- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
---------------------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2009
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
COMMISSION FILE NUMBER 0-11973
---------------------------
CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP
Maryland 52-1321492
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
(Address of principal executive offices) (Zip Code)
(301) 468-9200
(Registrant's telephone number, including area code)
None
(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 the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |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|
- --------------------------------------------------------------------------------
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- June 30, 2009 and December 31, 2008............................. 1
Statements of Operations and Accumulated Losses
- for the three and six months ended June 30, 2009 and 2008....... 2
Statements of Cash Flows
- for the six months ended June 30, 2009 and 2008................. 3
Notes to Financial Statements
- June 30, 2009 and 2008.......................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
Item 4. Controls and Procedures............................................. 14
Part II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities..................................... 14
Item 5. Other Information................................................... 14
Item 6. Exhibits............................................................ 15
Signature................................................................... 16
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
June 30, December 31,
2009 2008
------------ ------------
(Unaudited)
Investment in partnership held for sale or transfer ............................... $ 396,286 $ 436,484
Cash and cash equivalents ......................................................... 3,831,468 4,137,701
Other assets ...................................................................... 1,118 4,559
------------ ------------
Total assets .................................................................. $ 4,228,872 $ 4,578,744
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investment in partnership .................................................. $ 1,400,000 $ 1,400,000
Accrued interest payable .......................................................... 3,319,262 3,256,262
Accounts payable and accrued expenses ............................................. 53,404 64,927
------------ ------------
Total liabilities ............................................................. 4,772,666 4,721,189
------------ ------------
Commitments and contingencies
Partners' deficit:
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 .............................................................. (10,528,911) (10,127,562)
------------ ------------
Total partners' deficit ....................................................... (543,794) (142,445)
------------ ------------
Total liabilities and partners' deficit ....................................... $ 4,228,872 $ 4,578,744
============ ============
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 six months ended
June 30, June 30,
---------------------------- ----------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Share of loss from partnership .................. $ (40,966) $ (2,744) $ (29,960) $ (2,790)
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest .................................... 3,690 30,528 11,346 75,814
------------ ------------ ------------ ------------
Expenses:
General and administrative .................. 56,620 58,540 136,850 129,668
Management fee .............................. 62,499 62,499 124,998 124,998
Interest .................................... 31,500 31,500 63,000 63,000
Professional fees ........................... 12,000 23,175 47,649 46,350
Amortization of deferred costs .............. 10,238 -- 10,238 --
------------ ------------ ------------ ------------
172,857 175,714 382,735 364,016
------------ ------------ ------------ ------------
Total other revenue and expenses .......... (169,167) (145,186) (371,389) (288,202)
------------ ------------ ------------ ------------
Net loss ........................................ (210,133) (147,930) (401,349) (290,992)
Accumulated losses, beginning of period ......... (10,318,778) (9,795,849) (10,127,562) (9,652,787)
------------ ------------ ------------ ------------
Accumulated losses, end of period ............... $(10,528,911) $ (9,943,779) $(10,528,911) $ (9,943,779)
============ ============ ============ ============
Net loss allocated
to General Partners (1.51%) ................... $ (3,173) $ (2,234) $ (6,060) $ (4,394)
------------ ============ ============ ============
Net loss allocated
to Initial and Special Limited Partners (1.49%) $ (3,131) $ (2,204) $ (5,980) $ (4,336)
------------ ============ ============ ============
Net loss allocated
to Additional Limited Partners (97%) .......... $ (203,829) $ (143,492) $ (389,309) $ (282,262)
------------ ============ ============ ============
Net loss per unit of
Additional Limited Partner Interest,
based on 49,910 units outstanding ............. $ (4.08) $ (2.88) $ (7.80) $ (5.66)
============ ============ ============ ============
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 six months ended
June 30,
--------------------------
2009 2008
----------- -----------
Cash flows from operating activities:
Net loss .................................................................. $ (401,349) $ (290,992)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of loss from partnership .......................................... 29,960 2,790
Amortization of deferred costs .......................................... 10,238 --
Changes in assets and liabilities:
Decrease in other assets .............................................. 3,441 22,504
Increase in accrued interest payable .................................. 63,000 63,000
Decrease in accounts payable and accrued expenses ..................... (11,523) (67,378)
----------- -----------
Net cash used in operating activities ............................... (306,233) (270,076)
----------- -----------
Net decrease in cash and cash equivalents ................................... (306,233) (270,076)
Cash and cash equivalents, beginning of period .............................. 4,137,701 4,588,111
----------- -----------
Cash and cash equivalents, end of period .................................... $ 3,831,468 $ 4,318,035
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-3-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(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 June 30, 2009, and the results of its operations for the three and six month
periods ended June 30, 2009 and 2008, and its cash flows for the six month
periods ended June 30, 2009 and 2008. The results of operations for the interim
period ended June 30, 2009, 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 annual report on Form 10-K at December 31, 2008.
2. NEW ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 165 Subsequent Events establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the company issues financial statements or has them available to
issue. SFAS 165 defines (i) the period after the balance sheet date during which
a reporting entity's management should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, (ii)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and (iii)
the disclosures an entity should make about events or transactions that occurred
after the balance sheet date. SFAS 165 became effective for periods ending after
June 15, 2009. Subsequent events have been evaluated through August 11, 2009,
which is the issue date of the financial statements. The adoption of SFAS 165
did not have a material impact on our results of operations or financial
position.
In April 2009, FSP No. FAS 107-1 and APB 28-1, "Interim Disclosures about
Fair Value of Financial Instruments" was issued which requires disclosure
regarding the fair value of financial instruments for interim reporting periods
as well as in annual financial statements. We adopted the FSP during the quarter
ended June 30, 2009.
In September 2006, the Financial Accounts Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes
a formal framework for measuring fair value under US GAAP. Although SFAS No. 157
-4-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
2. NEW ACCOUNTING PRONOUNCEMENTS - Continued
applies (amends) the provisions of existing FASB and AICPA pronouncements, it
does not require any new fair value measurements, nor does it establish
valuation standards. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We adopted the recognition and disclosure provisions of SFAS
No. 157 for financial assets and financial liabilities and for nonfinancial
assets and nonfinancial liabilities that are re-measured at least annually
effective January 1, 2008. The adoption did not have a material impact on our
financial position, results of operations or cash flows. In accordance with FSP
SFAS No. 157-2, "Effective Date of FASB Statement No. 157", we adopted the
provisions of SFAS No. 157 for all other nonfinancial assets and nonfinancial
liabilities effective January 1, 2009 and the adoption did not have a material
impact on our financial position, results of operations or cash flows.
SFAS No. 157 establishes a hierarchy for inputs used in measuring fair
value as follows:
1. Level 1 Inputs -- quoted prices in active markets for identical assets
of liabilities.
2. Level 2 Inputs -- observe inputs other than quoted prices in active
markets for identical assets and liabilities.
3. Level 3 Inputs -- unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value
measurement.
The Partnership has determined that the fair value of the purchase money
note is de minimus as the note is secured by limited partnership interests only,
is non-recourse to the Partnership and is in default.
The balance sheet carrying amount for cash and cash equivalents
approximates their fair value.
3. 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:
-5-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
3. PLAN OF LIQUIDATION AND DISSOLUTION - Continued
(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
(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 per 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 liquidation fee was taken by
the Partnership. The Managing General Partner is continuing towards liquidation
of all the Partnership's investments.
-6-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
3. PLAN OF LIQUIDATION AND DISSOLUTION - Continued
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
4. INVESTMENT IN PARTNERSHIP
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,
respectively. As of August 11, 2009, principal and accrued interest of
$1,400,000 and $3,333,243, respectively, were due. In conjunction with the
approved Plan of Liquidation and Dissolution of the Partnership, the Managing
General Partner and the representatives of the purchase money noteholders have
signed a contract for the assignment of the Partnership's interest in Westgate
in satisfaction of the purchase money note's principal and accrued interest. The
representatives of the purchase money note holders must obtain renewal consent
to the transaction from regulatory authorities. The Michigan State Housing
Development Authority will not allow a transfer to occur until after December 4,
2009, due to a refunding of the bonds securing the mortgage on the property
owned by the Local Partnership. The gain on this assignment would be taxed at a
federal tax rate of up to 35 percent. There can be no assurance that a transfer
of the Partnerships interest in Westgate will occur.
Interest expense on the Partnership's Westgate purchase money note was
$31,500 and $63,000 and each of the three and six month periods ended June 30,
2009 and 2008. The accrued interest payable on the purchase money note of
$3,319,262 and $3,256,262 as of June 30, 2009 and December 31, 2008,
respectively, is in default.
Due to the likelihood of the transfer of Westgate, the Partnership's basis
in the Local Partnership, along with the net unamortized amount of acquisition
fees and property purchase costs, which totaled $396,286 and $436,484 as of June
30, 2009 and December 31, 2008, respectively, has been reclassified to
investment in partnership held for sale or transfer in the accompanying balance
sheets.
-7-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
4. INVESTMENT IN PARTNERSHIP - Continued
b. Asset held for sale or transfer
------------------------------
Westgate
--------
See Note 4.a., above.
c. Summarized financial information
--------------------------------
Statements of operations for the one Local Partnership in which the
Partnership was invested as of June 30, 2009 and 2008 follow. The statements
have been compiled from information supplied by the management agent of the
property and are unaudited. Appended after the statements is information
concerning the Partnership's share of income from the Local Partnership.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
June 30,
--------------------------
2009 2008
-------- -------
Equity Equity
Method Method
-------- -------
Number of Local Partnerships 1 1
= =
Revenue:
Rental $165,564 $151,141
Other 6,523 26,174
-------- --------
Total revenue 172,087 177,315
-------- --------
Expenses:
Operating 186,195 149,068
Interest (12,225) (9,753)
Depreciation and amortization 39,925 40,800
-------- --------
Total expenses 213,895 180,115
-------- --------
Net loss $(41,808) $ (2,800)
======== ========
Partnership's share of
Local Partnership net income (loss) (40,966) (2,744)
-------- ---------
Share of loss from partnerships $(40,966) $ (2,744)
======== ========
-8-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
4. INVESTMENT IN PARTNERSHIP - Continued
For the six months ended
June 30,
---------------------------
2009 2008
---------- ----------
Equity Equity
Method Method
---------- ----------
Number of Local Partnerships 1 1
= =
Revenue:
Rental $ 336,611 $ 326,638
Other 16,525 33,269
---------- ----------
Total revenue 353,136 359,907
---------- ----------
Expenses:
Operating 328,312 300,660
Interest (24,451) (19,506)
Depreciation and amortization 79,849 81,600
---------- ----------
Total expenses 383,710 362,754
---------- ----------
Net loss $ (30,574) $ (2,847)
========== ==========
Partnership's share of Local
Partnership net loss $ (29,960) (2,790)
---------- ----------
Share of loss from partnerships $ (29,960) $ (2,790)
========== ==========
5. 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 $53,851 and $103,588, for the three and six month periods ended June 30,
2009, respectively and $62,647 and $106,329 for the three and six month periods
ended June 30, 2008, 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 June 30, 2009 and 2008, and $124,998 for
each of the six month periods ended June 30, 2009 and 2008.
-9-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
(Unaudited)
5. RELATED PARTY TRANSACTIONS - Continued
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.
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 is 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 liquidation fee.
6. CASH DISTRIBUTION
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who are holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
7. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains four
cash accounts. As of June 30, 2009, the uninsured portion of the cash balances
was $4,020,000.
Number of Bank Balance Insured Uninsured
Bank Accounts 06/30/09 06/30/09 06/30/09
- ---------------------- -------- ------------ -------- ----------
Dreyfus Inst Preferred
Money Market Fund 2 $4,020,000 $0 $4,020,000
SunTrust Bank 2 $18,692 $18,692 $0
# # #
-10-
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 Form10-K at December 31, 2008. 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.
New Accounting Pronouncements
-----------------------------
FASB Statement No. 165 Subsequent Events establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the company issues financial statements or has them available to
issue. SFAS 165 defines (i) the period after the balance sheet date during which
a reporting entity's management should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, (ii)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and (iii)
the disclosures an entity should make about events or transactions that occurred
after the balance sheet date. SFAS 165 became effective for periods ending after
June 15, 2009. Subsequent events have been evaluated through August 11, 2009,
which is the issue date of the financial statements. The adoption of SFAS 165
did not have a material impact on our results of operations or financial
position.
In April 2009, FSP No. FAS 107-1 and APB 28-1, "Interim Disclosures about
Fair Value of Financial Instruments" was issued which requires disclosure
regarding the fair value of financial instruments for interim reporting periods
as well as in annual financial statements. We adopted the FSP during the quarter
ended June 30, 2009, and have included the additional disclosures in Note 2 to
the financial statements.
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
-11-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
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.
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 $3,831,468
as of June 30, 2009, is expected to be adequate to meet its current and
anticipated operating cash needs. As of August 11, 2009, 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 $3,319,262 as of June 30, 2009,
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. In conjunction with the approved Plan of
Liquidation and Dissolution of the Partnership, the Managing General Partner and
the representatives of the purchase money noteholders have signed a contract for
-12-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
the assignment of the Partnership's interest in Westgate in satisfaction of the
purchase money note's principal and accrued interest. The gain on this
assignment would be taxed at a federal tax rate of up to 35 percent. There can
be no assurance that a transfer of the Partnership interest in Westgate will
occur.
The Managing General Partner has received consent from a majority of Unit
Holders for the liquidation of the Partnership. (See Note 3 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 six month period ended June 30, 2009, existing cash resources was
adequate to support operating cash requirements. Cash and cash equivalents
decreased $306,233 during the six month period ended June 30, 2009, primarily
due to operating expenses paid in cash.
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who are holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
Results of Operations
---------------------
The Partnership's net loss for the three month period ended June 30, 2009
increased from the corresponding period in 2008, primarily due increased share
of loss from partnership and amortization of deferred costs and decreased
interest revenue, partially offset by decreased professional fees. Share of loss
from partnership increased primarily due to higher operating expenses at the
property. Interest revenue decreased due to lower rates in 2009.
The Partnership's net loss for the six month period ended June 30, 2009
increased from the corresponding period in 2008, primarily due to increases in
share of loss from partnership, amortization of deferred costs and general and
administrative expenses and decreased interest revenue. Share of loss from
partnership increased primarily due to higher operating expenses at the
property. Interest revenue decreased due to lower interest rates in 2009.
No other significant changes in the Partnership's operations have taken
place during the three month period ended June 30, 2009.
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.
-13-
Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
In June 2009, 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
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 June 30, 2009, 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 has materially affected, or is
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 4. 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 June 30, 2009, but not reported, whether or
not otherwise required by this Form 10-Q at June 30, 2009.
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.
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who are holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
-14-
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.
-15-
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
August 11, 2009 by: /s/ H. William Willoughby
- --------------- ---------------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer,
and Principal Accounting Officer
-16-