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, 2009
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: 0-20057
WNC HOUSING TAX CREDIT FUND II, L.P.
California 33-0391979
(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) (Zip Code)
(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 ___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 HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10 - Q
For the Quarterly Period Ended September 30, 2009
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
As of September 30, 2009 and March 31, 2009....................3
Statements of Operations
For the Three and Six Months Ended September 30, 2009 and 2008.4
Statement of Partners' Deficit
For the Six Months Ended September 30, 2009....................5
Statements of Cash Flows
For the Six Months Ended September 30, 2009 and 2008...........6
Notes to Financial Statements.....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................14
Item 3. Quantitative and Qualitative Disclosures about Market Risks..15
Item 4T. Controls and Procedures.....................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.16
Item 3. Defaults Upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
Item 5. Other Information...........................................16
Item 6. Exhibits ...................................................16
Signatures ..........................................................17
2
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
(Unaudited)
September 30, 2009 March 31, 2009
------------------------ -------------------
ASSETS
Cash $ 26,217 $ 21,720
Investments in Local Limited Partnerships, net (Note 2) - -
------------------------ -------------------
Total Assets $ 26,217 $ 21,720
======================== ===================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 2,435,662 $ 2,353,511
------------------------ -------------------
Partners' Deficit:
General Partner (81,255) (80,478)
Limited Partners (12,000 Partnership Units authorized;
7,000 Partnership Units issued and outstanding) (2,328,190) (2,251,313)
------------------------ -------------------
Total Partners' Deficit (2,409,445) (2,331,791)
------------------------ -------------------
Total Liabilities and Partners' Deficit $ 26,217 $ 21,720
======================== ===================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2009 and 2008
(Unaudited)
2009 2008
----------------------------------------- ----------------------------------------
Three Months Six Months Three Months Six Months
------------------ ------------------ -------------------- -----------------
Reporting fees $ - $ 1,992 $ 2,652 $ 4,644
------------------ ------------------ -------------------- -----------------
Operating expenses:
Asset management fees (Note 3) 28,470 58,522 34,325 68,650
Legal and accounting fees 63,161 63,161 - -
Appraisal expenses - 3,300 - -
Other 351 2,168 489 2,209
------------------ ------------------ -------------------- -----------------
Total operating expenses 91,982 127,151 34,814 70,859
------------------ ------------------ -------------------- -----------------
Loss from operations (91,982) (125,159) (32,162) (66,215)
Gain on sale of investments in
Local Limited Partnerships 27,499 47,499 - -
Interest income 3 6 4 8
------------------ ------------------ -------------------- -----------------
Net loss $ (64,480) $ (77,654) $ (32,158) $ (66,207)
================== ================== ==================== =================
Net loss allocated to:
General Partner $ (645) $ (777) $ (322) $ (662)
================== ================== ==================== =================
Limited Partners $ (63,835) $ (76,877) $ (31,836) $ (65,545)
================== ================== ==================== =================
Net loss per Partnership
Unit $ (9) $ (11) $ (5) $ (9)
================== ================== ==================== =================
Outstanding weighted
Partnership Units 7,000 7,000 7,000 7,000
================== ================== ==================== =================
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' DEFICIT
For the Six Months Ended September 30, 2009
(Unaudited)
General Limited
Partners Partners Total
----------------- ---------------- ------------------
Partners' deficit at March 31, 2009 $ (80,478) $ (2,251,313) $ (2,331,791)
Net loss (777) (76,877) (77,654)
----------------- ---------------- ------------------
Partners' deficit at September 30, 2009 $ (81,255) $ (2,328,190) $ (2,409,455)
================= ================ ==================
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2009 and 2008
(Unaudited)
2009 2008
--------------------- ----------------
Cash flows from operating activities:
Net loss $ (77,654) $ (66,207)
Adjustments to reconcile net loss to net
cash used in operating activities:
Change in accrued fees and expenses due to
General Partner and affiliates 82,151 63,359
Gain on sale of investments in Local Limited Partnerships (47,499) -
--------------------- ----------------
Net cash used in operating activities (43,002) (2,848)
--------------------- ----------------
Cash flows from investing activities:
Proceeds from sale of investments in Local Limited Partnerships 47,499 -
--------------------- ----------------
Net cash provided by investing activities 47,499 -
--------------------- ----------------
Net increase (decrease) in cash 4,497 (2,848)
Cash, beginning of period 21,720 36,267
--------------------- ----------------
Cash, end of period $ 26,217 $ 33,419
===================== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ -
===================== ================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2009
(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, 2009 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2010. 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,
2009.
Organization
------------
WNC Housing Tax Credit Fund II, L.P., (the "Partnership"), is a California
Limited Partnership formed under the laws of the State of California on January
19, 1990. 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 Financial Group, L.P., a
California partnership (the "General Partner"). The general partners of the
General Partner are WNC & Associates, Inc., a California corporation
("Associates), and Wilfred N. Cooper Sr. 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, 2045
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 12,000 units of Limited
Partnership interests ("Partnership Units") at $1,000 per Partnership Unit. The
offering of Partnership Units concluded in December 31, 1992 at which time 7,000
Partnership Units representing subscriptions in the amount of $7,000,000, had
been accepted. The General Partners have a 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% of these items in
proportion to their respective investments.
The proceeds from the disposition of any of the Local Limited Partnership
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
7
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
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 95% to the Limited Partners (in
proportion to their respective investments) and 5% 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.
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
8
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
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 November 30, 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 September 30, 2009.
As of the year ended March 31, 2009 the Partnership had sold its interests in
three Local Limited Partnerships; Ashland Investment Group, Wilcox Investment
Group, and Lake View.
During the quarter ended June 30, 2009, the Partnership sold its Limited
Partnership interests in Cherokee Square Ltd. ("Cherokee"). Cherokee was
appraised with a value of $584,000 and had an outstanding mortgage balance of
$940,544. Cherokee did not have an Option Agreement but the Local General
Partner was interested in purchasing the Limited Partnership interest in the
property. Although Cherokee had an appraisal value less than its outstanding
debt, the Local General Partner agreed to pay the Partnership $20,000 to cover
all transfer costs, including legal expenses and the appraisal costs. Therefore
the Local Limited Partnership interest of Cherokee was purchased by the Local
9
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
General Partner. The cash received for the disposition of Cherokee was placed in
the Partnership's reserves and used to pay the costs incurred related to both
the disposition and other operating expenses of the Partnership.
During the quarter ended September 30, 2009, the Partnership sold its Limited
Partnership interest in DiVall Midland Associates Limited Partnership II
("DiVall"). DiVall was appraised with a value of $545,000 and had an outstanding
mortgage balance of $1,114,000. DiVall did not have an Option Agreement but the
Local General Partner was interested in purchasing the Limited Partnership
interest in the property. Although DiVall had an appraisal value less than its
outstanding debt, the Local General Partner agreed to pay the Partnership
$27,499 to cover all transfer costs, including legal expenses and the appraisal
costs. Therefore the Local Limited Partnership interest of DiVall was purchased
by the Local General Partner. The cash received for the disposition of DiVall
was placed in the Partnership's reserves and used to pay the costs incurred
related to both the disposition and other operating
expenses of the Partnership.
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 September
30, 2009 and 2008 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. 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
General Accepted Accounting Principles ("GAAP") for 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 September 30, 2009 all of the investment
10
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
balances 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, 2009 and March 31, 2009, the Partnership had no cash equivalents.
Reporting Comprehensive Income
------------------------------
The Partnership had no items of other comprehensive income for all periods
presented.
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 tax purposes, the Partnership reports on a calendar year basis.
In June 2006, the Financial Accounting Standards Board ("FASB") issued guidance
for how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. This 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 the Standard 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 the Standard was recorded.
Net Loss Per Partnership Unit
-----------------------------
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.
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.
11
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
--------------------------------------------------
As of September 30, 2009 and March 31, 2009, the Partnership owns Local Limited
Partnership interests in 22 and 24 Local Limited Partnerships consisting of an
aggregate of 611 and 674 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.
Selected financial information for the six months ended September 30, 2009 and
2008 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
2009 2008
--------------------- --------------------
Revenues $ 1,613,000 $ 1,758,000
--------------------- --------------------
Expenses
Interest expense 207,000 228,000
Depreciation and amortization 318,000 363,000
Operating expenses 1,215,000 1,312,000
--------------------- --------------------
Total expenses 1,740,000 1,903,000
--------------------- --------------------
Net loss $ (127,000) (145,000)
===================== ====================
Net loss allocable to the Partnership $ (125,000) $ (143,000)
===================== ====================
Net 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. 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.
12
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2009
(Unaudited)
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) 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 $58,522 and $68,650 were incurred during the six
months ended September 30, 2009 and 2008, respectively. The
Partnership paid the General Partner and or its affiliates $21,763 and
$2,500 of those fees during the six months ended September 30, 2009
and 2008, respectively.
(b) 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 $ 23,237 and $5,000 during the
six months ended September 30, 2009 and 2008, respectively.
(c) A subordinated disposition fee in an amount equal to 1% of the sale
price may be received in connection with the sale or disposition of a
Housing Complex or Local Limited Partnership interest. Payment of this
fee is subordinated to the Limited Partners receiving a preferred
return of 6% (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 period presented.
The accrued fees and expenses due to the General Partners and affiliates consist
of the following at:
September 30, 2009 March 31, 2009
---------------------- -----------------
Expenses paid by the General Partners or affiliates
on behalf of the Partnership $ 55,319 $ 9,927
Accrued asset management fees 2,380,343 2,343,584
---------------------- -----------------
Total $ 2,435,662 $ 2,353,511
====================== =================
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information, 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 and six months ended September 30, 2009 and 2008, 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, 2009 consisted of $26,000 in cash.
Liabilities at September 30, 2009 consisted of $2,436,000 of accrued fees and
expenses due to the General Partner and affiliates.
Results of Operations
Three Months Ended September 30, 2009 Compared to the Three Months Ended
September 30, 2008. The Partnership's net loss for the three months ended
September 30, 2009 was $(64,000), reflecting an increase of approximately
$(32,000) from the $(32,000) net loss experienced for the three months ended
September 30, 2008. The increase is partially due to an increase of $(63,000) in
legal and accounting fees due to the timing of work being performed for the
Partnership. There was a $27,000 gain on sale of investment in Local Limited
Partnerships for the three months ended September 30, 2009 compared to no gain
on sale of investment in Local Limited Partnerships for the three months ended
September 30, 2008. The Partnership is in the disposition phase but the number
of dispositions will vary from year to year depending on the economic
conditions. During the three months ended September 30, 2009 the Partnership
sold its Limited Partnership interest in one Local Limited Partnership while no
Local Limited Partnerships were sold during the three months ended September 30,
2008. The asset management fees decreased by $5,000 due to the fact that the
fees are calculated based on the value of the invested assets, which decreased
due to the sale of four Local Limited Partnerships. Reporting fees decreased by
$(2,000). Those fees fluctuate from year to year due to the fact that Local
Limited Partnerships pay those fees to the Partnership when the Local Limited
Partnership's cash flow will allow for the payment.
Six Months Ended September 30, 2009 Compared to the Six Months Ended September
30, 2008. The Partnership's net loss for the six months ended September 30, 2009
was $(78,000), reflecting an increase of approximately $(12,000) from the
$(66,000) net loss experienced for the six months ended September 30, 2008. The
increase was largely due to an increase of $(63,000) in legal and accounting
fees due to the timing of work being performed for the Partnership. The increase
in legal and accounting fees was partially offset by an increase of $47,000 in
the gain on sale of investment in Local Limited Partnerships for the six months
ended September 30, 2009 compared to no gain on sale of investment in Local
Limited Partnerships for the six months ended September 30, 2008. The
Partnership is in the disposition phase but the number of dispositions will vary
14
from year to year depending on the economic conditions. During the six months
ended September 30, 2009 the Partnership sold its Limited Partnership interest
in two Local Limited Partnerships while no Local Limited Partnerships were sold
during the six months ended September 30, 2008. The asset management fees
decreased by $10,000 due to the fact that the fees are calculated based on the
value of the invested assets, which decreased as four Local Limited Partnerships
were sold since September 30, 2008. The appraisal expenses increased by
$(3,000), which was related to the dispositions during the six months ended
September 30, 2009. Reporting fees decreased by $(3,000). Those fees fluctuate
from year to year due to the fact that Local Limited Partnerships pay those fees
to the Partnership when the Local Limited Partnership's cash flow will allow for
the payment.
Liquidity and Capital Resources
Six Months Ended September 30, 2009 Compared to Six Months Ended September 30,
2008. The net increase in cash during the six months ended September 30, 2009
was $4,000 compared to a net decrease in cash for the six months ended September
30, 2008 of $(3,000). The change of $7,000 is due primarily to the fact that
during the six months ended September 30, 2009 the Partnership received $47,000
in proceeds from the sale of two Local Limited Partnerships compared to no
proceeds received on sales during the six months ended September 30, 2008. The
Partnership paid $(22,000) of accrued asset management fees to the General
Partner or its affiliates along with $(23,000) paid to the General Partner for
reimbursements of expenses paid by the General Partner on behalf of the
Partnership, compared to $(3,000) and $(5,000), respectively, for the six months
ended September 30, 2008. The reporting fees decreased by $(3,000) for the six
months ended September 30, 2009 compared to the six months ended September 30,
2008 as explained above.
During the six months ended September 30, 2009, accrued payables, which consist
primarily of related party management fees and advances due to the General
Partner, increased by $82,000. The General Partner does not anticipate that the
balance of the 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, 2009, to be insufficient to meet all currently
foreseeable future cash requirements. Associates have agreed to continue
providing advances sufficient enough to fund the operations and working capital
requirements of the Partnership through November 30, 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.
15
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, 2009 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)
16
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 II, L.P.
By: WNC Financial Group, L.P. General Partner of the Registrant
By: WNC & Associates, Inc. General Partner of WNC Financial Group, L.P.
By: /s/ Wilfred N. Cooper, Jr.
---------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: November 9, 2009
By: /s/ Melanie R. Wenk
-------------------
Melanie R. Wenk
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: November 9, 2009
17
