Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2017
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: 0-32395
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
California
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33-0761517
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(State
or other jurisdiction of
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(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
17782
Sky Park Circle
|
|
Irvine,
CA
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92614-6404
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(Address
of principal executive offices)
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(Zip
Code)
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(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
_X __No
___
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such files).
Yes
_X__No _ __
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check one):
Large
accelerated filer___ Accelerated filer___ Non-accelerated
filer___X__ Smaller
reporting company___
Indicate
by check mark whether the registrant is a shell company (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 September 30, 2017
PART I. FINANCIAL INFORMATION
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|
|
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Item 1.
Financial Statements
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|
|
|
Condensed
Balance Sheets
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|
As
of September 30, 2017 and March 31, 2017
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3
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Condensed
Statements of Operations
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|
For
the Three and Six Months Ended September 30, 2017 and
2016
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4
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|
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Condensed
Statement of Partners' Equity
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|
For
the Six Months Ended September 30, 2017
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5
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Condensed
Statements of Cash Flows
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|
For
the Six Months Ended September 30, 2017 and
2016
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6
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|
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Notes
to Condensed Financial Statements
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7
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|
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Item 2.
Management's Discussion and Analysis of Financial
|
|
Condition
and Results of Operations
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16
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|
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Item 3.
Quantitative and Qualitative
Disclosures about Market Risks
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18
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Item 4.
Controls and
Procedures
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18
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|
|
PART II. OTHER INFORMATION
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|
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Item 1.
Legal Proceedings
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19
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Item
1A. Risk Factors
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19
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Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
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19
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Item 3.
Defaults Upon Senior Securities
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19
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Item 4.
Mine Safety Disclosures
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19
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Item 5.
Other Information
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19
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Item 6.
Exhibits
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19
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Signatures
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20
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WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
CONDENSED BALANCE SHEETS
(Unaudited)
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September 30, 2017
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March 31, 2017
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ASSETS
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||
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Cash
and cash equivalents
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$767,391
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$278,964
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Investments
in Local Limited Partnerships, net (Note 3)
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-
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-
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Asset
management fees receivable
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340
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-
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Due
from affiliates, net (Note 5)
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-
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-
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Other
assets
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16,118
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6,521
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Total
Assets
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$783,849
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$285,485
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LIABILITIES
AND PARTNERS' EQUITY (DEFICIT)
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Liabilities:
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||
Accrued
fees and expenses due to General Partner and Affiliates
(Note 4)
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$1,833
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$153,719
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Total
Liabilities
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1,833
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153,719
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Partners’
Equity:
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General
Partner
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127,479
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126,829
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Limited
Partners (25,000 Partnership Units authorized; 18,795
Partnership Units issued and outstanding)
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654,537
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4,937
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|
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Total
Partners’ Equity
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782,016
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131,766
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Total
Liabilities and Partners’ Equity
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$783,849
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$285,485
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See
accompanying notes to condensed financial statements
3
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2017 and
2016
(Unaudited)
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2017
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2016
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||
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Three Months
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Six Months
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Three Months
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Six Months
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Operating
income:
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Reporting
fees
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$7,500
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$7,500
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$11,250
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$14,530
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Distribution
income
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184,894
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184,894
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92,032
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92,032
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Other
income
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-
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-
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-
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5,912
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Total
operating income
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192,394
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192,394
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103,282
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112,474
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Operating
expenses:
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Asset management fees (Note 4)
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3,750
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8,194
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6,327
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12,654
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Legal
and accounting fees
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20,977
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22,627
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27,770
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54,904
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Write-off
of other assets
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1,500
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2,100
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-
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-
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Other
expenses
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4,116
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8,119
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3,073
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4,559
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Total
operating expenses
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30,343
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41,040
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37,170
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72,117
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Income
from operations
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162,051
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151,354
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66,112
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40,357
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Gain
on sale of Local Limited Partnerships
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498,813
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498,813
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-
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-
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Interest
income
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59
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83
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15
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31
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|
|
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Net
income
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$660,923
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$650,250
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$66,127
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$40,388
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Net
income allocated to:
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General
Partner
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$661
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$650
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$66
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$40
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Limited
Partners
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$660,262
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$649,600
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$66,061
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$40,348
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Net
income per Partnership Unit
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$35
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$35
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$4
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$2
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Outstanding
weighted Partnership Units
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18,795
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18,795
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18,795
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18,795
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See
accompanying notes to condensed financial statements
4
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
CONDENSED STATEMENT OF PARTNERS’ EQUITY
For the Six Months Ended September 30, 2017(Unaudited)
|
General
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Limited
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|
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Partner
|
Partners
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Total
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Partners’
equity at March 31, 2017
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$126,829
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$4,937
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$131,766
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Net
income
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650
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649,600
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650,250
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Partners’
equity at September 30, 2017
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$127,479
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$654,537
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$782,016
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|
See
accompanying notes to condensed financial statements
5
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2017
(Unaudited)
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2017
|
2016
|
|
|
|
Cash
flows from operating activities:
|
|
|
Net
income
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$650,250
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$40,388
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Adjustments
to reconcile net income to net
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|
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cash
provided by (used in) operating activities:
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Increase
in asset management fees receivable
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(340)
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-
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Increase
in other assets
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(9,597)
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(4,350)
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Gain
on sale of Local Limited Partnership
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(498,813)
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-
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Decrease
in accrued fees and expenses due to
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General
Partner and affiliates
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(151,886)
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(7,489)
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Net
cash provided by (used in) operating activities
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(10,386)
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28,549
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Cash
flows from investing activities:
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Net
proceeds from sale of Local Limited Partnerships
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498,813
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-
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Prepaid
disposition proceeds
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-
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40,000
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Net
cash provided by investing activities
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498,813
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40,000
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Net
increase in cash and cash equivalents
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488,427
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68,549
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Cash
and cash equivalents, beginning of period
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278,964
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213,363
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Cash
and cash equivalents, end of period
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$767,391
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$281,912
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SUPPLEMENTAL
DISCLOSURE OF
CASH
FLOW INFORMATION
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|
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Taxes
paid
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$-
|
$-
|
See
accompanying notes to condensed financial statements
6
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2017
(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 six months ended
September 30, 2017 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 2018. 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, 2017.
Organization
WNC
Housing Tax Credit Fund VI, L.P., Series 7 (the "Partnership"), is
a California Limited Partnership formed on June 16, 1997 under the
laws of the State of California and commenced operations on
September 3, 1999. The Partnership was formed to acquire limited
partnership interests in other limited partnerships (“Local
Limited Partnerships”) which own multi-family housing
complexes (“Housing Complexes”) that are eligible for
Federal low income housing tax credits (“Low Income Housing
Tax Credits”). The local general partners (the “Local
General Partners”) of each Local Limited Partnership retain
responsibility for maintaining, operating and managing the Housing
Complexes. Each Local Limited Partnership is governed by its
agreement of limited partnership (the “Local Limited
Partnership Agreement”).
The
general partner of the Partnership is WNC & Associates, Inc., a
California corporation (“Associates” or the
“General Partner”). The chairman and president of
Associates own all of the outstanding stock of Associates. The
business of the Partnership is conducted primarily through
Associates, 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 of
limited partnership interests (“Partnership Units”) at
$1,000 per Partnership Unit. The offering of Partnership Units has
concluded and 18,850 Partnership Units, representing subscriptions
in the amount of $18,828,790, net of dealer discounts of $21,210
had been accepted. The General Partner has a 0.1% interest in
operating profits and losses, taxable income and losses, cash
available for distribution from the Partnership and Low Income
Housing Tax Credits of the Partnership. The investors (the
“Limited Partners”) will be allocated the remaining
99.9% of these items in proportion to their respective investments.
As of September 30, 2017 and March 31, 2017, 18,795 Partnership
Units remain outstanding.
7
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
proceeds from the disposition of any of the Local Limited
Partnerships Housing Complexes will be used first to pay debts and
other obligations per the respective Local Limited Partnership
Agreement. Any remaining proceeds will then be paid to the
Partnership. The sale of a Housing Complex may be subject to other
restrictions and obligations. Accordingly, there can be no
assurance that a Local Limited Partnership will be able to sell its
Housing Complex. Even if it does so, there can be no assurance that
any significant amounts of cash will be distributed to the
Partnership. Should such distributions occur, the Limited Partners
will be entitled to receive distributions equal to their capital
contributions and their return on investment (as defined in the
Partnership Agreement) and the General Partner would then be
entitled to receive proceeds equal to its capital contributions
from the remainder. Any additional sale or refinancing proceeds
will be distributed 90% to the Limited Partners (in proportion to
their respective investments) and 10% to the General
Partner.
Risks and Uncertainties
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 Tax Credits rules are extremely complicated.
Noncompliance with these rules results in the loss of future Low
Income Housing Tax Credits and the fractional recapture of Low
Income Housing Tax Credits already taken. In most cases the annual
amount of Low Income Housing Tax 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 price which would result
in the Partnership realizing cash distributions or proceeds from
the transaction. Accordingly, the Partnership may be unable to
distribute any cash to its Limited Partners. Low Income Housing Tax
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
“Compliance Period”), the loss of any remaining future
Low Income Housing Tax Credits, a fractional recapture of prior Low
Income Housing Tax Credits, and a loss of the Partnership’s
investment in the Housing Complex would occur. The Partnership is a
limited partner or a 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 Tax Credits
and recapture of Low Income Housing Tax 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 Housing Complexes, and neighborhood conditions, among
others.
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
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 Tax Credits and tax losses
allocable to Limited Partners 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.
All of the Low Income Housing Tax Credits anticipated to be
realized from the Local Limited Partnerships have been realized.
The Partnership does not anticipate being allocated any Low Income
Housing Tax Credits from the Local Limited Partnerships in the
future. Until all Local Limited Partnerships have completed the 15
year Low Income Housing Tax Credit Compliance Period, risks exist
for potential recapture of prior Low Income Housing Tax Credits
received.
Substantially all of the existing liabilities of the Partnership
are payable to the General Partner and/or its affiliates. Though
the amounts payable to the General Partner and/or its affiliates
are contractually currently payable, the Partnership anticipates
that the General Partner and/or its affiliates will not require the
payment of these contractual obligations until capital reserves are
in excess of the aggregate of then existing contractual obligations
and then anticipated future foreseeable obligations of the
Partnership. The Partnership would be adversely affected should the
General Partner and/or its affiliates demand current payment of the
existing contractual obligations and or suspend services for this
or any other reason.
No
trading market for the Partnership Units exists or is expected to
develop. Limited Partners may be unable to sell their Partnership
Units except at a discount and should consider their Partnership
Units to be a long-term investment. Individual Limited Partners
will have no recourse if they disagree with actions authorized by a
vote of the majority of Limited Partners.
Exit Strategy
The
Compliance Period for a Housing Complex is generally 15 years
following construction or rehabilitation completion. Associates was
one of the first in the industry to offer syndicated investments in
Low Income Housing Tax Credits. The initial programs have completed
their Compliance Periods.
Upon
the sale of a Local Limited Partnership or Housing Complex after
the end of the Compliance Period, there would be no recapture of
Low Income Housing Tax Credits. A sale prior to the end of the
Compliance Period could result in recapture if certain conditions
are not met. The remaining Local Limited Partnerships have
completed their Compliance Period as of September 30,
2017.
With
that in mind, the General Partner is continuing its review of the
Housing Complexes, with special emphasis on the more mature Housing
Complexes such as any that have satisfied the IRS compliance
requirements. The review considers many factors, including extended
use requirements (such as those due to mortgage restrictions or
state compliance agreements), the condition of the Housing
Complexes, and the tax consequences to the Limited Partners from
the sale of the Housing Complexes.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Upon
identifying those Housing Complexes with the highest potential for
a successful sale, refinancing or syndication, the Partnership
expects to proceed with efforts to liquidate them. The objective is
to maximize the Limited Partners’ return wherever possible
and, ultimately, to wind down the Partnership as Low Income Housing
Tax Credits are no longer available. Local Limited Partnership
interests may be disposed of any time by the General Partner in its
discretion. While liquidation of the Housing Complexes continues to
be evaluated, the dissolution of the Partnership was not imminent
as of September 30, 2017.
Upon
management of the Partnership identifying a Local Limited
Partnership for disposition, costs incurred by the Partnership in
preparation for the disposition are deferred. Upon the sale of the
Local Limited Partnership interest, the Partnership nets the costs
that had been deferred against the proceeds from the sale in
determining the gain or loss on sale of the Local Limited
Partnership. Deferred disposition costs are included in other
assets on the condensed balance sheets.
As of
March 31, 2017, the Partnership sold its Local Limited Partnership
interest in Stroud Housing Associates, L.P., Lake Village
Apartments, L.P., Ozark Properties III, Tahlequah Properties IV,
Red Oaks Estates, 2nd Fairhaven, LLC,
School Square Limited Partnership, United Development LP 2000,
Montrose Country Estates LDHA LP and Hickory Lane Partners,
L.P.
During
the six months ended September 30, 2017, the underlying Housing
Complex of ACN Southern Hills Partners II (“ACN”) was
sold, resulting in the termination of the Partnership’s Local
Limited Partnership interest. ACN was appraised for $910,000 and
had a mortgage note balance of $409,260 as of December 31, 2016.
The Partnership received $510,513 in cash proceeds, of which
$108,608 was used to pay accrued asset management fees, $65,244 was
used for the repayment of the promissory note and its interest as
mentioned in Note 5, and the remaining $336,661 is being held in
the Partnership’s reserves for future operation expenses. The
Partnership has incurred $11,700 in sales related expenses which
will be netted against the proceeds from the sale for calculating
the gain on the sale. The Partnership’s investment balance is
zero; therefore, a gain of $498,813 was recorded. The Compliance
Period has been completed therefore there is no risk of recapture
and investor approval was not required.
As of
September 30, 2017, the Partnership has identified the following
Local Limited Partnerships for possible disposition:
Local Limited Partnership
|
Debt at
12/31/2016
|
Appraisal
value
|
Estimated
sales price
|
Estimated
sales expenses
|
Estimated
sale date
|
Timberwolf
Townhomes Limited Partnership
|
$1,348,435
|
$425,000
|
(*)
|
$0
|
(*)
|
Pierce Street
Partners Limited Partnership
|
$3,175,270
|
$4,845,000(**)
|
(*)
|
$16,118
|
(*)
|
(*)
Estimated sales price and estimated sale date has not yet been
determined.
(**) In
the Annual 10-K filing the appraisal value was stated at
$2,370,000, which was per the appraisal that Pierce Street General
Partner had completed. The Partnership’s legal counsel
engaged a third-party appraiser and that appraisal had the above
stated value. As discussed in Part II, Item 1. legal proceedings,
currently Pierce Street General Partners and the Partnership are
working on resolving the disagreement between the appraised
values.
The
Compliance Period for these Local Limited Partnerships has expired
so there is no risk of recapture to the investors.
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
proceeds from the disposition of any of the Housing Complexes will
be used first to pay debts and other obligations per the respective
Local Limited Partnership Agreement. Any remaining proceeds will be
paid to the Partners of the Local Limited Partnership, including
the Partnership, in according to the terms of the particular Local
Limited Partnership Agreement. The sale may be subject to other
obligations and restrictions. Accordingly, there can be no
assurance that a Local Limited Partnership will be able to sell its
Housing Complexes. Even if it does so, there can be no assurance
that any significant amounts of cash will be distributed to the
Partnership, as the proceeds would be used first to pay Local
Limited Partnership’s obligations and funding
reserves.
Method of Accounting for Investments in Local Limited
Partnerships
The
Partnership accounts for its investments in Local 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 at least annually or
whenever events or changes in circumstances indicate that the
carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated
value derived by management, generally consisting of the sum of the
remaining future Low Income Housing Tax Credits estimated to be
allocable to the Partnership and any estimated residual value to
the Partnership. If an investment is considered to be impaired, the
Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the
Local Limited Partnerships, generally, are expected to be
consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of
the investment account and were being amortized over 30 years (see
Note 3).
“Equity
in losses of Local Limited Partnerships” for the periods
ended September 30, 2017 and 2016 has been recorded by the
Partnership. Management’s estimate for the three and
six-month periods 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 is not
recognized to the extent that the investment balance would be
adjusted below zero. If the Local Limited Partnerships reported 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 (see Note 3).
In
accordance with the accounting guidance for the consolidation of
variable interest entities, the Partnership determines when it
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. The analysis that must be performed to determine which entity
should consolidate a VIE focuses on control and economic factors. 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 has (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance and (2) the obligation to absorb losses or receive
benefits that could potentially be significant to the VIE. If
multiple unrelated parties share such power, as defined, no party
will be required to consolidate the VIE. Further, the guidance
requires continual reconsideration of the primary beneficiary of a
VIE.
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Based
on this guidance, the Local Limited Partnerships in which the
Partnership invests meet the definition of a VIE because the owners
of the equity at risk in these entities do not have the power to
direct their operations. However, management does not consolidate
the Partnership's interests in these VIEs, as it is not considered
to be the primary beneficiary since it does not have the power to
direct the activities that are considered most significant to the
economic performance of these entities. The Partnership currently
records the amount of its investment in these Local Limited
Partnerships as an asset on its balance sheets, recognizes its
share of partnership income or losses in the statements
of
operations,
and discloses how it accounts for material types of these
investments in its financial statements. The Partnership's balance
in investment in Local Limited Partnerships, plus the risk of
recapture of tax credits previously recognized on these
investments, represents its maximum exposure to loss. The
Partnership's exposure to loss on these Local Limited Partnerships
is mitigated by the condition and financial performance of the
underlying Housing Complexes as well as the strength of the Local
General Partners and their guarantee against credit recapture to
the investors in the Partnership.
Distributions received from the Local Limited Partnerships are
accounted for as a reduction of the investment
balance. Distributions received after the investment has
reached zero are recognized as distribution income. As of all
periods presented, all investment balances in Local Limited
Partnerships had reached zero.
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 original
maturities of three months or less when purchased to be cash
equivalents. As of September 30, 2017 and March 31, 2017, the
Partnership had $767,391 and $278,964 of cash equivalents,
respectively.
Reporting Comprehensive Income
The
Partnership had no items of other comprehensive income for all
periods presented.
Income Taxes
The Partnership has elected to be treated as a pass-through entity
for income tax purposes and, as such, is not subject to income
taxes. Rather, all items of taxable income, deductions and tax
credits are passed through to and are reported by its owners on
their respective income tax returns. The Partnership’s
federal tax status as a pass-through entity is based on its legal
status as a partnership. Accordingly, the Partnership is not
required to take any tax positions in order to qualify as a
pass-through entity. The Partnership is required to file and does
file tax returns with the Internal Revenue Service and other taxing
authorities. Accordingly, these financial statements do not reflect
a provision for income taxes and the Partnership has no other tax
positions which must be considered for disclosure. Income
tax returns filed by the Partnership are subject to examination by
the Internal Revenue Service for a period of three years. While no
income tax returns are currently being examined by the Internal
Revenue Service, tax years since 2014 remain open.
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Net Income per Partnership Unit
Net
income per Partnership Unit includes no dilution and is computed by
dividing income allocated to Limited Partners by the weighted
average number of Partnership Units outstanding during the period.
Calculation of diluted net loss per Partnership Unit is not
required.
Revenue Recognition
The
Partnership is entitled to receive reporting fees from the Local
Limited Partnerships. The intent of the reporting fees is to offset
(in part) administrative costs incurred by the Partnership in
corresponding with the Local Limited Partnerships. Due to the
uncertainty of the collection of these fees, the Partnership
recognizes reporting fees as collections are made.
Impact of Recent Accounting Pronouncements
In February 2015, the FASB issued ASU No. 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis”. In addition, in October 2016, the FASB issued
ASU No. 2016-17, “Consolidation (Topic 810): Interests Held
Through Related Parties That Are Under Common Control”, to
provide further clarification guidance to ASU No.
2015-02. This
will improve certain areas of consolidation guidance for reporting
organizations that are required to evaluate whether to consolidate
certain legal entities such as limited partnerships, limited
liability corporations and securitization structures.
ASU
2015-02 and
ASU 2016-17 simplifies and improves GAAP by: eliminating the
presumption that a general partner should consolidate a limited
partnership, eliminating the indefinite deferral of FASB Statement
No. 167, thereby reducing the number of Variable Interest Entity
(VIE) consolidation models from four to two (including the limited
partnership consolidation model) and clarifying when fees paid to a
decision maker should be a factor to include in the consolidation
of VIEs. ASU 2015-02
is effective for periods beginning after December 15,
2015. ASU 2016-17 is effective for periods beginning after
December 15, 2016. The adoption of these updates did not materially
affect the Partnership's financial statements.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The
Partnership maintains its cash and cash equivalent balances in one
account in one bank. At times, the balances may exceed the federal
insurance limits; however, the Partnership has not experienced any
losses with respect to its bank balances in excess of governmental
provided insurance. Management believes that no significant
concentration of credit risk exists with respect to these balances
at September 30, 2017.
NOTE 3 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
As of
September 30, 2017 and March 31, 2017, the Partnership owns Local
Limited Partnership interests in 2 and 3 Local Limited
Partnerships, respectively, each of which owns one Housing Complex
consisting of an aggregate of 106 and 136 apartment units,
respectively. The Local 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 Low Income Housing Tax
Credits of the Local Limited Partnerships.
13
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 3 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS,
continued
Selected
financial information for the six months ended September 30, 2017
and 2016 from the unaudited combined condensed financial statements
of the Local Limited Partnerships in which the Partnership has
invested is as follows:
COMBINED
CONDENSED STATEMENTS OF OPERATIONS
|
||
|
2017
|
2016
|
|
|
|
Revenues
|
$502,000
|
$986,000
|
|
|
|
Expenses:
|
|
|
Interest
expense
|
106,000
|
163,000
|
Depreciation
and amortization
|
119,000
|
235,000
|
Operating
expenses
|
276,000
|
703,000
|
Total
expenses
|
501,000
|
1,101,000
|
|
|
|
Net
income (loss)
|
$1,000
|
$(115,000)
|
Net
income (loss) allocable to the Partnership
|
$1,000
|
$(115,000)
|
Net
income (loss) recorded by the Partnership
|
$-
|
$-
|
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 may be
required to sustain operations of such Local Limited
Partnerships.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under
the terms of the Partnership Agreement, the Partnership has paid or
is obligated to the General Partner or its affiliates the following
fees:
a)
An annual asset
management fee equal to 0.2% of the invested assets of the
Partnership, as defined. “Invested Assets” means the
sum of the Partnership’s investment in Local Limited
Partnership interests and the Partnership’s allocable share
of mortgage loans on and other debts related to the Housing
Complexes owned by such Local Limited Partnerships. Asset
management fees of $8,194 and $12,654 were incurred during the six
months ended September 30, 2017 and 2016, respectively, and
$108,608 and $40,000 was paid during the six months ended September
30, 2017 and 2016, respectively.
b)
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. No such fee
was incurred for all the periods presented.
14
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS –
CONTINUED
For the Quarterly Period Ended September 30, 2017
(Unaudited)
NOTE 4 - RELATED PARTY TRANSACTIONS, continued
c)
The Partnership
reimburses the General Partner or its affiliates for operating
expenses incurred by the Partnership and paid for by the General
Partner or its affiliates on behalf of the Partnership. Operating
expense reimbursements paid were $104,316 and $42,318 during the
six months ended September 30, 2017 and 2016,
respectively.
The
accrued fees and expenses due to (due from) the General Partner and
affiliates consisted of the following at:
|
September
30, 2017
|
March
31, 2017
|
|
|
|
Expenses paid by
the General Partner or affiliates on behalf of the
Partnership
|
$1,833
|
$53,645
|
Asset management
fee payable (receivable)
|
(340)
|
100,074
|
|
|
|
Total
|
$1,493
|
$153,719
|
The
General Partner and affiliates do not anticipate that these accrued
fees will be paid until such time as capital reserves are in excess
of future foreseeable working capital requirements of the
Partnership.
NOTE 5 - DUE FROM AFFILIATES, NET
At
September 30, 2017 and March 31, 2017, loans receivable of $0 and
$63,098, respectively, were due from one Local Limited Partnership,
ACN Southern Hills II, L.P. (“ACN”), in which the
Partnership owned a 99.98% interest. The loan receivable was in the
form of a 20 year promissory note, was subordinate to the first
mortgage on the property, was due in full by August 30, 2022 and
earned interest at a rate of 8% per annum. The most recent payments
of $5,912, $17,387 and $27,066 were received during the years ended
March 31, 2017, 2016 and 2015, respectively, and were included in
other income on the statements of operations. As of March 31, 2017,
the full receivable had been reduced by a valuation allowance.
During the six months ended September 30, 2017, the loan was deemed
to have been repaid in full from proceeds received from the sale of
the underlying Housing Complex of ACN.
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,
this “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, the Partnership’s 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 the
Partnership or persons acting on its behalf are expressly qualified
in their entirety by cautionary statements in this Form 10-Q and in
other reports filed with the Securities and Exchange
Commission.
The
following discussion and analysis compares the results of
operations for the six months ended September 30, 2017 and 2016,
and should be read in conjunction with the condensed unaudited
financial statements and accompanying notes included within this
report.
Financial Condition
The
Partnership’s assets at September 30, 2017 consisted of
$767,000 in cash and cash equivalents and $16,000 in other assets.
Liabilities at September 30, 2017 consisted of $2,000 of accrued
fees and expenses payable to the General Partner and
affiliates.
Results of Operations
Three Months Ended September 30, 2017 Compared to Three Months
Ended September 30, 2016. The Partnership’s net income
for the three months ended September 30, 2017 was $661,000,
reflecting an increase of $595,000 from the $66,000 net income for
the three months ended September 30, 2016. The change was primarily
due to the $499,000 gain on sale from Local Limited Partnership
during the three months ended September 30, 2017 compared to no
gain on sale during the three months ended September 30, 2016. The
gains recorded by the Partnership can vary depending on the sale
prices and the values of the Housing Complexes that are sold. The
Partnership received $192,000 of reporting fees and distribution
income for the three months ended September 30, 2017 compared to
$103,000 received during the three months ended September 30, 2016.
Reporting fees and distributions vary depending on when the Local
Limited Partnerships’ cash flows will allow for the payment.
Asset management fees decreased by $3,000 during the three months
ended September 30, 2017. The fees are calculated based on the
value of invested assets, which decreased due to the sales of Local
Limited Partnerships. Legal and accounting fees decreased by $7,000
for the three months ended September 30, 2017 compared to the three
months ended September 30, 2016 due to legal settlement fees and
the timing of work performed. Write-off of other assets increased
by $2,000 for the three months ended September 30, 2017 compared to
three months ended September 30, 2016. Capitalized costs from
potential disposition of Local Limited Partnerships were expensed
due to the length of time it has taken to dispose of the
properties. Other expenses increased by $1,000 during the three
months ended September 30, 2017 due to professional services for
proxy fulfillment and voting performed for the three months ended
September 30, 2017.
16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Six Months Ended September 30, 2017 Compared to Six Months Ended
September 30, 2016. The Partnership’s net income for
the six months ended September 30, 2017 was $650,000, reflecting an
increase of $610,000 from the $40,000 net income for the six months
ended September 30, 2016. The change was primarily due to the
$499,000 gain on sale from Local Limited Partnership during the six
months ended September 30, 2017 compared to no gain on sale during
the six months ended September 30, 2016. The gain recorded by the
Partnership can vary depending on the sale prices and the values of
the Housing Complexes that are sold. The Partnership received
$192,000 of reporting fees and distribution income for the six
months ended September 30, 2017 compared to $107,000 received
during the six months ended September 30, 2016. Reporting fees and
distributions vary depending on when the Local Limited
Partnerships’ cash flows will allow for the payment. Other
income decreased by $6,000 during the six months ended September
30,2017 due to principal and interest payments received on the
previously reserved loan due from an affiliate during the six
months ended September 30, 2017 compared to no payments received
during the six months ended September 30, 2017. Asset management
fees decreased by $4,000 during the six months ended September 30,
2017. The fees are calculated based on the value of invested
assets, which decreased due to the sales of Local Limited
Partnerships. Legal and accounting fees decreased by $32,000 for
the six months ended September 30, 2017 compared to the six months
ended September 30, 2016 due to legal settlement fees and the
timing of work performed. Write-off of other assets increased by
$2,000 for the six months ended September 30, 2017 compared to six
months ended September 30, 2016. Capitalized costs from potential
disposition of Local Limited Partnerships were expensed due to the
length of time it has taken to dispose of the properties. Other
expenses increased by $4,000 during the six months ended September
30, 2017 due to professional services for proxy fulfillment and
voting performed for the six months ended September 30,
2017.
Liquidity and Capital Resources
Six Months Ended September 30, 2017 Compared to Six Months Ended
September 30, 2016. The net increase in cash and cash
equivalents during the six months ended September 30, 2017 was
$488,000 compared to a net increase in cash and cash equivalents
for the six months ended September 30, 2016 of $69,000. The change
was mainly due to a $499,000 increase in sale proceeds from the
disposition of Local Limited Partnerships during the six months
ended September 30, 2017. Proceeds received from disposition vary
from period to period depending on the sales prices and value of
the Housing Complexes sold. The Partnership also received $192,000
in distributions, reporting fees and other income during the six
months ended September 30, 2017 compared to $112,000 received
during the six months ended September 30, 2016. Distributions,
reporting fees and other income vary depending on when the Local
Limited Partnerships’ cash flow will allow for the payment.
In addition, the Partnership paid $109,000 in accrued asset
management fees and $104,000 of operating advances to the General
Partner or affiliates during the six months ended September 30,
2017 compared to $40,000 and $42,000, respectively, paid during the
six months ended September 30, 2016. The reimbursement of operating
expenses and asset management fees are paid after management
reviews the cash position of the Partnership.
During
the six months ended September 30, 2017, accrued payables, which
consist primarily of related party asset management fees and
advances due to the General Partner, decreased by approximately
$152,000. The General Partner does not anticipate that these
accrued fees and advances will be paid until such time as capital
reserves are in excess of foreseeable working capital requirements
of the Partnership.
The
Partnership expects its future cash flows, together with its net
available assets as of September 30, 2017, to be insufficient to
meet all currently foreseeable future cash requirements. Associates
has agreed to continue providing advances sufficient enough to fund
the operations and working capital requirements of the Partnership
through November 31, 2018.
17
Item 3. Quantitative and Qualitative
Disclosures about Market Risks
NOT
APPLICABLE
Item 4. Controls and Procedures
(a)
Disclosure 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 Partnership’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 Chief Financial Officer have concluded that,
as of the end of the period covered by this report, the
Partnership’s disclosure controls and procedures were not
effective to ensure that material information required to be
disclosed in the Partnership’s periodic report filings with
SEC is recorded, processed, summarized and reported within the time
period specified by the SEC’s rules and forms, consistent
with the definition of “disclosure controls and
procedures” under the Securities Exchange Act of
1934.
The
Partnership must rely on the Local Limited Partnerships to provide
the Partnership with certain information necessary to the timely
filing of the Partnership’s periodic reports. Factors in the
accounting at the Local Limited Partnerships have caused delays in
the provision of such information during past reporting periods,
and resulted in the Partnership’s inability to file its
periodic reports in a timely manner.
Once
the Partnership has received the necessary information from the
Local Limited Partnerships, the Chief Executive Officer and the
Chief Financial Officer of Associates believe that the material
information required to be disclosed in the Partnership’s
periodic report filings with SEC is effectively recorded,
processed, summarized and reported, albeit not in a timely manner.
Going forward, the Partnership will use the means reasonably within
its power to impose procedures designed to obtain from the Local
Limited Partnerships the information necessary to the timely filing
of the Partnership’s periodic reports.
(b)
Changes in internal controls
There
were no changes in the Partnership’s internal control over
financial reporting that occurred during the quarter ended
September 30, 2017 that materially affected, or are reasonably
likely to materially affect, the Partnership’s internal
control over financial reporting.
18
Part
II. Other Information
Item
1. Legal Proceedings
In
April 2017, the General Partners (“Pierce Street General
Partners”) of Pierce Street Partners Limited Partnership
(“Pierce Street”) filed a complaint for breach of
contract against WNC Housing Tax Credit Fund VI, L.P. Series 7 (the
“Partnership”) in the United States District Court
Northern District of Iowa. Prior to any answer being filed by the
Partnership, Pierce Street General Partners filed a notice of
dismissal (without prejudice) which was signed by the Court in June
2017. Pierce Street General Partner has re-filed the complaint in
State Court in July 2017. Attempts to settle through mediation were
unsuccessful. The Court has set this matter for trial on October 9,
2018 and expects it to take 4 days. Discovery has now
commenced.
Item 1A.Risk Factors
No
material changes in risk factors as previously disclosed in the
Partnership’s Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
NONE
Item
3. Defaults Upon Senior Securities
NONE
Item
4. Mine Safety Disclosures
NOT
APPLICABLE
Item
5. Other Information
NONE
Item 6. Exhibits
Certification of
the Chief Executive Officer pursuant to Rule 13a-14 and 15d-14, as
adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
(filed herewith)
Certification of
the Chief Financial Officer pursuant to Rule 13a-14 and 15d-14, as
adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
(filed herewith)
Section 1350
Certification of the Chief Executive Officer. (filed
herewith)
Section 1350
Certification of the Chief Financial Officer. (filed
herewith)
101
Interactive data files pursuant to Rule
405 of Regulation S-T: (i) the Condensed Balance Sheets at
September 30, 2017 and March 31, 2017, (ii) the Condensed
Statements of Operations for the six months ended September 30,
2017 and September 30, 2016, (iii) the Condensed Statement of
Partners’ Equity for the six months ended September 30, 2017,
(iv) the Condensed Statements of Cash Flows for the six months
ended September 30, 2017 and September 30, 2016 and (v) the Notes
to Condensed Financial Statements.
Exhibits 32.1,
32.2 and 101 shall not be deemed “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that Section. Such exhibits
shall not be deemed incorporated by reference into any filing under
the Securities Act of 1933 or Securities Exchange Act of
1934.
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
By: WNC &
ASSOCIATES, INC. General Partner
By:
/s/ Wilfred N. Cooper,
Jr.
Wilfred
N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates,
Inc.
Date:
November 16, 2017
By:
/s/ Melanie R.
Wenk
Melanie
R. Wenk
Senior
Vice President – Chief Financial Officer of WNC &
Associates, Inc.
Date:
November 16, 2017
20