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. 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
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
INDEX Page No.
<S> <C> <C>
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
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/96 12/31/95
<S> <C> <C>
Investment property, at cost (note 3):
Computer equipment $ 877,200 $ 1,322,322
Less accumulated depreciation 860,094 1,276,970
---------------- ----------------
Investment property, net 17,106 45,352
Cash and cash equivalents 171,369 290,241
Marketable securities (notes 2 and 5) 26,863 98,143
Sales receivable 425 -
Rents receivable, net (note 2) 26,278 43,205
Accounts receivable - affiliates, net (notes 2,4 and 6) 24,725 3,450
---------------- ----------------
Total assets $ 266,766 $ 480,391
================ ================
Liabilities and Partners' Equity
Liabilities:
Accounts payable and accrued expenses - affiliates (note 4) $ 4,890 $ 10,938
Accounts payable and accrued expenses 16,783 24,758
Unearned rental revenue 2,116 -
---------------- ----------------
Total liabilities 23,789 35,696
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 789,243 772,640
Cumulative cash distributions (790,153) (773,467)
Unrealized losses on marketable securities (note 5) (90) (173)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (25,363 units):
Capital contribution, net of offering costs 11,298,475 11,298,475
Cumulative net income 3,966,486 3,859,448
Cumulative cash distributions (15,013,120) (14,696,082)
Unrealized losses on marketable securities (note 5) (8,864) (17,146)
---------------- ----------------
242,977 444,695
---------------- ----------------
Total partners' equity 242,977 444,695
---------------- ----------------
Total liabilities and partners' equity $ 266,766 $ 480,391
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 19,327 $ 75,353 $ 99,019 $ 197,029
Interest income 2,657 5,950 5,931 14,139
Net gain on sale
of equipment 550 28,320 94,050 45,274
Recovery of unsecured
pre-petition claim (note 6) 16,602 98,848 25,397 98,848
------------ ------------ ------------ ------------
Total revenue 39,136 208,471 224,397 355,290
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation 13,661 36,343 27,321 74,900
(Reversal of) provision for
doubtful accounts 379 (24,160) 379 (48,160)
Interest - (434) - 1,852
Related party expenses (note 4):
Management fees 4,646 5,596 10,702 18,220
General and administrative 19,015 20,379 35,718 35,030
Net loss on sale of marketable
securities 26,636 - 26,636 -
------------ ------------ ------------ ------------
Total costs and expenses 64,337 37,724 100,756 81,842
------------ ------------ ------------ ------------
Net (loss) income $ (25,201) $ 170,747 $ 123,641 $ 273,448
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ (1.32) $ 6.25 $ 4.22 $ 8.82
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 123,641 $ 273,448
------------ -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 27,321 74,900
(Reversal of) provision for doubtful accounts 379 (48,160)
Net gain on sale of equipment (94,050) (45,274)
Net loss on sale of marketable securities 26,636 -
Net (increase) decrease in current assets (5,152) 16,383
Net decrease in current liabilities (11,907) (68,543)
------------ -------------
Total adjustments (56,773) (70,694)
------------ -------------
Net cash provided by operating activities 66,868 202,754
------------ -------------
Cash flows from investing activities:
Proceeds from sales of investment property 94,975 52,648
Proceeds from sale of marketable securities 53,009 -
------------ -------------
Net cash provided by investing activities 147,984 52,648
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt - (46,161)
Cash distributions to partners (333,724) (393,794)
------------ -------------
Net cash used in financing activities (333,724) (439,955)
------------ -------------
Net decrease in cash and cash equivalents (118,872) (184,553)
Cash and cash equivalents at beginning of period 290,241 571,038
------------ -------------
Cash and cash equivalents at end of period $ 171,369 $ 386,485
============ =============
Supplemental cash flow information:
Interest paid during the period $ - $ 2,929
============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(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
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 June 30, 1996 and December 31, 1995, the
allowance for doubtful accounts included in rents receivable was $16,331 and
$15,952, respectively. The allowance for doubtful accounts - affiliates was
$31,359 and $56,756 at June 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 14,327 shares 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 June 30, 1996, the Partnership owned computer equipment with a cost basis of
$366,593, subject to existing leases and equipment with a cost basis of $510,607
in inventory, awaiting re-lease or sale. All purchases of computer equipment are
subject to a 3% acquisition fee paid to the General Partner.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(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:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 10,702 $ 18,220
Reimbursable expenses paid 41,726 34,593
------------ ------------
$ 52,428 $ 52,813
============ ============
</TABLE>
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. At June 30, 1996, the difference between the
fair value and the cost basis of these securities is an unrealized loss of
$8,954.
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:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------- ------------------------
Cost Fair Cost Fair
Basis Value Basis Value
<S> <C> <C> <C> <C>
Investment in Continental Information
Systems Corporation Stock $ 35,817 $ 26,863 $115,462 $ 98,143
======== ======== ======== ========
</TABLE>
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 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 and April 19, 1996, respectively, the Partnership received
the fourth and fifth distributions from the Trustee with respect to the
unsecured pre-petition claim. The fourth and fifth distributions consisted of
cash proceeds of $8,795 and $16,602, respectively. Following the Trustee's fifth
distribution, the Partnership has a remaining unsecured pre-petition claim
balance of $31,359 as of June 30, 1996 (see note 7).
(7) Subsequent Events
On July 19, 1996, the Partnership received the sixth distribution from the
Trustee with respect to the unsecured pre-petition claim. The distribution
consisted of cash proceeds of $8,544 and 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 July 19, 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.
<PAGE>
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 six month periods ended June 30, 1996 compared to the same periods in 1995.
The Partnership realized a net loss of $25,201 and net income of $170,747 for
the quarters ended June 30, 1996 and 1995, respectively. Rental income decreased
$56,026 or 74% 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. 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 quarter ended June 30,
1996. Interest income decreased as a result of lower average short-term
investment balances held during the current quarter. The decrease in net gain on
sale of equipment is attributed to the fewer number of sales of equipment during
the second quarter of 1996. The recovery of the unsecured pre-petition claim of
$16,602 for the quarter ended June 30, 1996 was the result of the receipt of the
Trustee's fifth distribution on the fully reserved unsecured pre-petition
receivable (for further discussion refer to note 6 to the financial statements).
Total costs and expenses increased $26,613 or 71% during the current quarter
primarily as a result of the $26,636 net loss on the sale of marketable
securities recognized in the quarter ended June 30, 1996. In addition, the total
costs were lower in the prior quarter due to the $24,160 reversal of provision
for doubtful accounts in 1995, which effectively offset the current quarter
decrease in depreciation expense of $22,682, resulting from an increased portion
of the equipment portfolio being fully depreciated. During the second quarter of
1996, the Partnership recognized a provision for doubtful accounts of $379 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.
The Partnership realized net income of $123,641 and $237,448 for the six months
ended June 30, 1996 and 1995, respectively. The Partnership realized rental
income of $99,019 and $197,029 for the six months ended June 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, the
overall decrease in the equipment portfolio and the $39,975 adjustment made for
equipment that came off lease and was returned to inventory. Interest income
decreased in 1996 due to the lower average short-term investment balances held
during the first six months of 1996. The increase in net gain on sale of
equipment from the prior year is attributed to the larger number of sales of
fully depreciated equipment during the first quarter of 1996. The recovery of
the unsecured pre-petition claim of $25,397 and $98,848 for the six months ended
June 30, 1996 and 1995, respectively, was the result of the receipt of the
Trustee's distributions on the fully reserved unsecured pre-petition claim
receivable.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses increased $18,914 or 23% in comparison to the prior
period primarily as a result of the recognition of the $26,636 net loss on the
sale of marketable securities in the second quarter of 1996. As discussed above
in the quarter analysis, the total costs were unusually low in 1995 due to the
$48,160 reversal of provision for doubtful accounts for the six months ended
June 30, 1995. Depreciation expense between the six month period decreased
$47,579 due to an increased portion of the equipment portfolio being fully
depreciated. The prior year reversal of provision for doubtful accounts
effectively offset the current year decrease in depreciation expense. Management
fees decreased due to the reduction in rental income as mentioned in the quarter
analysis above. General and administrative expenses remained relatively constant
between the two six month periods.
The Partnership had a net loss and net income per Limited Partnership Unit of
$1.32 and $6.25 for the quarters ended June 30, 1996 and 1995, respectively, and
net income of $4.22 and $8.82 for the six months ended June 30, 1996 and 1995,
respectively. The allocation for the six months ended June 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 and second 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 six months ended June 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.
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. 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. Future rental revenues
amount to $48,591 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 1996.
The Partnership will not be terminated until the unsecured pre-petition claim
against CIS Corporation has been settled and any stock received, sold.
<PAGE>
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's investing activities for the current six months resulted in
sales of fully depreciated equipment, generating $94,975 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 31,858 shares of CISC
stock having a cost basis of $79,645, generating net sale proceeds in the amount
of $53,009.
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.
For the quarter ended June 30, 1996, the Partnership declared a cash
distribution of $133,489, of which $6,674 is allocated to the General Partner
and $126,815 is allocated to the Limited Partners. The distribution will be made
on August 29, 1996. The Partnership expects distributions to 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.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1996
Lessee
Allied Signal Corporation
FAX International, Incorporated
Halliburton Company
Hughes Aircraft Company, Incorporated
Lamson & Sessions, Incorporated
Metropolitan Edison Company, Incorporated
Time Warner, Incorporated
<TABLE>
<CAPTION>
Equipment Description Acquisition Price
<S> <C>
Computer Peripherals $ 561,408
Processors & Upgrades 4,386
Telecommunications 39,474
Other 271,932
----------------
$ 877,200
================
</TABLE>
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<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
<S> <C>
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
</TABLE>
<PAGE>
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: August 14, 1996
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000739710
<NAME> WELLESLEY LSE INCOME LTD PARTNERSHIP II-B FDS 6/30/96
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 171,369
<SECURITIES> 26,863
<RECEIVABLES> 99,118
<ALLOWANCES> 47,690
<INVENTORY> 0
<CURRENT-ASSETS> 249,660
<PP&E> 877,200
<DEPRECIATION> 860,094
<TOTAL-ASSETS> 266,766
<CURRENT-LIABILITIES> 23,789
<BONDS> 0
<COMMON> 11,299,475
0
0
<OTHER-SE> (11,056,498)
<TOTAL-LIABILITY-AND-EQUITY> 266,766
<SALES> 99,019
<TOTAL-REVENUES> 224,397
<CGS> 0
<TOTAL-COSTS> 10,702
<OTHER-EXPENSES> 89,675
<LOSS-PROVISION> 379
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 123,641
<INCOME-TAX> 0
<INCOME-CONTINUING> 123,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,641
<EPS-PRIMARY> 4.22
<EPS-DILUTED> 0
</TABLE>
