Item 1. Business -------- Telecommunications Income Fund IX, L.P., an Iowa limited partnership (the "Partnership"), was organized on April 2, 1991. The general partner is Berthel Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa corporation that has been in operation since 1988. The Partnership's business and the executive offices of the General Partner are located at 701 Tama Street, Marion, Iowa 52302. Substantially all of the voting stock of the General Partner is owned by Berthel Fisher & Company ("Berthel Fisher").
The Partnership began offering Units to the public on October 31, 1991 and continued to offer Units to the public through April 30, 1993. The Partnership was originally scheduled to dissolve by December 31, 1999. However, in November, 1999, the partners voted to extend the Partnership until December 31, 2005, unless dissolved sooner due to the occurrence of any of the following events: (i) the vote by limited partners owning a majority of the Partnership in accordance with the Partnership Agreement; (ii) the withdrawal, bankruptcy, or dissolution and liquidation or other cessation to exist as a legal entity of the General Partner (unless any successor general partner elected in accordance with the provisions of the Partnership Agreement elects to continue the business of the Partnership); (iii) the final distribution of all liquidating distributions among the limited partners pursuant to the Partnership Agreement; or (iv) the sale or disposition of all or substantially all of the assets of the Partnership without the subsequent reinvestment in equipment.
The Partnership entered the liquidation phase on May 1, 1998 and must be dissolved by December 31, 2005. During the liquidation process, the orderly collection of lease payments will continue. Also, early payoff of leases and sales of equipment will be a priority. If leases can be sold for an adequate return to the investor, the sale of lease receivables will be pursued. Proceeds from the sale of net assets, including the sale of any portion of the lease portfolio, will be distributed to Partners.
The Partnership acquired telecommunications equipment (primarily pay telephones and call processing equipment) and leased the equipment to third parties generally under full payout leases. The Partnership also acquired other types of equipment that is subject to full payout leases. Full payout leases are leases that are expected to generate gross rental payments sufficient to recover the purchase price of the subject equipment and any overhead and acquisition costs.
The General Partner acquired and approved leases on behalf of the Partnership. The General Partner established guidelines to use in approving lessees. Generally, before any lease was approved, there was a review of the potential lessees' financial statements, credit references were checked, and outside business and/or individual credit reports were obtained.
The Partnership's equipment leases are concentrated in the pay telephones representing approximately 81%, 79%, and 34% of the Partnership's direct finance lease portfolio at December 31, 2002, 2001, and 2000, respectively. Computer equipment represented approximately 19%, 19%, and 12% of the Partnership's portfolio at December 31, 2002, 2001, and 2000, respectively. At December 31, 2002, only two customers remained. The Partnership operates in one segment.
The Partnership has no employees and utilizes the administrative services of the General Partner for which it pays an administrative service fee.
Item 2.
Item 2. Properties ---------- The Partnership does not own or lease any real estate. The Partnership's materially important properties consist entirely of equipment under lease, as described in Item 1.
Item 3.
Item 3. 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
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations - -------------
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 financial statements beginning with the second quarter of 1998 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 are stated at their anticipated settlement amounts. Although management will make every effort to collect leases, sell equipment, and maximize equity positions as quickly as possible, no assurance can be given that the Partnership will be dissolved prior to December 31, 2005.
As discussed above, the Partnership is in liquidation and does not believe a comparison of results would be meaningful. The Partnership realized $9,087 in income from direct financing leases, notes receivable, interest, and other income during 2002. The Partnership will make distributions to the partners, to the extent cash is available for distribution, as leases are collected or sold and equity securities (common shares of Murdock Communications Corporation ("Murdock")) 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. Through December 31, 2002, there have been distributions totalling $21,473,163. As of December 31, 2002 the Partnership had $56,921 of cash on hand.
Management increased its estimate of the liquidation value of net assets during 2002 by $3,376 due to the change in the carrying value of equity securities of $8,654, a gain on lease terminations of $15,722, and offset by an increase in the reserve for estimated costs during the period of liquidation of $21,000. The Partnership has accrued the estimated expenses of liquidation, which is $49,971 at December 31, 2002. The General Partner reviews this estimate and will adjust quarterly, as needed.
As of December 31, 2002 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 December 31, 2002 was $8,005. This contract was paid in full in February, 2003, resulting in proceeds of $9,332 and a gain of $3,025. Management believes its reserves are adequate as of December 31, 2002. Management will continue to monitor any past due contracts and take the necessary steps to protect the Partnership's investment.
The General Partner is engaged directly for its own account in the business of acquiring and leasing equipment. The General Partner serves as the general partner of Telecommunications Income Fund X, L.P. ("TIF X") and Telecommunications Income Fund XI, L.P. ("TIF XI"), publicly owned limited partnerships that are engaged in the equipment leasing business. Also, an affiliate of the General Partner serves as a general partner of a privately offered active limited partnership. As of December 31, 2002, the net proceeds of the private program, TIF X, and TIF XI have been invested in specific equipment. TIF X entered the liquidation phase on December 31, 1999. The activities of the General Partner, in regards to its other leasing activities, has had no impact on the Partnership to date in management's opinion.
The General Partner is not aware of any regulatory issues that may have a substantial negative impact within the telecommunications industry in which the Partnership conducts a significant amount of its business. There are, and will continue to be, regulatory issues within the telecommunications industry that the General Partner will monitor.
The equipment leases acquired by the Partnership were financed to yield rates of return between 15% and 20%, and terms varying from 36 to 60 months. Rates charged on a particular lease depended on a variety of factors, including the size of the transaction and the financial strength of the lessee. Inflation affects the cost of equipment purchased and the residual values realized when leases terminate and equipment is sold.
Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2 million of unsecured debt that was due December 31, 2002. Berthel Fisher & Company, Inc. has not paid this debt as of the filing of this report and is in default. Since Berthel Fisher & Company, Inc. is in default, its creditors could take legal action to enforce their right to repayment. Ultimately, this could result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General Partner is a subsidiary and asset of Berthel Fisher & Company, Inc., the bankruptcy of Berthel Fisher & Company, Inc. could cause the General Partner to be unable to continue as a going concern. If this were to happen, the Partnership would need to elect or 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.
Liquidity and Capital Resources Under terms of the Partnership agreement, the Partnership is required to establish working capital reserves of no less than 1% of the total capital raised, or $169,755. At December 31, 2002, actual cash on hand was $56,921. However, upon entering the liquidation phase, the General Partner has prioritized the liquidation of assets and distributing remaining proceeds to the partners. Management believes that the cash on hand at December 31, 2002 is sufficient to satisfy current operating expenses and costs of the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Equity Price Sensitivity The following table provides information about the Partnership's not readily marketable equity security that is sensitive to price changes as of December 31, 2002.
Carrying Amount Fair Value --------------- ----------- Common Stock-Murdock $ 24,812 $ 24,812 ----------- ----------- Not readily marketable equity security $ 24,812 $ 24,812 =========== ===========
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. Since the investment is in a shell company with no operations, the equity price can be volatile. The Partnership holds 248,118 shares of Murdock and at December 31, 2002, the total amount at risk was $24,812. Murdock has filed an S-4 registration with the intent to merge with another company. The Partnership intends to hold the Murdock shares to determine if any significant value can be achieved from this potential merger. No assurance can be given that the merger will be consummated or that any value can be realized if the merger is consummated.
Item 8. Financial Statements and Supplementary Data ------------------------------------------- The following financial statements and related information as of and for the years ended December 31, 2002, 2001, and 2000 are included in Item 8:
Independent Auditors' Report Statements of Net Assets as of December 31, 2002 and 2001 (Liquidation Basis) Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended December 31, 2002, 2001 and 2000 Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Partners Telecommunications Income Fund IX, L.P.
We have audited the accompanying statements of net assets (liquidation basis) of Telecommunications Income Fund IX, L.P. (the "Partnership") as of December 31, 2002 and 2001, and the related statements of changes in net assets (liquidation basis) and of cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Partnership agreement required that the orderly liquidation of the Partnership's net assets begin in the second quarter of 1998, and the Partnership commenced liquidation shortly thereafter. As a result, the Partnership changed its basis of accounting from the going concern basis to the liquidation basis effective March 31, 1998.
In our opinion, such financial statements present fairly, in all material respects, the net assets of Telecommunications Income Fund IX, L.P. at December 31, 2002 and 2001, and the changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America on the basis described in Note 1.
As discussed in Note 1 to the financial statements, because of the inherent uncertainty of valuation when an entity is in liquidation, the amounts realizable from the disposition of the remaining assets may differ materially from the amounts shown in the accompanying financial statements.
/s/ DELOITTE & TOUCHE LLP - ----------------------------- DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa March 10, 2003
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 - --------------------------------------------------------------------------------
NET ASSETS AS OF JANUARY 1, 2000 $ 1,189,969
Income from direct financing leases 13,876 Interest and other income 7,830 Change in estimate of liquidation value of net assets (Note 1) (106,867) Distributions to partners ($4.49 per unit) (Note 6) (300,000) Withdrawals of limited partners (11,164) ===========
NET ASSETS AS OF DECEMBER 31, 2000 793,644
Income from direct financing leases 6,753 Interest and other income 7,100 Change in estimate of liquidation value of net assets (Note 1) (347,320) Distributions to partners ($6.39 per unit) (Note 6) (424,940) Withdrawals of limited partners (1,572) ===========
NET ASSETS AS OF DECEMBER 31, 2001 33,665
Income from direct financing leases 7,293 Interest and other income 1,794 Change in estimate of liquidation value of net assets (Note 1) 3,376 Withdrawals of limited partners (367) ===========
NET ASSETS AS OF DECEMBER 31, 2002 $ 45,761 ===========
See notes to financial statements.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimated. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the net realizable values of the Partnership's assets and the reserve for estimated costs during the period of liquidation.
The Partnership's equity security at December 31, 2002 consists of a common stock investment in one company. A prospective buyer may require a substantially lower price than currently estimated and the prospects of this company may deteriorate. These factors, among others, could have a material near-term impact on the net realizable value of its equity security.
Most of the Partnership's leases are with customers that are highly leveraged and require financing in place of or to supplement financing from banks. Although the Partnership attempts to mitigate its credit risk through timely collection efforts, failure of the Partnership's customers to make scheduled payments under their equipment leases could have a material near-term impact on the net realizable value of leases.
Realization of residual values on the Partnerships' underlying leased equipment depends on many factors, several of which are not within the Partnership's control, including general market conditions at the time of the lease contract's expiration, whether there has been unusual wear and tear on, or use of, the equipment, the cost of comparable new equipment, the extent, if any, to which the equipment has become technologically or economically obsolete during the contract term and the effects of any additional or amended government regulations. Also, the market for pay telephone equipment is volatile. These factors, among others, could have a material near-term impact on the net realizable value of leases.
Certain Risk Concentrations - The Partnership's portfolio of lease receivables are concentrated in pay telephones and computer equipment, representing approximately 81% and 19% at December 31, 2002 and 79% and 19% at December 31, 2001, respectively, of the Partnership's direct finance lease portfolio.
Two customers represented 100% of the Partnership's net investment in direct financing leases at December 31, 2002 (three customers represented 94% at December 31, 2001).
Related Party Transactions - In fulfilling its role as general partner, Berthel Fisher & Company Leasing, Inc. enters into transactions with the Partnership in the normal course of business. Further, the Partnership also enters into transactions with affiliates of Berthel Fisher & Company Leasing, Inc. These transactions are set forth in the notes that follow. Management is of the opinion that these transactions are in accordance with the terms of the Agreement of Limited Partnership.
Cash and Cash Equivalents - The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Equity Securities - The Partnership's common equity security is restricted as to sale in the public market under rules of the Securities and Exchange Commission. The common equity security is valued at an estimated discount from the published market price reflective of its more illiquid nature.
The Partnership's preferred equity security was valued at its estimated net realizable value, based on benchmark comparisons to similar public companies.
Net Investment in Direct Financing Leases - The Partnership's primary activity consisted of leasing telecommunications equipment under direct financing leases generally over a period of three to five years. At the time of closing a direct financing lease, the Partnership recorded the gross lease contract receivable, the estimated unguaranteed residual value, and unearned lease income. The unearned lease income represents the excess of the gross lease receivable plus the estimated unguaranteed residual value over the cost of the equipment leased. In addition, the Partnership capitalized all initial direct costs associated with originating the direct financing lease. The unearned income and initial direct costs are amortized to income over the lease term so as to produce a constant periodic rate-of-return on the net investment in the lease. Lessees are responsible for all taxes, insurance, and maintenance costs.
The realization of the estimated unguaranteed residual value of leased equipment depends on the value of the leased equipment at the end of the lease term and is not a part of the contractual agreement with the lessee. Estimated residual values are based on estimates of amounts historically realized by the Partnership for similar equipment and are periodically reviewed by management for possible impairment.
Notes Receivable - Notes receivable were carried at the principal balance outstanding. Interest income on notes receivable was accrued based on the principal amount outstanding.
Allowance for Possible Loan and Lease Losses - The Partnership performed credit evaluations prior to approval of a loan and lease. Subsequently, the creditworthiness of the customer and the value of the underlying assets are monitored on an ongoing basis. Under its lease agreements, the Partnership retains legal ownership of the leased asset. The Partnership maintains an allowance for possible loan and lease losses which could arise should customers become unable to discharge their obligations under the loan and lease agreements. The allowance for possible loan and lease losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan and lease portfolio. The allowance is based upon a continuing review of past loss experience, current economic conditions, delinquent loans and leases, an estimate of potential loss exposure on significant customers in adverse situations, and the underlying asset value. The consideration of such future potential losses also includes an evaluation for other than temporary declines in value of the underlying assets. Loans and leases, which are deemed uncollectible, are charged off and deducted from the allowance. The provision for possible loan and lease losses and recoveries are added to the allowance.
Net Realizable Value of Net Investment in Direct Financing Leases and Notes Receivable - Management, in arriving at the net realizable value of the Partnership's net investment in direct financing leases and notes receivable, considers the contractual repayment schedule, the estimated duration of the liquidation period, the customer and industry concentration risk, and interest rate levels, among other factors, in arriving at a discount to apply to the portfolio to estimate its net realizable value.
Tax Status - Under present income tax laws, the Partnership is not liable for income taxes, as each partner recognizes a proportionate share of the Partnership income or loss in their income tax return. Accordingly, no provision for income taxes is made in the financial statements of the Partnership.
Net Distributions Per Partnership Unit - Net distributions per partnership unit is based on the weighted average number of units outstanding (including both general and limited partners' units).
Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation.
2. EQUITY SECURITY
The Partnership's not readily marketable equity security consists of the following at December 31, 2002 and 2001:
2002 2001
248,118 common shares at December 31, 2002 and 2001 of Murdock Communications Corporation, a public shell company with no operations $24,812 $16,158 ======= =======
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Partnership's net investment in direct financing leases consists of the following at December 31, 2002 and 2001:
2002 2001
Minimum lease payments receivable $ 45,330 $ 82,272 Estimated unguaranteed residual values 2 13,047 Unearned income (3,429) (9,472) Unamortized initial direct costs 2 Adjustment to estimated net realizable value (22,924) (26,403) -------- -------- Net investment in direct financing leases $ 18,979 $ 59,446 ======== ========
At December 31, 2002, the future minimum payments to be received under the direct financing leases and the estimated unguaranteed residuals to be realized at the expiration of the direct financing leases are as follows:
Minimum Estimated Lease Unguaranteed Payments Residual Receivable Values Years ending December 31: 2003 $ 45,330 $ 2 ======== ========
The Partnership leases equipment or provides financing to certain companies for which the General Partner or its affiliates have an ownership interest in, provide financing to, or provide investment advisory services for such companies. The Partnership's net investment in direct financing leases with these companies were $8,005 and $12,762 at December 31, 2002 and 2001, respectively.
Four customers accounted for 10% or more of the amount of income from direct financing leases during one or more of the years presented, as follows:
2002 2001 2000
Customer A 94 % Customer B 49 % 35 % Customer C 22 22 Customer D 18 21
4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses for the years ended December 31, 2002, 2001 and 2000 are as follows:
2002 2001 2000
Balance at beginning of year $ 26,403 $ 75,897 $ 100,343 Provision 70,000 Charge-offs, net of recoveries (3,479) (119,494) (24,446) --------- --------- --------- Balance at end of year $ 22,924 $ 26,403 $ 75,897 ========= ========= =========
The allowance for possible loan and lease losses consisted of specific allowances of $22,924, $0 and $47,846 for certain leases and general unallocated allowances of $0, $26,403 and $28,051 at December 31, 2002, 2001 and 2000, respectively. The allowance at December 31, 2002, 2001 and 2000 is included in the estimated net realizable value adjustment discussed in Note 3.
In June, 2000, the Partnership's two leases with Murdock Communications Corporation ("Murdock") were converted to notes and stock as part of a restructuring. At the time of the restructuring, the Partnership's net investment in the contracts totaled $174,811. The Partnership received two notes and recorded these at their estimated net realizable value of $127,879 and 34,947 (adjusted for a stock split) shares of preferred stock in AcTel, a not readily marketable security. The estimated net realizable value of the AcTel preferred stock was $78,630 at December 31, 2000. The Partnership did not accrue interest on the notes receivable due to the uncertainty of Murdock's ability to pay. The Partnership established a specific allowance of $47,846 at December 31, 2000 for the notes receivable related to this uncertainty. The Partnership increased the allowance for loan and lease losses by $70,000 in 2001 and wrote-off the carrying value of the notes receivable as Murdock's primary asset was AcTel preferred stock and AcTel filed for bankruptcy in April 2001.
At December 31, 2002, one customer was past due over 90 days. The Partnership's net investment in contracts with this customer totaled $8,005. Subsequent to year end, the Partnership received a full pay-off of the balance due. At December 31, 2001, two customers were past due over 90 days. The Partnership's net investment in contracts with these customers totaled $55,913. Management believes that the underlying collateral is adequate to recover the Partnership's net investment. If a lease or note receivable is past due more than 90 days, the Partnership discontinues recognizing income on the contract.
5. EQUIPMENT
In August 2000, the Partnership recorded a note receivable for $870,000 for equipment previously held under operating lease. The buyer was scheduled to make three payments totaling $870,000. Payments totaling $329,278 were made in 2000 and 2001, resulting in a $540,722 note receivable balance at the end of the first quarter of 2001. Due to nonpayment on the note receivable, a new agreement was signed selling the equipment for $348,000, which was collected in full during 2001. The new agreement resulted in a loss of $192,722 for the Partnership.
6. LIMITED PARTNERSHIP AGREEMENT
The Partnership was formed pursuant to an Agreement of Limited Partnership dated as of April 2, 1991 and amended August 12, 1991 (the "Agreement"). The Agreement outlines capital contributions to be made by the partners and the allocation of cash distributions, net income, and net loss to the partners. Capital contributions by the partners to the Partnership consist of the $10,000 contributed by the General Partner and the amounts contributed by limited partners for the purchase of their units.
Net income or net loss allocated to the limited partners will be apportioned among them based on the number of limited partnership units held and on the number of months within the respective year that such units were held. Any share of Partnership net loss will first be allocated to the limited partners to the extent of their positive capital account balances. Any share of additional net loss will be allocated to the General Partner. Any Partnership net income will first be allocated to partners with negative capital accounts in proportion to, and to the extent of, such negative capital accounts. Except as provided below, any additional net income will then be allocated to the General Partner and limited partners based on number of units held. During liquidation of the Partnership, when cash distributions are to be made 80% to the limited partners and 20% to the General Partner (see below), net income will be allocated 80% to the limited partners and 20% to the General Partner.
During the Partnership's operating phase, to the extent there is cash available for distribution, cash distributions will be made on a monthly or quarterly basis in the following order of priority: first, to reimburse the General Partner for administrative services it provides to the Partnership, as further described in the Agreement (see Note 7); second, to the limited partners up to amounts representing a 12% annual return on their adjusted capital contribution (as defined), of which 8% annually will be cumulative; and third, to the General Partner, representing a monthly equipment management fee of 5% of the gross rental payments received by the Partnership. To the extent that cash is not available to pay all or a portion of the equipment management fee pursuant to the above priority distributions, such fee will accrue and accumulate. Any remaining cash distributions after payment of the above (including arrearages) will be paid, at the discretion of the General Partner, to the limited partners.
During the Partnership's liquidation phase, cash available for distribution will be distributed in the following order of priority: first, for payment of the General Partner's administrative services expense described above; second, to the limited partners for any arrearage in their 8% cumulative priority return; third, to the limited partners for 100% of their adjusted capital contributions; fourth, to the limited partners, distributions totaling 12% annually, noncompounded, on their adjusted capital contributions; fifth, to the General Partner for any arrearage in its equipment management fee; and, sixth, 80% to the limited partners and 20% to the General Partner (provided, however, that the General Partner will not receive such amounts unless the limited partners have received total distributions equal to their capital contribution plus a 12% annualized return).
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
None
PART III
Item 10. Directors & Executive Officers of the Registrant ------------------------------------------------
A. The General Partner of the registrant: Berthel Fisher & Company Leasing, Inc., an Iowa corporation.
B. Executive officers of the General Partner of the Registrant:
Thomas J. Berthel (age 51) - Mr. Berthel is the Chief Executive Officer, President, and Director of the General Partner, a position he has held since the General Partner's inception in 1988. Mr. Berthel is also President and a Director of the General Partner's parent, Berthel Fisher & Company, Inc. ("Berthel Fisher"), which he founded in 1985, and Berthel Fisher's other subsidiaries, Berthel Fisher & Company Financial Services, Inc.; Berthel Fisher & Company Management Corp.; Berthel Fisher & Company Planning, Inc.; and one other corporation which acts as general partner of a separate private program. He also serves as the Chairman of the Board and Director of Amana Colonies Golf Course, Inc. Mr. Berthel holds a bachelor's degree from St. Ambrose College in Davenport, Iowa (1974). From 1974 to 1982, Mr. Berthel was President and majority shareholder of Insurance Planning Services Corporation in Maquoketa, Iowa, which was engaged in the operation of a securities and insurance business. Mr. Berthel holds a Financial and Operation Principal license issued by the National Association of Securities Dealers, Inc. Mr. Berthel is also a Certified Life Underwriter. Mr. Berthel also serves as an individual general partner of the limited partnership referred to above. Mr. Berthel received a MBA degree from the University of Iowa in 1993.
Ronald O. Brendengen (age 48) - Mr. Brendengen is the Treasurer, Chief Operating Officer, Chief Financial Officer, and a Director (1988 to present) of the General Partner. He was elected to his current offices in January 1998. He had previously served as Secretary (1994 - March, 1995), Treasurer (August 1995 - - 1988) and Chief Financial Officer (1994 - August 1995) of the General Partner. He served as Controller (1985-1993), Treasurer (1987-present), Chief Financial Officer, Secretary and a Director (1987-present), and was also elected Chief Operating Officer in January 1998, of Berthel Fisher & Company, the parent company of the General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial Officer and a Director of Berthel Fisher & Company Planning, Inc., the trust advisor of Berthel Growth & Income Trust I, a company required to file reports pursuant to the Securities Exchange Act of 1934. He also serves in various offices and as a Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a certified public accounting certificate and worked in public accounting during 1984 and 1985. From 1979 to 1984, Mr. Brendengen worked in various capacities for Morris Plan and MorAmerica Financial Corp., Cedar Rapids, Iowa. Mr. Brendengen attended the University of Iowa before receiving a bachelor's degree in Accounting and Business Administration with a minor in Economics from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a) 1. Financial Statements. Page No. Statements of Net Assets as of December 31, 2002 and 2001 (Liquidation Basis) 8
Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended December 31, 2002, 2001 and 2000 9
Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 10
Notes to Financial Statements 11
2. Financial Statements Schedules Information pursuant to Rule 12-09 (Schedule II) is included in the financial statements and notes thereto.
3. Exhibits 3,4 Amended and Restated Agreement of Telecommunications Income Fund IX, L.P. currently in effect dated as of August 12, 1991 (1)
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K No reports on Form 8-K were filed in the fourth quarter of 2002.
- -------------------------
(1) Incorporated herein by reference to Partnership Exhibit A to the prospectus included in the Partnership's post effective amendment No. 4 to Form S-1 registration statement filed on December 22, 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Thomas J. Berthel Date: March 25, 2003 -------------------------------- Thomas J. Berthel President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 25, 2003 -------------------------------- Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Thomas J. Berthel Date: March 25, 2003 - ------------------------------------ Thomas J. Berthel Chief Executive Officer President, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Ronald O. Brendengen Date: March 25, 2003 - ------------------------------------ Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Daniel P. Wegmann Date: March 25, 2003 - ------------------------------------ Daniel P. Wegmann Controller Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Leslie D. Smith Date: March 25, 2003 - ------------------------------------ Leslie D. Smith Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Thomas J. Berthel ----------------------------------- Thomas J. Berthel President and Chief Executive Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Ronald O. Brendengen ----------------------------------- Ronald O. Brendengen Chief Financial Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations - -------------
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 financial statements beginning with the second quarter of 1998 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 are stated at their anticipated settlement amounts. Although management will make every effort to collect leases, sell equipment, and maximize equity positions as quickly as possible, no assurance can be given that the Partnership will be dissolved prior to December 31, 2005.
As discussed above, the Partnership is in liquidation and does not believe a comparison of results would be meaningful. The Partnership realized $9,087 in income from direct financing leases, notes receivable, interest, and other income during 2002. The Partnership will make distributions to the partners, to the extent cash is available for distribution, as leases are collected or sold and equity securities (common shares of Murdock Communications Corporation ("Murdock")) 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. Through December 31, 2002, there have been distributions totalling $21,473,163. As of December 31, 2002 the Partnership had $56,921 of cash on hand.
Management increased its estimate of the liquidation value of net assets during 2002 by $3,376 due to the change in the carrying value of equity securities of $8,654, a gain on lease terminations of $15,722, and offset by an increase in the reserve for estimated costs during the period of liquidation of $21,000. The Partnership has accrued the estimated expenses of liquidation, which is $49,971 at December 31, 2002. The General Partner reviews this estimate and will adjust quarterly, as needed.
As of December 31, 2002 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 December 31, 2002 was $8,005. This contract was paid in full in February, 2003, resulting in proceeds of $9,332 and a gain of $3,025. Management believes its reserves are adequate as of December 31, 2002. Management will continue to monitor any past due contracts and take the necessary steps to protect the Partnership's investment.
The General Partner is engaged directly for its own account in the business of acquiring and leasing equipment. The General Partner serves as the general partner of Telecommunications Income Fund X, L.P. ("TIF X") and Telecommunications Income Fund XI, L.P. ("TIF XI"), publicly owned limited partnerships that are engaged in the equipment leasing business. Also, an affiliate of the General Partner serves as a general partner of a privately offered active limited partnership. As of December 31, 2002, the net proceeds of the private program, TIF X, and TIF XI have been invested in specific equipment. TIF X entered the liquidation phase on December 31, 1999. The activities of the General Partner, in regards to its other leasing activities, has had no impact on the Partnership to date in management's opinion.
The General Partner is not aware of any regulatory issues that may have a substantial negative impact within the telecommunications industry in which the Partnership conducts a significant amount of its business. There are, and will continue to be, regulatory issues within the telecommunications industry that the General Partner will monitor.
The equipment leases acquired by the Partnership were financed to yield rates of return between 15% and 20%, and terms varying from 36 to 60 months. Rates charged on a particular lease depended on a variety of factors, including the size of the transaction and the financial strength of the lessee. Inflation affects the cost of equipment purchased and the residual values realized when leases terminate and equipment is sold.
Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2 million of unsecured debt that was due December 31, 2002. Berthel Fisher & Company, Inc. has not paid this debt as of the filing of this report and is in default. Since Berthel Fisher & Company, Inc. is in default, its creditors could take legal action to enforce their right to repayment. Ultimately, this could result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General Partner is a subsidiary and asset of Berthel Fisher & Company, Inc., the bankruptcy of Berthel Fisher & Company, Inc. could cause the General Partner to be unable to continue as a going concern. If this were to happen, the Partnership would need to elect or 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.
Liquidity and Capital Resources Under terms of the Partnership agreement, the Partnership is required to establish working capital reserves of no less than 1% of the total capital raised, or $169,755. At December 31, 2002, actual cash on hand was $56,921. However, upon entering the liquidation phase, the General Partner has prioritized the liquidation of assets and distributing remaining proceeds to the partners. Management believes that the cash on hand at December 31, 2002 is sufficient to satisfy current operating expenses and costs of the Partnership.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Equity Price Sensitivity The following table provides information about the Partnership's not readily marketable equity security that is sensitive to price changes as of December 31, 2002.
Carrying Amount Fair Value --------------- ----------- Common Stock-Murdock $ 24,812 $ 24,812 ----------- ----------- Not readily marketable equity security $ 24,812 $ 24,812 =========== ===========
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. Since the investment is in a shell company with no operations, the equity price can be volatile. The Partnership holds 248,118 shares of Murdock and at December 31, 2002, the total amount at risk was $24,812. Murdock has filed an S-4 registration with the intent to merge with another company. The Partnership intends to hold the Murdock shares to determine if any significant value can be achieved from this potential merger. No assurance can be given that the merger will be consummated or that any value can be realized if the merger is consummated.
Item 8.
Item 8. Financial Statements and Supplementary Data ------------------------------------------- The following financial statements and related information as of and for the years ended December 31, 2002, 2001, and 2000 are included in Item 8:
Independent Auditors' Report Statements of Net Assets as of December 31, 2002 and 2001 (Liquidation Basis) Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended December 31, 2002, 2001 and 2000 Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Partners Telecommunications Income Fund IX, L.P.
We have audited the accompanying statements of net assets (liquidation basis) of Telecommunications Income Fund IX, L.P. (the "Partnership") as of December 31, 2002 and 2001, and the related statements of changes in net assets (liquidation basis) and of cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Partnership agreement required that the orderly liquidation of the Partnership's net assets begin in the second quarter of 1998, and the Partnership commenced liquidation shortly thereafter. As a result, the Partnership changed its basis of accounting from the going concern basis to the liquidation basis effective March 31, 1998.
In our opinion, such financial statements present fairly, in all material respects, the net assets of Telecommunications Income Fund IX, L.P. at December 31, 2002 and 2001, and the changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America on the basis described in Note 1.
As discussed in Note 1 to the financial statements, because of the inherent uncertainty of valuation when an entity is in liquidation, the amounts realizable from the disposition of the remaining assets may differ materially from the amounts shown in the accompanying financial statements.
/s/ DELOITTE & TOUCHE LLP - ----------------------------- DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa March 10, 2003
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 - --------------------------------------------------------------------------------
NET ASSETS AS OF JANUARY 1, 2000 $ 1,189,969
Income from direct financing leases 13,876 Interest and other income 7,830 Change in estimate of liquidation value of net assets (Note 1) (106,867) Distributions to partners ($4.49 per unit) (Note 6) (300,000) Withdrawals of limited partners (11,164) ===========
NET ASSETS AS OF DECEMBER 31, 2000 793,644
Income from direct financing leases 6,753 Interest and other income 7,100 Change in estimate of liquidation value of net assets (Note 1) (347,320) Distributions to partners ($6.39 per unit) (Note 6) (424,940) Withdrawals of limited partners (1,572) ===========
NET ASSETS AS OF DECEMBER 31, 2001 33,665
Income from direct financing leases 7,293 Interest and other income 1,794 Change in estimate of liquidation value of net assets (Note 1) 3,376 Withdrawals of limited partners (367) ===========
NET ASSETS AS OF DECEMBER 31, 2002 $ 45,761 ===========
See notes to financial statements.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimated. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the net realizable values of the Partnership's assets and the reserve for estimated costs during the period of liquidation.
The Partnership's equity security at December 31, 2002 consists of a common stock investment in one company. A prospective buyer may require a substantially lower price than currently estimated and the prospects of this company may deteriorate. These factors, among others, could have a material near-term impact on the net realizable value of its equity security.
Most of the Partnership's leases are with customers that are highly leveraged and require financing in place of or to supplement financing from banks. Although the Partnership attempts to mitigate its credit risk through timely collection efforts, failure of the Partnership's customers to make scheduled payments under their equipment leases could have a material near-term impact on the net realizable value of leases.
Realization of residual values on the Partnerships' underlying leased equipment depends on many factors, several of which are not within the Partnership's control, including general market conditions at the time of the lease contract's expiration, whether there has been unusual wear and tear on, or use of, the equipment, the cost of comparable new equipment, the extent, if any, to which the equipment has become technologically or economically obsolete during the contract term and the effects of any additional or amended government regulations. Also, the market for pay telephone equipment is volatile. These factors, among others, could have a material near-term impact on the net realizable value of leases.
Certain Risk Concentrations - The Partnership's portfolio of lease receivables are concentrated in pay telephones and computer equipment, representing approximately 81% and 19% at December 31, 2002 and 79% and 19% at December 31, 2001, respectively, of the Partnership's direct finance lease portfolio.
Two customers represented 100% of the Partnership's net investment in direct financing leases at December 31, 2002 (three customers represented 94% at December 31, 2001).
Related Party Transactions - In fulfilling its role as general partner, Berthel Fisher & Company Leasing, Inc. enters into transactions with the Partnership in the normal course of business. Further, the Partnership also enters into transactions with affiliates of Berthel Fisher & Company Leasing, Inc. These transactions are set forth in the notes that follow. Management is of the opinion that these transactions are in accordance with the terms of the Agreement of Limited Partnership.
Cash and Cash Equivalents - The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Equity Securities - The Partnership's common equity security is restricted as to sale in the public market under rules of the Securities and Exchange Commission. The common equity security is valued at an estimated discount from the published market price reflective of its more illiquid nature.
The Partnership's preferred equity security was valued at its estimated net realizable value, based on benchmark comparisons to similar public companies.
Net Investment in Direct Financing Leases - The Partnership's primary activity consisted of leasing telecommunications equipment under direct financing leases generally over a period of three to five years. At the time of closing a direct financing lease, the Partnership recorded the gross lease contract receivable, the estimated unguaranteed residual value, and unearned lease income. The unearned lease income represents the excess of the gross lease receivable plus the estimated unguaranteed residual value over the cost of the equipment leased. In addition, the Partnership capitalized all initial direct costs associated with originating the direct financing lease. The unearned income and initial direct costs are amortized to income over the lease term so as to produce a constant periodic rate-of-return on the net investment in the lease. Lessees are responsible for all taxes, insurance, and maintenance costs.
The realization of the estimated unguaranteed residual value of leased equipment depends on the value of the leased equipment at the end of the lease term and is not a part of the contractual agreement with the lessee. Estimated residual values are based on estimates of amounts historically realized by the Partnership for similar equipment and are periodically reviewed by management for possible impairment.
Notes Receivable - Notes receivable were carried at the principal balance outstanding. Interest income on notes receivable was accrued based on the principal amount outstanding.
Allowance for Possible Loan and Lease Losses - The Partnership performed credit evaluations prior to approval of a loan and lease. Subsequently, the creditworthiness of the customer and the value of the underlying assets are monitored on an ongoing basis. Under its lease agreements, the Partnership retains legal ownership of the leased asset. The Partnership maintains an allowance for possible loan and lease losses which could arise should customers become unable to discharge their obligations under the loan and lease agreements. The allowance for possible loan and lease losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan and lease portfolio. The allowance is based upon a continuing review of past loss experience, current economic conditions, delinquent loans and leases, an estimate of potential loss exposure on significant customers in adverse situations, and the underlying asset value. The consideration of such future potential losses also includes an evaluation for other than temporary declines in value of the underlying assets. Loans and leases, which are deemed uncollectible, are charged off and deducted from the allowance. The provision for possible loan and lease losses and recoveries are added to the allowance.
Net Realizable Value of Net Investment in Direct Financing Leases and Notes Receivable - Management, in arriving at the net realizable value of the Partnership's net investment in direct financing leases and notes receivable, considers the contractual repayment schedule, the estimated duration of the liquidation period, the customer and industry concentration risk, and interest rate levels, among other factors, in arriving at a discount to apply to the portfolio to estimate its net realizable value.
Tax Status - Under present income tax laws, the Partnership is not liable for income taxes, as each partner recognizes a proportionate share of the Partnership income or loss in their income tax return. Accordingly, no provision for income taxes is made in the financial statements of the Partnership.
Net Distributions Per Partnership Unit - Net distributions per partnership unit is based on the weighted average number of units outstanding (including both general and limited partners' units).
Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation.
2. EQUITY SECURITY
The Partnership's not readily marketable equity security consists of the following at December 31, 2002 and 2001:
2002 2001
248,118 common shares at December 31, 2002 and 2001 of Murdock Communications Corporation, a public shell company with no operations $24,812 $16,158 ======= =======
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Partnership's net investment in direct financing leases consists of the following at December 31, 2002 and 2001:
2002 2001
Minimum lease payments receivable $ 45,330 $ 82,272 Estimated unguaranteed residual values 2 13,047 Unearned income (3,429) (9,472) Unamortized initial direct costs 2 Adjustment to estimated net realizable value (22,924) (26,403) -------- -------- Net investment in direct financing leases $ 18,979 $ 59,446 ======== ========
At December 31, 2002, the future minimum payments to be received under the direct financing leases and the estimated unguaranteed residuals to be realized at the expiration of the direct financing leases are as follows:
Minimum Estimated Lease Unguaranteed Payments Residual Receivable Values Years ending December 31: 2003 $ 45,330 $ 2 ======== ========
The Partnership leases equipment or provides financing to certain companies for which the General Partner or its affiliates have an ownership interest in, provide financing to, or provide investment advisory services for such companies. The Partnership's net investment in direct financing leases with these companies were $8,005 and $12,762 at December 31, 2002 and 2001, respectively.
Four customers accounted for 10% or more of the amount of income from direct financing leases during one or more of the years presented, as follows:
2002 2001 2000
Customer A 94 % Customer B 49 % 35 % Customer C 22 22 Customer D 18 21
4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses for the years ended December 31, 2002, 2001 and 2000 are as follows:
2002 2001 2000
Balance at beginning of year $ 26,403 $ 75,897 $ 100,343 Provision 70,000 Charge-offs, net of recoveries (3,479) (119,494) (24,446) --------- --------- --------- Balance at end of year $ 22,924 $ 26,403 $ 75,897 ========= ========= =========
The allowance for possible loan and lease losses consisted of specific allowances of $22,924, $0 and $47,846 for certain leases and general unallocated allowances of $0, $26,403 and $28,051 at December 31, 2002, 2001 and 2000, respectively. The allowance at December 31, 2002, 2001 and 2000 is included in the estimated net realizable value adjustment discussed in Note 3.
In June, 2000, the Partnership's two leases with Murdock Communications Corporation ("Murdock") were converted to notes and stock as part of a restructuring. At the time of the restructuring, the Partnership's net investment in the contracts totaled $174,811. The Partnership received two notes and recorded these at their estimated net realizable value of $127,879 and 34,947 (adjusted for a stock split) shares of preferred stock in AcTel, a not readily marketable security. The estimated net realizable value of the AcTel preferred stock was $78,630 at December 31, 2000. The Partnership did not accrue interest on the notes receivable due to the uncertainty of Murdock's ability to pay. The Partnership established a specific allowance of $47,846 at December 31, 2000 for the notes receivable related to this uncertainty. The Partnership increased the allowance for loan and lease losses by $70,000 in 2001 and wrote-off the carrying value of the notes receivable as Murdock's primary asset was AcTel preferred stock and AcTel filed for bankruptcy in April 2001.
At December 31, 2002, one customer was past due over 90 days. The Partnership's net investment in contracts with this customer totaled $8,005. Subsequent to year end, the Partnership received a full pay-off of the balance due. At December 31, 2001, two customers were past due over 90 days. The Partnership's net investment in contracts with these customers totaled $55,913. Management believes that the underlying collateral is adequate to recover the Partnership's net investment. If a lease or note receivable is past due more than 90 days, the Partnership discontinues recognizing income on the contract.
5. EQUIPMENT
In August 2000, the Partnership recorded a note receivable for $870,000 for equipment previously held under operating lease. The buyer was scheduled to make three payments totaling $870,000. Payments totaling $329,278 were made in 2000 and 2001, resulting in a $540,722 note receivable balance at the end of the first quarter of 2001. Due to nonpayment on the note receivable, a new agreement was signed selling the equipment for $348,000, which was collected in full during 2001. The new agreement resulted in a loss of $192,722 for the Partnership.
6. LIMITED PARTNERSHIP AGREEMENT
The Partnership was formed pursuant to an Agreement of Limited Partnership dated as of April 2, 1991 and amended August 12, 1991 (the "Agreement"). The Agreement outlines capital contributions to be made by the partners and the allocation of cash distributions, net income, and net loss to the partners. Capital contributions by the partners to the Partnership consist of the $10,000 contributed by the General Partner and the amounts contributed by limited partners for the purchase of their units.
Net income or net loss allocated to the limited partners will be apportioned among them based on the number of limited partnership units held and on the number of months within the respective year that such units were held. Any share of Partnership net loss will first be allocated to the limited partners to the extent of their positive capital account balances. Any share of additional net loss will be allocated to the General Partner. Any Partnership net income will first be allocated to partners with negative capital accounts in proportion to, and to the extent of, such negative capital accounts. Except as provided below, any additional net income will then be allocated to the General Partner and limited partners based on number of units held. During liquidation of the Partnership, when cash distributions are to be made 80% to the limited partners and 20% to the General Partner (see below), net income will be allocated 80% to the limited partners and 20% to the General Partner.
During the Partnership's operating phase, to the extent there is cash available for distribution, cash distributions will be made on a monthly or quarterly basis in the following order of priority: first, to reimburse the General Partner for administrative services it provides to the Partnership, as further described in the Agreement (see Note 7); second, to the limited partners up to amounts representing a 12% annual return on their adjusted capital contribution (as defined), of which 8% annually will be cumulative; and third, to the General Partner, representing a monthly equipment management fee of 5% of the gross rental payments received by the Partnership. To the extent that cash is not available to pay all or a portion of the equipment management fee pursuant to the above priority distributions, such fee will accrue and accumulate. Any remaining cash distributions after payment of the above (including arrearages) will be paid, at the discretion of the General Partner, to the limited partners.
During the Partnership's liquidation phase, cash available for distribution will be distributed in the following order of priority: first, for payment of the General Partner's administrative services expense described above; second, to the limited partners for any arrearage in their 8% cumulative priority return; third, to the limited partners for 100% of their adjusted capital contributions; fourth, to the limited partners, distributions totaling 12% annually, noncompounded, on their adjusted capital contributions; fifth, to the General Partner for any arrearage in its equipment management fee; and, sixth, 80% to the limited partners and 20% to the General Partner (provided, however, that the General Partner will not receive such amounts unless the limited partners have received total distributions equal to their capital contribution plus a 12% annualized return).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
None
PART III
Item 10.
Item 10. Directors & Executive Officers of the Registrant ------------------------------------------------
A. The General Partner of the registrant: Berthel Fisher & Company Leasing, Inc., an Iowa corporation.
B. Executive officers of the General Partner of the Registrant:
Thomas J. Berthel (age 51) - Mr. Berthel is the Chief Executive Officer, President, and Director of the General Partner, a position he has held since the General Partner's inception in 1988. Mr. Berthel is also President and a Director of the General Partner's parent, Berthel Fisher & Company, Inc. ("Berthel Fisher"), which he founded in 1985, and Berthel Fisher's other subsidiaries, Berthel Fisher & Company Financial Services, Inc.; Berthel Fisher & Company Management Corp.; Berthel Fisher & Company Planning, Inc.; and one other corporation which acts as general partner of a separate private program. He also serves as the Chairman of the Board and Director of Amana Colonies Golf Course, Inc. Mr. Berthel holds a bachelor's degree from St. Ambrose College in Davenport, Iowa (1974). From 1974 to 1982, Mr. Berthel was President and majority shareholder of Insurance Planning Services Corporation in Maquoketa, Iowa, which was engaged in the operation of a securities and insurance business. Mr. Berthel holds a Financial and Operation Principal license issued by the National Association of Securities Dealers, Inc. Mr. Berthel is also a Certified Life Underwriter. Mr. Berthel also serves as an individual general partner of the limited partnership referred to above. Mr. Berthel received a MBA degree from the University of Iowa in 1993.
Ronald O. Brendengen (age 48) - Mr. Brendengen is the Treasurer, Chief Operating Officer, Chief Financial Officer, and a Director (1988 to present) of the General Partner. He was elected to his current offices in January 1998. He had previously served as Secretary (1994 - March, 1995), Treasurer (August 1995 - - 1988) and Chief Financial Officer (1994 - August 1995) of the General Partner. He served as Controller (1985-1993), Treasurer (1987-present), Chief Financial Officer, Secretary and a Director (1987-present), and was also elected Chief Operating Officer in January 1998, of Berthel Fisher & Company, the parent company of the General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial Officer and a Director of Berthel Fisher & Company Planning, Inc., the trust advisor of Berthel Growth & Income Trust I, a company required to file reports pursuant to the Securities Exchange Act of 1934. He also serves in various offices and as a Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a certified public accounting certificate and worked in public accounting during 1984 and 1985. From 1979 to 1984, Mr. Brendengen worked in various capacities for Morris Plan and MorAmerica Financial Corp., Cedar Rapids, Iowa. Mr. Brendengen attended the University of Iowa before receiving a bachelor's degree in Accounting and Business Administration with a minor in Economics from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a) 1. Financial Statements. Page No. Statements of Net Assets as of December 31, 2002 and 2001 (Liquidation Basis) 8
Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended December 31, 2002, 2001 and 2000 9
Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 10
Notes to Financial Statements 11
2. Financial Statements Schedules Information pursuant to Rule 12-09 (Schedule II) is included in the financial statements and notes thereto.
3. Exhibits 3,4 Amended and Restated Agreement of Telecommunications Income Fund IX, L.P. currently in effect dated as of August 12, 1991 (1)
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K No reports on Form 8-K were filed in the fourth quarter of 2002.
- -------------------------
(1) Incorporated herein by reference to Partnership Exhibit A to the prospectus included in the Partnership's post effective amendment No. 4 to Form S-1 registration statement filed on December 22, 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Thomas J. Berthel Date: March 25, 2003 -------------------------------- Thomas J. Berthel President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 25, 2003 -------------------------------- Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Thomas J. Berthel Date: March 25, 2003 - ------------------------------------ Thomas J. Berthel Chief Executive Officer President, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Ronald O. Brendengen Date: March 25, 2003 - ------------------------------------ Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Daniel P. Wegmann Date: March 25, 2003 - ------------------------------------ Daniel P. Wegmann Controller Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Leslie D. Smith Date: March 25, 2003 - ------------------------------------ Leslie D. Smith Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Thomas J. Berthel ----------------------------------- Thomas J. Berthel President and Chief Executive Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Ronald O. Brendengen ----------------------------------- Ronald O. Brendengen Chief Financial Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a) 1. Financial Statements. Page No. Statements of Net Assets as of December 31, 2002 and 2001 (Liquidation Basis) 8
Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended December 31, 2002, 2001 and 2000 9
Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 10
Notes to Financial Statements 11
2. Financial Statements Schedules Information pursuant to Rule 12-09 (Schedule II) is included in the financial statements and notes thereto.
3. Exhibits 3,4 Amended and Restated Agreement of Telecommunications Income Fund IX, L.P. currently in effect dated as of August 12, 1991 (1)
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K No reports on Form 8-K were filed in the fourth quarter of 2002.
- -------------------------
(1) Incorporated herein by reference to Partnership Exhibit A to the prospectus included in the Partnership's post effective amendment No. 4 to Form S-1 registration statement filed on December 22, 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Thomas J. Berthel Date: March 25, 2003 -------------------------------- Thomas J. Berthel President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 25, 2003 -------------------------------- Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Thomas J. Berthel Date: March 25, 2003 - ------------------------------------ Thomas J. Berthel Chief Executive Officer President, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Ronald O. Brendengen Date: March 25, 2003 - ------------------------------------ Ronald O. Brendengen Chief Operating Officer, Chief Financial Officer, Treasurer, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Daniel P. Wegmann Date: March 25, 2003 - ------------------------------------ Daniel P. Wegmann Controller Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Leslie D. Smith Date: March 25, 2003 - ------------------------------------ Leslie D. Smith Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Thomas J. Berthel ----------------------------------- Thomas J. Berthel President and Chief Executive Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company Leasing, Inc., the General Partner of Telecommunications Income Fund IX, L.P., certify that:
1. I have reviewed this annual report on Form 10-K of Telecommunications Income Fund IX, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 25, 2003 /s/ Ronald O. Brendengen ----------------------------------- Ronald O. Brendengen Chief Financial Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund IX, L.P.