Attached files
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
---------------------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2009
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
COMMISSION FILE NUMBER 0-11973
---------------------------
CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP
Maryland 52-1321492
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
(Address of principal executive offices) (Zip Code)
(301) 468-9200
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
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CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- September 30, 2009 and December 31, 2008................... 1
Statements of Operations and Accumulated Losses
- for the three and nine months ended September 30, 2009
and 2008................................................... 2
Statements of Cash Flows
- for the nine months ended September 30, 2009 and 2008...... 3
Notes to Financial Statements
- September 30, 2009 and 2008................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Item 4. Controls and Procedures........................................ 13
Part II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities................................ 14
Item 5. Other Information.............................................. 14
Item 6. Exhibits....................................................... 15
Signature............................................................... 16
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
2009 2008
------------ ------------
(Unaudited)
Investment in partnership held for sale or transfer ............................... $ 388,949 $ 436,484
Cash and cash equivalents ......................................................... 1,466,706 4,137,701
Other assets ...................................................................... -- 4,559
------------ ------------
Total assets .................................................................. $ 1,855,655 $ 4,578,744
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investment in partnership .................................................. $ 1,400,000 $ 1,400,000
Accrued interest payable .......................................................... 3,350,762 3,256,262
Accounts payable and accrued expenses ............................................. 73,834 64,927
------------ ------------
Total liabilities ............................................................. 4,824,596 4,721,189
------------ ------------
Commitments and contingencies
Partners' deficit:
Capital paid in:
General Partners .............................................................. 2,000 2,000
Limited Partners .............................................................. 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000
------------ ------------
Less:
Accumulated distributions to partners ........................................... (36,998,853) (34,752,903)
Offering costs .................................................................. (5,278,980) (5,278,980)
Accumulated losses .............................................................. (10,708,108) (10,127,562)
------------ ------------
Total partners' deficit ....................................................... (2,968,941) (142,445)
------------ ------------
Total liabilities and partners' deficit ....................................... $ 1,855,655 $ 4,578,744
============ ============
The accompanying notes are an integral part
of these financial statements.
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Share of loss from partnership .................. $ (7,337) $ (28,732) $ (37,297) $ (31,522)
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest .................................... 847 27,548 12,193 103,362
------------ ------------ ------------ ------------
Expenses:
General and administrative .................. 67,308 39,331 204,158 168,999
Management fee .............................. 62,499 62,499 187,497 187,497
Interest .................................... 31,500 31,500 94,500 94,500
Professional fees ........................... 11,400 10,941 59,049 57,291
Amortization ................................ -- -- 10,238 --
------------ ------------ ------------ ------------
172,707 144,271 555,442 508,287
------------ ------------ ------------ ------------
Total other revenue and expenses .......... (171,860) (116,723) (543,249) (404,925)
------------ ------------ ------------ ------------
Net loss ........................................ (179,197) (145,455) (580,546) (436,447)
Accumulated losses, beginning of period ......... (10,528,911) (9,943,779) (10,127,562) (9,652,787)
------------ ------------ ------------ ------------
Accumulated losses, end of period ............... $(10,708,108) $(10,089,234) $(10,708,108) $(10,089,234)
============ ============ ============ ============
Net loss allocated
to General Partners (1.51%) ................... $ (2,706) $ (2,196) $ (8,766) $ (6,590)
============ ============ ============ ============
Net loss allocated
to Initial and Special Limited Partners (1.49%) $ (2,670) $ (2,167) $ (8,650) $ (6,503)
============ ============ ============ ============
Net loss allocated
to Additional Limited Partners (97%) .......... $ (173,821) $ (141,092) $ (563,130) $ (423,354)
============ ============ ============ ============
Net loss per unit of
Additional Limited Partner Interest,
based on 49,910 units outstanding ............. $ (3.48) $ (2.83) $ (11.28) $ (8.48)
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
-2-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
---------------------------
2009 2008
------------ ------------
Cash flows from operating activities:
Net loss .................................................................. $ (580,546) $ (436,447)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of loss from partnerships ......................................... 37,297 31,522
Amortization of deferred costs .......................................... 10,238 --
Changes in assets and liabilities:
Decrease in other assets .............................................. 4,559 22,718
Increase in accrued interest payable .................................. 94,500 94,500
Increase (Decrease) in accounts payable and accrued expenses .......... 8,907 (65,401)
----------- -----------
Net cash used in operating activities ............................... (425,045) (353,108)
----------- -----------
Cash flows from financing activities:
Distribution paid to Limited Partners ................................. (2,245,950) --
----------- -----------
Net decrease in cash and cash equivalents ................................... (2,670,995) (353,108)
Cash and cash equivalents, beginning of period .............................. 4,137,701 4,588,111
----------- -----------
Cash and cash equivalents, end of period .................................... $ 1,466,706 $ 4,235,003
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-3-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-II Limited Partnership (the Partnership) as
of September 30, 2009, and the results of its operations for the three and nine
month periods ended September 30, 2009 and 2008, and its cash flows for the nine
month periods ended September 30, 2009 and 2008. The results of operations for
the interim period ended September 30, 2009, are not necessarily indicative of
the results to be expected for the full year
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America (US GAAP) and with the instructions to Form 10-Q. Certain information
and accounting policies and footnote disclosures normally included in financial
statements prepared in conformity with US GAAP have been condensed or omitted
pursuant to such instructions. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's annual report on Form 10-K at December 31, 2008.
2. NEW ACCOUNTING PRONOUNCEMENTS
On July 1, 2009, the Partnership adopted Financial Accounting Standards
Board Accounting Standards Codification ("ASC"), which establishes the ASC as
the source of authoritative accounting principles to be applied in preparation
of financial statements in conformity with US GAAP. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows.
On January 1, 2009, the Partnership adopted the new accounting standard
which requires adoption of the fair value standards in the ASC for nonfinancial
assets and nonfinancial liabilities. The adoption did not have a material impact
on the financial position, results of operations or cash flows.
During the quarter ended June 30, 2009, the Partnership adopted the new
accounting standard which requires disclosure regarding the fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.
The ASC establishes a hierarchy for inputs used in measuring fair value as
follows:
1. Level 1 Inputs -- quoted prices in active markets for identical assets
of liabilities.
2. Level 2 Inputs -- observable inputs other than quoted prices in active
markets for identical assets and liabilities.
3. Level 3 Inputs -- unobservable inputs.
-4-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
2. NEW ACCOUNTING PRONOUNCEMENTS - Continued
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value
measurement.
The Partnership has determined that the fair value of the purchase money
note is de minimus as the note is secured by limited partnership interests only,
is non-recourse to the Partnership and is in default.
The balance sheet carrying amount for cash and cash equivalents
approximates their fair value.
The ASC establishes general standards of accounting and disclosure of
events that occur after the balance sheet date but before the Partnership issues
financial statements or has them available to issue. The ASC defines (i) the
period after the balance sheet date during which a reporting entity's management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet date.
The guidance became effective for periods ending after June 15, 2009. Subsequent
events have been evaluated through November 12, 2009, which is the issue date of
the financial statements. The adoption of the guidance did not have a material
impact on the financial position, results of operations or cash flows.
The balance sheet carrying amount for cash and cash equivalents
approximates their fair value.
3. PLAN OF LIQUIDATION AND DISSOLUTION
On February 4, 2004, the Partnership filed a Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it
to limited partners to solicit consents for approval of the following:
(1) The sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution, and the
amendment of the Partnership's Limited Partnership Agreement to permit the
Managing General Partner, CRI, to be eligible to receive increased property
disposition fees from the Partnership on the same basis as such fees may
currently be paid to Local General Partners, real estate brokers or other
third party intermediaries employed to sell Partnership properties, to the
extent that CRI markets and sells the Partnership's properties instead of
such persons (a "Disposition Fee");
-5-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
3. PLAN OF LIQUIDATION AND DISSOLUTION - Continued
(2) The amendment of the Partnership's Limited Partnership Agreement to permit
CRI to be eligible to receive a partnership liquidation fee in the amount
of $500,000, payable only if the Managing General Partner is successful in
liquidating all of the Partnership' s investments within 36 months from the
date the liquidation is approved [March 22, 2004], in recognition that one
or more of the properties in which the Partnership holds an interest might
not be saleable to parties not affiliated with the respective Local
Partnership due to the amount and/or terms of their current indebtedness
(the "Partnership Liquidation Fee"); and
(3) To authorize the Managing General Partner, in its sole discretion, to elect
to extend the period during which Consents of Limited Partners may be
solicited and voted, but not beyond sixty (60) days from the date that the
Consent Solicitation Statement was sent to the Limited Partners.
The matters for which consent was solicited are collectively referred to as the
"Liquidation."
The record date for voting was December 31, 2003, and the final voting
deadline was March 22, 2004. A tabulation of votes received by the voting
deadline follows.
FOR AGAINST ABSTAIN TOTAL
----------------- ----------------- ------------------ -----------------
Units of Units of Units of Units of
limited limited limited limited
partner partner partner partner
Description interest Percent interest Percent interest Percent interest Percent
----------- -------- ------- -------- ------- -------- ------- -------- -------
Sale, dissolution and
five percent
Disposition Fee 28,699 57.6% 1,264 2.5% 268 0.5% 30,231 60.6%
$500,000 Partnership
Liquidation Fee 25,841 51.8% 3,546 7.1% 844 1.7% 30,231 60.6%
Extension of
solicitation per 27,975 56.1% 1,767 3.5% 489 1.0% 30,231 60.6%
The Partnership was not liquidated within 36 months from the approved
liquidation date of March 22, 2004, therefore no liquidation fee was taken by
the Partnership. The Managing General Partner is continuing towards liquidation
of all the Partnership's investments.
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
-6-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
4. INVESTMENT IN PARTNERSHIP
a. Due on investment in partnerships and accrued interest payable
--------------------------------------------------------------
Westgate
--------
The Partnership defaulted on its one remaining purchase money note, related
to Westgate Limited Dividend Housing Association (Westgate), on September 1,
2003, when the note (as extended) matured and was not paid. The default amount
included principal and accrued interest of $1,400,000 and $2,584,492,
respectively. As of November 12, 2009, principal and accrued interest of
$1,400,000 and $3,365,347, respectively, were due. In conjunction with the
approved Plan of Liquidation and Dissolution of the Partnership, the Managing
General Partner and the representatives of the purchase money noteholders have
signed a contract for the assignment of the Partnership's interest in Westgate
in satisfaction of the purchase money note's principal and accrued interest. The
representatives of the purchase money note holders must obtain renewal consent
to the transaction from regulatory authorities. The Michigan State Housing
Development Authority will not allow a transfer to occur prior to December 4,
2009, due to a refunding of the bonds securing the mortgage on the property
owned by the Local Partnership. The gain on this assignment would be taxed at a
federal tax rate of up to 35 percent. There can be no assurance that a transfer
of the Partnerships interest in Westgate will occur.
Interest expense on the Partnership's Westgate purchase money note was
$31,500 and $94,500 and each of the three and nine month periods ended September
30, 2009 and 2008. The accrued interest payable on the purchase money note of
$3,350,762 and $3,256,262 as of September 30, 2009 and December 31, 2008,
respectively, is in default.
Due to the likelihood of the transfer of Westgate, the Partnership's basis
in the Local Partnership, along with the net unamortized amount of acquisition
fees and property purchase costs, which totaled $388,949 and $436,484 as of
September 30, 2009 and December 31, 2008, respectively, has been reclassified to
investment in partnership held for sale or transfer in the accompanying balance
sheets.
b. Asset held for sale or transfer
-------------------------------
Westgate
--------
See Note 4.a., above.
-7-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
4. INVESTMENT IN PARTNERSHIP - Continued
c. Summarized financial information
--------------------------------
Statements of operations for the one Local Partnership in which the
Partnership was invested as of September 30, 2009 and 2008 follow. The
statements have been compiled from information supplied by the management agent
of the property and are unaudited. Appended after the statements is information
concerning the Partnership's share of income from the Local Partnership.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
-----------------------------
2009 2008
-------- --------
Equity Equity
Method Method
-------- --------
Number of Local Partnerships 1 1
= =
Revenue:
Rental $168,229 $164,420
Other 9,725 6,661
-------- --------
Total revenue 177,954 171,081
-------- --------
Expenses:
Operating 157,742 169,356
Interest (12,225) (9,753)
Depreciation and amortization 39,925 40,800
-------- --------
Total expenses 185,442 200,403
-------- --------
Net loss $ (7,488) $(29,322)
======== ========
Partnership's share of
Local Partnership net loss (7,337) (28,732)
-------- --------
Share of loss from partnerships $ (7,337) $(28,732)
======== ========
-8-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
4. INVESTMENT IN PARTNERSHIP - Continued
For the nine months ended
September 30,
---------------------------
2009 2008
---------- ----------
Equity Equity
Method Method
---------- ----------
Number of Local Partnerships 1 1
= =
Revenue:
Rental $ 504,840 $ 491,058
Other 26,250 39,930
---------- ----------
Total revenue 531,090 530,988
---------- ----------
Expenses:
Operating 486,054 470,016
Interest (36,676) (29,258)
Depreciation and amortization 119,774 122,399
---------- ----------
Total expenses 569,152 563,157
---------- ----------
Net loss $ (38,062) $ (32,169)
========== ==========
Partnership's share of Local
Partnership net loss $ (37,297) (31,522)
---------- ----------
Share of loss from partnerships $ (37,297) $ (31,522)
========== ==========
5. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner or its affiliates for
direct expenses in connection with managing the Partnership. The Partnership
paid $42,546 and $147,426, for the three and nine month periods ended September
30, 2009, respectively and $27,061 and $133,390 for the three and nine month
periods ended September 30, 2008, respectively. Such expenses are included in
general and administrative expenses in the accompanying statements of
operations.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to pay the Managing General Partner an annual incentive management
fee (Management Fee) after all other expenses of the Partnership are paid. The
Partnership paid the Managing General Partner a Management Fee of $62,499 for
each of the three month periods ended September 30, 2009 and 2008, and $187,497
for each of the nine month periods ended September 30, 2009 and 2008.
-9-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
5. RELATED PARTY TRANSACTIONS - Continued
Pursuant to approval of the Partnership's Consent Solicitation Statement on
March 22, 2004, the Managing General Partner is eligible to receive a fee of not
more than five percent of the sale price of an investment in a Local Partnership
or the property it owns, payable upon the sale of an investment in a Local
Partnership or the property it owns, to the extent the Managing General Partner
markets and sells a property instead of a real estate broker or unrelated Local
General Partner. The disposition fee on sales of partnership interests (as
opposed to sales of real property) is calculated as up to five percent of the
imputed sale price, which is the amount the Local Partnership's property would
have to be sold for to produce the same distribution to the investors as the
sale of the partnership interests.
In addition, the Managing General Partner was authorized pursuant to the
approved proxy statement to receive a partnership liquidation fee in the amount
of $500,000, payable only if the Managing General Partner is successful in
liquidating all of the Partnership's investments within 36 months from the date
the liquidation was approved. As the liquidation was not completed by March 22,
2007, the Managing General Partner did not earn the liquidation fee.
6. CASH DISTRIBUTION
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who were holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
7. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains two
cash accounts with the same bank. As of September 30, 2009, the uninsured
portion of the cash balances was $0.
# # #
-10-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations
Capital Realty Investors-II Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section is based on the financial statements, and contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including national and local economic
conditions, the general level of interest rates, governmental regulations
affecting the Partnership and interpretations of those regulations, the
competitive environment in which the Partnership operates, and the availability
of working capital.
Critical Accounting Policies
----------------------------
The Partnership has disclosed its selection and application of significant
accounting policies in Note 1 of the notes to financial statements included in
the Partnership's annual report on Form10-K at December 31, 2008. The
Partnership accounts for its remaining investment in partnership (Local
Partnership) using the equity method because the Partnership is a limited
partner in the Local Partnership. As such, the Partnership has no control over
the selection and application of accounting policies, or the use of estimates,
by the Local Partnership. Environmental and operational trends, events and
uncertainties that might affect the property owned by the Local Partnership
would not necessarily have a significant impact on the Partnership's application
of the equity method of accounting.
New Accounting Pronouncements
-----------------------------
On July 1, 2009, the Partnership adopted Financial Accounting Standards
Board Accounting Standards Codification ("ASC"), which establishes the ASC as
the source of authoritative accounting principles to be applied in preparation
of financial statements in conformity with US GAAP. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows.
On January 1, 2009, the Partnership adopted the new accounting standard
which requires adoption of the fair value standards in the ASC for nonfinancial
assets and nonfinancial liabilities. The adoption did not have a material impact
on the financial position, results of operations or cash flows.
During the quarter ended June 30, 2009, the Partnership adopted the new
accounting standard which requires disclosure regarding the fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.
The ASC establishes general standards of accounting and disclosure of
events that occur after the balance sheet date but before the Partnership issues
financial statements or has them available to issue. The ASC defines (i) the
period after the balance sheet date during which a reporting entity's management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
-11-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
make about events or transactions that occurred after the balance sheet date.
The guidance became effective for periods ending after June 15, 2009. Subsequent
events have been evaluated through November 12, 2009, which is the issue date of
the financial statements. The adoption of the guidance did not have a material
impact on the financial position, results of operations or cash flows.
Plan of Liquidation and Dissolution
-----------------------------------
On February 4,2004, the Partnership filed a Definitive Proxy Statement,
pursuant to Section 14(a) of the Securities Exchange Act of 1934, to solicit
consent for, among other things, the sale of all of the Partnership' s assets
and the dissolution of the Partnership pursuant to a Plan of Liquidation and
Dissolution. As of the voting deadline, March 22, 2004, the holders of 28,699
units of limited partner interest (57.6%) voted "for" such sale and dissolution.
Financial Condition/Liquidity
-----------------------------
The Partnership's liquidity, with unrestricted cash resources of $1,466,706
as of September 30, 2009, is expected to be adequate to meet its current and
anticipated operating cash needs. As of November 12, 2009, there were no
material commitments for capital expenditures. The Managing General Partner
currently intends to retain all of the Partnership's remaining undistributed
cash for operating cash reserves pending further distributions under its Plan of
Liquidation and Dissolution.
The Partnership's remaining obligation with respect to its investment in
Westgate Tower Limited Dividend Housing Associates (Westgate), in the form of a
nonrecourse purchase money note which matured September 1, 2003, has a principal
balance of $1,400,000 plus accrued interest of $3,350,762 as of September 30,
2009, and is payable in full upon the earliest of: (i) sale or refinancing of
the respective Local Partnership's rental property; (ii) payment in full of the
respective Local Partnership's permanent loan; or (iii) maturity.
The purchase money note, which is nonrecourse to the Partnership, is
secured by the Partnership's interest in the Westgate Local Partnership, which
owns Westgate Tower Apartments. The underlying property does not have sufficient
appreciation and equity to enable the Partnership to pay the purchase money
note's principal and accrued interest. In conjunction with the approved Plan of
Liquidation and Dissolution of the Partnership, the Managing General Partner and
the representatives of the purchase money noteholders have signed a contract for
the assignment of the Partnership's interest in Westgate in satisfaction of the
purchase money note's principal and accrued interest. The gain on this
assignment would be taxed at a federal tax rate of up to 35 percent. There can
be no assurance that a transfer of the Partnership interest in Westgate will
occur.
The Managing General Partner has received consent from a majority of Unit
Holders for the liquidation of the Partnership. (See Note 3 of the notes to
financial statements contained in Part I, Item 1, hereof.) It is anticipated
that the Partnership's obligation, discussed above, would be retired in
conjunction with such Liquidation. There can be no assurance that the
Liquidation will be completed pursuant to the Plan of Liquidation and
Dissolution.
-12-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion Analysis of Financial Condition
and Results of Operations - Continued
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the nine month period ended September 30, 2009, existing cash resources was
adequate to support operating cash requirements. Cash and cash equivalents
decreased $2,670,995 during the nine month period ended September 30, 2009,
primarily due to the distribution paid to Limited Partners and operating
expenses paid in cash.
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who were holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
Results of Operations
---------------------
The Partnership's net loss for the three month period ended September 30,
2009 increased from the corresponding period in 2008, primarily due to decreased
interest revenue and increased general and administrative expenses, partially
offset by decreased share of loss from partnership. Interest revenue decreased
due to lower cash and cash equivalent balances and lower rates in 2009. General
and administrative expenses increased primarily due to higher reimbursed payroll
costs. Share of loss from partnership decreased primarily due to lower operating
expenses at the property.
The Partnership's net loss for the nine month period ended September 30,
2009 increased from the corresponding period in 2008, primarily due to decreased
interest revenue and increased general and administrative expenses. Interest
revenue decreased due to lower cash and cash equivalent balances and lower rates
in 2009. General and administrative expenses increased primarily due to higher
reimbursed payroll costs.
No other significant changes in the Partnership's operations have taken
place during the three month period ended September 30, 2009.
Certain states may assert claims against the Partnership for failure to
withhold and remit state income tax on operating profit or where the sale(s) of
property in which the Partnership was invested failed to produce sufficient cash
proceeds with which to pay the state tax and/or to pay statutory partnership
filing fees. The Partnership is unable to quantify the amount of such potential
claims at this time. The Partnership has consistently advised its Partners that
they should consult with their tax advisors as to the necessity of filing
non-resident returns in such states with respect to their proportional taxes
due.
Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
In October 2009, representatives of the Managing General Partner of the
Partnership carried out an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures, pursuant to
Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not
expect that the Partnership's disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and
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Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures - Continued
operated, can provide only reasonable assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that
as of September 30, 2009, our disclosure controls and procedures were effective
to ensure that (i) the information required to be disclosed by us in the reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
was recorded, processed, summarized or reported within the time periods
specified in the SEC's rules and forms and (ii) such information was accumulated
and communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure. In addition, there have been no significant changes in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
See Note 4. a. of the notes to financial statements contained in Part I,
Item 1, hereof, for information concerning the Partnership's default on one
purchase money note.
Item 5. Other Information
There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended September 30, 2009, but not reported, whether
or not otherwise required by this Form 10-Q at September 30, 2009.
There is no established market for the purchase and sale of units of
additional limited partner interest (Units) in the Partnership, although various
informal secondary market services exist. Due to the limited markets, however,
investors may be unable to sell or otherwise dispose of their Units.
On August 6, 2009, the Partnership made a cash distribution of $2,245,950
($45 per Unit) to the Limited Partners who are holders of record as of July 22,
2009. The distribution consisted of cash accumulated from operations.
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Part II. OTHER INFORMATION
Item 6. Exhibits
Exhibit No. Description
----------- -----------
31.1 Certification of Principal Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
All other Items are not applicable.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized,
CAPITAL REALTY INVESTORS-II LIMITED
PARTNERSHIP
---------------------------------------------
(Registrant)
by: C.R.I., Inc.
----------------------------------------
Managing General Partner
November 12, 2009 by: /s/ H. William Willoughby
----------------- -----------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer,
and Principal Accounting Officer
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