1
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 June 30, 1998 Commission File Number 0-21458
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.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
--------------------------------------------------------------
(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")
------------------------------------------
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 June 30, 1998, 67,742 Units were issued and outstanding. Based on the book
value of $135.02 per Unit, the aggregate market value at June 30, 1998 was
$9,146,690.
2
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 August 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 June 30, 1998, under the liquidation basis of accounting,
pursuant to the Registrant's plan of liquidation. See Note E.
2
3
TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- -------------------------------- ----
ITEM 1. Financial Statements (unaudited).
Statements of Net Assets - June 30, 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 June 30, 1997; three months ended
March 31, 1998 and six months ended June 30, 1997 5
Statement of Changes in Net Assets, as restated (Liquidation
Basis) three months ended June 30, 1998 7
Statements of Cash Flows -
six months ended June 30, 1998 and six months ended June 30, 1997 8
Notes to financial statements 9
ITEM 2. Management's discussion and analysis of financial condition and results of operations 12
PART II. OTHER INFORMATION
- ----------------------------
ITEM 1. Legal proceedings 15
SIGNATURES 16
3
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
(Liquidation Basis) (Going Concern Basis)
June 30, 1998
As Restated (Note E) December 31, 1997
-------------------- ----------------------
ASSETS
Cash and cash equivalents $ 263,640 $ 458,893
Available-for-sale security 55,650 65,389
Not readily marketable securities 191,600 -0-
Net investment in direct financing leases 8,202,968 11,513,511
Allowance for possible lease losses -0- (1,922,056)
------------ ------------
Direct financing leases net (Note B) 8,202,968 9,591,455
Equipment leased under operating leases, less
accumulated depreciation of $261,600 at
December 31, 1997 (Note C) 910,397 1,041,197
Equipment held for sale 29,290 51,000
Intangibles, less accumulated amortization of
$9,258 at December 31, 1997 -0- 48,582
Other assets 98,865 384,060
------------ ------------
TOTAL ASSETS 9,752,410 11,640,576
------------ ------------
LIABILITIES
Line of credit agreement (Note D) -0- 50,557
Trade accounts payable 11,943 17,336
Due to affiliates 2,697 96,472
Accrued expenses and other liabilities 131,632 202,272
Lease security deposits 236,286 365,752
Reserve for estimated costs during
the period of liquidation 462,080 -0-
------------ ------------
Total Liabilities 844,638 732,389
------------ ------------
NET ASSETS $ 8,907,772 $ 10,908,187
============ ============
See accompanying notes.
4
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS) (UNAUDITED)
Three Months Ended
June 30, 1997
-------------
INCOME:
Lease income $ 591,120
Interest income 1,666
Gain on lease terminations 6,392
Other 4,900
------------
Total Income 604,078
------------
EXPENSES:
Management fees 71,102
Administrative services 21,955
Interest 52,761
Professional fees 38,200
Provision for possible losses 7,264
Depreciation 77,149
Other 27,911
------------
Total expenses 296,342
------------
Net income 307,736
Other comprehensive income:
Unrealized gain on available
for sale security 4,104
------------
Comprehensive income $ 311,840
============
Net income per partnership unit $ 4.53
============
Weighted average partnership units outstanding 67,894
See accompanying notes.
5
6
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS) (UNAUDITED)
Three Months Ended Six Months Ended
March 31, 1998 June 30, 1997
-------------- -------------
INCOME:
Lease income $ 356,900 $ 1,179,475
Interest income 11,544 3,150
Gain on lease terminations 8,808 18,522
Other 24,768 6,162
------------ ------------
Total Income 402,020 1,207,309
------------ ------------
EXPENSES:
Management fees 48,928 148,337
Administrative services 23,866 45,822
Interest 16,817 95,926
Professional fees 31,748 41,131
Provision for possible losses 64,711 38,923
Depreciation 76,255 154,554
Other 45,572 40,195
------------ ------------
Total expenses 307,897 564,888
------------ ------------
Net income 94,123 642,421
Other comprehensive income (loss):
Unrealized gain (loss) on available
for sale security (20,869) 6,470
------------ ------------
Comprehensive income $ 73,254 $ 648,891
============ ============
Net income per partnership unit $ 1.39 $ 9.46
============ ============
Weighted average partnership units outstanding 67,742 67,898
See accompanying notes.
6
7
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1998
As Restated
Note E
------
NET ASSETS AS OF MARCH 31, 1998 $ 10,288,026
Income from direct financing leases 219,533
Interest and other income 34,692
Change in estimate of liquidation value of net assets,
primarily equipment under operating lease (65,123)
Distributions to partners ($23.17 per unit) (1,569,356)
------------
NET ASSETS AS OF JUNE 30, 1998 $ 8,907,772
============
7
See accompanying notes.
8
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Six Months Ended
OPERATING ACTIVITIES June 30, 1998 June 30, 1997
------------- -------------
Change in net assets excluding distributions,
redemptions, and liquidation adjustments $ 415,984 $ 642,421
Adjustments to reconcile to net cash
provided by operating activities:
Amortization of deferred organization costs 1,038 2,076
Provision for possible losses 64,711 38,923
Depreciation 75,566 154,554
Gain on lease terminations (8,808) (18,522)
Changes in operating assets and liabilities:
(Increase) decrease in other assets (6,509) 37,830
Increase (decrease) in trade accounts payable
excluding equipment purchase cost accrued (5,393) 28,891
Decrease in due to affiliates (93,775) (18,205)
Increase (decrease) in accrued expenses (70,640) (48,530)
------------ ------------
Net cash provided by operating activities 372,174 819,438
------------ ------------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (1,085,333) (2,594,844)
Repayments of direct financing leases 554,848 1,114,831
Proceeds from sale of direct financing leases 2,178,294 491,841
Net security deposits collected (repaid) (87,259) 34,127
------------ ------------
Net cash provided by (used in) investing activities 1,560,550 (954,045)
------------ -----------
FINANCING ACTIVITIES
Distributions paid to partners (2,077,420) (509,208)
Redemption of partnership units -0- (5,175)
Repayment of note payable -0- (203,989)
Net proceeds from line-of-credit borrowings (50,557) 422,642
------------ ------------
Net cash from financing activities (2,127,977) (295,730)
------------ ------------
Net decrease in cash and cash equivalents (195,253) (430,337)
Cash and cash equivalents at beginning of period 458,893 497,144
-------------- ------------
Cash and cash equivalents at end of period $ 263,640 $ 66,807
============= ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 17,457 $ 104,576
Non-cash activities:
North American miscellaneous receivable write off (291,704) 0
North American security deposits written off 42,207 0
Notes receivable converted to investment in not
readily marketable securities 191,600 0
See accompanying notes
8
9
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 six months ended June 30, 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 and
for the three months ended June 30, 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. See Note E.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
(Liquidation Basis) (Going Concern Basis)
June 30, 1998 December 31, 1997
----------------------- -----------------
Lease payments receivable $8,884,999 $ 12,427,455
Estimated unguaranteed residual values of
leased equipment 808,881 1,192,611
Unearned lease income (1,722,228) (2,571,275)
Unamortized initial direct costs 23,323 30,028
Notes receivable 217,321 434,692
Allowance for possible losses (233,875) (1,922,056)
Notes receivable 224,547 -0-
---------- ----------
Net investment in direct financing leases
and notes receivable $8,202,968 $9,591,455
========== ==========
NOTE C - EQUIPMENT LEASED UNDER OPERATING LEASES
In March, 1996, the Partnership exercised its right to manage the assets
leased to In-Touch Communications, Inc. due to non-payment of lease receivables.
The Partnership entered into a management agreement with Custom Communications
Network ("CCN") to operate the route. Under this agreement, CCN
9
10
was to pay the Partnership an amount based on a percent of CCN's monthly net
cash proceeds from operating the route. The net investment in this lease at that
time approximated $1,370,000. In 1996, a charge of $284,308 was made to the loss
reserve to reflect what management estimated would be recoverable under this
agreement. The agreement permitted the deferral of some payments that were due
in 1997. Pursuant to the agreement, CCN used cash flow to add pay telephones to
the business. Further, the Partnership's lease position was increased to include
71% of all of the telephones operated by CCN, including the telephones added as
a result of the payment deferral. During the course of 1997, the number of
payphones subject to this lease increased from approximately 330 to
approximately 530. Based upon the normal industry value per installed pay
telephone, the $906,397 carrying value of this lease is believed to be
recoverable. CCN continues to operate the phone route as an operating lease
described above. As of June 30, 1998, the number of payphones has increased to
approximately 582. Until a definitive agreement or purchase commitment is
received by the Partnership for the sale of these assets, it will be carried as
an operating lease. To date, the Partnership has not been successful in finding
a purchaser.
NOTE D - CREDIT ARRANGEMENTS
The Partnership had a line-of-credit agreement with a bank that expired April
30, 1998. The balance due on the agreement was fully paid off and will not be
renewed.
NOTE E - RESTATEMENT
Subsequent to the issuance of the Partnership's Form 10-Q for the quarter ended
June 30, 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 June 30, 1998 required to convert from the going
concern (historical cost) basis to the liquidation basis of accounting was a
decrease in carrying value of $238,918. Significant increases (decreases) in the
carrying value of net assets are summarized as follows:
Partners' equity as previously reported (going concern basis) $ 9,146,690
-----------
Increase to reflect net realizable value of
net investment in direct financing leases 224,547
Write-off of intangible assets (1,385)
Record estimated liabilities associated with
carrying out the liquidation (462,080)
-----------
Net decrease in carrying value (238,918)
---------
Net assets as restated (liquidation basis) $ 8,907,772
===========
10
11
A summary of the significant effects of the restatement is as follows:
As
Previously As
Reported Restated
AT JUNE 30, 1998
Total Assets $ 9,529,248 $ 9,752,410
Total Liabilities 382,558 844,638
Total Partners' Equity 9,146,690 -0-
Net Assets in Liquidation -0- 8,907,772
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.
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------------------------------------------------------------------------
OF OPERATIONS
- -------------
RESULTS OF OPERATIONS Three Months Ended June 30 Six Months Ended June 30
- --------------------- -------------------------- ------------------------
1998 1997 1998 1997
------- ------- ------- -------
Description:
Lease income $ 219,533 $ 591,120 $ 576,433 $1,179,475
Management fees 9,901 71,102 58,829 148,337
Interest expense 5,403 52,761 22,220 95,926
Professional Fees 35,663 38,200 67,411 41,131
Provision for possible losses -0- 7,264 64,711 38,923
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 and
for the three months ended June 30, 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. Initial leases are expiring. As a result,
both the size of the Partnership's portfolio and the amount of lease income are
declining.
Since the Partnership is in its liquidation phase, management fees paid to the
General Partner have been discontinued. Since the line of credit has been paid
off, interest expense will decline to zero.
The Partnership incurs professional fees each year for the audit of its
financial records and for the preparation of its tax return. In addition, legal
fees are incurred and will vary due to the timing of the payments for those
services.
The Partnership was accruing a provision for possible losses based on 1.5% of
equipment purchases. The Partnership currently has a loss reserve of $233,875 or
2.8% of the lease and note portfolios. Management will continue to monitor the
remaining portfolio and adjust the loss reserve if needed.
The Partnership has established specific and general loss allowance as follows:
June 30, 1998 June 30, 1997
------------- -------------
General Reserve $228,800 $283,738
Specific Reserve - UTS 5,075 8,825
----------- -----------
$233,875 $292,563
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. 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 these assets and any amounts
received through such efforts will be credited as a recovery of previous
charges.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
Lease payments receivable of 31 or more days past due amounted to $776,861
(contract balance remaining of $3,597,133) at June 30, 1998. This represents
8.74% 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 June 30, 1998, there were 25 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 $2,499,934. 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 June 30, 1998.
The Partnership's remaining net investment in these contracts at June 30, 1998
was $1,646,967. The value of the equipment associated with this lease exceeds
the Partnership's remaining net investment in the equipment. Subsequent to June
30, 1998, management has entered into an agreement for the sale of the equipment
associated with the Digital Technologies leases. This sale will be in the form
of a note agreement and will result in a deferred gain of approximately $200,000
for the Partnership.
The General Partner had submitted, to the Securities and Exchange Commission
("SEC"), a preliminary proxy statement proposing plans for the liquidation
process and seeking limited partner approval to amend the Partnership Agreement
to enable the General Partner to conduct certain liquidation plans. The General
Partner notified the SEC on June 11, 1998 that the preliminary proxy statement
was being abandoned. It is the General Partner's intent to liquidate the
Partnership in accordance with the terms of the Partnership Agreement. The
Partnership is required to dissolve and distribute all of its assets no later
than December 31, 1999, or earlier, upon the occurrence of certain events.
The Partnership recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed its
computer applications and business processes to provide for their continued
functionality. An assessment of the readiness of external entities with which it
interfaces, such as vendors, counterparties, customers, payment systems, and
others, is ongoing. The Partnership does not expect the cost to address the Year
2000 to be material.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership has not yet fully determined
whether the Year 2000 issue has been addressed by all of its customers. If the
Partnership's customers have not addressed this issue, it could lead to
non-payments of amounts owed to the Partnership. The Partnership has contacted
all of its customers regarding this issue. The customers contacted have
indicated various stages of readiness. The Partnership will continue to
determine customer Year 2000 compliance by follow-up with customers who have
indicated non-compliance.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
Major Cash Sources:
- -------------------
Principal portion of lease payments received $ 554,848 $ 1,114,831
Proceeds received on sale of leases 2,178,294 491,841
Net proceeds from debt -0- 218,653
Major Cash Uses:
- ----------------
Purchase of equipment and leases 1,085,333 2,594,844
Distributions to partners 2,077,420 1,018,473
Net payments on debt 50,557 -0-
Proceeds received from the liquidation of a portion of the lease portfolio have
been used to pay off existing debt and fund distributions to investors.
Effective May 1, 1998, the Partnership moved from the operating phase of its
existence to the liquidation phase. Pursuant to the Partnership Agreement,
operating distributions of 12% were discontinued and liquidation distributions
have begun. No further lease contracts will be originated. Capital liquidating
distributions began in May and will continue until all assets are liquidated.
All payoffs on any leases will be distributed as they are received. As any other
remaining assets are sold and ongoing lease payments are received, all of the
cash received will be distributed to investors as capital reductions.
The total return on capital over a leasing partnership's life can only be
determined at the termination of the Partnership, after all the residual cash
flows have been realized. However, all liquidating distributions of the Partners
will be a return of capital.
The General Partner currently anticipates that the Partnership will generate
cash flow from rentals and equipment sales for the remainder of 1998, which
should provide sufficient cash to enable the Partnership to meet its current
operating requirements and to fund liquidating distributions of limited
partners.
Since May 1, 1998 through June 30, 1998, the Partnership funded liquidating
distributions of $1,400,000 to investors as capital reductions.
14
15
PART II
Item 1. Legal Proceedings
As reported in the Partnership's 10-K filing for 1997, a foreclosure proceeding
was filed on February 20, 1998 by the Partnership and Telecommunications Income
Fund X, L.P. against the North American Communication Group, Inc. ("NACG").
On February 20, 1998, the Partnership filed a Petition to Foreclose Security
Interests in the amount of $1,862,388 against NACG, CWC Communications, Inc.,
North American Communications Corporation (Missouri) d/b/a North American
Communications of Georgia, Inc., North American Communications of Mississippi,
Incorporated, North American Communications Group, Inc. d/b/a North American
Communications of Louisiana, Inc. Troy P. Campbell, Sr. as Guarantor and Archie
W. Welch, Jr. as Guarantor, in the Iowa District Court for Linn County located
in Cedar Rapids, Iowa. The Defendants appeared in court and asked for additional
time to file their answer, which was granted by the court.
On approximately May 20, 1998, Defendants filed a Motion to Dismiss For Lack of
Personal Jurisdiction, which was opposed by the Plaintiff TIFIX. A Hearing was
held July 31, 1998, in order for each side to argue the motion before the court.
The parties are awaiting the decision of the judge from that hearing before the
next step in the foreclosure can take place.
15
16
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
16