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 September 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 14
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of September 30, 1995 and December 31, 1994 3
Statements of Operations For the Quarters Ended
September 30, 1995 and 1994 and Nine Months Ended
September 30, 1995 and 1994 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1995 and 1994 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 11
Computer Equipment Portfolio 12
Part II. OTHER INFORMATION
Items 1 - 6 13
Signature 14
Part I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/95 12/31/94
Investment property, at cost (note 3):
Computer equipment $ 1,344,054 $ 1,671,132
Less accumulated depreciation 1,264,738 1,475,854
--------- ---------
Investment property, net 79,316 195,278
Cash and cash equivalents 406,700 571,038
Marketable securities (notes 2 and 5) 99,576 -
Rents receivable, net (note 2) 30,416 74,989
Accounts receivable - affiliates, net (notes 2 and 4) - 3,381
------- -------
Total assets $ 616,008 $ 844,686
= ======= = =======
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt $ - $ 58,821
Accounts payable and accrued expenses - affiliates (note 4) 21,885 35,622
Accounts payable and accrued expenses 18,594 22,082
Distribution payable 8,343 -
Unearned rental revenue 8,301 55,853
----- ------
Total liabilities 57,123 172,378
------ -------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 764,124 706,097
Cumulative cash distributions (765,124) (736,758)
-------- --------
- (29,661)
-------- -------
Limited Partners (25,363 Units):
Capital contribution, net of offering costs 11,298,475 11,298,475
Cumulative net income 3,809,037 3,402,094
Cumulative cash distributions (14,537,563) (13,998,600)
----------- -----------
569,949 701,969
------- -------
Unrealized losses on marketable securities (note 5) (11,064) -
------- -------
Total partners' equity 558,885 672,308
------- -------
Total liabilities and partners' equity $ 616,008 $ 844,686
= ======= = =======
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Revenue:
Rental income $ 89,721 $ 173,290 $ 286,750 $ 508,953
Interest income 5,511 2,361 19,650 5,195
Net gain on sale
of equipment 573 22,294 45,847 50,495
Recovery of net unsecured
pre-petition claim (note 6) 150,631 - 249,479 -
------- ------- ------- -------
Total revenue 246,436 197,945 601,726 564,643
------- ------- ------- -------
Costs and expenses:
Depreciation 33,962 85,327 108,862 260,153
(Reversal of) provision for
doubtful accounts - 11,278 (48,160) 30,992
Interest 132 2,012 1,984 7,502
Related party expenses (note 4):
Management fees 4,737 9,048 22,957 27,245
General and administrative 16,083 16,506 51,113 53,453
------ ------ ------ ------
Total costs and expenses 54,914 124,171 136,756 379,345
------ ------- ------- -------
Net income $ 191,522 $ 73,774 $ 464,970 $ 185,298
= ======= = ====== = ======= = =======
Net income per Limited
Partnership Unit $ 7.22 $ 0.65 $ 16.04 $ 0.29
= ==== = ==== = ===== = ====
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 464,970 $ 185,298
- ------- - -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 108,862 260,153
(Reversal of) provision for doubtful accounts (48,160) 30,992
Net gain on sale of equipment (45,847) (50,495)
Net increase in current assets (14,526) (20,174)
Net (decrease) increase in current liabilities (64,777) 11,614
------- ------
Total adjustments (64,448) 232,090
------- -------
Net cash provided by operating activities 400,522 417,388
------- -------
Cash flows from investing activities:
Proceeds from sales of investment property 52,947 69,903
------ ------
Net cash provided by investing activities 52,947 69,903
------ ------
Cash flows from financing activities:
Principal payments on long-term debt (58,821) (63,968)
Cash distributions to partners (558,986) (400,467)
-------- --------
Net cash used in financing activities (617,807) (464,435)
-------- --------
Net (decrease) increase in cash and cash equivalents (164,338) 22,856
Cash and cash equivalents at beginning of period 571,038 96,504
------- ------
Cash and cash equivalents at end of period $ 406,700 $ 119,360
= ======= = =======
Supplemental cash flow information:
Interest paid during the period $ 3,061 $ 7,987
= ===== = =====
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 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 September 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 $69,481 and $228,555 at September 30, 1995 and
December 31, 1994, respectively, which was related to the net unsecured
pre-petition bankruptcy claim.
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of common stock in Continental Information Systems Corporation received
by the Partnership in the distributions made December 27, 1994 and July 20, 1995
by the Trustee of the Liquidating Estate of CIS Corporation, et al ("the
Trustee"), 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. Unrealized gains
and losses are recorded directly in partners' equity except those gains and
losses that are deemed to be other than temporary, which would be reflected in
income or loss (see note 5).
Reclassifications
Certain prior year financial statement items have been reclassified to conform
with the current year's financial statement presentation.
(3) Investment Property
At September 30, 1995, the Partnership owned computer equipment with a
depreciated cost basis of $40,071, subject to existing leases and equipment with
a depreciated cost basis of $39,245 in inventory, awaiting re-lease or sale. All
purchases of computer equipment are subject to a 3% acquisition fee paid to the
General Partner.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(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 nine months ended
September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Management fees $ 22,957 $ 27,245
Reimbursable expenses paid 48,146 43,416
------ ------
$ 71,103 $ 70,661
= ====== = ======
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) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115 ("SFAS 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 September 30, 1995 the
difference between the fair value and the original cost of these securities is
an unrealized loss of $11,064.
The fair value is based on currently quoted market prices. The carrying amount
and estimated fair value of the Partnership's marketable securities for the
quarters ended September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment in Continental Information
Systems Corporation Stock $110,640 $ 99,576 $ - $ -
======== ======== ========= ==========
As was discussed in note 2, Marketable Securities, the Partnership received
stock in Continental Information Systems Corporation as part of the December 27,
1994 and July 20, 1995 distributions from the Trustee, with respect to the
outstanding net unsecured pre-petition claim. The receivables comprising the net
unsecured pre-petition claim had been fully reserved during prior years; thus,
during the second quarter of 1995 when the stock began actively trading, the
carrying amount for the stock was established to be $2.50 per share which
approximated fair value at June 30, 1995.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
(6) Bankruptcy of Continental Information Systems Corporation
As was discussed in the Form 10-Q for the quarter ended June 30, 1995, note 6
Subsequent Events, the Partnership received the second distribution from the
Trustee, 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.
Following the Trustee's second distribution, the Partnership has a remaining net
unsecured pre-petition claim of $69,481 as of September 30, 1995 (see note 7).
(7) Subsequent Events
On October 20, 1995, the Partnership received the third distribution from the
Trustee, with respect to the net unsecured pre-petition claim. The distribution
consisted of cash proceeds of $3,026 and 1,929 shares of common stock in
Continental Information Systems Corporation with a carrying value of $4,823. The
cash and stock will be reflected in the financial statements for the fourth
quarter of 1995. Following the Trustee's third distribution and an additional
charge off made during the year, the Partnership has a remaining net unsecured
pre-petition claim balance of $56,756 as of October 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.
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 nine months ended September 30, 1995 in comparison to the same periods in
the prior year.
The Partnership realized net income of $191,522 and $73,774 for the quarters
ended September 30, 1995 and 1994, respectively. Rental income decreased $83,569
or 48% 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 decrease in net gain on sale of
equipment is attributed to the reduction of sales of equipment in the current
quarter. The recovery of the net unsecured pre-petition claim was the result of
the second distribution from the Trustee of the Liquidating Estate of CIS
Corporation, et al, (the "Trustee"), with respect to the outstanding claim
balance.
Total costs and expenses decreased 56% during the three month periods primarily
due to the significant decrease in depreciation expense. Depreciation expense
decreased $51,365 or 60% between the three month periods due to an increased
portion of the equipment portfolio becoming fully depreciated and to the
reduction in the equipment portfolio. The reduction in total costs and expenses
is also impacted by the prior quarter's provision for doubtful accounts of
$11,278. The Partnership has not had to establish a provision in the current
quarter due to fewer delinquent accounts receivable. Interest expense decreased
between the three month periods due to the payoff of long-term debt in the
current quarter. Management fees decreased in relation to the decline in rental
income. General and administrative expenses remained relatively constant.
The Partnership realized net income of $464,970 and $185,298 for the nine months
ended September 30, 1995 and 1994, respectively. The Partnership realized rental
income of $286,750 and $508,953 for the nine months ended September 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 rental
rates and the decrease in the equipment portfolio. Interest income increased
$14,455 in 1995 due to the higher average short-term investment balances held
during the first nine months of 1995. As mentioned above, the recovery of the
net unsecured pre-petition claim was the result of the third quarter of 1995
receipt of the Trustee's July 20, 1995 second distribution along with the second
quarter of 1995 establishment of the carrying value of the stock received in the
December 27, 1994 distribution. 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.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased 64% in 1995 due to the significant decrease
in depreciation of $151,291 combined with the reversal of provision for doubtful
accounts of $48,160. As mentioned above, depreciation expense decreased between
the nine 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. Interest expense decreased $5,518 due to the
current year payoff of long-term debt. As discussed in the quarter analysis
above, management fees declined as a result of the decrease in rental income.
General and administrative expenses remained fairly constant.
The Partnership recorded net income per Limited Partnership Unit of $7.22
and $16.04 for the quarter and nine months ended September 30, 1995,
respectively.
Liquidity and Capital Resources
For the nine months ended September 30, 1995, rental revenue generated from the
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. 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 $165,740 and are to be received over the next three
years.
In the first nine months of 1995, the Partnership's investing activities
resulted in equipment sales with a depreciated cost basis of $7,552, generating
$52,947 in proceeds. Associated with the equipment sales were $452 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 payoff on long-term
debt of $58,821 for the nine months ended September 30, 1995.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
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 September 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 November 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.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 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
Equipment Description Acquisition Price
Computer peripherals $ 862,882
Processors & upgrades 6,720
Telecommunications 60,484
Other 413,968
-------
$ 1,344,054
=========
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
SIGNATURE
Pursuant to the requirements 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
By: Arthur P. Beecher
President
Date: November 14, 1995
-----------------