UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2001	Commission file number 2-89185

 

GULLEDGE REALTY INVESTORS II, L.P.

 

State of Organization: **VIRGINIA**	I.R.S. Employer Identification No. 54-1191237

 

One North Jefferson Avenue

St. Louis, Missouri 63103

 

 

Registrant's telephone number, including area code: (314) 955-4188

 

 

 

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 of such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 

 

 

 

 

 

 

GULLEDGE REALTY INVESTORS II, L.P.

(A Limited Partnership)

 

INDEX

 

	PAGE
PART I.	FINANCIAL INFORMATION: 

	Balance Sheets (Unaudited)	1

	Statements of Operations (Unaudited)	2

	Statements of Changes in Partners' Deficit (Unaudited)	3

	Statements of Cash Flows (Unaudited)	4

	Notes to Financial Statements (Unaudited)	5-8

	Management's Financial Discussion	9

PART II.	OTHER INFORMATION	10

	SIGNATURES	11
** 

Balance Sheets

(Unaudited)**
 

 
March 31,
December 31,
ASSETS
2001
2000
 
 
 
 
 
 
Cash and cash equivalents
$39,588
$14,740
 
 
 
Advances to Project Partnerships
2,646
6,751
 
 
 
Investment in Project Partnership (Note B)
246,271
254,246
 
 
 
Distributions Receivable
--
20,549
 
 
 
Total Assets
$288,505
$296,286
 

 

LIABILITIES AND PARTNERS' DEFICIT
 
 
 
 
 
Accounts payable
$13,500
$10,200
 
 
 
Payable to affiliates
743,945
704,300
 
 
 
Note payable and accrued
 
 
interest payable (Note B) 
3,801,071
3,723,543
 
 
 
Capital contributions payable
50,000
50,000
 
 
 
Total Liabilities
4,608,516
4,488,043
 
 
 
Partners' Deficit
(4,320,011)
(4,191,757)
 
 
 
Total Liabilities and
 
 
Partners' Deficit
$288,505
$296,286
See Notes to Financial Statements. 
**Statements of Operations

(Unaudited)**
 

 

 
Three Months Ended
 
 
March 31,
 
 
2001
2000
 
 
 
Revenue:
 
 
 
 
 
Interest income
$195
$175
 
 
 
Equity in (loss)/income of Project Partnership
(7,975)
51,188
 
 
 
 
(7,780)
51,363
Expenses:
 
 
 
 
 
Asset management fee
28,645
28,645
 
 
 
Professional fees
2,550
7,150
 
 
 
Consulting fees
11,000
11,000
 
 
 
Operating expenses
750
750
 
 
 
Interest expense (Note B)
77,529
78,390
 
 
 
 
120,474
125,935
 
 
 
Net loss
$(128,254)
$(74,572)
 

 

 

 

 

 

 

 

 

See Notes to Financial Statements.

 

 
**Statements of Changes in Partners' Deficit

(Unaudited)

Three Months Ended March 31, 2001 and 2000**
 

 

 
 
 
Special
 
 
Total
General
Limited
Limited
 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2000
$(3,882,659)
$(51,330)
$(89,940)
$(3,741,389)
 
 
 
 
 
Net loss for three months
 
 
 
 
ended March 31, 2000
(74,572)
(820)
(1,417)
(72,335)
 
 
 
 
 
 
 
 
 
 
Balances at March 31, 2000
$(3,957,231)
$(52,150)
$(91,357)
$(3,813,724)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2001
$(4,191,757)
$(54,730)
$(95,813)
$(4,041,214)
 
 
 
 
 
Net loss for three months
 
 
 
 
ended March 31, 2001
(128,254)
(1,411)
(2,437)
(124,406)
 
 
 
 
 
Balances at March 31, 2001
$(4,320,011)
$(56,141)
$(98,250)
$(4,165,620)
 
 
 
 
 
 
 
 
 
 
Number of ownership units
11,814
131
225
11,458
 

 

 

 

 

 

 

 

See Notes to Financial Statements.
**Statements of Cash Flows

(Unaudited)**
 

 
Three Months Ended
 
 
March 31,
 
 
 
 
 
2001
2000
 
 
 
Cash Flows From Operating Activities:
 
 
Net loss
$(128,254)
$(74,572)
Adjustments to reconcile net loss
 
 
to net cash from operating activities:
 
 
Equity in loss (income) of Project Partnership
7,975
(51,188)
Distributions from zero-basis Project Partnerships
--
--
Change in assets and liabilities:
 
 
Advances to Project Partnerships
4,105
(825)
Accounts payable
3,300
2,750
Payable to affiliates
39,645
45,620
Accrued interest on note payable
77,528
78,390
 
 
 
 
 
 
 
 
 
Net Cash From Operating Activities
4,299
175
 
 
 
Cash Flows from Investing Activities-
 
 
Distributions from Project Partnerships
20,549
--
 
 
 
Net Change in Cash and Cash Equivalents
24,848
175
 
 
 
Cash and Cash Equivalents Beginning of Period
14,740
14,777
 
 
 
Cash and Cash Equivalents End of Period
$39,588
$14,952
 

 

 

 

 

 

 

 

 

See Notes to Financial Statements.
**NOTES TO FINANCIAL STATEMENTS

Three Months Ended March 31, 2001 and 2000

(Unaudited)**
 

Note A	Summary of Significant Accounting Policies
Partnership Organization

Gulledge Realty Investors II, L.P. (the Registrant) is a limited partnership organized in December 1983 under the laws of the Commonwealth of Virginia for the purpose of acquiring limited partner interests in real estate limitedpartnerships ("Project Partnerships"). These Project Partnerships include Colony Place Associates, Ltd. ("Colony"), Country Oaks Apartments Limited Partnership, Hawthorn Housing Limited Partnership ("Hawthorn"), Olympic Housing Limited Partnership("Olympic"), Pine West, Ltd., and Rancho Vista Associates. The Project Partnerships previously included Florence Housing Associates ("Florence") and Greentree Housing Limited Partnership, which assets were sold in 2000 and 1999 respectively. Each of theProject Partnerships is an operating real estate project which receives mortgage interest subsidies and/or rental assistance from the United States Department of Housing and Urban Development (HUD) or Farmer's Home Administration. The Registrant commencedoperations in March 1984.

The financial statements include only those assets, liabilities, and results of operations which relate to the business of the Registrant and do not include any assets, liabilities, or operating results attributable to the partners'individual activities. These financial statements should be read in conjunction with the Registrant's annual report on Form 10-K for the year ended December 31, 2000. All adjustments which, in the opinion of management, are necessary for a fairpresentation of the results of operations for the interim period have been reflected. All such adjustments consist of normal recurring accruals, unless otherwise disclosed in these interim financial statements. The results of operations, for the ninemonths ended March 31, 2001, are not necessarily indicative of the results for the year ending December 31, 2001. Where appropriate, prior year's financial information has been reclassified to conform with the current year presentation.

Comprehensive losses for the three month periods ended March 31, 2001 and 2000 were equal to the Registrant's net losses.

Cash and Cash Equivalents

Cash equivalents consist of interest bearing money market account balances.

 
**NOTES TO FINANCIAL STATEMENTS

Three Months Ended March 31, 2001 and 2000

(Unaudited)**
(Continued)

 

Investments in Project Partnerships

The investment in Project Partnerships is accounted for using the equity method of accounting. Under the equity method, investments are reflected at cost, adjusted for the Registrant's share of the Project Partnerships' income orloss. The Registrant is under no obligation to contribute additional capital, or to lend monies necessary to fund cash flow deficiencies of the Project Partnerships, because the Registrant is a limited partner in such partnerships. The investment accountwill not be reduced below zero because the Partnership is not liable for Project Partnership losses in excess of such investment. Losses in subsequent years will be maintained separately for tax purposes. These losses are available to be applied towardany possible future income from these Project Partnerships. Any distributions received from the Project Partnerships, subsequent to reducing the investment account to zero, will be recognized as income in the year received.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from these estimates.

Income Taxes

No provision has been made for current or deferred income taxes since they are the responsibility of each partner. Profits (or gains) and losses of the Registrant are allocated to the partners in accordance with the partnershipagreement. 

Segment Reporting

The Partnership's principal line of business is investing in Project Partnerships that own and operate Projects that are financed and/or operated under federal or state housing assistance programs. Management has considered therequirements of SFAS 131 and believes that the partnership operates in one business segment.
**NOTES TO FINANCIAL STATEMENTS

Three Months Ended March 31, 2001 and 2000

(Unaudited)**
(Continued)

Derivative Instruments and Hedging Activities

In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 138, *Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment ofFASB Statement No. 133.*In June 1999, the FASB also issued SFAS No. 137, *Accounting for Derivative Instruments and Hedging Activities-Deferred of the Effective Date of FASB Statement No. 133*. SFAS No. 137 defers the provisions of SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities* until January 1, 2001. SFAS No. 133, as amended by SFAS No. 138, requires, among other things, that all derivatives, be recognized in the balance sheets as either assets or liabilities and measured at fair value. The corresponding derivativegains an losses should be reported based upon the hedge relationship. If such a relationship exists, changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS No. 133 are requiredto be reported in income. Effective January 1, 2001, the Partnership adopted these Statements. This adoption did not have an impact on the Partnership's financial statements. 

Reclassifications

Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation.

Note B	Investment in Project Partnership and Note Payable
Hawthorn refinanced its mortgage during 1997. Proceeds from the refinancing were used to make a partial payment on the promissory note which had come due December 31, 1996. The remaining balance of the promissory note wasrenegotiated. The mortgage was refinanced under HUD regulations which limit the amount of debt that can be collateralized by the project. Accordingly, HUD would not approve the mortgage refinance unless the promissory note was no longer a liability of theproject. Therefore, the general partner of the Registrant and the noteholder agreed to have the promissory note assumed by the Registrant. The promissory note is now collateralized by the partners' interests in Hawthorn. Principal and interest due on thepromissory note are only payable from surplus cash received by the Registrant from Hawthorn. The Registrant is not required to make any payments from surplus cash it receives from any other project. The promissory note plus accrued interest totaled$3,801,071 at March 31, 2001, and bears simple interest at a rate of 9%. Any principal and interest remaining unpaid on June 30, 2002, will be due in full.

 
**NOTES TO FINANCIAL STATEMENTS

Three Months Ended March 31, 2001 and 2000

(Unaudited)**
(Continued)

 

In conjunction with assuming the liability for the promissory note, the Registrant also recorded a corresponding investment in Hawthorn. The investment account was then reduced by previously unrecorded losses of Hawthorn in accordancewith the equity method of accounting. The investment account will be adjusted in future years by the Registrant's share of any additional income or loss from Hawthorn as reported on Hawthorn's periodic financial statements. This investment account willalso be reduced whenever the Registrant receives a distribution from Hawthorn. Therefore, until the investment account is reduced to zero, the Registrant will not recognize distribution income in future years from Hawthorn.

None of the Project Partnerships are experiencing significant cash flow deficiencies after adding back non-cash items such as depreciation, amortization and accrued interest on promissory notes not currently payable to the operatinglosses of the Project Partnerships. 
**MANAGEMENT'S FINANCIAL DISCUSSION

For the Three Months Ended March 31, 2001 and 2000**
 

The Registrant is a limited partnership formed to acquire limited partner interests in real estate limited partnerships (Project Partnerships). The Registrant's investments in the Project Partnerships are recorded using theequity method of accounting (see Note A).

The primary reason for the increase in net loss for the three months ended March 31, 2001 compared to the three months ended March 31, 2000 was due to a decrease in equity in (loss)/income of Project Partnership, partially offset by adecrease in professional fees and interest expense. 

The Registrant is liable for a promissory note that bears simple interest at a rate of 9%. Principal and interest payable totaled $3,801,071 at March 31, 2001. Principal and interest can only be paid from distributions received fromHawthorn. The Registrant is not required to use distributions from any other Project Partnership to make payments on this promissory note.

The Registrant's ownership interest in two other Project Partnerships (Colony Place and Olympic Housing) is pledged as collateral in connection with promissory notes issued by the respective Project Partnerships. The Colony Placepromissory note was due June 30, 1997 and had been extended to November 30, 1999, while the general partner attempted to locate a buyer for the project. A buyer was not located before November 30, 1999. This note is currently in default.Therefore, the noteholder may demand payment and the project may revert to the noteholder. The Olympic Housing promissory note expired December 31, 2000. This note is currently in default. The noteholder has notified Olympic of its demand for payment.Therefore, the project may revert to the noteholder at any time. 
**For the Three Months Ended March 31, 2001 and 2000

PART II OTHER INFORMATION

 

 

Item 6:	Exhibits and Reports on Form 8-K
	(b)	Reports on Form 8-K - There were no reports filed on Form 8-K for the quarter ended March 31 2001.

 

 

 
**SIGNATURES**
 

Pursuant to the requirements of Section 13 or 15(d) 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. 

 

	GULLEDGE REALTY INVESTORS II, L.P.

	By:	GULL-AGE Properties, Inc.

		Managing General Partner

 

 

 

Date: 	May 15, 2001		By:	/s/Douglas L. Kelly

	Douglas L. Kelly

	President, Secretary, Treasurer

	 and Director

 **