FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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: 333-76435
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 7
California 33-0761517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 Redhill Avenue, Suite 120
Costa Mesa, CA 92626
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
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.
Yes No X
--------- -----------
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 2002 and March 31, 2002 .......................................3
Statements of Operations
For the three months ended June 30, 2002 and 2001.......................4
Statement of Partners' Equity (Deficit)
For the three months ended June 30, 2002................................5
Statements of Cash Flows
For the three months ended June 30, 2002 and 2001.......................6
Notes to Financial Statements.............................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risks.......16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................16
Signatures ................................................................17
Certification Pursuant To 18 U.S.C. Section 1350...........................18
2
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
BALANCE SHEETS
June 30, 2002 March 31, 2002
----------------------- ----------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 3,201,896 $ 2,886,305
Funds held in escrow disbursement accounts - 591,512
Investments in limited partnerships (Note 3) 14,087,108 13,125,199
Loans receivable (Note 2 and 8) 960,808 953,241
----------------------- ----------------------
$ 18,249,812 $ 17,556,257
======================= ======================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Due to limited partnerships (Note 5) $ 2,358,636 $ 1,552,985
Accrued fees and expenses due to General
Partner and affiliates (Note 4) 137,975 132,577
----------------------- ----------------------
Total liabilities 2,496,611 1,685,562
----------------------- ----------------------
Commitment and contingencies (Note 7)
Partners' equity (deficit):
General Partner (2,248) (2,131)
Limited Partners (25,000 units authorized and 18,850
units issued and outstanding at
June 30, and March 31, 2002) 15,755,449 15,872,826
----------------------- ----------------------
Total partners' equity 15,753,201 15,870,695
----------------------- ----------------------
$ 18,249,812 $ 17,556,257
======================= ======================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002 and 2001
(unaudited)
2002 2001
------------------------ --------------------------
Three months Three months
------------------------ --------------------------
Interest income $ 12,512 $ 50,288
------------------------ --------------------------
Operating expenses:
Amortization (Note 3) 14,229 14,229
Asset management fees (Note 4) 8,998 10,557
Legal and accounting fees 10,859 4,959
Other 3,815 3,169
------------------------ --------------------------
Total operating expenses 37,901 32,914
------------------------ --------------------------
Income (loss) from operations (25,389) 17,374
------------------------ --------------------------
Equity in losses of limited partnerships (Note 3) (92,105) (33,557)
------------------------ --------------------------
Net loss $ (117,494) $ (16,183)
======================== ==========================
Net loss allocated to:
General Partner $ (117) $ (16)
======================== ==========================
Limited Partners $ (117,377) $ (16,167)
======================== ==========================
Net loss per limited partnership unit $ (6) $ (1)
======================== ==========================
Outstanding weighted average 18,850 18,166
limited partner units
======================== ==========================
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three Months Ended June 30, 2002
(unaudited)
General Limited
Partner Partners Total
---------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2002 $ (2,131) $ 15,872,826 $ 15,870,695
Net loss (117) (117,377) (117,494)
---------------- ---------------- ------------------
Partners' equity (deficit) at June 30, 2002 $ (2,248) 15,755,449 15,753,201
================ ================ ==================
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2002 and 2001
(unaudited)
2002 2001
------------------- ---------------
Cash flows from operating activities:
Net loss $ (117,494) $ (16,183)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 14,229 14,229
Equity in losses of limited partnerships 92,105 33,557
Accrued fees and expenses due to General
Partner and affiliates 5,398 16,430
------------------- ---------------
Net cash (used in) provided by operating activities (5,762) 48,033
------------------- ---------------
Cash flows from investing activities:
Investments in limited partnerships, net (1,068,243) (3,254,309)
Funds held in escrow disbursement account 591,512 2,792,777
Loans receivable (7,567) -
Notes payable to limited partnerships 805,651 -
------------------- ---------------
Net cash provided by (used in) investing activities 321,353 (461,532)
------------------- ---------------
Cash flows from financing activities:
Capital contributions - 153,500
Offering expenses - (7,140)
------------------- ---------------
Net cash provided by financing activities - 146,360
------------------- ---------------
Net increase (decrease) in cash and cash equivalents 315,591 (267,139)
------------------- ---------------
Cash and cash equivalents, beginning of period 2,886,305 5,103,916
------------------- ---------------
Cash and cash equivalents, end of period $ 3,201,896 $ 4,836,777
=================== ===============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Taxes paid $ 800 $ 800
=================== ===============
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2003. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended March 31,
2002.
Organization
- ------------
WNC Housing Tax Credit Fund VI, L.P., Series 7, (a California Limited
Partnership) (the "Partnership") was formed on June 16, 1997 under the laws of
the state of California. The Partnership began operations on September 3, 1999,
the effective date of its public offering pursuant to Security and Exchange
approval of the Partnership's Pre-Effective Amendment No. 3 to Form S-11 filed
with the Securities and Exchange Commission on July 16, 1999. The Partnership
was formed to invest primarily in other limited partnerships (the "Local Limited
Partnerships") which own and operate multi-family housing complexes (the
"Housing Complexes") that are eligible for low income housing tax credits. The
local general partners (the "Local General Partners") of each Local Limited
Partnership will retain responsibility for maintaining, operating and managing
the Housing Complex.
The general partner is WNC & Associates, Inc. ("WNC") (the "General Partner"), a
California limited partnership. The chairman and president own substantially all
of the outstanding stock of WNC. The business of the Partnership is conducted
primarily through WNC, as the Partnership has no employees of its own.
The Partnership shall continue in full force and effect until December 31, 2060,
unless terminated prior to that date, pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership agreement authorized the sale of up to 25,000 units at $1,000
per Unit ("Units"). As of June 30, 2002, 18,850 Units representing subscriptions
in the amount of $18,828,745 had been sold, net of volume discounts of $45 and
$21,210 of dealer discounts, had been accepted. The General Partner has a 0.1%
interest in operating profits and losses, taxable income and losses, cash
available for distribution from the Partnership and tax credits of the
Partnership. The limited partners will be allocated the remaining 99.9% of these
items in proportion to their respective investments.
7
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 4) from the remainder, any additional sale or refinancing
proceeds will be distributed 90% to the limited partners (in proportion to their
respective investments) and 10% to the General Partner.
Risks and Uncertainties
- -----------------------
The Partnership's investments in Local Limited Partnerships are subject to the
risks incident to the management and ownership of low-income housing and to the
management and ownership of multi-unit residential real estate. Some of these
risks are that the low income housing credit could be recaptured and that
neither the Partnership's investments nor the Housing Complexes owned by the
Local Limited Partnerships will be readily marketable. To the extent the Housing
Complexes receive government financing or operating subsidies, they may be
subject to one or more of the following risks: difficulties in obtaining tenants
for the Housing Complexes: difficulties in obtaining rent increases; limitations
on cash distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of Local Limited Partnership Interests: limitations on
removal of Local General Partners; limitations on subsidy programs; and possible
changes in applicable regulations. The Housing Complexes are or will be subject
to mortgage indebtedness. If a Local Limited Partnership does not make its
mortgage payments, the lender could foreclose resulting in a loss of the Housing
Complex and low-income housing credits. As a limited partner of the Local
Limited Partnerships, the Partnership will have very limited rights with respect
to management of the Local Limited Partnerships, and will rely totally on the
Local General Partners of the Local Limited Partnerships for management of the
Local Limited Partnerships. The value of the Partnership's investments will be
subject to changes in national and local economic conditions, including
unemployment conditions, which could adversely impact vacancy levels, rental
payment defaults and operating expenses. This, in turn, could substantially
increase the risk of operating losses for the Housing Complexes and the
Partnership. In addition, each Local Limited Partnership is subject to risks
relating to environmental hazards and natural disasters, which might be
uninsurable. Because the Partnership's operations will depend on these and other
factors beyond the control of the General Partner and the Local General
Partners, there can be no assurance that the anticipated low income housing
credits will be available to Limited Partners.
In addition Limited Partners are subject to risks in that the rules governing
the low income housing credit are complicated, and the use of credits can be
limited. The only material benefit from an investment in Units may be the low
income housing credits. There are limits in the transferability of Units, and it
is unlikely that a market for Units will develop. All management decisions will
be made by the General Partner.
Method of Accounting for Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership intends to account for its investments in limited partnerships
using the equity method of accounting, whereby the Partnership will adjust its
investment balance for its share of the Local Limited Partnership's results of
operations and for any distributions received. The accounting policies of the
Local Limited Partnerships are expected to be consistent with those of the
Partnership. Costs incurred by the Partnership in acquiring the investments will
be capitalized as part of the investment and amortized over 30 years (see Note
3).
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Offering Expenses
- -----------------
Offering expenses are expected to consist of underwriting commissions, legal
fees, printing, filing and recordation fees, and other costs incurred in
connection with the selling of limited partnership interests in the Partnership.
The General Partner is obligated to pay all offering and organization costs
inclusive of selling commissions and dealer manager fees, in excess of 4% of the
total offering proceeds. Offering expenses are reflected as a reduction of
limited partners' capital and amounted to $2,429,245 as of June 30, 2002 and
March 31, 2002.
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 assets and
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 materially differ from those
estimates.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with remaining
maturities of three months or less when purchased to be cash equivalents. As of
June 30, 2002 and March 31, 2002 the Partnership had cash equivalents of
$1,011,000 and $1,000,000, respectively. These amounts consist primarily of tax
exempt instruments collateralized by tax exempt municipal bonds from various
municipalities throughout the United States. These instruments generate tax
exempt yields and generally have 35 days or less maturities.
Concentration of Credit Risk
- ----------------------------
At June 30, 2002, the Partnership maintained cash balances at certain financial
institutions in excess of the federally insured maximum.
Net Income Per Limited Partner Unit
- -----------------------------------
Net income per limited partnership unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net income per unit
includes no dilution and is computed by dividing income available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net income per unit is not required.
Reporting Comprehensive Income
- ------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all the periods presented, as defined by SFAS No. 130.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
New Accounting Pronouncement
- ----------------------------
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which addresses accounting and financial reporting for the impairment or
disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning
after December 15, 2001, and generally, is to be applied prospectively. The
Partnership does not expect SFAS 144 to have a material impact on the
Partnership's financial position or results of operations
Reclassification
- ----------------
Certain prior period balances have been reclassified to conform to the
presentation for the three months ended June 30, 2002.
NOTE 2 - LOANS RECEIVABLE
- -------------------------
Loans receivable represent amounts loaned by the Partnership to certain Local
Limited Partnerships in which the Partnership may invest. These loans are
generally applied against the first capital contribution due if the Partnership
ultimately invests in such entities. In the event that the Partnership does not
invest in such entities, the loans are to be repaid with interest at a rate,
which is equal to the rate charged to the holder. At June 30, 2002, loans
receivable of $329,000 were due from one Local Limited Partnership in which the
Partnership had not acquired a limited partnership interest, and $531,808 and
$100,000 had been advanced to two additional Local Limited Partnerships in which
the Partnership has an investment (See Note 7). On July 25, 2002, the $329,000
loan was repaid to the Partnership.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of June 30, 2002 and March 31, 2002, the Partnership has acquired limited
partnership interests in thirteen Local Limited Partnerships, each of which owns
one Housing Complex consisting of an aggregate of 452 apartment units. The
respective general partners of the Local Limited Partnerships manage the
day-to-day operations of the entities. Significant Local Limited Partnership
business decisions require approval from the Partnership. The Partnership, as a
limited partner, is generally entitled to 99.98%, as specified in the Local
Limited Partnership agreements, of the operating profits and losses, taxable
income and losses and tax credits of the Local Limited Partnerships.
As of August 28, 2002, the Partnership had not obtained audited financial
statements for one of its investments, Lake Village Apartments, L.P. ("Lake
Village Apartments"), as of and for the period ended December 31, 2001. As a
result, the Partnership has not included the financial information of Lake
Village Apartments in the combined condensed statements of operations presented
herein. The Partnership's investment in Lake Village Apartments totaled
$3,833,980 (unaudited) at June 30, 2002. The Partnership's interest in the
results of operations of Lake Village Apartments totaled $0 (unaudited) for the
periods ended June 30, 2002 and 2001. The Lake Village Apartments Housing
Complex completed its construction on June 21, 2002; as a result, no equity in
losses have been recorded.
Equity in losses of the Local Limited Partnerships is recognized in the
financial statements until the related investment account is reduced to a zero
balance. Losses incurred after the investment account is reduced to zero are not
recognized. If the Local Limited Partnerships report net income in future years,
the Partnership will resume applying the equity method only after its share of
such net income equals the share of net losses not recognized during the
period(s) the equity method was suspended.
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Distributions received by limited partners are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income. As of June 30, 2002, no investment accounts in
Local Limited Partnerships had reached a zero balance.
Following is a summary of the equity method activity of the investments in
limited partnerships for the periods presented:
For the Three Months
Ended For the Year Ended
June 30, 2002 March 31, 2002
----------------------- ----------------------------
Investment in limited partnerships, beginning of period $ 13,125,199 $ 9,482,570
Capital contributions paid, net 262,592 4,013,757
Capital contributions payable 805,651 310,954
Equity in losses of limited partnerships (92,105) (622,249)
Amortization of capitalized acquisition fees and costs (14,229) (56,916)
Tax credit adjustment - (2,917)
----------------------- ----------------------------
Investment in limited partnerships, end of period $ 14,087,108 $ 13,125,199
======================= ============================
Selected financial information for the three months ended June 30, 2002 and 2001
from the unaudited combined condensed financial statements of the limited
partnerships in which the Partnership has invested as follows:
COMBINED CONDENSED STATEMENT OF OPERATIONS
2002 2001
------------------- ------------------
Revenue $ 435,000 $ 371,000
------------------- ------------------
Expenses:
Interest expense 166,000 177,000
Depreciation 127,000 52,000
Operating expenses 234,000 175,000
------------------- ------------------
Total expenses 527,000 404,000
-------------------
------------------
Net loss $ (92,000) $ (33,000)
=================== ==================
Net loss allocable to the
Partnership $ (92,000) $ (33,000)
=================== ==================
Net loss recorded by the
Partnership $ (92,000) $ (33,000)
=================== ==================
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Partnership has no officers, employees, or directors. However, under the
terms of the Partnership Agreement the Partnership is obligated to the General
Partner or its affiliates for the following fees:
(a) Acquisition fees of 7% of the gross proceeds from the sale of Units as
compensation for services rendered in connection with the acquisition of
Local Limited Partnerships. As of June 30, 2002 and March 31, 2002, the
Partnership incurred acquisition fees of $1,319,500. Accumulated
amortization of these capitalized costs were $89,866 and $78,869 as of June
30, 2002 and March 31, 2002, respectively.
(b) Acquisition costs of 2% of the gross proceeds from the sales of Units as
full reimbursement of costs incurred by the General Partner in connection
with the acquisition of Local Limited Partnerships. As of June 30, 2002 and
March 31, 2002, the Partnership incurred acquisition costs of $377,000.
Accumulated amortization were $26,294 and $23,062 as of June 30, 2002 and
March 31, 2002, respectively.
(c) An annual asset management fee not to exceed 0.2% of the invested assets
(defined as the Partnership's capital contributions plus reserves of the
Partnership of up to 5% of gross proceeds plus its allocable percentage of
the mortgage debt encumbering the housing complexes) of the Local Limited
Partnerships. Management fees of $8,998 and $39,703 were incurred during
the three months ended June 30, 2002 and the year ended March 31, 2002,
respectively.
(d) A subordinated disposition fee in an amount equal to 1% of the sales price
of real estate sold. Payment of this fee is subordinated to the limited
partners receiving a return on investment (as defined in the Partnership
Agreement) and is payable only if the General Partner or its affiliates
render services in the sales effort.
The accrued fees and expenses due to the General Partner and affiliates consist
of the following at:
June 30, 2002 March 31, 2002
---------------------- ------------------
Interest payable to Local Limited Partnerships $ 86,666 $ 86,602
Organizational, offering and selling costs payable 2,590 2,590
Asset management fee payable 35,916 41,918
Reimbursement for expenses paid by
the General Partner or an affiliate 12,803 1,467
---------------------- ------------------
$ 137,975 $ 132,577
====================== ==================
The General Partners do not anticipate that the accrued fees will be paid until
such time as capital reserves are in excess of future foreseeable working
capital requirements.
NOTE 5 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships represent amounts which are due at various
times based on conditions specified in the respective limited partnership
agreements. These contributions are payable in installments and are generally
due upon the limited partnerships achieving certain development and operating
benchmarks (generally within two years of the Partnership's initial investment).
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2002
(unaudited)
NOTE 6 - INCOME TAXES
- ---------------------
No provision for income taxes has been recorded in the financial statements, as
any liability for income taxes is the obligation of the partners of the
Partnership.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
During the year ended March 31, 2002, WNC, the General Partner of the
Partnership was advised that Lake Village Apartments, a local limited
partnership, was in default of covenants relating to certain loans advanced to
it for the construction of apartments. The defaults were primarily caused by the
general contractor failing to complete the construction of the development
according to the terms of the loans. As a result of the foregoing, at June 30,
2002, Lake Village Apartments and a WNC affiliate executed a workout agreement
with their lender (the "Agreement"), whereby the General Partner of Lake Village
Apartments was replaced by the aforementioned WNC affiliate. Pursuant to the
terms of the Agreement, the new general partner would cause additional equity to
be contributed to the local limited partnership, a new general contractor would
complete the construction of the development, and the lender, upon satisfaction
of certain conditions of the Agreement as defined, would continue to fund the
completion of the construction, among other costs. In addition, pursuant to the
Agreement, the Partnership Agreement was amended, and the Partnership committed
to additional capital contributions of $855,628, of which $531,808 had been
advanced by June 30, 2002. Subsequent to June 30, 2002, a further $387,877 was
disbursed by the Partnership to an escrow account for Lake Village Apartments
under terms of the Agreement.
One Local Limited Partnership, ACN Southern Hills II, L.P. ("Southern Hills"),
in which the Partnership owns a 99.98% interest, has a construction loan payable
aggregating approximately $1,100,000 as of December 31, 2001. Such construction
loan due in March 2002 was not repaid. Consequently, the Local Limited
Partnership is in default of its loan covenants and the Housing Complex could be
foreclosed on by the bank. Southern Hills is attempting to refinance the loan.
The bank has issued a term sheet upon which a new loan will be granted, which
contemplates a substantial reduction in principal. There can be no assurances
that Southern Hills will be successful in its negotiations. Accordingly,
Southern Hills is subject to the risk of foreclosure and sale of the Housing
Complex by the lender, which would result in the loss and potential recapture of
certain tax losses and the tax credits. As a result, there is an uncertainty as
to the Partnership's ability to ultimately realize the carrying value of its
investment in Southern Hills, which totaled $1,185,000 (unaudited) at June 30,
2002. The accompanying financial statements do not reflect any adjustments that
may result from any unfavorable outcome that may occur upon the ultimate
resolution of this uncertainty.
NOTE 8 - SUBSEQUENT EVENT
- -------------------------
At June 30, 2002, loans receivable of $329,000 were due from one Local Limited
Partnership in which the Partnership had not acquired a limited partnership
interest. On July 25, 2002, the $329,000 loan was repaid to the Partnership.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
- --------------------------
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain forward
looking statements. Such statements are based on current expectations subject to
uncertainties and other factors, which may involve known and unknown risks that
could cause actual results of operations to differ materially from those
projected or implied. Further, certain forward-looking statements are based upon
assumptions about future events, which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
fiscal quarter ended June 30, 2002 and 2001, and should be read in conjunction
with the condensed consolidated financial statements and accompanying notes
included within this report.
Financial Condition
- -------------------
The Partnership's assets at June 30, 2002 consisted primarily of $3,202,000 in
cash, aggregate investments in the thirteen Local Limited Partnerships of
$14,087,000 and $961,000 in loans receivable. Liabilities at June 30, 2002
primarily consisted of $2,359,000 due to limited partnerships, $51,000 of
accrued asset management fees, commissions payable, and reimbursements due to
the General Partner or affiliates and $87,000 in interest payable.
Results of Operations
- ---------------------
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001.
The Partnership's net loss for the three months ended June 30, 2002 was
$(117,000), reflecting an increase in loss of $(101,000) from the $(16,000) net
loss for the three months ended June 30, 2001. The increase in net loss was
primarily due to an increase of approximately $59,000 in equity in losses of
limited partnerships, which increased to $(92,000) for the three month period
ended June 30, 2002 from $(33,000) for the three month period ended June 30,
2001. In addition, a decrease in income from operations of $(42,000) from income
of $17,000 to a loss of $(25,000) for the three months ended June 30, 2001 and
2002, respectively. The decrease in income from operations is caused primarily
by the decrease of $(37,000) in interest income, from $50,000 to $13,000 for the
three months ended June 30, 2001 compared to 2002, respectively, and an increase
in accounting fees of $5,000 for the three months ended June 30, 2002.
14
Cash Flows
----------
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001.
Net increase in cash during the three months ended June 30, 2002 was $316,000,
compared to a net decrease in cash for the three months ended June 30, 2001 of
$(267,000) reflecting an increase of $583,000. The increase in net cash provided
is primarily due to an increase of $783,000 in cash provided by investing
activities, due to additional capital contributions to Local Limited
Partnerships. The increase in cash provided by investing activities was offset
by a decrease of $(146,000) in net cash used in financing activities, due to the
completion of syndication process, and a decrease in cash used in operating
activities by $(54,000) to $(6,000) during the three months ended June 30, 2002
from $48,000 for the three months ended June 30, 2001.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2002, to be sufficient to meet all currently foreseeable
future cash requirements.
Other Matters
- -------------
During the year ended March 31, 2002, WNC, the General Partner of the
Partnership was advised that Lake Village Apartments, a local limited
partnership, was in default of covenants relating to certain loans advanced to
it for the construction of apartments. The defaults were primarily caused by the
general contractor failing to complete the construction of the development
according to the terms of the loans. As a result of the foregoing, at June 30,
2002, Lake Village Apartments and a WNC affiliate executed a workout agreement
with their lender (the "Agreement"), whereby the General Partner of Lake Village
Apartments was replaced by the aforementioned WNC affiliate. Pursuant to the
terms of the Agreement, the new general partner would cause additional equity to
be contributed to the local limited partnership, a new general contractor would
complete the construction of the development, and the lender, upon satisfaction
of certain conditions of the Agreement as defined, would continue to fund the
completion of the construction, among other costs. In addition, pursuant to the
Agreement, the Partnership Agreement was amended, and the Partnership committed
to additional capital contributions of $855,628, of which $531,808 had been
advanced by June 30, 2002. Subsequent to June 30, 2002, a further $387,877 was
disbursed by the Partnership to an escrow account for Lake Village Apartments
under terms of the Agreement.
One Local Limited Partnership, ACN Southern Hills II, L.P. ("Southern Hills"),
in which the Partnership owns a 99.98% interest, has a construction loan payable
aggregating approximately $1,100,000 as of December 31, 2001. Such construction
loan due in March 2002 was not repaid. Consequently, the Local Limited
Partnership is in default of its loan covenants and the Housing Complex could be
foreclosed on by the bank. Southern Hills is attempting to refinance the loan.
The bank has issued a term sheet upon which a new loan will be granted, which
contemplates a substantial reduction in principal. There can be no assurances
that Southern Hills will be successful in its negotiations. Accordingly,
Southern Hills is subject to the risk of foreclosure and sale of the Housing
Complex by the lender, which would result in the loss and potential recapture of
certain tax losses and the tax credits. As a result, there is an uncertainty as
to the Partnership's ability to ultimately realize the carrying value of its
investment in Southern Hills, which totaled $1,185,000 (unaudited) at June 30,
2002. The financial statements included elsewhere herein do not reflect any
adjustments that may result from any unfavorable outcome that may occur upon the
ultimate resolution of this uncertainty.
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partner may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
impaired, and the loss and recapture of the related tax credits could occur.
New Accounting Pronouncement
- ----------------------------
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which addresses accounting and financial reporting for the impairment or
disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning
after December 15, 2001, and generally, is to be applied prospectively. The
Partnership does not expect SFAS 144 to have a material impact on the
Partnership's financial position or results of operations
15
Item 3: Quantitative and Qualitative Disclosures Above Market Risks
NOT APPLICABLE
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE.
16
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.
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 7
- ----------------------------------------------
(Registrant)
By: WNC & Associates, Inc., General Partner of the Registrants
By: /s/ Wilfred N. Cooper, Jr.
-------------------------
Wilfred N. Cooper, Jr.
President and Chief Operating Officer of WNC & Associates, Inc.
Date: August 28, 2002
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: August 28, 2002
17
CERTIFICATION 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 WNC Housing Tax Credit
VI, L.P., Series 7 (the "Partnership") for the period ended June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), and pursuant to 18 U.S.C., section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, I, Wilfred N. Cooper, Sr.,
Chairman and Chief Executive Officer of WNC & Associates, Inc., general partner
[of the general partner] of the Partnership, hereby certify that:
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 result of operations of the
Partnership.
/s/WILFRED N. COOPER, SR.
- -------------------------
Wilfred N. Cooper, Sr.
Chairman and Chief Executive Officer of WNC & Associates, Inc.
August 28, 2002
CERTIFICATION 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 WNC Housing Tax Credit
VI, L.P., Series 7 (the "Partnership") for the period ended June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), and pursuant to 18 U.S.C., section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, I, Thomas J. Riha, Chief
Financial Officer of WNC & Associates, Inc., general partner [of the general
partner] of the Partnership, hereby certify that:
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 result of operations of the
Partnership.
/s/THOMAS J. RIHA
- -----------------
Thomas J. Riha
Chief Financial Officer of WNC & Associates, Inc.
August 28, 2002
18