10-Q 1 c64508e10-q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2001 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.) 701 Tama Street, Marion, Iowa 52302 ---------------------------------------------- (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. Yes [X] No [ ] As of July 31, 2001, 66,570 units were issued and outstanding. Based on the book value at June 30, 2001 of $5.22 per unit, the aggregate market value at July 31, 2001 was $347,495. 2 TELECOMMUNICATIONS INCOME FUND IX, L.P. INDEX

2 3 TELECOMMUNICATIONS INCOME FUND IX, L.P. STATEMENTS OF NET ASSETS (UNAUDITED)

3 4 TELECOMMUNICATIONS INCOME FUND IX, LP. STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)

See accompanying notes. 4 5 TELECOMMUNICATIONS INCOME FUND IX, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND IX, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) June 30, 2001 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-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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000. 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 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. On April 11, 2001, Actel Integrated Communications, Inc. ("Actel") filed for Chapter 11 bankruptcy. The Partnership decreased its estimate of the liquidation value of net assets due to the change in the value of the 34,947 shares of Actel preferred stock. This stock has been deemed to have no value and $78,630 was written off in the first quarter. Also, relating to the Actel bankruptcy, the Partnership increased the allowance for possible loan and lease losses by $70,000 in the first quarter, to write off the remaining carrying value of notes receivable of Murdock Communications Corporation ("Murdock"). Murdock's primary asset was the preferred stock of Actel. In August 2000, the Partnership set up a note receivable for $870,000 for equipment previously held under operating lease. The buyer was scheduled to make three payments totaling the $870,000. Payments totaling $329,278 were made in the years 2000 and 2001, resulting in $540,722 being carried on the statement of net assets as a note receivable at the end of the first quarter of 2001. A new agreement was signed selling the equipment for $348,000. The first payment of $87,000 was received in June 2001. The remaining payments are scheduled to be received in the third quarter of 2001. The new agreement resulted in a loss of $192,722 for the Partnership. 6 7 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:

NOTE C - CONTINGENCIES Telcom Management Systems filed a suit against the Partnership, the General Partner, and others in Federal Court in Dallas, Texas during February 1998. The plaintiffs purchased equipment from the Partnership out of a bankruptcy for approximately $450,000. They alleged that when they attempted to sell the equipment at a later date, the Partnership had not provided good title. The General Partner filed a Motion for Summary Judgement, which is still pending. After filing the suit, the plaintiff transferred assets in lieu of bankruptcy. The bankruptcy trustee is now reviewing the transfer to determine if the transfer was done in fraud of creditors. The bankruptcy court had granted several extensions and the litigation was on hold until the trustee had made a decision, however, in mid September of 2000 the extension expired and was not renewed. The Motion for Summary Judgement filed by the General Partner has been denied. No further action has been taken at this time by the plaintiff. No loss, if any, has been recorded in the financial statements with respect to this matter. On January 10, 2000, SA Communications, Inc., a debtor in bankruptcy, filed a complaint in the United States Bankruptcy Court for the District of Delaware against the Partnership to avoid transfers and to recover property transferred. The complaint alleged that on September 10, 1997, the debtor paid a check in the amount of $45,069.83 to the Partnership, which constituted a preferential transfer in favor of the Partnership. The Partnership filed an answer denying that the payment constituted a preference. Initially, there was a requirement that the parties should exchange discovery documents but that exchange of documents has been continued indefinitely. The Partnership believes that the payment was received in the ordinary course of business and should not constitute a preferential transfer. No loss, if any, has been recorded in the financial statements with respect to this matter. The General Partner has approximately $2,200,000 of notes payable and redeemable preferred stock maturing in 2001 and may not have sufficient liquid assets to repay such amounts. The General Partner is pursuing additional financing, refinancing, and asset sales to meet its obligations. No assurance can be provided that the General Partner will be successful in its efforts. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 $7,286 in income from direct financing leases, notes receivable, and other income during the first six months of 2001. This represents an annualized return on average net assets of approximately 2.6%. Also, management decreased its estimate of the liquidation value of net assets during the first six months of 2001 by $352,350. This is primarily due to the change in the estimated net investment in direct financing leases and notes receivable, as discussed in the paragraphs below. The Partnership has accrued the estimated expenses of liquidation, which is $107,294 at June 30, 2001. The General Partner reviews this estimate and will adjust quarterly, as needed. On April 11, 2001, Actel Integrated Communications, Inc. ("Actel") filed for Chapter 11 bankruptcy. The Partnership decreased its estimate of the liquidation value of net assets due to the change in the value of the 34,947 shares of Actel preferred stock. This stock has been deemed to have no value and $78,630 was written off in the first quarter. Also, relating to the Actel bankruptcy, the Partnership increased the allowance for possible loan and lease losses by $70,000 in the first quarter, to write off the remaining carrying value of notes receivable of Murdock Communications Corporation ("Murdock"). Murdock's primary asset was the preferred stock of Actel. In August 2000, the Partnership set up a note receivable for $870,000 for equipment previously held under operating lease. The buyer was scheduled to make three payments totaling the $870,000. Payments totaling $329,278 were made in the years 2000 and 2001, resulting in $540,722 being carried on the statement of net assets as a note receivable at the end of the first quarter of 2001. A new agreement was signed selling the equipment for $348,000. The first payment of $87,000 was received in June 2001. The remaining payments are scheduled to be received in the third quarter of 2001. The new agreement resulted in a loss of $192,722 for the Partnership. The Partnership will continue to make distributions to the partners as leases and notes receivable are collected or sold and other assets are 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 June 30, 2001 there was one customer with payments over 90 days past due. When payments are past due more than 90 days, the Partnership discontinues recognizing income on those contracts. The Partnership's net investment in this contract at June 30, 2001 was $43,751. Management believes its reserve is adequate related to this customer. 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 almost exclusively in pay telephones. The pay telephones make up approximately 92% of the portfolio at June 30, 2001. 8 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EQUITY PRICE SENSITIVITY The tables provide information about the Partnership's marketable and not readily marketable equity securities that are sensitive to changes in prices. The tables present the carrying amounts and fair values as of June 30, 2001.

The Partnership's primary market risk exposure with respect to equity securities 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 securities held is derived from the underlying ability of the entity invested in to satisfy debt obligations and its ability to maintain or improve common equity values. Since the investments are in an emerging company, the equity price can be volatile. At June 30, 2001, the total amount at risk was $11,109. The Partnership holds 69,473 shares of Murdock common stock as a marketable equity security and 178,645 shares as not readily marketable, due to restrictions imposed by rule 144 of the Securities and Exchange Commission. 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 June 30, 2001. Expected Fixed Rate Average Maturity Date Notes Receivable Interest Rate ------------- ---------------- ------------- 2001 261,000 8.00% ----------- Total $ 261,000 =========== Fair Value $ 261,000 =========== The Partnership manages interest rate risk, its primary risk exposure with respect to notes receivable, by limiting the terms of notes receivable to no more than five years. 9 10 PART II ITEM 1. LEGAL PROCEEDINGS Telcom Management Systems filed a suit against the Partnership, the General Partner, and others in Federal Court in Dallas, Texas during February 1998. The plaintiffs purchased equipment from the Partnership out of a bankruptcy for approximately $450,000. They alleged that when they attempted to sell the equipment at a later date, the Partnership had not provided good title. The General Partner filed a Motion for Summary Judgement, which is still pending. After filing the suit, the plaintiff transferred assets in lieu of bankruptcy. The bankruptcy trustee is now reviewing the transfer to determine if the transfer was done in fraud of creditors. The bankruptcy court had granted several extensions and the litigation was on hold until the trustee had made a decision, however, in mid September of 2000 the extension expired and was not renewed. The Motion for Summary Judgement filed by the General Partner has been denied. No further action has been taken at this time by the plaintiff. No loss, if any, has been recorded in the financial statements with respect to this matter. On January 10, 2000, SA Communications, Inc., a debtor in bankruptcy, filed a complaint in the United States Bankruptcy Court for the District of Delaware against the Partnership to avoid transfers and to recover property transferred. The complaint alleged that on September 10, 1997, the debtor paid a check in the amount of $45,069.83 to the Partnership, which constituted a preferential transfer in favor of the Partnership. The Partnership filed an answer denying that the payment constituted a preference. Initially, there was a requirement that the parties should exchange discovery documents but that exchange of documents has been continued indefinitely. The Partnership believes that the payment was received in the ordinary course of business and should not constitute a preferential transfer. No loss, if any, has been recorded in the financial statements with respect to this matter. 10 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 IX, L.P. (Registrant) Date: August 13, 2001 /s/ Ronald O. Brendengen --------------- ---------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: August 13, 2001 /s/ Daniel P. Wegmann --------------- ---------------------------------- Daniel P. Wegmann, Controller 11

TELECOMMUNICATIONS INCOME FUND IX LP 10-Q