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, 1998 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) ntification 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 IV (A Massachusetts Limited Partnership) INDEX Page No. Part I. FINANCIAL INFORMATION Financial Statements Balance Sheets as of March 31, 1998 and December 31, 1997 3 Statements of Operations Quarters Ended March 31, 1998 and 1997 4 Statements of Cash Flows Quarters Ended March 31, 1998 and 1997 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 IV (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 3/31/98 12/31/97 ---------------- ---------------- Investment property, at cost (note 3): Computer equipment $ 2,964,287 $ 2,974,475 Less accumulated depreciation 2,463,295 2,341,847 ---------------- ---------------- Investment property, net 500,992 632,628 Cash and cash equivalents 90,208 166,324 Rents receivable, net (note 2) 20,901 22,796 Account receivable - affiliates 486 2,456 Other assets 30,279 35,622 ---------------- ---------------- Total assets $ 642,866 $ 859,826 ================ ================ Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 5) $ 160,645 $ 210,270 Accounts payable and accrued expenses - affiliates (note 4) 16,157 12,017 Accounts payable and accrued expenses 51,598 38,799 Unearned rental revenue 5,899 4,978 Long-term debt, less current portion (note 5) 41,780 66,109 ---------------- ---------------- Total liabilities 276,079 332,173 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 630,533 625,237 Cumulative cash distributions (631,533) (626,237) ---------------- ---------------- - - ---------------- ---------------- Limited Partners (27,226 units): Capital contribution, net of offering costs 12,148,459 12,148,459 Cumulative net income 540,086 564,650 Cumulative cash distributions (12,321,758) (12,185,456) ---------------- ---------------- 366,787 527,653 ---------------- ---------------- Total partners' equity 366,787 527,653 ---------------- ---------------- Total liabilities and partners' equity $ 642,866 $ 859,826 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Statements of Operations Quarters Ended March 31, 1998 and 1997 (Unaudited) 1998 1997 ----------------- ---------------- Revenue: Rental income $ 168,945 $ 254,428 Other income - 26,713 Interest income 1,188 1,379 Net gain on sale of equipment 2,079 157,008 Net loss on sale of marketable securities - (117) ----------------- ---------------- Total revenue 172,212 439,411 ----------------- ---------------- Costs and expenses: Depreciation 130,750 198,429 Interest 5,455 11,055 Related party expenses (note 4): Management fees 12,756 14,766 General and administrative 37,680 42,809 Provision for (reversal of) doubtful accounts 4,836 (23,790) ----------------- ---------------- Total costs and expenses 191,477 243,269 ----------------- ---------------- Net income (loss) $ (19,265) $ 196,142 ================= ================ Net income (loss) per Limited Partnership Unit $ (0.71) $ 7.07 ================= ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Statements of Cash Flows Quarters Ended March 31, 1998 and 1997 (Unaudited) 1998 1997 ----------------- ---------------- Cash flows from operating activities: Net income (loss) $ (19,265) $ 196,142 ----------------- ---------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 130,750 198,429 Provision for (reversal of) doubtful accounts 4,836 (23,790) Net gain on sale of equipment (2,079) (157,008) Net loss on sale of marketable securities - 117 Net (increase) decrease in current assets 4,372 (102,996) Net increase (decrease) in current liabilities 17,860 (227) ----------------- ---------------- Total adjustments 155,739 (85,475) ----------------- ---------------- Net cash provided by operating activities 136,474 110,667 ----------------- ---------------- Cash flows from investing activities: Proceeds from sale of investment property 2,965 162,513 Proceeds from sale of marketable securities - 633 ----------------- ---------------- Net cash provided by (used in) investing activities 2,965 163,146 ----------------- ---------------- Cash flows from financing activities: Proceeds from borrowings on long-term debt - 230,336 Principal payments on long-term debt (73,954) (291,205) Cash distributions to partners (141,601) (71,647) ----------------- ---------------- Net cash (used in) provided by financing activities (215,555) (132,516) ----------------- ---------------- Net increase (decrease) in cash and cash equivalents (76,116) 141,297 Cash and cash equivalents at beginning of period 166,324 36,022 ----------------- ---------------- Cash and cash equivalents at end of period $ 90,208 $ 177,319 ================= ================ Supplemental cash flow information: Interest paid during the period $ 5,455 $ 11,055 ================= ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Notes to Financial Statements Quarters Ended March 31, 1998 and March 31, 1997 (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, 1997. (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 March 31, 1998 and December 31, 1997, the allowance for doubtful accounts included in rents receivable was $30,821 and $25,985, respectively. At March 31, 1998 and December 31, 1997, the allowance for doubtful accounts included in sales receivable was $0. (3) Investment Property At March 31, 1998, the Partnership owned computer equipment with a depreciated cost basis of $500,992. (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: 1998 1997 ---- ---- Management fees $ 12,756 14,766 Reimbursable expenses paid 31,094 41,463 ------------ ------------ $ 43,850 $ 56,229 ============ ============ WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV (A Massachusetts Limited Partnership) Notes to Financial Statements Quarters Ended March 31, 1998 and March 31, 1997 (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. In addition, 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, 1998 consists of one loan in the amount of $21,347 from Pullman Capital Corporation with an interest rate of 8.00% and four loans totaling $181,078 from Liberty Bank, one bearing interest at 9.00% and the three remaining loans bearing interest at 8.25%. The total outstanding debt balance is collateralized by equipment with a net book value of $411,282, and assignment of the related leases. Maturities of long-term debt are as follows: 1998 $ 136,316 1999 66,109 -------------- $ 202,425 ============== 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 ended March 31, 1998 in comparison to the quarter ended March 31, 1997. The Partnership realized net income (loss) of $(19,265) and $196,142 for the quarters ended March 31, 1998 and 1997, respectively. Rental income decreased $85,483 or 34% between the three month periods. The decrease is primarily due to lower rental rates generated on equipment lease extensions and remarketings resulting after the initial lease term expires, and due to a decrease in the size of the equipment portfolio. Other income is the result of the reduction of overstated liabilities recorded in prior periods. Interest income decreased as a result of lower average short-term investment balances held during the current quarter. The $2,079 net gain on sale of equipment recognized in the current quarter is the result of sales of equipment carrying low net book values. The net loss on sale of marketable securities in 1997 reflects the below-cost sale of Continental Information Systems Corporation stock. The stock had been received from the Trustee of the Liquidating Estate of CIS Corporation (the "Estate"), the former ultimate parent company of the General Partner, as part of a settlement of certain outstanding issues between the Partnership and the Estate. Total costs and expenses decreased $51,792 or 21% between the three month periods. The most significant factor impacting the decrease is the current quarter reduction in depreciation expense. Depreciation expense decreased due to a portion of the equipment portfolio becoming fully depreciated and due to a reduction in the size of the equipment portfolio. Interest expense decreased $5,600 due to the continued paydown of long-term debt. Management fees decreased with the decline in rental income on operating leases. During the first quarter of 1997, the Partnership reversed a provision for doubtful accounts in the amount of $23,790 due to successful collection efforts on delinquent rents receivable. The Partnership recorded net income (loss) per Limited Partnership Unit of $(0.71) and $7.07 for the quarters ended March 31, 1998 and 1997, respectively. The allocation for the quarter ended March 31, 1998 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 INCOME LIMITED PARTNERSHIP IV (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, 1998, rental revenue generated from operating leases and proceeds from the sale of investment property 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 has continued to decrease due to two factors. First, lower rates are obtained on 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. 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 a reduction in the rate of cash distributions. The Partnership's investing activities resulted in sales of equipment with a depreciated cost basis of $885, generating $2,965 in proceeds. Included in equipment sales is a $553 loss. The Partnership will not purchase equipment in the future as the Partnership has reached the end of its reinvestment period. The Partnership's activities included a paydown on long-term debt of $73,954. The Partnership will payoff its remaining long-term debt of $202,425 in 1999. Total debt assumed by the Partnership from inception is $14,500,441, for a total leverage of 43%. Cash distributions are currently at an annual level of 4% per Limited Partnership Unit or $5.00 per Limited Partnership Unit on a quarterly basis. 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 IV (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) March 31, 1998 Lessee Carr Separations, Incorporated Chrysler Corporation Cincinnati Gas & Electric Company Coulter Corporation Cybersmith, Incorporated H.J. Meyer Company, Incorporated Hughes Aircraft Company, Incorporated Internet Access Company, Incorporated J. Walter Thompson Company JumboSports, Incorporated ON Technology Corporation Sero Company, Incorporated Equipment Description Acquisition Price - --------------------- ----------------- Computer peripherals $ 1,300,764 Processors & upgrades 803,108 Telecommunications 89,234 Other 771,181 ---------------- $ 2,964,287 ================ 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: May 12, 1998 By: Arthur P. Beecher, President