SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2004
Commission File Number: 000-25574
TELECOMMUNICATIONS INCOME FUND X, L.P.
---------------------------------------------------------------
(Exact name of Small Business Issuer 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
-------------------------------------- --------
(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")
------------------------------------------
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 April 16, 2004, 86,252 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)-
March 31, 2004 and December 31, 2003 3
Statement of Changes in Net Assets (Liquidation Basis)-
three months ended March 31, 2004 and 2003 4
Statements of Cash Flows-three months ended March 31,
2004 and 2003 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. 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)
March 31, December 31,
2004 2003
-------- --------
ASSETS
Cash and cash equivalents $100,321 $111,642
Not readily marketable equity security 204,870 120,907
Notes receivable, net (Note B) 55,203 60,009
Other assets 19,474 23,178
-------- --------
TOTAL ASSETS $379,868 $315,736
======== ========
LIABILITIES
Accounts payable $ 35,500 $ 21,796
Reserve for estimated costs during the
period of liquidation 45,648 61,900
-------- --------
TOTAL LIABILITIES 81,148 83,696
-------- --------
CONTINGENCY (Note C)
NET ASSETS 298,720 232,040
-------- --------
$379,868 $315,736
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended
March 31
2004 2003
---- ----
Net assets at beginning of period $ 232,040 $ 186,548
Income from direct financing leases,
interest, and other income 2,717 7,104
Withdrawals of limited partners -0- (341)
Change in estimate of liquidation
value of net assets 63,963 (19,273)
--------- ---------
Net assets at end of period $ 298,720 $ 174,038
========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2004 2003
--------- ---------
Operating Activities
Changes in net assets excluding withdrawals and distributions $ 66,680 $ (12,169)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (63,963) 19,273
Changes in operating assets and liabilities:
Other assets 3,704 2,324
Accounts payable 13,704 (3,831)
Reserve for estimated costs during the period of liquidation (36,252) (56,428)
--------- ---------
Net cash from operating activities (16,127) (50,831)
--------- ---------
Investing Activities
Repayments of direct financing leases -0- 649
Proceeds from termination of direct financing leases -0- 367
Net lease security deposits repaid -0- (158)
Repayments of notes receivable 4,806 95,649
--------- ---------
Net cash from investing activities 4,806 96,507
--------- ---------
Financing Activities
Withdrawals paid to partners -0- (341)
--------- ---------
Net cash from financing activities -0- (341)
--------- ---------
Net increase (decrease) in cash and cash equivalents (11,321) 45,335
Cash and cash equivalents at beginning of period 111,642 49,000
--------- ---------
Cash and cash equivalents at end of period $ 100,321 $ 94,335
========= =========
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-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 three months ended March 31, 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.
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 - NOTES RECEIVABLE, NET
The Partnership's net notes receivable consists of the following:
(Liquidation Basis) (Liquidation Basis)
March 31, 2004 December 31, 2003
--------------- ---------------
Notes receivable $ 117,013 $ 120,009
Adjustment to net realizable value (61,810) (60,000)
--------------- ---------------
Notes receivable, net $ 55,203 $ 60,009
=============== ===============
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.
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 $2,717 in
income from direct financing leases, notes receivable, and other income during
the first three months of 2004. Management increased its estimate of the
liquidation value of net assets during the first three months of 2004 by
$63,963. This increase was due to an increase in the estimated net realizable
value of an equity security held by the Partnership of $83,963 offset by an
increase in the estimated expenses of liquidation of $20,000. The Partnership
has accrued the estimated expenses of liquidation, which is $45,648 at March 31,
2004. 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 March 31, 2004, the
Partnership had $100,321 of cash on hand.
As of March 31, 2004, 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
March 31, 2004. Management will monitor any past due contracts and take the
necessary steps to protect the Partnership's investment.
The Partnership's notes receivable are concentrated in pay telephones,
representing 100% of the portfolio at March 31, 2004. One customer accounts for
over 90% of the Partnership's notes receivable at March 31, 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.
Market Risk
The table below provides information about the Partnership's not readily
marketable equity security that is sensitive to price changes as of March 31,
2004.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Polar $ 204,870 $ 204,870
============= =============
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
7
invested in to satisfy debt obligations and their ability to maintain or improve
common equity values. Polar has historically had operating losses and its equity
price can be volatile. The Partnership holds 1,343,407 shares of Polar and at
March 31, 2004, the total amount at risk was $204,870. 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.
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 March 31, 2004.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2004 $ 109,806 8.1%
2005 4,156 9.5%
2006 3,051 9.5%
-------------
Total $ 117,013
=============
Fair Value $ 55,203
=============
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 3. Controls and Procedures
-----------------------
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 December 31, 2003 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
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: May 10, 2004 /s/ Ronald O. Brendengen
------------ -----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: May 10, 2004 /s/ Daniel P. Wegmann
------------ -----------------------------------
Daniel P. Wegmann, Controller
9