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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
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Commission file number 0-11973
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
Organized pursuant to the Laws of the State of Maryland
------------------
Internal Revenue Service - Employer Identification No. 52-1321492
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
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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 the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
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CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- September 30, 2008 and December 31, 2007..................... 1
Statements of Operations and Accumulated Losses
- for the three and nine months ended
September 30, 2008 and 2007.................................. 2
Statements of Cash Flows
- for the nine months ended September 30, 2008 and 2007........ 3
Notes to Financial Statements
- September 30, 2008 and 2007.................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10
Item 4. Controls and Procedures.......................................... 12
Part II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.................................. 13
Item 5. Other Information................................................ 13
Item 6. Exhibits......................................................... 14
Signature................................................................. 15
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2007
------------ ------------
(Unaudited)
Investment in partnership held for sale or transfer ................................... $ 360,936 $ 392,458
Cash and cash equivalents ............................................................. 4,235,003 4,588,111
Other assets .......................................................................... 9,023 31,741
------------ ------------
Total assets ...................................................................... $ 4,604,962 $ 5,012,310
============ ============
LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
Due on investment in partnership ...................................................... $ 1,400,000 $ 1,400,000
Accrued interest payable .............................................................. 3,224,762 3,130,262
Accounts payable and accrued expenses ................................................. 84,317 149,718
------------ ------------
Total liabilities ................................................................. 4,709,079 4,679,980
------------ ------------
Commitments and contingencies
Partners' capital:
Capital paid in:
General Partners .................................................................. 2,000 2,000
Limited Partners .................................................................. 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000
------------ ------------
Less:
Accumulated distributions to partners ............................................... (34,752,903) (34,752,903)
Offering costs ...................................................................... (5,278,980) (5,278,980)
Accumulated losses .................................................................. (10,089,234) (9,652,787)
------------ ------------
Total partners' (deficit) capital ................................................. (104,117) 332,330
------------ ------------
Total liabilities and partners' (deficit) capital ................................. $ 4,604,962 $ 5,012,310
============ ============
The accompanying notes are an integral part
of these financial statements.
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ---------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Share of loss from partnerships ................. $ (28,732) $ (1,197) $ (31,522) $ (39,938)
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest .................................... 27,548 62,760 103,362 189,885
------------ ------------ ------------ ------------
Expenses:
Management fee .............................. 62,499 62,499 187,497 187,497
General and administrative .................. 39,331 50,868 168,999 182,638
Interest .................................... 31,500 31,500 94,500 94,500
Professional fees ........................... 10,941 41,813 57,291 111,438
------------ ------------ ------------ ------------
144,271 186,680 508,287 576,073
------------ ------------ ------------ ------------
Total other revenue and expenses .......... (116,723) (123,920) (404,925) (386,188)
------------ ------------ ------------ ------------
Net loss ........................................ (145,455) (125,117) (436,447) (426,126)
Accumulated losses, beginning of period ......... (9,943,779) (9,481,931) (9,652,787) (9,180,922)
------------ ------------ ------------ ------------
Accumulated losses, end of period ............... $(10,089,234) $ (9,607,048) $(10,089,234) $ (9,607,048)
============ ============ ============ ============
Net loss allocated
to General Partners (1.51%) ................... $ (2,196) $ (1,889) $ (6,590) $ (6,435)
============ ============ ============ ============
Net loss allocated
to Initial and Special Limited Partners (1.49%) $ (2,167) $ (1,864) $ (6,503) $ (6,349)
============ ============ ============ ============
Net loss allocated
to Additional Limited Partners (97%) .......... $ (141,092) $ (121,364) $ (423,354) $ (413,342)
============ ============ ============ ============
Net loss per unit of
Additional Limited Partner Interest,
based on 49,910 units outstanding ............. $ (2.83) $ (2.43) $ (8.48) $ (8.28)
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
-2-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
---------------------------
2008 2007
------------ ------------
Cash flows from operating activities:
Net loss .................................................................. $ (436,447) $ (426,126)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of loss from partnerships ......................................... 31,522 39,938
Changes in assets and liabilities:
Decrease in other assets .............................................. 22,718 97,342
Increase in accrued interest payable .................................. 94,500 94,500
(Decrease) increase in accounts payable and accrued expenses .......... (65,401) 19,127
----------- -----------
Net cash used in operating activities ............................... (353,108) (175,219)
----------- -----------
Net decrease in cash and cash equivalents ................................... (353,108) (175,219)
Cash and cash equivalents, beginning of period .............................. 4,588,111 4,845,857
----------- -----------
Cash and cash equivalents, end of period .................................... $ 4,235,003 $ 4,670,638
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-3-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-II Limited Partnership (the Partnership) as
of September 30, 2008, and the results of its operations for the three and nine
month periods ended September 30, 2008 and 2007, and its cash flows and
partners' (deficit) capital for the nine month periods ended September 30, 2008
and 2007. The results of operations for the interim periods ended September 30,
2008, are not necessarily indicative of the results to be expected for the full
year.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America (US GAAP) and with the instructions to Form 10-Q. Certain information
and accounting policies and footnote disclosures normally included in financial
statements prepared in conformity with US GAAP have been condensed or omitted
pursuant to such instructions. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's 2007 annual report on Form 10-KSB.
2. PLAN OF LIQUIDATION AND DISSOLUTION
On February 4, 2004, the Partnership filed a Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it
to limited partners to solicit consents for approval of the following:
(1) The sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution, and the
amendment of the Partnership's Limited Partnership Agreement to permit the
Managing General Partner, CRI, to be eligible to receive increased property
disposition fees from the Partnership on the same basis as such fees may
currently be paid to Local General Partners, real estate brokers or other
third party intermediaries employed to sell Partnership properties, to the
extent that CRI markets and sells the Partnership's properties instead of
such persons (a "Disposition Fee");
(2) The amendment of the Partnership's Limited Partnership Agreement to permit
CRI to be eligible to receive a partnership liquidation fee in the amount
of $500,000, payable only if the Managing General Partner is successful in
liquidating all of the Partnership's investments within 36 months from the
date the liquidation is approved [March 22,2004], in recognition that one
or more of the properties in which the Partnership holds an interest might
not be saleable to parties not affiliated with the respective Local
Partnership due to the amount and/or terms of their current indebtedness
(the "Partnership Liquidation Fee"); and
-4-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
2. PLAN OF LIQUIDATION AND DISSOLUTION - Continued
(3) To authorize the Managing General Partner, in its sole discretion, to elect
to extend the period during which Consents of Limited Partners may be
solicited and voted, but not beyond sixty (60) days from the date that the
Consent Solicitation Statement was sent to the Limited Partners.
The matters for which consent was solicited are collectively referred to as the
"Liquidation."
The record date for voting was December 31, 2003, and the final voting
deadline was March 22, 2004. A tabulation of votes received by the voting
deadline follows.
FOR AGAINST ABSTAIN TOTAL
------------------ ------------------ ------------------- ------------------
Units of Units of Units of Units of
limited limited limited limited
partner partner partner partner
Description interest Percent interest Percent interest Percent interest Percent
- ----------- -------- ------- -------- ------- -------- ------- -------- -------
Sale, dissolution and
five percent
Disposition Fee 28,699 57.6% 1,264 2.5% 268 0.5% 30,231 60.6%
$500,000 Partnership
Liquidation Fee 25,841 51.8% 3,546 7.1% 844 1.7% 30,231 60.6%
Extension of
solicitation period 27,975 56.1% 1,767 3.5% 489 1.0% 30,231 60.6%
The Partnership was not liquidated within 36 months from the approved
liquidation date of March 22, 2004, therefore no Partnership Liquidation Fee was
taken. The Managing General Partner is continuing towards liquidation of all the
Partnership's investments.
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
3. INVESTMENTS IN PARTNERSHIPS
a. Due on investment in partnerships and accrued interest payable
--------------------------------------------------------------
Westgate
--------
The Partnership defaulted on its one remaining purchase money note, related
to Westgate Limited Dividend Housing Association (Westgate), on September 1,
2003, when the note (as extended) matured and was not paid. The default amount
included principal and accrued interest of $1,400,000 and $2,584,492,
-5-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
3. INVESTMENTS IN PARTNERSHIPS - Continued
respectively. As of November 10, 2008, principal and accrued interest of
$1,400,000 and $3,238,705, respectively, were due. The Managing General Partner
is currently working with representatives of the purchase money note holders for
the assignment of the Partnership's interest in Westgate in satisfaction of the
purchase money note. The gain on this assignment would be taxed at a federal tax
rate of up to 35 percent. There can be no assurance that such a transfer will
occur.
Interest expense on the Partnership's Westgate purchase money note was
$31,500 and $94,500 for each of the three and nine month periods ended September
30, 2008 and 2007, respectively. The accrued interest payable on the purchase
money note of $3,224,762 and $3,130,262 as of September 30, 2008 and December
31, 2007, respectively, is in default.
Due to the possible assignment of the interest related to Westgate, the
Partnership's basis in the Local Partnership, along with the net unamortized
amount of acquisition fees and property purchase costs, which totaled $360,936
and $392,458 as of September 30, 2008 and December 31, 2007, respectively, has
been reclassified to investment in partnership held for sale or transfer in the
accompanying balance sheets.
b. Completed sales
---------------
Golden Acres
------------
On December 31, 2007, the Partnership's interest in Chowchilla Elderly
Associates, Ltd. (Golden Acres) was sold. The sale resulted in gain on
disposition of investment in partnerships of $2,476 for financial statement
purposes and in gain of $922,645 for federal tax purposes.
Orangewood Plaza
----------------
On December 31, 2007, the Partnership's interest in Orangewood Plaza
Limited Partnership (Orangewood Plaza) was sold. The sale resulted in gain on
disposition of investment in partnerships of $10,000 for financial statement
purposes and in gain of $1,330,147 for federal tax purposes.
c. Asset held for sale or transfer
-------------------------------
Westgate
--------
See Note 3.a., above.
-6-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
3. INVESTMENTS IN PARTNERSHIPS - Continued
d. Summarized financial information
--------------------------------
Combined statements of operations for the one and three Local Partnerships
in which the Partnership was invested as of September 30, 2008 and 2007,
respectively, follow. The combined statements have been compiled from
information supplied by the management agents of the properties and are
unaudited. The information for each of the periods is presented separately for
those Local Partnerships which have positive investment basis (equity method),
and for those Local Partnerships which have cumulative losses in excess of the
amount of the Partnership's investments in those Local Partnerships (equity
method suspended). Appended after the combined statements is information
concerning the Partnership's share of income from partnerships related to cash
distributions recorded as income, and related to the Partnership's share of
income from Local Partnerships.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
-------------------------------------------
2008 2007
---------- --------------------------
Equity Equity
Method Method Suspended
---------- ---------- ----------
Number of Local Partnerships 1 1 2
= = =
Revenue:
Rental $ 164,420 $ 170,430 $ 106,934
Other 6,661 7,723 5,394
---------- ---------- ----------
Total revenue 171,081 178,153 112,328
---------- ---------- -----------
Expenses:
Operating 169,356 147,657 176,964
Interest (9,753) (8,966) 10,247
Depreciation and amortization 40,800 40,684 27,176
---------- ---------- -----------
Total expenses 200,403 179,375 214,387
---------- ---------- -----------
Net loss (29,322) $ (1,222) $ (102,059)
---------- ========== ===========
Partnership's share of
Local Partnership net loss (28,732) (1,197) --
---------- ---------------------------
Share of loss from partnerships $ (28,732) $(1,197)
========== =======
-7-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
3. INVESTMENTS IN PARTNERSHIPS - Continued
For the nine months ended
September 30,
---------------------------------------------
2008 2007
----------- --------------------------
Equity Equity
Method Method Suspended
---------- ---------- ----------
Number of Local Partnerships 1 1 2
= = =
Revenue:
Rental $ 491,058 $ 509,166 $ 320,801
Other 39,930 23,472 16,181
---------- ---------- ----------
Total revenue 530,988 532,638 336,982
---------- ---------- ----------
Expenses:
Operating 470,016 478,243 530,892
Interest (29,258) (26,899) 30,740
Depreciation and amortization 122,399 122,051 81,527
---------- ---------- ----------
Total expenses 563,157 573,395 643,159
---------- ---------- ----------
Net loss $ (32,169) $ (40,757) $ (306,177)
========== ========== ==========
Partnership's share of Local
Partnership net loss (31,522) (39,938) --
---------- --------------------------
Share of loss from partnerships $ (31,522) $(39,938)
========== ========
Cash distributions received from Local Partnerships which have investment
basis (equity method) are recorded as a reduction of investments in partnerships
and as cash receipts on the respective balance sheets. Cash distributions
received from Local Partnerships which have cumulative losses in excess of the
amount of the Partnership's investments in those Local Partnerships (equity
method suspended) are recorded as share of income from partnerships on the
respective statements of operations and as cash receipts on the respective
balance sheets. As of September 30, 2008 and 2007, the Partnership's share of
cumulative losses to date for zero of one and two of three Local Partnerships,
respectively, exceeded the amount of the Partnership's investments in those
Local Partnerships by $0 and $1,312,044, respectively. As the Partnership has no
further obligation to advance funds or provide financing to these Local
Partnerships, the excess losses have not been reflected in the accompanying
financial statements.
-8-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
4. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner or its affiliates for
direct expenses in connection with managing the Partnership. The Partnership
paid $27,061 and $133,390 for the three and nine month periods ended September
30, 2008, respectively, and $37,964 and $137,313 for the three and nine month
periods ended September 30, 2007, respectively. Such expenses are included in
general and administrative expenses in the accompanying statements of
operations.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to pay the Managing General Partner an annual incentive management
fee (Management Fee) after all other expenses of the Partnership are paid. The
Partnership paid the Managing General Partner a Management Fee of $62,499 for
each of the three month periods ended September 30, 2008 and 2007, and $187,497
for each of the nine month periods ended September 30, 2008 and 2007.
Pursuant to approval of the Partnership's Consent Solicitation Statement on
March 22, 2004, the Managing General Partner is eligible to receive a fee of not
more than five percent of the sale price of an investment in a Local Partnership
or the property it owns, payable upon the sale of an investment in a Local
Partnership or the property it owns, to the extent the Managing General Partner
markets and sells a property instead of a real estate broker or unrelated Local
General Partner. The disposition fee on sales of partnership interests (as
opposed to sales of real property) is calculated as up to five percent of the
imputed sale price, which is the amount the Local Partnership's property would
have to be sold for to produce the same distribution to the investors as the
sale of the partnership interests. No such disposition fees were paid with
respect to the sales of interests in Golden Acres or Orangewood Plaza.
In addition, the Managing General Partner was authorized pursuant to the
approved proxy statement to receive a Partnership Liquidation Fee in the amount
of $500,000, payable only if the Managing General Partner was successful in
liquidating all of the Partnership's investments within 36 months from the date
the liquidation was approved. As the liquidation was not completed by March 22,
2007, the Managing General Partner did not earn the fee.
5. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains two
cash accounts with the same bank. As of September 30, 2008, the uninsured
portion of the cash balances was $4,427,986.
# # #
-9-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations
Capital Realty Investors-II Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section is based on the financial statements, and contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including national and local economic
conditions, the general level of interest rates, governmental regulations
affecting the Partnership and interpretations of those regulations, the
competitive environment in which the Partnership operates, and the availability
of working capital.
Critical Accounting Policies
----------------------------
The Partnership has disclosed its selection and application of significant
accounting policies in Note 1 of the notes to financial statements included in
the Partnership's annual report on Form 10- KSB at December 31, 2007. The
Partnership accounts for its remaining investment in partnership (Local
Partnership) using the equity method because the Partnership is a limited
partner in the Local Partnership. As such, the Partnership has no control over
the selection and application of accounting policies, or the use of estimates,
by the Local Partnership. Environmental and operational trends, events and
uncertainties that might affect the property owned by the Local Partnership
would not necessarily have a significant impact on the Partnership's application
of the equity method of accounting.
Plan of Liquidation and Dissolution
-----------------------------------
On February 4,2004, the Partnership filed a Definitive Proxy Statement,
pursuant to Section 14(a) of the Securities Exchange Act of 1934, to solicit
consent for, among other things, the sale of all of the Partnership' s assets
and the dissolution of the Partnership pursuant to a Plan of Liquidation and
Dissolution. As of the voting deadline, March 22, 2004, the holders of 28,699
units of limited partner interest (57.6%) voted "for" such sale and dissolution.
General
-------
The Managing General Partner has sold certain properties by utilizing
opportunities presented by federal affordable housing legislation, favorable
financing terms and preservation incentives available to tax credit and
not-for-profit purchasers. The remaining rental property owned by the Local
Partnership is financed by a state housing agency. Programs developed by the
agency may include opportunities to sell a property to a qualifying purchaser
who would agree to maintain the property as low to moderate income housing. The
Managing General Partner continues to monitor certain state housing agency
programs, and/or programs provided by certain lenders, to ascertain whether the
property would qualify within the parameters of a given program and whether
these programs would provide an appropriate economic benefit to the Limited
Partners of the Partnership. However, it appears unlikely that a sale under any
of the agency's current programs would produce sufficient cash to pay off the
Partnership's purchase money note secured by its interest in the Local
Partnership.
-10-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
The Managing General Partner continues to seek strategies to deal with
affordable housing requirements. While the Managing General Partner cannot
predict the outcome at this time, the Managing General Partner will continue to
work with the Local Partnership to develop strategies that maximize the benefits
to investors.
Financial Condition/Liquidity
-----------------------------
The Partnership's liquidity, with unrestricted cash resources of $4,235,003
as of September 30, 2008, is expected to be adequate to meet its current and
anticipated operating cash needs. As of November 10, 2008, there were no
material commitments for capital expenditures. The Managing General Partner
currently intends to retain all of the Partnership's remaining undistributed
cash for operating cash reserves pending further distributions under its Plan of
Liquidation and Dissolution.
The Partnership's remaining obligation with respect to its investment in
Westgate Tower Limited Dividend Housing Associates (Westgate), in the form of a
nonrecourse purchase money note which matured September 1, 2003, has a principal
balance of $1,400,000 plus accrued interest of $3,244,762 as of September 30,
2008, and is payable in full upon the earliest of: (i) sale or refinancing of
the respective Local Partnership's rental property; (ii) payment in full of the
respective Local Partnership's permanent loan; or (iii) maturity.
The purchase money note, which is nonrecourse to the Partnership, is
secured by the Partnership's interest in the Westgate Local Partnership, which
owns Westgate Tower Apartments. The underlying property does not have sufficient
appreciation and equity to enable the Partnership to pay the purchase money
note's principal and accrued interest. The Managing General Partner is currently
working with representatives of the purchase money note holders for the
assignment of the Partnership's interest in Westgate in satisfaction of the
purchase money note. There can be no assurance that such a transfer will occur.
The Managing General Partner has received consent from a majority of Unit
Holders for the liquidation of the Partnership. (See Note 2 of the notes to
financial statements contained in Part I, Item 1, hereof.) It is anticipated
that the Partnership's obligation, discussed above, would be retired in
conjunction with such Liquidation. There can be no assurance that the
Liquidation will be completed pursuant to the Plan of Liquidation and
Dissolution.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the nine month period ended September 30, 2008, existing cash resources were
adequate to support operating cash requirements. Cash and cash equivalents
decreased $353,108 during the nine month period ended September 30, 2008,
primarily due to operating expenses paid in cash.
-11-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
Results of Operations
---------------------
The Partnership's net loss for the three month period ended September 30,
2008 increased from the corresponding period in 2007, primarily due to increased
loss from partnerships and decreased interest revenue, partially offset by lower
professional fees and general and administrative expenses. Share of loss from
partnerships decreased primarily due to higher operating expenses at one
property. Interest revenue decreased due to lower cash and cash equivalent
balances and interest rates in 2008. Professional fees are lower due to a
reduction in audit fee expense associated with the timing of services provided.
General and administrative expenses decreased primarily due to lower reimbursed
payroll costs.
The Partnership's net loss for the nine month period ended September 30,
2008 increased from the corresponding period in 2007, primarily due to decreased
interest revenue, partially offset by lower professional fees and general and
administrative expenses, all as stated above. Share of loss from partnerships
decreased in 2008 primarily due to lower operating expenses at one property.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnership, does not record losses from the Local Partnership in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnership. As a
result, the Partnership's share of income from partnerships for the three and
nine month periods ended September 30, 2008, did not include losses of $0 and
$0, respectively, compared to excluded losses of $101,029 and $303,086 for the
three and nine month periods ended September 30, 2007, respectively.
No other significant changes in the Partnership's operations have taken
place during the three month period ended September 30, 2008.
Certain states may assert claims against the Partnership for failure to
withhold and remit state income tax on operating profit or where the sale(s) of
property in which the Partnership was invested failed to produce sufficient cash
proceeds with which to pay the state tax and/or to pay statutory partnership
filing fees. The Partnership is unable to quantify the amount of such potential
claims at this time. The Partnership has consistently advised its Partners that
they should consult with their tax advisors as to the necessity of filing
non-resident returns in such states with respect to their proportional taxes
due.
Item 4. Controls and Procedures
In October 2008, representatives of the Managing General Partner of the
Partnership carried out an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures, pursuant to
Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not
expect that the Partnership's disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
-12-
Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures - Continued
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that,
as of September 30, 2008, our disclosure controls and procedures were effective
to ensure that (i) the information required to be disclosed by us in the reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
was recorded, processed, summarized or reported within the time periods
specified in the SEC's rules and forms and (ii) such information was accumulated
and communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure. In addition, there have been no significant changes in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
See Note 3. a. of the notes to financial statements contained in Part I,
Item 1, hereof, for information concerning the Partnership's default on one
purchase money note.
Item 5. Other Information
There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended September 30, 2008, but not reported, whether
or not otherwise required by this Form 10-Q at September 30, 2008.
There is no established market for the purchase and sale of units of
additional limited partner interest (Units) in the Partnership, although various
informal secondary market services exist. Due to the limited markets, however,
investors may be unable to sell or otherwise dispose of their Units.
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Part II. OTHER INFORMATION
Item 6. Exhibits
Exhibit No. Description
- ----------- -----------
31.1 Certification of Principal Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
All other Items are not applicable.
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SIGNATURE
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,
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
--------------------------------------------------
(Registrant)
by: C.R.I., Inc.
---------------------------------------------
Managing General Partner
November 10, 2008 by: /s/ H. William Willoughby
- ----------------- ----------------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer,
and Principal Accounting Officer
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