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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, 2003
Commission File Number 000-21458
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 October 24, 2003, 65,404 units were issued and outstanding.
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) -
September 30, 2003 and December 31, 2002 3
Statements of Changes in Net Assets (Liquidation Basis)-
three and nine months ended September 30, 2003 and 2002 4
Statements of Cash Flows - nine months ended September 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
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)
September 30, December 31,
2003 2002
ASSETS -------- --------
Cash and cash equivalents $ 40,256 $ 56,921
Not readily marketable equity security 24,562 24,812
Net investment in direct financing leases (Note B) 3,047 18,979
-------- --------
TOTAL ASSETS 67,865 100,712
-------- --------
LIABILITIES
Accounts payable 2,881 4,149
Lease security deposits -0- 831
Reserve for estimated costs during the period of liquidation 63,026 49,971
-------- --------
TOTAL LIABILITIES 65,907 54,951
-------- --------
CONTINGENCIES (Note C)
NET ASSETS $ 1,958 $ 45,761
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Nine Months
Ended September 30 Ended September 30
2003 2002 2003 2002
-------- -------- -------- --------
Net assets at beginning of period $ 85,550 $ 62,166 $ 45,761 $ 33,665
Income from direct financing leases 424 1,580 2,178 5,985
Interest and other income 60 1,195 251 1,632
Withdrawals of limited partners -0- (102) (119) (243)
Change in estimate of liquidation
value of net assets (84,076) 18,180 (46,113) 41,980
-------- -------- -------- --------
Net assets at end of period $ 1,958 $ 83,019 $ 1,958 $ 83,019
======== ======== ======== ========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30, September 30,
2003 2002
-------- --------
Operating Activities
Changes in net assets excluding withdrawals $(43,684) $ 49,597
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 46,113 (41,980)
Provision for possible lease losses (16,152) -0-
Recovery received in the form of common stock (21,797) -0-
Changes in operating assets and liabilities:
Other assets -0- 2,953
Accounts payable (1,268) 668
Reserve for estimated costs during the period of liquidation (30,698) (50,101)
-------- --------
Net cash from operating activities (67,486) (38,863)
-------- --------
Investing Activities
Repayments of direct financing leases 26,035 43,676
Proceeds from sale of direct financing leases 25,736 4,493
Security deposits paid (831) (3,932)
-------- --------
Net cash from investing activities 50,940 44,237
-------- --------
Financing Activities
Withdrawals paid to partners (119) (243)
-------- --------
Net cash from financing activities (119) (243)
-------- --------
Net increase (decrease) in cash and cash equivalents (16,665) 5,131
Cash and cash equivalents at beginning of period 56,921 51,213
-------- --------
Cash and cash equivalents at end of period $ 40,256 $ 56,344
======== ========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 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 nine months ended
September 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)
September 30, 2003 December 31, 2002
------------------ -----------------
Minimum lease payments receivable $ 8,838 $ 45,330
Estimated unguaranteed residual values 1 2
Unearned income (108) (3,429)
Adjustment to estimated net realizable value (5,684) (22,924)
---------------- ----------------
Net investment in direct financing leases $ 3,047 $ 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 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.
Berthel Fisher & Company, Inc. ("BFC"), the parent of the General Partner, is in
default on $2.2 million of its unsecured debt that was due December 31, 2002.
BFC is pursuing additional financing, refinancing, and asset sales to meet its
obligations and must raise a minimum of $2.4 million. Approximately $900,000 has
been raised as of the filing of this report. No assurance can be provided that
BFC will be successful in its efforts. Since BFC is in default, its creditors
could take legal action to enforce their right to repayment. No legal action has
been taken at this time. The failure of BFC to raise the minimum amount of
capital or legal action taken by the creditors could impact BFC's ability to
continue as a going concern. This could ultimately affect the ability of the
General Partner to continue as a going concern. If this were to happen, the
Partnership would need to 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.
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 $2,429 in
income from direct financing leases and other income during the first nine
months of 2003. Management decreased its estimate of the liquidation value of
net assets during the first nine months of 2003 by $46,113. This decrease is due
to a decrease in the estimated net realizable value of an equity security held
by the Partnership of $22,047, an increase due to a gain on lease terminations
of $19,687, 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 received 58,909 common shares of Polar Molecular
Holding Corporation ("Polar") in July, 2003 as a recovery of a previous
write-off of Murdock Communications Corporation ("Murdock"), crediting expense
in the amount of $21,797. The Partnership has accrued the estimated expenses of
liquidation, which is $63,026 at September 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 Polar) 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 September 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 September 30, 2003.
Berthel Fisher & Company, Inc. ("BFC"), the parent of the General Partner, is in
default on $2.2 million of its unsecured debt that was due December 31, 2002.
BFC is pursuing additional financing, refinancing, and asset sales to meet its
obligations and must raise a minimum of $2.4 million. Approximately $900,000 has
been raised as of the filing of this report. No assurance can be provided that
BFC will be successful in its efforts. Since BFC is in default, its creditors
could take legal action to enforce their right to repayment. No legal action has
been taken at this time. The failure of BFC to raise the minimum amount of
capital or legal action taken by the creditors could impact BFC's ability to
continue as a going concern. This could ultimately affect the ability of the
General Partner to continue as a going concern. If this were to happen, the
Partnership would need to 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 September
30, 2003.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Polar $ 24,562 $ 24,562
------------- -------------
Not readily marketable equity security $ 24,562 $ 24,562
============= =============
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. In July, 2003, Murdock merged with Polar, a company that
has historically had operating losses, and therefore, the equity price can be
volatile. The Partnership holds 307,027 shares of Polar and at September 30,
2003, the total amount at risk was $24,562. Polar is valued at the market price
less a discount for the lack of marketability. 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 this investment.
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 September 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
--------
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
32.2 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: November 12, 2003 /s/ Ronald O. Brendengen
----------------- -----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: November 12, 2003 /s/ Daniel P. Wegmann
----------------- -----------------------------------
Daniel P. Wegmann, Controller
9