FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period.........to......... Commission file number 0-9704 ANGELES PARTNERS IX (Exact name of small business issuer as specified in its charter) California 95-3417137 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES PARTNERS IX CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1998 (in thousands, except unit data) Assets Cash and cash equivalents $ 738 Receivables and deposits 428 Restricted escrows 513 Other assets 493 Investment properties: Land $ 3,083 Buildings and related personal property 34,157 37,240 Less accumulated depreciation (23,633) 13,607 $ 15,779 Liabilities and Partners' Deficit Liabilities Accounts payable $ 190 Tenant security deposit liabilities 113 Accrued property taxes 261 Other liabilities 180 Mortgage notes payable 19,658 Partners' Deficit General partner's $ (222) Limited partners' (19,975 units issued and outstanding) (4,401) (4,623) $ 15,779 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS IX CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30 June 30, 1998 1997 1998 1997 Revenues: Rental income $ 1,815 $ 1,752 $ 3,610 $ 3,521 Other income 87 87 172 185 Total revenues 1,902 1,839 3,782 3,706 Expenses: Operating 1,095 1,004 2,050 1,925 General and administrative 81 59 150 125 Depreciation 455 452 914 895 Interest 432 438 866 875 Property taxes 109 107 217 217 Bad debt expense 23 (11) 57 -- Total expenses 2,195 2,049 4,254 4,037 Net loss $ (293) $ (210) $ (472) $ (331) Net loss allocated to general partner (1%) $ (3) $ (2) $ (5) $ (3) Net loss allocated to limited partners (99%) (290) (208) (467) (328) $ (293) $ (210) $ (472) $ (331) Net loss per limited partnership unit $(14.52) $(10.41) $(23.38) $(16.42) See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS IX CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 20,000 $ 1 $20,000 $20,001 Partners' deficit at December 31, 1997 19,975 $ (217) $(3,934) $(4,151) Net loss for the six months ended June 30, 1998 -- (5) (467) (472) Partners' deficit at June 30, 1998 19,975 $ (222) $(4,401) $(4,623) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS IX CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1998 1997 Cash flows from operating activities: Net loss $ (472) $ (331) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 914 895 Amortization of loan costs and discounts 56 57 Bad debt expense 57 -- Change in accounts: Receivables and deposits (96) 63 Other assets 29 (61) Accounts payable (108) (114) Tenant security deposit liabilities (2) (6) Accrued property taxes 37 (67) Other liabilities (53) (1) Net cash provided by operating activities 362 435 Cash flows from investing activities: Property improvements and replacements (380) (321) Net withdrawals from (deposits to) restricted escrows 193 (65) Net cash used in investing activities (187) (386) Cash flows from financing activities: Payments on mortgage notes payable (120) (110) Loan costs paid -- (8) Net cash used in financing activities (120) (118) Net increase (decrease) in cash and cash equivalents 55 (69) Cash and cash equivalents at beginning of period 683 877 Cash and cash equivalents at end of period $ 738 $ 808 Supplemental disclosure of cash flow information: Cash paid for interest $ 810 $ 820 See Accompanying Notes to Consolidated Financial Statements e) ANGELES PARTNERS IX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Angeles Partners IX (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Angeles Realty Corporation (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the fiscal year ended December 31, 1997. Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. Principles of Consolidation The consolidated financial statements of the Partnership include its 99% limited partnership interest in Houston Pines, Ltd. The Partnership may remove the general partner of Houston Pines; therefore, the Partnership is controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. NOTE B - TRANSACTION WITH AFFILIATES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. Effective February 25, 1998, the General Partner became wholly-owned by Insignia Properties Trust ("IPT"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). On February 25, 1998, the former owner of the Managing General Partner, MAE GP Corporation ("MAE GP"), an affiliate of Insignia, was merged into IPT. The partnership agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following amounts were paid to the General Partner and its affiliates for the six months ended June 30, 1998 and 1997 (in thousands): 1998 1997 Property management fees (included in operating expenses) $189 $186 Reimbursement of services of affiliates, (included in in general and administrative expenses) 107 84 In addition, construction services reimbursements of approximately $35,000 and $5,000 were paid to an affiliate of the General Partner during the six months ended June 30, 1998 and 1997, respectively. For the period from January 1, 1997 to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the General Partner, but with an insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner which received payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in IPT, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in September or October of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. On April 13, 1998, an affiliate of Insignia commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 8,300 of the outstanding units of limited partnership interest ("Units") in the Partnership at a purchase price of $325 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated April 13, 1998 (the "Offer to Purchase") and in the related Assignment of Partnership Interest (which, together with any supplemental or amendments, collectively constitute the "Offer") per Schedule 14D-9 originally filed with the Securities and Exchange Commission on April 13, 1998. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. On May 11, 1998, the tender offer was closed, and the Purchaser acquired 2,572 Units of limited partnership interest. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Partnership's investment properties consist of five apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1998 and 1997: Average Occupancy Property 1998 1997 Pines of Northwest Crossing Apartments (1) 95% 91% Houston, Texas Panorama Terrace Apartments 89% 91% Birmingham, Alabama Forest River Apartments 93% 91% Gadsden, Alabama Village Green Apartments 93% 91% Montgomery, Alabama Rosemont Crossing Apartments (2) 88% 94% San Antonio, Texas (1) Occupancy at Pines of Northwest Crossing Apartments has increased due to exterior building improvements made to the property. (2) Occupancy at Rosemont Crossing has decreased due to new construction in the area and low interest rates attracting first time home buyers. The Partnership's net losses for the three and six month periods ended June 30, 1998, were approximately $293,000 and $472,000, respectively, versus net losses of approximately $210,000 and $331,000 for the corresponding periods of 1997. The increase in net loss is primarily attributable to increases in operating expense, general and administrative expense, and bad debt expense. The increase in operating expense is primarily due the continuation of the exterior renovation project which began second quarter of 1997 at The Pines of Northwest Crossing Apartments, and an increase in landscaping at Panorama Terrace Apartments. The improvements at both of these properties are necessary in order to improve the appearance of the apartment complexes in order to remain competitive in their market areas. Included in operating expense for the six months ended June 30, 1998, is approximately $243,000 of major repairs and maintenance comprised primarily of exterior building repairs and landscaping. Included in operating expenses for the six months ended June 30, 1997, is approximately $104,000 of major repairs and maintenance comprised primarily of exterior building repairs, exterior painting, and landscaping. The increase in general and administrative expense is primarily the result of increased legal fees in connection with the personal injury claim at The Pines of Northwest Crossing Apartments (see Part II, Item 1 - Legal Proceedings). Bad debt expense increased primarily due to write-offs recorded at Rosemont Crossing Apartments and The Pines of Northwest Crossing Apartments. Partially offsetting the increase in operating expense, general and administrative expense, and bad debt expense was an increase in rental revenue. Rental revenue increased due to an increase in average occupancy and average rental rates at The Pines of Northwest Crossing Apartments, Forest River Apartments, and the Village Green Apartments. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. At June 30, 1998, the Partnership held cash and cash equivalents of approximately $738,000, compared to approximately $808,000 at June 30, 1997. For the six months ended June 30, 1998, net cash increased approximately $55,000, compared to a net decrease of approximately $69,000 for the corresponding period in 1997. Net cash provided by operating activities decreased primarily due to an increase in operating and general administrative expenses as discussed above, and a decrease in net cash provided by receivables and deposits due to the timing of cash receipts. Net cash used in investing activities decreased as a result of net withdrawals being received from restricted escrows during the six months ended June 30, 1998, compared to the six months ended June 30, 1997, when net deposits were made to restricted escrows. This change was partially offset by an increase in property improvements and replacements. Net cash used in financing activities increased slightly as a result of an increase in principal payments paid, partially offset by a decrease in loan costs paid. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $19,658,000, net of discount, is amortized over varying periods with required balloon payments of $18,258,000 from August 2002 to November 2003, at which time the properties will either be refinanced or sold. Future cash distributions will depend on the levels of cash generated from operations, refinancings, property sales and the availability of cash reserves. No cash distributions were paid during the six months ended June 30, 1998, or during the six months ended June 30, 1997. Year 2000 The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. Other Certain items discussed in this quarterly report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this quarterly report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 4, 1994, an employee of an affiliate of the General Partner who worked at The Pines of Northwest Crossing Apartments ("Plaintiff") allegedly sustained personal injuries during the ordinary course of business. The Plaintiff remained out of work until March 24, 1994. The Plaintiff alleges that upon his return back to work, he was terminated in retaliation for having filed a worker's compensation claim. The Plaintiff seeks actual damages, exemplary damages, attorney's fees and court costs. A settlement was reached with the plaintiff and the liability was paid during the second quarter of 1998. In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships which are named as nominal defendants, challenging the acquisition by Insignia and its affiliates of interests in certain general partner entities, past tender offers by Insignia affiliates to acquire limited partnership units, the management of partnerships by Insignia affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. The General Partner believes the action to be without merit, and intends to vigorously defend it. On June 24, 1998, the General Partner filed a motion seeking dismissal of the action. In July 1998, a limited partner of the Partnership commenced an action in the Circuit Court for Jackson County, Missouri entitled BOND PURCHASE LLC V. ANGELES PARTNERS IX, ET AL. The complaint claims that the Partnership and an affiliate of the General Partner breached certain contractual and fiduciary duties allegedly owed to the claimant and seeks damages and injunctive relief. The General Partner believes the claims to be without merit and intends to vigorously defend the claims. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The General Partner of the Partnership believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition or operations of the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as and exhibit to this report. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 1998. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS IX By: Angeles Realty Corporation Its General Partner By: /s/ Carroll D. Vinson Carroll D. Vinson President By: /s/ Robert D. Long, Jr. Robert D. Long, Jr. Vice President/CAO Date: August 6, 1998