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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended December 31, 2002
Commission file number 33-24537
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4178283
(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
1925 Century Park East, Suite 1900
Los Angeles, CA 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(800) 262-8242
No Change
(Former name, former address and former fiscal year if changed
since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements and Supplementary
Data ...................................................... 3
Item 2 Management's Discussion and Analysis
Of Financial Condition and Results of
Operations ............................................... 10
Item 3 Quantitative and Qualitative Disclosures
About Market Risk ........................................ 12
Item 4 Controls and Procedures .................................. 12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K ......................... 12
SIGNATURE
CERTIFICATIONS
EXHIBITS
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
BALANCE SHEET
(Unaudited)
December 31, March 31,
2002 2002
----------- -----------
ASSETS
Cash $ 0 $ 47
Advance to General Partners 871 871
Investments in Limited
Partnerships (Note 4) 0 0
----------- -----------
$ 871 $ 918
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Accounts Payable and Accrued Expenses $ 2,500 $ 4,171
Amounts Payable to Related Parties
(Note 3) 2,092,603 2,063,149
Advance from Affiliates 40,594 40,594
----------- -----------
2,135,697 2,107,914
----------- -----------
Commitments and Contingencies
Partners' Equity (Deficit),per
accompanying statement
General Partners (70,402) (70,124)
Limited Partners,$1,000
stated value per unit,
25,000 units authorized,
5,754 units issued and
outstanding (2,064,424) (2,036,872)
----------- -----------
(2,134,826) (2,106,996)
----------- -----------
$ 871 $ 918
=========== ===========
The accompanying notes are an integral part of this statement.
3
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
REVENUES:
Other income $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
0 0 0 0
-------- -------- -------- --------
EXPENSES:
General & Adm. (Note 3) 8,984 9,446 27,830 28,356
Equity in Net Losses of
Operating Partnership
(Note 4) 0 0 0 0
-------- -------- -------- --------
8,984 9,446 27,830 28,356
-------- -------- -------- --------
Net Loss $ (8,984) $ (9,446) $ 27,830) $(28,356)
======== ======== ======== ========
Allocation of net Loss
General Partners $ (90) $ (94) $ (278) $ (283)
Limited Partners (8,894) (9,352) (27,552) (28,073)
-------- -------- -------- --------
$ (8,984) $ (9,446) $(27,830) $(28,356)
======== ======== ======== ========
Net Loss Per Unit of
Limited Partnership Interest $ (2) $ (2) $ (5) $ (5)
======== ======== ======== ========
Average Number of Units
Outstanding 5,754 5,754 5,754 5,754
======== ======== ======== ========
The accompanying notes are an integral part of this statement.
4
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
December 31, 2002
(Unaudited)
General Limited
Partners Partners Total
----------- ----------- -----------
Balance at March 31, 2002 $ (70,124) $(2,036,872) $(2,106,996)
Net Loss (278) (27,552) (27,830)
----------- ----------- -----------
Equity (Deficit) at
December 31, 2002 $ (70,402) $(2,064,424) $(2,134,826)
=========== =========== ===========
Percentage Interest
December 31, 2002 1% 99% 100%
=========== =========== ===========
The accompanying notes are an integral part of this statement.
5
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
2002 2001
-------- --------
Cash Flow from Operating Activities
Net Loss $(27,830) $(28,356)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Equity in net losses of
operating partnerships - -
Change in assets and liabilities:
Decrease in accounts payable
and accrued expenses (1,671) (2,312)
Increase in due to affiliates 29,454 28,200
-------- --------
Net Cash Used in Operating
Activities $ (47) $ (2,468)
-------- --------
Net Decrease in Cash and Cash
Equivalents $ (47) $ (2,468)
Cash at Beginning of Period 47 3,433
-------- --------
Cash at End of Period $ 0 $ 965
======== ========
The accompanying notes are an integral part of this statement.
6
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
a California limited partnership
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PARTNERSHIP AND ITS ORGANIZATION:
Century Pacific Tax Credit Housing Fund II, a California limited partnership
(the "Partnership" or "CPTCHF II") was formed on September 2, 1988 for the
purpose of raising capital and selling limited partnership interests and then
acquiring limited partnership interests in partnerships (the "Operating
Partnerships") owning and operating existing residential apartment properties
(the "Properties").
The general partners of the Partnership are Century Pacific Capital II
Corporation, a California corporation, ("CPII") and Irwin Jay Deutch, an
individual (collectively, the "General Partners"). The General Partners and
affiliates of the General Partners (the "General Partners and Affiliates") have
interest in the Partnership and receive compensation from the Partnership and
the Operating Partnerships (Note 3).
The Properties qualify for the "Low-Income Housing Tax Credit" established by
Section 42 of the Tax Reform Act of 1986 (the "Low-Income Housing Tax Credit").
These properties are leveraged low-income multifamily residential complexes and
some receive one or more forms of assistance from federal, state or local
governments, or agencies (the "Government Agencies") while others do not receive
any subsidy from Government Agencies although some may have mortgage loans
insured by a Government Agency.
In September 1988, the Partnership began raising capital from sales of limited
partnership interests, at $1,000 per unit. The limited partnership offering
closed as of December 31, 1989, with 5,754 units having been sold.
As of December 31, 2002, the Partnership has acquired limited partnership
interest of 90% in Washington Courts Limited Partnership and 60% in
Laurel-Clayton Limited Partnership, two existing Operating Partnerships which
own apartment rental properties.
Basis of Presentation
The accompanying unaudited financial statements of Century Pacific Tax Credit
Housing Fund II (the "Partnership") as of December 31, 2002 and March 31, 2002
(the March 31, 2002 financial information included herein has been extracted
from the Partnership's audited financial statements on Form 10-K) and for the
three and nine months ended December 31, 2002 have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X under the Securities and Exchange Act of 1934.
Accordingly, they do not include all of the information
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and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of the
Partnership's management, all adjustments (consisting of only normal recurring
adjustments) considered necessary to present fairly the financial statements
have been made.
The statement of operations for the three and nine months ended December 31,2002
are not necessarily indicative of the results that may be expected for the
entire year. These statements should be read in conjunction with the financial
statements and related notes thereto included on Form 10-K for the year ended
March 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Method of Accounting for Investments in Operating Partnerships
The Partnership uses the equity method to account for its investment in the
Operating Partnerships in which it has invested (Note 4).
Under the equity method of accounting, the investment is carried at cost and
adjusted for the Partnership's share of the Operating Partnerships' results of
operations and by cash distributions received. Equity in the loss of each
Operating Partnership allocated to the Partnership is not recognized to the
extent that the investment balance would become negative.
Basis of Accounting
The Partnership maintains its financial records on the tax basis. Memorandum
entries, while not recorded in the records of the Partnership, have been made in
the financial statements to reflect accounting principles generally accepted in
the United States of America.
On August 7, 1991, management of the Partnership changed from a calendar year
end to a fiscal year end of March 31 for financial reporting purposes.
Accordingly, the Partnership's quarterly periods end June 30, September 30, and
December 31. The Operating Partnerships, for financial reporting purposes, have
a calendar year. The Partnership, as well as the Operating Partnerships, have a
calendar year for income tax purposes.
Syndication Costs
Public offering costs have been recorded as a direct reduction to the capital
accounts of the Limited Partners.
Organization, Acquisition and Other Costs
Costs incurred in organizing the Partnership and expenditures made by the
Partnership in connection with its acquiring limited partnership interest in
Operating Partnerships are deferred and amortized over a period of sixty months
on a straight-line basis
8
or capitalized as investments in Operating Partnerships. Other fees and expenses
of the Partnership are recognized as expenses in the period the related services
are received.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements since such taxes and/or the recapture of the Low-Income Housing Tax
Credits benefits received, if any, are the liability of the individual partners.
The Partnership uses the accrual method of accounting for tax purposes.
NOTE 3 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES OF THE GENERAL
PARTNERS:
The General Partners of the Partnership are CPII and Irwin Jay Deutch.
Century Pacific Placement Corporation ("CPPC"), an affiliate of the General
Partners, served as the broker-dealer-manager for sales of the limited
partnership interests in the Partnership. Century Pacific Realty Corporation
("CPRC"), an affiliate of CPII, is a general partner in each of the Operating
Partnerships. The General Partners have an aggregate one percent interest in the
Partnership. CPRC has a one-half percent interest in each of the Operating
Partnerships.
The General Partners and their Affiliates receive compensation and reimbursement
of expenses from the Partnership, as set forth in the limited partnership
agreement, for their services in managing the Partnership and its business.
Pursuant to the partnership agreement, the Partnership is required to pay CPII
an annual Management Fee for its services in connection with the management
affairs of the Partnership. The annual Management Fee is equal to .5% of
Invested Assets (as defined by the partnership agreement). The General Partners
and Affiliates also receive compensation and reimbursement of expenses from the
Operating Partnerships. This compensation and reimbursement include services
provided to the Partnership during its offering stage, acquisition stage and
operational stage.
NOTE 4 - INVESTMENTS IN OPERATING PARTNERSHIPS:
The following is a summary of the Partnership's investments in Operating
Partnerships:
December 31,
2002 March 31, 2002
------------ --------------
Cash Contribution to Operating
Partnerships to fund purchase of
beneficial interest in Properties $ 4,536,020 $ 4,536,020
Equity in net losses of Operating
Partnerships (4,536,020) (4,536,020)
------------ ------------
$ 0 $ 0
=========== ============
9
The Properties in which the Operating Partnerships hold beneficial interests are
as follows:
Name of
Operating Partnership Property Name Location
- --------------------- ----------------- -----------------
Washington Courts, L.P. Washington Courts Chicago, Illinois
Laurel-Clayton, L.P. Plumley Village Worcester, Massachusetts
The following combined statement of operations is prepared on the accrual basis
and summarizes the operations of the Operating Partnerships for the three months
ended December 31, 2002 and December 31, 2001 and for the nine months ended
December 31, 2002 and December 31, 2001.
COMBINED STATEMENT OF OPERATIONS OF PROPERTIES
ACQUIRED BY THE OPERATING PARTNERSHIPS IN WHICH
CENTURY PACIFIC TAX CREDIT HOUSING FUND II HAS INVESTED
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
REVENUES:
Rental Income $ 1,333,243 $ 1,370,365 $ 4,017,728 $ 4,037,382
Other 35,899 30,266 113,658 82,330
----------- ----------- ----------- -----------
1,369,142 1,400,631 4,131,386 4,119,712
----------- ----------- ----------- -----------
EXPENSES:
Operating, General
and Administrative 910,008 1,084,607 3,054,311 3,209,042
Depreciation 269,303 263,891 807,909 791,673
Interest 115,451 115,451 346,353 346,353
----------- ----------- ----------- -----------
1,294,762 1,463,949 4,208,573 4,347,068
----------- ----------- ----------- -----------
Net Income (Loss) $ 74,381 $ (63,318) $ (77,187) $ (227,356
=========== =========== =========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Results of Operations
PLUMLEY VILLAGE - Worcester, Massachusetts
Plumley Village consists of 430 units situated on approximately 16 acres of land
adjacent to Downtown Worcester. There is one 16 story high-rise and three
low-rise structures on the site. The property has good freeway access and is
convenient to stores, churches and hospitals.
10
The property is 100% occupied during the quarter. Cash flow was sufficient to
cover operating expenses. Property rents were last increased in October 2002,
bringing the annual gross potential rental revenue to approximately $4,582,104.
WASHINGTON COURTS - Chicago, Illinois
Washington Courts consists of 103 units on several sites in the Austin
neighborhood of Chicago. The property is convenient to banks, schools, churches
and commercial areas.
The property averaged a 90% occupancy rate during the quarter. Cash flow was
sufficient to cover operating expenses. Property rents were adjusted in
September 1998, with an annual gross potential rental revenue of approximately
$1,045,728.
Liquidity and Capital Resources
The Partnership is currently experiencing a liquidity problem. Under the
Partnership Agreement, the Partnership is entitled to receive distributions of
surplus cash from the Operating Partnerships, which is to provide the funds
necessary for the Partnership to meet its administrative expenses and pay the
Partnership management fee. At the present time, the Operating Partnerships have
not generated sufficient cash distributions to fund the Partnership's expenses.
As a result of the foregoing, the Partnership has been dependent upon its
affiliates and the General Partners for continued financial support to meet its
expenses. Though, there can be no assurance, management believes that affiliates
and/or the General Partners, though not required to do so, will continue to fund
operations of the Partnership and defer receipt of payment of allocated overhead
administrative expenses and partnership management fees. Allocated
administrative expenses paid or accrued to affiliates and the General Partners
represent reimbursement of the actual cost of goods and materials used for or by
the Partnership, salaries, related payroll costs and other administrative items
incurred or allocated, and direct expenses incurred in rendering legal,
accounting/bookkeeping, computer, printing and public relations services. Items
excluded from the overhead allocation include overhead expenses of the General
Partners, including rent and salaries of employees not specifically performing
the services described above. Unpaid allocated administrative expenses and
partnership management fees, an annual amount up to .5% of invested assets, will
accrue for payment in future operating years.
The Partnership is not expected to have access to any significant sources of
financing. Accordingly, if unforeseen contingencies arise that cause an
Operating Partnership to require additional capital to sustain operations, in
addition to that previously contributed by the Partnership, the source of the
required capital needs may be from (i) limited reserves from the Partnership
(which may include distributions received from Operating Partnerships that would
otherwise be available for distribution to partners), (ii) debt financing at the
Operating Partnership level (which may not be available), or
11
(iii) additional equity contributions from the general partner of the Operating
Partnerships (which may not be available). There can be no assurance that any of
these sources would be readily available to provide for possible additional
capital requirements, which may be necessary to sustain the operations of the
Operating Partnerships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Due to the nature of our foregoing operations, we have concluded that there
is no material market risk exposure and, therefore, no quantitative tabular
disclosures are required.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Partnership's Chief Executive Officer and Chief Financial Officer
have reviewed and evaluated the effectiveness of the Partnership's disclosure
controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and
15d-14(c) as of a date within ninety days before the filing date of this
quarterly report. Based on that evaluation, they have concluded that the
Partnership's current disclosure controls and procedures are effective in timely
providing them with material information relating to the Partnership required to
be disclosed in the reports the Partnership files or submits under the Exchange
Act.
(b) Changes in Internal Controls
There have not been any significant changes in the Partnership's
internal controls or in other factors that could significantly affect these
controls subsequent to February 11, 2003, the date of evaluation. There were no
significant deficiencies or material weaknesses, and, therefore, no corrective
actions were taken.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
We have listed the exhibits by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K on the Exhibit list attached to this report.
(b) Reports on Form 8-K
None
12
* * * SIGNATURE * * *
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 11, 2003 CENTURY PACIFIC TAX CREDIT HOUSING FUND II
a California limited partnership
By: Century Pacific Capital II Corporation,
a California Corporation
General Partner
By: /s/Irwin J. Deutch
--------------------------
Irwin J. Deutch, President
* * * CERTIFICATIONS * * *
I, Irwin J. Deutch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Century
Pacific Tax Credit Housing Fund II;
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 statement
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 officers 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
13
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 officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
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 officers 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: February 11, 2003
/s/ Irwin J. Deutch
--------------------------
Irwin J. Deutch, President,
Chief Executive Officer
* * * CERTIFICATIONS * * *
I, Essie Safaie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Century
Pacific Tax Credit Housing Fund II;
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 statement
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
14
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers 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 officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
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 officers 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: February 11, 2003
/s/ Essie Safaie
-----------------------------
Essie Safaie, Chief Financial
Officer
15
EXHIBITS
Exhibit Description
Number -----------
- ------
99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
*Filed herewith
16