UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
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 September 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ___________
-----------------
Commission file number: 0-18405
American Tax Credit Properties II L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3495678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties II L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No .
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents
Balance Sheets as of September 29, 1997 (Unaudited) and March 30, 1997
(Unaudited)
Statements of Operations for the three and six month periods ended September
29, 1997 (Unaudited) and September 29, 1996 (Unaudited)
Statements of Cash Flows for the six months ended September 29, 1997
(Unaudited) and September 29, 1996 (Unaudited)
Notes to Financial Statements as of September 29, 1997 (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
September 29, March 30,
Notes 1997 1997
----- --------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 672,457 $ 674,160
Investments in bonds available-for-sale 2 4,218,402 4,151,478
Investment in local partnerships 3 16,572,215 18,119,151
Interest receivable 73,613 77,340
--------------- ------------
$ 21,536,687 $ 23,022,129
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 566,918 $ 561,847
Payable to general partner 531,120 486,224
Other 55,600 62,600
--------------- ---------------
1,153,638 1,110,671
Commitments and contingencies 4
Partners' equity (deficit)
General partner (289,207) (272,442)
Limited partners (55,746 units of
limited partnership interest
outstanding) 20,645,585 22,305,343
Unrealized gain (loss) on investments
in bonds available-for-sale, net 2 26,671 (121,443)
--------------- -------------
20,383,049 21,911,458
$ 21,536,687 $ 23,022,129
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
September September September September
Notes 29, 29, 29, 29,
1997 1997 1996 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Interest $ 89,805 $ 179,795 $ 91,486 $184,989
Other income from local partnerships 388
---------------------------------------------------
TOTAL REVENUE 89,805 180,183 91,486 184,989
EXPENSES
Administration fees 74,827 149,653 74,827 149,653
Management fees 74,827 149,653 74,827 149,653
Professional fees 13,796 28,966 8,489 24,325
Printing, postage and other 6,425 15,053 2,899 9,125
----------------------------------------------------
TOTAL EXPENSES 169,875 343,325 161,042 332,756
--------------------------------------------------
Loss from operations (80,070) (163,142) (69,556) (147,767)
Equity in loss of investment
in local partnerships 3 (756,501) (1,513,381) (737,316)(1,582,336)
--------------------------------------------------
NET LOSS $ (836,571) $(1,676,523) $(806,872)$(1,730,103)
======================== ========================
NET LOSS ATTRIBUTABLE TO
General partner $ (8,366) $ (16,765) $(8,069) $ (17,301)
Limited partners (828,205) (1,659,758) (798,803) (1,712,802)
--------------------------------------------------
$ (836,571) $ (1,676,523) $(806,872)$(1,730,103)
======================== ========================
NET LOSS per unit of limited
partnership interest
(55,746 units of limited $ (14.86) $ (29.77) $ (14.33) $ (30.73)
partnership interest) ===================================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 29, 1997 AND 1996
(UNAUDITED)
1997 1996
-------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 186,301 $ 187,893
Other income from local partnerships 388
Cash used from local partnerships for deferred (7,000) (7,000)
expenses
Cash paid for
administration fees (104,757) (104,757)
management fees (104,757) (104,757)
professional fees (60,968) (51,677)
printing, postage and other expenses (22,876) (3,840)
------------- --------------
Net cash used in operating activities (113,669) (84,138)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions from local partnerships 158,058 24,081
Maturity/redemption of bonds 130,000 200,000
Investment in a local partnership (124,503)
Investments in bonds, includes $1,089 of accrued
interest paid at purchase of investment (51,589)
------------ ------------
Net cash provided by investing activities 111,966 224,081
------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,703) 139,943
Cash and cash equivalents at beginning of period 674,160 538,912
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 672,457 $ 678,855
=========== ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds
available-for-sale, net $ 148,114 $ (75,688)
=========== ===========
- -------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
SIX MONTHS ENDED SEPTEMBER 29, 1997 AND 1996
(UNAUDITED)
1997 1996
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $ (1,676,523) $ (1,730,103)
Adjustments to reconcile net loss to net cash used
in operating activities
Equity in loss of investment in local
partnerships 1,513,381 1,582,336
Amortization of net premium on investments in
bonds 22,797 24,875
Accretion of zero coupon bonds (21,107) (19,547)
Decrease (increase) in interest receivable 4,816 (2,424)
Increase in payable to general partner 44,896 44,896
Increase in accounts payable and accrued expenses 5,071 22,829
Decrease in other liabilities (7,000) (7,000)
--------------------------
NET CASH USED IN OPERATING ACTIVITIES $ (113,669) $ (84,138)
=========== ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 1997
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations are impacted significantly by the
combined results of operations of the Local Partnerships, which are provided
by the Local Partnerships on an unaudited basis during interim periods.
Accordingly, the accompanying financial statements are dependent on such
unaudited information. In the opinion of the General Partner, the financial
statements include all adjustments necessary to present fairly the financial
position as of September 29, 1997 and the results of operations and cash
flows for the interim periods presented. All adjustments are of a normal
recurring nature. The results of operations for the three and six month
periods ended September 29, 1997 are not necessarily indicative of the
results that may be expected for the entire year.
2. Investments in Bonds Available-For-Sale
As of September 29, 1997, certain information concerning investments in bonds
available-for-sale is as follows:
<S> <C> <C> <C> <C>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair
value
Corporate debt securities
After one year through
five years $ 747,153 $ 22,051 $-- $ 769,204
After five years through
ten years 2,127,352 41,623 (35,797) 2,133,178
After ten years 202,799 -- (4,629) 198,170
------------------------------------- -------------
3,077,304 63,674 (40,426) 3,100,552
------------------------ ----------- ------------
U.S. Treasury debt
securities After ten years 463,548 -- (10,600) 452,948
------------------------------------ -------------
U.S. government and agency
securities
After five years through
ten years 600,528 17,413 -- 617,941
After ten years 50,351 -- (3,390) 46,961
------------------------------------- --------------
650,879 17,413 (3,390) 664,902
------------------------ ------------ -------------
$ 4,191,731 $ 81,087 $ (54,416) $4,218,402
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1997
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership owns a limited partnership interest in fifty Local
Partnerships representing capital contributions in the aggregate amount of
$45,817,165. As of June 30, 1997, the Local Partnerships have outstanding
mortgage loans payable totaling approximately $92,828,000 and accrued
interest payable on such loans totaling approximately $4,256,000, which are
secured by security interests and liens common to mortgage loans on the Local
Partnerships' real property and other assets.
For the six months ended September 29, 1997, the investment in Local
Partnerships activity consists of the following:
<S> <C>
Investment in Local Partnerships as of
March 30, 1997 $ 18,119,151
Investment in a Local Partnership during
the six months ended September 29, 1997 124,503
Equity in loss of investment in Local
Partnerships for the
six months ended June 30, 1997 (1,513,381) (A)
Cash distributions received from Local
Partnerships during the six months
ended September 29, 1997 (158,058)
Investment in Local Partnerships as of
September 29, 1997 $ 16,572,215
============
</TABLE>
(A) 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
$216,612 for the six months ended June 30, 1997 as reflected in the
combined statements of operations of the Local Partnerships reflected
herein Note 3.
The combined unaudited balance sheets of the Local Partnerships as of June
30, 1997 and December 31, 1996 and the combined unaudited statements of
operations of the Local Partnerships for the three and six month periods
ended June 30, 1997 and 1996 are reflected on pages 9 and 10, respectively.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1997
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of June 30, 1997 and
December 31, 1996 are as follows:
June 30, December 31,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
Cash and other investments $ 3,825,165 $ 4,338,030
Rental receivable 342,937 331,265
Escrow deposits and reserves 5,373,454 5,141,484
Land 4,180,673 4,180,673
Buildings and improvements (net of
accumulated depreciation of $39,762,152
and $37,016,338) 99,708,621 102,236,052
Intangible assets (net of accumulated
amortization of $982,220 and $992,006) 1,802,843 1,848,817
Other 911,607 993,891
---------------- ----------------
$ 116,145,300 $ 119,070,212
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,399,450 $ 1,520,643
Due to related parties 4,365,504 4,650,126
Mortgage loans 92,827,648 93,336,971
Notes payable 2,696,902 2,804,927
Accrued interest 4,256,443 3,948,452
Other 639,378 628,190
---------------- ----------------
106,185,325 106,889,309
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of 44,870,157 45,115,322
distributions
Cumulative loss (28,418,155) (26,904,774)
------------- -------------
16,452,002 18,210,548
General partners and other limited
partners, including ATCP & ATCP III
Capital contributions, net of
distributions 3,483,091 3,503,853
Cumulative loss (9,975,118) (9,533,498)
--------------- ---------------
(6,492,027) (6,029,645)
9,959,975 12,180,903
$ 116,145,300 $ 119,070,212
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1997
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and six month periods ended June 30, 1997 and 1996 are as follows:
Three Six Months Three Six Months
Months Ended Months Ended
Ended June 30, Ended June 30,
June 30, June 30,
1997 1997 1996 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 5,025,072 $ 10,026,208 $ 4,905,129 $ 9,829,855
Interest and other 108,533 220,775 190,416 355,348
----------------------------------------------------
TOTAL REVENUE 5,133,605 10,246,983 5,095,545 10,185,203
----------------------------------------------------
EXPENSES
Administrative 806,555 1,594,037 786,547 1,566,900
Utilities 574,729 1,411,524 601,754 1,387,773
Operating, maintenance and 989,416 1,950,579 1,017,431 1,899,121
other
Taxes and insurance 605,345 1,201,913 562,651 1,160,423
Interest (including
amortization of $24,484,
$45,974, $25,307 and 1,659,660 3,298,117 1,677,714 3,373,071
$50,614)
Depreciation 1,447,156 2,745,814 1,369,938 2,787,552
----------------------------------------------------
TOTAL EXPENSES 6,082,861 12,201,984 6,016,035 12,174,840
---------------------------------------------------
NET LOSS $ (949,256) $ (1,955,001) $ (920,490) $ (1,989,637)
======================== =========================
NET LOSS ATTRIBUTABLE TO
American Tax Credit $ (756,501) $ (1,513,381) $ (737,316) $ (1,582,336)
Properties II L.P.
General partners and
other limited partners,
including ATCP & ATCP III,
which includes $77,465, $216,612,
$66,841 and $194,267 of (192,755) (441,620) (183,174) (407,301)
---------------------------------------------------
American Tax Credit
Properties II L.P. loss
in excess of investmen $ (949,256) $ (1,955,001) $ (920,490) $(1,989,637)
======================== =========================
</TABLE>
The combined results of operations of the Local Partnerships for the three
and six month periods ended June 30, 1997 are not necessarily indicative of
the results that may be expected for an entire operating period.
<PAGE>
- ------------------------------------------------------------------------------
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1997
(UNAUDITED)
4. Commitments and Contingencies
On July 16, 1997, the Partnership received a demand for certain information
with respect to the holders of Units, the stated purpose of which was to
assist such party in making an offer to Unit holders to purchase their Units
and otherwise to communicate with them concerning such an offer.
Subsequently, the Partnership requested certain information from such party
in order to assess the appropriateness of the demand. On July 28, 1997, a
complaint was filed against the Partnership, the General Partner and its
general partner seeking, among other things, an order directing the
defendants to immediately furnish the requested information and awarding the
plaintiff any resulting damages. A trial was held on September 29, 1997 and
the parties have submitted post-trial briefs to the Court. A hearing for
post-trial oral argument is scheduled for November 17, 1997.
5. Additional Information
Additional information, including the audited March 30, 1997 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, 1997 on file with the Securities and
Exchange Commission.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Material Changes in Financial Condition
As of September 29, 1997, Registrant has not experienced a significant change in
financial condition as compared to March 30, 1997. Principal changes in assets
are comprised of periodic transactions and adjustments and anticipated equity in
loss from operations of the Local Partnerships and payment of a capital
contribution to a Local Partnership. During the six months ended September 29,
1997, Registrant received cash from interest earnings, maturity of a bond and
distributions from Local Partnerships and utilized cash for operating expenses,
investing in bonds and for a capital contribution to a Local Partnership. Cash
and cash equivalents and investments in bonds available-for-sale increased, in
the aggregate, by approximately $65,000 during the six months ended September
29, 1997, which increase includes a net unrealized gain recorded on investments
in bonds of approximately $148,000, the amortization of net premium on
investments in bonds of approximately $23,000 and the accretion of zero coupon
bonds of approximately $21,000. During the six months ended September 29, 1997,
the investment in Local Partnerships decreased as a result of Registrant's
equity in the Local Partnerships' net loss for the six months ended June 30,
1997 of $1,513,381 and cash distributions received from Local Partnerships of
$158,058, partially offset by the increase in investment in Ann Ell Apartments
Associates, Ltd. of $124,503. Accounts payable and accrued expenses and payable
to general partner are comprised primarily of accrued administration fees and
management fees, respectively.
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. The rents of the Properties, many of which receive rental subsidy
payments, including payments under Section 8 of Title II of the Housing and
Community Development Act of 1974 ("Section 8"), are subject to specific laws,
regulations and agreements with federal and state agencies. The subsidy
agreements expire at various times during and after the Compliance Periods of
the Local Partnerships. The United States Department of Housing and Urban
Development ("HUD") has issued notices which implement provisions to renew
certain project based Section 8 contracts expiring during HUD's fiscal year
1997, where requested by an owner, for an additional one year term generally at
or below current rent levels, subject to certain guidelines. HUD has an
additional program which, in general, provides for restructuring rents and/or
mortgages where rents may be adjusted to market levels and mortgage terms may be
adjusted based on the reduction in rents, although there may be instances in
which only rents, but not mortgages, are restructured. 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 and
debt structure of any or all Local Partnerships currently receiving such subsidy
or similar subsidies. One Local Partnership's Section 8 contract, which covers
certain rental units, is scheduled to expire in 1997 and six Local Partnerships'
Section 8 contracts, which cover certain rental units, are scheduled to expire
in 1998 after being renewed in 1997 for a one year period. In addition, the
Local Partnerships have various financing structures which include (i) required
debt service payments ("Mandatory Debt Service") and (ii) debt service payments
which are payable only from available cash flow subject to the terms and
conditions of the notes, which may be subject to specific laws, regulations and
agreements with appropriate federal and state agencies ("Non-Mandatory Debt
Service or Interest"). During the six months ended June 30, 1997, revenue from
operations, Local General Partner advances and reserves of the Local
Partnerships have generally been sufficient to cover the operating expenses and
Mandatory Debt Service. Substantially all of the Local Partnerships are
effectively operating at or near break even levels, although certain Local
Partnerships' accounting 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
the required deferral of property management fees.
During the six months ended June 30, 1997, Forest Village Housing Partnership
(the "Forest Village Local Partnership") incurred an operating deficit of
approximately $18,000. Although the property experienced occupancy fluctuations
throughout the second quarter, occupancy has recently stabilized at
approximately 97% and payments on the mortgages and real estate taxes are
current. Of Registrant's total annual Low-income Tax Credits, approximately 1%
is allocated from the Forest Village Local Partnership.
<PAGE>
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 De Queen Villas Limited Partnership
(the "De Queen Villas Local Partnership") require the Local General Partners of
the De Queen Villas Local Partnership to cause the management agent to defer
property management fees in order to avoid a default under the mortgage. The De
Queen Villas Local Partnership incurred operating deficit for the six months
ended June 30, 1997 of approximately $10,000 which includes property management
fees of approximately $6,000. Accordingly, the net operating deficit was
approximately $4,000. Of Registrant's total annual Low-income Tax Credits,
approximately 1% is allocated from the De Queen Villas Local Partnership.
The Local General Partners have informed Registrant that the Christian Street
Associates Limited Partnership (the "Christian Street Local Partnership") and
2000-2100 Christian Street Associates (the "2000 Christian Street Local
Partnership") have not made the required principal and interest payments under
their first mortgage obligations since December 1996 and that the lender has
declared both mortgages in default. The Local General Partners have approached
the lender and are currently in the process of negotiating a workout, but the
lender has clearly indicated that in connection with any proposed workout, the
Local General Partners would be responsible for funding a portion of any
remaining deficit after taking into account the benefits of the workout.
However, the Local General Partners have informed Registrant that they do not
intend to continue to voluntarily fund the operating deficits of the properties.
Such amounts would likely be significant. There can be no assurance that any
such workout will be achieved. Of Registrant's total annual Low-income Tax
Credits, approximately 6% and 3% are allocated from the Christian Street Local
Partnership and the 2000 Christian Street Local Partnership, respectively.
The first mortgage of Ann Ell Apartments Associates, Ltd. (the "Ann Ell Local
Partnership") had been in default due to insufficient deposits to the
replacement reserve and the lender had alleged certain other incidents of
default including, among other things, inadequate funding of real estate tax and
insurance escrows and failure to procure certain minimum insurance coverage,
resulting in the lender filing a foreclosure action and a motion for summary
judgment. Registrant replaced the Local General Partner and the management agent
of the Ann Ell Local Partnership effective July 10, 1997 and advanced
approximately $125,000 to cure defaults and sufficiently fund the replacement
reserve and escrows. The foreclosure action has been voluntarily dismissed.
Littleton Avenue Community Village, L.P. (the "Littleton Local Partnership") is
a defendant in a lawsuit resulting from an accident in 1989 during the
construction of the complex owned by the Littleton Local Partnership. In
November 1995 the Littleton Local Partnership and one co-defendant were found
liable in the lawsuit, of which the Littleton Local Partnership's potential
liability is approximately $300,000. The Littleton Local Partnership has
appealed the result of the trial and has filed a lawsuit against the
construction period insurance companies, which were not co-defendants in the
lawsuit. Although the Local General Partner of the Littleton Local Partnership
expects the incident to be covered by insurance, it has agreed to indemnify the
Littleton Local Partnership and has established an escrow of approximately
$325,000 from development proceeds in the event the Littleton Local Partnership
is unsuccessful in its appeal and its action against the construction period
insurance companies.
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, under which the investment
is carried at cost and is adjusted for Registrant's share of the Local
Partnership's results of operations and by any 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. Any equity in loss in excess of Registrant's investment balance in
a Local Partnership is allocated to other partners' capital in each such Local
Partnership. As a result, the equity in loss of investment in Local Partnerships
is expected to decrease as Registrant's investment balances in the respective
Local Partnerships become zero. 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.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion above under
Material Changes in Financial Condition regarding certain Local Partnerships
currently operating below economic break even levels.
Three Months Ended September 29, 1997
For the three months ended September 29, 1997, Registrant had a net loss of
approximately $837,000, which included an equity in loss of investment in Local
Partnerships of approximately $757,000 for the three months ended June 30, 1997.
Registrant's loss from operations for the three months ended September 29, 1997
of approximately $80,000 was attributable to interest revenue of approximately
$90,000, exceeded by operating expenses of approximately $170,000.
Nonrecognition of losses in excess of Registrant's investment in certain Local
Partnerships during the period was approximately $77,000.
The Local Partnerships' net loss of approximately $949,000 for the three months
ended June 30, 1997 was attributable to rental and other revenue of
approximately $5,134,000, exceeded by operating and interest expenses (including
Non-Mandatory Interest) of approximately $4,611,000 and approximately $1,472,000
of depreciation and amortization expenses.
Three Months Ended September 29, 1996
For the three months ended September 29, 1996, Registrant had a net loss of
approximately $807,000, which included an equity in loss of investment in Local
Partnerships of approximately $737,000 for the three months ended June 30, 1996.
Registrant's loss from operations for the three months ended September 29, 1996
of approximately $70,000 was attributable to interest revenue of approximately
$91,000, exceeded by operating expenses of approximately $161,000.
Nonrecognition of losses in excess of Registrant's investment in certain Local
Partnerships during the period was approximately $67,000.
The Local Partnerships' net loss of approximately $920,000 for the three months
ended June 30, 1996 was attributable to rental and other revenue of
approximately $5,096,000, exceeded by operating and interest expenses (including
Non-Mandatory Interest) of approximately $4,621,000 and approximately $1,395,000
of depreciation and amortization expenses.
Six Months Ended September 29, 1997
For the six months ended September 29, 1997, Registrant had a net loss of
approximately $1,677,000, which included an equity in loss of investment in
Local Partnerships of approximately $1,513,000 for the six months ended June 30,
1997. Registrant's loss from operations for the six months ended September 29,
1997 of approximately $164,000 was attributable to interest revenue of
approximately $180,000, exceeded by operating expenses of approximately
$344,000. Nonrecognition of losses in excess of Registrant's investment in
certain Local Partnerships during the period was approximately $217,000.
The Local Partnerships' net loss of approximately $1,955,000 for the six months
ended June 30, 1997 was attributable to rental and other revenue of
approximately $10,247,000, exceeded by operating and interest expenses
(including Non-Mandatory Interest) of approximately $9,410,000 and approximately
$2,792,000 of depreciation and amortization expenses.
Six Months Ended September 29, 1996
For the six months ended September 29, 1996, Registrant had a net loss of
approximately $1,730,000, which included an equity in loss of investment in
Local Partnerships of approximately $1,582,000 for the six months ended June 30,
1996.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Registrant's loss from operations for the six months ended September 29, 1996 of
approximately $148,000 was attributable to interest revenue of approximately
$185,000, exceeded by operating expenses of approximately $333,000.
Nonrecognition of losses in excess of Registrant's investment in certain Local
Partnerships during the period was approximately $194,000.
The Local Partnerships' net loss of approximately $1,990,000 for the six months
ended June 30, 1996 was attributable to rental and other revenue of
approximately $10,185,000, exceeded by operating and interest expenses
(including Non-Mandatory Interest) of approximately $9,337,000 and approximately
$2,838,000 of depreciation and amortization expenses.
Three and Six Month Periods Ended September 29, 1997 v.
Three and Six Month Periods Ended September 30, 1996
Registrant's operations for the three months ended September 29, 1997 resulted
in a net loss of approximately $837,000, as compared to a net loss of
approximately $807,000 for the three months ended September 29, 1996. The
increase in net loss is primarily attributed to an increase in the equity in
loss of investment in Local Partnerships of approximately $19,000, which is
primarily the result of an increase in the net operating loss of the Local
Partnerships, partially offset by an increase in the nonrecognition of losses in
excess of Registrant's investment in Local Partnerships in accordance with the
equity method of accounting.
Registrant's operations for the six months ended September 29, 1997 resulted in
a net loss of approximately $1,677,000, as compared to a net loss of
approximately $1,730,000 for the six months ended September 29, 1996. The
decrease in net loss is primarily attributed to a decrease in the equity in loss
of investment in Local Partnerships of approximately $69,000, which is primarily
the result of (i) an increase in the nonrecognition of losses in excess of
Registrant's investment in Local Partnerships in accordance with the equity
method of accounting and (ii) a decrease in the net operating loss of the Local
Partnerships.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Part I, Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, Littleton Avenue Community
Village, L.P. (the "Littleton Local Partnership") is a defendant in a
lawsuit resulting from an accident in 1989 during the construction of the
complex owned by the Littleton Local Partnership. In November 1995 the
Littleton Local Partnership and one co-defendant were found liable in the
lawsuit, of which the Littleton Local Partnership's potential liability
is approximately $300,000. The Littleton Local Partnership has appealed
the result of the trial and has filed a lawsuit against the construction
period insurance companies, which were not co-defendants in the lawsuit.
Although the Local General Partner of the Littleton Local Partnership
expects the incident to be covered by insurance, it has agreed to
indemnify the Littleton Local Partnership and has established an escrow
of approximately $325,000 from development proceeds in the event the
Littleton Local Partnership is unsuccessful in its appeal and its action
against the construction period insurance companies.
On July 16, 1997, Everest Properties, Inc. ("Everest") demanded certain
information with respect to the holders of Units. Everest stated that the
purpose of the demand was to assist Everest in making an offer to Unit
holders to purchase their Units and otherwise to communicate with them
concerning such an offer. On July 25, 1997, Registrant requested certain
information from Everest in order to assess the appropriateness of the
demand. To date, the information has not been provided. On July 28, 1997,
Everest filed a complaint against Registrant, the General Partner, and
its general partner in the Court of Chancery of the State of Delaware in
and for New Castle County seeking, among other things, an order directing
the defendants to furnish immediately the requested information and
awarding the plaintiff any resulting damages (the "Delaware Action"). A
trial in connection with the Delaware Action was held on September 29,
1997 and the parties have submitted post-trial briefs to the Court. A
hearing for post-trial oral argument is scheduled for November 17, 1997.
As discussed in Part I, Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, the first mortgage of Ann
Ell Apartments Associates, Ltd. (the "Ann Ell Local Partnership") had
been in default due to insufficient deposits to the replacement reserve
and the lender had alleged certain other incidents of default including,
among other things, inadequate funding of real estate tax and insurance
escrows and failure to procure certain minimum insurance coverage,
resulting in the lender filing a foreclosure action and a motion for
summary judgment. Registrant replaced the Local General Partner and the
management agent of the Ann Ell Local Partnership effective July 10, 1997
and advanced approximately $125,000 to cure defaults and sufficiently
fund the replacement reserve and escrows. The foreclosure action has been
voluntarily dismissed.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None; see Items 1 and 5 regarding mortgage defaults of certain Local
Partnerships.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As discussed in Part I, Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, both first mortgages of
Christian Street Associates Limited Partnership and 2000-2100 Christian
Street Associates are in default due to the non payment of required
principal and interest payments since December 1996. The Local General
Partners have approached the lender and are currently in the process of
negotiating a workout.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
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: November 13, 1997 /s/ Richard Paul Richman
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: November 13, 1997 /s/ Neal Ludeke
Neal Ludeke
Treasurer of the general partner
of the General Partner
(Principal Financial and Accounting
Officer of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
quarter ended September 29, 1997 Form 10-Q Balance Sheets and
Statements of Operations and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000842314
<NAME> American Tax Credit Properties, II L.P.
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