UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q/A
(AMENDMENT NO. 1)
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2002
------------------
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: 0-18405
American Tax Credit Properties II L.P.
-------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3495678
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties II L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
- --------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
--------------
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 filing requirements
for the past 90 days.
Yes X No .
----- -----
EXPLANATORY NOTE
This amendment to Registrant's Form 10-Q for the quarterly period ended
September 29, 2002 is being filed solely to insert Part I, Item 4, Controls and
Procedures and the Sarbanes Oxley Act of 2002 Section 302 Certifications, each
as set forth herein.
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Table of Contents
Page
Item 1 Financial Statements ----
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosure about Market Risk 16
Item 4 Controls and Procedures 16
2
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
September 29, March 30,
Notes 2002 2002
----- ------------ ---------
ASSETS
Cash and cash equivalents $ 655,387 $ 10,520
Investments in bonds 2 2,934,713 2,792,845
Investment in local partnerships 3 7,768,515 8,101,733
Interest receivable 40,940 47,552
----------- -----------
$11,399,555 $10,952,650
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 650,231 $ 698,440
Payable to general partner and affiliates 1,095,365 929,773
Other liabilities 20,600 27,600
----------- -----------
1,766,196 1,655,813
Commitments and contingencies 3
Partners' equity (deficit)
General partner (398,071) (400,150)
Limited partners (55,746 units of
limited partnership interest
outstanding) 9,868,126 9,662,307
Accumulated other comprehensive income,
net 2 163,304 34,680
----------- -----------
9,633,359 9,296,837
----------- -----------
$11,399,555 $10,952,650
=========== ===========
See Notes to Financial Statements.
3
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
September 29, September 29, September 29, September 29,
Notes 2002 2002 2001 2001
----- ----------- ----------- ----------- -----------
REVENUE
Interest $ 49,195 $ 90,513 $ 55,122 $ 108,839
Other income from local
partnerships 3 32,272 640 23,624
----------- ----------- ----------- -----------
TOTAL REVENUE 49,195 122,785 55,762 132,463
----------- ----------- ----------- -----------
EXPENSES
Administration fees 74,830 149,653 74,830 149,653
Management fees 74,830 149,653 74,830 149,653
Professional fees 15,496 18,091 11,830 27,805
Printing, postage and other 3,431 11,179 9,988 19,200
----------- ----------- ----------- -----------
TOTAL EXPENSES 168,587 328,576 171,478 346,311
----------- ----------- ----------- -----------
Loss from operations (119,392) (205,791) (115,716) (213,848)
Equity in loss of investment
in local partnerships 3 (121,604) (318,311) (333,519) (976,032)
----------- ----------- ----------- -----------
Loss prior to gain on disposal
of local partnership interest (240,996) (524,102) (449,235) (1,189,880)
Gain on disposal of local
partnership interest 3 732,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) (240,996) 207,898 (449,235) (1,189,880)
Other comprehensive income 2 57,776 128,624 125,749 77,031
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (183,220) $ 336,522 $ (323,486) $(1,112,849)
=========== =========== =========== ===========
NET INCOME (LOSS)
ATTRIBUTABLE TO
General partner $ (2,410) $ 2,079 $ (4,493) $ (11,899)
Limited partners (238,586) 205,819 (444,742) (1,177,981)
----------- ----------- ----------- -----------
$ (240,996) $ 207,898 $ (449,235) $(1,189,880)
=========== =========== =========== ===========
NET INCOME (LOSS) per unit of
limited partnership interest
(55,746 units of limited
partnership interest) $ (4.28) $ 3.69 $ (7.98) $ (21.13)
=========== =========== =========== ===========
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 29, 2002 AND 2001
(UNAUDITED)
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 79,708 $ 91,499
Cash used for local partnerships for deferred
expenses (7,000) (7,000)
Cash paid for
administration fees (28,956) (38,540)
management fees (104,758) (104,758)
professional fees (62,769) (55,295)
printing, postage and other expenses (14,710) (23,828)
--------- ---------
Net cash used in operating activities (138,485) (137,922)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (110,701) (108,865)
Cash distributions from local partnerships 889,880 214,187
Maturities/redemptions and sales of bonds 4,173 4,718
--------- ---------
Net cash provided by investing activities 783,352 110,040
--------- ---------
Net increase (decrease) in cash and cash
equivalents 644,867 (27,882)
Cash and cash equivalents at beginning of period 10,520 81,216
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 655,387 $ 53,334
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds, net $ 128,624 $ 77,031
========= =========
- -------------------------------------------------------------------------------
See reconciliation of net income (loss) to net cash used in operating activities
on page 6.
See Notes to Financial Statements.
5
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
SIX MONTHS ENDED SEPTEMBER 29, 2002 AND 2001
(UNAUDITED)
2002 2001
----------- -----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Net income (loss) $ 207,898 $(1,189,880)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Equity in loss of investment in local
partnerships 318,311 976,032
Distributions from local partnerships
classified as other income (32,272) (23,624)
Gain on disposal of local partnership interest (732,000)
Amortization of net premium on investments in
bonds 2,178 3,089
Accretion of zero coupon bonds (19,595) (19,595)
Decrease (increase) in interest receivable 6,612 (834)
Increase in payable to general partner and
affiliates 165,592 181,008
Decrease in accounts payable and accrued
expenses (48,209) (57,118)
Decrease in other liabilities (7,000) (7,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (138,485) $ (137,922)
=========== ===========
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 2002
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations are impacted significantly by the
combined results of operations of the Local Partnerships, which are provided
by the Local Partnerships on an unaudited basis during interim periods.
Accordingly, the accompanying financial statements are dependent on such
unaudited information. In the opinion of the General Partner, the financial
statements include all adjustments necessary to present fairly the financial
position as of September 29, 2002 and the results of operations and cash
flows for the interim periods presented. All adjustments are of a normal
recurring nature. The results of operations for the three and six month
periods ended September 29, 2002 are not necessarily indicative of the
results that may be expected for the entire year.
2. Investments in Bonds
As of September 29, 2002, certain information concerning investments in bonds
is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------- ----------- ----------- ----------- -----------
Corporate debt securities
Within one year $ 450,401 $ 4,472 $ -- $ 454,873
After one year through
five years 1,654,910 104,988 (28,809) 1,731,089
----------- ----------- ----------- -----------
2,105,311 109,460 (28,809) 2,185,962
----------- ----------- ----------- -----------
U.S. Treasury debt securities
After five years through
ten years 659,068 82,377 -- 741,445
----------- ----------- ----------- -----------
U.S. government and agency securities
After one year through
five years 7,030 276 -- 7,306
----------- ----------- ----------- -----------
$ 2,771,409 $ 192,113 $ (28,809) $ 2,934,713
=========== =========== =========== ===========
7
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 2002
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership owns limited partnership interests in fifty Local
Partnerships representing capital contributions in the aggregate amount of
$46,403,149, which amount includes advances made to certain Local
Partnerships. As of June 30, 2002, the Local Partnerships have outstanding
mortgage loans payable totaling approximately $86,506,000 and accrued
interest payable on such loans totaling approximately $7,159,000 which are
secured by security interests and liens common to mortgage loans on the Local
Partnerships' real property and other assets.
For the six months ended September 29, 2002, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30,
2002 $ 8,101,733
Advances to Local Partnerships 110,701
Equity in loss of investment in local
partnerships (318,311)*
Cash distributions received from Local
Partnerships (889,880)
Cash distributions classified as gain on
disposal of local partnership 732,000
Cash distributions classified as other income
from local partnerships 32,272
-----------
Investment in local partnerships as of September
29, 2002 $ 7,768,515
===========
*Equity in loss of investment in local partnerships is limited to the
Partnership's investment balance in each Local Partnership; any excess is
applied to other partners' capital in any such Local Partnership. The
amount of such excess losses applied to other partners' capital was
$1,301,615 for the six months ended June 30, 2002 as reflected in the
combined statement of operations of the Local Partnerships reflected
herein Note 3.
The combined unaudited balance sheets of the Local Partnerships as of June
30, 2002 and December 31, 2001 and the combined unaudited statements of
operations of the Local Partnerships for the three and six month periods
ended June 30, 2002 and 2001 are reflected on pages 9 and 10, respectively.
8
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of June 30, 2002 and
December 31, 2001 are as follows:
June 30, December 31,
2002 2001
------------- -------------
ASSETS
Cash and cash equivalents $ 1,774,666 $ 2,127,352
Rents receivable 427,131 431,523
Escrow deposits and reserves 6,155,924 5,755,211
Land 3,930,673 4,180,673
Buildings and improvements (net of
accumulated depreciation of $62,526,766
and $61,229,767) 80,780,371 84,160,541
Intangible assets (net of accumulated
amortization of $1,271,134 and $1,258,567) 1,438,750 1,407,245
Other assets 1,463,102 1,387,096
------------- -------------
$ 95,970,617 $ 99,449,641
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,993,176 $ 1,812,873
Due to related parties 4,066,501 4,165,047
Mortgage loans 86,506,158 88,453,937
Notes payable 1,255,525 1,418,799
Accrued interest 7,159,089 6,958,723
Other liabilities 698,961 710,234
------------- -------------
101,679,410 103,519,613
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of
distributions 44,782,033 45,555,964
Cumulative loss (35,777,320) (35,459,009)
------------- -------------
9,004,713 10,096,955
------------- -------------
General partners and other limited
partners
Capital contributions, net of
distributions 3,062,964 3,098,307
Cumulative loss (17,776,470) (17,265,234)
------------- -------------
(14,713,506) (14,166,927)
------------- -------------
(5,708,793) (4,069,972)
------------- -------------
$ 95,970,617 $ 99,449,641
============= =============
9
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and six month periods ended June 30, 2002 and 2001 are as follows:
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2002 2001 2001
------------ ------------ ------------ ------------
REVENUE
Rental $ 5,345,539 $ 10,758,082 $ 5,193,315 $ 10,526,189
Interest and other 173,489 328,358 196,171 325,700
------------ ------------ ------------ ------------
TOTAL REVENUE 5,519,028 11,086,440 5,389,486 10,851,889
------------ ------------ ------------ ------------
EXPENSES
Administrative 904,672 1,808,272 825,631 1,723,347
Utilities 758,957 1,715,838 778,773 1,969,017
Operating and maintenance 1,227,901 2,387,207 1,262,094 2,398,605
Taxes and insurance 721,174 1,416,647 654,319 1,317,196
Financial 1,600,166 3,138,719 1,517,020 3,071,899
Depreciation and
amortization 1,203,345 2,413,918 1,179,467 2,369,055
------------ ------------ ------------ ------------
TOTAL EXPENSES 6,416,215 12,880,601 6,217,304 12,849,119
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS BEFORE
GAIN ON SALE OF PROPERTY (897,187) (1,794,161) (827,818) (1,997,230)
Gain on sale of property 964,614 964,614
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 67,427 $ (829,547) $ (827,818) $ (1,997,230)
============ ============ ============ ============
NET INCOME (LOSS)
ATTRIBUTABLE TO
American Tax Credit $ (121,604) $ (318,311) $ (333,519) $ (976,032)
Properties II L.P.
General partners and
other limited partners,
which includes $964,414
of specially allocated
revenue to a certain
general partner for the
three and six month
periods ended June 30,
2002, and $699,910,
$1,301,615, $399,733 and
$825,817 of Partnership
loss in excess of
investment 189,031 (511,236) (494,299) (1,021,198)
------------ ------------ ------------ ------------
$ 67,427 $ (829,547) $ (827,818) $ (1,997,230)
============ ============ ============ ============
The combined results of operations of the Local Partnerships for the three
and six month periods ended June 30, 2002 are not necessarily indicative of
the results that may be expected for an entire operating period.
10
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, the Partnership and the local general partners of 2000-2100
Christian Street Associates ("2000 Christian Street") and Christian Street
Associates Limited Partnership ("Christian Street") agreed to equally share
the funding of operating deficits through June 30, 2000 in the case of
Christian Street and through September 30, 2000 in the case of 2000 Christian
Street (the respective "Funding Agreements"). The Funding Agreements have
been extended through June 30, 2003. Under the terms of the Funding
Agreements, the Partnership has advanced $222,278 as of September 29, 2002,
of which $27,061 was advanced during the six months then ended. Such advances
have been recorded as investment in local partnerships and have been offset
by additional equity in loss of investment in local partnerships.
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership
("Forest Village") filed for protection under Chapter 11 of the federal
Bankruptcy Code in the United States Bankruptcy Court, Western District of
Washington (the "Court") on March 25, 1999. Forest Village filed a plan of
reorganization (the "Plan") which was confirmed by the Court on December 14,
1999. The terms of the Plan called for the Partnership to provide up to
$500,000 (the "Bankruptcy Advance"), all of which was previously funded,
which Forest Village utilized to pay certain obligations including all first
mortgage arrears and certain secured and unsecured creditors and to make
necessary repairs to the complex. The Plan also resulted in recasting the
second mortgage and cumulative arrears over a new 30 year amortization period
that reduced Forest Village's mandatory debt service by approximately $77,000
per annum. In addition to the Bankruptcy Advance, the Partnership provided
advances of $282,874 to Forest Village. Such advances, including the
Bankruptcy Advance, were recorded as investment in local partnerships and
were offset by additional equity in loss of investment in local partnerships
(see Note 1). Of all such amounts advanced by the Partnership, $534,500 bore
interest at 8.5% and was repayable out of net cash flow from the operations
of the Property. No interest was recorded by the Partnership.
In May 2002, Forest Village sold its underlying Property for $2,600,000. The
combined statements of operations of the Local Partnerships for the three and
six month periods ended June 30, 2002 included herein Note 3 reflect gain on
sale of property of $964,614. The sale proceeds were utilized to repay the
outstanding mortgages in full, post a bond for the purpose of avoiding
Low-income Tax Credit Recapture and repay the Partnership for advances
discussed above. The Partnership has received $732,000 in connection with the
sale and the purchaser is required to continue to operate the Property as
low-income pursuant to Section 42 through the remainder of the Compliance
Period. Forest Village is maintaining a reserve to pay for certain expenses
incurred in connection with the transaction and other expenses to be incurred
in connection with the termination of Forest Village. Any remaining funds
after the payment of all such expenses will be distributed to the
Partnership. The accompanying financial statements as of and for the six
months ended September 29, 2002 include gain on disposal of local partnership
interest of $732,000 in connection with Forest Village. Additional gain will
be recognized to the extent the Partnership receives a distribution from the
Forest Village reserve noted above.
The Partnership advanced $67,000 during the six months ended September 29,
2002 to Ann Ell Apartments Associates, Ltd. to fund operating deficits.
Cumulative advances as of September 29, 2002 are $409,545. Such advances have
been recorded as investment in local partnerships and have been offset by
additional equity in loss of investment in local partnerships.
The Partnership advanced $16,640 during the six months ended September 29,
2002 to College Avenue Apartments Limited Partnership to fund operating
deficits. Cumulative advances as of September 29, 2002 are $27,790. Such
advances have been recorded as investment in local partnerships and have been
offset by additional equity in loss of investment in local partnerships.
4. Additional Information
Additional information, including the audited March 30, 2002 Financial
Statements and the Organization, Purpose and Summary of Significant
Accounting Policies, is included in the Partnership's Annual Report on Form
10-K for the fiscal year ended March 30, 2002 on file with the Securities and
Exchange Commission.
11
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Material Changes in Financial Condition
As of September 29, 2002, American Tax Credit Properties II L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 2002, with the exception of the receipt of $732,000 in
connection with Forest Village Housing Partnership ("Forest Village"); see Local
Partnership Matters below. Principal changes in assets are comprised of periodic
transactions and adjustments and anticipated equity in loss from operations of
the local partnerships (the "Local Partnerships") which own low-income
multifamily residential complexes (the "Properties") that qualify for the
low-income tax credit in accordance with Section 42 of the Internal Revenue Code
(the "Low-income Tax Credit"). During the six months ended September 29, 2002,
Registrant received cash from interest revenue, maturities/redemptions and sales
of bonds and distributions from Local Partnerships and utilized cash for
operating expenses and advances to certain Local Partnerships (see Local
Partnership Matters below), which advances have been recorded as investments.
Cash and cash equivalents and investments in bonds increased, in the aggregate,
by approximately $787,000 during the six months ended September 29, 2002 (which
includes a net unrealized gain on investments in bonds of approximately
$129,000, amortization of net premium on investments in bonds of approximately
$2,000 and accretion of zero coupon bonds of approximately $20,000).
Notwithstanding circumstances that may arise in connection with the Properties,
Registrant does not expect to realize significant gains or losses on its
investments in bonds, if any. During the six months ended September 29, 2002,
the investment in local partnerships decreased as a result of Registrant's
equity in the Local Partnerships' net loss for the six months ended June 30,
2002 of $318,311 and cash distributions received from Local Partnerships of
$125,608 (exclusive of distributions from Local Partnerships of $32,272
classified as other income and $732,000 classified as gain on disposal of local
partnership interest), partially offset by advances to Local Partnerships of
$110,701 (see discussion below under Local Partnership Matters). Accounts
payable and accrued expenses includes deferred administration fees of $593,740,
and payable to general partner represents deferred administration and management
fees in the accompanying balance sheet as of September 29, 2002.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in local partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost and is adjusted for Registrant's share of each Local
Partnership's results of operations and by cash distributions received. Equity
in loss of each investment in Local Partnership allocated to Registrant is
recognized to the extent of Registrant's investment balance in each Local
Partnership. Equity in loss in excess of Registrant's investment balance in a
Local Partnership is allocated to other partners' capital in any such Local
Partnership. As a result, the reported equity in loss of investment in local
partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. However, the combined statements of
operations of the Local Partnerships reflected in Note 3 to Registrant's
financial statements include the operating results of all Local Partnerships,
irrespective of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in local
partnerships may result from a variety of circumstances, including a Local
Partnership's accounting policies, subsidy structure, debt structure and
operating deficits, among other things. In addition, the carrying value of
Registrant's investment in local partnerships may be reduced if the book value
(the "Local Partnership Carrying Value") is considered to exceed the estimated
value derived by management. Accordingly, cumulative losses and cash
distributions in excess of the investment or an adjustment to a Local
Partnership's Carrying Value are not necessarily indicative of adverse operating
results of a Local Partnership. See discussion below under Local Partnership
Matters regarding certain Local Partnerships currently operating below economic
break even levels.
Registrant's operations for the three months ended September 29, 2002 and 2001
resulted in a net loss of $240,996 and $449,235, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships of approximately $212,000, which decrease is primarily the
result of an increase in the nonrecognition of losses in accordance with the
equity method of accounting. Other comprehensive income for the three months
ended September 29, 2002 and 2001 resulted from a net unrealized gain on
investments in bonds of $57,776 and $125,749, respectively.
12
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Local Partnerships' loss from operations of approximately $897,000 for the
three months ended June 30, 2002 was attributable to rental and other revenue of
approximately $5,519,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $5,213,000 and approximately
$1,203,000 of depreciation and amortization expense. The Local Partnerships'
loss from operations of approximately $828,000 for the three months ended June
30, 2001 was attributable to rental and other revenue of approximately
$5,389,000, exceeded by operating and interest expense (including interest on
non-mandatory debt) of approximately $5,038,000 and approximately $1,179,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the three months ended June 30, 2002 are not necessarily
indicative of the results that may be expected in future periods.
Registrant's operations for the six months ended September 29, 2002 and 2001
resulted in net income (loss) of $207,898 and $(1,189,880), respectively. The
increase in net income is primarily attributable to (i) gain on disposal of
local partnership interest of $732,000 in connection with Forest Village and
(ii) a decrease in equity in loss of investment in local partnerships of
approximately $658,000, which decrease is primarily the result of an increase in
the nonrecognition of losses in accordance with the equity method of accounting
and a decrease in the net operating losses of certain Local Partnerships in
which Registrant continues to have an investment balance. Other comprehensive
income for the six months ended September 29, 2002 and 2001 resulted from a net
unrealized gain on investments in bonds of $128,624 and $77,031, respectively.
The Local Partnerships' loss from operations of approximately $1,794,000 for the
six months ended June 30, 2002 was attributable to rental and other revenue of
approximately $11,086,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $10,466,000 and approximately
$2,414,000 of depreciation and amortization expense. The Local Partnerships'
loss from operations of approximately $1,997,000 for the six months ended June
30, 2001 was attributable to rental and other revenue of approximately
$10,852,000, exceeded by operating and interest expense (including interest on
non-mandatory debt) of approximately $10,480,000 and approximately $2,369,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the six months ended June 30, 2002 are not necessarily
indicative of the results that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. The relevant state tax credit agency
has allocated each of Registrant's Local Partnerships an amount of Low-income
Tax Credits, which are generally available for a ten year period from the year
the Property is placed in service (the "Ten Tear Credit Period"). The Ten Year
Credit Period has been fully exhausted by the Local Partnerships as of December
31, 2001. The required holding period of each Property, in order to avoid
Low-income Tax Credit recapture, is fifteen years from the year in which the
Low-income Tax Credits commence on the last building of the Property (the
"Compliance Period"). In addition, certain of the Local Partnerships have
entered into agreements with the relevant state tax credit agencies whereby the
Local Partnerships must maintain the low-income nature of the Properties for a
period which exceeds the Compliance Period, regardless of any sale of the
Properties by the Local Partnerships after the Compliance Period. The Properties
must satisfy various requirements including rent restrictions and tenant income
limitations (the "Low-income Tax Credit Requirements") in order to maintain
eligibility for the recognition of the Low-income Tax Credit at all times during
the Compliance Period. Once a Local Partnership has become eligible for the
Low-income Tax Credit, it may lose such eligibility and suffer an event of
recapture if its Property fails to remain in compliance with the Low-income Tax
Credit Requirements. Through December 31, 2001, none of the Local Partnerships
have suffered an event of recapture of Low-income Tax Credits.
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. Since
October 1997, the United States Department of Housing and Urban Development
("HUD") has issued a series of directives related to project based Section 8
contracts that define owners' notification responsibilities, advise owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provide guidance and procedures to owners,
management agents, contract administrators and HUD staff concerning renewal of
Section 8 contracts, provide policies and procedures on setting renewal rents
and handling renewal rent adjustments and provide the requirements and
procedures for opting-out of a Section 8 project based contract. Registrant
cannot reasonably predict legislative initiatives and governmental budget
negotiations, the outcome of which could result in funds available for the
various federal and state administered housing programs including Section 8
program.
13
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Such changes could adversely affect the future net operating income before debt
service (NOI) and debt structure of any or all Local Partnerships currently
receiving such subsidy or similar subsidies. Six Local Partnerships' Section 8
contracts, certain of which cover only certain rental units, are currently
subject to renewal under applicable HUD guidelines. In addition, two Local
Partnerships entered into restructuring agreements, resulting in both a lower
rent subsidy (resulting in lower NOI) and lower mandatory debt service with no
anticipated material adverse impact to the operating results of the Properties
through the respective Compliance Periods.
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments which are payable only from available cash flow subject to the terms
and conditions of the notes, which may be subject to specific laws, regulations
and agreements with appropriate federal and state agencies ("Non-Mandatory Debt
Service or Interest"). During the six months ended June 30, 2002, revenue from
operations of the Local Partnerships has generally been sufficient to cover
operating expenses and Mandatory Debt Service. Substantially all of the Local
Partnerships are effectively operating at or above break even levels, although
certain Local Partnerships' operating information reflects operating deficits
that do not represent cash deficits due to their mortgage and financing
structure and the required deferral of property management fees. However, as
discussed below, certain Local Partnerships' operating information indicates
below break even operations after taking into account their mortgage and
financing structure and any required deferral of property management fees.
Christian Street Associates Limited Partnership ("Christian Street") and
2000-2100 Christian Street Associates ("2000 Christian Street"), which Local
Partnerships have certain common general partner interests and a common first
mortgage lender, have experienced ongoing operating deficits. Under terms of the
partnership agreements, the Local General Partners exceeded their respective
operating deficit guarantees and, as of September 30, 1998, had advanced in
excess of $1,000,000 in the aggregate to Christian Street and 2000 Christian
Street. The Local General Partners approached the lender with the intention to
restructure the loans; however the lender indicated that in connection with any
such restructuring, the respective Local Partnerships would be responsible for
certain costs, which may be significant. If the Local General Partners were to
cease funding the operating deficits, Registrant would likely incur substantial
recapture of Low-income Tax Credits. Effective October 1, 1998, in an attempt to
avoid potential adverse tax consequences, Registrant and the Local General
Partners agreed to equally share the funding of operating deficits through June
30, 2000 in the case of Christian Street and through September 30, 2000 in the
case of 2000 Christian Street (the respective "Funding Agreements"). The Funding
Agreements have been extended through June 30, 2003. The Local General Partners
agreed to cause the management agent to accrue and defer its management fees
during the period of the Funding Agreements and the accrued management fees are
excluded when determining the operating deficits. Christian Street and 2000
Christian Street reported a combined operating deficit of approximately
$112,000, excluding accrued management fees of approximately $22,000, for the
six months ended June 30, 2002. Under the terms of the Funding Agreements,
Registrant has advanced $222,278 as of September 29, 2002, of which $27,061 was
advanced during the six months then ended. Payments on the mortgages and real
estate taxes are current. Registrant's investment balances in Christian Street
and 2000 Christian Street, after cumulative equity losses, became zero during
the year ended March 30, 1997 and advances made by Registrant have been offset
by additional equity in loss of investment in local partnerships. Christian
Street and 2000 Christian Street generated approximately $8.2 and approximately
$4.4 per Unit per year to the limited partners upon the expiration of their
Low-income Tax Credit allocations in 2000 and 2001, respectively.
The terms of the partnership agreement of College Avenue Apartments Limited
Partnership ("College Avenue") require the management agent to defer property
management fees in order to avoid a default under the mortgage. College Avenue
reported an operating deficit of approximately $13,000 for the six months ended
June 30, 2002, which includes property management fees of approximately $6,000.
Registrant has made cumulative advances to College Avenue of $27,790 as of
September 29, 2002, of which $16,640 was advanced during the six months then
ended. Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in College Avenue, after cumulative equity losses, became
zero during the year ended March 30, 1999 and advances made by Registrant have
been offset by additional equity in loss of investment in local partnerships.
College Avenue generated approximately $1.2 per Unit per year to the limited
partners upon the expiration of its Low-income Tax Credit allocation in 2000.
14
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership ("Forest
Village") filed for protection under Chapter 11 of the federal Bankruptcy Code
in the United States Bankruptcy Court, Western District of Washington (the
"Court") on March 25, 1999. Forest Village filed a plan of reorganization (the
"Plan") that was confirmed by the Court on December 14, 1999. The terms of the
Plan called for Registrant to provide up to $500,000 (the "Bankruptcy Advance"),
all of which was previously funded, which Forest Village utilized to pay certain
obligations including all first mortgage arrears and certain secured and
unsecured creditors and to make necessary repairs to the complex. The Plan also
resulted in recasting the second mortgage and cumulative arrears over a new 30
year amortization period that reduced Forest Village's mandatory debt service by
approximately $77,000 per annum. In addition to the Bankruptcy Advance,
Registrant provided advances of $282,874 to Forest Village. Registrant's
investment balance in Forest Village, after cumulative equity losses, became
zero during the year ended March 30, 1995 and advances made by Registrant,
including the Bankruptcy Advance, were offset by additional equity in loss of
investment in local partnerships. Forest Village generated approximately $1.5
per Unit per year to the limited partners upon the expiration of its Low-income
Tax Credit allocation in 2001.
In May 2002, Forest Village sold its underlying Property for $2,600,000. The
combined statements of operations of the Local Partnerships for the three and
six month periods ended June 30, 2002 included in Note 3 in the accompanying
financial statements.reflect gain on sale of property of $964,614. The sale
proceeds were utilized to repay the outstanding mortgages in full, post a bond
for the purpose of avoiding Low-income Tax Credit recapture and repay Registrant
for advances noted above. Forest Village has received $732,000 in connection
with the sale and the purchaser is required to continue to operate the Property
as low-income pursuant to Section 42 through the remainder of the Compliance
Period. Forest Village is maintaining a reserve to pay for certain expenses
incurred in connection with the transaction and other expenses to be incurred in
connection with the termination of Forest Village. Any remaining funds after the
payment of all such expenses will be distributed to Registrant. The financial
statements as of and for the six months ended September 29, 2002 include gain on
disposal of local partnership interest of $732,000 in connection with Forest
Village. Additional gain will be recognized to the extent Registrant receives a
distribution from the Forest Village reserve noted above.
During the six months ended June 30, 2002, Ann Ell Apartments Associates, Ltd.
("Ann Ell") reported an operating deficit of approximately $22,000. Registrant
has made cumulative advances to Ann Ell of $409,545 as of September 29, 2002, of
which $67,000 was advanced during the six months then ended. Payments on the
mortgage and real estate taxes are current. Registrant's investment balance in
Ann Ell, after cumulative equity losses, became zero during the year ended March
30, 1994 and advances made by Registrant have been offset by additional equity
in loss of investment in local partnerships. Ann Ell generated approximately
$1.7 per Unit per year to the limited partners upon the expiration of its
Low-income Tax Credit allocation in 2001.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. The following section is a summary of
certain aspects of those accounting policies that may require subjective or
complex judgments and are most important to the portrayal of Registrant's
financial condition and results of operations. Registrant believes that there is
a low probability that the use of different estimates or assumptions in making
these judgments would result in materially different amounts being reported in
the financial statements.
o Registrant accounts for its investment in local partnerships in accordance
with the equity method of accounting since Registrant cannot control the
operations of a Local Partnership.
o If the book value of Registrant's investment in a Local Partnership
exceeds the estimated value derived by management, Registrant reduces its
investment in any such Local Partnership and includes such reduction in
equity in loss of investment in local partnerships.
15
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds, U.S. Treasury instruments and U.S. government and agency
securities. The market value of such investments is subject to fluctuation based
upon changes in interest rates relative to each investment's maturity date.
Since Registrant's investments in bonds have various maturity dates through
2008, the value of such investments may be adversely impacted in an environment
of rising interest rates in the event Registrant decides to liquidate any such
investment prior to its maturity. Although Registrant may utilize reserves to
assist an under performing Property, it otherwise intends to hold such
investments to their respective maturities. Therefore, Registrant does not
anticipate any material adverse impact in connection with such investments.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
a. Within the 90 days prior to the date of this report, the Chief Executive
Officer and Chief Financial Officer of Richman Tax Credits Inc., the general
partner of Richman Tax Credit Properties II L.P., which in turn is the General
Partner of the Registrant, carried out an evaluation of the effectiveness of the
Partnership's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation,
the Chief Executive Officer and Principal Financial Officer have concluded that
as of the date of the evaluation, the Registrant's disclosure controls and
procedures were adequate and effective in timely alerting them to material
information relating to the Registrant required to be included in the
Registrant's periodic SEC filings.
Changes in internal controls
b. There were no significant changes in the Registrant's internal controls or
in other factors that could significantly affect the Registrant's internal
controls subsequent to the date of that evaluation.
16
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Registrant is not aware of any material legal proceedings.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
17
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.
AMERICAN TAX CREDIT PROPERTIES II L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties II L.P.,
General Partner
by: Richman Tax Credits Inc.,
general partner
Dated: February 13, 2003 /s/ David Salzman
-------------------------------------
by: David Salzman
Chief Executive Officer
Dated: February 13, 2003 /s/ Neal Ludeke
-------------------------------------
by: Neal Ludeke
Chief Financial Officer
18
CERTIFICATIONS
I, David Salzman, certify that:
1. I have reviewed this quarterly report on Form 10-Q, as amended, of American
Tax Credit Properties II L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 By: /s/ David Salzman
-------------------------------------
David Salzman
Chief Executive Officer of Richman
Tax Credits Inc., general partner
of Richman Tax Credit Properties
II L.P., general partner of the Company
19
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q, as amended, of American
Tax Credit Properties II L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have;
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function);
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 By: /s/ Neal Ludeke
------------------------------------
Neal Ludeke
Chief Financial Officer of Richman
Housing Credits Inc., general
partner of Richman Tax Credit
Properties II L.P., general partner
of the Company
20