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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 June 30, 2003
Commission File Number 0-21458
TELECOMMUNICATIONS INCOME FUND IX, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Iowa 42-1367356
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
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(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 July 23, 2003, 65,515 units were issued and outstanding. Based on the book
value at June 30, 2003 of $1.31 per unit, the aggregate market value at July 23,
2003 was $85,825.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) -
June 30, 2003 and December 31, 2002 3
Statements of Changes in Net Assets (Liquidation Basis) -
three and six months ended June 30, 2003 and 2002 4
Statements of Cash Flows - six months ended
June 30, 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
2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)
June 30, December 31,
2003 2002
-------- --------
ASSETS
Cash and cash equivalents $ 47,798 $ 56,921
Not readily marketable equity security 86,841 24,812
Net investment in direct financing leases (Note B) 10,707 18,979
-------- --------
TOTAL ASSETS 145,346 100,712
-------- --------
LIABILITIES
Accounts payable 3,734 4,149
Lease security deposits -0- 831
Reserve for estimated costs during the period of liquidation 56,062 49,971
-------- --------
TOTAL LIABILITIES 59,796 54,951
-------- --------
CONTINGENCIES (Note C)
NET ASSETS $ 85,550 $ 45,761
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Six Months
Ended June 30 Ended June 30
2003 2002 2003 2002
-------- -------- -------- --------
Net assets at beginning of period $ 9,777 $ 72,236 $ 45,761 $ 33,665
Income from direct financing leases 730 1,844 1,754 4,405
Interest and other income 75 253 191 434
Withdrawals of limited partners -0- (49) (119) (141)
Change in estimate of liquidation
value of net assets 74,968 (12,118) 37,963 23,803
-------- -------- -------- --------
Net assets at end of period $ 85,550 $ 62,166 $ 85,550 $ 62,166
======== ======== ======== ========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, June 30,
2003 2002
-------- --------
Operating Activities
Changes in net assets excluding withdrawals $ 39,908 $ 28,642
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (37,963) (23,803)
Provision for possible lease losses (16,152) -0-
Changes in operating assets and liabilities:
Other assets -0- 3,002
Accounts payable (415) 1,043
Reserve for estimated costs during the period of liquidation (37,662) (39,732)
-------- --------
Net cash from operating activities (52,284) (30,848)
-------- --------
Investing Activities
Repayments of direct financing leases 17,621 36,421
Proceeds from sale of direct financing leases 26,490 4,639
Security deposits paid (831) (3,932)
-------- --------
Net cash from investing activities 43,280 37,128
-------- --------
Financing Activities
Withdrawals paid to partners (119) (141)
-------- --------
Net cash from financing activities (119) (141)
-------- --------
Net increase (decrease) in cash and cash equivalents (9,123) 6,139
Cash and cash equivalents at beginning of period 56,921 51,213
-------- --------
Cash and cash equivalents at end of period $ 47,798 $ 57,352
======== ========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 six months ended June
30, 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)
June 30, 2003 December 31, 2002
---------------- ----------------
Minimum lease payments receivable $ 17,676 $ 45,330
Estimated unguaranteed residual values 1 2
Unearned income (533) (3,429)
Adjustment to estimated net realizable value (6,437) (22,924)
---------------- ----------------
Net investment in direct financing leases $ 10,707 $ 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 $1,945 in
income from direct financing leases and other income during the first six months
of 2003. Management increased its estimate of the liquidation value of net
assets during the first six months of 2003 by $37,963. This increase is due to
an increase in the estimated net realizable value of an equity security held by
the Partnership of $62,029, an increase due to a gain on lease terminations of
$19,687, offset by 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 $56,062 at June 30, 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 customer was current on its lease payments
as of June 30, 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 June 30, 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 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 June 30,
2003.
Carrying Amount Fair Value
------------- -------------
Common Stock-Murdock Communications Corporation $ 86,841 $ 86,841
------------- -------------
Not readily marketable equity security $ 86,841 $ 86,841
============= =============
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 June 30, 2003, the total amount at risk was $86,841.
Murdock is valued at the market price less a discount for the lack of
marketability. In July, 2003, Murdock merged with another company (Polar
Molecular) that has historically had operating losses. The Partnership is
subject to lock-up agreement with respect to selling these shares until July,
2004. No assurance can be given that any value can be realized from the merger.
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 as of June 30, 2003. 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.
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
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99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
99.3 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.4 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.
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(Registrant)
Date: August 12, 2003 /s/ Ronald O. Brendengen
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Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: August 12, 2003 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller