UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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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 June 30, 2014 |
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 0-20610 |
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NATIONAL TAX CREDIT INVESTORS II |
(Exact name of registrant as specified in its charter) |
California | 93-1017959 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
PO Box 91274 |
Los Angeles, California 90009 |
(Address of principal executive offices) |
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(720) 387-8135 |
(Registrants telephone number, including area code) |
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. [X] Yes [ ] No
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). [X] Yes [ ] 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.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | 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 [X] No
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
NATIONAL TAX CREDIT INVESTORS II
BALANCE SHEETS
(In thousands)
| June 30, |
| December 31, |
| 2014 |
| 2013 |
| (Unaudited) |
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ASSETS |
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Investments in and advances to Local Partnerships | $ -- |
| $ -- |
Cash and cash equivalents | 3,267 |
| 3,577 |
Mortgage note receivable | 3,478 |
| 3,478 |
Accounts receivable limited partners | 181 |
| 181 |
Other assets | 54 |
| 54 |
Total assets | $ 6,980 |
| $ 7,290 |
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LIABILITIES AND PARTNERS' (DEFICIENCY) CAPITAL |
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Liabilities: |
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Accounts payable and accrued expenses | $ 14 |
| $ 32 |
Advance from affiliates | 10 |
| -- |
Partners' (deficiency) capital: |
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General partner | (559) |
| (556) |
Limited partners | 7,515 |
| 7,814 |
Total partners (deficiency) capital | 6,956 |
| 7,258 |
Total liabilities and partners' (deficiency) capital | $ 6,980 |
| $ 7,290 |
See Accompanying Notes to Financial Statements
2
NATIONAL TAX CREDIT INVESTORS II
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per interest data)
| Three Months Ended |
| Six Months Ended | ||||
| June 30, |
| June 30, | ||||
| 2014 |
| 2013 |
| 2014 |
| 2013 |
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Revenues | $ -- |
| $ -- |
| $ -- |
| $ -- |
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Operating expenses: |
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Management fees - General Partner | 16 |
| 26 |
| 31 |
| 53 |
General and administrative | 25 |
| 16 |
| 41 |
| 26 |
Legal and accounting | 16 |
| 23 |
| 36 |
| 48 |
Total operating expenses | 57 |
| 65 |
| 108 |
| 127 |
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Loss from partnership operations | (57) |
| (65) |
| (108) |
| (127) |
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Equity in income (loss) of Local Limited |
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Partnerships and amortization of |
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acquisition costs | -- |
| -- |
| -- |
| (55) |
Advances made to Local Limited |
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Partnerships recognized as expense | (105) |
| (474) |
| (194) |
| (680) |
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Net income (loss) | $ (162) |
| $ (539) |
| $ (302) |
| $ (862) |
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Net income (loss) allocated to general partners (1%) | $ (2) |
| $ (5) |
| $ (3) |
| $ (9) |
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Net income (loss) allocated to limited partners (99%) partners (99%) | $ (160) |
| $ (534) |
| $ (299) |
| $ (853) |
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Net income (loss) per limited partnership interest | $ (2.22) |
| $ (7.42) |
| $ (4.15) |
| $ (11.85) |
See Accompanying Notes to Financial Statements
3
NATIONAL TAX CREDIT INVESTORS II
STATEMENT OF CHANGES IN PARTNERS (DEFICIENCY) CAPITAL
(Unaudited)
(In thousands)
| General |
| Limited |
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| Partner |
| Partners |
| Total |
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Partners (deficiency) capital, |
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December 31, 2013 | $ (556) |
| $ 7,814 |
| $ 7,258 |
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Net loss for the six |
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months ended June 30, 2014 | (3) |
| (299) |
| (302) |
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Partners (deficiency) capital, |
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June 30, 2014 | $ (559) |
| $ 7,515 |
| $ 6,956 |
See Accompanying Notes to Financial Statements
4
NATIONAL TAX CREDIT INVESTORS II
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months Ended | |||
| June 30, | |||
| 2014 |
| 2013 | |
Cash flows from operating activities: |
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Net loss | $ (302) |
| $ (862) | |
Adjustments to reconcile net income to net cash used in |
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operating activities: |
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Equity in loss of Local Partnerships and amortization |
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of acquisition costs | -- |
| 55 | |
Change in accounts: |
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Advance made to Local Partnership recognized |
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as expense | 194 |
| 680 | |
Accounts payable and accrued expenses | (18) |
| (23) | |
Accrued fees due to General Partner | -- |
| 11 | |
Net cash used in operating activities | (126) |
| (139) | |
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Cash flows provided by investing activities: |
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Advance to Local Partnerships | (194) |
| (680) | |
Net cash provided by investing activites | (194) |
| (680) | |
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Cash flows provided by financing activities: |
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Advances from affiliates | 10 |
| -- | |
Net cash provided by financing activities | 10 |
| -- | |
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Net increase (decrease) in cash and cash equivalents | (310) |
| (819) | |
Cash and cash equivalents, beginning of period | 3,577 |
| 5,163 | |
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Cash and cash equivalents, end of period | $ 3,267 |
| $ 4,344 |
See Accompanying Notes to Financial Statements
5
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization And Summary Of Significant Accounting Policies
General
The information contained in the following notes to the unaudited 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 fiscal year ended December 31, 2013 filed by National Tax Credit Investors II (the Partnership or NTCI-II). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods 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 items) considered necessary for a fair presentation. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.
Organization
NTCI-II is a limited partnership formed under the California Revised Local Partnership Act as of January 12, 1990. The Partnership was formed to invest primarily in other limited partnerships (Local Partnerships) which own and operate multifamily housing complexes that are eligible for low income housing federal income tax credits (the Housing Tax Credit). The general partner of the Partnership is National Partnership Investments, LLC (the General Partner or NAPICO), a California limited liability company. The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (Bethesda). The business of NTCIII is conducted primarily by NAPICO. The Partnership shall continue in full force and effect until December 31, 2030, unless terminated earlier pursuant to the Partnership Agreement or law.
The General Partner has a one percent interest in the operating profits and losses of the Partnership. The limited partners will be allocated the remaining 99 percent interest in proportion to their respective investments.
Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the General Partner will be entitled to a property disposition fee as mentioned in the partnership agreement. The limited partners will have a priority item equal to their invested capital plus 6 percent priority return as defined in the partnership agreement. This property disposition fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions plus the 6 percent priority return. Disposition fees have not been paid or accrued.
At June 30, 2014 and December 31, 2013, the Partnership had outstanding 72,017 limited partnership interests.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States.
Method of Accounting for Investment in Local Partnerships
The investments in Local Partnerships are accounted for on the equity method. Acquisition fees, selection fees and other costs related to the acquisition of the projects have been capitalized as part of the investment account and are being amortized by the straight line method over the estimated lives of the underlying assets, which is generally 30 years.
Mortgage Note Receivable
The Partnership reviews its mortgage note receivable whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Partnership has recorded its mortgage note receivable at June 30, 2014 and
6
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
December 31, 2013 at the amount at which the Partnership ultimately expects to receive. An impairment was not recognized during the six months ended June 30, 2014 or 2013. See Note 3 Mortgage Note Receivable for further information.
Impairment of Long-Lived Assets
The Partnership reviews long-lived assets to determine if there has been any 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. An impairment loss was not recognized during the six months ended June 30, 2014 and 2013.
Net Income (Loss) Per Limited Partnership Interest
Net income (loss) per limited partnership interest was computed by dividing the limited partners share of net income (loss) by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 72,017 and 72,032 for the three and six months ended June 30, 2014 and 2013, respectively.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entitys activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entitys activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIEs economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIEs economic performance and which party controls such activities; the amount and characteristics of the Partnerships investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At June 30, 2014 and December 31, 2013, the Partnership held variable interests in two VIEs for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Partnerships, that the general partner of each of the Local Partnerships is the primary beneficiary of the respective Local Partnership. In making this determination, the Partnership considered the following factors:
·
the general partners conduct and manage the business of the Local Partnerships;
·
the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Partnerships underlying real estate properties;
·
the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Partnerships;
·
the general partners are obligated to fund any recourse obligations of the Local Partnerships;
·
the general partners are authorized to borrow funds on behalf of the Local Partnerships; and
·
the Partnership, as a limited partner in each of the Local Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Partnerships that most significantly impact such entities economic performance.
The two VIEs at June 30, 2014 consist of Local Partnerships that are directly engaged in the ownership and management of two
7
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
apartment properties with a total of 355 units. The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. The Partnerships maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from these VIEs, which was approximately $3,478,000 at June 30, 2014 and December 31, 2013. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Revenue Recognition Deposit Method
Profit on the sale of limited partnership interests shall not be recognized under the full accrual method until all of the following criteria are met: a sale is consummated, the buyers initial and continuing investments are adequate, the sellers receivable is not subject to future subordination and the risks of ownership have transferred to the buyer. The Partnership recognizes gains on sale of limited partnership interests using the deposit method when all of the criteria for the full accrual method are not met. Under the deposit method no gain is recognized, no receivable from the buyer is recorded at the closing date and any cash received from the buyer is reported as a deposit liability on the balance sheet. As a result, the Partnership continues to carry the investment on its financial statements.
Note 2 - Investments In and Advances to Local Partnerships
As of June 30, 2014 and December 31, 2013, the Partnership held limited partnership interests in two Local Partnerships, located in two states. As a limited partner of the Local Partnerships, the Partnership does not have authority over day-to-day management of the Local Partnerships or their properties (the "Apartment Complexes"). The general partners responsible for management of the Local Partnerships (the "Local Operating General Partners") are not affiliated with the General Partner of the Partnership, except as discussed below.
At June 30, 2014 and December 31, 2013, the Local Partnerships owned residential projects consisting of 355 apartment units.
The projects owned by the Local Partnerships in which NTCI-II has invested were developed by the Local Operating General Partners who acquired the sites and applied for applicable mortgages and subsidies, if any. NTCI-II became the principal limited partner in these Local Partnerships pursuant to arm's-length negotiations with the Local Operating General Partners. As a limited partner, NTCI-II's liability for obligations of the Local Partnerships is limited to its investment. The Local Operating General Partner of the Local Partnerships retains responsibility for developing, constructing, maintaining, operating and managing the Projects. Under certain circumstances, an affiliate of NAPICO or NTCI-II may act as the Local Operating General Partner. An affiliate, National Tax Credit Inc. II ("NTC-II") is acting either as a special limited partner or non-managing administrative general partner (the Administrative General Partner) of each Local Partnership in which the Partnership had an investment.
The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 98.9% and 99.0%). The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnerships distributions to an amount substantially less than its ownership percentage in the Local Partnership.
The individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. See Note 1 Organization and Summary of Significant Accounting Policies for a description of the impairment policy. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero.
Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. There were no such distributions received during the six months ended June 30, 2014 and 2013.
8
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
In October 2013, the Partnership assigned its limited partnership interest in Jamestown Terrace to an affiliate of the Local Operating General Partner for a total of $10,000. This amount was recognized as a gain on sales of limited partnership interest in Local Partnerships during the year ended December 31, 2013 as the Partnership had no investment balance remaining at the date of the assignment.
In November 2013, the Partnership assigned its limited partnership interest in Virginia Park Meadows to an affiliate of the Local Operating General Partner in exchange for the assumption and agreement to discharge all of the Partnership's obligations with respect to that Local Limited Partnership. This agreement was subject to the Partnership paying a $3,000 transfer fee to the state of Michigan. The Partnership had no investment balance remaining as of the date of the agreement.
During September 2013, the Partnership entered into an Assignment and Assumption Agreement to assign its limited partnership interest in Michigan Beach to a third party for a total amount of $10.00. Additionally, during September 2013, the Partnership entered into a Loan Purchase Agreement with the same third party, to sell the second mortgage held by the Partnership for an amount equal to the outstanding principal on the Loan. In April 2014, the Partnership entered into an amendment to each of the Assignment and Assumption Agreement and the Loan Purchase Agreement to, among other things, extend the closing date for the transactions to December 31, 2014. As of June 30, 2014, the outstanding principal balance on the Loan was $3,596,000. The Registrant's investment balance in Michigan Beach was reduced to zero. The assignment and the Loan purchase are expected to close during 2014 and are subject to i) the consent of the United States Department of Housing and Urban Development and ii) the consent of Midland Loan Services, Inc. If either condition is not met prior to December 31, 2014, then the Assignment Agreement and the Loan Agreement would terminate. In the event that the closing does not timely occur due to the default by Assignee of its obligations under the Assignment Agreement or the Loan Agreement, then the Registrant will be entitled to keep the $1,000 escrow deposit made by Assignee in connection with the Loan Agreement. In the event that the closing does not timely occur due to the default by the Partnership, then the rights and obligations of both parties under both agreements terminate, except for certain indemnification rights.
As of June 30, 2014 and December 31, 2013, the investment balance in one of the two Local Partnerships had been reduced to zero. The Partnership's remaining investment balance relates to the mortgage note receivable, which is discussed in "Note 3 - Mortgage Note Receivable".
At times, advances are made to Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnerships investment in limited partnerships. Advances made to Local Partnerships in which the investment balance has been reduced to zero or repayment is uncertain are charged to expense. The Partnership made advances of approximately $194,000 and $680,000 to Michigan Beach during the six months ended June 30, 2014 and 2013, respectively, for operations and capital expenditures at the property. While not obligated to make advances to any of the Local Partnerships, the Partnership may make future advances in order to protect its economic investment in the Local Partnerships.
9
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The following are estimated unaudited condensed combined statements of operations for the three and six months ended June 30, 2014 and 2013 for the Local Partnerships in which the Partnership has investments (in thousands). The 2013 amounts exclude Jamestown Terrace and Virginia Park Meadows for which the Partnership assigned its limited partnership interest in 2013.
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||
| 2014 |
| 2013 |
| 2014 |
| 2013 |
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Revenues: |
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Rental and other income | $ 754 |
| $ 699 |
| $ 1,470 |
| $ 1,387 |
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Expenses |
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Operating expenses | 514 |
| 422 |
| 1,028 |
| 845 |
Interest | 150 |
| 143 |
| 300 |
| 286 |
Depreciation and amortization | 137 |
| 131 |
| 273 |
| 263 |
Total expenses | 801 |
| 696 |
| 1,601 |
| 1,394 |
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Loss from continuing operations | $ (47) |
| $ 3 |
| $ (131) |
| $ (7) |
An affiliate of the General Partner is currently the Local Operating General Partner in one of the Partnerships two Local Partnerships included above.
Note 3 Mortgage Note Receivable
On May 30, 2006, the Partnership purchased the second mortgage for a Local Partnership, Michigan Beach, from the second mortgage holder, PAMI Midatlantic, LLC (PAMI) for a purchase price of $4,320,000. The second mortgage had a principal balance of approximately $3,596,000 and accrued interest outstanding at the time of the purchase.
PAMI had filed an action for foreclosure and the appointment of a receivor for the alleged failure to make surplus cash payments and provide required financial reporting. As a result of the purchase, the Partnership was substituted in place of PAMI in the foreclosure action and then the Partnership dismissed the foreclosure action with prejudice on June 9, 2006. The Partnership is the sole limited partner in Michigan Beach.
The second mortgage accrues interest at a fixed rate of 6.11%. Semiannual payments from 50% of surplus cash are required and the note matures in July of 2031. There is an option to the noteholder to accelerate maturity of the second mortgage after October of 2008. There have been no payments made on the loan. The Partnership recognized approximately $55,000 in equity in loss from Michigan Beach during the six months ended June 30, 2013, and reduced the carrying value of the mortgage note receivable. With respect to the second mortgage from Michigan Beach, the Partnership has fully reserved any accrued interest.
Note 4 Transactions with Affiliated Parties
Under the terms of its Partnership Agreement, the Partnership is obligated to the General Partner for the following fees:
(a)
An annual Partnership management fee in an amount equal to 0.5 percent of invested assets (as defined in the Partnership Agreement) at the beginning of the year is payable to the General Partner. For the six months ended June 30, 2014 and 2013, partnership management fees in the amount of approximately $31,000 and $53,000, respectively were recorded as an expense.
(b)
A property disposition fee is payable to the General Partner in an amount equal to the lesser of (i) one-half of the competitive real estate commission that would have been charged by unaffiliated third parties providing comparable services in the area where the apartment complex is located, or (ii) 3 percent of the sale price received in connection with the sale or disposition of the apartment complex or local partnership interest, but in no event will the property disposition fee and all amounts payable to unaffiliated real estate brokers in connection with any such sale exceed in the aggregate, the lesser of the competitive rate (as described above) or 6 percent of such sale price. Receipt of the property disposition
10
NATIONAL TAX CREDIT INVESTORS II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
fee will be subordinated to the distribution of sale or refinancing proceeds by the Partnership until the limited partners have received distributions of sale or refinancing proceeds in an aggregate amount equal to (i) their 6 percent priority return for any year not theretofore satisfied (as defined in the Partnership Agreement) and (ii) an amount equal to the aggregate adjusted investment (as defined in the Partnership Agreement) of the limited partners. No disposition fees have been paid or accrued.
(c)
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $14,000 for the six months ended June 30, 2014 and 2013 and is included in general and administrative expenses.
NTC-II or another affiliate of the General Partner is the Local Operating General Partner in one of the Partnership's two Local Partnerships at June 30, 2014. In addition, NTC-II is typically either a special limited partner or an administrative general partner in each Local Partnership in which the Partnership has an investment.
The General Partner is not obligated to advance funds to the Partnership for operations or to fund Partnership advances to Local Partnerships, but may voluntarily do so from time to time. There were no advances received by the Partnership during the six months ended June 30, 2014 and 2013. The Partnership may receive future advances of funds from the General Partner although the General Partner is not obligated to provide such advances.
Note 5 Partnership Income Taxes
The Partnership was subject to a New Jersey tax based upon the number of resident and non-resident limited partners and apportionment of income related to the Partnerships investment in certain Local Partnerships. During the year ended December 31, 2012, the Partnership paid approximately $66,000 as a required deposit for estimated 2012 New Jersey taxes, which was based on half of the previous years taxes. However, the Partnerships estimate of the actual tax due for 2012 was approximately $12,000. The remaining balance paid of approximately $54,000 is reflected as other asset on the accompanying balance sheet at June 30, 2014 and 2013. As a result of the sale of Countryside during 2012(Note 2), the Partnership is no longer subject to paying New Jersey taxes.
Note 6 Fair Value of Financial Instruments
Financial Accounting Standards Board Accounting Standards Codification Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. At June 30, 2014, the Partnership believes that the carrying amount of other assets and liabilities reported on the balance sheet that require such disclosure approximated their fair value due to the short-term maturity of these instruments.
Note 7 - Contingencies
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
Note 8 - Subsequent Event
The Partnerships management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.
11
Item 2.
Management's Discussion And Analysis Of Financial Condition and Results Of Operations
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond the Partnerships control, including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnerships cash flows from operations may be insufficient to meet required payments of principal and interest; national and local economic conditions, including the pace of job growth and the level of unemployment; the terms of governmental regulations that affect the Partnership and its investment in limited partnerships and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the limited partnerships in which the Partnership has invested. Readers should carefully review the Partnerships financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.
The General Partner monitors developments in the area of legal and regulatory compliance.
Liquidity and Capital Resources
Some of the properties in which the Partnership has invested, through its investment in other limited partnerships (Local Partnerships), receive one or more forms of assistance from the Federal Government. As a result, the Local Partnerships ability to transfer funds either to the Partnership or among themselves in the form of cash distributions, loans or advances may be restricted by these government assistance programs. These restrictions, however, are not expected to impact the Partnerships ability to meet its cash obligations.
As of June 30, 2014 and December 31, 2013, the Partnership had cash and cash equivalents of approximately $3,267,000 and $3,577,000, respectively. The decrease in cash and cash equivalents of approximately $310,000 is due to approximately $194,000 of cash used by investing activities, approximately $10,000 provided to financing activities, and approximately $126,000 of cash used in operating activities. Cash used by investing activities primarily consisted of advances to Local Partnerships recognized as expense.
The Partnerships primary source of funds is the receipt of distributions from Local Partnerships in which the Partnership has invested. It is not expected that any of the Local Partnerships in which the Partnership invests will generate cash from operations sufficient to provide distributions to the Limited Partners in any material amount. Such cash from operations, if any, would first be used to meet operating expenses of the Partnership. The Partnership's investments are not readily marketable and may be affected by adverse general economic conditions which, in turn, could substantially increase the risk of operating losses for the projects, the Local Partnerships and the Partnership. These problems may result from a number of factors, many of which cannot be controlled by the General Partner.
The General Partner is not obligated to advance funds to the Partnership for operations or to fund Partnership advances to Local Partnerships, but may voluntarily do so from time to time. There were no advances received by the Partnership during the six months ended June 30, 2014 and 2013. The Partnership may receive future advances of funds from the General Partner although the General Partner is not obligated to provide such advances.
The General Partner has the right to cause distributions received by the Partnership from the Local Partnerships (that would otherwise be available for distributions as cash flow) to be dedicated to the increase or replenishment of reserves at the Partnership level. The reserves will generally be available to satisfy working capital or operating expense needs of the Partnership (including payment of partnership management fees) and will also be available to pay any excess third-party costs or expenses incurred by the Partnership in connection with the administration of the Partnership, the preparation of reports to the Limited Partners and other investor servicing obligations of the Partnership. At the discretion of the General Partner, reserves may be available for advances to the Local Partnerships.
12
The Partnership does not have the ability to assess Limited Partners for additional capital contributions to provide capital if needed by the Partnership or Local Partnerships. Accordingly, if circumstances arise that cause the Local Partnerships to require capital in addition to that contributed by the Partnership and any equity of the local general partners, the only sources from which such capital needs will be able to be satisfied (other than the limited reserves available at the Partnership level) will be (i) third-party debt financing (which may not be available if, as expected, the projects owned by the Local Partnerships are already substantially leveraged), (ii) other equity sources (which could adversely affect the Partnership's interest in operating cash flow and/or proceeds of sale or refinancing of the projects which would result in adverse tax consequences to the Limited Partners), or (iii) the sale or disposition of projects. There can be no assurance that any of such sources would be readily available in sufficient proportions to fund the capital requirements of the Local Partnerships. If such sources are not available, the Local Partnerships would risk foreclosure on their projects if they were unable to renegotiate the terms of their first mortgages and any other debt secured by the projects, which would have significant adverse tax consequences to the Limited Partners.
Results of Operations
The Partnership was formed to provide various benefits to its Limited Partners. It is not expected that any of the Local Partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to Limited Partners in any material amount. The Partnership accounts for its investments in the Local Partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the Local Partnerships. The investments in all four Local Partnerships have been reduced to zero as of June 30, 2014. As discussed in Note 3 included in the financial statements in Item 1. Financial Statements, during 2006 the Partnership acquired the mortgage note receivable with respect to a Local Partnership that is obligated under the mortgage note.
Because of (i) the nature of the apartment complexes, (ii) the difficulty of predicting the resale market for low-income housing in the future, and (iii) the inability of the Partnership to directly cause the sale of apartment complexes by local general partners, but generally only to require such local general partners to use their respective best efforts to find a purchaser for the apartment complexes, it is not possible at this time to predict whether the liquidation of substantially all of the Partnerships assets and the disposition of the proceeds, if any, in accordance with the Partnership Agreement will occur. If a Local Partnership is unable to sell an apartment complex, it is anticipated that the local general partner will either continue to operate such apartment complex or take such other actions as the local general partner believes to be in the best interest of the Local Partnership.
The Partnership, as a limited partner in the Local Partnerships in which it has invested, is subject to the risks incident to the management and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions, and accordingly, the status of the national economy, including substantial unemployment and concurrent inflation, could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects.
The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Partnerships using the equity method. Thus the individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. However, since the Partnership is not legally liable for the obligations of the Local Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once its investment in each of the Local Partnerships reaches zero. Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. Subsequent distributions received are recognized as income in the statements of operations. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received, and amortization of acquisition costs from those Local Partnerships. During the six months ended June 30, 2013, the Partnership recognized equity in loss of approximately $55,000, from one Local Partnership, Michigan Beach, that reduced the carrying amount of the mortgage note receivable due from the Local Partnership.
At times, advances are made to Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnerships investment in limited partnerships. Advances made to Local Partnerships in which the investment balance has been reduced to zero or repayment is uncertain are charged to expense. The Partnership made advances of approximately $194,000 and $680,000 to Michigan Beach during the six months ended June 30, 2014 and 2013, respectively, for operations and capital expenditures at the property. While not obligated to make advances to any of the Local Partnerships, the Partnership may make future advances in order to protect its economic investment in the Local Partnerships.
13
At June 30, 2014, the investment balance in one of the two Local Partnerships had been reduced to zero. The Partnership's remaining investment balance relates to the mortgage note receivable.
The Partnerships net loss for the three and six months ended June 30, 2014 was approximately $(162,000) and $(302,000) compared to net loss of approximately $(539,000)and $(862,000) for the three and six months ended June 30, 2013. The decrease in net loss is due to a decrease in operating expenses and a decrease in equity in loss of Local Partnerships.
A recurring Partnership expense is the annual partnership management fee. The fee, as defined in the Partnership Agreement, is payable to the General Partner and is calculated at 0.5% of the Partnerships invested assets as of the beginning of the year. The management fee represents the annual recurring fee which will be paid to the General Partner for its continuing management of Partnership affairs. Management fees were approximately $31,000 and $53,000 for the six months ended June 30, 2014 and 2013, and approximately $16,000 and $26,000 for the three months ended June 30, 2014 and 2013.
Operating expenses, exclusive of the management fee, consist of legal and accounting expenses for services rendered to the Partnership, tax expense and general and administrative expenses. Legal and accounting expenses were approximately $36,000 and $48,000 for the six months ended June 30, 2014 and 2013, respectively, and $16,000 and $23,000 for the three months ended June 30, 2014 and 2013. General and administrative expenses were approximately $41,000 and $26,000 for the six months ended June 30, 2014 and 2013, and $25,000 and $16,000 for the three months ended June 30, 2014 and 2013. The increase is due to an increase in investor services fee due to a change in transfer agents.
Off-Balance Sheet Arrangements
The Partnership owns limited partnership interests in unconsolidated Local Partnerships, in which the Partnerships ownership percentage ranges from 98.9% to 99.0%. However, based on the provisions of the relevant partnership agreements, the Partnership, as a limited partner, does not have control or a contractual relationship with the Local Partnerships that would require or allow for consolidation under accounting principles generally accepted in the United States (see Note 1 Organization and Summary of Significant Accounting Policies of the financial statements in Item 1. Financial Statements). There are no lines of credit, side agreements or any other derivative financial instruments between the Local Partnerships and the Partnership. Accordingly the Partnerships maximum risk of loss related to these unconsolidated Local Partnerships is limited to the recorded investments in and receivables from the Local Partnerships. See Note 2 Investments In and Advances to Local Partnerships of the financial statements in Item 1. Financial Statements for additional information about the Partnerships investments in unconsolidated Local Partnerships.
Other
Bethesda and its affiliates owned 512 limited partnership interests (the "Interests") in the Partnership representing 0.71% of the outstanding Interests in the Partnership at June 30, 2014. It is possible that Bethesda or its affiliates will acquire additional Interests in the Partnership either through private purchases or tender offers. Pursuant to the Partnership Agreement, interest holders holding a majority of the Interests are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to Bethesda as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to Bethesda as its sole stockholder.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entitys activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entitys activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIEs economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
14
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIEs economic performance and which party controls such activities; the amount and characteristics of the Partnerships investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At June 30, 2014 and December 31, 2013, the Partnership held variable interests in two VIEs for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Partnerships, that the general partner of each of the Local Partnerships is the primary beneficiary of the respective Local Partnership. In making this determination, the Partnership considered the following factors:
·
the general partners conduct and manage the business of the Local Partnerships;
·
the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Partnerships underlying real estate properties;
·
the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Partnerships;
·
the general partners are obligated to fund any recourse obligations of the Local Partnerships;
·
the general partners are authorized to borrow funds on behalf of the Local Partnerships; and
·
the Partnership, as a limited partner in each of the Local Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Partnerships that most significantly impact such entities economic performance.
The two VIEs at June 30, 2014 consist of Local Partnerships that are directly engaged in the ownership and management of two apartment properties with a total of 355 units. The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. The Partnerships maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from these VIEs, which was approximately $3,478,000 at June 30, 2014 and December 31, 2013. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Method of Accounting for Investments in Limited Partnerships
The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage of 98.90% to 99%. Distributions of surplus cash from operations from three of the Local Partnerships are restricted by the Local Partnerships Regulatory Agreements with the United States Department of Housing and Urban Development (HUD). These restrictions limit the distribution to a percentage, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. For the other Local Partnership, distributions of surplus cash are not restricted. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnership's distributions to an amount substantially less than its ownership percentage in the Local Partnership.
15
The individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero. Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the statements of operations.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
Revenue Recognition Deposit Method
Profit on the sale of limited partnership interests shall not be recognized under the full accrual method until all of the following criteria are met: a sale is consummated, the buyers initial and continuing investments are adequate, the sellers receivable is not subject to future subordination and the risks of ownership have transferred to the buyer. The Partnership recognizes gains on sale of limited partnership interests using the deposit method when all of the criteria for the full accrual method are not met. Under the deposit method no gain is recognized, no receivable from the buyer is recorded at the closing date and any cash received from the buyer is reported as a deposit liability on the balance sheet. As a result, the Partnership continues to carry the investment on its financial statements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4.
Controls And Procedures
(a)
Disclosure Controls and Procedures.
The Partnerships management, with the participation of the Senior Managing Director and VP of Finance/CFO of Bethesda, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Senior Managing Director and VP of Finance/CFO of Bethesda, who are the equivalent of the Partnerships principal executive officer and chief financial officer, respectively, have concluded that, as of the end of such period, the Partnerships disclosure controls and procedures are effective.
(b)
Changes in Internal Control Over Financial Reporting.
There has been no change in the Partnerships internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnerships internal control over financial reporting.
16
PART II - OTHER INFORMATION
Item 6.
Exhibits
See Exhibit Index Attached.
The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
·
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
·
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
·
may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and
·
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnerships other public filings, which are available without charge through the SECs website at http://www.sec.gov.
17
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.
| NATIONAL TAX CREDIT INVESTORS II |
| (a California limited partnership) |
|
|
| By: National Partnership Investments Corp. |
| General Partner |
|
|
Date: August 14, 2014 | By: /s/Brian Flaherty |
| Brian Flaherty |
| Senior Managing Director |
|
|
Date: August 14, 2014 | By: /s/Joseph Dryden |
| Joseph Dryden |
| V.P. of Finance/CFO |
|
|
18
NATIONAL TAX CREDIT INVESTORS II
EXHIBIT INDEX
Exhibit
Description of Exhibit
3
Partnership Agreement (herein incorporated by reference to the Partnership's Form S-11 Registration No. 33-27658).
31.1
Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
XBRL (Extensible Business Reporting Language). The following materials from National Tax Credit Investors IIs Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, formatted in XBRL: (i) balance sheets, (ii) statements of operations, (iii) statement of changes in partners (deficiency) capital, (iv) statements of cash flows, and (v) notes to financial statements (1)
(1)
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
19
Exhibit 31.1
CERTIFICATION
I, Brian Flaherty, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of National Tax Credit Investors II;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2014
/s/Brian Flaherty
Brian Flaherty
Executive Vice President of National Partnership Investments Corp., equivalent of the chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Joseph Dryden, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of National Tax Credit Investors II;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2014
/s/Joseph Dryden
Joseph Dryden
V.P. of Finance/CFO
Exhibit 32.1
Certification of CEO and CFO |
Pursuant to 18 U.S.C. Section 1350, |
As Adopted Pursuant to |
Section 906 of the Sarbanes-Oxley Act of 2002 |
In connection with the Quarterly Report on Form 10-Q of National Tax Credit Investors II (the "Partnership"), for the quarterly period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Brian Flaherty, as the equivalent of the chief executive officer of the Partnership, and Joseph Dryden, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
| /s/Brian Flaherty |
| Name: Brian Flaherty |
| Date: August 14, 2014 |
|
|
| /s/Joseph Dryden |
| Name: Joseph Dryden |
| Date: August 14, 2014 |
This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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M-;M'&N() Note 4 Transactions with Affiliated Parties Under the terms of its Partnership Agreement, the Partnership is obligated to the General Partner for the following fees: (a) An annual Partnership management fee in an amount equal to 0.5 percent of invested assets (as defined in the Partnership Agreement) at the beginning of the year is payable to the General Partner. For the six months ended June 30, 2014 and 2013, partnership management fees in the amount of approximately $31,000 and $53,000, respectively were recorded as an expense. (b) A property disposition fee is payable to the General Partner in an amount equal to the lesser of (i) one-half of the competitive real estate commission that would have been charged by unaffiliated third parties providing comparable services in the area where the apartment complex is located, or (ii) 3 percent of the sale price received in connection with the sale or disposition of the apartment complex or local partnership interest, but in no event will the property disposition fee and all amounts payable to unaffiliated real estate brokers in connection with any such sale exceed in the aggregate, the lesser of the competitive rate (as described above) or 6 percent of such sale price. Receipt of the property disposition fee will be subordinated to the distribution of sale or refinancing proceeds by the Partnership until the limited partners have received distributions of sale or refinancing proceeds in an aggregate amount equal to (i) their 6 percent priority return for any year not theretofore satisfied (as defined in the Partnership Agreement) and (ii) an amount equal to the aggregate adjusted investment (as defined in the Partnership Agreement) of the limited partners. No disposition fees have been paid or accrued. (c) The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $14,000 for the six months ended June 30, 2014 and 2013 and is included in general and administrative expenses. NTC-II or another affiliate of the General Partner is the Local Operating General Partner in one of the Partnership's two Local Partnerships at June 30, 2014. In addition, NTC-II is typically either a special limited partner or an administrative general partner in each Local Partnership in which the Partnership has an investment. The General Partner is not obligated to advance funds to the Partnership for operations or to fund Partnership advances to Local Partnerships, but may voluntarily do so from time to time. There were no advances received by the Partnership during the six months ended June 30, 2014 and 2013. The Partnership may receive future advances of funds from the General Partner although the General Partner is not obligated to provide such advances. EJB%2'(RY6*O4,+YR7D`/!#5\O,#PX),Q/(`4
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M0$I*DHTVLOKG0(%-RG'9U.Z98
3 Months Ended
6 Months Ended
Details
Number of limited partnership interests in EPS calculation
72,032
72,017
6 Months Ended
Notes
Note 4 - Transactions With Affiliated Parties