SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2004
Commission File Number 000-25593
TELECOMMUNICATIONS INCOME FUND XI, L.P.
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(Exact name of Small Business Issuer as specified in its charter)
Iowa 39-1904041
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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)
Issuer's telephone number: (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")
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Title of Class
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
As of July 14, 2004, 12,308 units were issued and outstanding.
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
Page
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Part I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 2004 and December 31, 2003 3
Statements of Operations - three months ended June 30, 2004 and 2003 4
Statements of Operations - six months ended June 30, 2004 and 2003 5
Statement of Changes in Partners' Equity - six months ended June 30, 2004 6
Statements of Cash Flows - six months ended June 30, 2004 and 2003 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Controls and Procedures 11
Part II. OTHER INFORMATION
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Item 6. Exhibits 11
Signatures 12
2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
June 30, 2004 December 31, 2003
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ASSETS
Cash and cash equivalents $ 230,277 $ 312,480
Net investment in direct financing leases
and notes receivable (Note B) 630,356 1,312,834
Allowance for possible loan and lease losses (201,058) (522,147)
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Direct financing leases and notes receivable, net 429,298 790,687
Other receivables 52,627 56,388
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TOTAL ASSETS $ 712,202 $ 1,159,555
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Due to affiliates $ 902 $ 1,523
Distributions payable to partners 150,000 98,584
Accounts payable and accrued expenses 36,087 38,616
Lease security deposits 15,234 18,622
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TOTAL LIABILITIES 202,223 157,345
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CONTINGENCY (Note C)
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 1,007 1,405
Limited partners, 12,298 units and 12,313 units
issued and outstanding as of June 30, 2004 and
December 31, 2003, respectively 508,972 1,000,805
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TOTAL PARTNERS' EQUITY 509,979 1,002,210
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TOTAL LIABILITIES AND PARTNERS' EQUITY $ 712,202 $ 1,159,555
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See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
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June 30, 2004 June 30, 2003
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REVENUES:
Income from direct financing leases and notes receivable $ 18,565 $ 59,030
Gain (loss) on lease terminations 615 (1,563)
Other 1,401 5,373
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Total revenues 20,581 62,840
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EXPENSES:
Management fees 3,152 9,724
Administrative services 22,500 38,400
Other 13,447 19,897
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Total expenses 39,099 68,021
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Net loss $(18,518) $ (5,181)
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Net loss per partnership unit $ (1.50) $ (.42)
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Weighted average partnership units outstanding 12,313 12,369
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See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
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June 30, 2004 June 30, 2003
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REVENUES:
Income from direct financing leases and notes receivable $ 44,776 $ 133,635
Gain (loss) on lease terminations (809) 64,032
Other 4,480 9,704
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Total revenues 48,447 207,371
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EXPENSES:
Management fees 6,757 26,950
Administrative services 45,000 76,800
Provision for possible loan and lease losses 50,000 4,000
Other 62,587 80,822
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Total expenses 164,344 188,572
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Net income (loss) $(115,897) $ 18,799
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Net income (loss) per partnership unit $ (9.41) $ 1.52
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Weighted average partnership units outstanding 12,318 12,369
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See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
General Limited Partners Total
Partner -------------------------- Partners'
(10 Units) Units Amounts Equity
----------- ----------- ----------- -----------
Balance at December 31, 2003 $ 1,405 12,313 $ 1,000,805 $ 1,002,210
Distributions to partners (183) 0 (224,817) (225,000)
Net loss (79) 0 (97,300) (97,379)
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Balance at March 31, 2004 1,143 12,313 678,688 679,831
Distributions to partners (121) 0 (149,879) (150,000)
Net loss (15) 0 (18,503) (18,518)
Withdrawals of limited partners 0 (15) (1,334) (1,334)
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Balance at June 30, 2004 $ 1,007 12,298 $ 508,972 $ 509,979
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See accompanying notes.
6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 2004 June 30, 2003
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Operating Activities
Net income (loss) $ (115,897) $ 18,799
Adjustments to reconcile net income (loss) to net cash from operating activities:
Loss (gain) on lease terminations 809 (64,032)
Depreciation and amortization -- 1
Provision for possible loan and lease losses 50,000 4,000
Changes in operating assets and liabilities:
Other receivables 8,468 23,765
Due to affiliates (621) 478
Accounts payable and accrued expenses (2,529) (38,486)
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Net cash from operating activities (59,770) (55,475)
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Investing Activities
Purchases of equipment for direct financing leases -- (37,931)
Repayments of direct financing leases 197,363 426,203
Repayments of notes receivable 76,556 130,734
Proceeds from termination of direct financing leases and notes receivable 31,954 659,613
Net lease security deposits paid (3,388) (10,826)
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Net cash from investing activities 302,485 1,167,793
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Financing Activities
Withdrawals paid to partners (1,334) --
Distributions paid to partners (323,584) (1,193,712)
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Net cash from financing activities (324,918) (1,193,712)
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Net decrease in cash and cash equivalents (82,203) (81,394)
Cash and cash equivalents at beginning of period 312,480 408,718
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Cash and cash equivalents at end of period $ 230,277 $ 327,324
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See accompanying notes.
7
TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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-QSB and
Regulation S-B. 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, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004. 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, 2003.
NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes receivable
consists of the following:
June 30, 2004 December 31, 2003
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Minimum lease payments receivable $ 408,420 $ 683,634
Estimated unguaranteed residual values 34,304 65,187
Unearned income (80,878) (108,192)
Notes receivable 268,510 672,205
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Net investment in direct financing leases and notes receivable $ 630,356 $ 1,312,834
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NOTE C - CONTINGENCY
The General Partner has $1,900,000 of notes payable due December 31, 2004 and
may not have sufficient liquid assets to repay the notes payable which could
impact its ability to continue as a going-concern. The General Partner is
pursuing refinancing and other alternatives to meet its obligations. No
assurance can be provided that the General Partner will be successful in its
efforts.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Results of Operations
Income from direct financing leases and notes receivable was $44,776 for the six
months ending June 30, 2004 compared to $133,635 for the same period of 2003.
The decrease is due to a smaller portfolio of direct financing leases and notes
receivable. The Partnership's net investment in direct financing leases and
notes receivable was $630,356 at June 30, 2004 and $2,514,133 at June 30, 2003.
Other income of $4,480 for the first six months of 2004 is interest income on a
money market account and other investments and late charges on lease payments,
and is down from $9,704 a year ago. The Partnership had a loss on lease
terminations for the first six months of 2004 of $809 compared to a gain of
$64,032 for the same period a year ago. The gain in 2003 was primarily due to
the payoff of one lessee that had previously been on a non-accrual status.
Management fees are paid to the General Partner and represent 2% of the gross
rental payments, loan payments, and other financing payments received. These
gross rental and other payments were $337,850 the first six months of 2004
compared to $1,347,500 for the first six months of 2003.
Administrative services were $45,000 for the first six months of 2004 compared
to $76,800 for the same period a year ago. This expense represents fees paid
monthly to the General Partner for the operation of the Partnership as defined
in the Partnership Agreement.
Other expenses include legal, accounting, data processing, and other
miscellaneous expenses. These costs decreased from $80,822 in 2003 to $62,587 in
2004.
The allowance for possible loan and lease losses is based upon a continuing
review of past lease loss experience, current economic conditions, and the
underlying lease asset value of the portfolio. At the end of each quarter a
review of the allowance account is conducted. The Partnership has a total
allowance of $229,305 ($28,247 relating to other receivables) or 32% of the
portfolio of leases and notes and other receivables as of June 30, 2004. The
Partnership's provision for possible loan and lease losses was $50,000 for the
first six months of 2004 compared to $4,000 for the same period of 2003, and was
the result of various lease and note contract delinquencies charge-offs of
accounts. Management will continue to monitor the portfolio of leases and notes
and adjust the allowance for possible loan and lease losses accordingly.
At June 30, 2004, one customer was past due over 90 days. When a payment is past
due more than 90 days, the Partnership discontinues recognizing income on the
contract. The Partnership's net investment in this past due contract was $4,268.
Management will continue to monitor any past due contracts and take the
necessary steps to protect the Partnership's investment.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, industrial equipment, and office and computer equipment,
representing approximately 65%, 16%, and 12%, respectively, of the portfolio at
June 30, 2004. Three lessees account for approximately 43% of the Partnership's
portfolio at June 30, 2004.
The General Partner has $1,900,000 of notes payable due December 31, 2004 and
may not have sufficient liquid assets to repay the notes payable which could
impact its ability to continue as a going-concern. The General Partner is
pursuing refinancing and other alternatives to meet its obligations. No
assurance can be provided that the General Partner will be successful in its
efforts.
9
Liquidity and Capital Resources
The Partnership is required to establish working capital reserves of no less
than 1% of the total capital raised to satisfy general liquidity requirements,
operating costs of equipment, and the maintenance and refurbishment of
equipment. At June 30, 2004, that working capital reserve, as defined, would be
$125,930, and the Partnership had this amount available from its cash and cash
equivalents.
Cash flow from operating activities was a use of cash of $59,770 for the first
six months of 2004, compared to a use of cash of $55,475 for the same period a
year ago, resulting from the income from direct financing leases and notes
received less operating expenses. Cash flow from investing activities was
$302,485 for 2004, compared to $1,167,793 for 2003, with the decrease primarily
due to a decrease in the proceeds from termination and repayments of direct
financing leases and notes receivable. The Partnership used $324,918 of cash for
financing activities during the first six months of 2004, compared to a use of
cash of $1,193,712 a year ago. This use of cash was to primarily fund
distributions made to partners.
Given the current market in general as well as the specific telecommunications
market, the General Partner has determined to limit its investment in new leases
and notes receivable. As cash is available, the General Partner will continue to
assess market conditions to determine whether to make distributions or reinvest
in new leases and notes receivable during the remaining operating phase of the
Partnership. Beginning in 2004, the Partnership will only distribute cash as it
is available. As the portfolio of leases and notes receivable continues to
decline, it is expected that expenses will exceed revenues except to the extent
the Partnership is able to generate gains on termination.
Market Risk
The table below presents the principal amounts due and related weighted average
interest rates by expected maturity dates pertaining to the Partnership's notes
receivable as of June 30, 2004.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
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2004 $ 66,557 9.79%
2005 108,802 9.67%
2006 90,237 8.00%
2007 2,914 8.00%
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Total $ 268,510
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Fair Value $ 205,000
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The Partnership manages interest rate risk, its primary market risk exposure, by
limiting terms of notes receivable to no more than five years and generally
requiring full repayment ratably over the term of the note.
10
Item 3. Controls and Procedures
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Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of our disclosure controls
and procedures. Based on that evaluation, the CEO and CFO concluded that as of
the end of the period covered by this report, our disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed by us in reports that we file or submit under the
Securities Exchange of 1934 is recorded, processed, summarized, and timely
reported as provided in the SEC's rules and forms.
Changes in Internal Controls
No changes occurred since the quarter ended March 31, 2004 in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Part II. Other Information
Item 6. Exhibits
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Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
11
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 XI, L.P.
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(Registrant)
Date: July 28, 2004 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: July 28, 2004 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
12