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 June 30, 2003
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
--------- -----------
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 June 30, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 2003 and March 31, 2003 ..................................3
Statements of Operations
For the three months ended June 30, 2003 and 2002..................4
Statement of Partners' Equity (Deficit)
For the three months ended June 30, 2003...........................5
Statements of Cash Flows
For the three months ended June 30, 2003 and 2002..................6
Notes to Financial Statements........................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........18
Item 4. Controls and Procedures............................................18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................19
Signatures ................................................................20
Certifications.............................................................21
2
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
BALANCE SHEETS
June 30, 2003 March 31, 2003
----------------------- ----------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 1,905,211 $ 2,246,731
Investments in limited partnerships (Note 3) 13,450,831 13,051,155
Loans receivable (Note 2) 85,011 212,019
----------------------- ----------------------
$ 15,441,053 $ 15,509,905
======================= ======================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Payables to limited partnerships (Note 5) $ 516,532 $ 336,428
Accrued fees and expenses due to General
Partner and affiliates (Note 4) 284,530 277,080
----------------------- ----------------------
Total liabilities 801,062 613,508
----------------------- ----------------------
Commitment and contingencies (Note 7)
Partners' equity (deficit):
General Partner (3,361) (3,105)
Limited Partners (25,000 units authorized and 18,850
units issued and outstanding at
June 30, and March 31, 2003) 14,643,352 14,899,502
----------------------- ----------------------
Total partners' equity 14,639,991 14,896,397
----------------------- ----------------------
$ 15,441,053 $ 15,509,905
======================= ======================
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, 2003 and 2002
(unaudited)
2003 2002
------------------------ -----------------------------
Three Months Three Months
------------------------ -----------------------------
Interest income $ 6,607 $ 12,512
------------------------ -----------------------------
Operating expenses:
Amortization (Note 3) 14,229 14,229
Asset management fees (Note 4) 14,290 8,998
Legal and accounting fees 3,570 10,859
Other 2,157 3,815
------------------------ -----------------------------
Total operating expenses 34,246 37,901
------------------------ -----------------------------
Loss from operations (27,639) (25,389)
------------------------ -----------------------------
Equity in losses of limited
partnerships (Note 3) (228,767) (92,105)
------------------------ -----------------------------
Net loss $ (256,406) $ (117,494)
======================== =============================
Net loss allocated to:
General Partner $ (256) $ (117)
======================== =============================
Limited Partners $ (256,150) $ (117,377)
======================== =============================
Net loss per limited partnership
unit $ (14) $ (6)
======================== =============================
Outstanding weighted average
limited partner units 18,850 18,850
======================== =============================
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, 2003
(unaudited)
General Limited
Partner Partners Total
---------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2003 $ (3,105) $ 14,899,502 $ 14,896,397
Net loss (256) (256,150) (256,406)
---------------- ---------------- ------------------
Partners' equity (deficit) at June 30, 2003 $ (3,361) $ 14,643,352 $ 14,639,991
================ ================ ==================
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, 2003 and 2002
(unaudited)
2003 2002
------------------- --------------------
Cash flows from operating activities:
Net loss $ (256,406) $ (117,494)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 14,229 14,229
Equity in losses of limited partnerships 228,767 92,105
Accrued fees and expenses due to General Partner
and affiliates 7,450 5,398
------------------- --------------------
Net cash used in operating activities (5,960) (5,762)
------------------- --------------------
Cash flows from investing activities:
Investments in limited partnerships, net (342,250) (262,592)
Funds held in escrow disbursement account - 591,512
Loans receivable 436 (7,567)
Distributions from limited partnerships 6,254 -
------------------- --------------------
Net cash (used in) provided by investing activities (335,560) 321,353
------------------- --------------------
Net (decrease) increase in cash and cash equivalents (341,520) 315,591
------------------- --------------------
Cash and cash equivalents, beginning of period 2,246,731 2,886,305
------------------- --------------------
Cash and cash equivalents, end of period $ 1,905,211 $ 3,201,896
=================== ====================
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 Quarterly Period Ended June 30, 2003
(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, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. 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,
2003.
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, 2003, 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. 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 June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Risks and Uncertainties
- -----------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low-Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low-Income Housing Credit s and
the fractional recapture of Low-Income Housing Credits already taken. In most
cases the annual amount of Low-Income Housing Credits that an individual can use
is limited to the tax liability due on the person's last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a profit. Accordingly, the Partnership may be unable to distribute
any cash to its investors. Low-Income Housing Credits may be the only benefit
from an investment in the Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
future Low-Income Housing Credits, a fractional recapture of prior Low-Income
Housing Credits, and a loss of the Partnership's investment in the Housing
Complex would occur. The Partnership is a limited partner or non-managing member
of each Local Limited Partnership. Accordingly, the Partnership will have very
limited rights with respect to management of the Local Limited Partnerships. The
Partnership will rely totally on the Local General Partners. Neither the
Partnership's investments in Local Limited Partnerships, nor the Local Limited
Partnerships' investments in Housing Complexes, are 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 interests
in Local Limited Partnerships; limitations on removal of Local General Partners;
limitations on subsidy programs; and possible changes in applicable regulations.
Uninsured casualties could result in loss of property and Low-Income Housing
Credits and recapture of Low-Income Housing Credits previously taken. The value
of real estate is subject to risks from fluctuating economic conditions,
including employment rates, inflation, tax, environmental, land use and zoning
policies, supply and demand of similar properties, and neighborhood conditions,
among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low-Income Housing
Credits and tax losses allocable to the investors could be reduced if the IRS
were successful in such a challenge. The alternative minimum tax could reduce
tax benefits from an investment in the Partnership. Changes in tax laws could
also impact the tax benefits from an investment in the Partnership and/or the
value of the Housing Complexes.
No trading market for the Units exists or is expected to develop. Investors may
be unable to sell their Units except at a discount and should consider their
Units to be a long-term investment. Individual investors will have no recourse
if they disagree with actions authorized by a vote of the majority of Limited
Partners.
Method of Accounting for Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
amount of such investment may not be recoverable. Recoverability of such
investment is measured by a comparison of the carrying amount to future
undiscounted net cash flows expected to be generated. If an investment is
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the investment exceeds fair value. The
accounting policies of the Local Limited Partnership's are consistent with those
of the Partnership. Costs incurred by the Partnership in acquiring the
investments are capitalized as part of the investment account and are being
amortized over 30 years (see Notes 3 and 4).
Equity in losses of limited partnerships for the years ended March 31, 2003,
2002 and 2001 have been recorded by the Partnership based on nine months of
reported results provided by the Local Limited Partnerships and on three months
of results estimated by management of the Partnership. Management's estimate for
the three-month period is based on either actual unaudited results reported by
the Local Limited Partnerships or historical trends in the operations of the
Local Limited Partnerships. Equity in losses of Local Limited Partnerships
allocated to the Partnership will not be recognized to the extent that the
investment balance would be adjusted below zero. As soon as the investment
balance reaches zero, the related costs of acquiring the investment are
accelerated to the extent of losses available (see Note 4).
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, 2003 and
March 31, 2003.
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, 2003 and March 31, 2003 the Partnership had cash equivalents of
$526,000 and $1,100,000, 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, 2003, the Partnership maintained cash balances at certain financial
institutions in excess of the federally insured maximum.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
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 June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations", which requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement costs being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. The statement is effective for fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 did not have a material impact on the
Partnership's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard was effective for the
Partnership's financial statements beginning January 1, 2002. The implementation
of SFAS No. 144 did not have a material impact on the Partnership's financial
position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinded three previously issued statements and amended SFAS No.
13, "Accounting for Leases." The statement provides reporting standards for debt
extinguishments and provides accounting standards for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The statement is effective for certain lease transactions occurring after May
15, 2002 and all other provisions of the statement shall be effective for
financial statements issued on or after May 15, 2002. The implementation of SFAS
No. 145 did not 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," which updates accounting and reporting
standards for personnel and operational restructurings. The Partnership adopted
SFAS No. 146 for exit, disposal or other restructuring activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
effect on the Partnership's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a
material impact on the Partnership's financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method on accounting for stock-based employee compensation. The
adoption of SFAS No. 148 did not have a material impact on the Partnership's
financial position or results of operations.
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
New Accounting Pronouncements continued
- ---------------------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The adoption of FIN 46 did not
have a material impact on the Partnership's financial position or results of
operations.
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 June 30, 2003, loans receivable and accrued interest thereon of
$85,011 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 $78,000,
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 March 31, 2003, the Partnership has acquired limited partnership interests
in thirteen Local Limited Partnerships, respectively, each of which owns one
Housing Complex consisting of an aggregate of 452 apartment units. As of March
31, 2003 construction or rehabilitation of all of the Housing Complexes was
completed. 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 18, 2003, 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 year ended December 31, 2002 and 2001.
As a result, the Partnership has not included the financial information of Lake
Village Apartments in the combined condensed financial statements presented
herein. The Partnership's investment in Lake Village Apartments totaled
$3,652,000 (unaudited) at June 30, 2003 and $3,696,000 (unaudited) at March 31,
2003. The Partnership's equity interest in the net losses of Lake Village
Apartments totaled $45,000 and $0 for the three months ended June 30, 2003 and
2002, respectively.
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 from the Local 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, 2003, no investment
accounts in Local Limited Partnerships had reached a zero balance.
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(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 Three Months For the Year
Ended Ended
June 30, 2003 March 31, 2003
----------------------- ----------------------------
Investment in limited partnerships, beginning of period $ 13,051,155 $ 13,125,199
Capital contributions paid, net 468,822 1,105,258
Capital contributions payable 180,104 -
Equity in losses of limited partnerships (228,767) (922,206)
Distributions received from limited partnerships (6,254) (2,222)
Amortization of capitalized acquisition fees and costs (14,229) (56,916)
Tax credit adjustment - (197,958)
----------------------- ----------------------------
Investment in limited partnerships, end of period $ 13,450,831 $ 13,051,155
======================= ============================
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Selected financial information for the three months ended June 30, 2003 and 2002
from the unaudited combined condensed financial statements of the limited
partnerships in which the Partnership has invested as follows, restated for 2002
to show Lake Village separately:
COMBINED CONDENSED STATEMENT OF OPERATIONS
2003 2002
(Restated)
------------------- ------------------
Revenue $ 544,000 $ 435,000
------------------- ------------------
Expenses:
Interest expense 182,000 166,000
Depreciation 203,000 127,000
Operating expenses 343,000 234,000
------------------- ------------------
Total expenses 728,000 527,000
------------------- ------------------
Net Loss $ (184,000) $ (92,000)
=================== ==================
Net loss allocable to the Partnership
before equity in losses of Lake Village $ (184,0000) $ (92,000)
=================== ==================
Net loss recorded by the Partnership before
equity in losses of Lake Village $ (184,0000) $ (92,000)
Net loss of Lake Village Apartments
allocable to the Partnership (45,000) $ -
------------------- ------------------
Net loss recorded by the Partnership $ (229,000) (92,000)
=================== ==================
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, 2003 and March 31, 2003,
the Partnership incurred acquisition fees of $1,319,500. Accumulated
amortization of these capitalized costs were $133,854 and $122,857 as
of June 30, 2003 and March 31, 2003, 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, 2003 and March 31, 2003, the Partnership incurred acquisition
costs of $377,000. Accumulated amortization was $39,222 and $35,990 as
of June 30, 2003 and March 31, 2003, respectively.
13
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 4 - RELATED PARTY TRANSACTIONS,continued
- ---------------------------------------------
(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
$14,290 and $8,998 were incurred during the three months ended June
30, 2003 and June 30, 2002, respectively. The Partnership paid the
General Partner or its affiliates $12,566 and $15,000 of those fees
during the three months ended June 30, 2003 and 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, 2003 March 31, 2003
---------------------- ------------------
Interest and insurance proceeds payable to $ 220,903 $ 220,903
Local Limited Partnerships
Organizational, offering and selling costs payable 2,590 2,590
Asset management fee payable 50,763 49,040
Reimbursement for expenses paid by
the General Partner or an affiliate 10,274 4,547
---------------------- ------------------
$ 284,530 $ 277,080
====================== ==================
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.
14
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(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
- --------------------------------------
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 was due in March 2002 and was not repaid at that time. 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 balance of the
construction loan was paid off by the Local Limited Partnership. 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 this loan to be collectible in full.
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 the Shelter Resource Corporation ("SRC")
executed a workout agreement with their lender (the "Agreement"), whereby the
Local General Partner of Lake Village Apartments was replaced by the
aforementioned SRC. Pursuant to the terms of the Agreement, the new Local
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, and $387,877 was disbursed to an escrow account and further disbursed
to Lake Village Apartments. A net amount of $522,997 had been advanced to Lake
Village by March 31, 2003. An amount of $467,751 from this advance was applied
to capital contributions leaving a balance of $55,246 which is included in loans
receivable. Construction of the development is completed and the facility has
reached 82% occupancy and 100% tax credit qualified.
15
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 months ended June 30, 2003 and 2002, 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, 2003 consisted primarily of $1,905,000 in
cash and cash equivalents, aggregate investments in the thirteen Local Limited
Partnerships of $13,451,000 and $85,000 in loans receivable. Liabilities at June
30, 2003 primarily consisted of $517,000 due to limited partnerships, $64,000 of
accrued asset management fees, commissions payable, and reimbursements due to
the General Partner or affiliates and $221,000 in interest and insurance
proceeds payable to affiliates.
Results of Operations
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.
The Partnership's net loss for the three months ended June 30, 2003 was
$(256,000), reflecting an increase in loss of $(139,000) from the $(117,000) net
loss for the three months ended June 30, 2002. The increase in net loss was
primarily due to an increase of approximately $(137,000) in equity in losses of
limited partnerships, which increased to $(229,000) for the three month period
ended June 30, 2003 from $(92,000) for the three month period ended June 30,
2002, due to the completion of construction and lease-up of additional
properties. In addition to the increase in equity in losses from limited
partnerships, loss from operations increased by $(2,000) to a loss of $(27,000),
for the three months ended June 30, 2003 from a loss of $(25,000) for the three
months ended June 30, 2002. The increase in loss from operations was primarily
due to a decrease in interest income of $6,000 due to lower interest rates and
balance of cash on hand, an increase in asset management fees of $5,000, which
was offset by decreases in legal and accounting fees of $(7,000) and other
operating expenses of approximately $(2,000) for the three months ended June 30,
2003.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Cash Flows
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.
Net increase in net cash used during the three months ended June 30, 2003 was
$(341,000), compared to net cash provided in the three months ended June 30,
2002 of $316,000 reflecting an increase of $(657,000) net cash used. The
increase in net cash used is due to an increase of $(657,000) in cash used by
investing activities, which was primarily due to a decrease in payments of
capital contributions to Local Partnerships and completions of syndication
process.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2003, to be sufficient to meet all currently foreseeable
future cash requirements.
Other Matters
As of August 18, 2003, 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 years ended December 31, 2002 and 2001.
As a result of this limitation in scope, the Partnership's independent certified
public accountants have qualified their report with respect to their audit of
the Partnership's 2003 and 2002 financial statements. Furthermore, the
Partnership has not included the financial information of Lake Village
Apartments in the combined condensed financial statements presented elsewhere
herein. The Partnership's investment in Lake Village Apartments totaled
$3,652,000 (unaudited) at June 30, 2003 and $3,696,000 (unaudited) at March 31,
2003. The Partnership's equity interest in the net losses of Lake Village
Apartments totaled $45,000 and $0 for the three months ended June 30, 2003 and
2002, respectively.
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, and $387,877 was disbursed to an escrow account and
further disbursed to Lake Village Apartments. A net amount of $522,997 had been
advanced to Lake Village by March 31, 2003. An amount of $467,751 from this
advance was applied to capital contributions leaving a balance of $55,246 which
is included in loans receivable. Construction of the development is completed
and the facility has reached 82% occupancy and 100% tax credit qualified.
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 was due in March 2002 and was not repaid at that time. 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
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Other Matters, continued
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.
The Partnership expects its future cash flows, together with its net available
assets at March 31, 2003, to be sufficient to meet all currently foreseeable
future cash requirements. This excludes amounts owed to Associates by the
Partnership disclosed below.
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.
18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. NONE
(b) Exhibits.
---------
99.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
99.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
19
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 18, 2003
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: August 18, 2003
20
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; an
(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: August 18, 2003
/s/ Wilfred N. Cooper, Jr
-------------------------
President and Chief Executive Officer of WNC & Associates, Inc.
21
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: August 18, 2003
/s/ Thomas J. Riha
------------------
Vice-President and Chief Financial Officer of WNC & Associates, Inc.
22