UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported) March 14, 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) Pro Forma Information
Attached hereto is the pro forma information required pursuant to
Rule 3-05 of Regulation S-X regarding NTS/Lake Forest II
Residential Corporation, NTS/Virginia Development Company and the
undersigned registrant.
<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: March 14, 1998
<PAGE>
<TABLE>
NTS MORTGAGE INCOME FUND
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
As Reported September 30, 1997
-----------------------------------------------------------
NTS Lake
Forest II NTS Virginia
NTS Mortgage Residential Development Pro Forma Pro Forma
Income Fund Corporation Company Adjustments Combined
----------- ----------- ----------- ----------- ----------
ASSETS
- -------
<S> <C> <C> <C> <C> <C>
Affiliated mortgage loans
receivable $ 56,158,518 $ -- $ -- $ (56,158,518) (A) $ --
Cash and equivalents 373,738 243,889 8,206 -- 625,833
Interest receivable -
affiliates 1,108,720 -- -- (1,108,720) (B) --
Membership initiation fees
and other accounts
receivable -- 1,182,934 565,919 -- 1,748,853
Notes receivable -- 740,734 3,248,780 -- 3,989,514
Inventory -- 28,436,815 34,146,810 144,374 (C) 62,727,999
Investment in joint venture
- affiliate 8,101,373 -- -- -- 8,101,373
Property and equipment, net -- 218,148 280,553 -- 498,701
Prepaid and other assets 41,465 378,691 109,992 -- 530,148
----------- ----------- ----------- ----------- -----------
Total assets $ 65,783,814 $ 31,201,211 $ 38,360,260 $ (57,122,864) $ 78,222,421
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued
expenses $ 304,273 $ 1,896,444 $ 2,078,316 $ (1,108,720) (B) $ 3,170,313
Advances from affiliates -- 572,097 548,242 -- 1,120,339
Notes payable - affiliates 4,069,242 -- -- -- 4,069,242
Notes and mortgage loans
payable 9,713,069 28,608,129 35,758,615 (56,158,518) (A) 17,921,295
Lot deposits -- 11,500 100,000 -- 111,500
Deferred revenues 500 105,088 27,384 -- 132,972
----------- ----------- ----------- ----------- -----------
Total liabilities 14,087,084 31,193,258 38,512,557 (57,267,238) 26,525,661
----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 3,187 1,000 1,000 (1,970) (C) 3,217
Additional paid-in-capital 54,163,397 -- -- -- 54,163,397
Retained (deficit) earnings (2,469,854) 6,953 (153,297) 146,344 (C) (2,469,854)
----------- ----------- ----------- ------------ -----------
Total stockholders'
equity 51,696,730 7,953 (152,297) 144,374 51,696,760
----------- ----------- ---------- ------------ ----------
Total liabilities and
stockholders' equity $ 65,783,814 $ 31,201,211 $ 38,360,260 $ (57,122,864) $ 78,222,421
========== =========== ========== ============ ==========
</TABLE>
See notes and assumptions to unaudited pro forma combined financial statements.
<PAGE>
<TABLE>
NTS MORTGAGE INCOME FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
As Reported September 30, 1997
----------------------------------------------------------
NTS Lake
Forest II NTS Virginia
NTS Mortgage Residential Development Pro Forma Pro Forma
Income Fund Corporation Company Adjustments Combined
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Lot sales, net of discounts $ -- $ 4,145,148 $ 1,149,000 $ -- $ 5,294,148
Interest and other income -- 68,707 292,019 -- 360,726
Interest income on affiliated
mortgage loans receivable 2,617,126 -- -- (2,172,334) (D) 444,792
Income (loss) from investment
in joint venture - affiliate (24,555) -- -- -- (24,555)
Fee income on affiliated
mortgage loans and other
financial services 7,959 -- -- (7,959) (E) --
Recovery of provision for
loan losses 1,500,000 -- -- -- 1,500,000
Interest income on cash
equivalents and
miscellaneous income 25,320 -- -- -- 25,320
------------ ------------ ------------ ------------ -----------
Total income 4,125,850 4,213,855 1,441,019 (2,180,293) 7,600,431
Cost of sales -- 3,116,981 730,975 -- 3,847,956
------------ ------------ ------------ ----------- -----------
4,125,850 1,096,874 710,044 (2,180,293) 3,752,475
------------ ------------ ------------ ------------ -----------
Expenses:
Advisory fee 418,950 -- -- (418,950) (F) --
Cost reimbursements -
affiliate -- 601,620 599,426 693,078 (F) 1,894,124
(G)
Interest expense 970,268 328,284 394,758 (985,795) (H) 707,515
Interest expense - affiliates 263,904 -- -- -- 263,904
Professional and
administrative expenses 197,621 306,387 92,216 (1,709) (I) 594,515
Other taxes and licenses 19,010 -- -- -- 19,010
Depreciation and
amortization expense 53,803 17,816 85,319 (6,250) (I) 150,688
------------ ------------ ------------ ------------ -----------
Total expenses 1,923,556 1,254,107 1,171,719 (719,626) 3,629,756
------------ ------------ ------------ ------------ -----------
Net income before taxes 2,202,294 (157,233) (461,675) (1,460,667) 122,719
Income tax expense (6,350) -- -- 6,350 (J) --
------------ ------------ ------------ ------------ -----------
Net income (loss) $ 2,195,944 $ (157,233) $ (461,675) $ (1,454,317) $ 122,719
============ ============ ============ ============ ===========
Net income (loss) per share
of common stock $ 0.69 $ 0.04
============ ===========
Weighted average number of
shares 3,187,333 3,187,333
============ ===========
</TABLE>
See notes and assumptions to unaudited pro forma combined financial statements.
<PAGE>
NTS MORTGAGE INCOME FUND
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
1. 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) and NTS/Virginia Development
Company (NTS/VA) effective October 1, 1997, for a nominal purchase
price. The existing indebtedness of each of NTS/LFII and 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/LFII 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. Refer to the Fund's 8-K filed
January 14, 1998 for additional information regarding this
transaction.
The Fund, as the sole shareholder of NTS/LFII and NTS/VA, will
hereafter control the ongoing operations of the projects. The
ongoing operation and management of the projects will be conducted
by NTS Management under the terms of (a) a Property Management
Agreement executed on December 30, 1997, and dated as of October 1,
1997, by and among the Fund, NTS/LFII and NTS Management for the
Lake Forest North project, and (b) a Property Management Agreement
executed on December 30, 1997, and dated as of October 1, 1997, by
and among the Fund, NTS/VA and NTS Management for the Fawn Lake
project (collectively, the Management Agreements). The Management
Agreements have an initial term through December 31, 2003, subject
to extension under certain conditions, and are renewable for six
(6) year terms thereafter. Under the Management Agreements, NTS
Management will be reimbursed for actual costs, including overhead,
incurred in the operation and management of the projects.
2. The Fund, NTS/LFII and NTS/VA operate and report on a calendar year
basis. The unaudited pro forma combined financial statements
present the financial position and results of operations of the
combined businesses as of and for the nine months ended September
30, 1997, giving effect for the transactions summarized in Note 1
above. The unaudited pro forma combined financial statements
should be read in conjunction with the audited financial statements
as of and for the three years in the period ended December 31, 1996
included in the Fund's annual report on Form 10-K for 1996.
<PAGE>
3. The accompanying unaudited pro forma balance sheet as of September
30, 1997 has been prepared as if the acquisition of NTS/LFII and
NTS/VA by the Fund had been effective September 30, 1997. The
unaudited pro forma statement of operations for the nine months
ended September 30, 1997 has been prepared as if the acquisition
of NTS/LFII and NTS/VA had been effective January 1, 1996. In the
opinion of management, all adjustments necessary to present fairly
such pro forma financial statements have been made. The pro forma
financial statements are for information purposes only and are not
necessarily indicative of the financial condition or results of
operations that would have occurred if the acquisition had been
consummated as of January 1, 1996.
4. Explanation of Pro Forma Adjustments
(A) Represents adjustments to reverse the Affiliated Mortgage
Loans Receivable on the Fund's books and the offsetting
Affiliated Mortgage Loans Payable on the books of NTS/LFII and
NTS/VA as of September 30,1997 which existed between the Fund
and NTS/LFII and NTS/VA. Concurrent adjustments have been made
to record the Fund's investments in NTS/LFII and NTS/VA and to
eliminate such investments in consolidation. These adjustments
are not shown separately on the accompanying pro forma
combined balance sheet.
(B) Represents adjustments to reverse the Affiliated Mortgage Loan
interest receivable on the Fund's books and the offsetting
Affiliated Mortgage Loan interest payable on the books of
NTS/LFII and NTS/VA as of September 30, 1997 which existed
between the Fund and NTS/LFII and NTS/VA.
(C) Represents adjustments to eliminate the pre-acquisition equity
of NTS/LFII and NTS/VA.
(D) Represents adjustments to reverse interest income on
Affiliated Mortgage Loans to NTS/LFII and NTS/VA recorded by
the Fund during 1997. As the Fund's Mortgage Loans Receivable
to these entities were converted to equity pursuant to the
Stock Purchase Agreements, no interest income would be
generated.
(E) Represents adjustments to reverse fees paid by NTS/VA to the
Fund. The fees were earned by the Fund in exchange for
stand-by letters of credit issued by the Fund on behalf of
NTS/VA.
(F) Represents adjustment to reverse the amount incurred as an
Advisory Fee to NTS Advisory Corporation pursuant to the
Advisory Agreement. The Fund will conditionally not be subject
to the Advisory Agreement on a going forward basis but will be
responsible for actual general and administrative costs. Such
costs for the nine months ended September 30, 1997, if charged
on an actual basis, would have approximated the amount of the
Advisory Fee incurred. As such, a like amount has been
included in Cost Reimbursements - Affiliate.
<PAGE>
(G) The Management Agreements allow NTS Management to be the sole
and exclusive management agent of the Fund for the day-to-day
control and management of the business of the Fund including
(a) the continued operation of NTS/LFII and NTS/VA, (b) the
operations of the Lake Forest Country Club and the Fawn Lake
Country Club, (c) the operations of the Lake Forest Community
Association and the Fawn Lake Community Association and (d)
the provision and/or sale of ancillary goods and services as
selected by NTS Management with respect to any of the
foregoing.
Represents adjustments to accrue an additional amount due by
NTS/LFII and NTS/VA for services by various NTS entities on
behalf of the projects. NTS/LFII and NTS/VA will now pay an
additional overhead reimbursement equal to 3.75% of revenues,
including any revenues generated by the Lake Forest Country
Club and the Fawn Lake Country Club, as defined in the
Management Agreements which were included as an exhibit in the
Form 8-K filed by the Fund on January 14, 1998.
(H) Represents adjustments to reverse approximately $339,000 of
the interest expense on Affiliated Mortgage Notes Payable
incurred by NTS/LFII and NTS/VA to the Fund.
In addition, approximately $647,000 of interest previously
expensed by the Fund has been capitalized in these pro forma
financial statements as a part of the projects' development
cost. Subsequent to the acquisition of the stock of NTS/LFII
and NTS/VA by the Fund, but as part of the loan restructuring
process, the Fund's debt and the affiliated debt of each of
the projects was refinanced by obtaining development financing
from third party banks. As such, the interest expense on these
new loans will be capitalized as part of the development cost
of the projects in accordance with generally accepted
accounting principles.
(I) Represents adjustment to reverse the cost of certain fees paid
to the Fund by NTS/VA (see B above).
(J) Represents adjustment to reverse income tax provisions. The
combined results provided a taxable loss on a pro forma basis.
In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", a deferred tax asset
would be recognized by the Fund. However, due to the
uncertainty of the Fund being able to realize this future tax
benefit, a reserve equal to the future tax benefit has been
assumed for these pro forma statements.
<PAGE>
<TABLE>
NTS MORTGAGE INCOME FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
As Reported December 31, 1996
----------------------------------------------------------
NTS Lake
Forest II NTS Virginia
NTS Mortgage Residential Development Pro Forma Pro Forma
Income Fund Corporation Company Adjustments Combined
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Lot sales, net of discounts $ -- $ 3,307,163 $ 2,936,404 $ -- $ 6,243,567
Interest and other income -- 243,166 479,733 -- 722,899
Interest income - affiliate -- 76,807 -- -- 76,807
Interest income on affiliated
mortgage loans receivable 3,256,148 -- -- (2,592,092) (A) 664,056
Fee income on affiliated
mortgage loans and other
financial services 24,873 -- -- (24,873) (B) --
Interest income on cash
equivalents and
miscellaneous income 23,974 -- -- -- 23,974
------------ ------------ ------------ ------------ ----------
Total income 3,304,995 3,627,136 3,416,137 (2,616,965) 7,731,303
Cost of sales -- 2,477,330 1,875,642 -- 4,352,972
------------ ------------ ------------ ------------ ----------
3,304,995 1,149,806 1,540,495 (2,616,965) 3,378,331
------------ ------------ ------------ ------------ ----------
Expenses:
Advisory fee 544,776 -- -- (544,776) (C) --
Cost reimbursements -
affiliate -- 653,635 1,034,613 863,946 (C) 2,552,194
(D)
Interest expense 1,343,241 580,262 543,649 (1,283,498) (E) 1,183,654
Interest expense - affiliates 258,191 -- -- -- 258,191
Professional and
administrative expenses 199,592 85,651 111,220 (4,873) (F) 391,590
Other taxes and licenses 27,340 -- -- -- 27,340
Depreciation and
amortization expense 72,050 21,516 153,180 (20,000) (F) 226,746
Provision for loan losses 2,096 395,275 364,974 -- 762,345
------------ ------------ ------------ ------------ ----------
Total expenses 2,447,286 1,736,339 2,207,636 (989,201) 5,402,060
------------ ------------ ------------ ------------ ----------
Net income before taxes 857,709 (586,533) (667,141) (1,627,764) (2,023,729)
Income tax expense (7,400) -- -- 7,400 (G) --
------------ ------------ ------------ ------------ ----------
Net income (loss) $ 850,309 $ (586,533) $ (667,141) $ (1,620,364) $ (2,023,729)
============ =========== =========== =========== ==========
Net income (loss) per share
of common stock $ 0.27 $ (0.64)
============ ==========
Weighted average number of
shares 3,187,333 3,187,333
============ ==========
See notes and assumptions to unaudited pro forma statement of operations.
</TABLE>
<PAGE>
NTS MORTGAGE INCOME FUND
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
1. 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) and NTS/Virginia Development
Company (NTS/VA) effective October 1, 1997, for a nominal purchase
price. The existing indebtedness of each of NTS/LFII and 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/LFII 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. Refer to the Fund's 8-K filed
January 14, 1998 for additional information regarding this
transaction.
The Fund, as the sole shareholder of NTS/LFII and NTS/VA, will
hereafter control the ongoing operations of the projects. The
ongoing operation and management of the projects will be conducted
by NTS Management under the terms of (a) a Property Management
Agreement executed on December 30, 1997, and dated as of October 1,
1997, by and among the Fund, NTS/LFII and NTS Management for the
Lake Forest North project, and (b) a Property Management Agreement
executed on December 30, 1997, and dated as of October 1, 1997, by
and among the Fund, NTS/VA and NTS Management for the Fawn Lake
project (collectively, the Management Agreements). The Management
Agreements have an initial term through December 31, 2003, subject
to extension under certain conditions, and are renewable for six
(6) year terms thereafter. Under the Management Agreements, NTS
Management will be reimbursed for actual costs, including overhead,
incurred in the operation and management of the projects.
2. The Fund, NTS/LFII and NTS/VA operate and report on a calendar year
basis. The unaudited pro forma combined statement of operations
presents the results of operations of the combined businesses for
the year ended December 31, 1996 giving effect for the transactions
summarized in Note 1 above. The unaudited pro forma combined
financial statements should be read in conjunction with the audited
financial statements as of and for the three years in the period
ended December 31, 1996 included in the Fund's annual report on
Form 10-K for 1996.
3. The combined statement of operations for the year ended December
31, 1996 has been prepared as if the acquisition of NTS/LFII and
NTS/VA had been effective January 1, 1996. In the opinion of
<PAGE>
management, all adjustments necessary to present fairly such pro
forma financial statements have been made. The pro forma financial
statements are for information purposes only and are not
necessarily indicative of results of operations that would have
occurred if the acquisition had been consummated as of January 1,
1996.
4. Explanation of Pro Forma Adjustments
(A) Represents adjustments to reverse interest income on
Affiliated Mortgage Loans to NTS/LFII and NTS/VA recorded by
the Fund during 1996. As the Fund's Mortgage Notes Receivable
to these entities were converted to equity pursuant to the
Stock Purchase Agreements, no interest income would be
generated.
(B) Represents adjustments to reverse fees paid by NTS/VA to the
Fund. The fees were earned by the Fund in exchange for
stand-by letters of credit issued by the Fund on behalf of
NTS/VA and origination fees earned by the Fund regarding a
Temporary Mortgage Loan between the Fund and NTS/VA.
(C) Represents adjustment to reverse the amount incurred as an
Advisory Fee to NTS Advisory Corporation pursuant to the
Advisory Agreement. The Fund will conditionally not be subject
to the Advisory Agreement on a going forward basis but will be
responsible for actual general and administrative costs. Such
costs for 1996, if charged on an actual basis, would have
approximated the amount of the Advisory Fee incurred. As such,
a like amount has been included in Cost Reimbursements
Affiliate.
(D) The Management Agreements allow NTS Management to be the sole
and exclusive management agent of the Fund for the day-to-day
control and management of the business of the Fund including
(a) the continued operation of NTS/LFII and NTS/VA, (b) the
operations of the Lake Forest Country Club and the Fawn Lake
Country Club, (c) the operations of the Lake Forest Community
Association and the Fawn Lake Community Association and (d)
the provision and/or sale of ancillary goods and services as
selected by NTS Management with respect to any of the
foregoing.
Represents adjustments to accrue an additional amount due by
NTS/LFII and NTS/VA for services by various NTS entities on
behalf of the projects. NTS/LFII and NTS/VA will now pay an
additional overhead reimbursement equal to 3.75% of revenues,
including any revenues generated by the Lake Forest Country
Club, and the Fawn Lake Country Club, as defined in the
Management Agreements which were included as an exhibit in the
Form 8-K filed by the Fund on January 14, 1998.
(E) Represents adjustments to reverse approximately $390,000 of
the interest expense on Affiliated Mortgage Notes Payable
incurred by NTS/LFII and NTS/VA to the Fund during 1996.
<PAGE>
In addition, approximately $895,000 of interest previously
expensed by the Fund has been capitalized in these pro forma
financial statements as a part of the projects' development
cost. Subsequent to the acquisition of the stock of NTS/LFII
and NTS/VA by the Fund, but as part of the loan restructuring
process, the Fund's debt and the affiliated debt of each of
the projects was refinanced by obtaining development financing
from third party banks. As such, the interest expense on these
new loans will be capitalized as part of the development cost
of the projects in accordance with generally accepted
accounting principles.
(F) Represents adjustment to reverse the cost of certain fees paid
to the Fund by NTS/VA (see B above).
(G) Represents adjustment to reverse income tax provisions. The
combined results provided a taxable loss on a pro forma basis.
In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", a deferred tax asset
would be recognized by the Fund. However, due to the
uncertainty of the Fund being able to realize this deferred
tax benefit, a reserve equal to the future tax benefit has
been assumed in these pro forma statements.
<PAGE>
