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, 1996 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 14
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, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
June 30, 1996 and 1995 and For the Six Months Ended
June 30, 1996 and 1995 4
Statements of Cash Flows For the Six Months Ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Conditions
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 III-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/96 12/31/95
Investment property, at cost (note 3):
Computer equipment $ 678,045 $ 1,556,972
Less accumulated depreciation 660,476 1,444,538
---------------- ----------------
Investment property, net 17,569 112,434
Cash and cash equivalents 14,772 123,547
Marketable securities (note 5) 8,963 10,158
Rents receivable, net (note 2) 13,943 17,627
Sales receivable 26,000 1,125
Accounts receivable - affiliates (notes 2, 4 and 6) 3,058 -
---------------- ----------------
Total assets $ 84,305 $ 264,891
================ ================
Liabilities and Partners' Equity
Liabilities:
Accounts payable and accrued expenses - affiliates (note 4) $ 17,860 $ 6,657
Accounts payable and accrued expenses 17,617 31,749
Distributions payable 1,646 -
Unearned rental revenue - 550
---------------- ----------------
Total liabilities 37,123 38,956
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 662,122 660,945
Cumulative cash distributions (663,092) (656,508)
Unrealized losses on marketable securities (note 5) (30) (18)
---------------- ----------------
- 5,419
---------------- ----------------
Limited Partners (25,020 units):
Capital contribution, net of offering costs 11,139,998 11,139,998
Cumulative net income 1,508,963 1,556,014
Cumulative cash distributions (12,598,821) (12,473,721)
Unrealized losses on marketable securities (note 5) (2,958) (1,775)
---------------- ----------------
47,182 220,516
---------------- ----------------
Total partners' equity 47,182 225,935
---------------- ----------------
Total liabilities and partners' equity $ 84,305 $ 264,891
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
Revenue:
Rental income $ (15,276) $ 120,788 $ 61,790 $ 238,031
Interest income 302 393 1,240 1,934
Net gain on sale
of equipment 3,500 1,047 3,500 2,737
Recovery of unsecured
pre-petition claim (note 6) 4,965 10,508 7,595 10,508
------------ ------------ ------------ ------------
Total revenue (6,509) 132,736 74,125 253,210
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation 34,432 50,738 68,864 101,907
(Reversal of) provision for
doubtful accounts 6,744 (7,980) 6,744 (7,980)
Interest - (754) - 845
Related party expenses (note 4):
Management fees 2,775 6,085 4,991 12,242
General and administrative 22,130 18,602 39,400 34,207
------------ ------------ ------------ ------------
Total costs and expenses 66,081 66,691 119,999 141,221
------------ ------------ ------------ ------------
Net (loss) income $ (72,590) $ 66,045 $ (45,874) $ 111,989
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ (2.87) $ 2.55 $ (1.88) $ 4.14
============ ============ ============ ============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net (loss) income $ (45,874) $ 111,989
------------ -------------
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation 68,864 101,907
(Reversal of) provision for doubtful accounts 6,744 (7,980)
Net gain on sale of equipment (3,500) (2,737)
Net increase in current assets (30,993) (14,135)
Net decrease in current liabilities (3,479) (71,119)
------------ -------------
Total adjustments 37,636 5,936
------------ -------------
Net cash (used in) provided by operating activities (8,238) 117,925
------------ -------------
Cash flows from investing activities:
Proceeds from sales of investment property 29,501 2,737
------------ -------------
Net cash provided by investing activities 29,501 2,737
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt - (20,199)
Cash distributions to partners (130,038) (130,038)
------------ -------------
Net cash used in financing activities (130,038) (150,237)
------------ -------------
Net decrease in cash and cash equivalents (108,775) (29,575)
Cash and cash equivalents at beginning of period 123,547 75,704
------------ -------------
Cash and cash equivalents at end of period $ 14,772 $ 46,129
============ =============
Supplemental cash flow information:
Interest paid during the period $ - $ 1,921
============ =============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(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, 1995.
(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. The allowance for doubtful accounts included
in rents receivable was $7,583 and $839 at June 30, 1996 and December 31, 1995,
respectively. The allowance for doubtful accounts - affiliates was $9,381 and
$17,440 at June 30, 1996 and December 31, 1995, respectively, both of which
pertained to the unsecured pre-petition claim balance.
(3) Investment Property
At June 30, 1996, the Partnership owned computer equipment with a depreciated
cost basis of $17,569, 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-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 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 six months ended
June 30, 1996 and 1995 are as follows:
1996 1995
---- ----
Management fees $ 4,991 $ 12,242
Reimbursable expenses paid 45,723 35,397
------------ ------------
$ 50,714 $ 47,639
============ ============
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) 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 June 30, 1996, the difference between the
fair value and the cost basis of these securities is an unrealized loss of
$2,988.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at June 30, 1996
and December 31, 1995, respectively, are as follows:
June 30, 1996 December 31, 1995
----------------------- ---------------------
Cost Fair Cost Fair
Basis Value Basis Value
Investment in Continental Information
Systems Corporation Stock $ 11,951 $ 8,963 $ 11,951 $ 10,158
======== ======== ======== ========
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
(6) Bankruptcy of Continental Information Systems Corporation
On January 19, 1996 and April 19, 1996, respectively, the Partnership received
the fourth and fifth distributions from the Trustee of the Liquidating Estate,
et al, ("the Trustee") with respect to the unsecured pre-petition claim. The
fourth and fifth distributions consisted of cash proceeds of $2,630 and $4,965,
respectively. Following the Trustee's fifth distribution, the Partnership has a
remaining unsecured pre-petition claim balance of $9,381 as of June 30, 1996
(see note 7).
(7) Subsequent Events
On July 19, 1996, the Partnership received the sixth distribution from the
Trustee with respect to the unsecured pre-petition claim. The distribution
consisted of cash proceeds of $2,555 and 51 shares of common stock in
Continental Information Systems Corporation ("CISC"). Following the Trustee's
sixth distribution, the Partnership has a remaining unsecured pre-petition claim
balance of $6,699 as of July 19, 1996. The General Partner anticipates that the
Trustee 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 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, 1996, compared to the same periods in 1995.
The Partnership realized a net loss of $72,590 and net income of $66,045 for the
quarters ended June 30, 1996, and 1995, respectively. Rental income decreased
$136,064 primarily due to a $48,880 adjustment in the quarter ended June 30,
1996 for an overaccrual of rental income recognized in prior periods, relating
to equipment that came off lease and was returned to inventory. Other factors
impacting the overall decline in rental income in the current quarter are the
lower rental rates obtained on equipment lease extensions and remarketings
resulting after the initial lease term expires and due to the decrease in the
equipment portfolio. The recovery of the unsecured pre-petition claim of $4,965
for the quarter ended June 30, 1996 was the result of the receipt of the
Trustee's fifth distribution on the fully reserved unsecured pre-petition
receivable (for further discussion refer to note 6 to the financial statements).
Total costs and expenses remained constant between the three month periods
primarily as a result of lower depreciation expense in the current quarter
offset by a reversal of provision for doubtful accounts in the prior period.
Depreciation expense decreased $16,306 due to a large portion of the equipment
portfolio becoming fully depreciated and due to the significant reduction in the
overall equipment portfolio. The provision for doubtful accounts increased
$14,724 between the three month periods. In 1996, a provision of $6,744 was
created due to an increase in delinquent rents receivable, whereas in 1995, a
$7,980 reversal of provision for doubtful accounts was recognized due to
successful collection efforts on delinquent rents receivable. Management fees
expense decreased as a result of the reduction in rental income. General and
administrative expenses increased $3,528 or 19%. 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 realized a net loss of $45,874 and net income of $111,989 for
the six months ended June 30, 1996 and 1995, respectively. The Partnership
realized rental income of $61,790 and $238,031 for the six months ended June 30,
1996 and 1995, respectively. As discussed in the quarter analysis above, the
$48,880 or 28% of the 74% decrease in rental income between 1996 and 1995 can be
attributed to the adjustment in the second quarter of 1996 for an overaccrual of
rental income recognized in prior periods. The remaining reason for the decline
is due to the remarketing of equipment at lower rates and the overall decrease
in the equipment portfolio. As mentioned above, the recovery of the unsecured
pre-petition claim in the current period was the result of the receipt of the
fourth and fifth distributions from the Trustee in the total amount of $7,595
(see note 6).
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $21,222 or 15% in 1996 primarily as a result
of lower depreciation expense offset by an increase in the provision for
doubtful accounts. As discussed in the quarter analysis above, depreciation
expense decreased $33,043 or 32% between 1996 and 1995 due to a large portion of
the equipment portfolio becoming fully depreciated and due to the overall
reduction of the Partnership's equipment portfolio. The provision for doubtful
accounts increased in the current year due to an increase in delinquent rents
receivable. As discussed above, a reversal of provision for doubtful accounts
was generated in 1995 due to the successful collection efforts on delinquent
rents receivable. Management fees decreased $7,251 or 60% in relation to the
decrease in rental income. General and administrative expenses increased $5,193
or 16%. As discussed above, a major factor contributing to this increase is that
the salaries and expenses of the partnership accounting and reporting personnel
of the General Partner are being allocated over a diminishing number of
partnerships.
The Partnership recorded a net loss per Limited Partnership Unit of $2.87 and
net income of $2.55 for the quarters ended June 30, 1996 and 1995, respectively,
and a net loss of $1.88 and net income of $4.14 for the six months ended June
30, 1996 and 1995, respectively. The allocation for the six months ended June
30, 1996 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 second quarter of 1996. This cost recovery allocation is
required to maintain capital accounts consistent with the distribution provision
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 quarter ended June 30, 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 option would generate the most favorable results.
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. Future rental revenues
amount to $32,447 and are to be received during the current year.
During the fourth quarter of 1995, the General Partner announced its intentions
of winding down the operations of the Partnership. It is anticipated that
substantially all of the assets will be liquidated and the proceeds will be used
to settle all outstanding liabilities and make a final distribution during 1996.
The Partnership will not be terminated until the unsecured pre-petition claim
against CIS Corporation has been settled and the proceeds have been distributed
to the Partners.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
In the first six months of 1996, the Partnership's investing activities resulted
in equipment sales with a depreciated cost basis of $26,001, generating $29,501
in sales proceeds. The Partnership has no material capital expenditure
commitments and will not purchase equipment in the future as the Partnership has
reached the end if its reinvestment period and has announced its intentions of
liquidating the Partnership this year.
Cash distributions are currently halted in an effort to minimize cost and
accumulate cash in anticipation of a final distribution to the Partners once the
Partnership has been liquidated. The effects of inflation have not been
significant to the Partnership and are not expected to have any material impact
in 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-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1996
Lessee
Brylane, Incorporated
FAX International, Incorporated
Halliburton Company
Hughes Aircraft Company, Incorporated
Securities Industry Automation Corporation
Equipment Description Acquisition Price
Computer Peripherals $ 488,192
Processors & Upgrades 47,463
Other 142,390
----------------
$ 678,045
================
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
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-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: August 14, 1996
By: Arthur P. Beecher,
President