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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

                                        

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 29, 2016

OR

For the Transition Period from                  to ____________

Commission File Number: 0-18405

(Exact Name of Registrant as Specified in its Charter)

Registrant's Telephone Number, Including Area Code:  (203) 869-0900

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes         No   X    

AMERICAN TAX CREDIT PROPERTIES II L.P.

PART I - FINANCIAL INFORMATION

 

 

AMERICAN TAX CREDIT PROPERTIES II L.P.

BALANCE SHEETS

(UNAUDITED)

 

See Notes to Financial Statements.

AMERICAN TAX CREDIT PROPERTIES II L.P.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 29, 2016 AND 2015

(UNAUDITED)

 

 

See Notes to Financial Statements.

AMERICAN TAX CREDIT PROPERTIES II L.P.

STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED SEPTEMBER 29, 2016 AND 2015

(UNAUDITED)

See reconciliation of net loss to net cash used in operating activities on page 6.

 

See Notes to Financial Statements.

AMERICAN TAX CREDIT PROPERTIES II L.P.

STATEMENTS OF CASH FLOWS - CONTINUED

SIX MONTHS ENDED SEPTEMBER 29, 2016 AND 2015

(UNAUDITED)

 

See Notes to Financial Statements.

AMERICAN TAX CREDIT PROPERTIES II L.P.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 29, 2016

(UNAUDITED)

1.	Basis of Presentation

The accompanying unaudited financial statements of American Tax Credit Properties II L.P. (the "Partnership") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. They do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of the general partner of the Partnership (the "General Partner"), the accompanying unaudited financial statements include all adjustments necessary to present fairly the financial position as of September 29, 2016 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 six months ended September 29, 2016 are not necessarily indicative of the results that may be expected for the entire year.

2.	Investment in Local Partnerships

The Partnership initially acquired limited partner equity interests (the "Local Partnership Interest" or "Local Partnership Interests") in fifty partnerships (the "Local Partnership" or "Local Partnerships") representing capital contributions in the aggregate amount of $48,460,126, which includes voluntary advances (the "Advances") made to certain Local Partnerships and all of which has been paid. As of September 29, 2016, the Partnership holds a Local Partnership Interest in one Local Partnership, Littleton Avenue Community Village, L.P. ("Littleton"). The results of operations of Littleton are provided by the general partner of Littleton (the "Littleton General Partner") on an unaudited basis during interim periods.

In the event the operations of Littleton result in a loss, equity in loss of investment in Littleton allocated to the Partnership is recognized to the extent of the Partnership's investment balance in Littleton. Equity in loss in excess of the Partnership's investment balance in Littleton is allocated to other partners' capital in Littleton. As a result of cumulative equity losses and distributions, the Partnership's investment in Littleton reached a zero balance in a prior year.

The non-mandatory mortgages of Littleton matured in October 2006 but have not been repaid or formally extended. During the year ended March 30, 2015, the first mortgage holder (the "Lender") issued a declaration of default demanding Littleton's immediate payment of an amount in excess of $6.5 million. Such amount includes all unpaid principal and accrued interest to date and amounts for real estate tax liens that had been sold to third parties and were redeemed by the Lender. Unpaid principal and accrued interest on the second mortgage as of September 29, 2016 is in excess of $3.1 million. The Littleton General Partner reports that a refinancing of the mortgages is unlikely and the Lender has issued a request for offers to purchase the first mortgage. The Partnership has no legal obligation to fund any of Littleton's operating deficits.

3.	Investment in Pemberwick Fund

The Partnership carries its investment in Pemberwick Fund, a short duration bond fund ("Pemberwick") at estimated fair value. The fair value of the Partnership's investment in Pemberwick is classified within Level 1 of the fair value hierarchy of the guidance on Fair Value Measurements as defined in Accounting Standards Codification ("ASC") Topic 820. Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Partnership has the ability to access. Pemberwick's net asset value ("NAV") is $10.06 per share as of September 29, 2016. An unrealized gain of $6,238 is reflected as accumulated other comprehensive income in the accompanying unaudited balance sheet as of September 29, 2016. The Partnership has earned $300,324 of interest revenue from the date of its initial investment in Pemberwick through September 29, 2016.

AMERICAN TAX CREDIT PROPERTIES II L.P.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

SEPTEMBER 29, 2016

(UNAUDITED)

4.	Additional Information

Additional information, including the audited March 30, 2016 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, 2016 on file with the Securities and Exchange Commission.

 

AMERICAN TAX CREDIT PROPERTIES II L.P.

As of September 29, 2016, American Tax Credit Properties II L.P. (the "Registrant") has not experienced a significant change in financial condition as compared to March 30, 2016. Principal changes in assets are comprised of periodic transactions and adjustments. Registrant had acquired a limited partner equity interest (the "Local Partnership Interest" or "Local Partnership Interests") in fifty partnerships (the "Local Partnership" or "Local Partnerships") that own/owned low-income multifamily residential complexes (the "Property" or "Properties") that qualified for the low-income housing tax credit (the "Low-income Housing Tax Credit") in accordance with Section 42 of the Internal Revenue Code. As of September 29, 2016, Registrant owns a Local Partnership Interest in one Local Partnership, Littleton Avenue Community Village, L.P. ("Littleton"). During the six months ended September 29, 2016, Registrant received cash from interest revenue and utilized cash for operating expenses and investments in Pemberwick Fund, a short duration bond fund ("Pemberwick"). Cash and cash equivalents and investment in Pemberwick decreased, in the aggregate, by approximately $186,000 during the six months ended September 29, 2016 (which includes an unrealized gain on investment in Pemberwick of approximately $7,000). Payable to general partner and affiliates in the accompanying unaudited balance sheet as of September 29, 2016 represents accrued management and administration fees.

Registrant holds cash and liquid investments as of September 29, 2016 of approximately $3,839,000. After deducting future expenses and reserves, the balance is expected to be distributed to the partners in the future. There can be no assurance as to the amount and timing of such distribution, if any.

Registrant's operating results are dependent, in part, on the operating results of Littleton and are impacted by Littleton's policies. In addition, the operating results herein are not necessarily the same for tax reporting. Registrant accounts for its investment in Littleton in accordance with the equity method of accounting. Accordingly, the investment is carried at cost and is adjusted for Registrant's share of Littleton's results of operations and by cash distributions received. In the event the operations of Littleton result in a loss, equity in loss of investment in Littleton allocated to Registrant is recognized to the extent of Registrant's investment balance in Littleton. Equity in loss in excess of Registrant's investment balance in Littleton is allocated to other partners' capital in Littleton. As a result of cumulative equity losses and distributions, Registrant's investment in Littleton reached a zero balance in a prior year.

Although Registrant's operations have not varied significantly for the three months ended September 29, 2016 as compared to the three months ended September 29, 2015, as evidenced by losses of $53,817 and $51,223, respectively, management and administration fees have decreased, in the aggregate, by approximately $10,000 and State of New Jersey filing fees have increased by approximately $16,000. Other comprehensive loss for the three months ended September 29, 2016 resulted from an unrealized loss on investment in Pemberwick of $3,461.

Although Registrant's operations have not varied significantly for the six months ended September 29, 2016 as compared to the six months ended September 29, 2015, as evidenced by losses of $104,805 and $91,673, respectively, management and administration fees have decreased, in the aggregate, by approximately $20,000 and State of New Jersey filing fees have increased by approximately $32,000. Other comprehensive income for the six months ended September 29, 2016 resulted from an unrealized gain on investment in Pemberwick of $6,904.

 

AMERICAN TAX CREDIT PROPERTIES II L.P.

Registrant's primary objective, to provide Low-income Housing Tax Credits to its limited partners (the "Limited Partners"), has been completed. The relevant state tax credit agency allocated each of the Local Partnerships an amount of Low-income Housing Tax Credits, which are generally available for a ten year period from the year the Property is placed in service (the "Ten Year Credit Period"). The Ten Year Credit Period was fully exhausted with respect to all of the Properties as of December 31, 2005. The required holding period of each Property, in order to avoid Low-income Housing Tax Credit recapture, is fifteen years from the year in which the Low-income Housing Tax Credits commence on the last building of the Property (the "Compliance Period"). The Compliance Period of all of the Local Partnerships had expired as of December 31, 2006. Registrant is in the process of disposing of its Local Partnership Interest in Littleton. In a prior year, Registrant served a demand on the general partners of all then remaining Local Partnerships (the "Local General Partners") to commence a sale process to dispose of the Properties. In the event a sale of the Littleton Property cannot be consummated, it is the General Partner's intention to sell or assign Registrant's 99% Local Partnership Interest in Littleton. Registrant does not anticipate that it will receive any proceeds in connection with such sale or assignment and may incur certain costs in connection therewith. Registrant intends to dissolve after the final disposition of its Local Partnership Interest in Littleton, although there can be no assurance as to when such final disposition will occur.

Littleton owns a 102 unit subsidized and leveraged low-income multifamily residential complex located in Newark, New Jersey. The non-mandatory mortgages of Littleton matured in October 2006 but have not been repaid or formally extended. During the year ended March 30, 2015, the first mortgage holder (the "Lender") issued a declaration of default demanding Littleton's immediate payment of an amount in excess of $6.5 million. Such amount includes all unpaid principal and accrued interest to date and amounts for real estate tax liens that had been sold to third parties and were redeemed by the Lender. Unpaid principal and accrued interest on the second mortgage as of September 29, 2016 is in excess of $3.1 million. Littleton's Local General Partner (the "Littleton General Partner") reports that a refinancing of the mortgages is unlikely and the Lender has issued a request for offers to purchase the first mortgage. Registrant has no legal obligation to fund any of Littleton's operating deficits.

The accompanying unaudited financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires Registrant to make certain estimates and assumptions. The following section is a summary of certain aspects of those accounting policies that may require subjective or complex judgments and are most important to the portrayal of Registrant's financial condition and results of operations. Registrant believes that there is a low probability that the use of different estimates or assumptions in making these judgments would result in materially different amounts being reported in the accompanying unaudited financial statements.

AMERICAN TAX CREDIT PROPERTIES II L.P.

As a cautionary note, with the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Forward-looking statements may relate to, among other things, current expectations, forecasts of future events, future actions, future performance generally, business development activities, capital expenditures, strategies, the outcome of contingencies, future financial results, financing sources and availability and the effects of regulation and competition. Words such as "anticipate," "expect," "intend," "plan," "seek," "estimate" and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. Registrant may also provide written forward-looking statements in other materials released to the public. Such statements are made in good faith by Registrant pursuant to the "Safe Harbor" provisions of the Reform Act. Registrant undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Such forward-looking statements involve known risks, uncertainties and other factors that may cause Registrant's actual results of operations or actions to be materially different from future results of operations or actions expressed or implied by the forward-looking statements.

Registrant is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this Item.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed by Registrant in reports that Registrant files or submits under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules and forms. Registrant periodically reviews the design and effectiveness of its disclosure controls and procedures, including compliance with various laws and regulations that apply to its operations. Registrant makes modifications to improve the design and effectiveness of its disclosure controls and procedures, and may take other corrective action, if its reviews identify a need for such modifications or actions. In designing and evaluating the disclosure controls and procedures, Registrant recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Registrant has carried out an evaluation, under the supervision and the participation of its management, including the Chief Executive Officer and Chief Financial Officer of the general partner of the General Partner, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the three months ended September 29, 2016. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the general partner of the General Partner concluded that Registrant's disclosure controls and procedures were effective as of September 29, 2016.

There were no changes in Registrant's internal control over financial reporting during the three months ended September 29, 2016 that have materially affected, or are reasonably likely to materially affect, Registrant's internal control over financial reporting.

AMERICAN TAX CREDIT PROPERTIES II L.P.

Part II - OTHER INFORMATION

*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.