UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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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 33-19811
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DIVERSIFIED HISTORIC INVESTORS VI
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2492210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 Locust Street, Philadelphia, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
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N/A
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(Former name, former address and former fiscal year, if changed
since last report)
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 is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
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Item 1. Financial Statements.
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
June 30, 2002 December 31, 2001
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(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 950,238
Buildings and improvements 20,852,381 27,280,952
Furniture and fixtures 973,314 970,440
----------- -----------
22,775,933 29,201,630
Less - accumulated depreciation (11,675,380) (14,365,627)
----------- -----------
11,100,553 14,836,003
Cash and cash equivalents 34,815 38,973
Restricted cash 307,880 305,995
Accounts and notes receivable 71,795 54,382
Investment in affiliate 0 (59,113)
Other assets (net of amortization
$856,137 and $817,496) 397,125 394,825
----------- -----------
Total $11,912,168 $15,571,065
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $12,945,393 $16,616,789
Accounts payable:
Trade 1,449,983 1,410,766
Taxes 6,797 21,780
Related parties 378,682 493,876
Other 33,915 28,717
Interest payable 1,503,030 2,022,602
Tenant security deposits 142,727 134,443
Advances 47,286 35,720
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Total liabilities 16,507,813 20,764,693
Partners' deficit (4,595,645) (5,193,628)
----------- -----------
Total $11,912,168 $15,571,065
=========== ===========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Six months
ended June 30, ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $ 548,467 $624,506 $1,152,303 $1,233,746
Other income 2,162 1,743 5,441 1,743
Interest income 783 1,268 1,456 2,987
Gain on sale of
investment 84,113 0 84,113 0
---------- -------- ---------- ----------
Total revenues 635,525 627,517 1,243,313 1,238,476
---------- -------- ---------- ----------
Costs and expenses:
Rental operations 231,105 347,329 685,458 723,204
Interest 273,315 341,006 538,210 591,847
Bad debt 3,250 0 5,156 0
Depreciation and
amortization 250,965 306,969 484,127 613,937
---------- -------- ---------- ----------
Total costs
and expenses 758,635 995,304 1,712,951 1,928,990
---------- -------- ---------- ----------
Loss before equity
in affiliate (123,110) (367,787) (469,638) (690,513)
Equity in net loss
of affiliate 0 (2,479) 0 (7,577)
---------- -------- ---------- ----------
Net loss before
extraordinary
item (123,110) (370,266) (469,638) (698,090)
Extraordinary gain
from extinguishment
of debt 1,067,621 0 1,067,621 0
---------- -------- ---------- ----------
Net income(loss) $ 944,511 ($370,266) $ 597,983 ($ 698,090)
========== ======== ========== ==========
Net income (loss) per
limited
partnership unit:
Loss before equity
in affiliate ($ 4.79) ($ 14.30) ($ 18.26) ($ 27.14)
Equity in net loss of
affiliate 0.00 (.10) 0.00 (.29)
Extraordinary gain 41.51 0.00 41.51 0.00
---------- -------- ---------- ----------
Net income (loss) $ 36.72 ($ 14.40) $ 23.25 ($ 27.43)
========== ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Six months ended
June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ 597,983 ($698,090)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 484,127 613,938
Equity in loss of affiliate 0 7,577
Gain on sale of affiliate (84,113) 0
Extraordinary gain on
extinguishment of debt
(1,067,621) 0
Changes in assets and liabilities:
(Increase) decrease in restricted cash (28,714) 39,273
(Increase) decrease in other assets (42,589) 2,733
Increase in accounts payable trade 82,427 96,350
Decrease in accounts payable - taxes 0 (5,520)
Increase in accounts payable -
related parties 66,952 11,262
Increase in accounts payable - other 10,843 11,041
Increase in interest payable 80,698 55,719
Increase in tenant security deposits 9,183 11,712
Increase in advances 12,766 0
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Net cash provided by
operating activities 121,942 145,995
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Cash flows from investing activities:
Capital expenditures (3,124) (3,255)
---------- --------
Net cash used in investing activities (3,124) (3,255)
---------- --------
Cash flows from financing activities:
Principal payments (122,976) (147,523)
---------- --------
Net cash used in financing activities (122,976) (147,523)
---------- --------
Decrease in cash and cash equivalents (4,158) (4,783)
Cash and cash equivalents at
beginning of period 38,973 46,215
---------- --------
Cash and cash equivalents
at end of period $ 34,815 $ 41,432
========== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of
Diversified Historic Investors VI (the "Registrant") and related notes
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The
accompanying consolidated financial statements and related notes
should be read in conjunction with the audited financial statements in
Form 10-K and notes thereto, in the Registrant's Annual Report on Form
10-K for the year ended December 31, 2001.
The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim
periods presented.
NOTE 2- EXTRAORDINARY GAIN
Strehlow Terrace Apartments was foreclosed by the Department
of Housing and Urban Development, the guarantor of the first mortgage,
on April 30, 2002. As a result, the Registrant recognized an net
extraordinary gain on foreclosure in the amount of $1,067,621 which is
the excess of the debt on the property over the net book value of the
assets.
NOTE 3 - GAIN ON SALE
On June 30, 2002, the Registrant sold its investment in
Saunders Apartments for $25,000. As a result, the Registrant
recognized a gain on the sale of $84,113. The net proceeds from the
sale were used to pay accrued expenses of the Registrant.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of June 30, 2002, Registrant had cash of $34,815. Cash
generated from operations is used primarily to fund operating expenses
and debt service. If cash flow proves to be insufficient, the
Registrant will attempt to negotiate loan modifications with the
various lenders in order to remain current on all obligations. The
Registrant is not aware of any additional sources of liquidity.
As of June 30, 2002, Registrant had restricted cash of
$307,880 consisting primarily of funds held as security deposits,
replacement reserves and escrows for taxes and insurance. As a
consequence of the restrictions as to use, Registrant does not deem
these funds to be a source of liquidity.
Strehlow Terrace Apartments was foreclosed by the Department
of Housing and Urban Development, the guarantor of the first mortgage,
on April 30, 2002. As a result, the Registrant recognized an
extraordinary gain on foreclosure in the amount of $1,067,621 which is
the excess of the debt on the property over the net book value of the
assets.
On June 30, 2002, the Registrant sold its investment in
Saunders Apartments. As a result, the Registrant recognized a gain on
the sale in the amount of $84,113. The net proceeds from the sale were
used to pay accrued expenses of the Registrant.
In recent years the Registrant has realized significant
losses, including the foreclosure of three properties and a
substantial reduction of interest in a fourth property. At the
present time, all remaining properties are able to pay their operating
expenses and debt service including two of the six properties where
the mortgages are cash-flow mortgages, requiring all available cash
after payment of operating expenses to be paid to the first mortgage
holder. None of the properties are currently producing a material
amount of revenues in excess of operating expenses and debt service.
Therefore, it is unlikely that any cash will be available to the
Registrant to pay its general and administrative expenses.
It is the Registrant's intention to continue to hold the
properties until they can no longer meet the debt service requirements
and the properties are foreclosed, or the market value of the
properties increases to a point where they can be sold at a price
which is sufficient to repay the underlying indebtedness (principal
plus accrued interest).
(2) Capital Resources
Any capital expenditures needed are generally replacement
items and are funded out of cash from operations or replacement
reserves, if any. Registrant is not aware of any factors which would
cause historical capital expenditure levels not to be indicative of
capital requirements in the future and accordingly, does not believe
that it will have to commit material resources to capital investment
for the foreseeable future.
(3) Results of Operations
During the second quarter of 2002, Registrant recognized a
net profit of $944,511 ($36.73 per limited partnership unit) compared
to a net loss of $370,266 ($14.40 per limited partnership unit) for
the same period in 2001. For the first six months of 2002, the
Registrant recognized a net profit of $597,983 ($23.25 per limited
partnership unit) compared to a net loss of $698,090 ($27.14 per
limited partnership unit) for the same period in 2001. Included in net
income for the second quarter and first six months of 2003 is an
extraordinary gain of $1,067,621 on the foreclosure of Strehlow
Terrace Apartments
Rental income decreased $76,039 from $624,506 in the second
quarter of 2001 to $548,467 in the same period in 2002 and decreased
$81,443 from $1,233,746 in the first six months of 2001 to $1,152,303
in the same period in 2002. The decrease in rental income from the
second quarter and first six months of 2001 to the same periods in
2002 is due to the foreclosure of Strehlow Terrace in the second
quarter of 2002.
Rental operations expense decreased $116,224 from $347,329
in the second quarter of 2001 to $231,105 in the same period in 2002
and decreased $37,747 from $723,205 in the first six months of 2001 to
$685,458 in the same period in 2002. The decrease from the second
quarter and the first six months of 2001 to the same period in 2002 is
due to a decrease in utilities, management fees, commissions, wages
and salaries expense and maintenance expense, partially offset by an
increase in insurance expense. The decrease in utilities, management
fees, wages and maintenance expenses is due to the foreclosure of
Strehlow Terrace in the second quarter of 2002 and a decrease in
utilities at Canal House and Mater Dolorosa. The decrease in leasing
commissions is due to an decrease in the turnover of apartment units
at Canal House. The increase in insurance expense at the Registrant
properties is due to insurance market conditions.
Interest expense decreased by $67,691 from $341,006 in the
second quarter of 2001 to $273,345 in the same period in 2002 and
decreased $53,636 from $591,847 in the first six months of 2001 to
$538,211 for the same period in 2002. The decrease from second quarter
and the first six months of 2001 to the same period in 2002 is due to
a decrease in interest expense at Firehouse Square and Mater Dolorosa.
At Firehouse Square interest expense decreased due to the timing of
expense recognition, and at Mater Dolorosa interest expense decreased
due to the decrease in the principal balance on which interest is
calculated.
Net income recognized during the quarter at the Registrant's
properties was approximately $1,104,000 compared to losses of
approximately $345,000 for the same period in 2001. For the first six
months of 2002 the Registrant's properties recognized a net income of
$788,000 compared to a loss of approximately $644,000 for the same
period in 2001. Included in net income for the second quarter and
first six months of 2002 are a gain on the sale of the investment in
Saunders Apartments of $84,113 and an extraordinary gain of $1,067,621
on the foreclosure of Strehlow Terrace Apartments
In the second quarter of 2002, Registrant recognized income
of $1,297,000 at Strehlow Terrace, compared to a loss of $61,000
including $60,000 of depreciation expense in the second quarter of
2001 and, for the first six months of 2002, the Registrant recognized
income of $1,282,000, compared to a loss of $107,000, including
$121,000 of depreciation expense for 2001. The decrease in the loss
from the second quarter and the first six months of 2001 to the same
period in 2002 is due the foreclosure of the property.
Strehlow Terrace Apartments was foreclosed by the Department
of Housing and Urban Development, the guarantor of the first mortgage,
on April 30, 2002. As a result, the Registrant recognized an
extraordinary gain on foreclosure of $1,067,621 which is the excess of
the debt of the property over the net book value of the assets.
In the second quarter of 2002, Registrant recognized income
of $13,000 at Mater Dolorosa including $32,000 of depreciation and
amortization expense, compared to a loss of $6,000 including $32,000
of depreciation and amortization expense in the second quarter of
2001, and for the first six months of 2002, the Registrant recognized
a loss of $4,000 at Mater Dolorosa including $63,000 of depreciation
and amortization expense, compared to a loss of $18,000, including
$63,000 of depreciation and amortization expense for the same period
in 2001. The decrease in loss from the second quarter the first six
months of 2001 compared to the same period in 2002 is due to a
decrease in wages and salaries and interest expense. The decrease in
wages in salaries is due to a decrease in resident managers salaries.
The decrease in interest expense is due to the decrease in the
principal balance on which interest is calculated.
In the second quarter of 2002, Registrant recognized a loss
of $115,000 at Firehouse Square including $87,000 of depreciation and
amortization expense, compared to a loss of $132,000 including $65,000
of depreciation and amortization expense in the first quarter of 2001.
The decrease in loss from the second quarter of 2002 to the same
period in 2001 is due to a decrease in interest expense. The decrease
in interest expense is due to the timing of expense recognition.
In the first six months of 2002, the Registrant recognized a
loss of $199,000 at Firehouse Square including $156,000 of
depreciation and amortization expense, compared to a loss of $190,000,
including $130,000 of depreciation and amortization expense for the
same period in 2001. The loss increased from the second quarter of
2002 to the same period in 2001 is due to an increase in insurance
expense and utilities expense partially offset by an increase in
rental income. The increase in rental income is due to an increase in
average rental rates. The increase insurance expense is due to
insurance market conditions. The increase in utilities expense is due
to an increase in electricity charges.
In the second quarter of 2002, Registrant recognized a loss
of $23,000 at Roseland including $18,000 of depreciation and
amortization expense, compared to a loss of $31,000 including $17,000
of depreciation and amortization expense in the second quarter of 2001
and for the first six months of 2002 the Registrant recognized a loss
of $45,000 including $36,000 of depreciation and amortization expense,
compared to a loss of $54,000, including $35,000 of depreciation and
amortization expense for the same period in 2001. The decrease in loss
from the second quarter and the first six months of 2001 compared to
the same periods in 2002 is due to a decrease in utilities expense,
maintenance expense and wages and salaries expense, partially offset
by a decrease in rental income. The decrease in utilities expense is
due to a decrease in electric charges. The decrease in maintenance
expense is due to a decrease in equipment rental fees. The decrease
in wages and salaries expense is due to a decrease in the resident
managers salaries.
In the second quarter of 2002, Registrant recognized a loss
of $68,000 at Canal House including $100,000 of depreciation and
amortization expense, compared to a loss of $115,000 including
$113,000 of depreciation and amortization expense in the second
quarter of 2001, and for the first six months of 2002, the Registrant
recognized a loss of $246,000 including $200,000 of depreciation and
amortization expense, compared to a loss $276,000, including $226,000
of depreciation and amortization expense for the same period in 2001.
The decrease in the loss from the second quarter and the first six
months of 2001 to the same period in 2002 is due to an increase in
rental income, a decrease in utilities expense and miscellaneous
operating expenses. The increase in rental income is due to an
increase in average rental rates. The decrease in utilities expense
is due to a decrease in electricity, water and sewer charges. The
decrease in miscellaneous operating expense is due to a decrease in
travel expense, office expense and computer expense.
The Registrant owned a minority interest in Saunders
Apartments which it accounts for on the equity method. The Registrant
does not include the assets or liabilities of Saunders Apartments in
its consolidated financial statements. The following operating
information is provided for the property. In the second quarter of
2002, Registrant recognized income of $84,000 at Saunders Apartments
compared to a loss of $2,000 in the second quarter of 2001 and for the
first six months of 2002 the Registrant recognized income of $84,000
compared to a loss $8,000 for the same period in 2001. The gain in
income from the second quarter and the first six months of 2001 to the
same period in 2002 is due to the sale of the property.
On June 30, 2002, the Registrant sold its investment in
Saunders Apartments. As a result, the Registrant recognized a gain on
the sale in the amount of $84,113. The net proceeds from the sale were
used to pay accrued expenses of the Registrant.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
All of our assets and liabilities are denominated in U.S.
dollars, and as a result, we do not have exposure to currency exchange
risks.
We do not engage in any interest rate, foreign currency
exchange rate or commodity price-hedging transactions, and as a
result, we do not have exposure to derivatives risk.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms, and that such information is accumulated and
communicated to our management, including our managing partner's
principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating the cost-
benefit relationship of possible controls and procedures.
Under the supervision of our managing partner's principal
executive officer and principal financial officer we have carried out
an evaluation of the effectiveness of our adopted disclosure controls
and procedures as of the end of the period covered by this report.
Based upon that evaluation, our managing partner's president and
treasurer concluded that our disclosure controls and procedures are
effective.
There have been no significant changes in our internal
controls over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting during our most recent fiscal quarter.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party to,
nor is any of its property the subject of any pending material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by this
report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Document
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3 Registrant's Amended and
Restated Certificate of Limited
Partnership and Agreement of
Limited Partnership, previously
filed as part of Amendment No.
2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the Registrant
are listed in Item 2.
Properties on Form 10-K,
previously filed and
incorporated herein by
reference.
31 General Partners Opinion
Certification
32 Certification Pursuant to 18
U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DIVERSIFIED HISTORIC INVESTORS VI
By: Dover Historic Advisors VI, its
general partner
By: EPK, Inc., managing partner
Date: August 30, 2004 By: /s/ Spencer Wertheimer
--------------- ----------------------
SPENCER WERTHEIMER
President (principal executive
officer, principal financial
officer)
Exhibit 31
CERTIFICATION
I, Spencer Wertheimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the
quarterly period ended June 30, 2002, of Diversified Historic
Investors VI;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) [Omission in accordance with SEC Release Nos. 33-
8238, 34-47986 and IC-26068 (June 5, 2003)] for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this report is being prepared;
(b) [Omitted in accordance with SEC Release Nos. 33-8238, 34-
47986 and IC-26068 (June 5, 2003)];
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 30, 2004 /s/ Spencer Wertheimer
--------------- ----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer,
principal financial
officer) of the
registrant's managing
partner, EPK, Inc.
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diversified Historic
Investors VI on Form 10-Q for the quarterly period ended June 30, 2002
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Spencer Wertheimer, President and Treasurer
of the Company's managing partner, EPK, Inc., certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: August 30, 2004 /s/ Spencer Wertheimer
--------------- ----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer,
principal financial
officer) of the
registrant's managing
partner, EPK, Inc.