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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 June 30, 2004
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--------- ----------
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 Quarter Ended June 30, 2004
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 2004 and March 31, 2004................................3
Statements of Operations
For the Three Months Ended June 30, 2004 and 2003...............4
Statement of Partners' Equity (Deficit)
For the Three Months Ended June 30, 2004 .......................5
Statements of Cash Flows
For the Three Months Ended June 30, 2004 and 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
June 30, 2004 March 31, 2004
------------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 5,291,897 $ 6,649,763
Investments in limited partnerships, net (Notes
2 and 3) 10,945,528 6,425,082
Due from General Partner and affiliates 175 -
Interest receivable - 108
------------------------ ------------------------
$ 16,237,600 $ 13,074,953
======================== ========================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 42,986 $ 29,535
Payables to limited partnerships (Note 4) 4,992,504 1,822,497
------------------------ ------------------------
Total liabilities 5,035,490 1,852,032
------------------------ ------------------------
Commitments and contingencies
Partners' equity (deficit):
General Partner (142) (89)
Limited partners (25,000 units authorized
13,153 units issued and outstanding at
June 30, 2004) 11,202,252 11,223,010
------------------------ ------------------------
Total partners' equity 11,202,110 11,222,921
------------------------ ------------------------
$ 16,237,600 $ 13,074,953
======================== ========================
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 Months Ended June 30, 2004 and 2003
(unaudited)
2004 2003
------------------------ ------------------------
Interest income $ 10,882 $ 89
Operating expenses:
Amortization (Note 2) 10,474 762
Asset management fees ( Note 3) 15,777 -
Legal and accounting 525 2,100
Other 6,450 1,020
------------------------ ------------------------
Total operating expenses 33,226 3,882
------------------------ ------------------------
Loss from operations (22,344) (3,793)
Equity in losses from limited partnerships
(Note 2) (30,782) -
------------------------ ------------------------
Net loss $ (53,126) $ (3,793)
======================== ========================
Net loss allocated to:
General Partner $ (53) $ (4)
======================== ========================
Limited Partners $ (53,073) $ (3,789)
======================== ========================
Net loss per limited
partner unit $ (4) $ (2)
======================== ========================
Outstanding weighted limited
partner units 13,153 1,594
======================== ========================
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 Three Months Ended June 30, 2004
(unaudited)
General Limited
Partner Partners Total
--------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2004 $ (89) $ 11,223,010 $ 11,222,921
Collection of promissory notes receivable - 35,815 35,815
Offering expenses - (3,500) (3,500)
Net loss (53) (53,073) (53,126)
--------------- ---------------- ------------------
Partners' equity (deficit) at June 30, 2004 $ (142) $ 11,202,252 $ 11,202,110
=============== ================ ==================
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2004 and 2003
(unaudited)
2004 2003
------------------ ----------------
Cash flows from operating activities:
Net loss $ (53,126) $ (3,793)
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Amortization 10,474 762
Equity in losses of limited partnerships 30,782 -
Change in due from affiliates (175) -
Change in interest receivable 108 -
Change in accrued fees and expense due to
General Partner and affiliates 13,451 3,120
------------------ ----------------
Net cash provided by operating activities 1,514 89
------------------ ----------------
Cash flows from investing activities:
Investments in lower tier partnerships, net (1,391,695) -
Capitalized acquisition costs & fees - (244,170)
------------------ ----------------
Net cash used in investing activities (1,391,695) (244,170)
------------------ ----------------
Cash flows from financing activities
Collection of promissory notes receivable 35,815 3,296,071
Offering expenses (3,500) (363,050)
------------------ ----------------
Net cash provided by financing activities 32,315 2,933,021
------------------ ----------------
Net increase (decrease) in cash and cash equivalents (1,357,866) 2,688,940
Cash and cash equivalents, beginning of period 6,649,763 1,100
------------------ ----------------
Cash and cash equivalents, end of period $ 5,291,897 $ 2,690,040
================== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ 800
================== ================
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 June 30, 2004
(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 three months
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2005. 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, 2004.
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 of Associates 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 June 30, 2004, the Partnership has accepted subscriptions for 13,153
units, for which it has received $12,673,010 in cash, net of a $33,730
volume/dealer discount and $446,260 in promissory notes.
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-CONTINUED
For the Quarterly Period Ended June 30, 2004
(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 price which would result in the Parnership realizing cash
distributions or [roceeds from the transaction. Accordingly, the Partnership may
be unable to distribute any cash to its limited partners. 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 limited partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
No trading market for the Units exists or is expected to develop. Limited
partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual limited partners
will have no recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
8
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(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 limited partners 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 limited partners' return
wherever possible and, ultimately, to wind down those funds that no longer
provide tax benefits to limited partners. 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).
Equity in losses of limited partnerships for the periods ended June 30, 2004 and
2003 have been recorded by the Partnership based on three months of reported
results estimated by management of the Partnership. Management's estimate for
the three-month period is based on either actual unaudited results reported by
the Local Limited Partnerships or historical trends in the operations of the
Local Limited Partnerships. Equity in losses from the Local Limited Partnerships
allocated to the Partnership are not recognized to the extent that the
investment balance would be adjusted below zero. As soon as the investment
balance reaches zero, amortization of the related costs of acquiring the
investment are accelerated to the extent of losses available (see Note 2). 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.
9
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(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 $1,676,160 as of June 30, 2004.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with original maturity
of three months or less when purchased to be cash equivalents. As of June 30,
2004 and March 31, 2004, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At June 30, 2004, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amount. The
Partnership believes that it is not exposed to any significant risk on cash.
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.
Income Taxes
- ------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liability and/or benefits for income tax purposes flows to the
partners of the Partnership and is their obligation and/or benefit. For income
tax purposes the Partnership reports on a calendar year basis.
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.
10
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
New Accounting Pronouncements
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "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.
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created after
January 31, 2003, but prior to January 1, 2004, may be accounted for either
based on the original interpretations or the revised interpretations. However,
all VIEs must be accounted for under the revised interpretations as of March 31,
2004, when FIN 46R is effective for the Partnership.
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnerships.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
On June 30, 2004, the Partnership acquired limited partnership interests in six
Local Limited Partnerships, each of which owns one Housing Complex consisting of
an aggregate of 312 apartment units. As of June 30, 2004, construction or
rehabilitation of four of the 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 June 30, 2004, no investment accounts in
Local Limited Partnerships had reached a zero balance.
11
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(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 Three For the Year
Months Ended Ended
June 30, 2004 March 31, 2004
---------------- -----------------
Investments in limited partnerships, beginning of period $ 6,425,082 $ -
Capital contributions paid, net 720,137 3,498,014
Capital contributions payable 3,841,565 1,822,497
Capitalized acquisition fees and costs - 1,183,770
Capitalized warehouse interest and fees - 73,075
Equity in losses of limited partnerships (30,782) (128,146)
Amortization of capitalized acquisition fees and costs (9,865) (22,301)
Amortization of capitalized warehouse interest and fees (609) (1,827)
---------------- -----------------
Investments in limited partnerships, end of period $ 10,945,528 $ 6,425,082
================ =================
Selected financial information for the three months ended June 30, 2004 and 2003
from the unaudited combined condensed financial statements of the limited
partnerships in which the partnership has invested is as follows:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2004 2003
--------------------- --------------------
Revenues $ 68,000 $ -
--------------------- --------------------
Expenses
Interest expense 5,000 -
Depreciation & amortization 34,000 -
Operating expenses 60,000 -
--------------------- --------------------
Total expenses 99,000 -
--------------------- --------------------
Net loss $ (31,000) $ -
===================== ====================
Net loss allocable to the Partnership $ (31,000) $ -
===================== ====================
Net loss recorded by the Partnership $ (31,000) $ -
===================== ====================
Certain Local Limited Partnerships have incurred significant operating losses
and/or have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partner may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
impaired, and the loss of future and recapture of prior Low Income Housing
Credits could occur.
12
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(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 June 30, 2004, the Partnership had
incurred acquisition fees of $920,710. Accumulated amortization of these
capitalized costs was $24,982 as of June 30, 2004.
(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 June 30, 2004,
the Partnership had incurred acquisition costs of $263,060. Accumulated
amortization of these capitalized costs was $7,184 as of June 30, 2004.
(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 June 30, 2004, the Partnership had incurred
non-accountable organization and offering expense reimbursements of
$1,676,160.
(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 $15,777 was incurred during the
three months ended June 30, 2004.
(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 prior to the time that the limited partners' capital
contributions were received. As of June 30, 2004 and 2003, the partnership
incurred interest of $73,075 and $72,155, respectively, which was
capitalized as warehouse interest and fees. Accumulated amortization of
these capitalized costs were $2,436 and $0 as of June 30, 2004 and 2003
respectively.
(g) The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred in behalf of the Partnership. Operating expense
reimbursements were approximately $9,297 and $0 during the three months
ended June 30, 2004 and 2003, respectively.
13
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarterly Period Ended June 30, 2004
(unaudited)
Accrued fees, expenses and loan due to the General Partner and affiliates
consisted of the following as of:
June 30, 2004 March 31, 2004
--------------------- ---------------------
Advance payable to WNC $ - $ 2,326
Asset management fee payable 42,945 27,168
--------------------- ---------------------
Total $ 42,945 $ 29,494
===================== =====================
NOTE 4 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships amounting to $4,992,504 and $1,822,497 at June
30, 2004 and March 31, 2004, respectively, represents 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).
14
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain forward
looking statements. Such statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown risks that
could cause actual results of operations to differ materially from those
projected or implied. Further, certain forward-looking statements are based upon
assumptions about future events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low-income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-K and in other reports we filed with the
Securities and Exchange Commission.
The following discussion and analysis compares the results of operations for the
three months ended June 30, 2004 and 2003, and should be read in conjunction
with the condensed financial statements and accompanying notes included within
this report.
Financial Condition
The Partnership's assets at June 30, 2004 consisted primarily of $5,292,000 in
cash and aggregate investments in the six Local Limited Partnerships of
$10,946,000. Liabilities at June 30, 2004 primarily consisted of $4,993,000 due
to limited partnerships and $43,000 in advances and other payables due to the
General Partner or affiliates.
Results of Operations
Results of Operations, continued
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003.
The Partnership's net loss for the three months ended June 30, 2004 was
$(53,000), reflecting an increase of $(49,000) from the net loss for the three
months ended June 30, 2003 of $(4,000). The increase in net loss is primarily
due to an increase in equity of losses of limited partnerships of $(31,000) to
$(31,000) for the three months ended June 30, 2004 from $0 for the three months
ended June 30, 2003 along with an increase in loss from operations of $(18,000)
to $(22,000) for the three months ended June 30, 2004 from $(4,000) for the
three months ended June 30, 2003. The increase in loss from operations was due
to an increase in interest income of $$11,000 offset by an increase in operating
expense of $29,000. Cash Flows
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003.
Net decrease in cash and cash equivalents was $(1,358,000) for the three months
ended June 30, 2004, reflecting an increase of $(4,047,000) in net cash used,
compared to the net cash provided in the three months ended June 30, 2003 of
$2,689,000. The change is primarily due to sales of units decreased $(3,264,000)
and an increase of $(1,392,000) in investment in lower tiers offset by an
decrease of $244,000 in payment of acquisition costs and fees and an decrease of
$363,000 in payment of offering cost. The Partnership acquired limited
partnership interests in three Local Limited Partnerships for an aggregate
amount of approximately $4,562,000.
15
Management's Discussion And Analysis of Financial Condition and Results of
Operations, continued
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2004, to be sufficient to meet all currently foreseeable
future cash requirements.
Item 3. Quantitative and Qualitative Disclosures Above Market Risks
Not Applicable
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Partnership's General
Partner, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates carried out an evaluation of
the effectiveness of the Fund's "disclosure controls and procedures" as defined
in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that
evaluation, the Chief Executive Officer and Principal Financial Officer have
concluded that as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to the Partnership
required to be included in the Partnership's periodic SEC filings.
Changes in internal controls. There were no changes in the Partnership's
internal control over financial reporting that occurred during the quarter ended
June 30, 2004 that materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. A Form 8-K dated March 17, 2004 was filed on June 8, 2004 reporting
the acquisition of two Local Limited Partnerships. No financial
statements were included.
2. A Form 8-K dated June 9, 2004 was filed on June 29, 2004 reporting the
acquisition of two Local Limited Partnerships. No financial statements
were included.
(b) Exhibits.
---------
31.1 Certification of the Principal Executive Officer pursuant to Rule
13a-14 and 15d-14, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule
13a-14 and 15d-14, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Section 1350 Certification of the Chief Executive Officer. (filed
herewith)
32.2 Section 1350 Certification of the Chief Financial Officer. (filed
herewith)
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: October 25, 2004
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Senior Vice President - Chief Financial Officer of WNC & Associates, Inc.
Date: October 25, 2004
17