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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 March 31, 2003
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.
[X] Yes [ ] No
Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).
[ ] Yes [X] No
As of April 14, 2003, 65,515 units were issued and outstanding. Based on the
book value at March 31, 2003 of $.15 per unit, the aggregate market value at
April 14, 2003 was $9,827.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) -
March 31, 2003 and December 31, 2002 3
Statements of Changes in Net Assets (Liquidation Basis) -
three months ended March 31, 2003 and 2002 4
Statements of Cash Flows - three months ended March 31,
2003 and 2002 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
Item 6. Exhibits 8
Signatures 9
Certifications 10
2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)
March 31, December 31,
2003 2002
-------- --------
ASSETS
Cash and cash equivalents $ 39,195 $ 56,921
Not readily marketable equity security 28,534 24,812
Net investment in direct financing leases (Note B) 18,753 18,979
-------- --------
TOTAL ASSETS 86,482 100,712
-------- --------
LIABILITIES
Accounts payable 4,080 4,149
Lease security deposits -0- 831
Reserve for estimated costs during the period of liquidation 72,625 49,971
-------- --------
TOTAL LIABILITIES 76,705 54,951
-------- --------
CONTINGENCIES (Note C)
NET ASSETS $ 9,777 $ 45,761
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended March 31
2003 2002
---- ----
Net assets at beginning of period $ 45,761 $ 33,665
Income from direct financing leases 1,024 2,561
Interest and other income 116 181
Withdrawals of limited partners (119) (92)
Change in estimate of liquidation
value of net assets (37,005) 35,921
-------- --------
Net assets at end of period $ 9,777 $ 72,236
======== ========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31, March 31,
2003 2002
-------- --------
Operating Activities
Changes in net assets excluding withdrawals $(35,865) $ 38,663
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 37,005 (35,921)
Provision for possible lease losses (16,152) -0-
Changes in operating assets and liabilities:
Other assets -0- 605
Accounts payable (69) 920
Reserve for estimated costs during the period of liquidation (21,099) (18,605)
-------- --------
Net cash from operating activities (36,180) (14,338)
-------- --------
Investing Activities
Repayments of direct financing leases 9,513 28,593
Proceeds from sale of direct financing leases 9,891 7,693
Security deposits paid (831) (3,932)
-------- --------
Net cash from investing activities 18,573 32,354
-------- --------
Financing Activities
Withdrawals paid to partners (119) (92)
-------- --------
Net cash from financing activities (119) (92)
-------- --------
Net increase (decrease) in cash and cash equivalents (17,726) 17,924
Cash and cash equivalents at beginning of period 56,921 51,213
-------- --------
Cash and cash equivalents at end of period $ 39,195 $ 69,137
======== ========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
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 three months ended
March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003. 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, 2002.
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 Basis) (Liquidation Basis)
March 31, 2003 December 31, 2002
---------------- ----------------
Minimum lease payments receivable $ 26,514 $ 45,330
Estimated unguaranteed residual values 1 2
Unearned income (1,262) (3,429)
Adjustment to estimated net realizable value (6,500) (22,924)
---------------- ----------------
Net investment in direct financing leases $ 18,753 $ 18,979
================ ================
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 which was due on December 31, 2002 and does 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. The
new general partner could require additional fees and charges that would have a
significant negative impact on the liquidation proceeds received by the limited
partners.
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 $1,140 in
income from direct financing leases and other income during the first three
months of 2003. Management decreased its estimate of the liquidation value of
net assets during the first three months of 2003 by $37,005. This decrease is
due to an increase in the estimated net realizable value of an equity security
held by the Partnership of $3,722, an increase in the estimated net investment
in direct financing leases of $3,026, and an increase in the reserve for
estimated costs during the period of liquidation of $43,753. The Partnership
also increased the estimated net realizable value of its lease portfolio by
decreasing its allowance for possible lease losses by $16,152, which was
credited to expense during the first quarter of 2003. The Partnership has
accrued the estimated expenses of liquidation, which is $72,625 at March 31,
2003. The General Partner reviews this estimate and will adjust quarterly, as
needed.
The Partnership will make distributions to the partners, to the extent cash is
available for distribution, as its lease portfolio is collected or sold and
equity securities (common shares of Murdock Communications Corporation
("Murdock")) 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.
One lease contract remains and this contract was current on its lease payments
as of March 31, 2003. When payments are past due more than 90 days, the
Partnership discontinues recognizing income on those contracts. The
Partnership's portfolio of direct financing leases consists of pay telephones,
representing 100% of the portfolio at March 31, 2003.
Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2
million of unsecured debt that was due December 31, 2002. Berthel Fisher &
Company, Inc. has not paid this debt as of the filing of this report and is in
default. Since Berthel Fisher & Company, Inc. is in default, its creditors could
take legal action to enforce their right to repayment. Ultimately, this could
result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General
Partner is a subsidiary and asset of Berthel Fisher & Company, Inc., the
bankruptcy of Berthel Fisher & Company, Inc. could cause the General Partner to
be unable to continue as a going concern. If this were to happen, the
Partnership would need to elect or appoint a new general partner. The new
general partner could require additional fees and charges that would have a
significant negative impact on the liquidation proceeds received by the limited
partners.
7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Equity Price Sensitivity
The following table provides information about the Partnership's not readily
marketable equity security that is sensitive to price changes as of March 31,
2003.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock Communications Corporation $ 28,534 $ 28,534
------------- -------------
Not readily marketable equity security $ 28,534 $ 28,534
============= =============
The Partnership's primary market risk exposure 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 248,118
shares of Murdock and at March 31, 2003, the total amount at risk was $28,534.
Murdock has filed an S-4 registration with the intent to merge with another
company. The Partnership intends to hold the Murdock shares to determine if any
significant value can be achieved from this potential merger. No assurance can
be given that the merger will be consummated or that any value can be realized
if the merger is consummated.
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 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 Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation, and no corrective actions with regards to significant
deficiencies and material weaknesses, of which none were noted, were required.
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.
Item 6. Exhibits
--------
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
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: May 14, 2003 /s/ Ronald O. Brendengen
------------ -----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: May 14, 2003 /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.
May 14, 2003 /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.
May 14, 2003 /s/ Ronald O. Brendengen
-----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund IX, L.P.
11