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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, 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.)
17782 Sky Park Circle
Irvine, CA 92614-6404
(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 Quarter Ended December 31, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
December 31, 2003 and March 31, 2003 ..............................3
Statements of Operations
For the Three and Nine Months Ended December 31, 2003 and 2002.....4
Statement of Partners' Equity (Deficit)
For the Nine Months Ended December 31, 2003........................5
Statements of Cash Flows
For the Nine Months Ended December 31, 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...................................18
Signatures ................................................................19
2
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
BALANCE SHEETS
December 31, 2003 March 31, 2003
----------------------- ----------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 1,174,893 $ 2,246,731
Investments in limited partnerships (Note 3) 13,307,182 13,010,788
Loans receivable (Note 2) 84,863 212,019
----------------------- ----------------------
$ 14,566,938 $ 15,469,538
======================= ======================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Payables to limited partnerships (Note 5) $ 389,701 $ 336,428
Accrued fees and expenses due to General
Partner and affiliates (Note 4) 72,256 277,080
----------------------- ----------------------
Total liabilities 461,957 613,508
----------------------- ----------------------
Commitment and contingencies (Note 6)
Partners' equity (deficit):
General Partner (3,897) (3,146)
Limited Partners (25,000 units authorized and 18,850
units issued and outstanding at
December 31, 2003 and March 31, 2003) 14,108,878 14,859,176
----------------------- ----------------------
Total partners' equity 14,104,981 14,856,030
----------------------- ----------------------
$ 14,566,938 $ 15,469,538
======================= ======================
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, 2003 and 2002
(unaudited)
2003 2002
---------------------------------------- --------------------------------------
Three Months Nine Months Three Months Nine Months
------------------ ---------------- ---------------- ---------------
Interest income $ 4,538 $ 15,679 $ 8,582 $ 47,383
Reporting fee 3,436 15,223 - -
------------------ ---------------- ---------------- ---------------
7,974 30,902 8,582 47,383
Operating expenses:
Amortization (Note 3) 14,229 42,687 14,229 42,687
Asset management fees (Note 4) 14,614 43,518 16,719 34,715
Legal and accounting fees 2,798 21,318 7,768 26,169
Other 3,511 7,341 2,974 12,707
------------------ ---------------- ---------------- ---------------
Total operating expenses 35,152 114,864 41,690 116,278
------------------ ---------------- ---------------- ---------------
Loss from operations (27,178) (83,962) (33,108) (68,895)
------------------ ---------------- ---------------- ---------------
Equity in losses of limited
partnerships (Note 3) (222,362) (667,087) (377,799) (589,296)
------------------ ---------------- ---------------- ---------------
Net loss $ (249,540) $ (751,049) $ (410,907) $ (658,191)
================== ================ ================ ===============
Net loss allocated to:
General Partner $ (249) $ (751) $ (411) $ (658)
================== ================ ================ ===============
Limited Partners $ (249,291) $ (750,298) $ (410,496) $ (657,533)
================== ================ ================ ===============
Net loss per limited partnership unit $ (13) $ (40) $ (22) $ (35)
================== ================ ================ ===============
Outstanding weighted average
Limited partner units 18,850 18,850 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 Nine Months Ended December 31, 2003
(unaudited)
General Limited
Partner Partners Total
---------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2003 $ (3,146) $ 14,859,176 $ 14,856,030
Net loss (751) (750,298) (751,049)
---------------- ---------------- ------------------
Partners' equity (deficit) at December 31, 2003 $ (3,897) $ 14,108,878 $ 14,104,981
================ ================ ==================
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, 2003 and 2002
(unaudited)
2003 2002
------------------- --------------------
Cash flows from operating activities:
Net loss $ (751,049) $ (658,191)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization 42,687 42,687
Equity in losses of limited partnerships 667,087 589,296
Accrued fees and expenses due to General Partner
and affiliates (204,824) 177,589
------------------- --------------------
Net cash (used in) provided by operating activities (246,099) 151,381
------------------- --------------------
Cash flows from investing activities:
Investments in limited partnerships, net (955,822) (1,225,662)
Funds held in escrow disbursement account - 591,512
Loans receivable 127,156 331,762
Distributions from limited partnerships 2,927 9,222
------------------- --------------------
Net cash used in investing activities (825,739) (293,166)
------------------- --------------------
Net decrease in cash and cash equivalents (1,071,838) (141,785)
Cash and cash equivalents, beginning of period 2,246,731 2,886,305
------------------- --------------------
Cash and cash equivalents, end of period $ 1,174,893 $ 2,744,520
=================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Taxes paid $ - $ 800
=================== ====================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarter Ended December 31, 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 and nine
months ended December 31, 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 amended annual report on Form 10-K/A 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 Quarter Ended December 31, 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 - CONTINUED
For the Quarter Ended December 31, 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 Local Limited Partnerships for the periods ended December
31, 2003 and 2002 have been recorded by the Partnership based on nine months of
results estimated by management of the Partnership. Management's estimate for
the nine-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 3). 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.
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, 2003 and
March 31, 2003.
Exit Strategy
- -------------
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties including those that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the investors from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the investors' return wherever
possible and, ultimately, to wind down those funds that no longer provide tax
benefits to investors. To date no properties in the Partnership have been
selected.
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.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Income Taxes
- ------------
No provision for income taxes has been recorded in the financial statements as
any liability and/or benefits for income taxes flows to the partners of the
Partnership and is their obligation and/or benefit. For income tax purposes the
Partnership reports on a calendar year basis.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. As of December
31, 2003 and March 31, 2003 the Partnership had cash equivalents of $1,175,000
and $2,247,000, 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, 2003, the Partnership maintained cash balances at certain
financial institutions in excess of the federally insured maximum.
Net Loss 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 January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities." FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE'') in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both.
In December 2003, the FASB issued a revision of FIN-46 ("FIN-46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created after
January-31, 2003, but prior to January-1, 2004, may be accounted for either
based on the original interpretations or the revised interpretations. However,
all VIEs must be accounted for under the revised interpretations as of March-31,
2004, when FIN 46R is effective for the Partnership.
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnerships.
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, 2003, loans receivable and accrued interest thereon of
$85,000 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 the period presented, the Partnership had acquired limited partnership
interests in thirteen Local Limited Partnerships, each of which owns one Housing
Complex consisting of an aggregate of 452 apartment units. The respective
general partners of the Local Limited Partnerships manage the day-to-day
operations of the entities. Significant Local Limited Partnership business
decisions require approval from the Partnership. The Partnership, as a limited
partner, is generally entitled to 99.98%, as specified in the Local Limited
Partnership agreements, of the operating profits and losses, taxable income and
losses and tax credits of the Local Limited Partnerships.
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 December 31, 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 - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Following is a summary of the equity method activity of the investments in Local
Limited Partnerships for the periods presented below:
For the Nine For the Year
Months Ended Ended
December 31, 2003 March 31, 2003
----------------------- ----------------------------
Investments per balance sheet, beginning of period $ 13,010,788 $ 13,125,199
Capital contributions paid, net 1,009,095 1,105,258
Equity in losses of limited partnerships (667,087) (962,573)
Distributions received from limited partnerships (2,927) (2,222)
Amortization of capitalized acquisition fees and costs (42,687) (56,916)
Tax credit adjustment - (197,958)
----------------------- ----------------------------
Investments per balance sheet, end of period $ 13,307,182 $ 13,010,788
======================= ============================
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Selected financial information for the nine months ended December 31, 2003 and
2002 from the unaudited combined condensed financial statements of the limited
partnerships in which the Partnership has invested is as follows, restated for
2002 to show Lake Village:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2003
2002
------------------- ------------------
(Restated)
Revenue $ 2,016,000 $ 972,000
------------------- ------------------
Expenses:
Interest expense 592,000 361,000
Depreciation 793,000 323,000
Operating expenses 1,298,000 500,000
------------------- ------------------
Total expenses 2,683,000 1,184,000
------------------- ------------------
Net Loss $ (667,000) $ (212,000)
=================== ==================
Net loss allocable to the Partnership $ (667,000) $ (211,000)
=================== ==================
Net loss recorded by the Partnership $ (667,000) $ (211,000)
=================== ==================
Certain Local Limited Partnerships have incurred significant operating losses
and/or 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/or the loss and recapture of the related tax credits could occur.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Under the terms of the Partnership Agreement the Partnership is obligated to the
General Partner or its affiliates for the following items:
(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, 2003 and March 31,
2003, the Partnership incurred acquisition fees of $1,319,500.
Accumulated amortization of these capitalized costs were $155,848 and
$122,857 as of December 31, 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
December 31, 2003 and
13
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 4 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
March 31, 2003, the Partnership incurred acquisition costs of
$377,000. Accumulated amortization was $45,686 and $35,990 as of
December 31, 2003 and March 31, 2003, 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
$43,518 and $17,996 were incurred during the nine months ended
December 31, 2003 and 2002, respectively. The Partnership paid the
General Partner or its affiliates $45,200 and $22,500 of those fees
during the nine months ended December 31, 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.
(e) The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred in behalf of the Partnership. Operating
expense reimbursements are approximately $43,638 and $34,646 during
the nine months ended December 31, 2003 and 2002, respectively.
The accrued fees and expenses due to the General Partner and affiliates consist
of the following at:
December 31, 2003 March 31, 2003
---------------------- ------------------
Interest and insurance proceeds payable to
Local Limited Partnerships $ 20,902 $ 220,903
Organizational, offering and selling costs payable 2,590 2,590
Asset management fee payable 47,358 49,040
Reimbursement for expenses paid by
the General Partner or an affiliate 1,406 4,547
---------------------- ------------------
$ 72,256 $ 277,080
====================== ==================
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 - 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. Southern Hills has been
making all payments on a timely manner and as of September 30, 2004 is current
on the loan owing to the Partnership.
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
14
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
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 along with $49,587 that was applied towards the
interest payable owing to Lake Village resulting from an escrow account as of
March 31, 2003, resulting in a balance of $5,660. The Partnership entered into a
loan receivable agreement in the amount of this balance, which is included in
loans receivable. Construction of the development is completed and is 100% tax
credit qualified. The property will be switching management companies in January
2005 to improve the quality of tenant communications, stablize occupancy and
reduce operating expenses. The current occupancy rate is 90% as of September 30,
2004.
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 and nine months ended December 31, 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 December 31, 2003 consisted primarily of $1,175,000
in cash and cash equivalents, aggregate investments in the thirteen Local
Limited Partnerships of $13,307,182 and $85,000 in loans receivable. Liabilities
at December 31, 2003 primarily consisted of $390,000 due to limited
partnerships, $51,000 of accrued asset management fees, commissions payable, and
reimbursements due to the General Partner or affiliates and $21,000 in interest
and insurance proceeds payable to affiliates.
Results of Operations
Three Months Ended December 31, 2003 Compared to Three Months Ended December 31,
2002. The Partnership's net loss for the three months ended December 31, 2003
was $(250,000), reflecting a decrease in loss of $161,000 from the $(411,000)
net loss for the three months ended December 31, 2002. The decrease in net loss
was primarily due to an increase of approximately $155,000 in equity in losses
of limited partnerships, which increased to $(222,000) for the three months
ended December 31, 2003 from $(377,000) for the three months ended December 31,
2002, due to the completion of construction and lease-up of additional
properties. In addition to the decrease in equity in losses from limited
partnerships, loss from operations decreased by $6,000 to a loss of $(27,000),
for the three months ended December 31, 2003 from a loss of $(33,000) for the
three months ended December 31, 2002. The decrease in loss from operations was
primarily due to, a decrease in asset management fees of $2,000, a decrease in
legal and accounting fees of $5,000, offset by a decrease in interest income of
$(4,000) due to lower interest rates and balance of cash on hand for the three
months ended December 31, 2003.
Nine Months Ended December 31, 2003 Compared to Nine Months Ended December 31,
2002. The Partnership's net loss for the nine months ended December 31, 2003 was
$(751,000), reflecting an increase in loss of $(93,000) from the $(658,000) net
loss for the nine months ended December 31, 2002. The increase in net loss was
primarily due to an increase of approximately $(78,000) in equity in losses of
limited partnerships, which increased to $(667,000) for the nine months ended
December 31, 2003 from $(589,000) for the nine months ended December 31, 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 decreased by $(15,000) to a loss of $(84,000), for the nine
months ended December 31, 2003 from a loss of $(69,000) for the nine months
ended December 31, 2002. The increase in
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
loss from operations was primarily due to a decrease in interest income of
$(31,000) due to lower interest rates and balance of cash on hand, offset by an
increase in reporting fee of $15,000, and an increase in asset management fees
of $(9,000), which was offset by a decrease in legal and accounting fees of
$5,000 and a decrease in other operating expenses of $5,000 for the nine months
ended December 31, 2003.
Cash Flows
Nine Months Ended December 31, 2003 Compared to Nine Months Ended December 31,
2002. Net cash used during the nine months ended December 31, 2003 was
$(1,072,000), compared to the net cash used for the nine months ended December
31, 2002 of $(142,000) reflecting an increase of $(930,000) net cash used. The
increase is primarily due to a $(533,000) increase in cash used in investing
activities, which is due to a $270,000 decrease in cashed used for investments
in limited partnerships, a $(592,000) decrease in funds held in escrow
disbursement account, a $(205,000) decrease in loan receivable, along with a
$(6,000) decrease in distributions received from limited partnerships. In
addition to the increase in cash used in investing activities, there is also a
$(397,000) increase in net cash used in operating activities. The increase in
net cash used in operating activities is primarily due to a $(382,000) increase
in cash used for accrued fees and expenses due to General Partner and
affiliates, along with a $(15,000) decrease in loss from operations.
The Partnership expects its future cash flows, together with its net available
assets at December 31, 2003, 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, 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 along with $49,587 that was applied
towards the interest payable owing to Lake Village resulting from an escrow
account as of March 31, 2003, resulting in a balance of $5,660. The Partnership
entered into a loan receivable agreement in the amount of this balance, which is
included in loans receivable. Construction of the development is completed and
is 100% tax credit qualified. The property will be switching management
companies in January 2005 to improve the quality of tenant communications,
stablize occupancy and reduce operating expenses. The current occupancy rate is
90% as of September 30, 2004.
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. Southern Hills has been making all
payments on a timely manner and as of September 30, 2004 is current on the loan
owing to the Partnership.
The Partnership expects its future cash flows, together with its net available
assets at December 31, 2003, to be sufficient to meet all currently foreseeable
future cash requirements.
17
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NOT APPLICABLE
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Partnership's General
Partner, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates carried out an evaluation of
the effectiveness of the Fund's "disclosure controls and procedures" as defined
in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that
evaluation, the Chief Executive Officer and Principal Financial Officer have
concluded that as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to the Partnership
required to be included in the Partnership's periodic SEC filings.
Changes in internal controls. There were no changes in the Partnership's
internal control over financial reporting that occurred during the quarter ended
December 31, 2003 that materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
A current report on Form 8-K was filed on behalf of the registrant on
November 4, 2003 reporting the resignation of the registrant's former
principal independent accountants, and the engagement of new principal
independent accountants under Item 4 of the Form 8-K. An amendment
thereto on Form 8-K/A was filed on November 10, 2003 and November 25,
2003 (under Item 7 and under Items 4 and 7, respectively) to file as
an exhibit the required letter from the former principal independent
accountants. Neither the initial report nor the amendments included
any financial statements.
(b) Exhibits.
---------
31.1 Certification of the Principal Executive Officer pursuant to Rule
13a-15(e) and 15d-15(e), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule
13a-15(e) and 15d-15(e), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Section 1350 Certification of the Chief Executive Officer. (filed
herewith)
32.2 Section 1350 Certification of the Chief Financial Officer. (filed
herewith)
18
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: November 10, 2004
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Senior Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: November 10, 2004
19