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 The Quarter Ended June 30, 1995 Commission File No. 2-89177
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(Exact name of registrant as specified in its charter)
Massachusetts 04-2819906
(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
(Page 2)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of June 30, 1995 and
December 31, 1994 3
Statements of Operations For the
Quarters Ended June 30, 1995 and 1994 and Six
Months Ended June 30, 1995 and 1994 4
Statements of Cash Flows For the Six
Months Ended June 30, 1995 and 1994 5
Notes to Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
Computer Equipment Portfolio 11
Part II. OTHER INFORMATION
Items 1 - 6 12
Signature 13
(Page 3)
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/95 12/31/94
Investment property, at cost (note 3):
Computer equipment $ 1,433,509 $ 1,671,132
Less accumulated depreciation 1,320,505 1,475,854
---------------------------
Investment property, net 113,004 195,278
Cash and cash equivalents 386,485 571,038
Marketable securities (note 2) 98,848 -
Rents receivable, net (note 2) 6,386 74,989
Accounts receivable - affiliates, net (note 2) 4,913 3,381
---------------------------
Total assets $ 609,636 $ 844,686
---------------------------
---------------------------
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 12,660 $ 58,821
Accounts payable and accrued
expenses - affiliates (note 4) 25,677 35,622
Accrued expenses 3,190 8,154
Accounts payable 16,147 13,928
Distribution payable 6,674 -
Unearned rental revenue - 55,853
---------------------------
Total liabilities 64,348 172,378
---------------------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 755,781 706,097
Cumulative cash distributions (756,781) (736,758)
---------------------------
- (29,661)
---------------------------
Limited Partners (25,363 units):
Capital contribution, net of offering costs 11,298,475 11,298,475
Cumulative net income 3,625,858 3,402,094
Cumulative cash distributions (14,379,045) (13,998,600)
---------------------------
545,288 701,969
---------------------------
Total partners' equity 545,288 672,308
---------------------------
Total liabilities and partners' equity $ 609,636 $ 844,686
---------------------------
---------------------------
See accompanying notes to financial statements.
(Page 4)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
Revenue:
Rental income $ 75,353 $ 152,248 $197,029 $335,663
Interest income 5,950 2,321 14,139 2,834
Net gain on sale
of equipment 28,320 8,563 45,274 28,201
Recovery of net unsecured
pre-petition claim (note 2) 98,848 - 98,848 -
--------------------- ---------------------
Total revenue 208,471 163,132 355,290 366,698
--------------------- ---------------------
Costs and expenses:
Depreciation 36,343 87,237 74,900 174,826
(Reversal of) provision for
doubtful accounts (24,160) 19,714 (48,160) 19,714
Interest (434) 2,504 1,852 5,490
Related party expenses
(note 4):
Management fees 5,596 4,978 18,220 18,197
General and administrative 20,379 19,472 35,030 36,947
--------------------- ---------------------
Total costs and expenses 37,724 133,905 81,842 255,174
--------------------- ---------------------
Net income $170,747 $ 29,227 $273,448 $111,524
--------------------- ---------------------
--------------------- ---------------------
Net income (loss) per Limited
Partnership Unit $ 6.25 $ 0.84 $ 8.82 $ (0.36)
--------------------- ---------------------
--------------------- ---------------------
See accompanying notes to financial statements.
(Page 5)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $273,448 $111,524
-------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 74,900 174,826
(Reversal of) provision
for doubtful accounts (48,160) 19,714
Net gain on sale of equipment (45,274) (28,201)
Net decrease in current assets 16,383 14,778
Net (decrease) increase in
current liabilities (68,543) 44,707
-------------------------
Total adjustments (70,694) 225,824
-------------------------
Net cash provided by
operating activities 202,754 337,348
-------------------------
Cash flows from investing activities:
Proceeds from sales of investment property 52,648 35,654
-------------------------
Net cash provided by
investing activities 52,648 35,654
-------------------------
Cash flows from financing activities:
Principal payments on long-term debt (46,161) (42,161)
Cash distributions to partners (393,794) (266,978)
-------------------------
Net cash used in
financing activities (439,955) (309,139)
-------------------------
Net (decrease) increase in cash
and cash equivalents (184,553) 63,863
Cash and cash equivalents
at beginning of period 571,038 96,504
-------------------------
Cash and cash equivalents
at end of period $386,485 $160,367
-------------------------
-------------------------
Supplemental cash flow information:
Interest paid during the period $ 2,929 $ 5,810
-------------------------
-------------------------
See accompanying notes to financial statements.
(Page 6)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Quarters Ended June 30, 1995 and 1994
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley
Lease Income Limited Partnership II-B (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, 1994.
(2) Significant Accounting Policies
Allowance for Doubtful Accounts
The financial statements include allowances for
estimated losses on receivable balances. The
allowances for doubtful accounts are 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 June 30, 1995
and December 31, 1994, the allowance for doubtful
accounts included in rents receivable was $1,952
and $50,112, respectively. The allowance for
doubtful accounts included in accounts receivable -
affiliates was $228,555 at June 30, 1995 and
December 31, 1994, respectively, which was related
to the net unsecured pre-petition bankruptcy claim.
Marketable Securities
The marketable securities consist of common stock
in Continental Information Systems Corporation
received by the Partnership in the distribution
made December 27, 1994 by the Trustee of the
Liquidating Estate of CIS Corporation, et al with
respect to the outstanding net unsecured pre-
petition claim. During the second quarter of 1995,
the stock began trading, thereby providing an
objective valuation measure for establishing the
cost basis which approximates fair market value at
the balance sheet date.
Reclassifications
Certain prior year financial statement items have
been reclassified to conform with the current
year's financial statement presentation.
(3) Investment Property
At June 30, 1995, the Partnership owned computer
equipment with a depreciated cost basis of
$107,907, subject to existing leases and equipment
with a depreciated cost basis of $5,097 in
inventory, awaiting re-lease or sale. All
purchases of computer equipment are subject to a 3%
acquisition fee paid to the General Partner.
(Page 7)
(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 June 30, 1995 and 1994 are as
follows:
1995 1994
Management fees $ 18,220 $ 18,197
Reimbursable expenses paid 34,593 25,753
---------------------
$ 52,813 $ 43,950
---------------------
---------------------
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 June 30, 1995, consists of one
loan from CIT Group for $12,660 with an interest
rate of 9.10%, collateralized by the equipment and
the assignment of the related lease. Total long-
term debt of $12,660 matures in 1995.
(6) Subsequent Events
On July 20, 1995, the Partnership received the
second distribution from the Trustee of the
Liquidating Estate of CIS Corporation, et al, with
respect to the net unsecured pre-petition claim.
The distribution consisted of cash proceeds of
$138,838 and 4,717 shares of common stock in
Continental Information Systems Corporation with a
carrying value of $11,793. The cash and stock will
be reflected in the financial statements for the
third quarter of 1995. Following the Trustee's
second distribution, the Partnership has a
remaining net unsecured pre-petition claim of
$69,481 as of July 20, 1995. The General Partner
anticipates that the Liquidating Estate will make
future distributions on the remaining outstanding
claim balance, although it is not possible at this
time to determine when these distributions will be
made.
(Page 8)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(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 and six
months periods ended June 30, 1995 in comparison to
the same periods in the prior year.
The Partnership realized net income of $170,747 and
$29,227 for the quarters ended June 30, 1995 and
1994, respectively. Rental income decreased
$76,895 or 51% primarily due to lower rental rates
obtained on equipment lease extensions and
remarketings resulting after the initial lease term
expires and due to a decrease in the overall size
of the equipment portfolio. Interest income
increased in 1995 as a result of higher average
short-term investment balances held during the
three month periods. The increase in gain is
attributed to the large number of sales of
equipment carrying low net book values. The
recovery of net unsecured pre-petition claim was
the result of the establishment of the carrying
value of the stock received in the December 27,
1994 distribution from the Trustee of the
Liquidating Estate of CIS Corporation, et al. The
receivables associated with the stock settlement
had been fully reserved in a prior year;
accordingly, the Partnership was able to show a
recovery on those receivables as of June 30, 1995
at which time an objective stock value could be
determined due to the stock's trading activities.
Total costs and expenses decreased 72% during the
three month periods due to the decrease in
depreciation expense and the reversal of provision
for doubtful accounts. Depreciation expense
decreased $50,894 or 58% between the three month
periods due to an increased portion of the
equipment portfolio becoming fully depreciated and
to an overall reduction in the equipment portfolio.
The reversal of provision for doubtful accounts was
generated due to successful collection efforts of
delinquent rents receivable. Interest expense
decreased between the three month periods primarily
due to a current quarter adjustment for an
overaccrual of interest expense and to the
continued paydown of long-term debt. Management
fees have increased due to an increase in rental
collections. General and administrative expenses
were lower in 1994 due to the receipt of a refund
related to a sales tax audit assessment that was
paid in 1990 and included in general and
administrative expenses at that time.
The Partnership realized net income of $273,448 and
$111,524 for the six months ended June 30, 1995 and
1994, respectively. The Partnership realized
rental income of $197,029 and $335,663 for the six
months ended June 30, 1995 and 1994, respectively.
As discussed above in the quarter analysis, the
decrease in rental income can be attributed to the
re-lease of equipment at lower rates and the
overall decrease in the equipment portfolio.
Interest income increased in 1995 due to the higher
average short-term investment balances held during
the first six months of 1995. As mentioned above,
the recovery of net unsecured pre-petition claim
was the result of the establishment of the carrying
value of the stock received in the December 27,
1994 distribution from the Trustee of the
Liquidating Estate of CIS Corporation, et al. The
receivables associated with the stock settlement
had been fully reserved in a prior year;
accordingly, the Partnership was able to show a
recovery on those receivables as of June 30, 1995
at which time an objective stock value could be
determined due to the stock's trading activities.
(Page 9)
Total costs and expenses decreased 68% in 1995 due
to the significant decrease in depreciation
combined with the reversal of provision for
doubtful accounts. As mentioned above,
depreciation expense decreased between the six
month periods due to the equipment portfolio
becoming fully depreciated and to the reduction of
the Partnership's equipment portfolio. The
reversal of provision for doubtful accounts was
generated due to successful collection efforts of
delinquent accounts. The slight increase in
general and administrative expenses is attributable
to the sales tax assessment refund in 1994, as
discussed above.
During the six months ended June 30, 1995 and 1994,
the Partnership allocated profits and losses
resulting in $8.82 and $(0.36) per Limited
Partnership Unit, respectively. The allocation for
the six months ended June 30, 1994 includes a cost
recovery allocation of profit and loss among the
General and Limited Partners which results in an
allocation of net loss to the Limited Partners in
the first quarter of 1994. This cost recovery
allocation is required to maintain capital accounts
consistent with the distribution provisions of the
Partnership Agreement. In certain periods, the
cost recovery of profit and loss may result in an
allocation of net loss to the Limited Partners in
instances when the Partnership's operations were
profitable for the period.
Liquidity and Capital Resources
For the six months ended June 30, 1995, rental
revenue generated from operating leases was the
primary source 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 option would generate the most
favorable results.
Rental income will continue to decrease due to two
factors. The first factor is the rate obtained
when the original leases expire and are remarketed
at a lower rate. 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
$183,784 and are to be received over the next three
years.
In the first six months of 1995, the Partnership's
investing activities resulted in equipment sales
with a depreciated cost basis of $7,552, generating
$52,648 in proceeds. Associated with the equipment
sales were $178 of loss charge offs against the
reserve, initially set up in prior periods for
estimated losses on the ultimate disposition of
equipment. 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
the paydown on long-term debt of $46,161 for the
six months ended June 30, 1995. The Partnership
will be paying down its remaining long-term debt
obligation of $12,660 in 1995.
(Page 10)
Cash distributions are currently at an annual level
of 5% per Limited Partnership Unit, or $6.25 per
Limited Partnership Unit on a quarterly basis. For
the quarter ended June 30, 1995, the Partnership
declared a cash distribution of $166,862, of which
$8,343 is allocated to the General Partner and
$158,519 is allocated to the Limited Partners. The
distribution will be made on August 28, 1995. 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 future periods.
(Page 11)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1995
Lessee
Allied Signal Corporation
Blue Cross and Blue Shield of Maryland, Incorporated
Emerson Electric Company, Incorporated
FAX International, Incorporated
Halliburton Company
Hughes Aircraft Company, Incorporated
Lamson & Sessions, Incorporated
Metropolitan Edison Company, Incorporated
New England Mutual Life Insurance Company, Incorporated
Time Warner, Incorporated
Equipment Description Acquisition Price
Computer Peripherals $ 920,313
Processors & Upgrades 7,167
Telecommunications 64,508
Other 441,521
-----------
$ 1,433,509
-----------
-----------
(Page 11)
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(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
(Page 12)
SIGNATURES
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 II-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: August 11, 1995
By: Arthur P. Beecher,
President