UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A1
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported) April 23, 1998
(December 30, 1997)
Commission File Number 0-18550
NTS Mortgage Income Fund
(Exact name of registrant as specified in its charter)
Delaware 61-1146077
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
<PAGE>
Item 7. Financial Statements and Exhibits
a) Financial Statements of Real Estate Properties Acquired
The undersigned registrant hereby amends its current Report on Form
8-K (date of event reported: December 30, 1997; date filed: January
14, 1998) by filing the following described exhibit as set forth in
the pages attached hereto:
Unaudited Balance Sheets as of September 30, 1997, Audited
Balance Sheets as of December 31, 1996 and the Unaudited
Statements of Operations and Cash Flows of NTS/Lake Forest II
Residential Corporation and NTS/Virginia Development Company
for the nine months ended September 30, 1997 and 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the NTS
Mortgage Income Fund has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NTS MORTGAGE INCOME FUND
(Registrant)
/s/ John W. Hampton
John W. Hampton
Secretary/Treasurer
(principal accounting and
chief financial officer)
Date: April 23, 1998
<PAGE>
NTS/LAKE FOREST II RESIDENTIAL CORPORATION
BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS 1997 1996
- ------ ------------ --------
(Unaudited)
Cash $ 243,890 $ 165,818
Membership initiation fees and other
accounts receivable 1,182,934 1,256,542
Notes receivable 740,734 789,303
Notes receivable - affiliate -- 562,826
Inventory 28,436,815 29,870,625
Property & equipment, net of accumulated
depreciation of $378,181 (1997) and
$324,968 (1996) 218,148 184,331
Prepaid and other assets, net
accumulated amortization of $207,886
(1997) and $190,070 (1996) 378,691 336,673
----------- -----------
Total assets $ 31,201,212 $ 33,166,118
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,896,445 $ 1,573,684
Advances from an affiliate (Note 6) 572,097 --
Notes and mortgage loans payable (Note 5) 28,608,129 31,349,964
Lot deposits 11,500 8,498
Deferred revenue 105,088 68,786
----------- -----------
Total liabilities 31,193,259 33,000,932
----------- -----------
Commitments and contingencies (Note 7)
Stockholders's Equity:
Common stock, no par value, 2,000 shares
authorized, 100 shares issued and
outstanding 1,000 1,000
Retained earnings 6,953 164,186
----------- -----------
Total stockholders' equity 7,953 165,186
----------- -----------
Total liability and stockholders' equity $ 31,201,212 $ 33,166,118
=========== ===========
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
NTS/LAKE FOREST II RESIDENTIAL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Revenues: 1997 1996
------------ ----------
Lot sales, net of discounts $ 4,145,148 $ 2,259,257
Interest and other income 68,707 374,584
----------- ----------
4,213,855 2,633,841
Cost of sales 3,116,981 1,677,647
----------- ----------
Gross profit 1,096,874 956,194
Expenses:
Cost reimbursements (Note 6) 601,620 602,392
General and administrative 306,387 116,444
Interest 322,052 455,020
Gross receipts interest 6,232 1,918
Depreciation and amortization 17,816 16,137
----------- ----------
1,254,107 1,191,911
----------- ----------
Net loss $ (157,233) $ (235,717)
=========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
NTS/LAKE FOREST II RESIDENTIAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- ----------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net loss $ (157,233) $ (235,717)
Adjustments to reconcile net income to net cash
from (used for) operating activities:
Depreciation and amortization 17,816 16,137
Accrued interest on performance bonds 773 (692)
Changes in assets and liabilities:
Membership initiation fees and other accounts
receivable 73,608 309,652
Notes receivable 48,569 454,114
Inventory 1,487,023 (2,988,271)
Prepaid and other assets (22,805) (51,839)
Accounts payable and accrued expenses 322,761 649,482
Lot deposits 3,002 (4,500)
Deferred revenue 36,302 (3,586)
----------- -----------
Net cash from (used for) operating activities 1,809,816 (1,855,220)
----------- -----------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Property and equipment (87,030) (62,691)
Notes receivable - affiliate 562,826 1,576,168
----------- -----------
Net cash from (used for) investing activities 475,796 1,513,477
----------- -----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Proceeds from mortgage loans 5,386,247 5,788,541
Repayments on mortgage loans (7,926,094) (3,049,633)
Proceeds from notes payable 27,736 --
Repayments on notes payable (12,719) (8,889)
Net repayments under warehouse line of credit
agreements (217,005) (750,977)
Prepaid and other assets (37,802) --
Advances (to)from an affiliate 572,097 (1,669,346)
----------- -----------
Net cash from (used for) financing activities (2,207,540) 309,696
----------- -----------
Net increase (decrease) in cash 78,072 (32,047)
CASH, beginning of period 165,818 201,928
----------- -----------
CASH, end of period $ 243,890 $ 169,881
=========== ==========
Cash paid during period for:
Interest, net of amounts capitalized $ 229,724 $ 206,114
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
NTS/LAKE FOREST II RESIDENTIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein should be read in conjunction with the
1996 audited financial statements of NTS/Lake Forest II Residential Corporation
(Lake Forest) which were filed with the Securities and Exchange Commission in
conjunction with the Form 10-K of the NTS Mortgage Income Fund. In the opinion
of management, all adjustments (only consisting of normal recurring accruals)
necessary for a fair presentation have been made to the accompanying financial
statements for the nine months ended September 30, 1997 and 1996.
1. Revenue Recognition
Lake Forest recognizes revenue and related costs from lot sales
using the accrual method in accordance with generally accepted
accounting principals, which is when payment has been received and
title, possession and other attributes of ownership have been
transferred to the buyer, and Lake Forest is not obligated to
perform significant activities after the sale. Lake Forest
generally requires a minimum down payment of at least 10% of the
sales price of the lot.
2. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principals 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 amount of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
3. Tax Status
Lake Forest has elected, for income tax purposes, to include its
income with that of its stockholders, a S-Corporation election.
Accordingly, no provision for income taxes is included in the
accompanying financial statements.
4. Inventory
Inventory consists of the following as of:
September 30, December 31,
1997 1996
----------- -----------
Land held for future
development, under development
and completed lots $ 10,727,460 $ 12,608,256
Country club (net of membership
initiation fees) 10,836,355 10,568,113
Amenities 6,873,000 6,694,256
----------- -----------
$ 28,436,815 $ 29,870,625
=========== ===========
<PAGE>
4. Inventory - Continued
Inventory as reflected on the previous page includes $16,345,246,
net of $5,508,891 of Country Club membership initiation fees, of
costs incurred to date for the development of the Country Club.
5. Notes and Mortgage Loans Payable
Notes and mortgage loans payable consist of the following as of:
September 30, December 31,
1997 1996
----------- -----------
Mortgage loan payable to the NTS Mortgage
Income Fund (the Fund)in the amount of
$28,000,000 bearing interest equal to
the greater of 17% of Gross Receipts or
5.76% of the outstanding loan balance,
due December 31, 1997, secured by
inventory and a subordinated first mortgage
on approximately 180 acres of land,
advances are made as needed for project
costs, generally principal payments
consist of approximately 83% of the gross
receipts of lot sales. $23,483,813 $25,857,472
Warehouse Line of Credit Agreements
with three banks bearing interest at
the Prime Rate + 1%, the Prime Rate +
3/4% and the Prime Rate + 1/2%, due
December 15, 1997 ($241,613), September
30, 1998 ($211,682) and February 28,
1998 ($646,136), secured by notes
receivable, principal payments consist
of payments received from notes
receivable securing the obligation. 1,099,431 1,316,435
Mortgage loan payable to a bank in
the amount of $4,000,000, bearing
interest at the Prime Rate + 1/2%,
payable monthly, due July 21, 2002,
secured by the Lake Forest Country
Club and golf course, annual
principal reductions of $300,000
every six months are guaranteed by
NTS Corporation, the Fund's sponsor 4,000,000 --
Equipment loan in the amount of
$27,736, bearing interest at a rate
of 5.94%, due April 1, 2002, secured
by equipment purchased for use at the
Lake Forest Country Club 24,885 --
(Continued next page)
<PAGE>
5. Notes and Mortgage Loans Payable - Continued
--------------------------------------------
Mortgage loan payable in the amount of
$4,965,000, bearing interest at the Prime
Rate + 1%, due July 31, 1999, secured
by the Lake Forest Country Club golf
course, 10 acres of land upon which the
clubhouse was constructed and inventory,
advances are made as needed for project
costs, principal payments consist of
100% of the Club's net membership fees
prior to the loan closing (September 1,
1995) and 95% of the Club's net
memberships after the loan closing. $ -- $ 3,980,127
Mortgage loan payable in the amount
of $875,000, bearing interest at the
Prime Rate + 1%, due November 24, 1996,
secured by inventory, advances are made
as needed for project costs, principal
payments consist of 85% of gross proceeds
of the lot sales to builders and 75% of
the gross proceeds of the lot sales to
individuals. -- 258,060
Equipment loan in the amount of
$38,961, bearing interest of 10.5%,
due October 1, 1997, secured by
equipment purchased for use at the
Country Club -- 9,870
----------- -----------
$28,608,129 $31,349,964
=========== ===========
As of September 30, 1997, substantially all of the assets of Lake
Forest secure the above notes and mortgage loans payable.
The Prime Rate was 8 1/4% and 8 1/2% at December 31, 1996 and
September 30, 1997 respectively.
The $241,613 and $646,136 Warehouse Line of Credit Agreements are
guaranteed by NTS Corporation.
6. Related Party Transactions
Lake Forest has received advances from an Affiliate, net of
repayments, totaling $572,097 as of September 30, 1997. The
advances bear interest at approximately the Prime Rate. Interest
paid to the Affiliate was $10,958 and $60,777 for the nine months
ended September 30, 1997 and 1996, respectively. There were no
advances outstanding as of December 31, 1997.
<PAGE>
6. Related Party Transactions - Continued
Pursuant to an agreement effective July 1, 1994, reimbursements
were made by Lake Forest to NTS/Residential Properties, Inc. -
Kentucky (Residential), an Affiliate of and under common control
with Lake Forest. These reimbursements were for actual personnel,
marketing and administrative costs as related to Lake Forest. These
reimbursements totaling $601,620 and $602,392 for the nine months
ended September 30, 1997 and 1996, respectively, are reflected as
Cost Reimbursements on the accompanying Statement of Operations.
7. Commitments and Contingencies
It is estimated that development of the remaining homeowners
association amenities will be substantially completed by December
2000. Based on engineering studies and projections, Lake Forest
will incur additional costs, excluding interest, of approximately
$500,000 during 2000 to complete the homeowners association
amenities.
Lake Forest has various letters of credit outstanding to
governmental agencies and utility companies totaling approximately
$871,000 at September 30, 1997.
8. Subsequent Event
The NTS Mortgage Income Fund (the Fund) acquired all of the issued
and outstanding common capital stock of NTS/Lake Forest II
Residential Corporation (NTS/LFII) effective October 1, 1997, for a
nominal purchase price. The existing indebtedness of NTS/LFII to
the Fund was converted to equity as of October 1, 1997. The
acquisition was closed pursuant to an Agreement executed on
December 30, 1997, and dated as of October 1, 1997, by and among
the Fund, NTS/LFII and its shareholders, NTS/Virginia Development
Company and certain of its shareholders, NTS Corporation, NTS
Advisory Corporation, a Kentucky corporation and Advisor to the
Fund (NTS Advisory) and NTS Residential Management Company, a
Kentucky corporation (NTS Management). NTS Advisory and NTS
Management are Affiliates of and are under common control with NTS
Corporation.
Generally Accepted Accounting Principles require that acquisitions
be recorded at fair market value. The Fund realized a loss on the
transaction in the fourth quarter of 1997 as more fully disclosed
in the Fund's 1997 Report on Form 10-K.
<PAGE>
NTS/VIRGINIA DEVELOPMENT COMPANY
BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS 1997 1996
- ------ ------------ --------
(Unaudited)
Cash $ 8,206 $ 61,142
Membership initiation fees and other
accounts receivable 565,919 512,473
Notes receivable 3,248,780 4,150,515
Inventory 34,146,810 32,768,228
Property & equipment, net of accumulated
depreciation of $233,776 (1997) and
$151,886 (1996) 280,553 307,213
Prepaid and other assets, net of
amortization of $799,826 (1997) and
$758,297 (1996) 109,992 117,141
----------- ----------
Total assets $ 38,360,260 $37,916,712
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 2,078,316 $ 1,669,753
Advances from an affiliate (Note 6) 548,242 583,700
Notes and mortgage loans payable (Note 5) 35,758,615 35,245,593
Lot deposits 127,384 108,288
----------- ----------
Total liabilities 38,512,557 37,607,334
----------- ----------
Commitments and contingencies (Note 7)
Stockholders's Equity:
Class A common stock, no par value, 70,000
shares authorized, 910 shares issued and
outstanding 910 910
Class B common stock, no par value, 30,000
shares authorized, 90 shares issued and
outstanding 90 90
Retained earnings (deficit) (153,297) 308,378
----------- ----------
Total stockholders' equity (152,297) 309,378
----------- ----------
Total liability and stockholders' equity $ 38,360,260 $37,916,712
=========== ==========
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
NTS/VIRGINIA DEVELOPMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Revenues: 1997 1996
----------- ----------
Lot sales, net of discounts $ 1,149,000 $ 2,461,754
Interest and other income 292,019 381,933
----------- ----------
1,441,019 2,843,687
Cost of sales 730,975 1,570,342
----------- ----------
Gross profit 710,044 1,273,346
Expenses:
Cost reimbursements (Note 6) 599,426 883,390
General and administrative 92,216 73,947
Interest 388,454 392,785
Gross receipts interest 6,304 11,442
Depreciation and amortization 85,319 112,647
----------- ----------
1,171,719 1,474,210
----------- ----------
Net loss $ (461,675) $ (200,864)
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
NTS/VIRGINIA DEVELOPMENT COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---------- ----------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net loss $ (461,675) $ (200,864)
Adjustments to reconcile net income (loss) to
net cash from (used for)operating activities:
Depreciation and amortization 85,319 112,647
Accrued interest on performance bonds (318) (413)
Changes in assets and liabilities:
Membership initiation fees and other accounts
receivable (53,446) (2,491)
Notes receivable 901,735 1,023,597
Inventory (1,378,582) (1,357,602)
Prepaid and other assets (17,058) (14,359)
Accounts payable and accrued expenses 408,563 (25,599)
Lot deposits and other liabilities 19,096 (663)
----------- -----------
Net cash from (used for) operating activities (496,366) (465,747)
----------- -----------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Additions to property and equipment (17,129) (43,364)
----------- -----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Proceeds from mortgage loans 2,456,590 3,872,996
Repayments on mortgage loans (990,370) (2,079,920)
Repayments on notes payable (82,180) (57,297)
Net repayments under warehouse line of credit
agreements (871,018) (104,391)
Loan costs (17,005) (15,871)
Advances (to) from an affiliate (35,458) (1,129,332)
----------- -----------
Net cash from financing activities 460,559 486,185
----------- -----------
Net decrease in cash (52,936) (22,926)
CASH, beginning of period 61,142 48,466
----------- -----------
CASH, end of period $ 8,206 $ 25,540
=========== ============
Cash paid during period for:
Interest, net of amounts capitalized $ 424,833 $ 395,054
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
NTS/VIRGINIA DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein should be read in conjunction with the
1996 audited financial statements of NTS/Virginia Development Company (Fawn
Lake) which were filed with the Securities and Exchange Commission in
conjunction with the Form 10-K of the NTS Mortgage Income Fund. In the opinion
of management, all adjustments (only consisting of normal recurring accruals)
necessary for a fair presentation have been made to the accompanying financial
statements for the nine months ended September 30, 1997 and 1996.
1. Revenue Recognition
Fawn Lake recognizes revenue and related costs from lot sales using
the accrual method in accordance with generally accepted accounting
principals, which is when payment has been received and title,
possession and other attributes of ownership have been transferred
to the buyer, and Fawn Lake is not obligated to perform significant
activities after the sale. Fawn Lake generally requires a minimum
down payment of at least 10% of the sales price of the lot.
2. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principals 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 amount of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
3. Tax Status
Fawn Lake has elected, for income tax purposes, to include its
income with that of its stockholders, a S-Corporation election.
Accordingly, no provision for income taxes is included in the
accompanying financial statements.
4. Inventory
Inventory consists of the following as of:
September 30, December 31,
1997 1996
----------- -----------
Land held for future development,
under development and completed
lots $ 22,392,455 $ 21,633,702
Country club (net of membership
initiation fees) 7,301,521 6,749,630
Amenities 4,452,834 4,384,896
----------- -----------
$ 34,146,810 $ 32,768,228
=========== ===========
Inventory as reflected above includes $8,757,157, net of $1,455,636
of Country Club membership initiation fees, of costs incurred to
date for the development of the Country Club.
<PAGE>
5. Notes and Mortgage Loans Payable
Notes and mortgage loans payable consist of the following as of:
September 30, December 31,
1997 1996
Mortgage loan payable to the NTS Mortgage
Income Fund (the Fund) in the amount
of $31,000,000 bearing interest equal to
the greater of 17% of Gross Receipts or
5.76% of the outstanding loan balance,
due December 31, 1997, secured by
inventory, generally principal payments
consist of approximately 83% of the
gross receipts of lot sales $30,175,175 $28,966,245
Mortgage payable to the Fund in the
amount of $2,500,000, bearing interest
at the Prime Rate + 3/4%, due January
31, 1998, secured by the Fawn Lake Golf
Course 2,499,532 1,998,850
Warehouse Line of Credit Agreements
with two banks bearing interest at the
Prime Rate + 1% and Prime Rate + 3/4%,
due December 15, 1997 ($407,559) and
September 30, 1998 ($2,538,584),
secured by notes receivable, principal
payments consist of payments received
from notes receivable securing the
obligation. 2,946,143 3,817,160
Bank note payable in the amount of
$165,276, bearing interest at the
rate of 8.75%, due January 14, 1999,
secured by golf course maintenance
equipment. 74,321 115,028
Bank note payable in the amount of
$42,435, bearing interest at the rate
of 10.5%, due October 15, 1999,
secured by golf course equipment 28,362 --
Bank note payable in the amount of
$34,555, bearing interest at the rate
of 10.5%, due October 15, 1999,
secured by golf course equipment 22,524 --
Bank note payable in the amount of
$19,194, bearing interest at the rate
of 10.5%, due October 15, 1999,
secured by golf course equipment 12,558 --
(Continued next page)
<PAGE>
Bank note payable in the amount of $79,545,
bearing interest at the rate of
7.99%, due October 1, 1997, secured by golf
course maintenance equipment. $ -- $ 21,680
Mortgage loan payable in the amount of
$325,000 bearing interest at the Prime
Rate + 1% and gross receipts interest
of 2% of the gross proceeds from lot
sales, due September 15, 1997, secured
by a first mortgage on 14 lots in Fawn
Lake, principal payments consist of 85%
of the gross proceeds of lot sales to
builders and 75% of the gross proceeds of lot
sales to individuals. -- 243,393
Bank note payable in the amount of
$42,435, bearing interest at the rate
of 10.5%, due October 15, 1999,
secured by golf course maintenance
equipment. -- 36,421
Bank note payable in the amount of $34,505,
bearing interest at the rate of 10.5%, due
October 15, 1999, secured by golf course
maintenance equipment. -- 30,366
Bank note payable in the amount of
$19,144, bearing interest at the rate
of 10.5%, due October 15, 1999,
secured by golf course maintenance
equipment. -- 16,450
----------- -----------
$ 35,758,615 $35,245,593
=========== ===========
As of September 30, 1997, substantially all of the assets of Fawn
Lake secure the above notes and mortgage loans payable.
The Prime Rate was 8 1/4% and 8 1/2% at December 31, 1996 and
September 30, 1997 respectively.
The $407,559 Warehouse Line of Credit Agreement is guaranteed by
NTS Corporation.
6. Related Party Transactions
Fawn Lake has received non-interest bearing advances from an
Affiliate totaling $548,242 and $583,800 as of September 30, 1997
and December 31, 1996, respectively. The advances were used to fund
development costs and will be repaid to the Affiliate as cash flow
permits.
<PAGE>
6. Related Party Transactions - Continued
Pursuant to an agreement effective July 1, 1994, reimbursements
were made by Fawn Lake to NTS Residential Properties, Inc. -
Virginia (Residential), an Affiliate of and under common control
with Fawn Lake. These reimbursements were for actual personnel,
marketing and administrative costs as related to Fawn Lake. These
reimbursements totaling $599,426 and $883,390 for the nine months
ended September 30, 1997 and 1996, respectively, are reflected as
Cost Reimbursements on the accompanying Statement of Operations.
7. Commitments and Contingencies
It is estimated that the country club and homeowners association
amenities will be substantially completed by December 2002. Based
on engineering studies and projections, Fawn Lake will incur
additional costs, excluding interest, of approximately $3,465,000
to complete the country club and homeowners association amenities
for the project. These costs are estimated to be incurred as
follows: $440,000 for 1998, $2,425,000 for 1999, $200,000 for 2000
and $400,000 for 2002.
Fawn Lake has letters of credit outstanding to governmental
agencies totaling approximately $480,000 at September 30, 1997.
8. Subsequent Event
The NTS Mortgage Income Fund (the Fund) acquired all of the issued
and outstanding common capital stock of NTS/Virginia Development
Company (NTS/VA) effective October 1, 1997, for a nominal purchase
price. The existing indebtedness of NTS/VA to the Fund was
converted to equity as of October 1, 1997. The acquisition was
closed pursuant to (a) an Agreement executed on December 30, 1997,
and dated as of October 1, 1997, by and among the Fund, NTS/Lake
Forest Residential II Corporation and its shareholders, NTS/VA and
certain of its shareholders, NTS Corporation, NTS Advisory
Corporation, a Kentucky corporation and Advisor to the Fund (NTS
Advisory) and NTS Residential Management Company, a Kentucky
corporation (NTS Management), and (b) an Agreement executed on
December 30, 1997, and dated as of October 1, 1997, by and among
the Fund, NTS/VA and certain shareholders of NTS/VA (the Stock
Purchase Agreements). NTS Advisory and NTS Management are
Affiliates of and are under common control with NTS Corporation.
Generally Accepted Accounting Principles require that acquisitions
be recorded at fair market value. The Fund realized a loss on the
transaction in the fourth quarter of 1997 as more fully disclosed
in the Fund's 1997 Report on Form 10-K.
<PAGE>
