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 September 30, 1995 Commission File No. 2-95011
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(Exact name of registrant as specified in its charter)
Massachusetts 04-2846627
(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 13
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<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
<S> <C> <C>
Financial Statements
Balance Sheets as of September 30, 1995 and December 31, 1994 3
Statements of Operations For the Quarters Ended
September 30, 1995 and 1994 and For the Nine Months
Ended September 30, 1995 and 1994 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1995 and 1994 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 10
Computer Equipment Portfolio 11
Part II. OTHER INFORMATION
Items 1 - 6 12
Signature 13
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<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/95 12/31/94
Investment property, at cost (note 3):
<S> <C> <C>
Computer equipment $ 1,710,632 1,779,340
Less accumulated depreciation 1,602,652 1,518,715
--------- ---------
Investment property, net 107,980 260,625
Cash and cash equivalents 78,277 75,704
Marketable securities (notes 2 and 6) 9,457 -
Rents receivable (note 2) 28,663 8,633
Accounts receivable - affiliates, net (notes 2 and 4) - -
- -
Total assets $ 224,377 $ 344,962
= ======= = =======
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 3,482 $ 34,018
Accounts payable and accrued expenses - affiliates (note 4) 18,133 25,608
Accounts payable and accrued expenses 42,088 118,063
Distribution payable 1,646 -
Unearned rental revenue - 19,148
----- ------
Total liabilities 65,349 196,837
------ -------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 655,822 643,610
Cumulative cash distributions (654,862) (646,632)
-------- --------
1,960 (2,022)
----- ------
Limited Partners (25,020 Units):
Capital contribution, net of
offering costs 11,139,998 11,139,998
Cumulative net income 1,460,567 1,296,220
Cumulative cash distributions (12,442,446) (12,286,071)
----------- -----------
158,119 150,147
------- -------
Unrealized losses on marketable securities (note 6) (1,051) -
------ -------
Total partners' equity 159,028 148,125
------- -------
Total liabilities and partners' equity $ 224,377 $ 344,962
= ======= = =======
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income $ 117,174 $ 123,121 $ 355,205 $ 448,027
Interest income 717 2,163 2,651 4,451
Net gain (loss) on sale
of equipment 825 (14,351) 3,562 (5,087)
Recovery of net unsecured
pre-petition claim (note 7) 19,646 - 30,154 -
------ ------ ------ ------
Total revenue 138,362 110,933 391,572 447,391
------- ------- ------- -------
Costs and expenses:
Depreciation 50,738 71,655 152,645 223,900
(Reversal of) provision for
doubtful accounts 443 (4,759) (7,537) (4,759)
Interest 162 744 1,007 3,635
Related party expenses (note 4):
Management fees 5,731 7,520 17,973 28,447
General and administrative 16,718 15,694 50,925 50,202
------ ------ ------ ------
Total costs and expenses 73,792 90,854 215,013 301,425
------ ------ ------- -------
Net income $ 64,570 $ 20,079 $ 176,559 $ 145,966
= ====== = ====== = ======= = =======
Net income per Limited
Partnership Unit $ 2.43 $ 0.74 $ 6.57 $ 4.99
= ==== = ==== = ==== = ====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 176,559 $ 145,966
- ------- - -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 152,645 223,900
Reversal of provision for doubtful accounts (7,537) (4,759)
Net (gain) loss on sale of equipment (3,562) 5,087
Net (increase) decrease in current assets (23,001) 20,192
Net decrease in current liabilities (102,598) (37,482)
-------- -------
Total adjustments 15,947 206,938
------ -------
Net cash provided by operating activities 192,506 352,904
------- -------
Cash flows from investing activities:
Purchase of investment property - (144,097)
Proceeds from sales of investment property 3,562 122,377
----- -------
Net cash provided by (used in) investing activities 3,562 (21,720)
----- -------
Cash flows from financing activities:
Principal payments on long-term debt (30,536) (90,776)
Cash distributions to partners (162,959) (296,289)
-------- --------
Net cash used in financing activities (193,495) (387,065)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,573 (55,881)
Cash and cash equivalents at beginning of period 75,704 111,975
------ -------
Cash and cash equivalents at end of period $ 78,277 $ 56,094
= ====== = ======
Supplemental cash flow information:
Interest paid during the period $ 2,083 $ 4,228
= ===== = =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley Lease Income Limited Partnership
III-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, 1994.
(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 September 30, 1995 and December 31, 1994,
the allowance for doubtful accounts included in rents receivable was $1,508 and
$9,046, respectively. The allowance for doubtful accounts included in accounts
receivable - affiliates was $20,820 and $40,466 at September 30, 1995 and
December 31, 1994, respectively, which was related to the net unsecured
pre-petition bankruptcy claim.
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of common stock in Continental Information Systems Corporation received
by the Partnership in the distributions made December 27, 1994 and July 20, 1995
by the Trustee of the Liquidating Estate of CIS Corporation, et al ("the
Trustee"), with respect to the outstanding net 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 6).
Reclassifications
Certain prior year financial statement items have been reclassified to conform
with the current year's financial statement presentation.
(3) Investment Property
At September 30, 1995, the Partnership owned computer equipment with a
depreciated cost basis of $107,980 subject to existing leases. All purchases of
computer equipment are subject to a 3% acquisition fee paid to the General
Partner.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(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 nine months ended
September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Equipment acquisition fees $ - $ 4,197
Management fees 17,973 28,447
Reimbursable expenses paid 49,753 41,658
------ ------
$ 67,726 $ 74,302
= ====== = ======
</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. 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 September 30, 1995, consists of one installment note from Bank
of Lincolnwood for $3,482 with an interest rate of 6.25%, collateralized by the
equipment with a net book value of $29,047, and the assignment of the related
lease. Such long-term debt matures in 1995.
(6) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115 ("SFAS 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 September 30, 1995 the
difference between the fair value and the original cost of these securities is
an unrealized loss of $1,051.
The fair value is based on currently quoted market prices. The carrying amount
and estimated fair value of the Partnership's marketable securities for the
quarters ended September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment in Continental Information
<S> <C> <C> <C> <C>
Systems Corporation Stock $ 10,508 $ 9,457 $ - $ -
======== ======= ========= ==========
</TABLE>
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
As was discussed in note 2, Marketable Securities, the Partnership received
stock in Continental Information Systems Corporation as part of the December 27,
1994 and July 20, 1995 distributions from the Trustee with respect to the
outstanding net unsecured pre-petition claim. The receivables comprising the net
unsecured pre-petition claim 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.
(7) Bankruptcy of Continental Information Systems Corporation
As was discussed in the Form 10-Q for the quarter ended June 30, 1995, note 6
Subsequent Events, the Partnership received the second distribution from the
Trustee with respect to the net unsecured pre-petition claim. The distribution
consisted of cash proceeds of $19,646. Following the Trustee's second
distribution, the Partnership has a remaining net unsecured pre-petition claim
of $20,820 as of September 30, 1995 (see note 8).
(8) Subsequent Events
On October 20, 1995, the Partnership received the third distribution from the
Trustee with respect to the net unsecured pre-petition claim. The distribution
consisted of cash proceeds of $905 and 577 shares of common stock in Continental
Information Systems Corporation with a carrying value of $1,443. The cash and
stock will be reflected in the financial statements for the fourth quarter of
1995. Following the Trustee's third distribution and an additional charge off
made during the year, the Partnership has a remaining net unsecured pre-petition
claim balance of $16,976 as of October 20, 1995. The General Partner anticipates
that the Liquidating Estate 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 III-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 nine months ended September 30, 1995 in comparison to the same periods in
the prior year.
The Partnership realized net income of $64,570 and $20,079 for the quarters
ended September 30, 1995 and 1994, respectively. Rental income decreased $5,947
or 5% due to lower rental rates obtained on equipment lease extension and
remarketings resulting after the initial lease term expires and due to the
slight decrease in the overall size of the equipment portfolio. Interest income
decreased as a result of lower average short-term investment balances. The
current quarter equipment sales resulted in a net gain on sale of equipment of
$825 versus a net loss on sale of equipment of $14,351 in the quarter ended
September 30, 1994. The net gain on sale of equipment was due to equipment sales
being fully depreciated thus producing $825 in sales proceeds. The recovery of
the net unsecured pre-petition claim was the result of the second distribution
from the Trustee of the Liquidating Estate of CIS Corporation, et al (the
"Trustee"), with respect to the outstanding claim balance.
Total costs and expenses decreased 19% between the three month periods as a
result of lower depreciation expense. Depreciation expense decreased between the
three month periods due to a large portion of the equipment portfolio becoming
fully depreciated and because of the reduction in the equipment portfolio. The
Partnership established a provision for doubtful accounts of $443 in the current
quarter to reserve for delinquent rents receivable. Interest expense decreased
between the three month periods due to the continued paydown of long-term debt.
For the quarter ended September 30, 1995, management fees expense decreased in
correlation to the reduction in rental income.
The Partnership realized net income of $176,559 and $145,966 for the nine months
ended September 30, 1995 and 1994, respectively. The Partnership realized rental
income of $355,205 and $448,027 for the nine months ended September 30, 1995 and
1994, respectively. As discussed in the quarter analysis above, the 21% decrease
in rental income between 1995 and 1994 can be attributed to the remarketing of
equipment at lower rates and the overall decrease in the equipment portfolio.
The decrease in interest income can be attributed to the lower average
short-term investment balances. As mentioned above, the recovery of the net
unsecured pre-petition claim was the result of the third quarter of 1995 receipt
of the Trustee's July 20, 1995 second distribution along with the second quarter
of 1995 establishment of the carrying value of the stock received in the
December 27, 1994 distribution. 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 $86,412 or 29% in 1995 as a result of lower
depreciation expense combined with the$10,474 decrease in management fees
expense. Depreciation expense decreased between 1995 and 1994 due to the initial
equipment portfolio becoming fully depreciated and due to the reduction of the
Partnership's equipment portfolio. Interest expense decreased between 1995 and
1994 due to the continued paydown of long-term debt. As discussed above, the
decrease in management fees expense reflects a decline in rental income. The
reversal of provision for doubtful accounts was generated in the second quarter
of 1995 due to successful collection efforts on delinquent rents receivable.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
During the quarter and nine months ended September 30, 1995, the Partnership
recorded net income per Limited Partnership Unit of $2.43 and $6.57,
respectively.
Liquidity and Capital Resources
For the nine months ended September 30, 1995, rental revenue generated from the
operating leases was the primary source of funds for the Partnership. As the
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 rate obtained when the original leases expire and are remarketed. Typically,
the remarketed rates are lower due to the decrease in the 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 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 on existing leases
amount to $151,520 and are to be received over the next three years.
In the first nine months of 1995, the Partnership's investing activities
resulted in equipment sales with a depreciated cost basis of $1,727 generating
$3,562 in proceeds. Associated with the equipment sales were $1,727 of loss
charge offs against the reserve, initially set up in prior periods for estimated
losses on the ultimate disposition of equipment. 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 investment period.
The Partnership's financing activities for the year resulted in the paydown on
long-term debt of $30,536. The Partnership will pay off its remaining long-term
debt obligation of $3,482 in 1995.
Cash distributions are at an annual level of 1% per Limited Partnership Unit or
$1.25 per Limited Partnership Unit on a quarterly basis. For the quarter ended
September 30, 1995, the Partnership declared a cash distribution of $32,921, of
which $1,646 is allocated to the General Partner and $31,275 is allocated to the
Limited Partners. The distribution will be made on November 28, 1995. 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 a material impact in future periods.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1995
Lessee
Brian Unlimited Distribution Company
Brylane, Incorporated
Crowley Foods, Incorporated
FAX International, Incorporated
Goodyear Tire & Rubber Company, Incorporated
Halliburton Company, Incorporated
Hughes Aircraft Company, Incorporated
Maryland Casualty Insurance Company, Incorporated
Packard Hughes Interconnect, Incorporated
Western Atlas Company, Incorporated
<TABLE>
<CAPTION>
Equipment Description Acquisition Price
<S> <C>
Computer peripherals $ 1,231,655
Processors & upgrades 119,744
Other 359,233
---------
$ 1,710,632
= =========
</TABLE>
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<CAPTION>
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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>
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-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
By: Arthur P. Beecher,
President
Date: November 14, 1995
-------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000760375
<NAME> WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 78,277
<SECURITIES> 9,458
<RECEIVABLES> 50,991
<ALLOWANCES> 22,329
<INVENTORY> 0
<CURRENT-ASSETS> 116,397
<PP&E> 1,710,632
<DEPRECIATION> 1,602,652
<TOTAL-ASSETS> 224,377
<CURRENT-LIABILITIES> 61,867
<BONDS> 3,482
<COMMON> 11,140,998
0
0
<OTHER-SE> (10,981,970)
<TOTAL-LIABILITY-AND-EQUITY> 224,377
<SALES> 355,205
<TOTAL-REVENUES> 391,572
<CGS> 0
<TOTAL-COSTS> 17,973
<OTHER-EXPENSES> 203,570
<LOSS-PROVISION> (7,537)
<INTEREST-EXPENSE> 1,007
<INCOME-PRETAX> 176,559
<INCOME-TAX> 0
<INCOME-CONTINUING> 176,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,559
<EPS-PRIMARY> 6.57
<EPS-DILUTED> 0
</TABLE>
