10-Q 1 c72973e10vq.txt QUARTERLY REPORT DATED 9/30/02 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2002 Commission File Number: 0-25574 ------- TELECOMMUNICATIONS INCOME FUND X, L.P. -------------------------------------- (Exact name of Registrant as specified in its charter) Iowa 42-1401715 ----------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 701 Tama Street, Marion, Iowa 52302 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (319) 447-5700 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interest (the "Units") ------------------------------------------ Title of Class Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes X No ----- ----- As of October 11, 2002, 86,756 units were issued and outstanding. Based on the book value at September 30, 2002 of $3.70 per unit, the aggregate market value at October 11, 2002 was $320,997. TELECOMMUNICATIONS INCOME FUND X, L.P. INDEX Page ---- Part I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements (unaudited) Statements of Net Assets (Liquidation Basis)- September 30, 2002 and December 31, 2001 3 Statement of Changes in Net Assets (Liquidation Basis)- three months ended and nine months ended September 30, 2002 and 2001 4 Statements of Cash Flows-nine months ended September 30, 2002 and 2001 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 8 Item 4. Controls and Procedures 8 Part II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings 8 Item 6. Exhibits 8 Signatures 9 Certification of Chief Executive Officer 10 Certification of Chief Financial Officer 11 2 TELECOMMUNICATIONS INCOME FUND X, L.P. STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)

See accompanying notes. 3 TELECOMMUNICATIONS INCOME FUND X, L.P. STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)

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

See accompanying notes. 5 TELECOMMUNICATIONS INCOME FUND X, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the financial statements and notes thereto included in the Partnership's annual report on Form 10-K for the year ended December 31, 2001. On December 31, 1999, the Partnership ceased reinvestment in equipment and leases and began the orderly liquidation of the Partnership in accordance with the partnership agreement. As a result, the unaudited financial statements have been presented under the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities include estimated costs associated with carrying out the plan of liquidation. NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE The Partnership's net investment in direct financing leases and notes receivable consists of the following:

Note C - CONTINGENCY The General Partner's parent has approximately $2.2 million of unsecured subordinated debt due on December 31, 2002 and may not have sufficient liquid assets to repay such amounts. The General Partner's parent is pursuing additional financing, refinancing, and asset sales to meet its obligations. No assurance can be provided that the General Partner's parent will be successful in its efforts. The inability of the General Partner to continue as a going concern as a result of the parent's inability to restructure its debts would require the Partnership to elect a successor general partner. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On December 31, 1999, the Partnership ceased reinvestment in equipment and leases and began the orderly liquidation of the Partnership in accordance with the partnership agreement. As a result, the unaudited financial statements have been presented under the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities include estimated costs associated with carrying out the plan of liquidation. As discussed above, the Partnership is in liquidation and does not believe a comparison of results would be meaningful. The Partnership realized $16,777 in income from direct financing leases, notes receivable, and other income during the first nine months of 2002. This represents an annualized return on average net assets of approximately 5.9%. Management decreased its estimate of the liquidation value of net assets during the first nine months of 2002 by $127,113, resulting primarily from an increase in the allowance for possible loan and lease losses of $95,000, an increase in the reserve for estimated costs during the period of liquidation of $97,074, and an increase in the estimated value of equity securities of $62,702. The Partnership has accrued the estimated expenses of liquidation, which is $143,372 at September 30, 2002. The General Partner reviews this estimate and will adjust quarterly, as needed. The Partnership will continue to make distributions to the partners as leases, notes receivable, and other assets are collected or sold. The valuation of assets and liabilities necessarily requires many estimates and assumptions and there are uncertainties in carrying out the liquidation of the Partnership's net assets. The actual value of the liquidating distributions will depend on a variety of factors, including the actual timing of distributions to the partners. The actual amounts are likely to differ from the amounts presented in the financial statements. As of September 30, 2002, one customer had payments over 90 days past due and the Partnership has discontinued recognizing income on this contract. Management anticipates modifying this agreement to extend the terms and lower the monthly payments to the customer. The Partnership had a contract with Bax Group, Inc. with a net investment of $25,397 at June 30, 2002. The Bax Group filed for bankruptcy and the Partnership realized proceeds of approximately $8,000 on this contract during the third quarter of 2002. Another lessee, Alpha Tel-Com, filed for bankruptcy during 2001, had a net investment of $371,840 at March 31, 2002, representing approximately 61% of the Partnership's portfolio of direct financing leases and notes receivable at that time. The value of the phones under the Alpha Tel-Com deteriorated significantly, with the Partnership realizing approximately $125,000 from the sale of the equipment during the second quarter of 2002. Approximately $113,000 of these proceeds was financed to a new customer under a note agreement. The deterioration of equipment values for Bax Group and Alpha Tel-Com resulted in the Partnership increasing the allowance for possible loan and lease losses by $95,000 during the first nine months of 2002. Management believes its reserves are adequate as of September 30, 2002. Management will continue to monitor any past due contracts and take the necessary steps to protect the Partnership's investment. The Partnership's portfolio of leases and notes receivable are concentrated in pay telephones, representing nearly 99% of the portfolio at September 30, 2002. Two customers account for approximately 93% of the Partnership's portfolio of leases and notes receivable at September 30, 2002. 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EQUITY PRICE SENSITIVITY The tables below provide information about the Partnership's marketable and not readily marketable equity security that is sensitive to changes in prices as of September 30, 2002. Carrying Amount Fair Value Common Stock-Murdock Communications Corp. $ 29,613 $ 29,613 ------------- ------------- Marketable equity security $ 29,613 $ 29,613 ============= ============= Carrying Amount Fair Value Common Stock-Murdock Communications Corp. $ 71,675 $ 71,675 ------------- ------------- Total Not Readily Marketable $ 71,675 $ 71,675 ============= ============= 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 portfolio 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. The Partnership holds 165,900 shares of Murdock as marketable and 426,600 shares as not readily marketable, due to restrictions imposed by Rule 144 of the Securities and Exchange Commission. Murdock is a shell company with no operations whose stock price can be volatile. At September 30, 2002, the total amount at risk was $101,288. INTEREST RATE SENSITIVITY The table below provides information about the Partnership's notes receivable that are sensitive to changes in interest rates. The table presents the principal amounts and related weighted average interest rates by expected maturity dates as of September 30, 2002. Expected Fixed Rate Average Maturity Date Notes Receivable Interest Rate ------------- ---------------- ------------- 2002 $ 159,903 9.1% 2003 110,417 10.4% 2004 3,850 9.5% 2005 4,227 9.5% 2006 2,275 9.5% ------------- Total $ 280,672 ============= Fair Value $ 254,000 ============= The Partnership manages interest rate risk, its primary market risk exposure with respect to notes receivable, by limiting the terms of notes receivable to no more than five years. ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of the Partnership's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures within 90 days before the filing date of this quarterly report. Based on that evaluation, the Partnership's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Partnership's disclosure controls and procedures were effective in timely alerting them to material information relating to the Partnership required to be included in the Partnership's periodic SEC filings. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. PART II ITEM 1. LEGAL PROCEEDINGS None. ITEM 6. EXHIBITS Exhibit 99.1 Section 906 Certification of Chief Executive Officer Exhibit 99.2 Section 906 Certification of Chief Financial Officer 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELECOMMUNICATIONS INCOME FUND X, L.P. -------------------------------------- (Registrant) Date: November 11, 2002 /s/ Ronald O. Brendengen ----------------- ---------------------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: November 11, 2002 /s/ Daniel P. Wegmann ----------------- ---------------------------------------------- Daniel P. Wegmann, Controller 9 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 X, L.P., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Telecommunications Income Fund X, 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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. November 11, 2002 /s/ Thomas J. Berthel President and Chief Executive Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund X, L.P. 10 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 X, L.P., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Telecommunications Income Fund X, 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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. November 11, 2002 /s/ Ronald O. Brendengen Chief Financial Officer Berthel Fisher & Company Leasing, Inc. General Partner Telecommunications Income Fund X, L.P. 11

TELECOMMUNICATIONS INCOME FUND X LP 10-Q