For the quarterly period ended September 30, 2003
OR
Commission File Number 0-11655
| Kentucky | 61-1026356 |
| (State or other jurisdiction of | (IRS Employer Identification No.) |
| incorporation or organization) |
10172 Linn Station
Road, Louisville, Kentucky 40223
(Address of Principal Executive Offices)
(502) 426-4800
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 whether registrant is an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).
Yes [ ] No [X]
| Pages |
| Item 1. | Financial Statements | |||
| Balance Sheets as of September 30, 2003 and December 31, 2002 | 4 | |||
| Statement of Partners' Equity as of September 30, 2003 | 4 | |||
| Statements of Operations for the Three and Nine | ||||
| Months Ended September 30, 2003 and 2002 | 5 | |||
| Statements of Cash Flows for the Nine Months | ||||
| Ended September 30, 2003 and 2002 | 6 | |||
| Notes to Financial Statements | 7-19 | |||
| Item 2. | Management's Discussion and Analysis of Financial | |||
| Condition and Results of Operations | 20-28 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 | ||
| Item 4. | Controls and Procedures | 29 | ||
| Items 1 - 6 | 30 | |||
| Signatures | 31 | |||
| Exhibit Index | 32 |
2
Some of the statements included in this Quarterly Report on Form 10-Q, particularly those included in Part I, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), may be considered “forward-looking statements” because the statements relate to matters which have not yet occurred. For example, phrases such as “we anticipate,” “believe” or “expect” indicate that it is possible that the event anticipated, believed or expected may not occur. If these events do not occur, the result which we expected also may not occur, or may occur in a different manner which may be more or less favorable to us. We do not undertake any obligation to update these forward-looking statements.
Any forward-looking statements included in MD&A, or elsewhere in this report, reflect our general partner’s best judgment based on known factors, but involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those described in our filings with the Securities and Exchange Commission, particularly our Annual Report on Form 10-K for the year ended December 31, 2002. Any forward-looking information provided by us pursuant to the safe harbor established by securities legislation should be evaluated in the context of these factors.
3
As of As of
September 30, December 31,
2003 2002
------------------- -------------------
(UNAUDITED)
ASSETS
Cash and equivalents $ 246,363 $ 205,729
Cash and equivalents - restricted 118,136 26,750
Accounts receivable, net 181,412 123,412
Land, buildings and amenities, net 5,923,289 6,258,639
Investment in and advances to joint ventures 1,183,139 1,120,227
Other assets 132,797 139,526
------------------- -------------------
TOTAL ASSETS $ 7,785,136 $ 7,874,283
=================== ===================
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $ 3,335,507 $ 3,785,444
Accounts payable 191,300 104,646
Security deposits 31,131 31,631
Other liabilities 167,421 86,449
------------------- -------------------
TOTAL LIABILITIES 3,725,359 4,008,170
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY 4,059,777 3,866,113
------------------- -------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 7,785,136 $ 7,874,283
=================== ===================
Limited General
Partners Partner Total
----------------- ------------------ ------------------
PARTNERS' EQUITY/(DEFICIT)
Capital contributions net of offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 806,219 8,145 814,364
Net income - current year 191,725 1,937 193,662
Cash distributions declared to date (21,586,280) (218,253) (21,804,533)
Repurchase of limited partnership interests (978,615) -- (978,615)
----------------- ------------------ ------------------
BALANCES ON SEPTEMBER 30, 2003 $ 4,267,948 $ (208,171)$ 4,059,777
================= ================== ==================
The accompanying notes to financial statements are an integral part of these statements.
4
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
REVENUES
Rental income $ 614,204 $ 606,530 $ 1,871,538 $ 1,767,466
Income from investment in joint ventures 12,747 14,358 85,460 54,091
Interest and other income 3,001 2,538 4,435 7,255
Gain on sale of assets -- 249 -- 498
------------- ------------- ------------- -------------
TOTAL REVENUES 629,952 623,675 1,961,433 1,829,310
------------- ------------- ------------- -------------
EXPENSES
Operating expenses 123,618 133,695 373,853 406,889
Operating expenses - affiliated 85,495 102,756 276,690 310,560
Loss on disposal of assets -- -- 3,953 51,268
Interest expense 64,450 76,625 202,609 238,556
Management fees 35,723 35,230 104,475 100,197
Real estate taxes 24,813 30,788 87,345 92,363
Professional and administrative expenses 53,442 38,856 226,259 96,963
Professional and administrative expenses -
affiliated 33,711 33,007 109,737 103,641
Depreciation and amortization 127,852 125,680 382,850 374,188
------------- ------------- ------------- -------------
TOTAL EXPENSES 549,104 576,637 1,767,771 1,774,625
------------- ------------- ------------- -------------
Net income $ 80,848 $ 47,038 $ 193,662 $ 54,685
============= ============= ============= =============
Net income allocated to the limited
partners $ 80,040 $ 46,568 $ 191,725 $ 54,138
============= ============= ============= =============
Net income per limited partnership
interest $ 3.32 $ 1.93 $ 7.95 $ 2.25
============= ============= ============= =============
Weighted average number of limited
partnership interests 24,109 24,109 24,109 24,109
============= ============= ============= =============
The accompanying notes to financial statements are an integral part of these statements.
5
Nine Months Ended
September 30,
----------------------------------------
2003 2002
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 193,662 $ 54,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 2,184 --
Write-off of uncollectible accounts receivable (1,745) --
Loss on disposal of assets 3,953 51,268
Gain on sale of assets -- (498)
Depreciation and amortization 413,991 405,212
Income from investment in joint ventures (85,460) (54,091)
Changes in assets and liabilities:
Cash and equivalents - restricted (91,386) (75,803)
Accounts receivable (58,439) 23,304
Other assets (24,410) (7,126)
Accounts payable 86,654 1,041
Security deposits (500) 2,550
Other liabilities 80,972 137,944
------------------- -------------------
Net cash provided by operating activities 519,476 538,486
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (51,453) (153,967)
Proceeds from sale of land, buildings and amenities -- 498
Investment in and advances from (to) joint ventures 22,548 (62,019)
------------------- -------------------
Net cash used in investing activities (28,905) (215,488)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages and note payable (449,937) (423,658)
------------------- -------------------
Net cash used in financing activities (449,937) (423,658)
------------------- -------------------
Net increase (decrease) in cash and equivalents 40,634 (100,660)
CASH AND EQUIVALENTS, beginning of period 205,729 462,107
------------------- -------------------
CASH AND EQUIVALENTS, end of period $ 246,363 $ 361,447
=================== ===================
Interest paid on a cash basis $ 199,884 $ 235,588
=================== ===================
The accompanying notes to financial statements are an integral part of these statements.
6
The unaudited financial statements included herein should be read in conjunction with NTS-Properties IV’s 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2003. In the opinion of our general partner, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been made to the accompanying financial statements for the three and nine months ended September 30, 2003 and 2002. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. As used in this Quarterly Report on Form 10-Q the terms “we,” “us” or “our,” as the context requires, may refer to NTS-Properties IV or its interests in its properties and joint ventures.
The financial statements include the accounts of all wholly-owned properties. Intercompany transactions and balances have been eliminated. Less than 50% owned joint ventures are accounted for under the equity method.
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 provides guidance on how to identify a variable interest entity (“VIE”) and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE are to be included in an entity’s consolidated financial statements. A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics include the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights, the obligation to absorb the expected losses of an entity if they occur, and the right to receive the expected residual returns of the entity if they occur.
FIN 46 was effective immediately for new entities created or acquired after February 1, 2003, and will become effective for the period ending December 31, 2003 for entities in which we had a variable interest prior to February 1, 2003. We are presently evaluating the effect of this pronouncement.
7
The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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 from those estimates.
We own and operate, either wholly or through a joint venture, four commercial properties — Commonwealth Business Center Phase I, Plainview Point Office Center Phases I and II, Plainview Point Office Center Phase III and Blankenbaker Business Center 1A (“BBC 1A”), in Louisville, Kentucky and three commercial properties — Lakeshore Business Center Phases I, II and III, in Fort Lauderdale, Florida. One tenant occupies 100% of BBC 1A. We also own and operate, either wholly or through a joint venture, two apartment communities — The Willows of Plainview Phases I and II, in Louisville, Kentucky and one apartment community — Golf Brook Apartments, in Orlando, Florida.
Our financial instruments that are exposed to concentrations of credit risk consist of cash and equivalents. We maintain our cash accounts primarily with banks located in Kentucky. Cash balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain accounts, have deposits in excess of $100,000.
Cash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less. We have a cash management program which provides for the overnight investment of excess cash balances. Under an agreement with a bank, excess cash is invested in a repurchase agreement for U.S. government or agency securities each night. As of September 30, 2003, approximately $199,000 of our overnight investment was included in cash and equivalents.
Cash and equivalents — restricted represents funds received for residential security deposits and funds escrowed with mortgage companies for property taxes and insurance in accordance with the loan agreements with said mortgage companies.
8
Land, buildings and amenities are stated at historical cost, less accumulated depreciation. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 3-30 years for buildings and improvements, 3-30 years for amenities and the applicable lease term for tenant improvements. The aggregate cost of our properties for federal tax purposes is approximately $15,446,000.
Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” specifies circumstances in which certain long-lived assets must be reviewed for impairment. If the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying value must be written down to fair value. Application of this standard by management during the period ended September 30, 2003 did not result in an impairment loss.
We own several investments in joint ventures in conjunction with our affiliates. The unconsolidated subsidiaries of NTS-Properties IV consist of NTS/Willows Phase II Joint Venture, NTS Sabal Golf Villas Joint Venture, Plainview Point III Joint Venture, Blankenbaker Business Center Joint Venture and Lakeshore/University II Joint Venture. The interests we own through these unconsolidated subsidiaries are described as follows:
| · | A 9.70% joint venture interest in The Willows of Plainview Phase II, a 144-unit luxury apartment community in Louisville, Kentucky. |
| · | A 3.97% joint venture interest in Golf Brook Apartments, a 195-unit luxury apartment community in Orlando, Florida. |
| · | A 4.96% joint venture interest in Plainview Point Office Center Phase III, an office center with approximately 62,000 net rentable square feet in Louisville, Kentucky. |
| · | A 29.61% joint venture interest in BBC 1A , a business center with approximately 50,000 net rentable ground floor square feet and approximately 50,000 net rentable mezzanine square feet in Louisville, Kentucky. |
9
| · | A 10.92% joint venture interest in the Lakeshore/University II Joint Venture. A description of the properties owned by this joint venture appears below: |
| · | Lakeshore Business Center Phase I — a business center with approximately 104,000 net rentable square feet located in Fort Lauderdale, Florida. |
| · | Lakeshore Business Center Phase II — a business center with approximately 97,000 net rentable square feet located in Fort Lauderdale, Florida. |
| · | Lakeshore Business Center Phase III — a business center with approximately 39,000 net rentable square feet located in Fort Lauderdale, Florida. |
For the three months ended September 30, 2003 and 2002, the unconsolidated joint ventures had total revenues of $2,240,084 and $2,272,552, respectively, and net income of $208,576 and $160,718, respectively. For the nine months ended September 30, 2003 and 2002, the unconsolidated joint ventures had total revenues of $6,792,839 and $6,737,449, respectively, and net income of $822,310 and $513,143, respectively.
Mortgages and note payable consist of the following:
September 30, December 31,
2003 2002
------------------- -------------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 8.8%, due
October 1, 2004, secured by land and a building. $ 450,056 $ 737,515
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.15%, due
January 5, 2013, secured by land, buildings and amenities. 1,478,238 1,559,662
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.15%, due
January 5, 2013, secured by land, buildings and amenities. 1,407,213 1,484,724
Note payable to a bank in monthly installments, bearing
interest at the Prime Rate, but not less than 6.00%, repaid in
March 2003. -- 3,543
------------------- -------------------
$ 3,335,507 $ 3,785,444
=================== ===================
Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of long-term debt is approximately $3,518,000.
Our mortgages may be prepaid but are generally subject to a yield-maintenance premium.
10
Pursuant to an agreement with us, NTS Development Company, an affiliate of our general partner, receives property management fees on a monthly basis. The fees are paid in an amount equal to 5% of the gross revenues from our apartment community and 6% of the gross revenues from our commercial properties. Also pursuant to an agreement, NTS Development Company receives a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. These repair and maintenance fees are capitalized as part of land, buildings and amenities.
We were charged the following amounts from NTS Development Company for the nine months ended September 30, 2003 and 2002. These charges include items which have been expensed as operating expenses — affiliated or professional and administrative expenses — affiliated and items which have been capitalized as other assets or as land, buildings and amenities.
Nine Months Ended
September 30,
-----------------------------------------
2003 2002
------------------ -------------------
Property management fees $ 104,475 $ 100,197
------------------ -------------------
Property management 176,215 176,501
Leasing 43,202 81,022
Administrative - operating 55,583 50,048
Other 1,690 2,989
------------------ -------------------
Total operating expenses - affiliated 276,690 310,560
------------------ -------------------
Professional and administrative expenses - affiliated 109,737 103,641
------------------ -------------------
Repair and maintenance fees 6,738 8,331
Leasing commissions 655 10,779
Construction management -- 5,287
------------------ -------------------
Total related party transactions capitalized 7,393 24,397
------------------ -------------------
Total related party transactions $ 498,295 $ 538,795
================== ===================
During the nine months ended September 30, 2003 and 2002, NTS Development Company leased 1,604 square feet in Commonwealth Business Center Phase I at a rental rate of $5.50 per square foot. We received $6,617 in rental payments from NTS Development Company during the nine months ended September 30, 2003 and 2002. The lease term for NTS Development Company ends August 31, 2006.
11
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Our compliance with existing laws has not had a material adverse effect on our financial condition or results of operations. However, we cannot predict the impact of new or changed laws or regulations on our current properties or properties that we may acquire in the future.
We are jointly and severally liable for mortgages and notes payable of our unconsolidated joint ventures. The outstanding balance on these mortgages and notes payable on September 30, 2003 was $13,867,309. Our financial statements do not reflect a liability for these mortgages.
On March 14, 2003, we reached an agreement with the mortgage lender on the Lakeshore Business Center Phases I and II mortgages to suspend principal payments for twelve months beginning with the payments due May 1, 2003. The principal payments due will continue to be paid and deposited by the lender into an escrow account. We will then be allowed to draw upon the escrowed funds for specific capital improvements listed in the agreement. These improvements include tenant finish costs, heating and air conditioning equipment and roof replacements. The agreement does not change any terms of the existing mortgage loans. However, the suspension of principal payments will result in significant balances remaining due on the loans at maturity in 2008, currently estimated to be approximately $757,000 and $814,000, respectively.
On June 1, 2003, we signed an amendment to the agreement reached on March 14, 2003 with the mortgage lender on the Lakeshore Business Center Phases I and II mortgages. The amendment suspended principal payments for twelve months beginning with the payments due June 1, 2003. The May 1, 2003 payments were applied to the principal balances. The amendment does not change any terms of the existing mortgage loans.
On March 14, 2003, we signed a tenant to a lease for approximately 20,000 square feet of Lakeshore Business Center Phase III. The lease agreement calls for tenant finish costing approximately $705,000. As of September 30, 2003, approximately $602,000 of this cost has been incurred. Our share of this cost is approximately $66,000.
As of September 30, 2003, we have a commitment for approximately $57,000 for tenant improvements on approximately 29,000 square feet at Plainview Point Office Center Phase II.
On October 1, 2003, we refinanced the existing debt on Lakeshore Business Center Phase III. The new loan will provide funds for tenant improvements, leasing commissions, closing costs, and interest carry. The new loan is for $3,150,000 and matures on October 1, 2005. The new loan has a variable interest rate based on the LIBOR daily rate plus 2.5% and is guaranteed by the joint venture partners, NTS-Properties V, NTS-Properties IV, NTS/Fort Lauderdale, Ltd. and ORIG, LLC, as well as NTS Corporation, an affiliate.
12
Litigation
On December 12, 2001, three individuals filed an action in the Superior Court of the State of California for the County of Contra Costa captioned Buchanan et al. v. NTS-Properties Associates et al. (Case No. C 01-05090) against our general partner, the general partners of four public partnerships affiliated with us and several individuals and entities affiliated with us. The action purports to bring claims on behalf of a class of limited partners based on, among other things, tender offers made by the public partnerships and an affiliate of our general partner. The plaintiffs allege, among other things, that the prices at which limited partnership interests were purchased in these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief, including an order directing the disposition of the properties owned by the public partnerships and the distribution of the proceeds. No amounts have been accrued as a liability for this action in our financial statements. Under an indemnification agreement with our general partner, we are responsible for the costs of defending any such action.
On June 20, 2003, our general partner, along with the general partners of four public partnerships affiliated with us, reached an agreement in principle with representatives of the class of plaintiffs to settle the Buchanan action. This settlement is subject to, among other things, preparing and executing a settlement agreement to be presented to the court for preliminary and final approval. The proposed settlement would include releases for all of the parties for any of the claims asserted in the Buchanan litigation and the Bohm litigation described below. As part of the proposed settlement, the general partners have agreed, among other things, to pursue a merger of the partnerships along with other real estate entities affiliated with the general partners into a newly-formed partnership.
On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of Jefferson County, Kentucky captioned Bohm et al. v. J.D. Nichols et al. (Case No. 03-CI-01740) against our general partner, the general partners of three public partnerships affiliated with us and several individuals and entities affiliated with us. On March 21, 2003, the complaint was amended to include the general partner of a public partnership affiliated with us and the general partner of a partnership that was affiliated with us but is no longer in existence. In the amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees, prohibited investments, improper failures to make distributions, purchases of limited partnership interests at insufficient prices and other violations of the limited partnership agreements. The plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of dissolution against the public partnerships, a declaratory judgment, and injunctive relief. No amounts have been accrued as a liability for this action in our financial statements. Our general partner believes that this action is without merit, and is vigorously defending it.
13
On October 1, 2003, in the Bohm litigation the judge granted the defendants’ motion to extend a stay that had previously been agreed upon by the parties which expired on September 8, 2003. The stay will remain in effect only if the parties in the Buchanan litigation seek preliminary approval of a settlement of that litigation by November 19, 2003 and the final settlement of the Buchanan litigation includes releases relating to the Bohm litigation. If these two conditions are satisfied, the stay will become permanent when the Buchanan settlement is subject to a final, non-appealable order. For the nine months ended September 30, 2003, our share of the legal costs for the Buchanan and Bohm litigations was approximately $21,000, which was included in our professional and administrative expenses.
We do not believe there is any other litigation threatened against us other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by insurance, none of which is expected to have a material effect on our financial position or results of operations except as discussed herein.
Proposed Merger
On June 20, 2003, our general partner, along with the general partners of four public partnerships affiliated with us, reached an agreement in principle with representatives of the class of plaintiffs to settle the action captioned Buchanan et al. v. NTS-Properties Associates et al. (Case No. C 01- 05090). The action was originally filed in the Superior Court of the State of California for the County of Contra Costa against the general partners and several affiliated individuals and entities in December 2001. The settlement is subject to, among other things, preparing and executing a settlement agreement to be presented to the court for preliminary and final approval. The proposed settlement would include releases for all of the parties for any of the claims asserted in the Buchanan litigation and the class action and derivative litigation filed in the Circuit Court of Jefferson County, Kentucky and captioned Bohm et al. v. J.D. Nichols et al. (Case No. 03-CI- 01740).
As part of the proposed settlement of the Buchanan and Bohm litigation, the general partners have agreed to pursue a merger of the partnerships along with other real estate entities affiliated with the general partners into a newly-formed partnership. The general partners would seek to list the limited partnership interests to be issued in the merger on a national securities exchange. The merger will be subject to, among other things, approval by holders of a majority of the limited partner interests in each partnership, final approval of the court in which the Buchanan litigation is pending and receipt by the general partners of an opinion regarding the fairness of the merger to the limited partners from a financial point of view. An independent appraiser has been retained to appraise all of the properties owned by the existing partnerships and affiliated entities that would be owned after the merger by the new partnership. The appraisal will be used in establishing exchange values which will determine the number of interests that will be issued to each existing partnership in the merger. The interests in the newly-formed partnership will be subsequently distributed to the limited and general partners in each existing partnership as though each partnership had been liquidated. The general partners have also retained a third
14
party to provide an opinion on the fairness of the merger to limited partners from a financial point of view. For the nine months ended September 30, 2003, our share of the legal and professional fees for the proposed merger was approximately $69,000.
Our two reportable operating segments are Residential and Commercial Real Estate Operations. The residential operations represent our ownership and operating results relative to an apartment community known as The Willows of Plainview Phase I. The commercial operations represent our ownership and operating results relative to suburban commercial office space known as Commonwealth Business Center Phase I and Plainview Point Office Center Phases I and II.
The financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally reports financial information for the purposes of assisting in making internal operating decisions. Our management evaluates performance based on stand-alone operating segment net income.
Three Months Ended September 30, 2003
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 268,550 $ 345,654 $ 614,204
Interest and other income 242 1,811 2,053
----------------- ------------------ ------------------
Total net revenues $ 268,792 $ 347,465 $ 616,257
================= ================== ==================
Operating expenses and operating
expenses - affiliated $ 107,739 $ 101,374 $ 209,113
Interest expense 52,405 12,045 64,450
Management fees 13,188 22,535 35,723
Real estate taxes 8,976 15,837 24,813
Depreciation and amortization 51,167 75,156 126,323
----------------- ------------------ ------------------
Total expenses $ 233,475 $ 226,947 $ 460,422
================= ================== ==================
Net income $ 35,317 $ 120,518 $ 155,835
================= ================== ==================
15
Three Months Ended September 30, 2002
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 277,915 $ 328,615 $ 606,530
Interest and other income 688 1,643 2,331
Gain on sale of assets 249 -- 249
----------------- ------------------ ------------------
Total net revenues $ 278,852 $ 330,258 $ 609,110
================= ================== ==================
Operating expenses and operating
expenses - affiliated $ 131,260 $ 105,191 $ 236,451
Interest expense 56,300 20,325 76,625
Management fees 14,162 21,068 35,230
Real estate taxes 15,020 15,768 30,788
Depreciation and amortization 52,633 71,518 124,151
----------------- ------------------ ------------------
Total expenses $ 269,375 $ 233,870 $ 503,245
================= ================== ==================
Net income $ 9,477 $ 96,388 $ 105,865
================= ================== ==================
Nine Months Ended September 30, 2003
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 846,360 $ 1,025,178 $ 1,871,538
Interest and other income 188 2,872 3,060
----------------- ------------------ ------------------
Total net revenues $ 846,548 $ 1,028,050 $ 1,874,598
================= ================== ==================
Operating expenses and operating
expenses - affiliated $ 329,555 $ 320,988 $ 650,543
Loss on disposal of assets -- 3,953 3,953
Interest expense 160,106 42,503 202,609
Management fees 42,851 61,624 104,475
Real estate taxes 39,834 47,511 87,345
Depreciation and amortization 154,134 224,129 378,263
----------------- ------------------ ------------------
Total expenses $ 726,480 $ 700,708 $ 1,427,188
================= ================== ==================
Net income $ 120,068 $ 327,342 $ 447,410
================= ================== ==================
16
Nine Months Ended September 30, 2002
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 765,522 $ 1,001,944 $ 1,767,466
Interest and other income 1,026 4,765 5,791
Gain on sale of assets 498 -- 498
----------------- ------------------ ------------------
Total net revenues $ 767,046 $ 1,006,709 $ 1,773,755
================= ================== ==================
Operating expenses and operating
expenses - affiliated $ 389,114 $ 330,335 $ 719,449
Loss on disposal of assets 51,268 -- 51,268
Interest expense 171,745 66,811 238,556
Management fees 38,584 61,613 100,197
Real estate taxes 45,059 47,304 92,363
Depreciation and amortization 155,048 214,553 369,601
----------------- ------------------ ------------------
Total expenses $ 850,818 $ 720,616 $ 1,571,434
================= ================== ==================
Net (loss) income $ (83,772)$ 286,093 $ 202,321
================= ================== ==================
17
A reconciliation of the totals reported for the operating segments to the applicable line items in the financial statements for the three and nine months ended September 30, 2003 and 2002 is necessary given amounts recorded at the Partnership level and not allocated to the operating properties for internal reporting purposes.
Three Months Ended
September 30,
----------------------------------------
2003 2002
------------------- -------------------
NET REVENUES
Total revenues for reportable segments $ 616,257 $ 609,110
Other income for Partnership 948 207
Income from investment in joint ventures 12,747 14,358
------------------- -------------------
Total net revenues $ 629,952 $ 623,675
=================== ===================
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments $ 126,323 $ 124,151
Depreciation and amortization for Partnership 1,529 1,529
------------------- -------------------
Total depreciation and amortization $ 127,852 $ 125,680
=================== ===================
NET INCOME (LOSS)
Total net income for reportable segments $ 155,835 $ 105,865
Net loss for Partnership (74,987) (58,827)
------------------- -------------------
Total net income $ 80,848 $ 47,038
=================== ===================
18
Nine Months Ended
September 30,
----------------------------------------
2003 2002
------------------- -------------------
NET REVENUES
Total revenues for reportable segments $ 1,874,598 $ 1,773,755
Other income for Partnership 1,375 1,464
Income from investment in joint ventures 85,460 54,091
------------------- -------------------
Total net revenues $ 1,961,433 $ 1,829,310
=================== ===================
OPERATING EXPENSES
Operating expenses for reportable segments $ 650,543 $ 719,449
Other operating expenses for Partnership -- (2,000)
------------------- -------------------
Total operating expenses $ 650,543 $ 717,449
=================== ===================
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for reportable
segments $ 378,263 $ 369,601
Depreciation and amortization for Partnership 4,587 4,587
------------------- -------------------
Total depreciation and amortization $ 382,850 $ 374,188
=================== ===================
NET INCOME (LOSS)
Total net income for reportable segments $ 447,410 $ 202,321
Net loss for Partnership (253,748) (147,636)
------------------- -------------------
Total net income $ 193,662 $ 54,685
=================== ===================
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Financial Statements in Item 1 and the cautionary statements below.
The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States. Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these financial statements, we have made our best estimates and judgements of the amounts and disclosures included in the financial statements, giving due regard to materiality.
Impairment
We review properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. These circumstances include, but are not limited to, declines in cash flows, occupancy and comparable sales per square foot at the property. We would be required to recognize an impairment when a property’s estimated undiscounted cash flow is less than the carrying value of the property. To the extent an impairment has occurred, we charge to income the excess of the carrying value of the property over its estimated fair value. We may decide to sell properties that are held for use. The sales prices of these properties may differ from their carrying values.
The following tables include our selected summarized operating data for the three and nine months ended September 30, 2003 and 2002. This data should be read in conjunction with our financial statements, including the notes thereto, in Part I, Item 1 of this report.
Three Months Ended September 30, 2003
----------------------------------------------------------------------
Residential Commercial Partnership Total
----------------------------------------------------------------------
Net revenues $ 268,792 $ 347,465 $ 13,695 $ 629,952
Operating expenses and operating
expenses - affiliated 107,739 101,374 -- 209,113
Interest expense 52,405 12,045 -- 64,450
Depreciation and amortization 51,167 75,156 1,529 127,852
Net income (loss) 35,317 120,518 (74,987) 80,848
20
Three Months Ended September 30, 2002
----------------------------------------------------------------------
Residential Commercial Partnership Total
----------------------------------------------------------------------
Net revenues $ 278,852 $ 330,258 $ 14,565 $ 623,675
Operating expenses and operating
expenses - affiliated 131,260 105,191 -- 236,451
Interest expense 56,300 20,325 -- 76,625
Depreciation and amortization 52,633 71,518 1,529 125,680
Net income (loss) 9,477 96,388 (58,827) 47,038
Nine Months Ended September 30, 2003
----------------------------------------------------------------------
Residential Commercial Partnership Total
----------------------------------------------------------------------
Net revenues $ 846,548 $ 1,028,050 $ 86,835 $ 1,961,433
Operating expenses and operating
expenses - affiliated 329,555 320,988 -- 650,543
Interest expense 160,106 42,503 -- 202,609
Depreciation and amortization 154,134 224,129 4,587 382,850
Net income (loss) 120,068 327,342 (253,748) 193,662
Nine Months Ended September 30, 2002
----------------------------------------------------------------------
Residential Commercial Partnership Total
----------------------------------------------------------------------
Net revenues $ 767,046 $ 1,006,709 $ 55,555 $ 1,829,310
Operating expenses and operating
expenses - affiliated 389,114 330,335 (2,000) 717,449
Interest expense 171,745 66,811 -- 238,556
Depreciation and amortization 155,048 214,553 4,587 374,188
Net (loss) income (83,772) 286,093 (147,636) 54,685
During our most recent operating period net revenues for residential and commercial properties have increased due to higher average occupancy at The Willows of Plainview Phase I and Commonwealth Business Center Phase I. Residential operating expenses have decreased due to decreased repairs and maintenance expense at The Willows of Plainview Phase I, while the commercial operating expenses have remained relatively level. Interest expense continues to decrease as a result of normal recurring principal reductions. Our partnership net losses have been negatively impacted by the expenses related to our ongoing litigation.
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Rental and other income generated by our properties and joint ventures for the three and nine months ended September 30, 2003 and 2002 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 198,889 $ 181,864 $ 583,471 $ 558,965
Plainview Point Office Center Phases I & II $ 148,576 $ 148,394 $ 444,579 $ 447,744
The Willows of Plainview Phase I $ 268,792 $ 278,852 $ 846,548 $ 767,046
Joint Venture Properties
(Ownership % on September 30, 2003)
The Willows of Plainview II (9.70%) $ 306,566 $ 319,310 $ 926,695 $ 903,097
Golf Brook Apartments (3.97%) $ 766,291 $ 746,319 $ 2,229,714 $ 2,201,948
Plainview Point III Office Center (4.96%) $ 125,270 $ 140,001 $ 383,805 $ 422,242
Blankenbaker Business Center 1A (29.61%) $ 237,302 $ 237,406 $ 712,031 $ 714,851
Lakeshore Business Center Phase I (10.92%) $ 358,459 $ 400,292 $ 1,154,871 $ 1,210,294
Lakeshore Business Center Phase II (10.92%) $ 332,246 $ 355,482 $ 1,112,707 $ 1,068,140
Lakeshore Business Center Phase III (10.92%) $ 113,949 $ 73,742 $ 273,015 $ 216,877
The occupancy levels at our properties and joint ventures as of September 30, 2003 and 2002 were as follows:
2003 2002
------------------- -------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 86%
Plainview Point Office Center Phases I& II 85% 86%
The Willows of Plainview Phase I 92% 97%
Joint Venture Properties
(Ownership % on September 30, 2003)
The Willows of Plainview Phase II (9.70%) 83% 93%
Golf Brook Apartments (3.97%) 97% 94%
Plainview Point Office Center Phase III (4.96%) 52% 56%
Blankenbaker Business Center 1A (29.61%) 100% 100%
Lakeshore Business Center Phase I (10.92%) 72% 80%
Lakeshore Business Center Phase II (10.92%) 78% 85%
Lakeshore Business Center Phase III (10.92%) 89% 37%
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The average occupancy levels at our properties and joint ventures for the three and nine months ended September 30, 2003 and 2002 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 86% 91% 87%
Plainview Point Office Center Phases I & II 85% 86% 85% 86%
The Willows of Plainview Phase I 90% 92% 93% 82%
Joint Venture Properties
(Ownership % at September 30, 2003)
The Willows of Plainview Phase II (9.70%) 87% 90% 85% 83%
Golf Brook Apartments (3.97%) 96% 97% 93% 91%
Plainview Point III Office Center (4.96%) 50% 56% 49% 55%
Blankenbaker Business Center 1A (29.61%) 100% 100% 100% 100%
Lakeshore Business Center Phase I (10.92%) 71% 80% 70% 82%
Lakeshore Business Center Phase II (10.92%) 81% 85% 81% 85%
Lakeshore Business Center Phase III (10.92%) 72% 37% 49% 36%
We are making efforts to increase the occupancy levels at our commercial properties. The leasing and renewal negotiations at the Lakeshore Business Center development are conducted by an off-site leasing agent. The leasing and renewal negotiations for our remaining commercial properties are managed by leasing agents, who are employees of NTS Development Company, located in Louisville, Kentucky. The leasing agents are located in the same city as the commercial properties. All advertising for these properties is coordinated by NTS Development Company’s marketing staff located in Louisville, Kentucky. In an effort to continue to improve occupancy at our residential properties, we have an on-site leasing staff, who are employees of NTS Development Company, at each of the apartment communities. The staff facilitates all on-site visits from potential tenants, coordinates local advertising with NTS Development Company’s marketing staff, makes visits to local companies to promote fully furnished apartments and negotiates lease renewals with current residents.
The following discussion relating to changes in our results of operations includes only those line items within our Statements of Operations for which there was a material change between the three and nine months ending September 30, 2002 and 2003.
Rental Income
Rental income increased approximately $104,000, or 6%, for the nine months ended September 30, 2003, as compared to the same period in 2002, primarily as the result of increased occupancy at The Willows of Plainview Phase I and Commonwealth Business Center Phase I.
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Quarter-ending occupancy percentages represent occupancy only on a specific date; therefore, the above analysis considers average occupancy percentages, which are more representative of the entire year-to-date results.
Income from Investment in Joint Ventures
Income from investment in joint ventures increased approximately $31,000, or 58%, for the nine months ended September 30, 2003, as compared to the same period in 2002, primarily as the result of decreased net loss from the Lakeshore/University II Joint Venture and increased net income from The Willows of Plainview Phase II.
Operating Expenses — Affiliated
Operating expenses — affiliated decreased approximately $17,000, or 17%, and $34,000, or 11%, for the three and nine months ended September 30, 2003, respectively, as compared to the same periods in 2002, primarily as the result of a change in personnel. Operating expenses – affiliated are expenses for services performed by employees of NTS Development Company, an affiliate of our general partner. These employee services include property management, leasing, maintenance, security and other services necessary to manage and operate our business.
Loss on Disposal of Assets
The loss on disposal of assets for 2003 can be attributed to the retirement of assets at Plainview Point Office Center Phases I and II, primarily as a result of tenant improvements. The loss on disposal of assets for 2002 can be attributed to the retirement of assets at The Willows of Plainview Phase I, primarily as a result of clubhouse renovations. The loss represents the cost to retire assets, which were not fully depreciated at the time of replacement.
Interest Expense
Interest expense decreased approximately $12,000, or 16%, and $36,000, or 15%, for the three and nine months ended September 30, 2003, respectively, as compared to the same periods in 2002, primarily as a result of principal payments reducing the outstanding balance on the Commonwealth Business Center Phase I and The Willows of Plainview Phase I mortgages.
Professional and Administrative Expenses
Professional and administrative expenses increased approximately $15,000, or 38%, and $129,000, for the three and nine months ended September 30, 2003, respectively, as compared to the same periods in 2002. The increase is primarily due to an increase in legal and professional fees related to our proposed merger and litigation filed by limited partners. See the following discussion under the caption “Proposed Merger,” and Part II, Item 1 of this Form 10-Q.
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The following table sets forth the cash provided by or used in operating activities, investing activities and financing activities for the nine months ended September 30, 2003 and 2002.
Cash flows provided by (used in):
Nine Months Ended
September 30,
-----------------------------------------
2003 2002
------------------ -------------------
Operating activities $ 519,476 $ 538,486
Investing activities (28,905) (215,488)
Financing activities (449,937) (423,658)
------------------ -------------------
Net increase (decrease) in cash and equivalents $ 40,634 $ (100,660)
================== ===================
Cash Flows
Net cash provided by operating activities decreased approximately $19,000, or 4%, for the nine months ended September 30, 2003, as compared to the same period in 2002. The decrease was primarily driven by the change in other liabilities and accounts receivable, partially offset by the change in accounts payable and increased earnings from operations before noncash items.
Net cash used in investing activities decreased approximately $187,000, or 87%, for the nine months ended September 30, 2003, as compared to the same period in 2002, primarily as a result of decreased capital expenditures, partially offset by changes in cash flows from our joint venture investments.
Net cash used in financing activities increased approximately $26,000, or 6%, for the nine months ended September 30, 2003, as compared to the same period in 2002. The increase is the result of continued principal payments made on the Commonwealth Business Center Phase I and The Willows of Plainview Phase I mortgages.
Due to the fact that no distributions were made during the nine months ended September 30, 2003 or 2002, the table which presents that portion of the distributions that represents a return of capital in accordance with accounting principles generally accepted in the United States has been omitted.
Future Liquidity
We believe the current occupancy levels are adequate to fund the operations of our properties. However, our future liquidity depends significantly on our properties’ occupancy remaining at a level which provides for debt payments and adequate working capital, currently and in the future. If occupancy were to fall below that level and remain at or below that level for a significant
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period of time, our ability to make payments due under our debt agreements and to continue paying daily operational costs would be greatly impaired. In addition, we may be required to obtain financing in connection with the capital improvements and leasing costs described below.
We are aware that the sole tenant in one of our joint venture commercial buildings is making efforts to seek alternatives to renewing its expiring lease. The failure of this tenant to renew its lease would result in a loss of annual rental revenue and operating expense recoveries of approximately $938,000 to the joint venture. Income from our investment in the joint venture that owns this property would decrease accordingly. This would significantly affect our liquidity, and could result in significant costs to refurbish the vacated space and locate a new tenant. At this time, we are not certain whether the tenant intends to renew its lease as allowed by the lease agreement, or vacate its space.
In the next 12 months, the demand on future liquidity is anticipated to increase as a result of the replacement of a roof at Lakeshore Business Center Phase I and as we continue our efforts in the leasing of our commercial properties. There may be significant demands on future liquidity due to the lease up of Lakeshore Business Center Phase III and our seeking to return Plainview Point Office Center Phase III to full occupancy.
On March 14, 2003, we reached an agreement with the mortgage lender on the Lakeshore Business Center Phases I and II mortgages to suspend principal payments for twelve months beginning with the payments due May 1, 2003. The principal payments due will continue to be paid and deposited by the lender into an escrow account. We will then be allowed to draw upon the escrowed funds for specific capital improvements listed in the agreement. These improvements include tenant finish costs, heating and air conditioning equipment and roof replacements (some of which are described below). The agreement does not change any terms of the existing mortgage loans. However, the suspension of principal payments will result in significant balances remaining due on the loans at maturity in 2008, currently estimated to be approximately $757,000 and $814,000, respectively.
On June 1, 2003, we signed an amendment to the agreement reached on March 14, 2003 with the mortgage lender on the Lakeshore Business Center Phases I and II mortgages. The amendment suspended principal payments for twelve months beginning with the payments due June 1, 2003. The May 1, 2003 payments were applied to the principal balances. The amendment does not change any terms of the existing mortgage loans.
On March 14, 2003 we signed a tenant to a lease for approximately 20,000 square feet of Lakeshore Business Center Phase III. The lease agreement calls for tenant finish costing approximately $705,000. As of September 30, 2003, approximately $602,000 of this cost has been incurred. Our share of this cost is approximately $66,000.
26
As of September 30, 2003, we have a commitment for approximately $57,000 for tenant improvements on approximately 29,000 square feet at Plainview Point Office Center Phase II.
On October 1, 2003, we refinanced the existing debt on Lakeshore Business Center Phase III. The new loan will provide funds for tenant improvements, leasing commissions, closing costs, and interest carry. The new loan is for $3,150,000 and matures on October 1, 2005. The new loan has a variable interest rate based on the LIBOR daily rate plus 2.5% and is guaranteed by the joint venture partners, NTS-Properties V, NTS-Properties IV, NTS/Fort Lauderdale, Ltd. and ORIG, LLC, as well as NTS Corporation, an affiliate.
As of September 30, 2003, we have a commitment from a tenant to lease approximately 11,000 square feet of Plainview Point Office Center Phase III. The lease agreement calls for tenant finish estimated to cost approximately $432,000. As of September 30, 2003, approximately $98,000 of this cost has been incurred. Our share of this cost is approximately $5,000. It is estimated that an additional $285,000 will be needed for tenant finish costs in order to lease the remaining vacant space in this building. Our share of the total cost will be approximately $36,000.
Lakeshore Business Center Phase I is expected to require a new roof in 2003. The roof replacement is expected to cost approximately $150,000. Our share of this cost would be approximately $16,000.
We anticipate using cash provided by operations and cash reserves to fund a portion of the capital improvements and leasing costs described above. However, we believe that funding these expenses may also require existing financing or additional financing secured by our properties and there is no assurance that this financing will be available.
We have no other material commitments for renovations or capital improvements as of September 30, 2003.
On June 25, 2002, NTS-Properties Plus Ltd. merged with ORIG, LLC (“ORIG”), an affiliate of our general partner. ORIG is the surviving entity as a result of this merger. We continue to hold a 29.61% interest in the Blankenbaker Business Center Joint Venture and a 10.92% interest in the Lakeshore/University II Joint Venture after the completion of the NTS-Properties Plus, Ltd./ORIG Merger. ORIG now holds a 39.05% interest in the Blankenbaker Business Center Joint Venture and a 7.69% interest in the Lakeshore/University II Joint Venture.
27
On June 20, 2003, our general partner, along with the general partners of four public partnerships affiliated with us, reached an agreement in principle with representatives of the class of plaintiffs to settle the action captioned Buchanan et al. v. NTS-Properties Associates et al. (Case No. C 01- 05090). The action was originally filed in the Superior Court of the State of California for the County of Contra Costa against the general partners and several affiliated individuals and entities in December 2001. The settlement is subject to, among other things, preparing and executing a settlement agreement to be presented to the court for preliminary and final approval. The proposed settlement would include releases for all of the parties for any of the claims asserted in the Buchanan litigation and the class action and derivative litigation filed in the Circuit Court of Jefferson County, Kentucky and captioned Bohm et al. v. J.D. Nichols et al. (Case No. 03-CI- 01740).
As part of the proposed settlement, the general partners have agreed to pursue a merger of the partnerships along with other real estate entities affiliated with the general partners into a newly-formed partnership. The general partners would seek to list the limited partnership interests to be issued in the merger on a national securities exchange. The merger will be subject to, among other things, approval by holders of a majority of the limited partner interests in each partnership, final approval of the court in which the Buchanan litigation is pending and receipt by the general partners of an opinion regarding the fairness of the merger to the limited partners from a financial point of view. An independent appraiser has been retained to appraise all of the properties owned by the existing partnerships and affiliated entities that would be owned after the merger by the new partnership. The appraisal will be used in establishing exchange values which will determine the number of interests that will be issued to each existing partnership in the merger. The interests in the newly-formed partnership will be subsequently distributed to the limited and general partners in each existing partnership as though each partnership had been liquidated. The general partners have also retained a third party to provide an opinion on the fairness of the merger to limited partners from a financial point of view. For the nine months ended September 30, 2003, our share of the legal and professional fees for the proposed merger was approximately $69,000.
Our website address is www.ntsdevelopment.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available and may be accessed free of charge through the “About NTS” section of our website as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC. Our website and the information contained therein or connected thereto are not incorporated into this Quarterly Report on Form 10-Q.
28
Our primary market risk exposure with regard to financial instruments stems from changes in interest rates. All of our debt bears interest at a fixed rate. On September 30, 2003, a hypothetical 100 basis point increase in interest rates would result in an approximate $130,000 decrease in the fair value of the debt.
The Chief Executive Officer and Chief Financial Officer of NTS Capital Corporation, the general partner of our general partner, have concluded, based on their evaluation as of September 30, 2003, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.
29
On October 1, 2003 in the litigation against our general partner, the general partners of four public partnerships affiliated with us and several individuals and entities affiliated with us captioned Bohm et al. v. J..D. Nichols et al. (Case No. 03-CI-01740) that is pending in the Circuit Court of Jefferson County, Kentucky, the judge granted the defendants’ motion to extend a stay that had previously been agreed upon by the parties which expired on September 8, 2003. The stay will remain in effect only if the parties in the litigation captioned Buchanan et al. v. NTS — Properties Associates et al. (Case No. C 01-05090), filed against our general partner, the general partners of four public partnerships affiliated with us and several individuals and entities affiliated with us that is pending in the Superior Court of the State of California, seek preliminary approval of a settlement of that litigation by November 19, 2003 and final settlement of the Buchanan litigation includes releases relating to the Bohm litigation. If these two conditions are satisfied, the stay will become permanent when the Buchanan settlement is subject to a final, non-appealable order.
Items 2 through 5 are omitted because these items are inapplicable or the answers to the items are negative.
| (a) | Exhibits |
| (3) | Amended and Restated Agreement and Certificate of Limited Partnership of NTS-Properties IV. * |
| (31.1) | Certification of Chief Executive Officer Pursuant to SEC Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
| (31.2) | Certification of Chief Financial Officer Pursuant to SEC Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
| (32.1) | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
| (32.2) | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
| (b) |
Reports on Form 8-K |
| * | Incorporated by reference to documents filed with the Securities and Exchange Commission in connection with the filing of the Registration Statements on Form S-11 on May 16, 1983 (effective August 1, 1983) under Commission File No. 2-83771. |
| ** | Attached as an exhibit to this Quarterly Report on Form 10-Q. |
30
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.
| NTS-PROPERTIES IV | |||
| By: | NTS-Properties Associates IV, | ||
| General Partner, | |||
| By: NTS Capital Corporation, | |||
| General Partner | |||
| /s/ Brian F. Lavin |
| Brian F. Lavin |
| President of NTS Capital Corporation |
| /s/ Gregory A. Wells |
| Gregory A. Wells |
| Chief Financial Officer of NTS Capital Corporation |
Date: November 13, 2003
31
| Exhibit Number | Description of Document | ||
| 3 | Amended
and Restated Agreement and Certificate of Limited Partnership of
NTS-Properties IV. * |
||
| 31.1 | Certification
of Chief Executive Officer Pursuant to SEC Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. ** |
||
| 31.2 | Certification
of Chief Financial Officer Pursuant to SEC Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. ** |
||
| 32.1 | Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. ** |
||
| 32.2 | Certification
of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. ** |
||
| * | Incorporated by reference to documents filed with the Securities and Exchange Commission in connection with the filing of the Registration Statements on Form S-11 on May 16, 1983 (effective August 1, 1983) under Commission File No. 2-83771. |
| ** | Attached as an exhibit to this Quarterly Report on Form 10-Q. |
32