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 June 30, 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 June 30, 1999 and December 31, 1998 3 Statements of Operations Quarters Ended June 30, 1999 and 1998 and Six Months Ended June 30, 1999 and 1998 4 Statements of Cash Flows Six Months Ended June 30, 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) 6/30/99 12/31/98 ---------------- ---------------- Investment property, at cost (note 3): Computer equipment $ 2,649,680 $ 3,589,735 Less accumulated depreciation 1,958,575 2,575,703 ---------------- ---------------- Investment property, net 691,105 1,014,032 Cash and cash equivalents 283,692 403,150 Rents receivable, net (note 2) 12,325 5,483 Accounts receivable - affiliates 3,136 48,059 Other assets 1,729 6,917 ---------------- ---------------- Total assets $ 991,987 $ 1,477,641 ================ ================ Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 5) $ 55,116 $ 225,770 Accounts payable and accrued expenses - affiliates (note 4) 13,847 23,637 Accounts payable and accrued expenses 28,282 52,371 Unearned rental revenue 20,516 31,655 Long-term debt, less current portion (note 5) - 3,947 ---------------- ---------------- Total liabilities 117,761 337,380 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 653,438 637,502 Cumulative cash distributions (654,438) (638,502) ---------------- ---------------- - - ---------------- ---------------- Limited Partners (20,185 units): Capital contribution, net of offering costs 8,987,039 8,987,039 Cumulative net income 4,321,160 4,284,420 Cumulative cash distributions (12,433,973) (12,131,198) ---------------- ---------------- 874,226 1,140,261 ---------------- ---------------- Total partners' equity 874,226 1,140,261 ---------------- ---------------- Total liabilities and partners' equity $ 991,987 $ 1,477,641 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Operations (Unaudited) Quarters Ended Six Months Ended June 30, June 30, --------------------------------- ----------------------------------- 1999 1998 1999 1998 --------------------------------- ----------------------------------- Revenue: Rental income $ 175,193 $ 464,846 $ 437,755 $ 931,696 Interest income 2,301 2,998 5,480 5,904 Other income 16,249 - 16,249 - Net gain on sale of equipment 8,398 12,202 9,893 27,383 --------------- ------------- --------------- --------------- Total revenue 202,141 480,046 469,377 964,983 --------------- ------------- --------------- --------------- Costs and expenses: Depreciation 137,205 222,733 302,085 460,743 (Reversal of) provision for doubtful accounts (1,452) (10,854) (938) (2,999) Interest 1,892 14,392 6,328 33,127 Related party expenses (note 4): Management fees 13,480 33,751 31,305 68,373 General and administrative 35,967 57,181 77,921 111,407 --------------- ------------- --------------- --------------- Total costs and expenses 187,092 317,203 416,701 670,651 --------------- ------------- --------------- --------------- Net income $ 15,049 $ 162,843 $ 52,676 $ 294,332 =============== ============= =============== =============== Net income per Limited Partnership Unit $ 0.35 $ 7.67 $ 1.82 $ 13.79 =============== ============= =============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Cash Flows Six Months Ended June 30, 1999 and 1998 (Unaudited) 1999 1998 -------------- --------------- Cash flows from operating activities: Net income $ 52,676 $ 294,332 -------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 302,085 460,743 (Reversal of) provision for doubtful accounts (938) (2,999) Net gain on sale of equipment (9,893) (27,383) Net decrease (increase) in current assets 44,206 (105,886) Net increase (decrease) in current liabilities (45,018) 11,007 -------------- --------------- Total adjustments 290,442 335,482 -------------- --------------- Net cash provided by operating activities 343,118 629,814 -------------- --------------- Cash flows from investing activities: Proceeds from sales of investment property 30,736 94,250 -------------- --------------- Net cash provided by investing activities 30,736 94,250 -------------- --------------- Cash flows from financing activities: Principal payments on long-term debt (174,601) (372,615) Cash distributions to partners (318,711) (318,711) -------------- --------------- Net cash used in financing activities (493,312) (691,326) Net (decrease) increase in cash and cash equivalents (119,458) 32,738 Cash and cash equivalents at beginning of period 403,150 253,590 -------------- --------------- Cash and cash equivalents at end of period $ 283,692 $ 286,328 ============== =============== Supplemental cash flow information: Interest paid during the period $ 6,328 $ 33,127 ============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements Six Months Ended June 30, 1999 and June 30, 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 June 30, 1999 and December 31, 1998, the allowance for doubtful accounts included in rents receivable was $0 and $938, respectively. (3) Investment Property At June 30, 1999, the Partnership owned computer equipment with a depreciated cost basis of $691,105. 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 six months ended June 30 are as follows: 1999 1998 ---- ---- Management fees $ 31,305 $ 68,373 Reimbursable expenses paid 78,221 99,158 ------------ ------------ $ 109,526 $ 167,531 ============ ============ WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited) 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. 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 June 30, 1999 consists of four installment notes in the amount of $55,116. All loans are non-recourse and are collateralized by equipment on the respective leases with a total net book value of $127,673 and assignment of the related leases. Maturities on long-term debt are as follows: 1999 $ 51,169 2000 3,947 -------------- $ 55,116 ============== 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 and six months ended June 30, 1999 in comparison to the same periods ended June 30, 1998. The Partnership realized net income of $15,049 and $162,843 for the quarters ended June 30, 1999 and 1998, respectively. Rental income decreased $289,653 or 62% in 1999. The decrease in rental income between the two periods is due primarily to lower rental rates obtained on equipment lease extensions and remarketings resulting after the initial lease term expires and due to a net decrease in the overall size of the equipment portfolio. Other income is the result of the reduction of overstated liabilities recorded in prior periods. The decrease in net gain on the sale of equipment in the current quarter is primarily due to a smaller number of equipment sales. Total costs and expenses decreased $130,111 or 41% in 1999. The decrease in costs and expenses is mainly due to the $85,528 reduction in depreciation expense during the current quarter in comparison to the same period in 1998. The decline in depreciation expense is primarily due to a portion of the equipment portfolio becoming fully depreciated. For the quarters ended June 30, 1999 and 1998, the reversal of provision for doubtful accounts was $1,452 and $10,845, respectively. The reversal is a result of the successful collection efforts of delinquent rents receivable. Interest expense decreased due to the continued paydown of its existing long-term debt. Management fees decreased in correlation to the decline in rental income. General and administrative expenses decreased $21,214 as a result of our cost cutting efforts. The Partnership realized net income of $52,676 and $294,332 for the six months ended June 30, 1999 and 1998, respectively. The $493,941 or 53% decrease in rental income is attributed to lower rental rates obtained on equipment lease extensions and remarketings resulting after the initial lease term expires and due to a net decrease in the overall size of the equipment portfolio. Other income is the result of the reduction of overstated liabilities recorded in prior periods. The decrease in net gain on sale of equipment in 1999 is due to a smaller number of equipment sales carrying high net book values. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Total costs and expenses decreased $253,950 or 38% during the six month periods. The decrease in costs and expenses is mainly due to the $158,658 decline in depreciation expense which is the result of a net decrease in the overall size of the equipment portfolio. Management fees decreased between the six month periods in relation to the decline in rental income. The decline in interest expense is due to the continued paydown of its existing long-term debt. The Partnership recorded net income per Limited Partnership Unit of $0.35 and $7.67 for the quarters ended June 30, 1999 and 1998, respectively, and $1.82 and $13.79 for the six month periods ended June 30, 1999 and 1998, respectively. The allocation for the six months ended June 30, 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. Liquidity and Capital Resources For the quarter ended June 30, 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 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 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. Future rental revenues amount to $360,239 and are to be received over the next three years. 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 six months ended June 30 consisted of equipment sales with a depreciated cost basis of $98,106, generating $30,736 in proceeds. Included in equipment sales is a $77,264 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 included a paydown on long-term debt during 1999 of $174,601. The Partnership will payoff its remaining long-term debt of $55,116 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 June 30, 1999, the Partnership declared a cash distribution of $106,237, of which $5,312 was distributed to the General Partner and $100,925 was distributed to the Limited Partners. The distribution will be made on August 27, 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) June 30, 1999 Lessee American Hard Cider, Incorporated Direct Cable TV, Incorporated Evare, Limited Liability Corporation Faxnet, Incorporated George Melhado and Company Hughes Aircraft Corporation J. Walter Thompson, U.S.A., Incorporated JumboSports Incorporated The Internet Access Company, Incorporated USG Corporation Venturcom, Incorporated VIP Calling, Incorporated Equipment Description Acquisition Price Computer $ 409,777 Peripherals 1,195,782 Other 1,044,121 ---------------- $ 2,649,680 ================ 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: August 6, 1999 By: Arthur P. Beecher, President