FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 33-07615
(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
--------- -----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes No X
--------- ----------
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended December 31, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
December 31, 2002 and March 31, 2002 ............................3
Statements of Operations
For the three months and nine months ended
December 31, 2002 and 2001........................................4
Statement of Partners' Equity (Deficit)
For the nine months ended December 31, 2002.......................5
Statements of Cash Flows
For the nine months ended December 31, 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 Risk........16
Item 4. Controls and Procedures...........................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................16
Item 5. Other Information.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................17
Signatures ...............................................................18
Certifications............................................................19
2
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
BALANCE SHEETS
December 31, 2002 March 31, 2002
----------------------- ----------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 2,744,520 $ 2,886,305
Funds held in escrow disbursement accounts - 591,512
Investments in limited partnerships (Note 3) 13,459,688 13,125,199
Loans receivable (Note 2) 133,727 953,241
----------------------- ----------------------
$ 16,337,935 $ 17,556,257
======================= ======================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Payables to limited partnerships (Note 5) $ 815,265 $ 1,552,985
Accrued fees and expenses due to General
Partner and affiliates (Note 4) 310,166 132,577
----------------------- ----------------------
Total liabilities 1,125,431 1,685,562
----------------------- ----------------------
Commitment and contingencies (Note 7)
Partners' equity (deficit):
General Partner (2,789) (2,131)
Limited Partners (25,000 units authorized and 18,850
units issued and outstanding at
December 31, and March 31, 2002) 15,215,293 15,872,826
----------------------- ----------------------
Total partners' equity 15,212,504 15,870,695
----------------------- ----------------------
$ 16,337,935 $ 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 and Nine Months Ended December 31, 2002 and 2001
(unaudited)
2002 2001
---------------------------------------- -----------------------------------------
Three Months Nine Months Three Months Nine Months
----------------- ----------------- ----------------- -----------------
Interest income $ 8,582 $ 47,383 $ 23,357 $ 102,742
----------------- ----------------- ----------------- -----------------
Operating expenses:
Amortization (Note 3) 14,229 42,687 14,229 42,687
Asset management fees (Note 4) 16,719 34,715 12,405 25,871
Legal and accounting fees 7,768 26,169 17,835 29,251
Other 2,974 12,707 28,938 35,319
----------------- ----------------- ----------------- -----------------
Total operating expenses 41,690 116,278 73,407 133,128
----------------- ----------------- ----------------- -----------------
Loss from operations (33,108) (68,895) (50,050) (30,386)
----------------- ----------------- ----------------- -----------------
Equity in losses of limited
partnerships (Note 3) (377,799) (589,296) (64,289) (202,685)
----------------- ----------------- ----------------- -----------------
Net loss $ (410,907) $ (658,191) $ (114,339) $ (233,071)
================= ================= ================= =================
Net loss allocated to:
General Partner $ (411) $ (658) $ (114) $ (233)
================= ================= ================= =================
Limited Partners $ (410,496) $ (657,533) $ (114,225) $ (232,838)
================= ================= ================= =================
Net loss per limited partnership unit $ (22) $ (35) $ (6) $ (13)
================= ================= ================= =================
Outstanding weighted average
limited partner units 18,850 18,850 18,550 18,550
================= ================= ================= =================
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 Nine Months Ended December 31, 2002
(unaudited)
General Limited
Partner Partners Total
---------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2002 $ (2,131) $ 15,872,826 $ 15,870,695
Net loss (658) (657,533) (658,191)
---------------- ---------------- ------------------
Partners' equity (deficit) at December 31, 2002 $ (2,789) $ 15,215,293 $ 15,212,504
================ ================ ==================
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 Nine Months Ended December 31, 2002 and 2001
(unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net loss $ (658,191) $ (233,071)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 42,687 42,687
Equity in losses of limited partnerships 589,296 202,685
Accrued interest receivable - 38,738
Accrued fees and expenses due to General
Partner and affiliates 177,589 8,614
------------------- ----------------
Net cash provided by operating activities 151,381 59,653
------------------- ----------------
Cash flows from investing activities:
Investments in limited partnerships, net (1,225,662) (6,479,024)
Funds held in escrow disbursement account 591,512 5,047,972
Loans receivable 331,762 220,196
Distributions from limited partnerships 9,222 -
------------------- ----------------
Net cash used in investing activities (293,166) (1,210,856)
------------------- ----------------
Cash flows from financing activities:
Capital contributions - 435,750
Offering expenses - (7,140)
------------------- ----------------
Net cash provided by financing activities - 428,610
------------------- ----------------
Net decrease in cash and cash equivalents (141,785) (722,593)
------------------- ----------------
Cash and cash equivalents, beginning of period 2,886,305 5,103,916
------------------- ----------------
Cash and cash equivalents, end of period $ 2,744,520 $ 4,381,323
=================== ================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Taxes paid $ 800 $ 800
=================== ================
Application of notes receivable to
Payables to limited partnerships $ 487,752 $ -
=================== ================
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 Quarterly Period Ended December 31, 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 and nine
months ended December 31, 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 December 31, 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.
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.
7
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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).
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 December 31, 2002 and
March 31, 2002.
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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
December 31, 2002 and March 31, 2002 the Partnership had cash equivalents of
$1,020,000 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 December 31, 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.
New Accounting Pronouncements
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. SFAS 144
is not expected to have a material impact on the Partnership's financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. SFAS 146 is not expected
to have a material impact on the Partnership's financial position or results of
operations.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 2002
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Reclassification
Certain prior period balances have been reclassified to conform to the
presentation for the nine months ended December 31, 2002.
NOTE 2 - LOANS RECEIVABLE
Loans receivable represent amounts loaned by the Partnership to certain Local
Limited Partnerships in which the Partnership may invest or has already
invested. 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 December 31, 2002, loans receivable of $133,727 were due from two
Local Limited Partnerships in which the Partnership owns a 99.98% interest (See
Note 7). One of the loans in the amount of $80,000, is in the form of a 20 year
promissory note, is subordinate to the first mortgage on the respective
property, due in full on August 30, 2022 and earns interest at a rate of 8% per
annum.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of December 31, 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 446 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 December 31, 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
$3,695,926 at December 31, 2002. The Partnership's interest in the results of
operations of Lake Village Apartments totaled $(138,054) and $0 (unaudited) for
the nine months ended December 31, 2002 and 2001. The Lake Village Apartments
Housing Complex completed its construction on June 21, 2002.
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.
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 December 31, 2002, no investment accounts
in Local Limited Partnerships had reached a zero balance.
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 2002
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
Following is a summary of the equity method activity of the investments in
limited partnerships for the periods presented:
For the Nine Months For the Year
Ended Ended
December 31, 2002 March 31, 2002
----------------------- ----------------------------
Investment in limited partnerships, beginning of period $ 13,125,199 $ 9,482,570
Capital contributions paid, net 763,079 4,013,757
Capital contributions payable 212,615 310,954
Equity in losses of limited partnerships (589,296) (622,249)
Distributions received from limited partnerships (9,222) -
Amortization of capitalized acquisition fees and costs (42,687) (56,916)
Tax credit adjustment - (2,917)
----------------------- ----------------------------
Investment in limited partnerships, end of period $ 13,459,688 $ 13,125,199
======================= ============================
Selected financial information for the nine months ended December 31, 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 $ 1,448,000 $ 1,158,000
------------------- ------------------
Expenses:
Interest expense 478,000 431,000
Depreciation 483,000 310,000
Operating expenses 938,000 620,000
------------------- ------------------
Total expenses 1,899,000 1,361,000
-------------------
------------------
Net loss $ (451,0000) $ (203,000)
=================== ==================
Net loss allocable to the Partnership $ (451,0000) $ (203,000)
=================== ==================
Net loss allocable to the Partnership
from Lake Village (138,000) -
Net loss recorded by the Partnership $ (589,0000) $ (203,000)
=================== ==================
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 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 December 31, 2002 and March 31,
2002, the Partnership incurred acquisition fees of $1,319,500.
Accumulated amortization of these capitalized costs were $111,860 and
$78,869 as of December 31, 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
December 31, 2002 and March 31, 2002, the Partnership incurred
acquisition costs of $377,000. Accumulated amortization was $32,758
and $23,062 as of December 31, 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
$34,715 and $25,871 were incurred during the nine months ended
December 31, 2002 and December 31, 2001, respectively. The Partnership
paid the General Partner or its affiliates $40,133 and $19,500 of
those fees during the nine months ended December 31, 2002 and 2001,
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:
December 31, 2002 March 31, 2002
---------------------- ------------------
Interest and insurance proceeds payable to $ 270,490 $ 86,602
Local Limited Partnerships
Organizational, offering and selling costs payable 2,590 2,590
Asset management fee payable 36,500 41,918
Reimbursement for expenses paid by
the General Partner or an affiliate 586 1,467
---------------------- ------------------
$ 310,166 $ 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.
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended December 31, 2002
(unaudited)
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).
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 as a result of obtaining
additional tax credits, an amount of $387,877 was disbursed to an escrow account
and further disbursed to Lake Village Apartments. An amount of $544,241 had been
advanced to Lake Village by September 30, 2002. On October 30, 2002, $467,751 of
this advance was applied to capital contributions.
One Local Limited Partnership, ACN Southern Hills II, L.P. ("Southern Hills"),
in which the Partnership owns a 99.98% interest, had a construction loan payable
aggregating approximately $1,100,000 as of December 31, 2001. Such construction
loan due in March 2002 was not repaid. In September 2002 the loan was
successfully refinanced with a first mortgage of $463,000 and a 20 year loan of
$80,000 from the Partnership to Southern Hills. The Partnership's loan is
subordinate to the first mortgage and requires payments to be made monthly and
at the end of the year from available cash flow. The Partnership expects the
$80,000 loan to be collectible in full.
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
three and nine months ended December 31, 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 December 31, 2002 consisted primarily of $2,745,000
in cash and cash equivalents, aggregate investments in the thirteen Local
Limited Partnerships of $13,460,000 and $134,000 in loans receivable.
Liabilities at December 31, 2002 primarily consisted of $815,000 due to limited
partnerships, $40,000 of accrued asset management fees, commissions payable, and
reimbursements due to the General Partner or affiliates and $270,000 in interest
and insurance proceeds payable to affiliates.
Results of Operations
Three Months Ended December 31, 2002 Compared to Three Months Ended December 31,
2001. The Partnership's net loss for the three months ended December 31, 2002
was $(411,000), reflecting an increase in loss of $(297,000) from the $(114,000)
net loss for the three months ended December 31, 2001. The increase in net loss
was primarily due to an increase of approximately $(314,000) in equity in losses
of limited partnerships, which increased to $(378,000) for the three month
period ended December 31, 2002 from $(64,000) for the three month period ended
December 31, 2001, due to the completion of construction and lease-up of
additional properties. The increase in equity in losses from limited
partnerships was offset by a decrease in loss from operations of $(17,000) to a
loss of $(33,000), for the three months ended December 31, 2002 from a loss of
$(50,000) for the three months ended December 31, 2001. The decrease in loss
from operations was primarily due to a decrease in interest income of $14,000
due to lower interest rates and balance of cash on hand, an increase in asset
management fees of $4,000, which was offset by decreases in legal and accounting
fees or $1,000 and other operating expenses of $(26,000) for the three months
ended December 31, 2002.
Nine Months Ended December 31, 2002 Compared to Nine Months Ended December 31,
2001. The Partnership's net loss for the nine months ended December 31, 2002 was
$(658,000), reflecting an increase in loss of $(425,000) from the $(233,000) net
loss for the nine months ended December 31, 2001. The increase in net loss was
primarily due to an increase of approximately $(386,000) in equity in losses of
limited partnerships, which increased to $(589,000) for the nine month period
ended December 31, 2002 from $(203,000) for the nine month period ended December
31, 2001. Along with the increase in equity in losses from limited partnerships,
loss from operations increased by $(39,000) to $(69,000) for the nine month
period ended December 31, 2002 from $(30,000) for the nine month period ended
December 31, 2001. The increase in loss from operations was primarily due to a
decrease in interest income of $56,000 due to lower interest rates and balance
of cash on hand, an increase in asset management fees of $9,000, which was
offset by decreases in legal and accounting fees and other operating expenses of
$(25,000) for the three months ended December 31, 2002.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Cash Flows
Nine Months Ended December 31, 2002 Compared to Nine Months Ended December 31,
2001. Net decrease in cash during the nine months ended December 31, 2002 was
$(142,000), compared to a net decrease in cash for the nine months ended
December 31, 2001 of $(723,000) reflecting a decrease of $581,000 net cash used.
The decrease in net cash used is due to a decrease of $918,000 in cash used by
investing activities, which was primarily due to a decrease in payments of
capital contributions to Local Partnerships. The decrease in cash used in
investing activities was offset by an increase of $91,000 in net cash provided
by operating activities and a decrease of $429,000 in cash provided by financing
activities as the syndication process is completed.
The Partnership expects its future cash flows, together with its net available
assets at December 31, 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 as a result of obtaining
additional tax credits, an amount of $387,877 was disbursed to an escrow account
and further disbursed to Lake Village Apartments. An amount of $544,241 had been
advanced to Lake Village by December 31, 2002. Subsequent to December 31, 2002,
$467,751 of this advance was applied to capital contributions. Construction of
the development has completed and the management company is in the process of
leasing the units.
One Local Limited Partnership, ACN Southern Hills II, L.P. ("Southern Hills"),
in which the Partnership owns a 99.98% interest, had a construction loan payable
aggregating approximately $1,100,000 as of December 31, 2001. Such construction
loan due in March 2002 was not repaid. In September 2002 the loan was
successfully refinanced with a first mortgage of $463,000 and a 20 year loan of
$80,000 from the Partnership to Southern Hills. The Partnerships loan is
subordinate to the first mortgage and requires payments to be made monthly and
at the end of the year from available cash flow. The Partnership expects this
loan to be collectible in full.
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.
15
Impact of New Accounting Pronouncements
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. SFAS 144
is not expected to have a material impact on the Partnership's financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. SFAS 146 is not expected
to have a material impact on the Partnership's financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NOT APPLICABLE
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the General Partner of
the Partnership carried out an evaluation, under the supervision and with
the participation of the General Partnership's management, including the
General Partner's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Partnership's
disclosure controls and procedures pursuant to Exchange Act Rule 13a- 14.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Partnership's disclosure controls and procedures
are effective. There were no significant changes in the Partnership's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
Wilfred N. Cooper, Jr. has assumed the role of Chief Executive Officer of
WNC & Associates. Wilfred N. Cooper, Sr. who previously held the role of
Chief Executive Officer remains the Chairman of The Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
1. NONE
(b) Exhibits.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
17
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: February 25, 2003
By: /s/ Thomas J. Riha
- -----------------------
Thomas J. Riha
Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: February 25, 2003
18
CERTIFICATIONS
I, Wilfred N. Cooper, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC Housing Tax
Credit Fund VI, L.P. Series 7;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 25, 2003
/s/ Wilfred N. Cooper, Jr
-------------------------
President and Chief Executive Officer of WNC & Associates, Inc.
19
CERTIFICATIONS
I, Thomas J. Riha, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC Housing Tax
Credit Fund VI, L.P. Series 7;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 25, 2003
/s/ Thomas J. Riha
------------------
Vice-President and Chief Financial Officer of WNC & Associates, Inc.
20