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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 September 30, 2003
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: 333-67670
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 10
California 33-0974362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17782 Sky Park Circle
Irvine, CA 92614-6404
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(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
--------- ----------
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended September 30, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets,
September 30, 2003 and March 31, 2003............................3
Statements of Operations
For the three and six months ended September 30, 2003 ...........4
Statement of Partners' Equity (Deficit)
For the six months ended September 30, 2003 .....................5
Statements of Cash Flows
For the six months ended September 30, 2003 ....................6
Notes to Financial Statements....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition ......................................................16
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 VI, L.P., SERIES 10
(A California Limited Partnership)
BALANCE SHEETS
September 30, 2003 March 31, 2003
------------------ --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 2,771,170 $ 1,100
Investments in limited partnerships, net (Note 2) 4,419,565 -
Subscriptions and interest receivable 899,481 -
------------------------ ------------------------
$ 8,090,216 $ 1,100
======================== ========================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 244,109 $ -
Payables to limited partnerships (Note 4) 606,554 -
------------------------ ------------------------
Total liabilities 850,663 -
------------------------ ------------------------
Commitments and contingencies
Partners' equity (deficit)
General Partner (1,074) 100
Limited partners (10,000 units authorized
8,663 units issued and outstanding at
September 30, 2003) 7,240,627 1,000
------------------------ ------------------------
Total partners' equity 7,239,553 1,100
------------------------ ------------------------
$ 8,090,216 $ 1,100
======================== ========================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2003
(unaudited)
2003 2003
---- ----
Three Months Six Months
Interest income $ 523 $ 612
--------------- --------------
Operating expenses:
Amortization (Note 2) 4,653 5,415
Legal and accounting 6,345 8,445
Other 9,744 10,764
--------------- --------------
Total operating expenses 20,742 24,624
--------------- --------------
Loss from operations (20,219) (24,012)
Equity in losses from limited
partnerships (63,700) (63,700)
--------------- --------------
Net loss $ (83,919) $ (87,712)
=============== ==============
Net loss allocated to:
General Partner $ (84) $ (88)
=============== ==============
Limited Partners $ (83,835) $ (87,624)
=============== ==============
Net loss per weighted limited
partner unit $ (13) $ (19)
=============== ==============
Outstanding weighted limited
partner units 6,664 4,541
=============== ==============
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Six Months Ended September 30, 2003
(unaudited)
General Limited
Partner Partners Total
--------------- ---------------- ------------------
Partners' equity at March 31, 2003 $ 100 $ 1,000 $ 1,100
Sales of Limited Partnerships units,
net of discounts of $24,080 - 8,638,920 8,638,920
Less Limited Partnership units issued for
promissory notes receivable - (226,500) (226,500)
Offering expenses (1,086) (1,085,169) (1,086,255)
Net loss (88) (87,624) (87,712)
--------------- ---------------- ------------------
Partners' equity (deficit) at September 30, 2003 $ (1,074) $ 7,240,624 $ 7,239,553
=============== ================ ==================
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Six Months Ended September 30, 2003
(unaudited)
Cash flows from operating activities:
Net loss $ (87,712)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 5,415
Equity in losses of limited partnerships 63,700
Change in interest receivable (611)
Change in accrued fees and expenses due to
General Partner and affiliates, net 11,989
------------------------
Net cash used in operating activities (7,219)
------------------------
Cash flows from investing activities:
Investments in lower tier partnerships, net (3,029,381)
Capitalized acquisition fees, net (747,535)
------------------------
Net cash used in investing activities (3,776,916)
------------------------
Cash flows from financing activities:
Sales of limited partner units, net of contributions
receivable and subscriptions receivable 7,513,550
Offering expenses (959,345)
------------------------
Net cash provided by financing activities 6,554,205
------------------------
Net increase in cash and cash equivalents 2,770,070
Cash and cash equivalents, beginning of period 1,100
------------------------
Cash and cash equivalents, end of period $ 2,771,170
========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Taxes paid $ 800
========================
During the six months ended September 30, 2003, the Partnership sold limited
partnership units for promissory notes totaling $226,500.
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND 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, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's report on Form 10-K for the fiscal year ended March 31, 2003.
Organization
- ------------
WNC Housing Tax Credit Fund, VI, L.P., Series 10 (the "Partnership") was formed
under the California Revised Limited Partnership Act on July 17, 2001, and
commenced operations on February 28, 2003. The Partnership was formed to invest
primarily in other limited partnerships or limited liability companies (the
"Local Limited Partnerships") which will own and operate multifamily housing
complexes that are eligible for low-income housing federal and, in certain
cases, California income tax credits ("Low-Income Housing Credit").
The general partner of the Partnership is WNC & Associates, Inc. ("Associates"
or the "General Partner".) The chairman and the president own substantially 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, 2062,
unless terminated prior to that date, pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
Pursuant to a supplement dated February 28, 2003 to the prospectus of the
Partnership dated November 14, 2001, on March 6, 2003, the Partnership commenced
a public offering of 25,000 units of Limited Partnership Interest ("Units"), at
a price of $1,000 per Unit. Holders of Units are referred to herein as "Limited
Partners." Effective May 15, 2003, the Partnership had received the minimum
subscriptions for units required to break escrow. Accordingly, from May 15, 2003
through September 30, 2003, the Partnership has accepted subscriptions for 8,663
units, for which it has received $7,513,550 in cash, net of a $24,080
volume/dealer discount, $226,500 in promissory notes and $898,870 in
subscriptions receivable.
After the Limited Partners have received proceeds from a 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 contribution and a subordinated disposition fee (as
described in Note 3) 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 VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
Certain 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 Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low-Income Housing Credits and
the fractional recapture of Low-Income Housing Credits already taken. In most
cases the annual amount of Low-Income Housing 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 profit. Accordingly, the Partnership may be unable to distribute
any cash to its investors. Low-Income Housing Credits may be the only benefit
from an investment in the Partnership.
The Partnership expects to invest 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
will be 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 Credits, a fractional recapture of prior Low-Income
Housing Credits, and a loss of the Partnership's investment in the Housing
Complex would occur. The Partnership will be a limited partner or 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, 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 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
Credits and recapture of Low-Income Housing 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 properties, 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
Credits and tax losses allocable to the investors 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.
No trading market for the Units exists or is expected to develop. Investors may
be unable to sell their Units except at a discount and should consider their
Units to be a long-term investment. Individual investors will have no recourse
if they disagree with actions authorized by a vote of the majority of Limited
Partners.
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------------------------
Exit Strategy
- -------------
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the firsts in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties such as any that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the investors from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the investors' return wherever
possible and, ultimately, to wind down those funds that no longer provide tax
benefits to investors. To date no properties in the Partnership have been
selected.
Method of Accounting for Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership intends to account 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 Partnerships' results of
operations and for any contributions made and distributions received. The
Partnership will review 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 a comparison of
the carrying amount to future undiscounted net cash flows expected to be
generated. If an investment is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
investment exceeds fair value. The accounting policies of the Local Limited
Partnership's are generally 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 notes 2 and
3).
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
Offering Expenses
- -----------------
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred in connection with the
selling of limited partnership interests in the Partnership. The General Partner
is obligated to pay all offering and organization costs in excess of 13%,
(excluding selling commissions and dealer manager fees) of the total offering
proceeds. Offering expenses will be reflected as a reduction of limited
partners' capital and amounted to $1,086,225 as of September 30, 2003.
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 remaining maturity
of three months or less when purchased to be cash equivalents. As of September
30, 2003 and March 31, 2003, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At September 30, 2003, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amount.
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
- ------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for the period presented, as defined by SFAS No. 130.
New Accounting Pronouncements
- -----------------------------
In September 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations", which requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement costs being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
New Accounting Pronouncements, continued
- ----------------------------------------
includes disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. The statement is effective for fiscal years beginning after
September 15, 2002. The adoption of SFAS No. 143 did not have a material effect
on the Partnership's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard was effective for the
Partnership's financial statements at the date operations commenced, February
28, 2003. The implementation of SFAS No. 144 did not have a material impact on
the Partnership's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinded six previously issued statements and amended SFAS No. 13,
"Accounting for Leases." The statement provides reporting standards for debt
extinguishments and provides accounting standards for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The statement is effective for certain lease transactions occurring after May
15, 2002 and all other provisions of the statement shall be effective for
financial statements issued on or after May 15, 2002. The implementation of SFAS
No. 145 did not have a material impact on the Partnership's financial position
or results of operations.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which updates accounting and
reporting standards for personnel and operational restructurings. The
Partnership adopted SFAS No. 146 for exit, disposal or other restructuring
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Partnership's financial position or results of
operations.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a
material impact on the Partnership's financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method on accounting for stock-based employee compensation. The
implementation of SFAS No. 148 is not expected to have a material effect on the
Partnership's financial position or results of operations. In January 2003, the
FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities." The adoption of FIN 46 did not have a material impact on the
Partnership's financial position or results of operations.
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
New Accounting Pronouncements, continued
- ----------------------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 provides guidance on when
a company should include the assets, liabilities, and activities of a variable
interest entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both. The provisions
of FIN 46 were effective February 1, 2003 for all arrangements entered into
after January 31, 2003. FIN 46 is effective in the second quarter of 2004 for
those arrangements entered into prior to January 31, 2003. We are currently
reviewing whether we have relationships with VIEs and, if so, whether we should
consolidate them and disclose information about them as the primary beneficiary
or disclose information about them as an interest holder. We may have to
consolidate some of our equity investments in partnerships based on recent
interpretations from accounting professionals. We currently record the amount of
our investment in these partnerships as an asset on our balance sheet, recognize
our share of partnership income or losses in our income statement, and disclose
how we account for material types of these investments in our 2003 financial
statements. However, we do not yet know the extent of the impact of
consolidating the assets and liabilities of these partnerships on our balance
sheet because of the complexities of applying FIN 46, the evolving
interpretations from accounting professionals, and the nuances of each
individual partnership.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
On September 30, 2003, the Partnership acquired limited partnership interests in
two Local Limited Partnerships, each of which owns one Housing Complex
consisting of an aggregate of 100 apartment units. As of September 30, 2003,
construction or rehabilitation of the two Housing Complexes was complete. 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 generally entitled to 99.9%, as specified in the Local
Limited Partnership agreements, of the operating profits and losses, taxable
income and losses and tax credits of the Local Limited Partnerships.
Equity in losses of the 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 are recognized as income. As of September 30, 2003, no investment accounts
in Local Limited Partnerships had reached a zero balance.
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
The following is a summary of the equity method activity of the investments in
local limited partnerships for the periods presented:
For the
Six Months For the
September Period ended
30, 2003 March 31, 2003
-------------- -----------------
Investments in limited partnerships, beginning of period $ - $ -
Capital contributions 3,029,381
Capital contributions, payable 606,554 -
Capitalized acquisition fees and costs 779,670 -
Capitalized warehouse interest and fees 73,075 -
Equity in losses of limited partnerships (63,700)
Amortization of capitalized acquisition fees and costs (5,415) -
-------------- -----------------
Investments in limited partnerships, end of period $ 4,419,565 $ -
============== =================
Selected financial information for the six months ended September, 2003 from the
unaudited combined condensed financial statements of the limited partnerships in
which the Partnership has invested as follows:
COMBINED CONDENSED STATEMENT OF OPERATIONS
2003
-------------------
Revenue $ 97,000
-------------------
Expenses:
Interest expense 6,000
Depreciation 48,000
Operating expenses 107,000
-------------------
Total expenses 161,000
-------------------
Net loss $ (64,000)
===================
Net loss allocable to the
Partnership $ (64,000)
===================
Net loss recorded by the
Partnership $ (64,000)
===================
13
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 3 - 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) Acquisition fees of 7% of the gross proceeds from the sale of Units as
compensation for services rendered in connection with the acquisition of
Local Limited Partnerships. As of September 30, 2003, the Partnership had
incurred acquisition fees of $606,410. Accumulated amortization of these
capitalized costs was $3,738 as of September 30, 2003.
(b) Acquisition costs of 2% of the gross proceeds from the sale of Units as
full reimbursement of costs incurred by the General Partner in connection
with the acquisition of Local Limited Partnerships. As of September 30,
2003, the Partnership had incurred acquisition costs of $173,260.
Accumulated amortization of these capitalized costs was $1,068 as of
September 30, 2003.
(c) A non-accountable organization and offering expense reimbursement equal to
4% of the gross proceeds from the sale of the Units, a dealer manager fee
equal to 2% of the gross proceeds from the sale of the Units, and
reimbursement for retail selling commissions advanced by the General
Partner or affiliates on behalf of the Partnership. This reimbursement plus
all other organizational and offering expenses, inclusive of the
non-accountable organization and offering expense reimbursement, and the
dealer manager fees, are not to exceed 13% of the gross proceeds from the
sale of the Units. As of September 30, 2003, the Partnership had incurred
non-accountable organization and offering expense reimbursements of
$346,520.
(d) An annual asset management fee not to exceed 0.5% of the invested assets
(defined as the Partnership's capital contributions plus reserves of the
Partnership of up to 5% of gross proceeds plus its allocable percentage of
the mortgage debt encumbering the housing complexes) of the Local Limited
Partnerships. Asset management fees of $9,056 were incurred during the six
months ended September 30, 2003.
(e) 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 return on investment (as defined in the Partnership
Agreement) and is payable only if the General Partner or its affiliates
render services in the sales effort.
(f) An affiliate of the general partner provided financing to pay for capital
contributions of $1,795,378 prior to the time that the limited partners'
capital contributions were received. Interest of $73,075 was incurred on
the amount financed and capitalized as warehouse interest and fees. In July
2003, the balance was repaid to the affiliate in full. Accumulated
amortization of these capitalized costs was $609 as of September 30, 2003.
14
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2003
(unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
Accrued fees, expenses and loan due to the General Partner and affiliates
consisted of the following as of:
September 30, 2003 March 31, 2003
--------------------- ---------------------
Acquisition fees payable $ 81,830 $ -
Acquisition costs payable 23,380 -
Organization, offering, and selling costs payable 126,910 -
Asset management fee payable 9,056 -
Reimbursements for expenses paid by the 2,933 -
General Partner or an affiliate
--------------------- ---------------------
Total $ 244,109 $ -
===================== =====================
NOTE 4 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships amounting to $606,554 at September 30, 2003 and
$0 at March 31, 2003 represent amounts, which are due at various times based on
conditions specified in the respective limited partnership agreements. These
contributions are payable in installments and are generally due upon the limited
partnerships achieving certain development and operating benchmarks (generally
within two years of the Partnership's initial investment).
NOTE 5 - INCOME TAXES
- ---------------------
No provision for income taxes will be recorded in the financial statements as
any liability for income taxes is the obligation of the partners of the
Partnership.
NOTE 6 - SUBSCRIPTIONS AND NOTES RECEIVABLE
- -------------------------------------------
As of September 30, 2003, the Partnership had received subscriptions for 8,663
units which included subscriptions receivable of $898,870 and promissory notes
of $226,500, of which $898,870 of the subscriptions receivable were collected
and $0 of the promissory notes were collected after September 30, 2003 and prior
to the issuance of these financial statements, leaving an unpaid balance of
$137,500. Limited partners who subscribed for ten or more units of limited
partner interests ($10,000) could elect to pay 50% of the purchase price in cash
upon subscription and the remaining 50% by the delivery of a promissory note
payable, together with interest at a rate equal to the six month treasury bill
rate as of the date of execution of the promissory note, due no later than 13
months after the subscription date.
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
From October 1, 2003 to November 7, 2003, the Partnership received subscriptions
for an additional 1,858 Units, for which it has received $880,490 in cash,
$30,000 in notes receivable and $822,420 in subscriptions receivable.
15
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-K 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-K and in other reports we filed with the
Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction with the
Financial Statements and the Notes thereto included elsewhere in this filing.
Financial Condition
The Partnership's assets at September 30, 2003 consisted primarily of $2,771,000
in cash, $899,000 in subscriptions receivable and aggregate investments in the
two Local Limited Partnerships of $4,420,000. Liabilities at September 30, 2003
primarily consisted of $607,000 due to limited partnerships and $244,000 in
advances and other payables due to the General Partner or affiliates.
Results of Operations
The Partnership commenced operations on February 28, 2003 and had no operations
to report for September 30, 2002. As a result, there are no comparative results
of operations or financial condition from prior periods to report.
The Partnership's net loss for the six months ended September 30, 2003 was
$(88,000). The net loss is due to loss from operations of $(24,000) and equity
in losses from limited partnerships of $(64,000). The partnership's operating
expenses consisted of amortization, legal and accounting and other operating
expenses, offset by interest income.
It is not expected that any of the local limited partnerships will generate cash
from operations sufficient to provide distributions to investors in any
significant amount. Cash from operations, if any, would first be used to meet
operating expenses of the Partnerships. Operating expenses include the asset
management fee.
Investments in local limited partnerships are not readily marketable. Such
investments may be affected by adverse general economic conditions, which in
turn, could substantially increase the risk of operating losses for the
apartment complexes, the local limited partnerships and the Partnership. These
problems may result from a number of factors, many of which cannot be
controlled. Nevertheless, WNC & Associates, Inc. anticipates that capital raised
from the sale of the Units will be sufficient to fund the Partnership's future
investment commitments and proposed operations.
The capital needs and resources of the Partnership are expected to undergo major
changes during its first several years of operations as a result of the
completion of its offering of Units and its acquisition of investments.
Thereafter, The Partnership' capital needs and resources are expected to be
relatively stable.
16
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations, continued
Cash Flows
Net increase in cash during the six month period ended September 30, 2003 was
$2,770,000. Net cash flows used in investing activities was $(3,777,000) for the
six month period ended September 30, 2003. Net cash flows used in investing
activities consisted of $(3,029,000) for investments in lowere tier partnerships
and $(748,000) for net acquisition costs and fees. Net cash flows provided by
financing activities of $6,554,000 during the six months ended September 30,
2003, consisted of net sales of limited partnership units of $7,513,000 less
offering expenses of $(959,000).
Item 3: Quantitative and Qualitative Disclosures Above Market Risks
Not Applicable
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the General
Partners of the Partnership carried out an evaluation, under the
supervision and with the participation of Associates' management,
including Associates' Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures pursuant to Exchange
Act Rule 13a- 14. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Partnership's
disclosure controls and procedures are effective. There were no
significant changes in the Partnership's internal controls or in other
factors that could significantly affect these controls subsequent to
the date of their evaluation.
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. A Form 8-K dated September 30, 2003 was filed on July 15, 2003
reporting the acquisition of two Local Limited Partnerships. No
financial statements were included.
2. A Form 8-K/A dated September 30, 2003 was filed on September 5,
2003 reporting the acquisition of two Local Limited Partnerships.
Financial statements and proforma were included.
(b) Exhibits.
---------
31.1 Certification of the Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), 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(a/)15d-14(a), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
32.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
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 VI, L.P., Series 10
(Registrant)
By: WNC & Associates, Inc., General Partner
By: /s/ Wilfred N. Cooper, Jr.
---------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: November 14, 2003
By: /s/ Thomas J. Riha
-------------------
Thomas J. Riha
Vice President - Chief Financial Officer of WNC & Associates, Inc.
Date: November 14, 2003
18