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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
Commission File Number 0-21458
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Iowa 42-1367356
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 447-5700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interest (the "Units")
------------------------------------------
Title of Class
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 filings
requirements for the past 90 days.
Yes X No
----- -----
As of October 11, 2002, 65,747 units were issued and outstanding. Based on the
book value at September 30, 2002 of $1.26 per unit, the aggregate market value
at October 11, 2002 was $82,841.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) -
September 30, 2002 and December 31, 2001 3
Statements of Changes in Net Assets (Liquidation Basis) -
three months ended and nine months ended September 30, 2002
and 2001 4
Statements of Cash Flows - nine months ended
September 30, 2002 and 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Item 4. Controls and Procedures 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Signatures 9
Certification of Chief Executive Officer 10
Certification of Chief Financial Officer 11
Certification of Chief Executive Officer Pursuant
to U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 12
Certification of Chief Financial Officer Pursuant
to U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 13
2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)
September 30, 2002 December 31, 2001
------------------ -----------------
ASSETS
Cash and cash equivalents $ 56,344 $ 51,213
Marketable equity security 12,401 4,724
Not readily marketable equity security 30,015 11,434
Net investment in direct financing leases (Note B) 26,999 59,446
Other assets 49 3,002
-------- --------
TOTAL ASSETS 125,808 129,819
-------- --------
LIABILITIES
Accounts payable 4,137 3,469
Lease security deposits 831 4,763
Reserve for estimated costs during the period of liquidation 37,821 87,922
-------- --------
TOTAL LIABILITIES 42,789 96,154
-------- --------
CONTINGENCIES (Note C)
NET ASSETS $ 83,019 $ 33,665
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
Net assets at beginning of period $ 62,166 $ 347,598 $ 33,665 $ 793,644
Income from direct financing leases 1,580 1,408 5,985 5,773
Interest and other income 1,195 3,761 1,632 6,682
Distributions to partners -0- (325,000) -0- (424,940)
Withdrawals of limited partners (102) (254) (243) (1,296)
Change in estimate of liquidation
value of net assets 18,180 21,190 41,980 (331,160)
--------- --------- --------- ---------
Net assets at end of period $ 83,019 $ 48,703 $ 83,019 $ 48,703
========= ========= ========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Operating Activities
Changes in net assets excluding distributions and withdrawals $ 49,597 $(318,705)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (41,980) 331,160
Changes in operating assets and liabilities:
Other assets 2,953 (2,221)
Accounts payable 668 579
Reserve for estimated costs during the period of liquidation (50,101) (59,421)
--------- ---------
Net cash from operating activities (38,863) (48,608)
--------- ---------
Investing Activities
Repayments of direct financing leases and notes 43,676 382,302
Proceeds from sale of direct financing leases 4,493 10,967
Security deposits paid (3,932) (4,326)
--------- ---------
Net cash from investing activities 44,237 388,943
--------- ---------
Financing Activities
Withdrawals paid to partners (243) (1,296)
Distributions paid to partners -0- (424,940)
--------- ---------
Net cash from financing activities (243) (426,236)
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,131 (85,901)
Cash and cash equivalents at beginning of period 51,213 137,712
--------- ---------
Cash and cash equivalents at end of period $ 56,344 $ 51,811
========= =========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. For further information, refer to
the financial statements and notes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 2001.
On May 1, 1998, the Partnership ceased reinvestment in equipment and leases and
began the orderly liquidation of the Partnership in accordance with the
partnership agreement. As a result, the unaudited financial statements have been
presented under the liquidation basis of accounting. Under the liquidation basis
of accounting, assets are stated at their estimated net realizable values and
liabilities include estimated costs associated with carrying out the plan of
liquidation.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
The Partnership's net investment in direct financing leases consists of the
following:
(Liquidation (Liquidation
Basis) Basis)
September 30, December 31,
2002 2001
-------- --------
Minimum lease payments receivable $ 55,000 $ 82,272
Estimated unguaranteed residual values 2 13,047
Unearned income (4,737) (9,472)
Unamortized initial direct costs -0- 2
Adjustment to estimated net realizable value (23,266) (26,403)
-------- --------
Net investment in direct financing leases $ 26,999 $ 59,446
======== ========
NOTE C - CONTINGENCIES
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998. The
plaintiffs purchased equipment from the Partnership out of a bankruptcy for
approximately $450,000. They alleged that when they attempted to sell the
equipment at a later date, the Partnership had not provided good title. The
General Partner filed a Motion for Summary Judgment, which was denied. After
filing the suit, the plaintiff transferred assets in lieu of bankruptcy. No
further action has been taken at this time by the plaintiff. No loss, if any,
has been recorded in the financial statements with respect to this matter.
The General Partner's parent has approximately $2.2 million of unsecured
subordinated debt due on December 31, 2002 and may not have sufficient liquid
assets to repay such amounts. The General Partner's parent is pursuing
additional financing, refinancing, and asset sales to meet its obligations. No
assurance can be provided that the General Partner's parent will be successful
in its efforts. The inability of the General Partner to continue as a going
concern as a result of the parent's inability to restructure its debts would
require the Partnership to elect a successor general partner.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
On May 1, 1998, the Partnership ceased reinvestment in equipment and leases and
began the orderly liquidation of the Partnership in accordance with the
partnership agreement. As a result, the unaudited financial statements have been
presented under the liquidation basis of accounting. Under the liquidation basis
of accounting, assets are stated at their estimated net realizable values and
liabilities include estimated costs associated with carrying out the plan of
liquidation.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $7,617 in
income from direct financing leases, notes receivable, and other income during
the first nine months of 2002. Management increased its estimate of the
liquidation value of net assets during the first nine months of 2002 by $41,980,
due to changes in the estimated net realizable value of an equity security held
by the Partnership ($26,258) and changes in the estimated net investment in
direct financing leases ($15,722). The Partnership has accrued the estimated
expenses of liquidation, which is $37,821 at September 30, 2002. The General
Partner reviews this estimate and will adjust quarterly, as needed.
The Partnership will continue to make distributions to the partners as leases
are collected or sold and other assets are sold. The valuation of assets and
liabilities necessarily requires many estimates and assumptions and there are
uncertainties in carrying out the liquidation of the Partnership's net assets.
The actual value of the liquidating distributions will depend on a variety of
factors, including the actual timing of distributions to the partners. The
actual amounts are likely to differ from the amounts presented in the financial
statements.
Two lease contracts remain as of September 30, 2002, one of which had payments
over 90 days past due. When payments are past due more than 90 days, the
Partnership discontinues recognizing income on those contracts. The
Partnership's net investment in this contract at September 30, 2002 was $8,836.
Management has adequate reserves for this contract. Management will continue to
monitor any past due contracts and take the necessary steps to protect the
Partnership's investment.
The Partnership's portfolio of direct financing leases consists of pay
telephones and computer equipment, representing approximately 82% and 18%,
respectively, of the portfolio at September 30, 2002.
7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Equity Price Sensitivity
The tables provide information about the Partnership's marketable and not
readily marketable equity security that is sensitive to changes in prices as of
September 30, 2002.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock Communications Corporation $ 12,401 $ 12,401
------------- -------------
Marketable equity security $ 12,401 $ 12,401
============= =============
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock Communications Corporation $ 30,015 $ 30,015
------------- -------------
Not readily marketable equity security $ 30,015 $ 30,015
============= =============
The Partnership's primary market risk exposure with respect to equity securities
is equity price. The Partnership's general strategy in owning equity securities
is long-term growth in the equity value of emerging companies in order to
increase the rate of return to the limited partners over the life of the
Partnership. The primary risk of the security held is derived from the
underlying ability of the company invested in to satisfy debt obligations and
their ability to maintain or improve common equity values. Since the investment
is in a shell company with no operations, the equity price can be volatile. The
Partnership holds 69,473 shares of Murdock as a marketable equity security and
178,645 shares as not readily marketable, due to restrictions imposed by Rule
144 of the Securities and Exchange Commission. At September 30, 2002, the total
amount at risk was $42,416.
Item 4. Controls and Procedures
-----------------------
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures within 90 days before the
filing date of this quarterly report. Based on that evaluation, the
Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Partnership's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC filings. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect internal controls subsequent to their evaluation.
PART II
Item 1. Legal Proceedings
-----------------
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998. The
plaintiffs purchased equipment from the Partnership out of a bankruptcy for
approximately $450,000. They alleged that when they attempted to sell the
equipment at a later date, the Partnership had not provided good title. The
General Partner filed a Motion for Summary Judgment, which was denied. After
filing the suit, the plaintiff transferred assets in lieu of bankruptcy. No
further action has been taken at this time by the plaintiff. No loss, if any,
has been recorded in the financial statements with respect to this matter.
8
SIGNATURES
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.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
---------------------------------------
(Registrant)
Date: November 11, 2002 /s/ Ronald O. Brendengen
----------------- ----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: November 11, 2002 /s/ Daniel P. Wegmann
----------------- ----------------------------------
Daniel P. Wegmann, Controller
9
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher &
Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX,
L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Thomas J. Berthel
----------------------------------
Thomas J. Berthel
President and Chief Executive
Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund IX, L.P.
10
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P.,
certify that: 1. I have reviewed this quarterly report on Form 10-Q of
Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Ronald O. Brendengen
----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund IX, L.P.
11
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Telecommunications Income Fund IX
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Thomas J. Berthel, Chief Executive Officer of Berthel Fisher & Company
Leasing, Inc., General Partner of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
November 11, 2002 /s/ Thomas J. Berthel
----------------------------------
Thomas J. Berthel
President and Chief Executive
Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund IX, L.P.
12
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Telecommunications Income Fund IX
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., General Partner of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
November 11, 2002 /s/ Ronald O. Brendengen
----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund IX, L.P.
13