-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0Bfn0YINsscmnLtt+wheT/U59ZSBZ00z2tg+f1ESLKMZwifXJN2RfzrMPe35rb6 Hz9KjUCe6/BH2Fx6JUmIug== 0001084067-02-000009.txt : 20020414 0001084067-02-000009.hdr.sgml : 20020414 ACCESSION NUMBER: 0001084067-02-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WNC HOUSING TAX CREDIT FUND IV L P SERIES 2 CENTRAL INDEX KEY: 0000913497 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 330596399 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28370 FILM NUMBER: 02546849 BUSINESS ADDRESS: STREET 1: 3158 REDHILL AVE STE 120 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7146625565 10-Q 1 n42q121.txt QUARTERLY REPORT 12-31-01 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 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: 0-28370 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2. California 33-0596399 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626 (714) 662-5565 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 - ---- ------- WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) INDEX TO FORM 10-Q For the Three and Nine Months Ended December 31, 2001 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets December 31, 2001 and March 31, 2001...............................3 Statements of Operations For the three and nine months ended December 31, 2001 and 2000.....4 Statement of Partners' Equity (Deficit) For the nine months ended December 31, 2001........................5 Statements of Cash Flows For the nine months ended December 31, 2001 and 2000...............6 Notes to Financial Statements.......................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................15 Item 3. Quantitative and Qualitative Disclosures about Market Risks........17 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................17 Item 6. Exhibits and Reports on Form 8-K...................................17 Signatures..................................................................18 2 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) BALANCE SHEETS
December 31, 2001 March 31, 2001 ------------------------ -------------------- (unaudited) ASSETS Cash and cash equivalents $ 37,693 $ 84,147 Investments in limited partnerships, net (Note 3) 6,895,417 7,432,933 Other assets 998 998 ------------------------ -------------------- $ 6,934,108 $ 7,518,078 ======================== ==================== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Accrued expenses $ 16,485 $ 48,569 Accrued fees and expenses due to General Partner and affiliates (Note 4) 304,208 107,278 ------------------------ -------------------- Total liabilities 320,693 155,847 ------------------------ -------------------- Commitments and Contingencies (Note 6) Partners' equity (deficit): General Partner (86,178) (78,690) Limited Partners (20,000 units authorized, 15,600 units issued and outstanding) 6,699,593 7,440,921 ------------------------ -------------------- Total partners' equity 6,613,415 7,362,231 ------------------------ -------------------- $ 6,934,108 $ 7,518,078 ======================== ====================
See accompanying notes to financial statements 3 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) STATEMENTS OF OPERATIONS For the Three and Nine months Ended December 31, 2001 and 2000 (unaudited)
2001 2000 ----------------------------------------- ------------------------------------- Three Nine Three Nine Months Months Months Months ------------------ ------------------- ---------------- ---------------- Interest income $ 393 $ 1,845 $ 1,746 $ 5,986 ------------------ ------------------- ---------------- ---------------- Operating expenses: Amortization (Note 3) 9,483 28,449 10,234 30,702 Asset management fees (Note 4) 11,000 33,000 11,000 33,000 Legal & accounting 1,838 8,968 2,541 22,909 Other 168,102 174,277 2,057 37,410 ------------------ ------------------- ---------------- ---------------- Total operating expenses 190,423 244,694 25,832 124,021 ------------------ ------------------- ---------------- ---------------- Loss from operations (190,030) (242,849) (24,086) (118,035) Equity in losses of limited partnerships (Note 3) (137,902) (505,967) (186,437) (559,311) ------------------ ------------------- ---------------- ---------------- Net loss $ (327,932) $ (748,816) $ (210,523) $ (677,346) ================== =================== ================ ================ Net loss allocated to: General Partner $ (3,279) $ (7,488) $ (2,105) $ (6,773) ================== =================== ================ ================ Limited Partners $ (324,653) $ (741,320) $ (208,418) $ (670,573) ================== =================== ================ ================ Net loss per weighted limited partner unit $ (21) $ (48) $ (13) $ (43) ================== =================== ================ ================ Outstanding weighted limited partner units 15,600 15,600 15,600 15,600 ================== =================== ================ ================
See accompanying notes to financial statements 4 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) STATEMENT OF PARTNERS' EQUITY (DEFICIT) For the Nine months Ended December 31, 2001 (unaudited)
General Limited Partner Partners Total ---------------- --------------- ---------------- Partners' equity (deficit) at March 31, 2001 $ (78,690) $ 7,440,921 $ 7,362,231 Net loss (7,488) (741,328) (748,816) ---------------- --------------- ---------------- Partners' equity (deficit) at December 31, 2001 $ (86,178) $ 6,699,593 $ 6,613,415 ================ =============== ================
See accompanying notes to financial statements 5 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Nine months Ended December 31, 2001 and 2000 (unaudited)
2001 2000 ----------------- ----------------- Cash flows from operating activities: Net loss $ (748,816) $ (677,346) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 28,449 30,702 Equity in losses of limited partnerships 505,967 559,311 Change in accrued expenses (32,084) (25,157) Change in accrued fees and expenses due to General Partner and affiliates 196,930 33,628 ----------------- ----------------- Net cash used in operating activities (49,554) (78,862) ----------------- ----------------- Cash flows from investing activities: Distributions from limited partnerships 3,100 3,850 ----------------- ----------------- Net cash provided by investing activities: 3,100 3,850 ----------------- ----------------- Net decrease in cash and cash equivalents (46,454) (75,012) Cash and cash equivalents, beginning of period 84,147 180,133 ----------------- ----------------- Cash and cash equivalents, end of period $ 37,693 $ 105,121 ================= ================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ 800 $ 800 ================ =================
See accompanying notes to financial statements 6 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- General - ------- The accompanying condensed unaudited financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principle for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2001 is not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2002. 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, 2001. Organization - ------------ WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") was formed on September 27, 1993 under the laws of the state of California and commenced operations on July 18, 1994. The Partnership was formed to invest primarily in other limited partnerships (the "Local Limited Partnerships") which own and operate multi-family housing complexes (the "Housing Complex") that are eligible for low-income housing credits. The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex. The general partner is WNC Tax Credit Partners, IV, L.P. (the "General Partner"), a California limited partnership. WNC & Associates, Inc. ("WNC") is the general partner of the General Partner. Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding stock of WNC. John B. Lester, Jr. was the original limited partner of the Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding stock of WNC. Wilfred N. Cooper, Jr., President of WNC, owns 2.1% of the outstanding stock of WNC. 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 Partnership Agreement authorized the sale of 20,000 units at $1,000 per unit ("Units"). The offering of Units concluded in July 1995 at which time 15,600 Units representing subscriptions, net of discounts for volume purchases of more than 100 units, in the amount of $15,241,000 had been accepted. The General Partner has 1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and tax credits. The limited partners will be allocated the remaining 99% of these items in proportion to their respective investments. After the limited partners have received proceeds from sale or refinancing equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner has received proceeds equal to its capital contributions and a subordinated disposition fee from the remainder, any additional sale or refinancing proceeds will be distributed 90% to the limited partners (in proportion to their respective investments) and 10% to the General Partner. 7 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued - -------------------------------------------------------------- Risks and Uncertainties - ----------------------- The Partnership's investments in Local Limited Partnerships are subject to the risks incident to the management and ownership of low-income housing and to the management and ownership of multi-unit residential real estate. Some of these risks are that the low income housing credit could be recaptured and that neither the Partnership's investments nor the Housing Complexes owned by the Local Limited Partnerships will be 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 Local Limited Partnership Interests; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. The Housing Complexes are or will be subject to mortgage indebtedness. If a Local Limited Partnership does not make its mortgage payments, the lender could foreclose resulting in a loss of the Housing Complex and low-income housing credits. As a limited partner of the Local Limited Partnerships, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships, and will rely totally on the Local General Partners of the Local Limited Partnerships for management of the Local Limited Partnerships. The value of the Partnership's investments will be subject to changes in national and local economic conditions, including unemployment conditions, which could adversely impact vacancy levels, rental payment defaults and operating expenses. This, in turn, could substantially increase the risk of operating losses for the Housing Complexes and the Partnership. In addition, each Local Limited Partnership is subject to risks relating to environmental hazards and natural disasters, which might be uninsurable. Because the Partnership's operations will depend on these and other factors beyond the control of the General Partner and the Local General Partners, there can be no assurance that the anticipated low income housing credits will be available to Limited Partners. In addition, Limited Partners are subject to risks in that the rules governing the low income housing credit are complicated, and the use of credits can be limited. The only material benefit from an investment in Units may be the low income housing credits. There are limits on the transferability of Units, and it is unlikely that a market for Units will develop. All management decisions will be made by the General Partner. Method of Accounting for Investments in Limited Partnerships - ------------------------------------------------------------ The Partnership accounts for its investments in limited partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnership's results of operations and for any distributions received. The accounting policies of the Local Limited Partnership are consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and are being amortized over 30 years (Note 3). Offering Expenses - ----------------- Offering expenses consist of underwriting commissions, legal fees, printing, filing and recordation fees, and other costs incurred with selling limited partnership interests in the Partnership. The General Partner is obligated to pay all offering and organization costs in excess of 15% (including sales commissions) of the total offering proceeds. 8 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued - -------------------------------------------------------------- Offering Expenses (continued) - ----------------------------- Offering expenses are reflected as a reduction of partners' capital and amounted to $970,717 as of December 31, 2001 and March 31, 2001. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles 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 highly liquid investments with maturity of three months or less when purchased to be cash equivalents. As of December 31, 2001 and March 31, 2001, the Partnership had no cash equivalents. Net Loss Per Limited Partner Unit - --------------------------------- Net loss per limited partner unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit includes no dilution and is computed by dividing loss available to limited partners by the weighted average number of units outstanding during the period. Calculation of diluted net income per unit is not required. Reporting Comprehensive Income - ------------------------------ In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of Partners' equity and bypass net income. The Partnership adopted the provisions of this statement in 1998. For the periods presented, the Partnership has no elements of other comprehensive income, as defined by SFAS No. 130. 9 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENTS IN BROKEN BOW AND SIDNEY: - -------------------------------------------------------------------------------- IMPAIRMENT OF INVESTMENTS ------------------------- The Partnership has two investments accounted for under the equity method, consisting of 99% limited partnership interests in each of Broken Bow Apartments I, Limited Partnership ("Broken Bow") and Sidney Apartments I, Limited Partnership ("Sidney"). The independent auditors engaged to perform the audits of Broken Bow and Sidney's financial statements as of and for the year ended December 31, 1999, were unable to form an opinion on those financial statements. This was due to the inability to obtain from the former local general partner certain general ledger information for a period of approximately nine months and reliable confirmations of advances to/notes receivable from the former local general partner. Further, the independent auditors were unable to obtain management representation letters from the former property-management company, which is an affiliate of the former local general partner. As a result, the Partnership has not included the financial information of Broken Bow and Sidney in the combined condensed financial statements presented in Note 3 to the financial statements. The combined condensed financial information presented in Note 3 for prior periods has been restated to exclude the accounts of Broken Bow and Sidney. The Partnership has reflected equity in the net losses of Broken Bow and Sidney totaling $(156,823), $(10.05) per limited partner unit) for the year ended March 31, 2000, based on nine months of reported results provided by Broken Bow and Sidney and on three months of results estimated by Associates. Such estimates may be materially misstated due to the lack corroborative financial information. During the year ended March 31, 2000, the Partnership advanced $120,906 in cash to Broken Bow and Sidney for operating expenses, including legal fees relating to certain litigation involving these and other properties as outlined in Note 6. As a result of the foregoing, WNC performed an evaluation of the Partnership's remaining investment balances in Broken Bow and Sidney, including the cash advances noted above and other anticipated costs. It was determined that an impairment adjustment was necessary and an impairment loss of $766,559 had been recognized for the year ended March 31, 2000. This impairment loss includes $558,688 in remaining net book value of the Partnership's investments in Broken Bow and Sidney, the $120,906 and $30,753 of cash advances, a $37,670 accrual for anticipated legal costs, and $18,542 of estimated accounting and other related costs. A legal settlement of $11,667 for Broken Bow and Sidney was applied to the accruals during the nine months ended December 31, 2001. During 2001, Broken Bow and Sidney continued to experience negative cash flows from operations. In December, 2001 WNC reached an agreement with the lender and as part of that agreement a partial settlement of $165,000 of the indebtedness due and owing by Broken Bow to the Lender was paid December 17, 2001. As of December 31, 2001, the $165,000 advance to Broken Bow has been fully reserved. As a result of the aforementioned operating difficulties and litigation there is uncertainty as to whether the Partnership will ultimately retain its interests in Broken Bow and Sidney. If the investments are sold or otherwise not retained, the Partnership could be subject to recapture of tax credits and certain prior tax deductions. There is further uncertainty as to costs that the Partnership may ultimately incur in connection with its investments in Broken Bow and Sidney. The Partnership's financial statements do not include any adjustments that might result from the outcome of these uncertainties. 10 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS - -------------------------------------------- As of the periods presented, the Partnership had acquired limited partnership interests in twenty-two Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate of 892 apartment units. As of March 31, 1999, construction or rehabilitation of all of the apartment complexes had been completed. The respective general partners of the Local Limited Partnerships manage the day-to-day operations of the entities. Significant Local Limited Partnership business' decisions require approval from the Partnership. The Partnership, as a limited partner, is entitled to 96% to 99%, as specified in the partnership agreements, of the operating profits and losses, taxable income and losses and tax credits of the Limited Partnerships. Equity in losses of Local Limited Partnerships is recognized in the financial statements until the related investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended. Distributions received by limited partners are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero would be recognized as income. Following is a summary of the equity method activity of the investments in Local Limited Partnerships for the periods presented:
For the Nine months For the Year Ended Ended December 31, 2001 March 31, 2001 ---------------------- ------------------- Investments in limited partnerships, beginning of period $ 7,432,933 $ 8,311,454 Distributions received from limited partnerships (3,100) (5,949) Equity in losses of limited partnerships (505,967) (831,638) Amortization of capitalized acquisition fees and costs (28,449) (40,934) ---------------------- ------------------- Investments in limited partnerships, end of period $ 6,895,417 $ 7,432,933 ====================== ===================
11 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued - ------------------------------------------------------- Selected financial information for the nine months ended December 31, 2001 and 2000 from the unaudited combined condensed financial statements of the limited partnerships in which the Partnership has invested are as follows: (Combined condensed financial information for Broken Bow and Sidney have been excluded from the presentations below. See Note 2 for further discussion): COMBINED CONDENSED STATEMENTS OF OPERATIONS
2001 2000 -------------------- ------------------ Revenues $ 2,874,000 $ 2,826,000 -------------------- ------------------ Expenses: Interest expense 851,000 866,000 Depreciation & amortization 967,000 928,000 Operating expenses 1,700,000 1,624,000 -------------------- ------------------ Total expenses 3,518,000 3,418,000 -------------------- ------------------ Net loss $ (644,000) $ (592,000) ==================== ================== Net loss allocable to the Partnership $ (637,000) $ (559,000) ==================== ================== Net loss recorded by the Partnership $ (506,000) $ (559,000) ==================== ==================
Certain Local Limited Partnerships have incurred significant operating losses and have working capital deficiencies. In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership and/or the Local General Partner may be required to sustain the operations of such Local Limited Partnerships. If additional capital contributions are not made when they are required, the Partnership's investment in certain of such Local Limited Partnerships could be impaired, and the loss and recapture of the related tax credits could occur. 12 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 4 - RELATED PARTY TRANSACTIONS - ----------------------------------- The Partnership has no officers, employees, or directors. However, under the terms of the Partnership Agreement the Partnership is obligated to the General Partner or its affiliates for the following fees: (a) Annual Asset Management Fee. An annual asset management fee of the greater of (i) $2,000 per multi-family housing complex or (ii) 0.275% of Gross Proceeds. The base fee amount will be adjusted annually based on changes in the Consumer Price Index. However, in no event will the annual asset management fee exceed 0.2% of Invested Assets. "Invested Assets" means the sum of the Partnership's investment in Local Limited Partnerships and the Partnership's allocable share of the amount of indebtedness related to the Housing Complexes. Asset Management fees of $33,000 were incurred during each of the nine months ended December 31, 2001 and 2000. The Partnership paid the General Partner or its affiliates $0 and $3,750 of those fees during the nine months ended December 31, 2001 and 2000, respectively. (b) Subordinated Disposition Fee. A subordinated disposition fee in an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the limited partners receiving a 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. The accrued fees and expenses due to General Partner and affiliates consisted of the following:
December 31, 2001 March 31, 2001 -------------------- -------------------- Reimbursement for expenses paid by the General Partner or an affiliate $ 165,049 $ 1,119 Asset management fee payable 139,159 106,159 -------------------- -------------------- Total $ 304,208 $ 107,278 ==================== ====================
The General Partner does not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership. NOTE 5 - INCOME TAXES - --------------------- The Partnership will not make a provision for income taxes since all items of taxable income and loss will be allocated to the partners for inclusion in their respective income tax returns. NOTE 6 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- During 2000, WNC identified a potential problem with a developer who, at the time, was the local general partner in six Local Limited Partnerships. The Partnership has a 99% limited partnership interest in two of those six Local Limited Partnerships. Those investments are Broken Bow Apartments I, Limited Partnership, and Sidney Apartments I, Limited Partnership. All of the properties continue to experience operating deficits. The local general 13 WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Three and Nine months Ended December 31, 2001 (unaudited) NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued - ------------------------------------------------- partner ceased funding the operating deficits, which placed the Local Limited Partnerships in jeopardy of foreclosure. Consequently, WNC voted to remove the local general partner and the management company from the Local Limited Partnerships. After the local general partner contested its removal, WNC commenced legal action on behalf of the Local Limited Partnerships and was successful in getting a receiver appointed to manage the Local Limited Partnerships and an unaffiliated entity appointed as property manager. WNC was subsequently successful in attaining a summary judgment to confirm the removal of the local general partner, the receiver was discharged and WNC now controls all six of the Local Limited Partnerships. The six Local Limited Partnerships (hereinafter referred to as "Defendants") were defendants in a separate lawsuit. The lawsuit was filed by eight other partnerships in which the local general partner of the Local Limited Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that the local general partner accepted funds from the Plaintiffs and improperly loaned these funds to the Defendants. In July 2001, a tentative settlement was reached with respect to this lawsuit for the aggregate amount of $35,000. The settlement was executed in November 2001. The Partnership's allocated share of $11,700 had been accrued in full at March 31, 2001 and was paid in full at December 31, 2001. The Partnership currently has insufficient working capital to fund its operations. WNC and Associates, Inc., the general partner of the General Partner of the Partnership, has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through at least January 1, 2003. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements With the exception of the discussion regarding historical information, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other discussions elsewhere in this Form 10-Q contain forward-looking statements. Such statements are based on current expectations subject to uncertainties and other factors, which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied. Further, certain forward-looking statements are based upon assumptions about future events, which may not prove to be accurate. Risks and uncertainties inherent in forward looking statements include, but are not limited to, our future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the low income housing tax credit property market and the economy in general, as well as legal proceedings. Historical results are not necessarily indicative of the operating results for any future period. Subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by cautionary statements in this Form 10-Q and in other reports we filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the condensed Financial Statements and the Notes thereto included elsewhere in this filing. The following discussion and analysis compares the results of operations for the three and nine months ended December 31, 2001 and 2000, and should be read in conjunction with the condensed financial statements and accompanying notes included within this report. Financial Condition The Partnership's assets at December 31, 2001 consisted primarily of $38,000 in cash and aggregate investments in the twenty-two Local Limited Partnerships of $6,895,000. Liabilities at December 31, 2001 primarily consisted of $16,000 in accrued expenses and $304,000 of accrual fees and expenses due to the General Partner and affiliates. Results of Operations Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000. The Partnership's net loss for the three months ended December 31, 2001 was $(328,000) reflecting an in increase of $(117,000) from the $(211,000) net loss experienced for the three months ended December 31, 2000. The increase in net loss is primarily due to the reserve for advances made to Broken Bow for $165,000 included in other operating expenses for the three months ended December 31, 2001 . This increase is offset by a decrease in equity in losses of limited partnerships which decreased by $48,000 to $(138,000) for the three months ended December 31, 2001 from $(186,000) for the three months ended December 31, 2000. The decrease in equity in losses of limited partnerships is due to the Partnership not recognizing certain losses of the Local Limited Partnerships. The investments in such Local Limited Partnerships had reached $0 at December 31, 2001. Since the Partnership's liability with respect to its investments is limited, losses in excess of investment are not recognized. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Nine months Ended December 31, 2001 Compared to Nine months Ended December 31, 2000. The Partnership's net loss for the nine months ended December 31, 2001 was $(749,000) reflecting a decrease of $(72,000) from the $(677,000) net loss experienced for the nine months ended December 31, 2000. The increase in net loss is primarily due to the reserve for advances made to Broken Bow for $165,000 included in other operating expenses for the nine months ended December 31, 2001. This increase is off set by a decrease in equity in losses of limited partnerships which decreased by $53,000 to $(506,000), for the nine months ended December 31, 2001 from $(559,000) for the nine months ended December 31, 2000. This decrease in equity in losses of Local Limited Partnerships is due to the Partnership not recognizing certain losses of the Local Limited Partnerships. The investments in such Local Limited Partnerships had reached $0 at December 31, 2001. Since the Partnership's liability with respect to its investments is limited, losses in excess of investment are not recognized. This decrease was offset by the reduction of the respective net acquisition fee component of investments in Local Limited partnerships to zero for those Local Limited Partnerships which would otherwise be below a zero balance. Cash Flows Nine months Ended December 31, 2001 Compared to Nine months Ended December 31, 2000. Net cash used during the nine months ended December 31, 2001 was $(46,000) compared to net cash used during the nine months ended December 31, 2000 of $(75,000). The $29,000 decrease was due primarily to a decrease in cash advanced to two limited partnerships, Broken Bow and Sidney, to fund operating activities. During the nine months ended December 31, 2001, accrued payables, which consist primarily of asset management fees due to the General Partner and reimbursements for expenses, paid by the general partner or an affiliate, increased by $197,000. 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 currently has insufficient working capital to fund its operations. WNC and Associates, Inc., the general partner of the Partnership, has agreed to continue providing advances sufficient to fund the operations and working capital requirements of the Partners January 1, 2003. hip through at least January 1, 2003. 16 Item 3. Quantitative and Qualitative Disclosures above Market Risks NOT APPLICABLE. Part II. Other Information Item 1. Legal Proceedings NONE. Item 6. Exhibits and Reports on Form 8-K NONE. 17 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 IV, L.P. - Series 2 By: WNC Tax Credit Partners IV, L.P., General Partner of the Registrant By: WNC & ASSOCIATES, INC., General Partner By: /s/ Wilfred N. Cooper, Jr. --------------------------- Wilfred N. Cooper, Jr., President Chief Operating Officer of WNC & Associates, Inc. Date: February 7, 2002 By: /s/ Thomas J. Riha ------------------ Thomas J. Riha, Vice President Chief Financial Officer of WNC & Associates, Inc. Date: February 7, 2002 18 -----END PRIVACY-ENHANCED MESSAGE-----