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. 2-95011
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(Exact name of registrant as specified in its charter)
Massachusetts 04-2846627
(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
(Page 2)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 For
the 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 - 9
Computer Equipment Portfolio 10
Part II. OTHER INFORMATION
Items 1 - 6 11
Signature 12
(Page 3)
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/95 12/31/94
Investment property, at cost (note 3):
Computer equipment $ 1,736,067 $ 1,779,340
Less accumulated depreciation 1,577,349 1,518,715
----------------------------
Investment property, net 158,718 260,625
Cash and cash equivalents 46,129 75,704
Marketable securities (note 2) 10,508 -
Rents receivable, net (note 2) 20,240 8,633
Accounts receivable - affiliates, net (note 2) - -
---------------------------
Total assets $ 235,595 $ 344,962
===========================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 13,819 $ 34,018
Accounts payable and accrued expenses -
affiliates (note 4) 22,652 25,608
Accrued expenses 3,190 8,086
Accounts payable 64,223 109,977
Distribution payable 1,646 -
Unearned rental revenue 1,635 19,148
----------------------------
Total liabilities 107,165 196,837
----------------------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 652,110 643,610
Cumulative cash distributions (653,216) (646,632)
----------------------------
(106) (2,022)
----------------------------
Limited Partners (25,020 units):
Capital contribution, net of offering costs 11,139,998 11,139,998
Cumulative net income 1,399,709 1,296,220
Cumulative cash distributions (12,411,171) (12,286,071)
----------------------------
128,536 150,147
----------------------------
Total partners' equity 128,430 148,125
----------------------------
Total liabilities and partners' equity $ 235,595 $ 344,962
============================
See accompanying notes to financial statements.
(Page 4)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 $120,788 $ 158,759 $238,031 $324,906
Interest income 393 2,013 1,934 2,288
Net gain (loss) on sale
of equipment 1,047 (2,021) 2,737 9,264
Recovery of net unsecured
pre-petition claim (note 2) 10,508 - 10,508 -
--------------------- ---------------------
Total revenue 132,736 158,751 253,210 336,458
===================== =====================
Costs and expenses:
Depreciation 50,738 71,530 101,907 152,245
Reversal of provision for
doubtful accounts (7,980) - (7,980) -
Interest (754) 1,048 845 2,891
Related party expenses
(note 4):
Management fees 6,085 9,294 12,242 20,927
General and administrative 18,602 19,427 34,207 34,508
--------------------- ---------------------
Total costs and expenses 66,691 101,299 141,221 210,571
--------------------- ---------------------
Net income $ 66,045 $ 57,452 $111,989 $125,887
===================== =====================
Net income per Limited
Partnership Unit $ 2.55 $ 2.10 $ 4.14 $ 4.25
===================== =====================
See accompanying notes to financial statements.
(Page 5)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 $ 111,989 $ 125,887
--------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 101,907 152,245
Reversal of provision for doubtful accounts (7,980) -
Net gain on sale of equipment (2,737) (9,264)
Net (increase) decrease in current assets (14,135) 5,430
Net (decrease) increase in current
liabilities (71,119) 9,880
-------------------------
Total adjustments 5,936 158,291
-------------------------
Net cash provided by operating activities 117,925 284,178
-------------------------
Cash flows from investing activities:
Purchase of investment property - (65,872)
Proceeds from sales of investment property 2,737 89,819
-------------------------
Net cash provided by investing activities 2,737 23,947
-------------------------
Cash flows from financing activities:
Principal payments on long-term debt (20,199) (79,302)
Cash distributions to partners (130,038) (197,526)
-------------------------
Net cash used in financing activities (150,237) (276,828)
-------------------------
Net (decrease) increase in cash and cash
equivalents (29,575) 31,297
Cash and cash equivalents at beginning of period 75,704 111,975
-------------------------
Cash and cash equivalents at end of period $ 46,129 $143,272
=========================
Supplemental cash flow information:
Interest paid during the period $ 1,921 $ 3,418
=========================
See accompanying notes to financial statements.
(Page 6)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley
Lease Income Limited Partnership III-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) Summary of 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 $1,065 and
$9,046, respectively. The allowance for
doubtful accounts included in accounts
receivable - affiliates was $40,466 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
$158,718, subject to existing leases. 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
Equipment acquisition fees $ - $ 1,919
Management fees 12,242 20,927
Reimbursable expenses paid 35,397 24,718
-----------------------
$ 47,639 $ 47,564
=======================
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. In addition, 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
installment loan from Bank of Lincolnwood for
$13,819 with an interest rate of 6.25%,
collateralized by the equipment with a net book
value of $33,197, and the assignment of the
related lease. Such long-term debt 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 $19,646. The cash 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 $20,820 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 III-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 ended June 30, 1995 in comparison to the
same periods in the prior year.
The Partnership realized net income of $66,045
and $57,452 for the quarters ended June 30,
1995, and 1994, respectively. Rental income
decreased $37,971 or 24% primarily due to lower
rental rates obtained on equipment lease
extensions and remarketings resulting after the
initial lease term expires and due to a slight
decrease in the overall size of the equipment
portfolio. Interest income decreased as a
result of lower average short-term investment
balances. 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 35% between
the three month periods as a result of lower
depreciation expense combined with the reversal
of provision for doubtful accounts.
Depreciation expense decreased between the three
month periods due to a large portion of the
equipment portfolio becoming fully depreciated
and a slight reduction in the overall equipment
portfolio. Interest expense decreased between
the three month periods primarily as a result of
an overaccrual of interest expense in the first
quarter of 1995 and to the continued paydown of
long-term debt. For the quarter ended June 30,
1995, management fees expense and general and
administrative expenses decreased in correlation
to the reduction in rental income. The reversal
of provision for doubtful accounts was generated
due to successful collection efforts on
delinquent rents receivable.
The Partnership realized net income of $111,989
and $125,887 for the six months ended June 30,
1995 and 1994, respectively. The Partnership
realized rental income of $238,031 and $324,906
for the six months ended June 30, 1995 and 1994,
respectively. As discussed in the quarter
analysis above, the 27% decrease in rental
income between 1995 and 1994 can be attributed
to the remarketing of equipment at lower rates
and the overall decrease in the equipment
portfolio. The decrease in interest income
between 1995 and 1994 can be attributed to the
lower average short-term investment balances.
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.
Total costs and expenses decreased 33% in 1995
as a result of lower depreciation expense
combined with the reversal of provision for
doubtful accounts. Depreciation expense
decreased between 1995 and 1994 due to the
initial equipment portfolio becoming fully
depreciated and due to the overall reduction of
the Partnership's equipment portfolio. Interest
expense significantly decreased between 1995 and
1994 mainly due to the continued paydown of long-
term debt. As discussed above, the decrease in
management fees expense reflects a decline in
rental income. The reversal of provision for
doubtful accounts was generated in the second
quarter of 1995 due to successful collection
efforts on delinquent rents receivable, as
discussed above.
(Page 9)
The Partnership recorded net income per Limited
Partnership Unit of $4.14 and $4.25 for the six
months ended June 30, 1995 and 1994,
respectively.
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 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 on existing leases amount
to $256,217 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
$1,727, generating $2,737 in proceeds.
Associated with the equipment sales were $1,727
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 investment period.
The Partnership's financing activities for the
year resulted in the paydown on long-term debt
of $20,199. The Partnership will be paying off
its remaining long-term debt obligation of
$13,819 in 1995.
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 June 30,
1995, the Partnership declared a cash
distribution of $32,921, of which $1,646 is
allocated to the General Partner and $31,275 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 10)
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1995
Lessee
Brian Unlimited Distributions Company
Brylane, Incorporated
Crowley Foods, Incorporated
FAX International, Incorporated
Goodyear Tire and Rubber Company, Incorporated
Halliburton Company
Hughes Aircraft Company, Incorporated
ITT Flygt Corporation
Maryland Casualty Insurance Company, Incorporated
Packard Hughes Interconnect, Incorporated
Western Atlas Company, Incorporated
Equipment Description Acquisition Price
Computer Peripherals $ 1,249,968
Processors & Upgrades 121,525
Other 364,574
-----------
$ 1,736,067
===========
(Page 11)
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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)
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 III-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