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 September 30, 2004
Commission File Number 000-25593
TELECOMMUNICATIONS INCOME FUND XI, L.P.
---------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
Iowa 39-1904041
------------------------------ -----------------
(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")
------------------------------------------
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 October 8, 2004, 12,283 units were issued and outstanding.
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 2004 and December 31, 2003 3
Statements of Operations - three months ended
September 30, 2004 and 2003 4
Statements of Operations - nine months ended
September 30, 2004 and 2003 5
Statement of Changes in Partners' Equity - nine months ended
September 30, 2004 6
Statements of Cash Flows - nine months ended
September 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
Item 6. Exhibits 11
Signatures 12
2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
September 30, December 31,
2004 2003
----------- -----------
ASSETS
Cash and cash equivalents $ 215,982 $ 312,480
Net investment in direct financing leases
and notes receivable (Note B) 509,949 1,312,834
Allowance for possible loan and lease losses (209,212) (522,147)
----------- -----------
Direct financing leases and notes receivable, net 300,737 790,687
Other receivables 27,838 56,388
----------- -----------
TOTAL ASSETS $ 544,557 $ 1,159,555
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Due to affiliates $ 587 $ 1,523
Distributions payable to partners 150,000 98,584
Accounts payable and accrued expenses 35,641 38,616
Lease security deposits 13,804 18,622
----------- -----------
TOTAL LIABILITIES 200,032 157,345
----------- -----------
CONTINGENCY (Note C)
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 872 1,405
Limited partners, 12,273 units and 12,313 units
issued and outstanding as of September 30, 2004 and
December 31, 2003, respectively 343,653 1,000,805
----------- -----------
TOTAL PARTNERS' EQUITY 344,525 1,002,210
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 544,557 $ 1,159,555
=========== ===========
See accompanying notes
3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
September 30, September 30,
2004 2003
---- ----
REVENUES:
Income from direct financing leases and notes receivable $ 14,107 $ 45,300
Gain (loss) on lease terminations 3,918 (506)
Other 4,431 9,003
-------- --------
Total revenues 22,456 53,797
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EXPENSES:
Management fees 2,706 7,664
Administrative services 22,500 38,400
Other 11,324 19,460
-------- --------
Total expenses 36,530 65,524
-------- --------
Net loss $(14,074) $(11,727)
======== ========
Net loss per partnership unit $ (1.14) $ (.95)
======== ========
Weighted average partnership units outstanding 12,294 12,359
======== ========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
-----------------
September 30, September 30,
2004 2003
REVENUES: ---- ----
Income from direct financing leases and notes receivable $ 58,883 $ 178,935
Gain on lease terminations 3,109 63,526
Other 8,911 18,707
--------- ---------
Total revenues 70,903 261,168
--------- ---------
EXPENSES:
Management fees 9,463 34,614
Administrative services 67,500 115,200
Provision for possible loan and lease losses 50,000 4,000
Other 73,911 100,282
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Total expenses 200,874 254,096
--------- ---------
Net income (loss) $(129,971) $ 7,072
========= =========
Net income (loss) per partnership unit $ (10.56) $ .57
========= =========
Weighted average partnership units outstanding 12,310 12,366
========= =========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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)
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
Balance at June 30, 2004 1,007 12,298 508,972 509,979
Distributions to partners (123) 0 (149,877) (150,000)
Net loss (12) 0 (14,062) (14,074)
Withdrawals of limited partners 0 (25) (1,380) (1,380)
----------------------------------------------------------------------
Balance at September 30, 2004 $ 872 12,273 $ 343,653 $ 344,525
======================================================================
See accompanying notes.
6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30
2004 2003
---- ----
Operating Activities
Net income (loss) $ (129,971) $ 7,072
Adjustments to reconcile net income (loss) to net cash from operating activities:
Loss (gain) on lease terminations (3,109) (63,526)
Depreciation and amortization -- 1
Provision for possible loan and lease losses 50,000 4,000
Changes in operating assets and liabilities:
Other receivables 44,723 30,498
Due to affiliates (936) 179
Accounts payable and accrued expenses (2,975) (37,448)
----------- -----------
Net cash from operating activities (42,268) (59,224)
----------- -----------
Investing Activities
Purchases of equipment for direct financing leases -- (37,931)
Issuance of note receivable -- (41,000)
Repayments of direct financing leases 266,560 639,029
Repayments of notes receivable 111,003 174,213
Proceeds from termination of direct financing leases and notes receivable 49,323 847,168
Net lease security deposits paid (4,818) (13,589)
----------- -----------
Net cash from investing activities 422,068 1,567,890
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Financing Activities
Withdrawals paid to partners (2,714) (2,991)
Distributions paid to partners (473,584) (1,490,408)
----------- -----------
Net cash from financing activities (476,298) (1,493,399)
----------- -----------
Net increase (decrease) in cash and cash equivalents (96,498) 15,267
Cash and cash equivalents at beginning of period 312,480 408,718
----------- -----------
Cash and cash equivalents at end of period $ 215,982 $ 423,985
=========== ===========
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 nine months ended September 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:
September 30, 2004 December 31, 2003
------------------ -----------------
Minimum lease payments receivable $ 316,112 $ 683,634
Estimated unguaranteed residual values 32,110 65,187
Unearned income (72,408) (108,192)
Notes receivable 234,135 672,205
-------------- --------------
Net investment in direct financing leases and notes receivable $ 509,949 $ 1,312,834
============== ==============
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.
8
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 $58,883 for the
nine months ending September 30, 2004 compared to $178,935 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 $509,949 at September 30, 2004 and $1,935,366 at
September 30, 2003. Other income of $8,911 for the first nine months of 2004 is
interest income on a money market account and other investments and late charges
on lease payments, and is down from $18,707 a year ago. The Partnership had a
gain on lease terminations for the first nine months of 2004 of $3,109 compared
to a gain of $63,526 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 $473,150 the first nine months of 2004
compared to $1,730,700 for the first nine months of 2003.
Administrative services were $67,500 for the first nine months of 2004 compared
to $115,200 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 $100,282 in 2003 to $73,911
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 $225,994 ($16,782 relating to other receivables) or 41% of the
portfolio of leases and notes and other receivables as of September 30, 2004.
The Partnership's provision for possible loan and lease losses was $50,000 for
the first nine 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 September 30, 2004, two customers were 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 these past due contracts
was $49,179. 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 computer equipment, representing
approximately 65%, 20%, and 12%, respectively, of the portfolio at September 30,
2004. Four lessees account for approximately 59% of the Partnership's portfolio
at September 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 September 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 $42,268 for the first
nine months of 2004, compared to a use of cash of $59,224 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
$422,068 for 2004, compared to $1,567,890 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 $476,298 of cash for
financing activities during the first nine months of 2004, compared to a use of
cash of $1,493,399 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 September 30, 2004.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2004 $ 26,761 9.88%
2005 107,523 9.91%
2006 95,835 9.78%
2007 4,016 8.00%
-------------
Total $ 234,135
=============
Fair Value $ 177,000
=============
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
-----------------------
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 June 30, 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
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.
---------------------------------------
(Registrant)
Date: November 9, 2004 /s/ Ronald O. Brendengen
---------------- --------------------------------------
Ronald O. Brendengen,
Chief Financial Officer, Treasurer
Date: November 9, 2004 /s/ Daniel P. Wegmann
---------------- --------------------------------------
Daniel P. Wegmann, Controller
12