UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to ___________
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Commission file number: 0-18405
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American Tax Credit Properties II L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3495678
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(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
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
1
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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Table of Contents Page
- ----------------- ----
Balance Sheets............................................................3
Statements of Operations..................................................4
Statements of Cash Flows..................................................5
Notes to Financial Statements.............................................7
2
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
June 29, March 30,
Notes 2003 2003
----- ------------ ------------
ASSETS
Cash and cash equivalents $ 555,369 $ 775,452
Investments in bonds 2 2,558,948 2,513,779
Investment in local partnerships 3 7,178,946 7,532,015
Prepaid expenses 8,045
Interest receivable 27,036 31,514
------------ ------------
$ 10,328,344 $ 10,852,760
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 660,846 $ 726,724
Payable to general partner and affiliates 1,082,798 996,159
Other liabilities 20,600 20,600
------------ ------------
1,764,244 1,743,483
------------ ------------
Commitments and contingencies 3
Partners' equity (deficit)
General partner (409,278) (403,451)
Limited partners (55,746 units of
limited partnership interest outstanding) 8,758,619 9,335,491
Accumulated other comprehensive income, net 2 214,759 177,237
------------ ------------
8,564,100 9,109,277
------------ ------------
$ 10,328,344 $ 10,852,760
============ ============
See Notes to Financial Statements.
3
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
Notes 2003 2002
----- --------- ---------
REVENUE
Interest $ 38,484 $ 41,318
Other income from local partnerships 388 32,272
--------- ---------
TOTAL REVENUE 38,872 73,590
--------- ---------
EXPENSES
Administration fees 73,605 74,823
Management fees 73,605 74,823
Professional fees 29,535 2,595
State of New Jersey filing fee 20,609
Printing, postage and other 14,259 7,748
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TOTAL EXPENSES 211,613 159,989
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Loss from operations (172,741) (86,399)
Equity in loss of investment in local partnerships 3 (409,958) (196,707)
--------- ---------
Loss prior to gain on disposal of local
partnership interest (582,699) (283,106)
Gain on disposal of local partnership interest 3 732,000
--------- ---------
NET INCOME (LOSS) (582,699) 448,894
Other comprehensive income 2 37,522 70,848
--------- ---------
COMPREHENSIVE INCOME (LOSS) $(545,177) $ 519,742
========= =========
NET INCOME (LOSS) ATTRIBUTABLE TO
General partner $ (5,827) $ 4,489
Limited partners (576,872) 444,405
--------- ---------
$(582,699) $ 448,894
========= =========
NET INCOME (LOSS) per unit of limited
partnership interest (55,746 units of
limited partnership interest) $ (10.35) $ 7.97
========= =========
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 34,215 $ 42,252
Cash used for local partnerships for
deferred expenses (7,000)
Cash paid for administration fees (8,192) (20,832)
management fees (52,379)
professional fees (413) (63,024)
State of New Jersey filing fee (123,654)
printing, postage and other expenses (14,259) (11,025)
--------- ---------
Net cash used in operating activities (164,682) (59,629)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (66,889) (78,701)
Cash distributions from local partnerships 10,388 879,880
Maturities/redemptions and sales of bonds 1,100 2,463
--------- ---------
Net cash provided by (used in) investing activities (55,401) 803,642
--------- ---------
Net increase (decrease) in cash and cash equivalents (220,083) 744,013
Cash and cash equivalents at beginning of period 775,452 10,520
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 555,369 $ 754,533
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds, net $ 37,522 $ 70,848
========= =========
- --------------------------------------------------------------------------------
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)
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
2003 2002
---------- ---------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED
IN OPERATING ACTIVITIES
Net income (loss) $(582,699) $ 448,894
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Equity in loss of investment in local partnerships 409,958 196,707
Distributions from local partnerships classified
as other income (388) (32,272)
Gain on disposal of local partnership interest (732,000)
Amortization of net premium on investments in bonds 890 1,132
Accretion of zero coupon bonds (9,637) (9,744)
Prepaid expenses (8,045)
Decrease in interest receivable 4,478 9,546
Increase in payable to general partner and
affiliates 86,639 128,814
Decrease in accounts payable and accrued expenses (65,878) (63,706)
Decrease in other liabilities (7,000)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES $(164,682) $ (59,629)
========= =========
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 2003
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information. They do not include all
information and footnotes required by accounting principles generally
accepted in the United States of America 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 June 29, 2003 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 months ended June 29, 2003 are not
necessarily indicative of the results that may be expected for the entire
year.
2. Investments in Bonds
As of June 29, 2003 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 $ 200,313 $ 7,725 $ -- $ 208,038
After one year through five years 1,451,932 116,739 -- 1,568,671
---------- ---------- ---------- ----------
1,652,245 124,464 -- 1,776,709
---------- ---------- ---------- ----------
U.S. Treasury debt securities
After one year through five years 688,192 90,215 -- 778,407
---------- ---------- ---------- ----------
U.S. government and agency securities
After one year through five years 3,752 80 -- 3,832
---------- ---------- ---------- ----------
$2,344,189 $ 214,759 $ -- $2,558,948
========== ========== ========== ==========
7
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$46,518,036, which amount includes advances made to certain Local
Partnerships. As of March 31, 2003, the Local Partnerships have outstanding
mortgage loans payable totaling approximately $85,404,000 and accrued
interest payable on such loans totaling approximately $7,695,000, which are
secured by security interests and liens common to mortgage loans on the Local
Partnerships' real property and other assets.
For the three months ended June 29, 2003, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of
March 30, 2003 $ 7,532,015
Advances to Local Partnerships 66,889
Equity in loss of investment in local
partnerships (409,958)*
Cash distributions received from Local
Partnerships (10,388)
Cash distributions classified as other income
from local partnerships 388
-----------
Investment in local partnerships as of
June 29, 2003 $ 7,178,946
===========
*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 $745,163 for the
three months ended March 31, 2003 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 March
31, 2003 and December 31, 2002 and the combined unaudited statements of
operations of the Local Partnerships for the three months ended March 31,
2003 and 2002 are reflected on pages 9 and 10, respectively.
8
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of March 31, 2003
and December 31, 2002 are as follows:
March 31, December 31,
2003 2002
------------- -------------
ASSETS
Cash and cash equivalents $ 1,608,606 $ 1,820,263
Rents receivable 475,629 426,140
Escrow deposits and reserves 6,293,895 6,047,039
Land 3,930,673 3,930,673
Buildings and improvements (net of
accumulated depreciation of $66,113,948
and $64,933,253) 77,713,297 78,780,411
Intangible assets (net of accumulated
amortization of $1,422,239 and $1,382,176) 1,287,635 1,327,698
Other assets 1,448,117 1,425,671
------------- -------------
$ 92,757,852 $ 93,757,895
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 2,250,080 $ 2,014,029
Due to related parties 3,902,220 3,805,439
Mortgage loans 85,403,884 85,746,594
Notes payable 1,224,741 1,259,422
Accrued interest 7,694,765 7,515,988
Other liabilities 765,068 700,106
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101,240,758 101,041,578
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Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of distributions 44,852,362 44,786,623
Cumulative loss (36,521,382) (36,111,424)
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8,330,980 8,675,199
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General partners and other limited partners
Capital contributions, net of distributions 3,054,769 3,072,216
Cumulative loss (19,868,655) (19,031,098)
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(16,813,886) (15,958,882)
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(8,482,906) (7,283,683)
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$ 92,757,852 $ 93,757,895
============= =============
9
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
months ended March 31, 2003 and 2002 are as follows:
2003 2002
----------- ----------
REVENUE
Rental $ 5,432,237 $ 5,412,543
Interest and other 137,985 154,869
----------- -----------
Total Revenue 5,570,222 5,567,412
----------- -----------
EXPENSES
Administrative 947,971 903,600
Utilities 1,134,117 956,881
Operating and maintenance 1,220,123 1,159,306
Taxes and insurance 842,606 695,473
Financial 1,451,105 1,538,553
Depreciation and amortization 1,221,815 1,210,573
----------- -----------
Total Expenses 6,817,737 6,464,386
----------- -----------
NET LOSS $(1,247,515) $ (896,974)
=========== ===========
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties II L.P. $ (409,958) $ (196,707)
General partners and other limited
partners, which includes $745,163 and
$601,705 of Partnership loss in excess of investment (837,557) (700,267)
----------- -----------
$(1,247,515) $ (896,974)
=========== ===========
The combined results of operations of the Local Partnerships for the three
months ended March 31, 2003 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)
JUNE 29, 2003
(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 September 30, 2003. Under the terms of the Funding
Agreements, the Partnership has advanced $339,549 as of June 29, 2003, of
which $48,399 was advanced during the three 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.
The Partnership advanced $18,490 during the three months ended June 29, 2003
to College Avenue Apartments Limited Partnership to fund operating deficits.
Cumulative advances as of June 29, 2003 are $46,280. 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, 2003 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, 2003 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
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Material Changes in Financial Condition
- ---------------------------------------
As of June 29, 2003, American Tax Credit Properties II L.P. (the "Registrant")
has not experienced a significant change in financial condition as compared to
March 30, 2003. 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") which qualify for the
low-income tax credit in accordance with Section 42 of the Internal Revenue Code
(the "Low-income Tax Credit"). During the three months ended June 29, 2003,
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). Cash and cash equivalents and investments in bonds
decreased, in the aggregate, by approximately $175,000 during the three months
ended June 29, 2003 (which includes a net unrealized gain on investments in
bonds of approximately $38,000, amortization of net premium on investments in
bonds of approximately $1,000 and accretion of zero coupon bonds of
approximately $10,000). 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
three months ended June 29, 2003, the investment in local partnerships decreased
as a result of Registrant's equity in the Local Partnerships' net loss for the
three months ended March 31, 2003 of $409,958 and cash distributions received
from Local Partnerships of $10,000 (exclusive of distributions from Local
Partnerships of $388 classified as other income), partially offset by advances
to Local Partnerships of $66,889 (see discussion below under Local Partnership
Matters). Accounts payable and accrued expenses includes deferred administration
fees of $568,740, and payable to general partner represents deferred
administration and management fees in the accompanying balance sheet as of June
29, 2003.
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 June 29, 2003 and 2002
resulted in net income (loss) of $(582,699) and $448,894 respectively. The
increase in net loss from fiscal 2002 to fiscal 2003 is primarily attributable
to (i) gain on disposal of local partnership interest of $732,000 in connection
with Forest Village Housing Partnership in fiscal 2002, (ii) an increase in
equity in loss of investment in local partnerships of approximately $213,000,
which increase is primarily the result of an increase in the net operating
losses of certain Local Partnerships in which Registrant continues to have an
investment balance, (iii) the filing fee charged to partnerships in the State of
New Jersey in fiscal 2003 of approximately $21,000 and (iv) a decrease in other
income from local partnerships of approximately $32,000. Other comprehensive
income for the three months ended June 29, 2003 and 2002 resulted from a net
unrealized gain on investments in bonds of $37,522 and $70,848, 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' net loss of approximately $1,248,000 for the three
months ended March 31, 2003 was attributable to rental and other revenue of
approximately $5,570,000, exceeded by operating and interest expenses (including
interest on non-mandatory debt) of approximately $5,596,000 and approximately
$1,222,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $897,000 for the three months ended March 31, 2002 was
attributable to rental and other revenue of approximately $5,567,000, exceeded
by operating and interest expenses (including interest on non-mandatory debt) of
approximately $5,253,000 and approximately $1,211,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended March 31, 2003 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 was 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.
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 a reduction in funds
available for the various federal and state administered housing programs
including the Section 8 program. 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.
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 three months ended March 31, 2003, revenue
from operations of the Local Partnerships has generally been sufficient to cover
operating expenses and Mandatory Debt Service. Most 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.
13
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
-----------------------------------------------------------------------
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, would likely have been 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 September 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 $93,000, excluding accrued management fees of approximately
$10,000, for the three months ended March 31, 2003. Under the terms of the
Funding Agreements, Registrant has advanced $339,549 as of June 29, 2003, of
which $48,399 was advanced during the three 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 $8,000 for the three months ended
March 31, 2003, which includes property management fees of approximately $3,000.
Registrant has made cumulative advances to College Avenue of $46,280 as of June
29, 2003, of which $18,490 was advanced during the three 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.
During the three months ended March 31, 2003, Ann Ell Apartments Associates,
Ltd. ("Ann Ell") reported an operating deficit of approximately $12,000.
Registrant has made cumulative advances to Ann Ell of $439,545 as of June 29,
2003. 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.
The Local General Partner of Hill Com I Associates Limited Partnership ("Hill
Com I"), has reported that, on April 30, 2003, Hill Com I sold 13 of its 67
dwelling units under the threat of eminent domain by the Urban Renewal
Development Agency of Philadelphia, Pennsylvania. The sale occurred without
Registrant's knowledge and will result in the recapture of Low-income Tax
Credits and interest under Section 42 of the Internal Revenue Code in the amount
of approximately $1 per Unit for those holding Units as of such date. Registrant
is exploring the feasibility of obtaining monetary compensation from the Local
General Partner in an attempt to minimize any adverse tax consequences resulting
from the sale. Hill com I generated approximately $2.9 per Unit per year to the
limited partners upon the expiration of its Low-income Tax Credit allocation in
2000.
The terms of the partnership agreement of Hill Com II Associates Limited
Partnership ("Hill Com II") require the management agent to defer property
management fees in order to avoid a default under the mortgage. During the three
months ended March 31, 2003, Hill Com II incurred an operating deficit of
approximately $37,000, which includes property management fees of approximately
$5,000. Payments on the mortgage and real estate taxes are current. Hill com II
generated approximately $2.3 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)
-----------------------------------------------------------------------
The terms of the partnership agreement of Harborside Housing Limited Partnership
("Harborside") require the management agent to defer property management fees in
order to avoid a default under the mortgage. During the three months ended March
31, 2003, Harborside incurred an operating deficit of approximately $106,000,
which includes property management fees of approximately $31,000. Payments on
the mortgage and real estate taxes are current. Harborside generated
approximately $6.1 per Unit per year to the limited partners upon the expiration
of its Low-income Tax Credit allocation in 2000.
The terms of the partnership agreement of Queen Lane Investors ("Queen Lane")
require the management agent to defer property management fees in order to avoid
a default under the mortgage. During the three months ended March 31, 2003,
Queen Lane incurred an operating deficit of approximately $15,000, which
includes property management fees of approximately $3,000. Payments on the
mortgage and real estate taxes are current. Queen Lane generated approximately
$1.9 per Unit per year to the limited partners upon the expiration of its
Low-income Tax Credit allocation in 2001.
The terms of the partnership agreement of Powelton Gardens Associates
("Powelton") require the local general partners to fund all operating deficits
through the Compliance Period. Although Powelton reported positive operations
for the three months ended March 31, 2003, Powelton remains approximately two
months in arrears on its Mandatory Debt Service, including escrow and
replacement reserve deposits. The local general partner has reported that the
lender has not declared a default as a result of the arrearage and that payments
on the real estate taxes are current. Registrant's investment balance in
Powelton, after cumulative equity losses, became zero during the year ended
March 30, 2002. Powelton generated approximately $2.6 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 does
not 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.
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 and
the associated bond rating. 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.
15
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 4. Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, Registrant's Chief
Executive Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of Registrant'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, Registrant's Chief Executive Officer
and Chief Financial Officer have concluded that as of the date of the
evaluation, Registrant's disclosure controls and procedures were adequate and
effective in timely alerting them to material information relating to
Registrant required to be included in Registrant's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in Registrant's internal controls or in
other factors that could significantly affect 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: August 13, 2003 /s/ David Salzman
----------------------------
by: David Salzman
Chief Executive Officer
Dated: August 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 of American Tax Credit
Properties II L.P.
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant'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 registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); 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 registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant'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 registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant'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 registrant's internal
controls; and
6. The registrant'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 date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 13, 2003 /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 Registrant
19
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Tax Credit
Properties II L.P.
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); 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 registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant'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 registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant'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 registrant's internal
controls; and
6. The registrant'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 date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 13, 2003 /s/ Neal Ludeke
-------------------------------
Neal Ludeke
Chief Financial Officer of
Richman Tax Credits Inc., general
partner of Richman Tax Credit
Properties II L.P., general
partner of the Registrant
20