SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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: 000-25574
TELECOMMUNICATIONS INCOME FUND X, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Iowa 42-1401715
------------------------------ -----------------
(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 October 24, 2003, 86,290 units were issued and outstanding.
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
Part I. FINANCIAL INFORMATION ----
- -----------------------------
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis)-
September 30, 2003 and December 31, 2002 3
Statement 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 6. Exhibits 8
Signatures 9
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)
September 30, December 31,
2003 2002
-------- --------
ASSETS
Cash and cash equivalents $178,334 $ 49,000
Not readily marketable equity security 107,473 59,250
Net investment in direct financing leases
and notes receivable (Note B) 30,761 177,900
Other assets 14,045 56,036
-------- --------
TOTAL ASSETS 330,613 342,186
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LIABILITIES
Accounts payable 35,811 34,797
Lease security deposits 178 592
Reserve for estimated costs during the
period of liquidation 72,251 120,249
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TOTAL LIABILITIES 108,240 155,638
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CONTINGENCY (Note C)
NET ASSETS $222,373 $186,548
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
--------- --------- --------- ---------
Net assets at beginning of period $ 316,642 $ 278,209 $ 186,548 $ 433,704
Income from direct financing leases,
interest, and other income 5,632 2,050 16,193 16,777
Withdrawals of limited partners -0- (818) (430) (2,101)
Change in estimate of liquidation
value of net assets (99,901) 41,826 20,062 (127,113)
--------- --------- --------- ---------
Net assets at end of period $ 222,373 $ 321,267 $ 222,373 $ 321,267
========= ========= ========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, September 30,
2003 2002
--------- ---------
Operating Activities
Changes in net assets excluding withdrawals and distributions $ 36,255 $(110,336)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (20,062) 127,113
Changes in operating assets and liabilities:
Other assets 41,991 7,052
Accounts payable 1,014 4,938
Reserve for estimated costs during the period of liquidation (76,177) (128,702)
--------- ---------
Net cash from operating activities (16,979) (99,935)
--------- ---------
Investing Activities
Repayments of direct financing leases 38,312 90,095
Proceeds from termination of direct financing leases 368 16,913
Net lease security deposits repaid (414) (21,390)
Repayments of notes receivable 108,477 34,723
--------- ---------
Net cash from investing activities 146,743 120,341
--------- ---------
Financing Activities
Withdrawals paid to partners (430) (2,101)
--------- ---------
Net cash from financing activities (430) (2,101)
--------- ---------
Net increase in cash and cash equivalents 129,334 18,305
Cash and cash equivalents at beginning of period 49,000 46,197
--------- ---------
Cash and cash equivalents at end of period $ 178,334 $ 64,502
========= =========
Supplemental disclosures of cash flow information
Noncash investing and financing activities:
Reclassification of equipment from direct financing
leases to notes receivable $ -0- $ 129,387
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles in the United States 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 December 31, 1999, 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 AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes receivable
consists of the following:
(Liquidation Basis) (Liquidation Basis)
September 30, 2003 December 31, 2002
------------------ -----------------
Minimum lease payments receivable $ -0- $ 3,116
Estimated unguaranteed residual values 750 1,100
Unamortized initial direct costs -0- 1
Unearned income -0- (157)
Notes receivable 136,419 244,896
Adjustment to net realizable value (106,408) (71,056)
--------------- ---------------
Net investment in direct financing leases and notes receivable $ 30,761 $ 177,900
=============== ===============
Note C - CONTINGENCY
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 December 31, 1999, 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 $16,193 in
income from direct financing leases, notes receivable, and other income during
the first nine months of 2003. Management increased its estimate of the
liquidation value of net assets during the first nine months of 2003 by $20,062.
This increase resulted primarily from a recovery of a previous write off of
$277,836, a decrease in the estimated value of equity securities of $229,613,
and an increase in the reserve for estimated costs during the period of
liquidation of $28,179. The recovery of a previous write-off resulted from the
Partnership receiving 750,907 common shares of Polar Molecular Holding
Corporation ("Polar") in July, 2003 as a recovery of a previous write-off of
Murdock Communications Corporation ("Murdock"). The Partnership has accrued the
estimated expenses of liquidation, which is $72,251 at September 30, 2003. The
General Partner reviews this estimate and will adjust quarterly, as needed.
Management is attempting to liquidate the remaining assets of the Partnership as
soon as feasibly possible while trying to obtain the highest proceeds possible.
The Partnership will make distributions to the partners, to the extent cash is
available, as leases, notes receivable, equity securities, and other assets are
collected or 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. As of September 30, 2003 the
Partnership had $178,334 of cash on hand.
As of September 30, 2003, no customers were over 90 days past due. When payments
are past due more than 90 days, the Partnership discontinues recognizing income
on those customer contracts. Management believes its reserves are adequate as of
September 30, 2003. Management will 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 is concentrated in
pay telephones, representing 99% of the portfolio at September 30, 2003. One
customer accounts for over 90% of the Partnership's portfolio of leases and
notes receivable 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 table below provides information about the Partnership's not readily
marketable equity security that is sensitive to price changes as of September
30, 2003.
Carrying Fair
Amount Value
---------- ----------
Common Stock-Polar $ 107,473 $ 107,473
---------- ----------
Total Not Readily Marketable Equity Security $ 107,473 $ 107,473
========== ==========
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 1,343,407 shares of Polar and at September 30,
2003, the total amount at risk was $107,473. 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.
Interest Rate Sensitivity
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. The table presents the
principal amounts and related weighted average interest rates by expected
maturity dates as of September 30, 2003.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2003 $ 125,634 8.1%
2004 3,808 9.5%
2005 4,179 9.5%
2006 2,798 9.5%
-------------
Total $ 136,419
=============
Fair Value $ 30,011
=============
The Partnership manages interest rate risk, its primary market risk exposure
with respect to notes receivable, by limiting the terms of notes receivable to
no more than five years.
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 6. Exhibits
--------
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
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 X, 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