Seneca Falls East Apartments Company II, L.P.
(A Limited Partnership)
Case No: 37-050-161505050
Financial Statements
Years Ended
December 31, 2006 And 2005
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
FINANCIAL STATEMENTS
Contents
Page | |||
Independent Auditors' Report | 1 | ||
Financial Statements: | |||
Balance Sheets | |||
December 31,2006 and 2005 | 2-3 | ||
Statements of Income | |||
For The Years Ended December 31, 2006 and 2005 | 4 | ||
Statements of Partners' Capital | |||
For The Years Ended December 31, 2006 and 2005 | 5 | ||
Statements of Cash Flows | |||
For The Years Ended December 31, 2006 and 2005 | 6 | ||
Notes to the Financial Statements | 7-12 | ||
Other information: | |||
Partner Certification | 13 |
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INDEPENDENT AUDITORS' REPORT
To The Partners
SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
East Syracuse, New York
We have audited the accompanying balance sheets of Seneca Falls East Apartments Company II, L.P. (a Limited Partnership) as of December 31, 2006 and 2005, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the General Partners. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the partners, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Seneca Falls East Apartments Company II, L.P. as of December 31, 2006 and 2005, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
\s\ DiMARCO, ABIUSI & PASCARELLA, P.C.
Syracuse, New York
February 15, 2007
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
BALANCE SHEETS
December 31, 2006 and 2005
ASSETS
2006 | 2005 | |||||||
CURRENT ASSETS | ||||||||
Cash – Operating | $ | 10,497 | $ | 1,388 | ||||
Subsidy receivable | - | 3,447 | ||||||
Rent receivable | 4,679 | 3,841 | ||||||
Miscellaneous receivables | 273 | 348 | ||||||
Prepaid expenses | 323 | 302 | ||||||
TOTAL CURRENT ASSETS | 15,772 | 9,326 | ||||||
RESTRICTED DEPOSITS AND FUNDED RESERVES | ||||||||
Tenants' security deposits | 9,715 | 8,352 | ||||||
Replacement reserve | 36,213 | 37,524 | ||||||
Taxes and insurance escrow | 19,454 | 16,062 | ||||||
TOTAL RESTRICTED DEPOSITS AND FUNDED RESERVES | 65,382 | 61,938 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 40,000 | 40,000 | ||||||
Buildings | 412,893 | 412,893 | ||||||
Equipment | 3,441 | 3,441 | ||||||
Building - Rehab | 640,256 | 640,256 | ||||||
Carpeting and appliances | 74,181 | 66,250 | ||||||
Carpeting and appliances - Rehab | 55,733 | 55,733 | ||||||
Roads/walks and landscaping - Rehab | 30,351 | 30,351 | ||||||
1,256,855 | 1,248,924 | |||||||
Less accumulated depreciation | 363,452 | 327,870 | ||||||
PROPERTY AND EQUIPMENT - NET | 893,403 | 921,054 | ||||||
$ | 974,557 | $ | 992,318 |
See Accountants' Audit Report and Accompanying Notes.
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LIABILITIES AND PARTNERS' CAPITAL
2006 | 2005 | |||||||
CURRENT LIABILITIES | ||||||||
Current portion of mortgages payable | $ | 4,002 | $ | 3,742 | ||||
Accounts payable | 2,710 | 3,094 | ||||||
Deferred rent | - | 27 | ||||||
Developers' fee payable | 13,181 | 13,181 | ||||||
TOTAL CURRENT LIABILITIES | 19,893 | 20,044 | ||||||
TENANTS' SECURITY DEPOSITS (CONTRA) | 9,715 | 8,352 | ||||||
LONG-TERM LIABILITIES | ||||||||
Mortgages payable - Net of current portion | 867,087 | 871,088 | ||||||
TOTAL LIABILITIES | 896,695 | 899,484 | ||||||
PARTNERS' CAPITAL | 77,862 | 92,834 | ||||||
$ | 974,557 | $ | 992,318 |
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
STATEMENTS OF INCOME
For The Years Ended December 31, 2006 and 2005
2006 | 2005 | |||||||
INCOME | ||||||||
Rental | $ | 177,340 | $ | 155,595 | ||||
Coin | 2,561 | 2,743 | ||||||
Interest - Reserve | 1,724 | 976 | ||||||
Interest – Escrow | 498 | 268 | ||||||
Late charges | 265 | 328 | ||||||
Security deposits forfeited | 20 | - | ||||||
Miscellaneous | 524 | 925 | ||||||
TOTAL INCOME | 182,932 | 160,835 | ||||||
OPERATING EXPENSES | ||||||||
Maintenance and repairs payroll | 13,680 | 13,072 | ||||||
Maintenance and repairs supplies | 1,808 | 2,025 | ||||||
Maintenance and repairs contract | 2,909 | 2,315 | ||||||
Maintenance and repairs - Reserve | 1,250 | 380 | ||||||
Painting and decorating | 1,358 | 890 | ||||||
Snow removal | 1,823 | 3,275 | ||||||
Grounds maintenance | 112 | 262 | ||||||
Services/exterminating | - | 1,401 | ||||||
Furniture replacement | - | 162 | ||||||
Electricity | 6,298 | 5,708 | ||||||
Water | 7,194 | 7,774 | ||||||
Sewer | 7,194 | 8,272 | ||||||
Gas | 7,013 | 7,488 | ||||||
Trash removal | 3,022 | 2,820 | ||||||
Management fee | 18,150 | 10,880 | ||||||
Accounting | 3,400 | 3,200 | ||||||
Legal | 382 | 678 | ||||||
Advertising | 139 | 71 | ||||||
Telephone | 1,683 | 1,224 | ||||||
Office supplies/copies | 1,428 | 656 | ||||||
Training | 423 | |||||||
Employee benefits and health insurance | 1,192 | 1,172 | ||||||
Payroll taxes | 3,730 | 3,809 | ||||||
Workers' compensation | 739 | 663 | ||||||
Bad debt | 2,469 | 1,045 | ||||||
Other administrative | 215 | 459 | ||||||
Real estate taxes | 46,890 | 45,834 | ||||||
DHCR monitoring fee | 1,366 | 1,327 | ||||||
Property and liability insurance | 7,241 | 7,182 | ||||||
Asset management fee | 273 | - | ||||||
Interest | 19,364 | 17,646 | ||||||
Depreciation | 35,582 | 40,411 | ||||||
TOTAL OPERATING EXPENSES | 197,904 | 192,524 | ||||||
NET LOSS | $ | (14,972 | ) | $ | (31,689 | ) |
See Accountants' Audit Report and Accompanying Notes.
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
STATEMENTS OF PARTNERS' CAPITAL
For The Years Ended December 31, 2006 and 2005
2006 | 2005 | |||||||
PARTNERS' CAPITAL - BEGINNING OF YEAR | $ | 92,834 | $ | 125,979 | ||||
Net loss | (14,972 | ) | (31,689 | ) | ||||
Distributions | - | (1,456 | ) | |||||
PARTNERS' CAPITAL - END OF YEAR | $ | 77,862 | $ | 92,834 |
See Accountants' Audit Report and Accompanying Notes.
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6
SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2006 and 2005
2006 | 2005 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (14,972 | ) | $ | (31,689 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 35,582 | 40,411 | ||||||
(Increase) decrease in: | ||||||||
Subsidy receivable | 3,447 | 356 | ||||||
Rent receivable | (838 | ) | (30 | ) | ||||
Miscellaneous receivables | 75 | (50 | ) | |||||
Prepaid expenses | (21 | ) | (302 | ) | ||||
Taxes and insurance escrow | (3,392 | ) | 6,490 | |||||
Increase (decrease) in: | ||||||||
Accrued expenses | (1,627 | ) | ||||||
Accounts payable | (384 | ) | (582 | ) | ||||
Deferred rent | (27 | ) | 22 | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 19,470 | 12,999 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (7,931 | ) | (10,983 | ) | ||||
Deposits to and interest earned on replacement reserve | (12,668 | ) | (12,071 | ) | ||||
Withdrawals from replacement reserve | 13,979 | 19,563 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (6,620 | ) | (3,491 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Principal payments on mortgage payable | (3,741 | ) | (3,499 | ) | ||||
Payments of developers' fee payable | - | (3,344 | ) | |||||
Partners' distributions | - | )1,456 | ) | |||||
NET CASH USED IN FINANCING ACTIVITIES | (3,741 | ) | (8,299 | ) | ||||
NET INCREASE IN CASH | 9,109 | 1,209 | ||||||
CASH - BEGINNING OF YEAR | 1,388 | 179 | ||||||
CASH - END OF YEAR | $ | 10,497 | $ | 1,388 |
See Accountants' Audit Report and Accompanying Notes.
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Seneca Falls East Apartments Company II, L.P. was formed as a Limited Partnership in November 1997 to purchase, renovate and operate Seneca Falls East Apartments, a low and moderate-income housing project in Seneca Falls, New York. The apartments (32-units) were available for lease in November 1997.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partners 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 differ from those estimates.
Method of Accounting
The accrual method of accounting is used for financial statement purposes.
Receivables
The Partnership considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made.
Property and Equipment
Depreciation of the buildings is provided by the straight-line method over estimated useful life of 40 years. Depreciation of the equipment and fixtures is provided for by the double declining balance method over the estimated useful lives of 5 to 7 years. Depreciation expense for 2006 and 2005 was $35,582 and $40,411, respectively.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and the tenants of the property are operating leases.
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes
Since a partnership is not subject to income taxes, no provision for income taxes has been made in the accompanying financial statements. The taxable income or loss of the Partnership, however, is includable in the individual income tax returns of its respective partners.
Advertising Costs
Advertising costs, except for costs associated with direct-response advertising, are charged to operations when incurred. The costs of direct-response advertising are capitalized and amortized over the period during which future benefits are expected to be received.
Note 2. RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenant security deposits are held in a separate bank account in the name of the project. Interest earned on such deposits is credited to the individual tenants.
Restricted deposits and funded reserves are cash deposits, which have been placed into escrow accounts, and these deposits are not available for general business purposes.
All cash deposits are maintained in several banks located in New York State, which do not exceed and are insured by the Federal Deposit Insurance Corporation limits of $100,000.
Note 3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2006 consist of the following:
Rent receivable | $ | 4,679 | ||
Miscellaneous receivables | 273 | |||
Total Accounts Receivable at December 31, 2006 | $ | 4,952 |
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 4. ACCOUNTS PAYABLE
Accounts payable at December 31, 2006 consist of the following:
Grounds maintenance | $ | 52 | ||
Telephone | 10 | |||
Maintenance and repairs supplies | 21 | |||
Water | 638 | |||
Sewer | 638 | |||
Electric | 772 | |||
Gas | 579 | |||
Total Accounts Payable at December 31, 2006 | $ | 2,710 |
Note 5. MORTGAGES PAYABLE
The mortgage with Rural Development (RD) was restructured on April 29, 2002 and matures on April 29, 2028. It bears an annual interest rate of 6.75%. The mortgage is payable in principal and interest installments of $2,096 of which the Project pays $763 and Rural Development subsidizes the remaining $1,333. The mortgage is collateralized by the property and equipment.
In addition to the above mortgage, the Project received a subsequent loan from Rural Development on April 29, 1999, which was used to pay for the renovation of the project. The total amount of the loan is $535,821. On December 31, 1998, $489,267 was advanced with the remaining $46,554 being advanced in January 1999 (when amortization of the loan began). The loan matures on April 29, 2028, and is payable in principal and interest installments of $3,127 of which the Project pays $1,147 and Rural Development subsidizes the remaining $1,980. The mortgage is collateralized by the property and equipment.
Principal payments on the mortgages are due as follows:
2007 | $ | 4,002 | ||
2008 | 4,281 | |||
2009 | 4,579 | |||
2010 | 4,898 | |||
2011 | 5,238 | |||
Thereafter | 848,091 | |||
Total Mortgages | $ | 871,089 |
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SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 5. MORTGAGES PAYABLE - CONTINUED
Short-term portion | $ | 4,002 | ||
Long-term portion | 867,087 | |||
Total Mortgages | $ | 871,089 |
Under the agreements with Rural Development, the Partnership is required to make monthly escrow deposits for taxes, insurance and a reserve for the replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
Note 6. PARTNERS' CAPITAL
The Partners of Seneca Falls East Apartments Company II, L.P. and percentage of participation in profits and losses are as follows:
David R. Bacon | General Partner | .005% |
Frank Salvatore, Jr. | General Partner | .005% |
WNC Housing Tax Credit Fund, IV, L.P. | Limited Partner | 99.98% |
WNC Housing, L.P. | Special Limited Partner | .01% |
Distributions to the partners in any one fiscal year are limited by Rural Development to $9,730, which is 8% of the initial equity investments (i.e., 8% x $121,625 = $9,730). "Distributions" refer to any withdrawals of cash or other assets of the project. If there is insufficient cash flow to allow a partner distribution in any particular year, that distribution can be "made up" only in the next year.
Note 7. CASH FLOWS INFORMATION
The Partnership considers all short-term investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2006 and 2005.
Cash paid for interest expense in 2006 and 2005 was $19,364 and $17,646, respectively. Cash paid for income taxes in 2006 and 2005 was $-0-.
12
SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 8. IDENTITIES OF INTEREST
Management Agreement
The management of the property is being provided for by Two Plus Four Management Co., Inc. under the direction of Mr. David R. Bacon.
There is an identity of interest in that Mr. David R. Bacon is the Principal Stockholder in Two Plus Four Management Co., Inc. and a General Partner in Seneca Falls East Apartments Company II, L.P. Amounts paid to related companies are either regulated by an agreement or approved by Rural Development to comply with Rural Development requirements concerning identity of interest situations.
The amounts paid to Two Plus Four Management Co., Inc. during 2006 and 2005 were as follows:
2006 | 200 | |||||||
Payroll, payroll taxes & benefits | $ | 19,341 | $ | 18,716 | ||||
Management fee | 18,150 | 10,880 | ||||||
$ | 37,491 | $ | 29,596 |
Asset Management Fee
The Partnership paid an asset management fee to WNC Housing Tax Credit Fund, IV, L.P. (a Limited Partner) of $273 and $-0- in 2006 and 2005, respectively.
Developers' Fee
There is also an identity of interest in that Mr. David Bacon (General Partner) was paid a $-0- and $3,344 developers' fee in 2006 and 2005, respectively. Mr. David R. Bacon is owed an additional fee of $13,181 as of December 31, 2005. The developers' fee is paid from non-operating cash or out of distributions to partners.
Distributions
The Partnership paid a distribution of $-0- and $1,456 to the Limited Partner in 2006 and 2005, respectively.
13
SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 2006 and 2005
Note 9. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Partnership's sole asset is a 32-unit apartment project. The Partnership's operations are concentrated in the multi-family real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations of the project are subject to the administrative directives, rules and regulations of Federal, State, and local regulatory agencies. Such administrative directives, rules, and regulations are subject to change by an act of Congress or an administrative change mandated by Federal, State, and local regulatory agencies. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional burden to comply with a change.
Note 10. CONTINGENCY
The Partnership's low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Internal Revenue Code Section 42. Failure to maintain compliance with occupant eligibility, and/or unit gross rent or to correct noncompliance within a specified time period could result in the recapture of tax credits previously taken plus interest. In addition, such potential noncompliance may require and adjustment to the contributed capital by the Limited Partners.
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OTHER
INFORMATION
15
SENECA FALLS EAST APARTMENTS COMPANY II, L.P.
(A LIMITED PARTNERSHIP)
CASE NO: 37-050-161505050
PARTNER CERTIFICATION
I hereby certify that I have examined the foregoing financial statements of Seneca Falls East Apartments Company II, L.P., and to the best of my knowledge and belief, the financial statements are accurate as of December 31, 2006.
___________________________
General Partner
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April 4, 2007
Subject: Seneca Falls East Apartments Company II, L.P.
Dear Partners,
Enclosed please find a copy of the financial statement for the period ending December 31, 2006 as prepared by the accounting firm of DiMarco, Abiusi & Pascarella.
Under USDA regulations a return on equity is not allowed for 2006 If you have any questions please feel free to contact our office.
Sincerely,
Susan Kimmel
President
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