<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____ to _____.
Commission file number - 0-21458.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
(Exact name of registrant as specified in its charter)
Iowa 42-1367356
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 319-447-5700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities pursuant to section 12(g) of the Act:
Limited Partnership Interests (the "Units")
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K (X).
As of March 8, 2000, 67,224 units were issued and outstanding. Based on the book
value of $17.69 per unit at December 31, 1999, the aggregate market value at
March 8, 2000 was $1,189,193.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the prospectus included in the Partnership's Post Effective
Amendment No. 4 to the Registration Statement on Form S-1 filed December 22,
1992 are incorporated by reference into Part IV.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1 Business....................................................................... 3
Item 2 Properties..................................................................... 4
Item 3 Legal Proceedings.............................................................. 4
Item 4 Submission of Matters to a Vote of Unit Holders................................ 5
PART II
Item 5 Market for the Registrant's
Common Equity and Related Stockholders Matters................................. 6
Item 6 Selected Financial Data........................................................ 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk..................... 9
Item 8 Financial Statements and Supplementary Data.................................... 10
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................... 28
PART III
Item 10 Directors and Executive Officers of the Registrant............................. 28
Item 11 Executive Compensation......................................................... 29
Item 12 Security Ownership of Certain
Beneficial Owners and Management............................................... 30
Item 13 Certain Relationships and Related Transactions................................. 30
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 31
SIGNATURES..................................................................... 32
EXHIBIT INDEX.................................................................. 33
</TABLE>
2
<PAGE> 3
PART I
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 (see Item 4 for detailed results of the proxy vote) 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 principle objective of the Partnership is to obtain the maximum available
economic return from its investment in equipment leases to unaffiliated third
parties with a view toward: (i) generating cash flow from operations, with the
intent to make distributions during the Operating Phase (the period which ended
when the General Partner elected to begin the liquidation of the Partnership
assets); (ii) reinvesting (during the Operating Phase) any undistributed cash
flow from operations in additional equipment to be leased to increase the
Partnership's assets; (iii) obtaining the residual values of equipment upon
sale; (iv) obtaining value from sales of the Partnership's lease portfolio upon
entering the Liquidating Phase (the period during which the General Partner will
liquidate the Partnership assets); and (v) providing cash distributions to the
partners during the liquidating phase.
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) leased 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.
Equipment acquired by the Partnership is installed in various locations by the
lessees. When the lessee installs the equipment in a location, a site location
agreement gives the lessee the right to have the equipment at this site for a
specified period of time. These site location agreements generally have a three
to five year term. The Partnership, in addition to its ownership of the
equipment, takes an assignment of and a first security interest in these site
location agreements. Therefore, if a lessee defaulted, the Partnership would
have the ability to re-sell or re-lease the equipment in place. This "in place"
value is generally much higher than the residual value of the equipment. The
telecommunications equipment generates revenue
3
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primarily through long distance phone calls. The Partnership's lessee generally
receives long distance revenue from a contracted third party billing company.
The Partnership also takes an assignment of this revenue.
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 equipment purchased by the Partnership consists of advanced technology pay
telephones and call processing systems to be used in hotels, hospitals,
colleges, universities, and correctional institutions. The Partnership has also
purchased and leased other equipment.
The Partnership's equipment leases are concentrated in the pay telephone
industry representing approximately 72%, 85%, and 60% of the Partnership's
direct finance lease portfolio at December 31, 1999, 1998, and 1997,
respectively. In 1999, three customers accounted for 64.6% of the Partnership's
income from direct financing leases. Telephone Operating Systems, Inc., Alpha
Tel-Com, and Murdock Communications Corporation ("Murdock") accounted for 30.6%,
22.2%, and 11.8% of the income from direct financing leases, respectively.
The leasing industry is very competitive and the Partnership has fewer assets
than some of its major competitors. The principal methods of competition include
service and price (interest rate). The Partnership operates in one segment.
A significant portion of the Partnership's business is with customers who are in
the telecommunications industry. The telecommunications industry, particularly
the pay telephone and long distance facets of the industry, is heavily regulated
by the Federal Communications Commission and by various state public utility
commissions. Regulation is not directed at the ownership or leasing of
telecommunications equipment, but is focused primarily on the business of the
Partnership's customers that operate in the telecommunications industry.
Regulation affects rates that can be charged and the relationship of the
regional Bell operating companies to the rest of the pay telephone industry.
Management does not expect regulation to have any significant negative impact
upon the business of the Partnership.
The Partnership has no employees and utilizes the administrative services of the
General Partner for which it pays an administrative service fee.
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. LEGAL PROCEEDINGS
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998. The
plaintiffs purchased equipment from the Partnership out of a bankruptcy for
approximately $450,000. They alleged that when they attempted to sell the
equipment at a later date, the Partnership had not provided good title. The
General Partner filed a Motion for Summary Judgement, which is still pending.
After filing the suit, the plaintiff transferred assets in lieu of bankruptcy.
The bankruptcy trustee is now reviewing the transfer to determine if the
transfer was done in fraud of creditors. The litigation is on hold until the
trustee makes a decision, then the Motion for Summary Judgement must be
responded to.
4
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
On November 11, 1999, a special meeting of the limited partners was held to vote
on extending the Partnership past its originally scheduled liquidation date of
December 31, 1999. The proposal to extend the Partnership to December 31, 2005
was passed with 60.17% of the units outstanding voting for the proposal. The
results of the vote were as follows:
<TABLE>
<CAPTION>
Votes Percentage
--------- -----------
<S> <C> <C>
Voting "For" 40,481 60.17%
Voting "Against" 3,371 5.01%
Abstain 1,379 2.05%
Non-votes 22,043 32.77%
--------- -----------
Total Units 67,274 100.00%
========= ===========
</TABLE>
No other matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise during the year covered by this report.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrants' Units are not publicly traded. There is no market for
the Registrant's Units and it is unlikely that any will develop. The General
Partner will resist the development of a public market for the Units.
<TABLE>
<CAPTION>
Number of Partners
Title of Class at March 8, 2000
---------------- -----------------
<S> <C>
Limited Partners 1,167
General Partner 1
</TABLE>
Distributions are paid to Partners on a monthly basis. Distributions of
$1,565,000, $8,477,803, $2,035,780, $2,039,573, and $2,040,208 were made to
investors in 1999, 1998, 1997, 1996, and 1995, respectively. This represented
distributions per unit of $30.00 for 1995 through 1997, $125.23 for 1998, and
$23.21 for 1999.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(HISTORICAL COST BASIS)
-----------------------------------------------------------
Three
Months Ended Year Ended Year Ended Year Ended
Mar. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total Revenue $ 402,020 $ 2,624,821 $ 3,289,142 $ 2,956,684
Net Income (Loss) 94,123 (220,095) 1,008,207 1,649,729
Provision for Possible Losses 64,711 1,801,233 577,931 94,156
Net Income (Loss) per Unit 1.39 (3.25) 14.83 24.26
Distributions per Unit 7.50 30.00 30.00 30.00
Distributions to Partners 508,064 2,035,780 2,039,573 2,040,208
</TABLE>
<TABLE>
<CAPTION>
(LIQUIDATION BASIS) (HISTORICAL COST BASIS)
----------------------------- --------------------------------------------
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 1,593,434 $ 3,215,954 $ 11,640,576 $ 15,642,179 $ 20,464,124
Line of Credit --- --- 50,557 1,060,490 4,113,504
Bank term loan --- --- --- 845,149 1,229,431
</TABLE>
<TABLE>
<CAPTION>
(LIQUIDATION BASIS)
-----------------------------
Year Ended Mar. 31, 1998-
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
Change in net assets, excluding
distributions and withdrawals $ 50,608 $ 235,258
Distributions to Partners 1,565,000 7,969,739
Distributions per Unit 23.21 117.73
</TABLE>
The selected financial data above was derived from the liquidation basis
financial statements of the Partnership from March 31, 1998 through December 31,
1999 and the historical cost basis financial statements prior to March 31, 1998.
As of March 31, 1998, the Partnership adopted the liquidation basis of
accounting. Under liquidation basis accounting, assets are presented at
estimated net realizable value and liabilities are presented at estimated
settlement amounts. The change to liquidation basis accounting may materially
affect the comparability of the selected financial data.
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
6
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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.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $173,637 in
income from direct financing leases, notes receivable, interest, and other
income for the year ended December 31, 1999.
Management has decreased its estimate of the liquidation value of net assets
during 1999 by $123,029. This decrease in the liquidation value of net assets is
primarily due to an increase in the reserve for estimated remaining expenses of
the Partnership. During 1999, management increased its estimate of these
remaining expenses by $161,065 as a result of the vote to extend the Partnership
until December 31, 2005 from its originally scheduled liquidation date of
December 31, 1999. The total reserve for estimated costs at December 31, 1999
was $259,000. The General Partner reviews this estimate quarterly and will
adjust as needed. 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.
The return on average net assets, which includes the decrease in the estimate of
the liquidation value of net assets discussed above, was 2.6% for the year ended
December 31, 1999. Excluding the decrease in the estimate of the liquidation
value of net assets of $123,029, the return on average net assets for December
31, 1999 was 8.9%. The Partnership will continue to make distributions to the
partners as leases and notes receivable are collected or sold and other assets
are sold. The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are uncertainties in carrying out the
liquidation of the Partnership's net assets. The actual value of the liquidating
distributions will depend on a variety of factors, including the actual timing
of distributions to the partners. The actual amounts are likely to differ from
the amounts presented in the financial statements. Through December 31, 1999,
there have been distributions totaling $20,748,223. As of December 31, 1999 the
Partnership had $135,796 of cash on hand.
During 1996, management provided a specific reserve of $284,000 related to a
lease with a customer. Due to the uncertainty regarding the amount and timing of
the future payments, the Partnership reclassified its net investment in the
lease at December 31, 1996 of $1,273,643, net of the specific allowance, to
equipment under operating leases. At December 31, 1999, the net investment in
this equipment was $775,597. The equipment under this lease was being
depreciated under the straight-line method over its estimated remaining life.
Depreciation expense on this equipment was $65,400 in the first quarter of 1998
and $236,446 in 1997. Also, the Partnership recorded an additional decrease to
the estimated net realizable value of the equipment of $196,200 for the nine
months ended December 31, 1998. Under the operating lease, the customer was to
pay the Partnership an amount based on the percent of the customer's monthly net
cash proceeds from operating the pay phone route. The Partnership received
$104,477 in 1997 from the customer under this arrangement. The customer has not
made a payment since July 1997. The Partnership is pursuing an offer to sell the
equipment, which if consummated, management believes, would result in a net
realizable value of $775,597. Completion of the sale is subject to the
purchaser's due diligence and other normal purchase contingencies. No assurance
can be provided that the Partnership will be successful in finalizing the sale.
7
<PAGE> 8
As of December 31, 1999 there were two customers 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 these
contracts at December 31, 1999 was $254,310. The contract balance remaining on
these contracts was $330,896. One customer has two contracts past due with a
total net investment of $222,941 and a total contract balance remaining of
$299,308. The total contract balance remaining of $299,308 represents 53% of the
Partnership's total contract balance remaining on all direct financing leases.
Management believes its reserve is adequate related to these customers.
Management will continue to monitor the 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, 1999, 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 equipment that the Partnership leases is maintained by the lessee, and it is
the lessee's responsibility to keep the equipment upgraded with any improvements
that may be developed. The Partnership generally establishes the equipment's
residual as 10% of the equipment's original cost. This residual value is
generally expected to be realized by the sale of the equipment at the expiration
of the original lease term. The General Partner monitors the maintenance and
upgrades to the equipment and expects the Partnership to realize residual values
of at least 10%.
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 have been financed to yield
rates of return between 15% and 20%. The lease terms vary from 36 months to 60
months. The rate charged on a particular lease depends on a variety of factors,
two of the more significant being 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The recognition of gains or losses resulting from
changes in the values of derivatives is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year. The Partnership will adopt SFAS No. 133 in the first quarter
of calendar year 2001. The adoption of this standard is not expected to have any
material impact on the Partnership's results of operations, financial position
or cash flows.
8
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YEAR 2000 ISSUE
As of the date of this filing, the Partnership and its General Partner have
encountered no problems relating to the year 2000 issue. The Partnership and its
General Partner are not aware of any Y2K problems or situations encountered by
its customers, vendors, affiliates, or others.
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 ($169,755 at December 31, 1999). At December 31, 1999, actual cash on
hand was $135,796. 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, 1999 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 tables provide information about the Partnership's marketable and not
readily marketable equity securities that are sensitive to changes in prices.
The tables present the carrying amounts and fair values as of December 31, 1999.
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- -----------
<S> <C> <C>
Common Stock-Murdock $ 31,394 $ 31,394
----------- -----------
Available-for-sale securities $ 31,394 $ 31,394
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- -----------
<S> <C> <C>
Common Stock-Murdock $ 77,020 $ 77,020
Preferred Stock-Murdock 191,600 191,600
----------- -----------
Not readily marketable securities $ 268,620 $ 268,620
=========== ===========
</TABLE>
The Partnership's primary market risk exposure with respect to equity securities
is equity price. The Partnership's general strategy in owning equity securities
is long-term growth in the equity value of emerging companies in order to
increase the rate of return to the limited partners over the life of the
Partnership. The primary risk of the securities held is derived from the
underlying ability of the companies invested in to satisfy debt obligations and
their ability to maintain or improve common equity values. Since the investments
are in an emerging company, the equity price can be volatile. The Partnership
holds 15,084 shares of Murdock as available for sale and 40,784 shares as not
readily marketable, due to restrictions imposed by rule 144 of the Securities
and Exchange Commission. At December 31, 1999, the market price of Murdock was
$2.25 per share. As of March 21, 2000, the price of Murdock had dropped
approximately 58% to $.94 per share. At December 31, 1999, the total amount at
risk was $300,014.
9
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of and for the
years ended December 31, 1999, December 31, 1998, and December 31, 1997 are
included in Item 8:
Independent Auditors' Report
Statements of Net Assets as of December 31, 1999 and 1998 (Liquidation
Basis)
Statements of Changes in Net Assets (Liquidation Basis) for the Year Ended
December 31, 1999 and for the Period from March 31, 1998 (Initial
Adoption of Liquidation Basis) to December 31, 1998
Statements of Operations and Comprehensive Income (Loss) (Going Concern
Basis) for the Three Months Ended March 31, 1998 and the Year Ended
December 31, 1997
Statements of Changes in Partners' Equity (Going Concern Basis) for the
Three Months Ended March 31, 1998 and the Year Ended December 31, 1997
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997
Notes to Financial Statements
10
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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,
1999 and 1998, and the related statements of changes in net assets (liquidation
basis) for the year ended December 31, 1999 and for the period from March 31,
1998 (initial adoption of liquidation basis) to December 31, 1998. In addition,
we have audited the accompanying statements (going concern basis) of operations
and comprehensive income (loss) and of changes in partners' equity of the
Partnership for the three months ended March 31, 1998 and the year ended
December 31, 1997. In addition, we have audited the accompanying statements of
cash flows of the Partnership for each of the three years in the period ended
December 31, 1999. 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 generally accepted auditing
standards. 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, (1) the net assets of Telecommunications Income Fund IX, L.P. at
December 31, 1999 and 1998, (2) the changes in its net assets for the year ended
December 31, 1999 and for the period from March 31, 1998 (initial adoption of
liquidation basis) to December 31, 1998, (3) the results of its operations for
the three months ended March 31, 1998 and the year ended December 31, 1997, and
(4) its cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles on the basis
described in the preceding paragraph.
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<PAGE> 12
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.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 20, 2000
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 1999 AND 1998 (LIQUIDATION BASIS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Cash and cash equivalents $ 135,796 $ 711,589
Marketable equity securities (Note 2) 31,394 39,296
Not readily marketable equity securities (Note 2) 268,620 264,707
Net investment in direct financing leases
and notes receivable (Notes 3 and 4) 382,027 1,424,765
Equipment leased under operating leases (Note 5) 775,597 775,597
--------------- ---------------
Total assets 1,593,434 3,215,954
--------------- ---------------
LIABILITIES
Outstanding checks in excess of bank balance 94,490 89,627
Trade accounts payable 9,535 36,680
Due to affiliates 477 --
Accrued expenses and other liabilities 21,075 2,697
Lease security deposits 18,888 65,370
Reserve for estimated costs during the period of liquidation 259,000 300,000
--------------- ---------------
Total liabilities 403,465 494,374
--------------- ---------------
CONTINGENCY (Notes 3 and 9)
NET ASSETS $ 1,189,969 $ 2,721,580
=============== ===============
</TABLE>
See notes to financial statements.
13
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) YEAR ENDED DECEMBER 31,
1999 AND PERIOD FROM MARCH 31, 1998 (INITIAL ADOPTION OF LIQUIDATION BASIS) TO
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET ASSETS AS OF MARCH 31, 1998 (GOING CONCERN BASIS) $ 10,469,843
Adjustment to liquidation basis (Note 1) (181,817)
---------------
NET ASSETS AS OF MARCH 31, 1998 (LIQUIDATION BASIS) 10,288,026
Income from direct financing leases 539,245
Interest and other income 114,175
Change in estimate of liquidation value of net assets (Note 1) (236,345)
Distributions to partners ($117.73 per unit) (Note 6) (7,969,739)
Withdrawals of limited partners (13,782)
---------------
NET ASSETS AS OF DECEMBER 31, 1998 2,721,580
Income from direct financing leases 124,961
Interest and other income 48,676
Change in estimate of liquidation value of net assets (Note 1) (123,029)
Distributions to partners ($23.21 per unit) (Note 6) (1,565,000)
Withdrawals of limited partners (17,219)
---------------
NET ASSETS AS OF DECEMBER 31, 1999 $ 1,189,969
===============
</TABLE>
See notes to financial statements.
14
<PAGE> 15
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(GOING CONCERN BASIS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE
MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
--------------- ---------------
1998 1997
<S> <C> <C>
REVENUES:
Income from direct financing leases $ 356,900 $ 1,931,886
Gain on lease terminations 8,808 505,834
Interest and other income 36,312 187,101
--------------- ---------------
Total revenues 402,020 2,624,821
--------------- ---------------
EXPENSES:
Management and administrative fees (Note 7) 72,794 358,588
Other general and administrative expenses 77,320 145,180
Interest expense 16,817 163,677
Provision for possible loan and lease losses (Note 4) 64,711 1,801,233
Depreciation expense 65,400 262,751
Impairment loss on equipment (Note 5) 10,855 113,487
--------------- ---------------
Total expenses 307,897 2,844,916
--------------- ---------------
NET INCOME (LOSS) 94,123 (220,095)
OTHER COMPREHENSIVE INCOME (LOSS) -
Unrealized gain (loss) on available for sale securities (20,869) 5,079
--------------- ---------------
COMPREHENSIVE INCOME (LOSS) $ 73,254 $ (215,016)
=============== ===============
NET INCOME (LOSS) ATTRIBUTED TO:
General partner $ 90 $ (130)
Limited partners 94,033 (219,965)
--------------- ---------------
$ 94,123 $ (220,095)
=============== ===============
NET INCOME (LOSS) PER PARTNERSHIP UNIT $ 1.39 $ (3.25)
=============== ===============
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 67,742 67,762
=============== ===============
</TABLE>
See notes to financial statements.
15
<PAGE> 16
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (GOING CONCERN BASIS)
THREE MONTHS ENDED MARCH 31, 1998 AND
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
GENERAL LIMITED PARTNERS AVAILABLE- TOTAL
PARTNER ------------------------------- FOR-SALE PARTNERS'
(40 UNITS) UNITS AMOUNT SECURITIES EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 11,832 67,862 $ 13,192,649 $ (20,104) $ 13,184,377
Net loss (130) -- (219,965) -- (220,095)
Distributions to partners
($30.00 per unit) (Note 6) (1,200) -- (2,034,580) -- (2,035,780)
Withdrawal of limited partners -- (140) (25,394) -- (25,394)
Change in unrealized loss on
available-for-sale security -- -- -- 5,079 5,079
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 10,502 67,722 10,912,710 (15,025) 10,908,187
Net income 90 -- 94,033 -- 94,123
Distributions to partners
($7.50 per unit) (Note 6) (300) -- (507,764) -- (508,064)
Withdrawal of limited partners -- (20) (3,534) -- (3,534)
Change in unrealized loss on
available-for-sale securities -- -- -- (20,869) (20,869)
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1998 $ 10,292 67,702 $ 10,495,445 $ (35,894) $ 10,469,843
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
16
<PAGE> 17
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)/change in net assets excluding
distributions and withdrawals $ 50,608 $ (308,512) $ (220,095)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 123,029 778,118 --
Gain on lease terminations -- (8,808) (505,834)
Depreciation of equipment -- 65,400 262,751
Amortization of intangibles -- 1,038 4,154
Provision for possible loan and lease losses -- 64,711 1,801,233
Impairment loss on equipment -- 10,855 113,487
Noncash dividend income (22,351) -- --
Changes in operating assets and liabilities:
Other assets -- 384,060 (109,869)
Outstanding checks in excess of bank balance 4,863 89,627 --
Trade accounts payable (27,145) 19,344 13,277
Due to affiliates 477 (128,308) 48,753
Accrued expenses and other liabilities (183,687) (167,739) 140,920
------------ ------------ ------------
Net cash from operating activities (54,206) 799,786 1,548,777
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of, and purchases of equipment for direct financing leases -- (2,827,907) (4,628,479)
Repayments of direct financing leases 342,084 1,663,124 3,207,067
Proceeds from sale or termination of direct financing leases 743,998 9,082,927 4,303,734
Repayments of notes receivable 21,032 489,299 6,308
Issuance of notes receivable -- (108,475) (441,000)
Net lease security deposits paid (46,482) (300,382) (73,281)
------------ ------------ ------------
Net cash from investing activities 1,060,632 7,998,586 2,374,349
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings -- 3,788,403 13,318,592
Repayments of line-of-credit borrowings -- (3,838,960) (14,328,525)
Repayments of additional borrowings -- -- (845,149)
Loan origination costs incurred -- -- (45,121)
Distributions and withdrawals paid to partners (1,582,219) (8,495,119) (2,061,174)
------------ ------------ ------------
Net cash from financing activities (1,582,219) (8,545,676) (3,961,377)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (575,793) 252,696 (38,251)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 711,589 458,893 497,144
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 135,796 $ 711,589 $ 458,893
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ 17,457 $ 172,586
Noncash investing and financing activities:
Change in unrealized loss on available-for-sale security -- -- (5,079)
Direct financing lease converted to investment in not readily
marketable equity security -- 191,600 --
</TABLE>
See notes to financial statements.
17
<PAGE> 18
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS- Telecommunications Income Fund IX,
L.P. (the "Partnership") was formed on April 2, 1991 under the Iowa Limited
Partnership Act. The general partner of the Partnership is Berthel Fisher &
Company Leasing, Inc. (the "General Partner"), an Iowa corporation. During
its offering period, the Partnership sold 68,007 units of partnership
interests at a price per unit of $250.
The Partnership operates in one segment. The Partnership's operations are
conducted throughout the United States. The Partnership primarily acquired
equipment for lease to third parties. The lease agreements with individual
customers were generally in excess of $500,000 and certain agreements
exceed 10% of the Partnership's direct finance lease portfolio (see Note
3). The Partnership ceased reinvestment in equipment and leases and began
the orderly liquidation of Partnership assets on May 1, 1998 as required by
the Partnership agreement. Originally, the Partnership was required to
dissolve on December 31, 1999. During November 1999, the limited partners
approved an amendment to extend the term of the Partnership to December 31,
2005 to allow for the orderly liquidation of the remaining assets.
BASIS OF PRESENTATION - The Partnership began the orderly liquidation of
Partnership assets in the second quarter of 1998 as discussed above. As a
result, on March 31, 1998 the Partnership adopted the liquidation basis of
accounting. The statements of net assets as of December 31, 1999 and 1998
and the statements of changes in net assets for the year ended December 31,
1999 and the period from March 31, 1998 to December 31, 1998 have been
prepared on the liquidation basis. Accordingly, assets have been valued at
estimated net realizable value and liabilities include estimated costs
associated with carrying out the plan of liquidation.
The net adjustment as of March 31, 1998 required to convert from the going
concern (historical cost) basis to the liquidation basis of accounting was
a decrease in carrying value of $181,817, which is included in the
statement of changes in net assets for the period ended December 31, 1998.
Significant increases (decreases) in the carrying value of net assets are
summarized as follows:
<TABLE>
<S> <C>
Increase to reflect net realizable value of net investment
in direct financing leases $ 391,588
Write-off of intangible assets (2,423)
Record estimated liabilities associated with carrying
out the liquidation (570,982)
------------
Net decrease in carrying value $ (181,817)
============
</TABLE>
18
<PAGE> 19
Changes in the estimated liquidation value of net assets during the year
ended December 31, 1999 and the period from March 31, 1998 to December 31,
1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Change in estimate of liquidation value of:
Securities $ (26,341) $ --
Direct financing leases and notes receivable 64,377 --
Equipment leased under operating leases -- (196,200)
Equipment held for sale -- (40,145)
Estimated liabilities associated with carrying
out the liquidation (161,065) --
--------- ---------
Total $(123,029) $(236,345)
========= =========
</TABLE>
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 partners. The actual amounts are
likely to differ from the amounts presented in the financial statements.
The statements (going concern basis) of operations and comprehensive
income (loss) and of changes in partners' equity for the three months
ended March 31, 1998 and the year ended December 31, 1997 have been
prepared using the historical cost (going concern) basis of accounting on
which the Partnership had previously reported its financial condition and
results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
Equity securities comprise preferred and common stock investments in one
company. A prospective buyer may require a substantially greater liquidity
discount than currently estimated and the operating results and prospects
of that company may deteriorate. These factors, among others, could have a
material near-term impact on the net realizable value of equity
securities.
Most of the Partnership's leases are with customers that are in the
entrepreneurial stage and, therefore, 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.
19
<PAGE> 20
Realization of residual values depends on many factors, several of which
are not within the Partnership's control, including general market
conditions at the time of the original 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. These factors, among others, could have a material near-term
impact on the net realizable value of leases and equipment.
CERTAIN RISK CONCENTRATIONS - The Partnership's equipment leases are
concentrated in pay telephones and computer equipment representing
approximately 72% and 12% at December 31, 1999 and 85% and 6% at December
31, 1998 of the Partnership's direct finance lease portfolio,
respectively.
One direct finance lease customer represents 49% of the Partnership's net
investment in direct financing leases and note receivable at December 31,
1999. The customer is past due in lease payments at December 31, 1999 (see
Note 4). Also, the Partnership's entire investment in securities at
December 31, 1999 (and substantially all at December 31, 1998) represent
equity securities of such customer.
The Partnership's equipment leased under operating leases is with one
customer at December 31, 1999 and 1998. The customer has made only limited
lease payments (see Note 5).
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 securities are
restricted as to sale in the public market under rule 144 of the
Securities & Exchange Commission. Common equity securities which can be
sold in the public market within one year are classified as marketable
equity securities and valued at the published market prices less an
estimated illiquidity discount. Common equity securities and convertible
preferred stock which cannot be sold in the public market within one year
are classified as not readily marketable and valued at an estimated
discount from the published market price reflective of their more illiquid
nature.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Partnership's primary
activity consists 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 records 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
capitalizes 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.
20
<PAGE> 21
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.
Direct financing leases are accounted for as operating leases for income
tax purposes.
NOTES RECEIVABLE - Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is 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, considered the contractual repayment schedule, the estimated
duration of the liquidation period, the customer and industry concentration
risks, and interest rate levels, among other factors, in arriving at a
discount to apply to the portfolio at December 31, 1999 to estimate its net
realizable value.
EQUIPMENT - Equipment leased under operating leases was stated at cost less
accumulated depreciation. The equipment was depreciated using the
straight-line method over the estimated useful lives of the assets (five
years) to the estimated residual value of the equipment at the end of the
lease term. Estimated residual values were based on estimates of amounts
historically realized by the Partnership for similar equipment and were
periodically reviewed by management for possible impairment.
The estimated net realizable value at December 31, 1999 and 1998 is based
on a purchase offer adjusted for management's best estimate of the final
expected sale price of the equipment.
SALE OF DIRECT FINANCE LEASES - The Partnership at times sells direct
financing leases, on a limited recourse basis, to lenders in return for a
cash payment. In the case of default by the lessee, the lender has a first
lien on the underlying leased equipment. In the event the sale or re-lease
proceeds from the underlying equipment do not satisfy the remaining
lessee's obligation to the lender, the Partnership is responsible for a
predetermined amount of that obligation. When the sale of direct finance
leases occurs, proceeds from the sale, less the net book value of direct
finance leases sold and an estimated loss allowance, are recorded as a
component of gain on early termination.
21
<PAGE> 22
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 INCOME (LOSS) PER PARTNERSHIP UNIT - Net income (loss) per partnership
unit is based on the weighted average number of units outstanding
(including both general and limited partners' units).
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The recognition of gains or losses
resulting from changes in the values of derivatives is based on the use of
each derivative instrument and whether it qualifies for hedge accounting.
In June 1999, the FASB issued SFAS No. 137, which deferred the effective
date of adoption of SFAS No. 133 for one year. The Partnership will adopt
SFAS No. 133 in the first quarter of fiscal year 2001. The adoption of this
standard is not expected to have any material impact on the Partnership's
changes in net assets, net assets or cash flows.
RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have
been reclassified to conform with the 1999 financial statement
presentation.
2. EQUITY SECURITIES
The Partnership's equity securities consist of the following at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Marketable equity securities:
15,084 common shares of Murdock Communications
Corporation at December 31, 1999 and 1998 $ 31,394 $ 36,861
Other -- 2,435
---------- ----------
Total $ 31,394 $ 39,296
========== ==========
Not readily marketable equity securities:
40,784 common shares at December 31, 1999 and
29,916 common shares at December 31, 1998 of Murdock
Communications Corporation $ 77,020 $ 73,107
1,916 convertible preferred shares (convertible into 170,311
common shares), 8% cumulative dividend, of Murdock
Communications Corporation at December 31, 1999 and
1998 at liquidation preference value 191,600 191,600
---------- ----------
Total $ 268,620 $ 264,707
========== ==========
</TABLE>
As of March 20, 2000, the value of Murdock Communications Corporation
common stock has declined by approximately 60%.
22
<PAGE> 23
3. NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes
receivable consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Minimum lease payments receivable $ 562,302 $ 1,758,160
Estimated unguaranteed residual values 29,955 232,568
Unearned income (104,530) (320,868)
Unamortized initial direct costs 607 1,628
Notes receivable 32,835 53,867
Adjustment to estimated net realizable value (139,142) (300,590)
----------- -----------
Net investment in direct financing leases and notes receivable $ 382,027 $ 1,424,765
=========== ===========
</TABLE>
At December 31, 1999 and 1998 the Partnership's contingent liability under
recourse provisions totals $168,498.
At December 31, 1999, 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:
<TABLE>
<CAPTION>
MINIMUM ESTIMATED
CONTRACTUAL LEASE UNGUARANTEED
PRINCIPAL PAYMENTS RESIDUAL
MATURITIES RECEIVABLE VALUES
<S> <C> <C> <C>
Years ending December 31:
2000 $ 23,837 $288,976 $ 15,598
2001 8,998 149,743 7,951
2002 -- 109,273 6,404
2003 -- 14,310 2
-------- -------- --------
Total $ 32,835 $562,302 $ 29,955
======== ======== ========
</TABLE>
The Partnership leases equipment 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 approximated $299,783 and $342,195 at December 31, 1999 and
1998, respectively.
Five 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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Customer A 31% 19% -%
Customer B -- -- 10
Customer C -- -- 10
Customer D 12 3 --
Customer E 22 9 --
</TABLE>
23
<PAGE> 24
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, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year $ 142,282 $ 1,922,056 $ 244,814
Provision -- 64,711 1,801,233
Charge-offs, net of recoveries (41,939) (1,844,485) (123,991)
----------- ----------- -----------
Balance at end of year $ 100,343 $ 142,282 $ 1,922,056
=========== =========== ===========
</TABLE>
The allowance for possible loan and lease losses consisted of specific
allowances of $84,147, $5,075 and $1,623,810 for certain leases and
general unallocated allowances of $16,196, $137,207, and $298,246 at
December 31, 1999, 1998 and 1997, respectively. The allowance at December
31, 1999 and 1998 is included in the estimated net realizable value
adjustment discussed in Note 3.
Due to cash flow problems experienced during 1997 by a lessee of the
Partnership, North American Communications Group, Inc. ("NACG"), the
Partnership, in an attempt to protect the assets leased to NACG, advanced
funds to various entities to whom NACG owed money related to the operation
of such leased assets. In addition, the Partnership assisted in arranging
a management agreement between NACG and another entity to attempt to
improve NACG's cash flow generated by the leased assets. In spite of the
funds advanced by the Partnership and the management agreement, the cash
flow of NACG continued to deteriorate. The General Partner actively
solicited bids from parties to purchase the assets associated with the
Partnership leases to NACG. Based on the value of similar assets and
contract sites, management believed the equipment leased to NACG had
substantial value. However, the offers received were not adequate to cover
additional funds which were required to be advanced to keep the equipment
sites operating. The General Partner, therefore, determined it was no
longer economically feasible to continue to advance funds on behalf of
NACG, discontinued doing so and informed all site operators of that
decision. As a result, the Partnership decided to provide for a specific
allowance of $1,596,739 at December 31, 1997 which is equal to the
carrying value of the leases and advances associated with NACG. Such
leases were charged-off against the allowance in the first quarter of
1998. The Partnership received $45,000 during 1999 from the sale of assets
recovered to date and credited this to the allowance for possible loan and
lease losses.
In December 1998, the Partnership, Telecommunications Income Fund X, the
General Partner, NACG and others filed a suit against Shelby County,
Tennessee ("County"). The suit alleges, among other things, damages for
wrongful termination of the pay phone contract between NACG and Shelby
County and racial discrimination by the County against NACG. The County
filed an answer and the initial discovery has been completed. Management
determined it was not economical to continue to spend Partnership funds in
an effort to obtain additional information or to continue the lawsuit.
At December 31, 1999, two customers were past due over 90 days. The
Partnership's net investment in lease contracts with these customers
totaled $254,310. Management provided a specific allowance of $26,000 at
December 31, 1999 related to these customers. If a lease or note
receivable is past due more than 90 days, the Partnership discontinues
recognizing income on the contract.
24
<PAGE> 25
5. EQUIPMENT
In May 1995, the Partnership exercised its right to manage the assets
leased to Telecable/Continental due to nonpayment of lease receivables.
The remaining net equipment cost, which had been depreciated to $514,487
and relates to hotel satellite television equipment, was expected by
management to be recovered through the sale of the equipment. Such net
equipment cost has been adjusted for an impairment loss of $350,000 in
1996, $113,487 in 1997 and $51,000 in 1998 ($10,855 in the first quarter
and $40,145 as a decrease to the estimated net realizable value for the
period from March 31, 1998 to December 31, 1998) to reflect management's
estimated fair market value of the equipment.
During 1996, management provided a specific reserve of $284,000 related to
a lease with a customer and due to the uncertainty regarding the amount
and timing of future payments reclassified its net investment in the lease
at December 31, 1996 of $1,273,643, net of the specific allowance, to
equipment under operating leases. The equipment under this lease was being
depreciated under the straight-line method over its estimated remaining
life. Depreciation expense in 1997 amounted to $236,446 and $65,400 in the
first quarter of 1998. Also, the Partnership recorded an additional
decrease to the estimated net realizable value of the equipment of
$196,200 for the period from March 31, 1998 to December 31, 1998. Under
the operating lease, the customer is to pay the Partnership an amount
based on a percent of the customer's monthly net cash proceeds from
operating the pay phone route. The Partnership has not received any
payments since July 1997 from the customer under this arrangement. The
Partnership is pursuing an offer to sell the equipment, which if
consummated, management believes would result in a net realizable value of
$775,597. Completion of the sale is subject to the purchaser's due
diligence and other normal purchase contingencies. No assurance can be
provided that the Partnership will be successful in finalizing the sale.
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.
25
<PAGE> 26
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 (see Note 7). 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).
7. MANAGEMENT AND SERVICE AGREEMENTS
The Partnership paid an equipment management fee equal to 5% of the amount
of gross rental payments received, to the General Partner during its
operational phase. The Partnership entered its liquidation phase on May 1,
1998 and at that time discontinued the fee. During the years ended
December 31, 1999, 1998 and 1997, the management fees aggregated $0,
$63,606 and $274,588, respectively.
In addition, the General Partner is reimbursed for certain other costs
under an administrative services agreement. Amounts incurred by the
Partnership pursuant to this agreement amounted to $60,000, $84,000 and
$84,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
26
<PAGE> 27
8. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS
A reconciliation of the change in net assets (excluding distributions)/net
income (loss) for financial reporting purposes with the related amount
reported for income tax purposes for the years ended December 31, 1999,
1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
PER PER PER
AMOUNT UNIT AMOUNT UNIT AMOUNT UNIT
<S> <C> <C> <C> <C> <C> <C>
Change in net assets
(excluding
distributions)/net
income (loss) for
financial reporting
purposes $ 50,608 $ .75 $ 308,512 $ 4.56 $ (220,095) $ (3.25)
Adjustment to
convert direct
financing leases to
operating leases
for income tax
purposes (423,242) (6.27) 1,965,813 29.05 (228,053) (3.36)
Net change in
allowance for
possible loan and
lease losses 92,030 1.36 (1,779,774) (26.29) 1,677,242 24.75
Gain (loss) on
lease terminations 303,782 4.49 291,099 4.30
Net realizable
value adjustments 123,029 1.82 (439,031) (6.49) -- --
----------- ------- ----------- ------- ----------- -------
Net income (loss)
for income tax
reporting purposes $ (157,575) $ (2.34) $ 359,302 $ 5.32 $ 1,520,193 $ 22.44
=========== ======= =========== ======= =========== =======
</TABLE>
9. CONTINGENCY
Telecom Management Systems filed a suit against the Partnership, the
General Partner, and others in Federal Court in Dallas, Texas during
February 1998. The plaintiffs purchased equipment from the Partnership out
of a bankruptcy for approximately $450,000. They alleged that when they
attempted to sell the equipment at a later date, the Partnership had not
provided good title. The General Partner filed a Motion for Summary
Judgment, which is still pending. After filing the suit, the plaintiff
transferred assets in lieu of bankruptcy. The bankruptcy trustee is now
reviewing the transfer to determine if the transfer was done in Fraud of
Creditors. The litigation is on hold until the trustee makes a decision,
then the motion for summary judgment must be responded to. No loss, if
any, has been recorded in the financial statements with respect to this
matter.
* * * * *
27
<PAGE> 28
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 48) - Mr. Berthel is the Chief Executive Officer
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 45) - 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.
Nancy L. Lowenberg (age 41) - Ms. Lowenberg was elected Executive Vice
of the General Partner beginning January 2, 1997. From September 1986 to
December 1996, Ms. Lowenberg was employed by Firstar Bank Iowa, N.A., in Cedar
Rapids. Since 1989, Ms. Lowenberg was Vice President Commercial Loans. As Vice
President Commercial Loans, she was relationship manager for 62 accounts with
approximately $70,000,000 of committed credit. She had responsibility for credit
quality, annual review and maintenance of existing accounts and business
development. From 1981-1986, Ms. Lowenberg was employed by Firstar Bank Systems.
Ms. Lowenberg received her Bachelor of Science Agricultural Business with a
minor in Finance in 1981 from Iowa State University, Ames, Iowa. Ms. Lowenberg
resigned effective February 9, 2000.
28
<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
Set forth is the information relating to all direct remuneration paid or accrued
by the Registrant during the last three years to the General Partner:
<TABLE>
<CAPTION>
(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and Cash reimbursement contingent
Name of individual and Year equivalent forms personal or forms of
capacities which served ended of remuneration Fees benefits remuneration
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Berthel Fisher & Co. 1999 $0 $ 60,000 $0 $0
Leasing, Inc. 1998 $0 $ 147,606 $0 $0
General Partner 1997 $0 $ 358,588 $0 $0
</TABLE>
29
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record, or is known by the
Registrant to own beneficially, more than five
percent of the Partnership Units.
(b) The General Partner of the Registrant owns Units of
the Registrant set forth in the following table.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
- -------------- -------------------------- -------------------- ----------------
<S> <C> <C> <C>
Units Berthel Fisher & Co. Leasing Inc. Forty (40) Units; 0.06%
701 Tama Street
Marion, IA 52302
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 3 and 7 of the notes to the
financial statements.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Statements of Net Assets as of December 31, 1999 and 1998
(Liquidation Basis) 13
Statements of Changes in Net Assets (Liquidation Basis) for the Year Ended
December 31, 1999 and for the Period from March 31, 1998 (Initial
Adoption of Liquidation Basis) to December 31, 1998 14
Statements of Operations and Comprehensive Income (Loss)
(Going Concern Basis) for the Three Months Ended March 31, 1998
and the Year Ended December 31, 1997 15
Statements of Changes in Partners' Equity (Going Concern Basis)
for the Three Months Ended March 31, 1998 and the Year Ended
December 31, 1997 16
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 17
Notes to Financial Statements 18
</TABLE>
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)
27 Financial Data Schedule-filed electronically
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of
1999.
- -----------------------
(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.
31
<PAGE> 32
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.
<TABLE>
<S> <C>
By: /s/ Thomas J. Berthel Date: March 24, 2000
--------------------------------
Thomas J. Berthel
President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 24, 2000
--------------------------------
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 24, 2000
- ------------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Ronald O. Brendengen Date: March 24, 2000
- ------------------------------------
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 24, 2000
- ------------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3,4 Amended and Restated Agreement of Telecommunications Income Fund IX,
L.P. currently in effect dated as of August 12, 1991 (1)
</TABLE>
- -----------------------
(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.
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF TELECOMMUNICATIONS INCOME FUND IX, L.P. AS OF DECEMBER
31, 1999, AND THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 135,796
<SECURITIES> 300,014
<RECEIVABLES> 382,027
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 775,597
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,593,434
<CURRENT-LIABILITIES> 403,465
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,189,969 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Net Assets
</FN>
</TABLE>
