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 June 30, 2008
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: 0-23908
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
California 33-0531301
(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 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 CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended June 30, 2008
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
As of June 30, 2008 and March 31, 2008....................................3
Statements of Operations
For the Three Months Ended June 30, 2008 and 2007.........................4
Statement of Partners' Equity (Deficit)
For the Three Months Ended June 30, 2008..................................5
Statements of Cash Flows
For the Three Months Ended June 30, 2008 and 2007.........................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 Risks.........17
.
Item 4T. Controls and Procedures............................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...........18
Item 3. Defaults Upon Senior Securities.......................................18
Item 4. Submission of Matters to a Vote of Security Holders...................18
Item 5. Other Information.....................................................18
Item 6. Exhibits .............................................................18
Signatures ...................................................................19
2
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
BALANCE SHEETS
(Unaudited)
June 30, 2008 March 31, 2008
----------------------- -------------------
ASSETS
Cash $ 236,620 $ 228,980
Investments in Local Limited Partnerships, net (Note 2) 229,626 1,740,459
----------------------- -------------------
Total Assets $ 466,246 $ 1,969,439
======================= ===================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 1,891,064 $ 1,841,301
----------------------- -------------------
Partners' equity (deficit):
General Partner (184,380) (168,850)
Limited Partners (30,000 Partnership Units
authorized; 18,000 Partnership Units issued and
outstanding) (1,240,438) 296,988
----------------------- -------------------
Total Partners' Equity (Deficit) (1,424,818) 128,138
----------------------- -------------------
Total Liabilities and Partners' Equity (Deficit) $ 466,246 $ 1,969,439
======================= ===================
See accompanying notes to financial statements
3
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
Three Months Three Months
-------------------------- ----------------------------
Distribution income $ 5,856 $ 17,481
Reporting fees - 2,750
-------------------------- ----------------------------
Total operating income 5,856 20,231
-------------------------- ----------------------------
Operating expenses:
Amortization (Note 2) 1,996 2,129
Asset management fees (Note 3) 45,346 45,346
Legal and accounting fees 816 -
Impairment loss 1,495,231 -
Other 1,847 1,140
-------------------------- ----------------------------
Total operating expenses 1,545,236 48,615
-------------------------- ----------------------------
Loss from operations (1,539,380) (28,384)
Equity in losses of
Local Limited Partnerships (Note 2) (13,606) (7,560)
Gain on sale of investment in Local Limited
Partnerships 1 -
Interest income 29 229
-------------------------- ----------------------------
Net loss $ (1,552,956) $ (35,715)
========================== ============================
Net loss allocated to:
General Partner $ (15,530) $ (357)
========================== ============================
Limited Partners $ (1,537,426) $ (35,358)
========================== ============================
Net loss per Partnership Unit $ (85) $ (2)
========================== ============================
Outstanding weighted Partnership Units 18,000 18,000
========================== ============================
See accompanying notes to financial statements
4
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS EQUITY (DEFICIT)
For the Three Months Ended June 30, 2008
(Unaudited)
General Limited
Partner Partners Total
----------------- ---------------- ----------------------
Partners equity (deficit) at March 31, 2008 $ (168,850) $ 296,988 $ 128,138
Net loss (15,530) (1,537,426) (1,552,956)
----------------- ---------------- ----------------------
Partners equity (deficit) at June 30, 2008 $ (184,380) (1,240,438) (1,424,818)
================= ================== ======================
See accompanying notes to financial statements
5
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
------------------ --------------------
Cash flows from operating activities:
Net loss $ (1,552,956) $ (35,715)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 1,996 2,129
Equity in losses of Local Limited Partnerships 13,606 7,560
Impairment loss 1,495,231 -
Change in accrued fees and expenses due to
General Partner and affiliates 49,763 33,986
Gain on sale of investment in Local Limited Partnership (1) -
------------------ ------------------
Net cash provided by operating activities 7,639 7,960
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of investment in Local Limited
Partnership 1 -
------------------ ------------------
Net cash provided by investing activities 1 -
------------------ ------------------
Net increase in cash 7,640 7,960
Cash, beginning of period 228,980 239,164
------------------ ------------------
Cash, end of period $ 236,620 $ 247,124
================== ==================
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Taxes paid $ - $ -
================== ==================
See accompanying notes to financial statements
6
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2008
(Unaudited)
8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
General
-------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 2008 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2009. 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,
2008.
Organization
------------
WNC California Housing Tax Credits III, L.P., (the "Partnership"),
is a California Limited Partnership formed under the laws of the State of
California on October 5, 1992 and began operations on July 19, 1993. 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 Tax Credit Partners III, L.P. (the
"General Partner"). WNC & Associates, Inc. ("Associates") is the general partner
of WNC Tax Credit Partners III, L.P. The chairman and president of Associates
owns 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, 2050
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.
Pursuant to a registration statement filed with the Securities and Exchange
Commission, on February 17, 1993, the Partnership commenced a public offering of
30,000 units of limited partnership interest ("Partnership Units") at a price of
$1,000 per Partnership Unit. As of the close of the public offering on July 22,
1994, a total of 17,990 Partnership Units representing $17,990,000 had been
sold. During 1995, an additional 10 Partnership Units amounting to $10,000 was
collected on subscriptions accepted and previously deemed uncollectible. The
General Partner has a 1% interest in operating profits and losses, taxable
income and losses, in cash available for distribution from the Partnership and
Low Income Housing Tax Credits of the Partnership. The investors in the
Partnership ("Limited Partners") will be allocated the remaining 99% of these
items in proportion to their respective investments.
The proceeds from the disposition of any of the Local Limited Partnership
properties 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.
7
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
----------------------------------------------------------------
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 Partners would then be entitled to
receive proceeds equal to their 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
Partners.
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 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.
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.
8
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------------------------
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 the 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.
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.
The Partnership currently has insufficient working capital to fund its
operations. Associates has agreed to continue providing advances sufficient
enough to fund the operations and working capital requirements of the
Partnership through October 31, 2010.
Anticipated future and existing cash resources of the Partnership are not
sufficient to pay existing liabilities of the Partnership. However,
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.
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 are completing their Compliance Periods.
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.
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. 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 June 30, 2008.
During the quarter ended June 30, 2008, the Partnership sold its Limited
Partnership interest in Rosewood Apartments L.P. ("Rosewood") for $1. Rosewood
had an appraised value of $70,000 and the outstanding mortgage balance was
approximately $398,000 therefore it was to the best interest of the Partnership
to sell its Limited Partnership interest to the Local General Partner.
9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Subsequent to June 30, 2008, the Partnership sold its Limited Partnership
interest in Venus Retirement Village, Ltd ("Venus") and Winters Investment Group
("Winters"). The Partnership received $15,000 and $25,000 for its Limited
Partnership interests in the respective Local Limited Partnerships. Venus and
Winters were in similar situations as Rosewood with Venus appraised at $170,000
with an outstanding mortgage balance of $700,000 and Winters appraised at
$1,460,000 with an outstanding mortgage balance of $1,765,000. The Partnership
collected $40,000 in total for the sale of the two Limited Partnership interests
and those funds are being kept in the Partnerships reserves to pay for future
operating expenses and accrued asset management fees.
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 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 the
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 are being amortized over 30
years (see Note 2).
"Equity in losses of Local Limited Partnerships" for the periods ended June 30,
2008 and 2007 have been recorded by the Partnership. Management's estimate for
the three-month period is based on either actual unaudited results reported by
the Local Limited Partnerships or historical trends in the operations of the
Local Limited Partnerships. In subsequent annual financial statements, upon
receiving the actual annual results reported by the Local Limited Partnerships,
management reverses its prior estimate and records the actual results reported
by the Local Limited Partnerships. Equity in losses of Local Limited
Partnerships allocated to the Partnership are not recognized to the extent that
the investment balance would be adjusted below zero. As soon as the investment
balance reaches zero, amortization of the related costs of acquiring the
investment is accelerated to the extent of losses available (see Note 2). 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 2).
The Partnership does not consolidate the accounts and activities of the Local
Limited Partnerships, which are considered Variable Interest Entities under
Financial Accounting Standards Board ("FASB") Interpretation No. 46-Revised,
"Consolidation of Variable Interest Entities", because the Partnership is not
considered the primary beneficiary. The Partnership's balance in investments in
Local Limited Partnerships, plus the risk of recapture of Low Income Housing Tax
Credits previously recognized on such investments, represents the maximum
exposure to loss in connection with such investments. The Partnership's exposure
to loss on the 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 guarantees against Low Income
Housing Tax Credits recapture.
Distributions received by the Partnership are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income. As of June 30, 2008, all but one of the
investment balances had reached zero.
10
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
---------------------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. As of June 30,
2008 and March 31, 2008, the Partnership had no cash equivalents.
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 periods presented, as defined by SFAS No. 130.
Income Taxes
------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liabilities and/or benefits for income taxes flow to the
partners of the Partnership and are their obligations and/or benefits. For
income taxes purposes, the Partnership reports on a calendar year basis.
In June 2006, the FASB issued Interpretation No. 48 "Accounting for Uncertainty
in Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109. FIN 48
provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Partnership's tax returns to determine whether the tax positions
are more-likely-than-not of being sustained upon examination by the applicable
tax authority, based on the technical merits of the tax position, and then
recognizing the tax benefit that is more-likely-than-not to be realized. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax expense in the current reporting period. As required, the
Partnership adopted FIN 48 effective April 1, 2007 and concluded that the effect
is not material to its financial statements. Accordingly, no cumulative effect
adjustment related to the adoption of FIN 48 was recorded.
Net Loss Per Partnership Unit
-----------------------------
Net loss per Partnership Unit is calculated pursuant to Statement of Financial
Accounting Standards No. 128, Earnings per Share. Net loss per Partnership Unit
includes no dilution and is computed by dividing loss 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.
Concentration of Credit Risk
----------------------------
At June 30, 2008, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amounts. The
Partnership believes it is not exposed to any significant financial risk on
cash.
11
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
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.
Amortization
------------
Acquisition fees and costs are being amortized over 30 years using the
straight-line method. Amortization expense was $1,996 and $2,129 as of the three
months ended June 30, 2008 and 2007, respectively.
Impairment
----------
A loss in value of an investment in a Local Limited Partnership other than a
temporary decline is recorded as an impairment loss. Impairment is measured by
comparing the investment's carrying amount to the sum of the total amount of the
remaining future Low Income Housing Tax Credits estimated to be allocated to the
Partnership and the estimated residual value to the Partnership. For the three
months ended June 30, 2008 and 2007 impairment expense related to investments in
Local Limited Partnerships was $1,495,231 and $0, respectively.
When the value of the Partnership's investment in a Local Limited Partnership
has been reduced to zero, the respective net acquisition fees and costs
component of investments in Local Limited Partnerships are impaired. For each of
the three months ended June 30, 2008 and 2007, impairment expense related to
acquisition fees and costs was $0.
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
--------------------------------------------------
As of June 30, 2008 and March 31, 2008, the Partnership owns Local Limited
Partnership interests in seventeen and eighteen Local Limited Partnerships,
respectively. All of these Local Limited Partnership's own one Housing Complex
consisting of an aggregate of 614 and 635 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%, as specified in the Local Limited
Partnership governing agreements, of the operating profits and losses, taxable
income and losses, and tax credits of the Local Limited Partnerships.
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented
below:
For the Three For the Year
Months Ended Ended
June 30, 2008 March 31, 2008
------------------- -------------------
Investments per balance sheet, beginning of period $ 1,740,459 $ 1,815,552
Equity in losses of Local Limited Partnerships (13,606) (34,537)
Distributions received from Local Limited Partnerships - (32,040)
Impairment loss (1,495,231) -
Amortization of capitalized acquisition fees and costs (1,996) (8,516)
------------------- -------------------
Investments per balance sheet, end of period $ 229,626 $ 1,740,459
=================== ===================
12
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued
-------------------------------------------------------------
For the Three Months For the Year Ended
Ended
June 30, 2008 March 31, 2008
---------------------- ----------------------
Investments in Local Limited Partnerships, net $ 103,860 $ 1,612,697
Acquisition fees and costs, net of accumulated
amortization of $1,688,253 and $1,686,257 125,766 127,762
---------------------- ----------------------
Investments per balance sheet, end of period $ 229,626 $ 1,740,459
====================== ======================
Selected financial information for the three months ended June 30, 2008 and 2007
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
2008 2007
---------------------- --------------------
Revenue $ 1,000,000 $ 960,000
---------------------- --------------------
Expenses:
Operating expenses 727,000 682,000
Interest expense 194,000 196,000
Depreciation and amortization 279,000 280,000
---------------------- --------------------
Total expenses 1,200,000 1,158,000
---------------------- --------------------
Net loss (200,000) (198,000)
====================== ====================
Net loss allocable to the Partnership $ (198,000) $ (167,000)
====================== ====================
Net loss recorded by the Partnership $ (14,000) $ (8,000)
====================== ====================
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 may be required to sustain operations of such
Local Limited Partnerships. If additional capital contributions are not made
when they are required, the Partnership's investments in certain of such Local
Limited Partnerships could be impaired, and the loss and recapture of the
related Low Income Housing Tax Credits could occur.
13
NOTE 3 - 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) Acquisition fees of up to 9% of the gross proceeds from the sale of
Partnership Units as compensation for services rendered in connection with
the acquisition of Local Limited Partnerships. At the end of all periods
presented, the Partnership incurred acquisition fees of $1,620,000.
Accumulated amortization of these capitalized costs was $1,494,234
and$1,492,238 as of June 30, 2008 and March 31, 2008, respectively.
(b) Reimbursement of costs incurred by the General Partner or an affiliate in
connection with the acquisition of Local Limited Partnerships. These
reimbursements have not exceeded 1.5% of the gross proceeds. As of the end
of all periods presented, the Partnership incurred acquisition costs of
$194,019, which have been included in investments in Local Limited
Partnerships. Accumulated amortization was $194,019 as of ended June 30,
2008 and March 31, 2008.
(c) An annual asset management fee equal to 0.5% 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. Fees of
$45,346 were incurred during each of the three months ended June 30, 2008
and 2007. The Partnership paid the General Partners and or their affiliates
$0 and $12,500 of those fees during the three months ended June 30, 2008
and 2007, respectively.
(d) Subordinated Disposition Fee. A subordinated disposition fee is 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 preferred return of 16%
through December 31, 2003 and 6% thereafter (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 fees were earned during the
periods presented.
(e) 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 were $0 during each of the three months ended June 30, 2008
and 2007.
The accrued fees and expenses due to the General Partner and affiliates consist
of the following at:
June 30, 2008 March 31, 2008
---------------------- ----------------------
Expenses paid by the General Partner or an affiliate
on behalf of the Partnership $ 31,237 $ 26,819
Asset management fee payable 1,859,828 1,814,482
---------------------- ----------------------
Total $ 1,891,064 $ 1,841,301
====================== ======================
The General Partner and/or its 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.
14
NOTE 4 - SUBSEQUENT EVENTS
--------------------------
Subsequent to June 30, 2008, the Partnership sold its Limited Partnership
interest in Venus Retirement Village, Ltd ("Venus") and Winters Investment Group
("Winters"). The Partnership received $15,000 and $25,000 for its Limited
Partnership interests in the respective Local Limited Partnerships. Venus and
Winters were in similar situations as Rosewood with Venus appraised at $170,000
with an outstanding mortgage balance of $700,000 and Winters appraised at
$1,460,000 with an outstanding mortgage balance of $1,765,000. The Partnership
collected $40,000 in total for the sale of the two Limited Partnership interests
and those funds are being kept in the Partnerships reserves to pay for future
operating expenses and accrued asset management fees.
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 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 should be
read in conjunction with the condensed unaudited financial statements and the
notes thereto included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
three months ended June 30, 2008 and 2007, 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 June 30, 2008 consisted primarily of $237,000 in
cash and aggregate investments in the seventeen Local Limited Partnerships of
$230,000. Liabilities at June 30, 2008 primarily consisted of $1,891,000 of
accrued annual management fees and reimbursement for expenses paid by the
General Partner and/or its affiliates.
Results of Operations
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007.
The Partnership's net loss for the three months ended June 30, 2008 was
$(1,553,000), reflecting an increase of $(1,517,000) from the $(36,000) net loss
for the three months ended June 30, 2007. The increase in net loss was due to
the loss from operations which increased by $(1,511,000) to $(1,539,000) for the
three months ended June 30, 2008 from $(28,000) for the three months ended June
30, 2007, which was primarily due to the $(1,495,000) increase in impairment
expense. The significant increase is due to a change in the impairment analysis
in the current quarter. For the quarter ended June 30, 2007 the impairment
analysis calculated any residual value to the Partnership and in addition to the
remaining Low Income Housing Tax Credits available to the Partnership compared
that to the current carrying value of each investment to the Partnership. For
the quarter ended June 30, 2008 all Local Limited Partnerships were not
considered to have any material residual value in consideration of the current
economic circumstances. There was also a $(3,000) decrease in reporting fees and
a $(13,000) decrease in distribution income for the three months ended June 30,
2008. The decreases in reporting fees and distribution income was due to the
fact that Local Limited Partnerships pay distributions and reporting fees to the
Partnership when the Local Limited Partnership's cash flow will allow for the
payment. Additionally there was an increase of $(6,000) from equity in losses of
Local Limited Partnerships.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Liquidity and Capital Resources
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007.
Net cash provided during each of the three month periods ended June 30, 2008 and
June 30, 2007 was $8,000. There was a $16,000 increase in the change in accrued
fees and expenses due to the General Partner and affiliates which was offset by
a $(16,000) decrease in reporting fees and distribution income, as explained
above.
During the three months ended June 30, 2008 accrued payables, which consist
primarily of asset management fees to the General Partner or affiliates,
increased by $50,000. The General Partner does not anticipate that these accrued
fees will be paid in full until such time as capital reserves are in excess of
future foreseeable working capital requirements of the partnership.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2008, to be insufficient to meet all currently foreseeable
future cash requirements. However, Associates has agreed to continue providing
advances sufficient enough to fund the operations and working capital
requirements of the Partnership through October 31, 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Item 4T. 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.
17
(b) Changes in internal controls
----------------------------
There were no changes in the Partnership's internal control over
financial reporting that occurred during the quarter ended June 30,
2008 that materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits
31.1 Certification of the Principal 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)
31.2 Certification of the Principal 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)
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 CALIFORNIA HOUSING TAX CREDITS III, L.P.
By: WNC California Tax Credit Partners III General Partner
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.
ate: October 9, 2009
By: /s/ Melanie R. Wenk
------------------------
Melanie R. Wenk,
Vice President - Chief Financial Officer of WNC & Associates, Inc.
Date: October 9, 2009
1
