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-D (Exact name of registrant as specified in its charter) Massachusetts 04-2819913 (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 12 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (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 the 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 - 10 Part II. OTHER INFORMATION Items 1 - 6 11 Signature 12 Part I. FINANCIAL INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 9/30/95 12/31/94 Investment property, at cost: Computer equipment $ - $ 966,011 Less accumulated depreciation - 924,484 - ------- Investment property, net - 41,527 Cash and cash equivalents 65,313 871,445 Marketable securities (notes 2 & 4) 107,523 - Rents receivable - 2,946 Accounts receivable - affiliates, net (note 2) - - ------ ----- Total assets $ 172,836 $ 915,918 = ======= = ======= Liabilities and Partners' Equity Liabilities: Accounts payable and accrued expenses - affiliates $ - $ 43,219 Accounts payable and accrued expenses - 70,321 Unearned rental income - 4,769 ----- ----- Total liabilities - 118,309 ----- ------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 1,499,773 1,414,723 Cumulative cash distributions (1,500,773) (1,442,825) ---------- ---------- - (27,102) ----- ------- Limited Partners (55,050 units): Capital contribution, net of offering costs 24,523,033 24,523,033 Cumulative net income 4,176,551 3,715,479 Cumulative cash distributions (28,514,801) (27,413,801) ----------- ----------- 184,783 824,711 ------- ------- Unrealized losses on marketable securities (note 4) (11,947) - ------- ------- Total partners' equity 172,836 797,609 ------- ------- Total liabilities and partners' equity $ 172,836 $ 915,918 = ======= = ======= See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (A Massachusetts Limited Partnership) Statements of Operations (Unaudited) Quarters Ended Nine Months Ended September 30, September 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- Revenue: Rental income $ - $ 89,609 $ 115,886 $ 253,791 Interest income 586 2,277 14,927 4,508 Other income - - 62,524 - Net gain on sale of equipment - 6,549 54,291 162,432 Recovery of net unsecured pre-petition claim (note 5) 224,397 - 392,692 - ------- ------ ------- ------ Total revenue 224,983 98,435 640,320 420,731 ------- ------ ------- ------- Costs and expenses: Depreciation - 32,525 12,056 102,252 Interest - 354 43 1,683 Related party expenses (note 3): Management fees - 4,219 4,658 11,462 General and administrative - 26,388 81,466 79,217 Net loss on sale of marketable securities 2,207 - 2,207 - (Reversal of) provision for doubtful accounts - 4,181 (6,232) (9,201) ----- ----- ------ ------ Total costs and expenses 2,207 67,667 94,198 185,413 ----- ------ ------ ------- Net income $ 222,776 $ 30,768 $ 546,122 $ 235,318 = ======= = ====== = ======= = ======= Net income (loss) per Limited Partnership Unit $ 3.78 $ 0.43 $ 8.37 $ (3.91) = ==== = ==== = ==== = ===== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (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 $ 546,122 $ 235,318 - ------- - ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,056 102,252 Net gain on sale of equipment (54,291) (162,432) Net loss on sale of marketable securities 2,207 - Reversal of provision for doubtful accounts (6,232) (9,201) Net (increase) decrease in current assets (190,274) 67,232 Net decrease in current liabilities (118,309) (198,755) -------- -------- Total adjustments (354,843) (200,904) -------- -------- Net cash provided by operating activities 191,279 34,414 ------- ------ Cash flows from investing activities: Purchase of investment property - (1,137) Proceeds from sales of marketable securities 77,775 - Proceeds from sales of investment property 83,762 224,345 ------ ------- Net cash provided by investing activities 161,537 223,208 ------- ------- Cash flows from financing activities: Principal payments on notes payable - affiliate - (41,424) Cash distributions to partners (1,158,948) (217,304) ---------- -------- Net cash used in financing activities (1,158,948) (258,728) ---------- -------- Net decrease in cash and cash equivalents (806,132) (1,106) Cash and cash equivalents at beginning of period 871,445 43,184 ------- ------ Cash and cash equivalents at end of period $ 65,313 $ 42,078 = ====== = ====== Supplemental cash flow information: Interest paid during the period $ 1,120 $ 1,683 = ===== = ===== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (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-D (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. In the fourth quarter of 1994, the General Partner announced its intentions of winding down the operations of the Partnership beginning in 1995. As of June 30, 1995, all assets have been sold with the exception of the marketable securities and the unsecured pre-petition claim, and the proceeds have been accumulated to settle all outstanding liabilities and make a final distribution. The Partnership will not be terminated until the common stock in Continental Information Systems Corporation has been liquidated and the sales proceeds have been distributed to the Partners (see note 5 for further discussion). (2) 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 September 30, 1995 and December 31, 1994, the allowance for doubtful accounts included in accounts receivable - affiliates was $0 and $246,368, respectively, all of which was related to the unsecured pre-petition 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 4). Reclassifications Certain prior year financial statement items have been reclassified to conform with the current year's financial statement presentation. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (A Massachusetts Limited Partnership) Notes to Financial Statements (Unaudited) (3) 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 September 30, 1995 and 1994 are as follows: 1995 1994 ---- ---- Management fees $ 4,658 $ 11,462 Reimbursable expenses paid 49,989 65,487 ------ ------ $ 54,647 $ 76,949 = ====== = ====== 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. (4) 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 $11,947. 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 $119,470 $107,523 $ - $ - ======== ======== ========= ========== WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (A Massachusetts Limited Partnership) Notes to Financial Statements (Unaudited) 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. (5) Bankruptcy of Continental Information Systems Corporation As was discussed in the Form 10-Q for the quarter ended June 30, 1995, note 4 Subsequent Events, the Partnership received the second and final distribution from the Trustee, with respect to the net unsecured pre-petition claim. The distribution consisted of cash proceeds of $193,239 and 12,463 shares of common stock in Continental Information Systems Corporation with a carrying value of $31,158. Following the Trustee's second distribution, the Partnership's net unsecured pre-petition claim has been settled as of July 20, 1995 and there are no other outstanding receivable balances. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (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 1994. The Partnership realized net income of $222,776 and $30,768 for the quarters ended September 30, 1995 and 1994, respectively. Interest income decreased as a result of lower average short-term investment balances. The recovery of the net unsecured pre-petition claim was the result of the second and final 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 97% in 1995 due to the Partnership's discontinued operations as of September 30, 1995. The Partnership was able to sell a portion of its marketable securities during the current quarter in accordance with the Securities and Exchange Commission restrictions, realizing a net loss of $2,207. The Partnership realized net income of $546,122 and $235,318 and rental income of $115,886 and $253,791 for the nine months ended September 30, 1995 and 1994, respectively. Rental income decreased $137,905 between the nine month periods. The decrease in rental income is primarily due to the continued decrease of the equipment portfolio. Interest income increased as a result of higher average short-term investment balances. Other income has increased from 1994 due to the result of the reduction of overstated liabilities recorded in prior periods. The large 1994 net gain on sale of equipment is due to significant sales of equipment carrying low net book values in the first quarter of 1994. 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 final distribution along with the second quarter of 1995 establishment of the carrying value of the stock received in the December 27, 1994. Total costs and expenses decreased $91,215 or 49% during the first nine months of 1995 primarily as a result of lower depreciation expense. Depreciation expense decreased due to a large portion of the equipment portfolio becoming fully depreciated and the sale of the equipment portfolio. Management fees expense decreased in relation to the decline in rental income. As mentioned above, the net loss on sale of marketable securities in the current quarter is due to the sale of stock having a fair value less than the carrying value. During the quarter and nine months ended September 30, 1995, the Partnership recorded net income per Limited Partnership Unit of $3.78 and $8.37, respectively. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Liquidity and Capital Resources During the fourth quarter of 1994, the General Partner announced its intentions of winding down the operations of the Partnership beginning in 1995. As of June 30, 1995, substantially all of the assets have been liquidated and the proceeds have been accumulated to settle all outstanding liabilities and make a final distribution. As discussed in note 5 Bankruptcy of Continental Information Systems Corporation, the Partnership received the second and final distribution from the Trustee, with respect to the unsecured pre-petition claim. The distribution consisted of cash proceeds of $193,239 and 12,463 shares of common stock in Continental Information Systems Corporation with a carrying value of $31,158. Following the Trustee's second distribution, the Partnership's unsecured pre-petition claim has been settled as of July 20, 1995 and there are no other outstanding receivable balances. The stock cannot be sold immediately by the Partnership due to limitations imposed by the Securities Exchange Act of 1933 (the "Exchange Act"). Because TLP Leasing Programs, Inc., one of the Corporate General Partners, is a wholly-owned subsidiary of Continental Information Systems Corporation ("CIS"), the Partnership is considered an "Affiliate" of CIS. Accordingly, in order for the Partnership to sell the shares, the Partnership must comply with the restrictions imposed by Rule 144 of the Exchange Act. In doing so, the Partnership anticipates selling the stock and distributing the proceeds to the investors in the form of a final distribution by the end of 1995. The Partnership's investing activities for the nine months resulted in the sale of its entire equipment portfolio with a cost basis of $966,011, generating $83,762 in proceeds. Also associated with the equipment sales were $39,114 of loss charge offs against the reserve, initially set up in prior periods for estimated losses on the ultimate disposition of equipment. The Partnership's investing activities also resulted in the sale of marketable securities, with a cost basis of $79,982, generating $77,775 in proceeds. Cash distributions are currently at an annual level of 1% per Limited Partnership Unit, or $1.25 per Limited Partnership Unit on a quarterly basis. For the quarter ended September 30, 1995, the Partnership declared a cash distribution of $72,434, of which $3,622 was allocated to the General Partners and $68,813 was allocated to the Limited Partners. The distribution will be made on November 28, 1995. As discussed above, the Partnership is accumulating its cash in anticipation of a final distribution. The effects of inflation have not been significant to the Partnership and are not expected to have any material impact in future periods. PART II. OTHER INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-D (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-D (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 -------------------