UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2002
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission File Number: 033-33504
AAA NET REALTY FUND IX, LTD.
NEBRASKA LIMITED PARTNERSHIP IRS IDENTIFICATION NO. 76-0318157
8 GREENWAY PLAZA, SUITE 824 HOUSTON, TX 77046
(713) 850-1400
Indicate by check mark whether the issuer (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 issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEET
JUNE 30, 2002
(Unaudited)
ASSETS
Cash and cash equivalents $ 465,638
Property:
Land 1,490,494
Buildings 2,947,414
----------
4,437,908
Accumulated depreciation (967,475)
----------
Total property, net 3,470,433
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Other assets:
Prepaid expense 4,093
Accrued rental income 71,416
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TOTAL ASSETS $4,011,580
==========
LIABILITIES AND PARTNERSHIP EQUITY
Liabilities:
Accounts payable $ 11,814
Accrued liabilities 99,051
Prepaid rental income 6,177
----------
TOTAL LIABILITIES 117,042
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Partnership equity (deficit):
General partners (12,864)
Limited partners 3,907,402
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TOTAL PARTNERSHIP EQUITY 3,894,538
----------
TOTAL LIABILITIES AND PARTNERSHIP EQUITY $4,011,580
==========
See Notes to Financial Statements.
2
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(Unaudited)
Quarter Year to Date
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $ 139,129 $ 139,129 $ 296,652 $ 283,805
Interest income 1,233 4,245 2,564 8,893
--------- --------- --------- ---------
Total revenues 140,362 143,374 299,216 292,698
--------- --------- --------- ---------
Expenses:
Advisory fees to related party 13,476 13,476 26,952 26,952
Depreciation 23,385 23,384 46,768 46,768
Professional fees 14,461 10,041 30,218 17,564
--------- --------- --------- ---------
Total expenses 51,322 46,901 103,938 91,284
--------- --------- --------- ---------
Net income $ 89,040 $ 96,473 $ 195,278 $ 201,414
========= ========= ========= =========
Allocation of net income:
General partners $ 891 $ 965 $ 1,953 $ 2,014
Limited partners 88,149 95,508 193,325 199,400
--------- --------- --------- ---------
$ 89,040 $ 96,473 $ 195,278 $ 201,414
========= ========= ========= =========
Net income per unit $ 16.59 $ 17.91 $ 36.37 $ 37.38
========= ========= ========= =========
Weighted average units outstanding 5,368.5 5,387.5 5,368.5 5,388.5
========= ========= ========= =========
See Notes to Financial Statements.
3
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(Unaudited)
Quarter Year to Date
2002 2001 2002 2001
---- ---- ---- ----
Cash flows from operating activities:
Net income $ 89,040 $ 96,473 $195,278 $201,414
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 23,385 23,384 46,768 46,768
Decrease in prepaid expense 2,556 - 5,112 -
(Decrease) increase in accrued liabilities (12,494) - 99,051 -
Increase in accrued rental income (1,074) (1,074) (2,148) (2,149)
Decrease in accrued interest income - - 480 -
Increase (decrease) in accounts payable 4,650 4,349 (25,196) (12,795)
Decrease in prepaid rental income - - 6,177 6,177
-------- -------- -------- --------
Net cash provided by operating activities 106,063 123,132 325,522 239,415
-------- -------- -------- --------
Cash flows used in investing activities:
Improvements to real estate - - - (1,039)
-------- -------- -------- --------
Net cash used in investing activities - - - (1,039)
-------- -------- -------- --------
Cash flows used in financing activities:
Distributions paid to partners (96,170) (118,042) (287,130) (211,792)
Repurchase of Limited partner units - (12,195) - (12,195)
-------- -------- -------- --------
Net cash used in financing activities (96,170) (130,237) (287,130) (223,987)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 9,893 (7,105) 38,392 14,389
Cash and cash equivalents, beginning of period 455,745 377,263 427,246 355,769
-------- -------- -------- --------
Cash and cash equivalents, end of period $465,638 $370,158 $465,638 $370,158
======== ======== ======== ========
See Notes to Financial Statements.
4
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AAA Net Realty Fund IX, Ltd. ("the Partnership") is a limited partnership
formed February 1, 1990 under the laws of the State of Nebraska. American
Asset Advisers Management Corporation IX (a Nebraska corporation) is the
managing general partner and H. Kerr Taylor is the individual general
partner. The Partnership commenced operations as of June 6, 1990.
The Partnership was formed to acquire commercial properties for cash, own,
lease, operate, manage and eventually sell the properties. Prior to June 5,
1998, the supervision of the operations of the properties was managed by
American Asset Advisers Realty Corporation, ("AAA"), a related party.
Beginning June 5, 1998, the supervision of the operations of the properties
is managed by AmREIT Realty Investment Corporation, ("ARIC"), a related
party.
The financial records of the Partnership are maintained on the accrual
basis of accounting whereby revenues are recognized when earned and
expenses are reflected when incurred.
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. There has been no cash paid for income taxes
or interest during 2002 or 2001.
Properties are leased on a net lease basis. Revenue is recognized on a
straight-line basis over the terms of the individual leases.
Land and buildings are stated at cost. Buildings are depreciated on a
straight-line basis over an estimated useful life of 31.5 years.
The final property acquisition was completed as a joint venture. The
Partnership's interest in the joint venture is 4.8%. At June 30, 2002, the
net book value of this property comprised 1.5% of total assets. For the six
months ended June 30, 2002 the rental income of $5,589 comprised 1.9% of
total rental income and 2.9% of net income. Because of the immateriality of
these amounts to the financial statements as a whole, the initial purchase
and the subsequent rental income and depreciation have been accounted for
on the cost method.
All income and expense items flow through to the partners for tax purposes.
Consequently, no provision for federal or state income taxes is provided in
the accompanying financial statements.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
5
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and include all of the
disclosures required by accounting principles generally accepted in the
United States of America. The financial statements reflect all normal and
recurring adjustments, which are, in the opinion of management, necessary
to present a fair statement of results for the three and six months ended
June 30, 2002 and 2001.
The financial statements of AAA Net Realty Fund IX, Ltd. contained herein
should be read in conjunction with the financial statements included in the
Partnership's annual report on Form 10-KSB for the year ended December 31,
2001.
NEW ACCOUNTING STANDARDS
On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Goodwill and certain intangible assets will
remain on the balance sheet and not be amortized. On an annual basis, and
when there is reason to suspect that their values have been diminished or
impaired, these assets must be tested for impairment, and write-downs may
be necessary. The Partnership was required to implement SFAS No. 141 on
July 1, 2001. The adoption of this Statement had no effect on the
Partnership's financial position or results of operations or cash flows.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets " was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. The Partnership was required to
implement SFAS No. 142 on January 1, 2002. The adoption of this Statement
had no effect on the Partnership's financial position, results of
operations or cash flows.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. The adoption of SFAS No. 143
is not expected to have a material impact on our financial position,
results of operations, or cash flows.
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of a segment of a
business. More specifically, this Statement broadens the presentation of
discontinued operations to include a component of an entity whose
operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity. The adoption
of SFAS No. 144 had no effect on our financial position, results of
operations, or cash flows.
In April 2002, the FASB issued SAS No. 145, "Rescission of SFAS Statements
No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections."
The purpose of this statement is to update, clarify and simplify existing
accounting standards. We adopted this statement effective April 30, 2002
determined that the adoption of this statement did not have a material
impact on our financial position, results of operations, or cash flows.
6
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to exit or
disposal plan. Examples of costs covered by the standard include lease
terminations costs and certain employee severance costs that are
associated with restructuring, discontinued operation, plant closings, or
other exit or disposal activity. Previous accounting guidance was provided
by EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 replaces issue 94-3.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. This statement is effective for our
fiscal year beginning January 1, 2003. The adoption of SFAS No. 146 will
not have a material impact on our financial position, results of operations
or cash flows.
2. PARTNERSHIP EQUITY
The managing general partner, American Asset Advisers Management
Corporation IX, and the individual general partner, H. Kerr Taylor, have
made capital contributions in the amounts of $990 and $10, respectively.
The general partners shall not be obligated to make any other contributions
to the Partnership, except that, in the event that the general partners
have negative balances in their capital accounts after dissolution and
winding up of, or withdrawal from, the Partnership, the general partners
will contribute to the Partnership an amount equal to the lesser of the
deficit balances in their capital accounts or 1.01% of the total capital
contributions of the limited partners' over the amount previously
contributed by the general partners.
3. ALLOCATIONS AND DISTRIBUTIONS
All income, profits, gains and losses of the Partnership for each fiscal
year, other than any gain or loss realized upon the sale, exchange or other
disposition of any of the Partnership's properties, shall be allocated as
follows: (a) net loss shall be allocated 99% to the limited partners, .99%
to the Managing General Partner and .01% to the Individual General Partner;
and (b) net income will be allocated first in the ratio, and to the extent,
net cash flow is distributed to the partners for such year and any
additional income for such year will be allocated 99% to the limited
partners, 1% to the General Partners.
Partnership distributions to the partners for the six months ended June 30,
2002 and 2001 totaled $287,130 and $211,792 respectively. For the three
months ended June 30, 2002, a cash distribution of $210 was made to the
General Partner, and a cash distribution of $95,000 was made to the Limited
Partners. Additionally, a cash distribution of $960 to the General Partner
and a cash distribution of $95,000 to the Limited Partners with a June 30,
2002 record date and a July 15, 2002 payable date have been accrued for as
of June 30, 2002. For the three months ended June 30, 2001, a cash
distribution of $13,042 was made to the General Partner, and a cash
distribution of $105,000 was made to the Limited Partners.
4. RELATED PARTY TRANSACTIONS
The Partnership Agreement provides for the reimbursement for administrative
services necessary for the prudent operation of the Partnership and its
assets with the exception that no reimbursement is permitted for rent,
utilities, capital equipment, salaries, fringe benefits or travel expenses
allocated to the individual general partner or to any controlling persons
of the managing general partner. In connection therewith, $13,476 and
$13,476 was incurred and paid to ARIC for the three months ended June 30,
2002 and 2001, respectively and $26,952 and $26,952 was incurred and paid
to ARIC for the six months ended June 30, 2002 and 2001, respectively.
7
5. MAJOR LESSEES
The following schedule summarizes total rental income by lessee for the
three and six months ended June 30:
Quarter Year to Date
2002 2001 2002 2001
---- ---- ---- ----
Golden Corral Corporation (Texas) $ 47,929 $ 47,929 $114,254 $101,407
Baptist Memorial Health Services, Inc. (Tennessee) 52,168 52,168 104,335 104,335
Payless Shoe Source/WaldenBooks (Texas) 20,500 20,500 41,000 41,000
Foodmaker, Inc. (Texas) 18,532 18,532 37,063 37,063
--------- --------- --------- ---------
Total $139,129 $139,129 $296,652 $283,805
========= ========= ========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
AAA Net Realty Fund IX, Ltd., a Nebraska limited partnership, was formed
February 1, 1990 to acquire on a debt-free basis, existing and newly constructed
commercial properties located in the continental United States and particularly
in the Southwest, to lease these properties to tenants under generally "triple
net" leases, to hold the properties with the expectation of equity appreciation
and eventually to resell the properties.
The Partnership's overall investment objectives are to acquire properties that
offer investors the potential for (i) preservation and protection of the
Partnership's capital; (ii) partially tax-deferred cash distributions from
operations; and (iii) long-term capital gains through appreciation in value of
the Partnership's properties realized upon sale.
RESULTS OF OPERATIONS
For the three months ended June 30, 2002, revenues totaled $140,362, which was
comprised of $139,129 of rental income and $1,233 of interest income, compared
to total revenues of $143,374 for the three months ended June 30, 2001, which
was comprised of $139,129 of rental income and $4,245 of interest income.
Interest income for the second quarter of 2002 decreased from that of the second
quarter of 2001, primarily due to lower interest rates. Expenses increased from
$46,901 in the second quarter of 2001 to $51,322 in the second quarter of 2002,
due to an increase in professional fees. The Partnership recorded net income of
$89,040 for the second quarter of 2002 as compared to net income of $96,473 for
the second quarter of 2001.
For the six months ended June 30, 2002, revenues totaled $299,216, which was
comprised of $296,652 of rental income and $2,564 of interest income, compared
to total revenues of $292,698 for the six months ended June 30, 2001, which was
comprised of $283,805 of rental income and $8,893 of interest income. Rental
income increased from the rental income recorded in the first six months of 2001
due to an increase in percentage rent collected from Golden Corral Corporation.
Interest income for the first six months of 2002 decreased from that of the
first six months of 2001, primarily due to lower interest rates. Expenses
increased from $91,284 in the first six months of 2001 to $103,938 in the first
six months of 2002, due to an increase in professional fees. The Partnership
recorded net income of $195,278 for the first six months of 2002 as compared to
net income of $201,414 for the first six months of 2001.
SUBSEQUENT EVENTS
On July 16, 2002 a special meeting of the Limited Partners was held to consider
and vote on the following proposals:
(a) To approve the agreement and plan of merger dated as of September 10,
2001 among AmREIT, Inc.("AmREIT"), the Partnership and each of the
following limited partnerships: AAA Net Realty Fund IX, Ltd. and AAA Net
Realty Fund X, Ltd., under which the Partnership and each of the other
partnerships would merge into AmREIT, and;
(b) To amend the Partnership's limited partnership agreement and permit
the Partnership to merge with and into AmREIT whether or not AmREIT
would be regarded as an affiliate of the Partnership.
At this meeting, the proposals were approved and the merger as proposed was
effective July 23, 2002.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports
The Company did not file a current report on Form 8-K during
the three months ended June 30, 2002.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAA Net Realty Fund IX, Ltd.
---------------------------
(Issuer)
August 14, 2002 /s/ H. Kerr Taylor
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Date H. Kerr Taylor, President of General Partner
August 14, 2002 /s/ Chad C. Braun
- --------------- --------------------------------------------
Date Chad C. Braun, (Principal Accounting Officer)
10
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18-U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AAA Net Realty Fund IX, Ltd.
(the "Partnership") on Form 10-QSB for the period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, H. Kerr Taylor, Chief Executive Officer of the General Partner of the
Partnership, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section-13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ H. Kerr Taylor
H. Kerr Taylor
Chief Executive Officer of the General Partner
August 14, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18-U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AAA Net Realty Fund IX, Ltd.
(the "Partnership") on Form 10-QSB for the period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Chad C. Braun, Principal Accounting Officer of the General Partner of the
Partnership, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section-13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ Chad C. Braun
Chad C. Braun
Principal Accounting Officer of the General Partner
August 14, 2002