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 March 31, 2000 Commission File No. 2-95011 Wellesley Lease Income Limited Partnership III-D ------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Massachusetts 04-2850823 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 77 Franklin Street, 4th Floor, Boston, MA 02110 - -------------------------------------------------------------------------------- (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 III-D (A Massachusetts Limited Partnership) INDEX Page No. Part I. FINANCIAL INFORMATION Financial Statements Balance Sheets as of March 31, 2000 and December 31, 1999 3 Statements of Operations Quarters Ended March 31, 2000 and 1999 4 Statements of Cash Flows Quarters Ended March 31, 2000 and 1999 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 PART I. FINANCIAL INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Balance Sheets Assets ------ (Unaudited) (Audited) 3/31/00 12/31/99 -------------- -------------- Investment property, at cost (note 3): Computer equipment $ 940,503 $ 1,002,046 Less accumulated depreciation 787,486 793,493 -------------- -------------- Investment property, net 153,017 208,553 Cash and cash equivalents 375,023 421,949 Rents receivable, net (note 2) 3,084 3,701 Accounts receivable - affiliates 2,908 51,229 -------------- -------------- Total assets $ 534,032 $ 685,432 ============== ============== Liabilities and Partners' Equity -------------------------------- Liabilities: Current portion of long-term debt $ - $ 3,947 Accounts payable and accrued expenses-affiliates (note 4) 8,249 8,042 Accounts payable and accrued expenses 24,354 24,170 Unearned rental revenue - 7,188 -------------- -------------- Total liabilities 32,603 43,347 -------------- -------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 674,686 666,718 Cumulative cash distributions (675,686) (667,718) -------------- -------------- - - -------------- -------------- Limited Partners (20,185 units): Capital contribution, net of offering costs 8,987,039 8,987,039 Cumulative net income 4,352,063 4,341,331 Cumulative cash distribuitons (12,837,673) (12,686,285) -------------- -------------- 501,429 642,085 -------------- -------------- Total partners' equity 501,429 642,085 -------------- -------------- Total liabilities and partners' equity $ 534,032 $ 685,432 ============== ============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Operations Quarters Ended March 31, 2000 and 1999 (Unaudited) 2000 1999 -------------- -------------- Revenue: Rental income $ 75,236 $ 262,561 Interest income 3,999 3,180 Warrant income 6,852 - Net gain on sale of equipment - 1,495 -------------- -------------- Total revenue 86,087 267,236 -------------- -------------- Costs and expenses: Depreciation 46,811 164,880 Provision for doubtful accounts 23 514 Interest 43 4,436 Related party expenses (note 4): Management fees 5,016 17,825 General and administrative 15,494 41,954 -------------- -------------- Total costs and expenses 67,387 229,609 -------------- -------------- Net income $ 18,700 $ 37,627 ============== ============== Net income per Limited Partnership Unit $ .53 $ 1.47 ============== ============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Cash Flows Quarters Ended March 31, 2000 and 1999 (Unaudited) 2000 1999 -------------- -------------- Cash flows from operating activities: Net income $ 18,700 $ 37,627 -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 46,811 164,880 Provision for doubtful accounts 23 514 Net gain on sale of equipment - (1,495) Net decrease in current assets 48,915 17,951 Net (decrease) in current liabilities (6,797) (30,243) -------------- -------------- Total adjustments 88,952 151,607 -------------- -------------- Net cash provided by operating activities 107,652 189,234 -------------- -------------- Cash flows from investing activities: Proceeds from sales of investment property 8,725 2,895 -------------- -------------- Net cash provided by investing activities 8,725 2,895 -------------- -------------- Cash flows from financing activites: Principal payments on long-term debt (3,947) (111,791) Cash distributions to partners (159,356) (159,355) -------------- -------------- Net cash used in financing activities (163,303) (271,146) -------------- -------------- Net (decrease) in cash and cash equivalents (46,926) (79,017) Cash and cash equivalents at beginning of period 421,949 403,150 -------------- -------------- Cash and cash equivalents at end of period $ 375,023 $ 324,133 ============== ============== Supplemental cash flow information: Interest paid during the period $ 43 $ 4,436 ============== ============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements Quarters Ended March 31, 2000 and March 31, 1999 (1) Organization and Partnership Matters The foregoing financial statements of Wellesley Lease Income Limited Partnership III-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, 1999. (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 March 31, 2000 and December 31, 1999, the allowance for doubtful accounts included in rents receivable was $1,110 and $1,087, respectively. (3) Investment Property At March 31, 2000, the Partnership owned computer equipment with a depreciated cost basis of $153,017. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements (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 quarter ended March 31 are as follows: 2000 1999 ---- ---- Management fees $ 5,016 $ 17,825 Reimbursable expenses paid 19,089 42,871 ---------- ---------- $ 24,105 $ 60,696 ========== ========== Under the terms of the Partnership Agreement, the General Partner is entitled to 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. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 ended March 31, 2000 in comparison to the quarter ended March 31, 1999. The Partnership realized net income of $18,700 and $37,627 for the quarters ended March 31, 2000 and 1999, respectively. Rental income decreased $187,325 or 71% in 2000. The decrease is primarily due to a reduction in the overall size of the equipment portfolio. Interest income increased as a result of higher average short-term investment balances held during the current quarter. During the current quarter, the Partnership exercised its rights to redeem warrants which resulted in $6,852 of additional income. Total costs and expenses decreased $162,222 or 71% in 2000. Depreciation expense decreased due to a portion of the equipment portfolio becoming fully depreciated. Interest expense decreased due to payoff of long-term debt during the current quarter. Management fees decreased as a result of the decline in rental income. General and administrative expenses decreased $26,460 due to successful cost cutting efforts. The Partnership recorded net income per Limited Partnership Unit of $.53 and $1.47 for the quarters ended March 31, 2000 and 1999, respectively. The allocation for the quarter ended March 31, 2000 includes a cost recovery allocation of profit and loss among the General and Limited Partners. 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 quarter ended March 31, 2000, 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 sold. This decision is made upon analyzing which option generates the most favorable result. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Rental income will continue to decrease due to two factors. First, lower rates are obtained on 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. Second, 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 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 partnerhip'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. The Partnership's investing activities for the quarter resulted in equipment sales with a depreciated cost basis of $15,952, generating $8,725 in proceeds. Included in equipment sales in a $7,227 loss which was charged against the reserve, initially set up in a prior period to account for estimated losses on the ultimate disposition of equipment. The Partnership's activities also included a paydown on long-term debt during 2000 of $3,947. The Partnership has paid off all of its long-term debt. Cash distributions are currently at an annual level of 6% per Limited Partnership Unit, or $7.50 per Limited Partnership Unit on a quarterly basis. For the quarter ended March 31, 2000, the Partnership declared a cash distribution of $159,356, of which $7,968 was distributed to the General Partner and $151,388 was distributed to the Limited Partners. The distribution will be made on May 12, 2000. 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 III-D (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) March 31, 2000 Lessees American Hard Cider, Incorporated Evare, Limited Liability Corporation Faxnet, Incorporated George Melhado and Company Hughes Aircraft Corporation iBasis, Incorporated J. Walter Thompson, U.S.A., Incorporated USG Corporation PART II. OTHER INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 III-D (Registrant) By: Wellesley Leasing Partnership, its General Partner By: TLP Leasing Programs, Inc., one of its Corporate General Partners Date: May 8, 2000 By: Arthur P. Beecher President