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. 33-18859 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (Exact name of registrant as specified in its charter) Massachusetts 04-2985041 (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 IV (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 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 IV (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 6/30/96 12/31/95 Investment property, at cost (note 3): Computer equipment $ 5,914,285 $ 7,388,216 Less accumulated depreciation 4,505,539 5,674,559 ---------------- ---------------- Investment property, net 1,408,746 1,713,657 Cash and cash equivalents 143,305 336,360 Rents receivable, net (note 2) 78,070 125,765 Account receivable - affiliates (note 4) 1,940 43,054 Sales receivable, net (note 2) - 16,069 Marketable securities (note 7) 4,097 4,644 ---------------- ---------------- Total assets $ 1,636,158 $ 2,239,549 ================ ================ Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 6) $ 556,258 $ 491,254 Notes payable - affiliate (notes 4 and 5) 124,147 - Accounts payable and accrued expenses - affiliates (note 4) 104,124 420,457 Accounts payable and accrued expenses 246,796 237,953 Unearned rental revenue 15,970 27,685 Long-term debt, less current portion (note 6) 322,987 469,249 ---------------- ---------------- Total liabilities 1,370,282 1,646,598 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 479,530 476,748 Cumulative cash distributions (602,743) (588,414) Unrealized losses on marketable securities (note 7) (14) (8) ---------------- ---------------- (122,227) (110,674) ---------------- ---------------- Limited Partners (27,226 units): Capital contribution, net of offering costs 12,148,459 12,148,459 Cumulative net loss (288,232) (245,511) Cumulative cash distributions (11,470,772) (11,198,512) Unrealized losses on marketable securities (note 7) (1,352) (811) ---------------- ---------------- 388,103 703,625 ---------------- ---------------- Total partners' equity 265,876 592,951 ---------------- ---------------- Total liabilities and partners' equity $ 1,636,158 $ 2,239,549 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Statements of Operations (Unaudited) Quarters Ended Six Months Ended June 30, June 30, -------------------------------- ---------------------------------- 1996 1995 1996 1995 -------------------------------- ---------------------------------- Revenue: Rental income $ 375,727 $ 430,266 $ 832,863 $ 897,719 Interest income 1,306 4,368 2,755 14,844 Net gain on sale of equipment 2,081 3,336 3,221 1,516 Recovery of unsecured pre-petition claim - 4,610 - 4,610 ------------- -------------- -------------- --------------- Total revenue 379,114 442,580 838,839 918,689 ------------- -------------- -------------- --------------- Costs and expenses: Depreciation 281,337 413,345 684,446 807,305 Interest 22,854 10,447 46,203 23,011 Related party expenses (note 4): Management fees 36,936 23,693 64,957 52,097 General and administrative 40,302 31,571 76,978 63,700 Provision for doubtful accounts 6,194 566 6,194 3,666 ------------- -------------- -------------- --------------- Total costs and expenses 387,623 479,622 878,778 949,779 ------------- -------------- -------------- --------------- Net loss $ (8,509) $ (37,042) $ (39,939) $ (31,090) ============= ============== ============== =============== Net loss per Limited Partnership Unit $ (0.39) $ (1.61) $ (1.57) $ (2.57) ============= ============== ============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (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 $ (39,939) $ (31,090) -------------- --------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 684,446 807,305 Provision for doubtful accounts 6,194 3,666 Net gain on sale of equipment (3,221) (1,516) Net decrease in current assets 98,684 61,818 Net decrease in current liabilities (319,205) (80,287) -------------- --------------- Total adjustments 466,898 790,986 -------------- --------------- Net cash provided by operating activities 426,959 759,896 -------------- --------------- Cash flows from investing activities: Purchase of investment property (506,622) (899,234) Proceeds from sales of investment property 130,308 224,650 -------------- --------------- Net cash used in investing activities (376,314) (674,584) -------------- --------------- Cash flows from financing activities: Proceeds from borrowing on notes payable 124,147 - Proceeds from borrowing on long-term debt - 344,520 Principal payments on long-term debt (81,258) (181,903) Cash distributions to partners (286,589) (630,496) -------------- --------------- Net cash used in financing activities (243,700) (467,879) -------------- --------------- Net decrease in cash and cash equivalents (193,055) (382,567) Cash and cash equivalents at beginning of period 336,360 843,110 -------------- --------------- Cash and cash equivalents at end of period $ 143,305 $ 460,543 ============== =============== Supplemental cash flow information: Interest paid during the period $ 40,324 $ 24,088 ============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (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 IV (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 June 30, 1996 and December 31, 1995, the allowance for doubtful accounts included in rents receivable was $34,889, respectively. The allowance for doubtful accounts included in sales receivable was $11,100 and $4,906 at June 30, 1996 and December 31, 1995, respectively. (3) Investment Property At June 30, 1996, the Partnership owned computer equipment with a cost basis of $4,965,441, subject to existing leases and equipment with a cost basis of $948,844 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 IV (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 ---- ---- Equipment acquisition fees $ 14,756 $ 26,191 Management fees 64,957 52,097 Reimbursable expenses paid 82,964 62,211 ------------ ------------ $ 162,677 $ 140,499 ============ ============ 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. The Partnership reimburses the General Partner and its affiliates for certain expenses incurred by them in connection with the operation of the Partnership. (5) Notes Payable - Affiliate Notes payable - affiliate at June 30, 1996, consists of three non-recourse promissory notes payable to TLP Leasing Programs, Inc. in the total amount of $124,147, bearing interest at the rate of 8.75%. TLP Leasing Program, Inc. is one of the corporate general partners of Wellesley Leasing Partnership, the General Partner of the Partnership. The notes payable matures in 1996. (6) Long-term Debt Long-term debt at June 30, 1996 consisted of two loans totaling $18,070 from Randolph Computer Company, each bearing interest at 6.00%, one loan in the amount of $219,480 from Pioneer Bank and Trust Company, bearing interest at 8.15%, two loans totaling $393,738 from Pullman Capital Corporation, each bearing interest at 8.00%, and three loans totaling $247,957 from Liberty Bank, each bearing interest at 8.125%. The total outstanding debt balance is collateralized by equipment with a net book value of $1,100,614, and assignment of the related leases. The annual maturities of long-term debt for the next three years are as follows: Year Ending December 31, 1996 $ 288,071 1997 437,438 1998 153,736 ------------- $ 879,245 ============= WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Notes to Financial Statements For the Six Months Ended June 30, 1996 and June 30, 1995 (Unaudited) (7) 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 $1,366. 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 $ 5,463 $ 4,097 $ 5,463 $ 4,644 ======= ======= ======= ======= WELLESLEY INCOME LIMITED PARTNERSHIP IV (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 month periods ended June 30, 1996 compared to the same periods in 1995. The Partnership realized a net loss of $8,509 and $37,042 for the three months ended June 30, 1996 and 1995, respectively. Rental income decreased by $54,539 or 13% between the three month periods. The decrease is primarily due 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. Interest income decreased as result of lower average short-term investment balances held during the current three month period. The recovery of the unsecured pre-petition claim for the quarter ended June 30, 1995, was the result of the establishment of the carrying value of the stock received in the December 27, 1994 distribution from the Trustee of the Liquidating Estate of CIS Corporation, et al. The receivables associated with the stock settlement had been fully reserved in a prior year; accordingly, the Partnership was able to show a recovery on those receivables as of June 30, 1995 at which time an objective stock value could be determined due to the stock's trading activities. Total costs and expenses decreased $91,999 or 19% between the three month periods. The decrease in costs and expenses is primarily the result of lower depreciation expense. The decrease in depreciation expense of $132,008 or 32% is due to a large portion of the equipment portfolio having become fully depreciated and a net reduction in the overall equipment portfolio. Interest expense increased significantly as a result of the current quarter receipt of the notes payable - affiliate and the continued paydown of the existing debt. Management fees increased $13,243 or 56% due to the increased collection of delinquent rent receivables in the current quarter. General and administrative expenses increased $8,731 or 28% in the current quarter. A major factor contributing to the 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. A provision for doubtful accounts of $6,194 was established to reserve against delinquent rents receivable in the current quarter. The Partnership realized a net loss of $39,939 and $31,090 for the six month periods ended June 30, 1996 and 1995, respectively. Rental income decreased $64,856 or 7%. As discussed in the quarter analysis above, the decrease in rental income is primarily due to lower rental rates obtained on equipment lease extensions and remarketings and due to a net reduction in the overall equipment portfolio. Interest income decreased significantly between the six month periods as a result of lower average short-term balances held during the current six month period. Equipment acquisitions totaled $506,622 in the current year, reducing the cash balance held by the Partnership. As mentioned above, the recovery of the unsecured pre-petition claim in 1995 was the result of the establishment of the carrying value of the stock received in the December 27, 1994 distribution from the Trustee of the Liquidating Estate of CIS Corporation, et al. The receivables associated with the stock settlement had been fully reserved in a prior year; accordingly, the Partnership was able to show a recovery on those receivables as of June 30, 1995 at which time an objective stock value could be determined due to the stock's trading activities. WELLESLEY INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Total costs and expenses decreased $71,001 or 7% between the six month periods. The decrease in costs and expenses is primarily the result of lower depreciation expense. As discussed above, the decrease in depreciation expense of $122,859 or 15% is due to a large portion of the equipment portfolio becoming fully depreciated and a net reduction in the overall equipment portfolio. Interest expense increased significantly due to the Partnership's receipt of the $124,147 notes payable - affiliate in the second quarter of 1996 and the continued paydown of its existing long-term debt. As discussed in the quarter analysis above, the Partnership established a $6,194 provision for doubtful accounts in 1996 to reserve against delinquent rents receivable. Management fees increased $12,860 or 25% due to the increased collection of delinquent rent receivables in 1996. General and administrative expenses increased $13,278 or 21% in the current quarter as the 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 recorded a net loss per Limited Partnership Unit of $0.39 and $1.61 for the quarters ended June 30, 1996 and 1995, respectively, and a net loss of $1.57 and $2.57 for the six months ended June 30, 1996 and 1995, respectively. The allocation for the six months ended June 30, 1996 and 1995, respectively, 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. 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 six months ended June 30, 1996, rental revenue generated from operating leases was the primary source 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 options 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 expiration of the original leases. 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. This decrease however, should not affect the Partnership's ability to meet its future cash requirements, including its long-term debt and notes payable - affiliate 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 a reduction in the rate of cash distributions. Future rental revenues amount to $2,328,721 and are to be received over the next six years. WELLESLEY INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) The Partnership's investing activities resulted in equipment purchases of $506,622 and sales of equipment with a depreciated cost basis of $127,087, generating $130,308 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. The Partnership's financing activities during the quarter resulted in the paydown on long-term debt of $81,258. Such long-term debt bears interest rates ranging from 6.00% to 8.15% with installments to be paid monthly. Total debt assumed by the Partnership from inception is $14,270,105, for a total leverage of 43%. The Partnership also received $124,147 in cash proceeds from the receipt of three notes payable - affiliate. The notes payable each bear interest at 8.75% and mature in 1996. 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 June 30, 1996, the Partnership declared a cash distribution of $71,647, of which $3,582 was allocated to the General Partner and $68,065 was allocated to the Limited Partners. The distribution will be made on August 29, 1996. The Partnership's distribution rate dropped significantly in 1996 from those paid in 1995, due to the large amount of equipment purchases in 1996, for which there existed firm purchase commitments in 1995. Since the Partnership's reinvestment period ended on December 31, 1995, the General Partner made a concerted effort to purchase as many equipment leases as possible to sustain the Partnership in future years. The effort resulted in significant equipment lease acquisitions with a resulting reduction in cash available for distribution purposes. All future cash received will be used to cover operating expenses and to make cash distributions to the Partners. 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 IV (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) June 30, 1996 Lessee American Freightways, Incorporated American Telephone and Telegraph Company, Incorporated Bassin Distributors, Incorporated Blue Cross of Western New York Burroughs Welcome Company, Incorporated Carr Separations, Incorporated Case Corporation Chrysler Corporation Cincinnati Gas & Electric Company Comdisco, Incorporated Coulter Corporation Cybersmith, Incorporated Dave's Custom Caps Delphi Internet, Incorporated FAX International, Incorporated Halliburton Company H.J. Meyer Company, Incorporated Hughes Aircraft Company, Incorporated Internet Access Company, Incorporated J. Walter Thompson Company Mastercard, Incorporated ON Technology Corporation Sero Company, Incorporated Sports & Recreation, Incorporated Equipment Description Acquisition Price Computer peripherals $ 2,602,285 Processors & upgrades 1,596,857 Telecommunications 414,000 Other 1,301,143 ---------------- $ 5,914,285 ================ PART II. OTHER INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (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 IV (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