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, 1999 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 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 III-D (A Massachusetts Limited Partnership) INDEX Page No. Part I. FINANCIAL INFORMATION Financial Statements Balance Sheets as of March 31, 1999 and December 31, 1998 3 Statements of Operations Quarters Ended March 31, 1999 and 1998 4 Statements of Cash Flows Quarters Ended March 31, 1999 and 1998 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) 3/31/99 12/31/98 ---------------- ---------------- Investment property, at cost (note 3): Computer equipment $ 3,461,593 $ 3,589,735 Less accumulated depreciation 2,613,841 2,575,703 ---------------- ---------------- Investment property, net 847,752 1,014,032 Cash and cash equivalents 324,133 403,150 Rents receivable, net (note 2) 26,871 5,483 Accounts receivable - affiliates 10,800 48,059 Other assets 4,323 6,917 ---------------- ---------------- Total assets $ 1,213,879 $ 1,477,641 ================ ================ Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 5) $ 117,926 $ 225,770 Accounts payable and accrued expenses - affiliates (note 4) 19,068 23,637 Accounts payable and accrued expenses 34,766 52,371 Unearned rental revenue 23,586 31,655 Long-term debt, less current portion (note 5) - 3,947 ---------------- ---------------- Total liabilities 195,346 337,380 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 645,470 637,502 Cumulative cash distributions (646,470) (638,502) ---------------- ---------------- - - ---------------- ---------------- Limited Partners (20,185 units): Capital contribution, net of offering costs 8,987,039 8,987,039 Cumulative net income 4,314,079 4,284,420 Cumulative cash distributions (12,282,585) (12,131,198) ---------------- ---------------- 1,018,533 1,140,261 ---------------- ---------------- Total partners' equity 1,018,533 1,140,261 ---------------- ---------------- Total liabilities and partners' equity $ 1,213,879 $ 1,477,641 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Operations Quarters Ended March 31, 1999 and 1998 (Unaudited) 1999 1998 --------------- --------------- Revenue: Rental income $ 262,561 $ 466,849 Interest income 3,180 2,906 Net gain on sale of equipment 1,495 15,181 --------------- --------------- Total revenue 267,236 484,936 --------------- --------------- Costs and expenses: Depreciation 164,880 238,010 Provision for doubtful accounts 514 7,855 Interest 4,436 18,735 Related party expenses (note 4): Management fees 17,825 34,707 General and administrative 41,954 54,140 --------------- --------------- Total costs and expenses 229,609 353,447 --------------- --------------- Net income $ 37,627 $ 131,489 =============== =============== Net income per Limited Partnership Unit $ 1.47 $ 6.12 =============== =============== 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, 1999 and 1998 (Unaudited) 1999 1998 -------------- --------------- Cash flows from operating activities: Net income $ 37,627 $ 131,489 -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 164,880 238,010 Provision for doubtful accounts 514 7,855 Net gain on sale of equipment (1,495) (15,181) Net decrease in current assets 17,951 22,803 Net (decrease) increase in current liabilities (30,243) 2,987 -------------- -------------- Total adjustments 151,607 256,474 -------------- -------------- Net cash provided by operating activities 189,234 387,963 -------------- -------------- Cash flows from investing activities: Proceeds from sales of investment property 2,895 47,349 -------------- -------------- Net cash provided by investing activities 2,895 47,349 -------------- -------------- Cash flows from financing activities: Principal payments on long-term debt (111,791) (194,909) Cash distributions to partners (159,355) (159,355) -------------- -------------- Net cash used in financing activities (271,146) (354,264) Net increase (decrease) in cash and cash equivalents (79,017) 81,048 Cash and cash equivalents at beginning of period 403,150 253,590 -------------- -------------- Cash and cash equivalents at end of period $ 324,133 $ 334,638 ============== ============== Supplemental cash flow information: Interest paid during the period $ 4,436 $ 18,735 ============== ============== 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, 1999 and March 31, 1998 (Unaudited) (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, 1998. (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, 1999 and December 31, 1998, the allowance for doubtful accounts included in rents receivable was $1,452 and $938, respectively. (3) Investment Property At March 31, 1999, the Partnership owned computer equipment with a depreciated cost basis of $847,752. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner. (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 March 31 are as follows: 1999 1998 ---- ---- Management fees $ 17,825 $ 34,707 Reimbursable expenses paid 42,871 44,768 ------------ ------------ $ 60,696 $ 79,475 ============ ============ WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements Quarters Ended March 31, 1999 and March 31, 1998 (Unaudited) Under the terms of the Partnership Agreement, the General Partner is 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. (5) Long-term Debt Long-term debt at March 31, 1999 consists of thirteen loans totaling $117,926. All loans are non-recourse and are collateralized by equipment on the respective leases with a total net book value of $263,381 and assignment of the related leases. Maturities on long-term debt are as follows: 1999 $ 113,980 2000 3,946 -------------- $ 117,926 ============== 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, 1999 in comparison to the quarter ended March 31, 1998. The Partnership realized net income of $37,627 and $131,489 for the quarters ended March 31, 1999 and 1998, respectively. Rental income decreased $204,288 or 44% in 1999. The decrease is primarily due to lower rental rates obtained on equipment lease extensions and remarketings resulting after the initial lease term expires. Interest income increased as a result of higher average short-term investment balances held during the current quarter. The decrease in net gain on sale of equipment is the result of fewer equipment sales occurring during the current quarter versus the first quarter of 1998. Total costs and expenses decreased $123,838 or 35% in 1999. Depreciation expense decreased due to a portion of the equipment potfolio becoming fully depreciated. Interest expense decreased due to continued paydown on long-term debt. Management fees decreased as a result of the decline in rental income. General and administrative expenses decreased $12,186 due to successful cost cutting efforts. The Partnership recorded net income per Limited Partnership Unit of $1.47 and $6.12 for the quarters ended March 31, 1999 and 1998, respectively. The allocation for the quarter ended March 31, 1999 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. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Liquidity and Capital Resources For the quarter ended March 31, 1999, 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. Rental income will begin 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 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 debt 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 through a reduction in the rate of cash distributions. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) The Partnership's investing activities for the quarter resulted in equipment sales with a depreciated cost basis of $13,272, generating $2,895 in proceeds. Included in equipment sales is a $11,873 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 financing activities also included a paydown on long-term debt during 1999 of $111,791. The Partnership will payoff its remaining long-term debt of $117,926 by 2000. 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, 1999, 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 28, 1999. 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, 1999 Lessees American Hard Cider, Incorporated Cerulean Technology, Incorporated Direct Cable TV, Incorporated Elron Software, Incorporated Evare, Limited Liability Corporation Faxnet, Incorporated George Melhado and Company Hughes Aircraft Corporation J. Walter Thompson, U.S.A., Incorporated The Internet Access Company, Incorporated USG Corporation VIP Calling, Incorporated Equipment Description Acquisition Price Computers $ 701,009 Peripherals 1,312,672 Other 1,447,912 ---------------- $ 3,461,593 ================ 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 13, 1999 By: Arthur P. Beecher, President