Statements of Operations For the Quarters Ended March 31, 1996 and 1995 (Unaudited) 1996 1995 -------------- --------------- Revenue: Rental income $ 78,267 $ 136,281 Other income - 26,459 Interest income 913 3,519 Net gain (loss) on sale of equipment 96,525 (48,215) -------------- --------------- Total revenue 175,705 118,044 -------------- --------------- Costs and expenses: Depreciation 33,367 113,147 Interest 676 2,884 Related party expenses (note 4): Management fees 3,346 9,435 General and administrative 17,475 13,857 -------------- --------------- Total costs and expenses 54,864 139,323 -------------- --------------- Net income (loss) $ 120,841 $ (21,279) ============== =============== Net income (loss) per Limited Partnership Unit $ 3.64 $ (4.03) ============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Statements of Cash Flows For the Quarters Ended March 31, 1996 and 1995 (Unaudited) 1996 1995 ---------------- ---------------- Cash flows from operating activities: Net income (loss) $ 120,841 $ (21,279) ---------------- ---------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 33,367 113,147 Net (gain) loss on sale of equipment (96,525) 48,215 Net (increase) decrease in current assets (28,351) 4,002 Net decrease in current liabilities (8,117) (16,670) ---------------- ---------------- Total adjustments (99,626) 148,694 ---------------- ---------------- Net cash provided by operating activities 21,215 127,415 ---------------- ---------------- Cash flows from investing activities: Purchase of investment property - (167,898) Proceeds from sales of investment property 96,525 12,865 ---------------- ---------------- Net cash provided by (used in) investing activities 96,525 (155,033) ---------------- ---------------- Cash flows from financing activities: Principal payments on long-term debt (14,030) (12,942) Cash distributions to partners (65,842) (125,100) ---------------- ---------------- Net cash used in financing activities (79,872) (138,042) ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 37,868 (165,660) Cash and cash equivalents at beginning of period 58,929 325,125 ---------------- ---------------- Cash and cash equivalents at end of period $ 96,797 $ 159,465 ================ ================ Supplemental cash flow information: Interest paid during the period $ 676 $ 2,884 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Notes to Financial Statements For the Quarters Ended March 31, 1996 and March 31, 1995 (Unaudited) (1) Organization and Partnership Matters The foregoing financial statements of Wellesley Lease Income Limited Partnership III-C (the "Partnership") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Pursuant to such rules and regulations, certain note disclosures which are normally required under generally accepted accounting principles have been omitted. It is recommended that these financial statements be read in conjunction with the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995. (2) Summary of Significant Accounting Policies Allowance for Doubtful Accounts The financial statements include an allowance for estimated losses on receivable balances. The allowance for doubtful accounts is based on past write off experience and an evaluation of potential uncollectible accounts within the current receivable balances. Receivable balances which are determined to be uncollectible are charged against the allowance and subsequent recoveries, if any, are credited to the allowance. At March 31, 1996 and December 31, 1995, the allowance for doubtful accounts included in rents receivable was $814. (3) Investment Property At March 31, 1996, the Partnership owned computer equipment with a depreciated cost basis of $244,761, subject to existing leases. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Notes to Financial Statements For the Quarters Ended March 31, 1996 and March 31, 1995 (Unaudited) (4) Related Party Transactions Fees, commissions and other expenses paid or accrued by the Partnership to the General Partner or affiliates of the General Partner for the quarters ended March 31, 1996 and 1995, are as follows: 1996 1995 ---- ---- Equipment acquisition fees $ - $ 4,890 Management fees 3,346 9,435 Reimbursable expenses paid 21,610 18,449 ------------ ------------ $ 24,956 $ 32,774 ============ ============ Under the terms of the Partnership Agreement, the General Partner is entitled to an equipment acquisition fee of 3% of the purchase price paid by the Partnership for the equipment. The General Partner is also entitled to a management fee equal to 7% of the monthly rental billings collected. Also, the Partnership reimburses the General Partner and its affiliates for certain expenses incurred by them in connection with the operation of the Partnership. (5) Long-term Debt Long-term debt at March 31, 1996 consists of a $24,021 nonrecourse installment note with an interest rate of 8.10% from Pioneer Bank and Trust Company, collateralized by the equipment with a net book value of $52,516 and assignment of the related lease. Such long-term debt of $24,021 matures in 1996. (6) Fair Values of Financial Instruments Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires investments in debt and equity securities other than those accounted for under the equity method to be carried at fair value or amortized cost for debt securities expected to be held to maturity, the Partnership has classified its investments in equity securities as available for sale. Accordingly, the net unrealized gains and losses computed in marking these securities to market are reported as a component of partners' equity. At March 31, 1996 the difference between the fair value and the cost basis of these securities is an unrealized loss of $6,548. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Notes to Financial Statements For the Quarters Ended March 31, 1996 and March 31, 1995 (Unaudited) The fair value is based on currently quoted market prices. The cost basis and estimated fair value of the Partnership's marketable securities at March 31, 1996 and December 31, 1995, respectively, are as follows: March 31, 1996 December 31, 1995 ------------------------- ----------------------- Cost Fair Cost Fair Basis Value Basis Value Investment in Continental Information Systems Corporation Stock $ 52,470 $ 45,922 $ 52,470 $ 44,599 ======== ======== ======== ======== WELLESLEY INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Results of Operations The following discussion relates to the Partnership's operations for the quarter ended March 31, 1996, in comparison to the quarter ended March 31, 1995. The Partnership realized net income of $120,841 and a net loss of $21,279 for the quarters ended March 31, 1996 and 1995, respectively. Rental income decreased $58,014 or 43% in 1996. The decrease is primarily due to lower rental rates obtained on equipment lease extensions and remarketings resulting after the initial lease term expires and due to a net decrease in the overall size of the equipment portfolio. Other income reported in 1995 is the result of the reduction of overstated liabilities recorded in prior periods. Interest income has decreased as a result of lower short-term investment balances held during 1996. The net gain on sale of equipment of $96,525 can be attributed to sales of fully depreciated equipment during the current quarter, versus a net loss on sale of equipment of $48,215 recognized in the prior period. Total cost and expenses decreased $84,459 or 61% between the three month periods. The decrease in costs and expenses is primarily a result of lower depreciation expense. Depreciation expense decreased in the current quarter due to a portion of the equipment portfolio becoming fully depreciated. Interest expense decreased $2,208 due to the larger paydown of principal of long-term debt during the current quarter. Management fees expenses have decreased due to the decline in rental income. General and administrative expenses increased $3,618 or 26%. A major factor contributing to this increase is that salaries and expenses of the partnership accounting and reporting personnel of the General Partner, which are reimbursable by the various partnerships under management, are being allocated over a diminishing number of partnerships. The Partnership recorded net income per Limited Partnership Unit of $3.64 and a net loss per Limited Partnership Unit of $4.03 for the quarters ended March 31, 1996 and 1995, respectively. Liquidity and Capital Resources For the quarter ended March 31, 1996, rental revenue generated from operating leases and sales proceeds generated from equipment sales were the primary sources of funds for the Partnership. As equipment leases terminate, the General Partner determines if the equipment will be extended to the same lessee, remarketed to another lessee, or if it is less marketable, sold. This decision is made upon analyzing which options would generate the most favorable results. WELLESLEY INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Rental income will continue to decrease due to two factors. The first factor is the lower rate obtained due to the remarketing of existing equipment upon the expiration of the original lease. Typically the remarketed rates are lower due to the decrease in useful life of the equipment. Secondly, the increasing change of technology in the computer industry usually decreases the demand for older equipment, thus increasing the possibility of obsolescence. Both of these factors together will cause remarketed rates to be lower than original rates and will cause certain leases to terminate upon expiration. This decrease, however, should not affect the Partnership's ability to meet its future cash requirements, including its long-term debt obligations. To the extent that future cash flows should be insufficient to meet the Partnership's operating expenses and liabilities, additional funds could be obtained through the sale of equipment, or a reduction in the rate of cash distributions. Future rental revenues amount to $210,847 and are to be received over the next three years. The Partnership's investing activities for the current quarter resulted in fully depreciated equipment sales, generating $96,525 in proceeds. The Partnership has no material capital expenditure commitments and will not purchase equipment in the future as the Partnership has reached the end of its reinvestment period. The Partnership's financing activities resulted in a paydown on long-term debt during the quarter of $14,030. Such long-term debt bears interest at 8.10% with installments to be paid monthly. Total long-term debt assumed by the Partnership from inception is $10,641,478, for a total leverage of 43%. Cash distributions are currently at an annual level of 2% per Limited Partnership Unit, or $2.50 per Limited Partnership Unit on a quarterly basis. For the quarter ended March 31, 1996, the Partnership declared a cash distribution of $65,842, of which $3,292 was allocated to the General Partner and $62,550 was allocated to the Limited Partners. The distribution will be made on May 29, 1996. The Partnership expects to continue paying at or near this level in the future. The effects of inflation have not been significant to the Partnership and are not expected to have any material impact in the future periods. On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP Leasing Programs, Inc. from CMI Holding Co. Under the new ownership, it is expected that TLP Leasing Programs, Inc. will continue to operate in the same manner of business as it has in the past. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) March 31, 1996 Lessee Baylor Health Network, Incorporated Centura Bank Genix Corporation Hughes Aircraft Company, Incorporated J. Walter Thompson & Co. Mitsubishi, Incorporated New York Life Insurance Company, Incorporated NYNEX National, Incorporated Sports & Recreation, Incorporated USG Corporation Xerox Corporation Equipment Description Acquisition Price Computer peripherals $ 187,902 Processors & upgrades 524,145 Telecommunications 247,238 Other 29,669 -------------- $ 988,954 ============== PART II. OTHER INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (A Massachusetts Limited Partnership) Item 1. Legal Proceedings Response: None Item 2. Changes in the Rights of the Partnership's Security Holders Response: None Item 3. Defaults by the Partnership on its Senior Securities Response: None Item 4. Results of Votes of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: A. None B. None SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C (Registrant) By: Wellesley Leasing Partnership, its General Partner By: TLP Leasing Programs, Inc., one of its Corporate General Partners By: Arthur P. Beecher, President Date: May 14, 1996