<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended MARCH 31, 1997
Commission File Number 2-66171
REAL ESTATE ASSOCIATES LIMITED II
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3547609
9090 WILSHIRE BLVD., SUITE 201,
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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
---- ----
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets, March 31, 1997 and December 31, 1996...........................1
Statements of Operations,
Three Months Ended, March 31, 1997 and 1996..............................2
Statement of Partners' Equity
Three months Ended March 31, 1997.........................................3
Statements of Cash Flows,
Three Months Ended March 31, 1997 and 1996................................4
Notes to Financial Statements..................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings.............................................................10
Item 6: Exhibits and Reports and Form 8-K.............................................10
Signatures.............................................................................11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 3,066,513 $ 2,808,190
CASH AND CASH EQUIVALENTS (Note 1) 1,721,811 1,821,955
----------- -----------
TOTAL ASSETS $ 4,788,324 $ 4,630,145
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 4,172 $ 31,812
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (170,254) (172,112)
Limited partners 4,954,406 4,770,445
----------- -----------
4,784,152 4,598,333
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY
(DEFICIENCY) $ 4,788,324 $ 4,630,145
=========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
1
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME $ 20,477 $ 20,569
--------- ---------
OPERATING EXPENSES:
Legal and accounting 24,273 39,023
Management fees - general partner (Note 3) 99,420 99,420
Administrative (Note 3) 16,906 13,725
--------- ---------
Total operating expenses 140,599 152,168
--------- ---------
LOSS FROM OPERATIONS (120,122) (131,599)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 37,941 7,320
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 268,000 268,000
--------- ---------
NET INCOME $ 185,819 $ 143,721
========= =========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ 17 $ 13
========= =========
</TABLE>
The accompanying notes are integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
March 31, 1997 10,693
==========
EQUITY (DEFICIENCY),
January 1, 1997 $ (172,112) $4,770,445 $4,598,333
Net income for the three months
ended March 31, 1997 1,858 183,961 185,819
---------- ---------- ----------
EQUITY (DEFICIENCY),
March 31, 1997 $ (170,254) $4,954,406 $4,784,152
========== ========== ==========
</TABLE>
The accompanying notes are integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 185,819 $ 143,721
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (268,000) (268,000)
Decrease in accounts payable (27,640) (17,936)
----------- -----------
Net cash used in operating activities (109,821) (142,215)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as a return of capital 9,677 --
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (100,144) (142,215)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,821,955 1,862,711
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,721,811 $ 1,720,496
=========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report for
the year ended December 31, 1996 prepared by Real Estate Associates
Limited II (the "Partnership"). Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The
results of operations for the interim period presented are not
necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1997 and the results of operations and changes in cash
flows for the three months then ended.
The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
corporate general partner of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition fees, selection fees and other costs related to the
acquisition of the projects were capitalized as part of the investment
account and are being amortized on a straight-line basis over the
estimated lives of the underlying assets, which is generally 30 years.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the
limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of limited
partnership interests was 10,693 for the periods presented.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents are in excess of the FDIC
insurance limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of the
individual partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of as of January 1, 1996 without a significant
effect on its financial statements. The Partnership reviews long-lived
assets to determine if there has been any permanent impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash
flows is less than the carrying amount of the assets, the Partnership
recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership has limited partnership interests in 21 limited
partnerships. The limited partnerships own residential rental projects
consisting of 2,430 apartment units. The mortgage loans of these
projects are insured by various governmental agencies.
The Partnership, as a limited partner, is entitled to between 85 percent
and 99 percent of the profits and losses of the limited partnerships.
Equity in losses of limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced
to a zero balance. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized.
Distributions from the limited partnerships are accounted for as a
return of capital until the investment balance is reduced to zero or to
a negative amount equal to further capital contributions required.
Subsequent distributions received are recognized as income.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following is a summary of the investments in limited partnerships as
of March 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance, beginning of period $2,808,190
Amortization of acquisition costs (2,000)
Cash distribution recognized as return of capital (9,677)
Equity in income of limited partnerships 270,000
---------------------------------------- -------
Balance, end of period $3,066,513
==========
</TABLE>
The following are unaudited combined estimated statements of operations
for the three months ended March 31, 1997 and 1996 for the limited
partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES
Rental and other $5,745,000 $5,714,000
---------- ----------
EXPENSES
Depreciation 823,000 804,000
Interest 1,835,000 1,665,000
Operating 2,829,000 3,052,000
---------- ----------
5,487,000 5,521,000
NET INCOME $ 258,000 $ 193,000
========== ==========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
NOTE 3 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partners, the Partnership is liable to NAPICO for an annual management
fee equal to .4% of the originals invested assets of the limited
partnerships. Invested assets are defined as the costs of acquiring
project interests, including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of
the respective partnerships. For the three months ended March 31, 1997
and 1996, the fee was $99,420.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 3 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $7,827 and $7,473 for
the three months ended March 31, 1997 and 1996, respectively, and is
included in administrative expenses.
NOTE 4 - CONTINGENCIES
The corporate general partner is involved in various lawsuits arising
from transactions in the ordinary course of business. In addition, the
Partnership is involved in a lawsuit. In the opinion of management and
the corporate general partner, the claims will not result in any
material liability to the Partnership.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. The carrying amount of assets
and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
8
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income earned
from investing available cash and distributions from limited partnerships
in which the Partnership has invested.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in an
amount equal to .4 percent of invested assets is payable to the corporate
general partner. Operating expenses are consistent with the prior year.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized in accordance
with the equity accounting method.
Distributions received from limited partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
Except for certificates of deposit and money market funds the
Partnership's investments are entirely interests in other limited
partnerships owning government assisted projects. Available cash is
invested in these funds earning interest income as reflected in the
statements of operations. These investments can be converted to cash to
meet obligations as they arise.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Joseph Alizio v. Peter Perpignano, New Haven Plaza Associates, Real
Estate Associates Limited II, National Partnership Investments Corp. and
National Partnership Associates, Supreme Court of the State of New York,
County of Nassau, Case No. 1776-94. On January 21, 1994, the Plaintiff
filed a lawsuit seeking to dissolve the New Haven Local Partnership,
alleging that he was denied his pro rata share of the capital
contribution, management fees, consultants fees and profits. REAL II
filed a motion to dismiss the complaint which motion was granted on
November 10, 1994. The case was appealed and argued on February 9, 1996.
Documents were refiled and all cases were dismissed in February of 1997,
with exception of one accounting issue. REAL II is now waiting for a
decision on the final matter from the appellate court.
The corporate general partner is involved in various lawsuits. None of
these are related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 7 of regulation
S-K.
10
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
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.
REAL ESTATE ASSOCIATES LIMITED II
(a California limited partnership)
By: National Partnership Investments Corp.,
General Partner
Date:
---------------------------------------
By:
---------------------------------------
Bruce Nelson
President
Date:
---------------------------------------
By:
---------------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
Date:
---------------------------------------
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,721,811
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,721,811
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,788,324
<CURRENT-LIABILITIES> 4,172
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,784,152
<TOTAL-LIABILITY-AND-EQUITY> 4,788,324
<SALES> 0
<TOTAL-REVENUES> 326,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 140,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 185,819
<INCOME-TAX> 0
<INCOME-CONTINUING> 185,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,819
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
