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 September 30, 1996 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, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
September 30, 1996 and 1995 and For the Nine Months Ended
September 30, 1996 and 1995 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1996 and 1995 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)
9/30/96 12/31/95
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 817,877 $ 1,322,322
Less accumulated depreciation 812,955 1,276,970
---------------- ----------------
Investment property, net 4,922 45,352
Cash and cash equivalents 134,381 290,241
Marketable securities (notes 2 and 5) - 98,143
Rents receivable, net (note 2) 11,500 43,205
Accounts receivable - affiliates, net (notes 2,4 and 6) - 3,450
---------------- ----------------
Total assets $ 150,803 $ 480,391
================ ================
Liabilities and Partners' Equity
Liabilities:
Accounts payable and accrued expenses - affiliates (note 4) $ 6,637 $ 10,938
Accounts payable and accrued expenses 31,666 24,758
---------------- ----------------
Total liabilities 38,303 35,696
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 795,827 772,640
Cumulative cash distributions (796,827) (773,467)
Unrealized losses on marketable securities (note 5) - (173)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (25,363 units):
Capital contribution, net of offering costs 11,298,475 11,298,475
Cumulative net income 3,953,960 3,859,448
Cumulative cash distributions (15,139,935) (14,696,082)
Unrealized losses on marketable securities (note 5) - (17,146)
---------------- ----------------
112,500 444,695
---------------- ----------------
Total partners' equity 112,500 444,695
---------------- ----------------
Total liabilities and partners' equity $ 150,803 $ 480,391
================ ================
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,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
Revenue:
Rental income $ 14,228 $ 89,721 $ 113,247 $ 286,750
Interest income 1,880 5,511 7,811 19,650
Net gain on sale
of equipment 5,663 573 99,713 45,847
Recovery of net unsecured
pre-petition claim (note 6) 8,974 150,631 34,371 249,479
------------ ------------ ------------ ------------
Total revenue 30,745 246,436 255,142 601,726
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation - 33,962 27,321 108,862
Provision for (reversal of)
doubtful accounts 1,786 - 2,165 (48,160)
Interest - 132 - 1,984
Related party expenses (note 4):
Management fees 3,331 4,737 14,033 22,957
General and administrative 23,410 16,083 59,128 51,113
Net loss on sale of
marketable securities 8,160 - 34,796 -
------------ ------------ ------------ ------------
Total costs and expenses 36,687 54,914 137,443 136,756
------------ ------------ ------------ ------------
Net (loss) income $ (5,942) $ 191,522 $ 117,699 $ 464,970
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ (0.50) $ 7.22 $ 3.72 $ 16.04
============ ============ ============ ============
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, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 117,699 $ 464,970
------------ -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 27,321 108,862
Provision for doubtful accounts 2,165 (48,160)
Net gain on sale of equipment (99,713) (45,847)
Net loss on sale of marketable securities 34,796 -
Net decrease (increase) in current assets 32,990 (14,526)
Net increase (decrease) in current liabilities 2,607 (64,777)
------------ -------------
Total adjustments 166 (64,448)
------------ -------------
Net cash provided by operating activities 117,865 400,522
------------ -------------
Cash flows from investing activities:
Proceeds from sales of investment property 112,822 52,947
Proceeds from sale of marketable securities 80,666 -
------------ -------------
Net cash provided by investing activities 193,488 52,947
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt - (58,821)
Cash distributions to partners (467,213) (558,986)
------------ -------------
Net cash used in financing activities (467,213) (617,807)
------------ -------------
Net decrease in cash and cash equivalents (155,860) (164,338)
Cash and cash equivalents at beginning of period 290,241 571,038
------------ -------------
Cash and cash equivalents at end of period $ 134,381 $ 406,700
============ =============
Supplemental cash flow information:
Interest paid during the period $ - $ 3,061
============ =============
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, 1996 and September 30, 1995
(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, 1995.
(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, 1996 and December 31, 1995,
the allowance for doubtful accounts included in rents receivable was $18,117 and
$15,952, respectively. The allowance for doubtful accounts - affiliates was
$22,385 and $56,756 at September 30, 1996 and December 31, 1995, respectively,
both of which pertained to the unsecured pre-petition claim balance.
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 ("CISC")
received by the Partnership in the distributions made December 27, 1994, July
20, 1995 and October 20, 1995 by the Trustee of the Liquidating Estate of CIS
Corporation, et al ("the Trustee"), with respect to the outstanding 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).
(3) Investment Property
At September 30, 1996, the Partnership owned computer equipment with a cost
basis of $251,073, subject to existing leases and equipment with a cost basis of
$566,804 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
For the Nine Months Ended September 30, 1996 and September 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 nine months ended
September 30, 1996 and 1995 are as follows:
1996 1995
---- ----
Management fees $ 14,033 $ 22,957
Reimbursable expenses paid 57,002 48,146
------------ ------------
$ 71,035 $ 71,103
============ ============
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. 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.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at September 30,
1996 and December 31, 1995, respectively, are as follows:
September 30, 1996 December 31, 1995
------------------------- ------------------------
Cost Fair Cost Fair
Basis Value Basis Value
Investment in Continental Information
Systems Corporation Stock $ - $ - $115,462 $ 98,143
=========== =========== ======== ========
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 30, 1995
(Unaudited)
As was discussed in note 2, Marketable Securities, the Partnership received
stock in CISC as part of the December 27, 1994, July 20, 1995 and October 20,
1995 distributions from the Trustee, with respect to the outstanding unsecured
pre-petition claim, which 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.
(6) Bankruptcy of Continental Information Systems Corporation
On January 19, 1996, April 19, 1996 and July 19, 1996, respectively, the
Partnership received the fourth, fifth and sixth distributions from the Trustee
of the Liquidating Estate, et al ("the Trustee"), with respect to the unsecured
pre-petition claim. The fourth, fifth and sixth distributions consisted of cash
proceeds of $8,795, $16,602 and $8,544, respectively. The sixth distribution
also included 172 shares of common stock in CISC. Following the Trustee's sixth
distribution, the Partnership has a remaining unsecured pre-petition claim
balance of $22,385 as of September 30, 1996 (see note 7).
(7) Subsequent Events
On October 21, 1996, the Partnership received the seventh distribution from the
Trustee with respect to the unsecured pre-petition claim. The distribution
consisted of cash proceeds of $11,971. Following the Trustee's seventh
distribution, the Partnership has a remaining unsecured pre-petition claim
balance of $10,414 as of October 21, 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 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 month periods ended September 30, 1996 compared to the same periods in
1995.
The Partnership realized a net loss of $5,942 and net income of $191,522 for the
quarters ended September 30, 1996 and 1995, respectively. Rental income
decreased $75,493 or 84% primarily 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 decreased as a result of lower average short-term
investment balances held during the current quarter. The increase in net gain on
sale of equipment between 1995 and 1996 can be attributed to an increase in
equipment sales. The recovery of the unsecured pre-petition claim of $8,974 for
the quarter ended September 30, 1996 was the result of the receipt of the
Trustee's sixth distribution on the fully reserved unsecured pre-petition
receivable (for further discussion refer to note 6 to the financial statements).
Total costs and expenses decreased $18,227 or 33% during the current quarter.
Depreciation expense decreased due to a large portion of the equipment becoming
fully depreciated. Included in depreciation expense for the quarter ended
September 30, 1996 is a reversal of a provision for estimated losses on the
ultimate disposition of equipment. During the third quarter of 1996, the
Partnership recognized a provision for doubtful accounts of $1,786 for
delinquent rents receivable. Management fees decreased as a result of the
decline in rental income. However, because management fees paid are a function
of rental receipts received, the large reversal of rental income of $39,975, as
discussed above, had no impact on management fee expense. General and
administrative expenses increased $7,327 or 46% due to an increase in the
allocable salaries of the partnership accounting and reporting personnel of the
General Partner during the current quarter. The net loss on sale of marketable
securities reflects the current quarter sale of stock that had been received
from the Trustee.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership realized net income of $117,699 and $464,970 for the nine months
ended September 30, 1996 and 1995, respectively. The Partnership realized rental
income of $113,247 and $286,750 for the nine months ended September 30, 1996 and
1995, respectively. As discussed above in the quarter analysis, the decrease in
rental income can be attributed to the re-lease of equipment at lower rates and
the overall decrease in the equipment portfolio. Another reason for the
significant decrease in rental income can be attributed to equipment being
returned to inventory that was previously on lease to Time Warner, Incorporated.
The equipment was returned to inventory on January 31, 1996, causing a $39,975
adjustment to rental income for the nine months ended September 30, 1996.
Interest income decreased between 1995 and 1996 due to the lower average
short-term investment balances held during the first nine months of 1996. The
increase in net gain on sale of equipment between 1995 and 1996 can be
attributed to an increase in equipment sales, as stated above. The recovery of
the unsecured pre-petition claim of $34,371 and $249,479 for the nine months
ended September 30, 1996 and 1995, respectively, was the result of the receipt
of the Trustee's distributions on the fully reserved unsecured pre-petition
receivable (for further discussion refer to note 6 to the financial statements).
Total costs and expenses increased slightly between the nine month periods. As
discussed in the quarter analysis above, depreciation expense decreased $81,541
or 75% 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. Another reason for the decrease in depreciation expense can
be attributed to the reversal of a provision for estimated losses on the
ultimate disposition of equipment. The provision for doubtful accounts increased
in the current year due to an increase in delinquent rents receivable.
Management fees decreased due to the decline in rental income. General and
administrative expenses increased $8,015 or 16% due to an increase in the
allocable salaries of the partnership accounting and reporting personnel of the
General Partner during the current period. The net loss on sale of marketable
securities reflects the second and third quarter sale of stock that had been
received from the Trustee.
The Partnership had a net loss and net income per Limited Partnership Unit of
$0.50 and $7.22 for the quarters ended September 30, 1996 and 1995,
respectively, and net income of $3.72 and $16.04 for the nine months ended
September 30, 1996 and 1995, respectively. The allocation for the nine months
ended September 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 first, second and third quarters of 1996.
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 nine months ended September 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.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(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. 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. 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 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 $18,552 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 early
in 1997. The Partnership will not be terminated until the unsecured pre-petition
claim against CIS Corporation has been settled and any stock received, sold.
The Partnership's investing activities for the current nine months resulted in
sales of fully depreciated equipment, generating $112,822 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 of its
reinvestment period and has announced its intentions of winding down the
operations of the Partnership. The Partnership also sold 46,185 shares of CISC
stock having a cost basis of $115,462, generating net sale proceeds in the
amount of $80,666.
Cash distributions are currently at an annual level of 2% per Limited
Partnership Unit, or $2.50 per Limited Partnership Unit on a quarterly basis.
For the quarter ended September 30, 1996, the Partnership declared a cash
distribution of $66,745, of which $3,337 is allocated to the General Partner and
$63,408 is allocated to the Limited Partners. The distribution will be made on
November 27, 1996. The Partnership expects distributions to be more volatile as
its operations are winding down. 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 II-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1996
Lessee
Allied Signal Corporation
FAX International, Incorporated
Lamson & Sessions, Incorporated
Equipment Description Acquisition Price
Computer Peripherals $ 523,441
Processors & Upgrades 4,089
Telecommunications 36,805
Other 253,542
----------------
$ 817,877
================
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
SIGNATURES
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 II-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: November 14, 1996
By: Arthur P. Beecher,
President