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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998 Commission File Number 0-21458
TELECOMMUNICATIONS INCOME FUND IX, L.P.
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(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.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
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")
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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 April 25, 1998, 67,742 Units were issued and outstanding. Based on the
original sales price of $250 per Unit, the aggregate market value at April 25,
1998 was $16,935,500.
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Introductory Note
This amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q, as filed by the Registrant on May 13, 1998, and is being filed to reflect
the restatement of the Registrant's financial statements (the" Restatement").
The Restatement reflects the financial statements for the quarterly period ended
March 31, 1998, under the liquidation basis of accounting, pursuant to the
Registrant's plan of liquidation. See Note D.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Part I. FINANCIAL INFORMATION Page
- -------------------------------- ----
Item 1. Financial Statements (unaudited)
Statements of Net Assets - March 31, 1998, as restated
(Liquidation Basis) and December 31, 1997 (Going Concern
Basis) 4
Statements of Income and Comprehensive Income (Going Concern
Basis) three months ended March 31, 1998 and three months
ended March 31, 1997 5
Statement of Changes in Net Assets, as restated (Liquidation Basis) -
three months ended March 31, 1998 6
Statements of Cash Flows (Going Concern Basis) -
three months ended March 31, 1998 and three months ended March 31, 1997 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. OTHER INFORMATION
- ----------------------------
Item 1. Legal proceedings 12
Signatures 13
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
(Liquidation Basis) (Going Concern Basis)
March 31, 1998 December 31, 1997
As Restated (Note D)
-------------------- ---------------------
ASSETS
Cash and cash equivalents $ 394,184 $ 458,893
Available-for-sale security 44,520 65,389
Net investment in direct financing leases
and notes receivable 10,511,115 11,513,511
Allowance for possible lease and loan losses -0- (1,922,056)
------------ ------------
Direct financing leases and notes receivable, net (Note B) 10,511,115 9,591,455
Equipment leased under operating leases, less accumulated
depreciation of $261,600 at December 31, 1997 975,797 1,041,197
Equipment held for sale 40,145 51,000
Intangibles, less accumulated amortization of $9,258
at December 31, 1997 -0- 48,582
Other assets 171,634 384,060
------------ ------------
TOTAL ASSETS 12,137,395 11,640,576
------------ ------------
LIABILITIES
LIABILITIES
Line of credit agreement (Note C) 708,613 50,557
Trade accounts payable 1,058 17,336
Due to affiliates 17,914 96,472
Accrued expenses and other liabilities 215,669 202,272
Lease security deposits 335,133 365,752
Reserve for estimated costs during the
period of liquidation 570,982 -0-
------------ ------------
TOTAL LIABILITIES 1,849,369 732,389
------------ ------------
NET ASSETS $ 10,288,026 $ 10,908,187
============ ============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS)
(UNAUDITED)
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
Income:
Lease income $ 356,900 $ 588,355
Interest income 11,544 1,484
Gain on lease terminations 8,808 12,130
Other 24,768 1,262
------------ ------------
Total Income 402,020 603,231
------------ ------------
Expenses:
Management fees 48,928 77,235
Administrative services 23,866 23,867
Interest 16,817 43,165
Professional fees 31,748 2,931
Provision for possible losses 64,711 31,659
Depreciation 76,255 77,405
Other 45,572 12,284
------------ ------------
Total expenses 307,897 268,546
------------ ------------
Net income 94,123 334,685
Other comprehensive income:
Unrealized gain (loss) on
available-for-sale security (20,869) 2,366
------------ ------------
Comprehensive income $ 73,254 $ 337,051
============ ============
Net income per partnership unit $ 1.39 $ 4.93
Weighted average Partnership units outstanding 67,742 67,902
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
Net
Assets
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $10,908,187
Net income 94,123
Distributions (508,064)
Withdrawal of limited partners (3,534)
Change in accumulated comprehensive loss (20,869)
Adjustment to liquidation basis (Note D) (181,817)
-----------
Balance at March 31, 1998 $10,288,026
===========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS) (UNAUDITED)
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
OPERATING ACTIVITIES
Net income for period $ 94,123 $ 334,685
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred organization costs 1,038 1,038
Provision for possible losses 64,711 31,659
Depreciation 76,255 77,405
Gain on lease terminations (8,808) (12,130)
Changes in operating assets and liabilities:
(Increase) Decrease in other assets (61,662) 23,946
Decrease in trade accounts payable
excluding equipment purchase cost accrued (16,278) (3,362)
Decrease in due to affiliates (78,558) (25,315)
Increase (decrease) in accrued expenses 13,397 (22,755)
------------ ------------
Net cash provided by operating activities 84,218 405,171
------------ ------------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (1,085,333) (1,739,542)
Repayments of direct financing leases 548,061 986,154
Proceeds from sale of direct financing leases 249,941 250,984
Security deposits collected (11,588) 3,495
------------ ------------
Net cash used in investing activities (298,919) (498,909)
------------ ------------
FINANCING ACTIVITIES
Distributions paid to partners (508,064) (509,265)
Repayment of note payable -0- (101,906)
Net proceeds from line-of-credit borrowings 658,056 369,548
------------ ------------
Net cash from financing activities 149,992 (241,623)
------------ ------------
Net (decrease) in cash and cash equivalents (64,709) (335,361)
Cash and cash equivalents at beginning of period 458,893 497,144
------------ ------------
Cash and cash equivalents at end of period $ 394,184 $ 161,783
============ ============
Supplemental Disclosures
Cash paid during the period for interest $ 17,457 $ 55,447
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles 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, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the financial statements and footnotes
thereto included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1997.
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 as of
March 31, 1998 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 are stated at their anticipated settlement
amounts. See Note D.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
Components of the net investment in direct financing leases and notes receivable
are as follows:
(Liquidation Basis) (Going Concern Basis)
March 31, 1998 December 31, 1997
----------------- -----------------
Lease payments receivable $ 11,286,804 $ 12,427,455
Estimated unguaranteed residual values
of leased equipment 1,068,446 1,192,611
Unearned lease income (2,329,699) (2,571,275)
Unamortized initial direct costs 27,014 30,028
Notes receivable 328,133 434,692
Allowance for possible losses (261,171) (1,922,056)
Adjustment to estimated net realizable value 391,588 -0-
------------ ------------
Net investment in direct financing
leases and notes receivable $ 10,511,115 $ 9,591,455
============ ============
Due to cash flow problems experienced during 1997 by a lessee of the
Partnership, North American Communications Group, Inc. ("NACG"), the
Partnership, in an attempt to protect the assets leased to NACG, advanced funds
to various entities to whom NACG owed money related to the operation of such
leased assets. In addition, the Partnership assisted in arranging a management
agreement between NACG and another entity to attempt to improve NACG's cash flow
generated by the leased assets. In spite of the funds advanced by the
Partnership and the management agreement, the cash flow of NACG continued to
deteriorate. During the past several months, the General Partner actively
solicited bids from parties to
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purchase the assets associated with the Partnership leases to NACG. Based on the
value of similar assets and contract sites, management believed the equipment
leased to NACG had substantial value. However, the offers received were not
adequate to cover additional funds which were required to be advanced to keep
the equipment sites operating. The General Partner, therefore, determined it was
no longer economically feasible to continue to advance funds on behalf of NACG,
discontinued doing so and informed all site operators of that decision. As a
result, the Partnership decided to provide for a specific allowance of
$1,596,739 at December 31, 1997, which is equal to the carrying value of the
leases and advances associated with NACG. The Partnership foreclosed on the
assets underlying the leases and charged-off the lease receivables to the
specific allowance in February 1998.
The Partnership and an affiliated partnership, Telecommunications Income Fund X,
have initiated a foreclosure action against NACG and the guarantors under the
leases and advances seeking the sale of the assets and a judgment against NACG
and the guarantors for any deficiency. Amounts received, if any, will be
credited to the allowance for possible loan and lease losses.
NOTE C --CREDIT ARRANGEMENTS
The Partnership has a line-of-credit agreement with a bank that allows the
Partnership to borrow the lesser of $2 million, or 32% of the Partnership's
Qualified Accounts, as defined in the agreement. The line-of-credit expires
April 30, 1998 and carries interest at 1% over prime (9.50% at March 31, 1998).
The agreement carries a minimum interest charge of $3,000 per month. The
agreement is cancelable by the lender after giving a 90-day notice and is
secured by substantially all assets of the Partnership. This line-of-credit is
guaranteed by the General Partner and certain affiliates of the General Partner.
NOTE D - RESTATEMENT
Subsequent to the issuance of the Partnership's Form 10-Q for the quarter ended
March 31, 1998, the Partnership's management determined that since the
Partnership had begun the orderly liquidation of Partnership assets on May 1,
1998, prior to the issuance of the Form 10-Q, the Partnership should have
adopted the liquidation basis of accounting as of March 31, 1998. As a result,
the financial statements have been restated as of March 31, 1998 from the going
concern (historical cost) basis of accounting to reflect the net assets of the
Partnership under the liquidation basis of accounting. Accordingly, assets have
been valued at estimated net realizable value and liabilities include estimated
costs associated with carrying out the plan of liquidation.
The net adjustment as of March 31, 1998 required to convert from the going
concern (historical cost) basis to the liquidation basis of accounting was a
decrease in carrying value of $181,817, which is included in the statement of
changes in net assets for the period ended March 31, 1998. Significant increases
(decreases) in the carrying value of net assets are summarized as follows:
Partners' equity as previously reported (going concern basis) $ 10,469,843
------------
Increase to reflect net realizable value of
net investment in direct financing leases 391,588
Write -off of intangible assets (2,423)
Record estimated liabilities associated with
carrying out the liquidation (570,982)
------------
Net decrease in carrying value (181,817)
---------
Net assets as restated (liquidation basis) $ 10,288,026
============
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A summary of the significant effects of the restatement is as follows:
As
Previously As
Reported Restated
AT MARCH 31, 1998
Total Assets $ 11,748,230 $ 12,137,395
Total Liabilities 1,278,387 1,849,369
Total Partners' Equity 10,469,843 -0-
Net Assets in Liquidation -0- 10,288,026
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
partners. The actual amounts are likely to differ from the amounts presented in
the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS RESULTS OF OPERATIONS
- -------------------------------------------
Three Months Ended March 31
1998 1997
---- ----
Description:
Lease income $356,900 $588,355
Management fees 48,928 77,235
Professional fees 31,748 2,931
Interest expense 16,817 43,165
Provision for possible losses 64,711 31,659
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 as of
March 31, 1998 have been restated from amounts previously reported to present
the financial statements under the liquidation basis of accounting. Under the
liquidation basis of accounting, assets are stated at their estimated net
realizable values and liabilities are stated at their anticipated settlement
amounts.
The Partnership is approaching the date in which it must begin the liquidation
process, as defined in the Partnership Agreement and, as expected, the
Partnership is purchasing less equipment and initial leases are expiring. As a
result, both the size of the Partnership's leasing portfolio and the amount of
lease income are declining. The Partnership's investment in direct financing
leases and notes receivable declined from $14,102,658 at March 31, 1997 to
$10,380,698 at March 31, 1998.
Management fees are paid to the General Partner and represent 5% of the gross
rental payments received. The decline is attributed to the decline in the
Partnership lease portfolio.
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The Partnership incurs professional fees each year for the audit of its
financial records and for the preparation of its tax return. The audit fee was
paid in the first quarter of 1998. Last year this fee was paid in the second
quarter of 1997. In addition, legal fees incurred will also vary due to the
timing of the payments for those services. There was approximately $6,200 of
legal fees incurred during the first quarter of 1998 for the NACG litigation.
The decrease in interest expense is a result of the Partnership borrowing less
funds to acquire equipment for investment in direct financing leases.
The Partnership accrued a $31,659 provision for possible losses for the three
months ended March 31, 1997 based on 1.5% of equipment recorded as an investment
in financing leases. Due to the loss history of the Partnership, the General
Partner has determined to increase the Partnership's general loss allowance to
2% of the Partnership's investment in leases and notes, exclusive of any
specific reserves. The Partnership currently has a general loss reserve of
$256,096 or 2.5% of the lease and note portfolios.
The General Partner has established specific and general loss allowance as
follows:
March 31, 1998 March 31, 1997
-------------- --------------
General Reserve $256,096 $254,477
Specific Reserve - UTS 5,075 8,825
Specific Reserve - InnTouch/CCN -0- 21,996
-------------- ----------
$261,171 $285,298
============== ==========
As previously discussed in the Partnership's 10-K report for 1997, the General
Partner provided for a specific loss reserve of $1,596,739 at December 31, 1997,
equal to the carrying value of the assets leased to North American
Communications Group, Inc. ("NACG"). The Partnership foreclosed on these assets
in February, 1998. As a result, the assets were removed from the Partnership's
books and charged to the specific reserve established at December 31, 1997. The
Partnership will continue to attempt to sell and/or re-lease these assets and
any amounts received through such efforts will be credited as a recovery of
previous charges.
Lease payments receivable of 31 or more days past due amounted to $537,217
(contract balance remaining of $2,982,988) at March 31, 1998. This represents
4.76% of the Partnership's lease payments receivable. The General Partner
continues to monitor these leases and will take whatever steps are necessary to
protect the Partnership's interest in these assets.
As of March 31, 1998, there were 21 customers with payments over 90 days past
due. When payments on a customer's account are past due more than 90 days, the
Partnership discontinues recognizing income on those customer's accounts. The
contract balance remaining on those accounts was $2,194,924. The General Partner
is monitoring these contracts and has determined the Partnership's investment in
these contracts is sufficiently collateralized. Digital Technologies has 20
contracts with amounts past due over 90 days. The contract balance remaining on
these contracts was $1,726,921 at March 31, 1998. The Partnership's net
investment in these contracts at
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March 31, 1998 was $1,646,967. The value of the equipment associated with this
lease exceeds the Partnership's remaining net investment in the equipment. In
addition, the lessee is actively seeking a buyer for the equipment. As such, due
to the value of the assets and the potential buyout of this lease, management
has decided not to provide a provision for possible losses for these contracts.
There are no assurances that the sale will materialize, and other events may
occur that may deteriorate the current value of these assets. Management is
monitoring these contracts and will take whatever steps are necessary to protect
the Partnership's investment in these contracts.
The General Partner has submitted to the Securities and Exchange Commission
("SEC"), a proxy statement outlining its plans for the liquidation process of
the Partnership. Once the SEC has approved the proxy document, it will be sent
to the Unit Holders. The General Partner anticipates sending the proxy statement
to Unit Holders in May of this year.
LIQUIDITY AND CAPITAL RESOURCES Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
Major Cash Sources:
Principal portion of lease payments received $ 548,061 $ 986,154
Proceeds received on sale of leases 249,941 250,984
Net proceeds from debt 658,056 267,642
Major Cash Uses:
Purchase of equipment and leases 1,085,333 1,739,542
Distributions to partners 508,064 509,265
The General Partner does not plan to renew the Partnership's existing
line-of-credit agreement which is due to expire April 30, 1998. Once the
liquidation process begins, a portion of the proceeds received from the
liquidation of the lease portfolio will be used to pay off existing debt. As
such, a line-of credit will not be necessary. Until the liquidation process is
implemented, any short-term borrowing requirement of the Partnership will be
handled by the General Partner.
Effective May 1, 1998, the Partnership will move from the operating phase of its
existence to the liquidation phase. Per the Partnership Agreement, operating
distributions of 12% will not continue and liquidation distributions will begin.
No further lease contracts will be originated. Capital distributions will begin
in May and continue monthly until all assets are liquidated. All payoffs on any
leases will also be distributed as they are received. As any other remaining
assets are sold and ongoing lease payments are received, all of the cash will be
distributed to investors as capital reductions.
PART II
Item 1. Legal Proceedings
-----------------
As reported in the Partnership's 10-K filing for 1997, a
foreclosure proceeding was filed February 20, 1998 against the North American
Communications Group, Inc. leases.
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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: April 1, 1999 Ronald O. Brendengen/s/
----------------- --------------------------------------------------------
Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date: April 1, 1999 Daniel P. Wegmann/s/
----------------- --------------------------------------------------------
Daniel P. Wegmann, Controller
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