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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, 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 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 Quarter Ended September 30, 2004
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
September 30, 2004 and March 31, 2004............................3
Statements of Operations
For the Three and Six Months Ended September 30, 2004 and 2003...4
Statement of Partners' Equity (Deficit)
For the Six Months Ended September 30, 2004 .....................5
Statements of Cash Flows
For the Six Months Ended September 30, 2004 and 2003.............6
Notes to Financial Statements....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition ......................................................15
Item 3. Quantitative and Qualitative Disclosures
About Market Risks..............................................16
Item 4. Procedures and controls........................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................17
Item 2. Changes in Securities and Use of Proceeds.......................17
Item 3. Defaults Upon Senior Securities.................................17
Item 4. Submission of Matters to a Vote of Security Holders.............17
Item 5. Other Information...............................................17
Item 6. Exhibits........................................................17
Signatures...............................................................18
2
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 10
(A California Limited Partnership)
BALANCE SHEETS
September 30, 2004 March 31, 2004
---------------------- -----------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 3,543,059 $ 6,649,763
Investments in limited partnerships, net
(Notes 2 and 3) 10,872,221 6,425,082
Interest receivable - 108
------------------------ ------------------------
$ 14,415,280 $ 13,074,953
======================== ========================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 50,225 $ 29,535
Payables to limited partnerships (Note 4) 3,265,716 1,822,497
------------------------ ------------------------
Total liabilities 3,315,941 1,852,032
------------------------ ------------------------
Commitments and contingencies
Partners' equity (deficit):
General Partner (245) (89)
Limited partners (25,000 units authorized
13,153 units issued and outstanding at
September 30, 2004) 11,099,584 1,223,010
------------------------ ------------------------
Total partners' equity 11,099,339 11,222,921
------------------------ ------------------------
$ 14,415,280 $ 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 and Six Months Ended September 30, 2004 and 2003
(unaudited)
2004 2003
------------------------------------ ------------------------------------
Three Months Six Months Three Months Six Months
----------------- --------------- --------------- -----------------
Interest income $ 7,798 $ 18,680 $ 523 $ 612
----------------- --------------- --------------- -----------------
Total operating income 7,798 18,680 523 612
----------------- --------------- --------------- -----------------
Operating expenses:
Amortization (Note 2) 10,474 20,948 4,653 5,415
Asset management fees (Note 3) 20,027 35,804 9,056 9,056
Legal and accounting 17,388 17,913 6,345 8,445
Other 47 6,497 688 1,708
----------------- --------------- --------------- -----------------
Total operating expenses 47,936 81,162 20,742 24,624
----------------- --------------- --------------- -----------------
Loss from operations (40,138) (62,482) (20,219) (24,012)
Equity in losses of
limited partnerships (Note 2) (62,633) (93,415) (63,700) (63,700)
----------------- --------------- --------------- -----------------
Net loss $ (102,771) $ (155,897) $ (83,919) $ (87,712)
================= =============== =============== =================
Net loss allocated to:
General partner $ (103) $ (156) $ (84) $ (88)
================= =============== =============== =================
Limited partners $ (102,668) $ (155,741) $ (83,835) $ (87,624)
================= =============== =============== =================
Net loss per limited partner unit $ (8) $ (12) $ (13) $ (19)
================= =============== =============== =================
Outstanding weighted limited
partner units 13,153 13,153 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, 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 (156) (155,741) (155,897)
--------------- ---------------- ------------------
Partners' equity (deficit) at September 30, 2004 $ (245) $ 11,099,584 $ 11,099,339
=============== ================ ==================
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, 2004 and 2003
(unaudited)
2004 2003
------------------ ----------------
Cash flows from operating activities:
Net loss $ (155,897) $ (87,712)
Adjustments to reconcile net loss to net
Cash used by operating activities:
Amortization 20,948 5,415
Equity in losses of limited partnerships 93,415 63,700
Change in interest receivable 108 (611)
Change in accrued fees and expense due to
General Partner and affiliates 20,690 11,989
------------------ ----------------
Net cash used in operating activities (20,736) (7,219)
------------------ ----------------
Cash flows from investing activities:
Investments in lower tier partnerships, net (3,118,283) (3,029,381)
Capitalized acquisition costs & fees - (747,535)
------------------ ----------------
Net cash used in investing activities (3,118,283) (3,776,916)
------------------ ----------------
Cash flows from financing activities
Sales of limited partner units, net of contributions
receivable and subscriptions receivable 35,815 7,513,550
Offering expenses (3,500) (959,345)
------------------ ----------------
Net cash provided by financing activities 32,315 6,554,205
------------------ ----------------
Net increase (decrease) in cash and cash equivalents (3,106,704) 2,770,070
Cash and cash equivalents, beginning of period 6,649,763 1,100
------------------ ----------------
Cash and cash equivalents, end of period $ 3,543,059 $ 2,771,170
================== ================
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 September 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 and six
months ended September 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 September 30, 2004, the Partnership has accepted subscriptions for
13,153 units, for which it has received $13,119,270 in cash, net of a $33,730
volume/dealer discount.
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 September 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 profit. 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 September 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 September 30,
2004 and 2003 have been recorded by the Partnership based on six months of
reported results estimated by management of the Partnership. Management's
estimate for the six-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 September 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 September 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 maturities
of three months or less when purchased to be cash equivalents. As of September
30, 2004 and March 31, 2004, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At September 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.
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform to the 2004
presentation.
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 September 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 September 30, 2004, the Partnership had 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 September 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.
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 September 30, 2004
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
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, 2004, no investment accounts
in Local Limited Partnerships had reached a zero balance.
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 Year
Ended Ended
September 30, 2004 March 31, 2004
------------------------ -------------------
Investments in limited partnerships, beginning of period $ 6,425,082 $ -
Capital contributions paid, net 2,110,362 3,498,014
Capital contributions payable 2,451,340 1,822,497
Capitalized acquisition fees and costs - 1,183,770
Capitalized warehouse interest and fees - 73,075
Equity in losses of limited partnerships (93,415) (128,146)
Tax credit adjustments (200) -
Amortization of capitalized acquisition fees and costs (19,730) (22,301)
Amortization of capitalized warehouse interest and fees (1,218) (1,827)
------------------------ -------------------
Investments in limited partnerships, end of period $ 10,872,221 $ 6,425,082
======================== ===================
Selected financial information for the six months ended September 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 $ 272,000 $ 97,000
--------------------- --------------------
Expenses
Interest expense 9,000 6,000
Depreciation & amortization 101,000 48,000
Operating expenses 255,000 107,000
--------------------- --------------------
Total expenses 365,000 161,000
--------------------- --------------------
Net loss $ (93,000) $ (64,000)
===================== ====================
Net loss allocable to the Partnership $ (93,000) $ (64,000)
===================== ====================
Net loss recorded by the Partnership $ (93,000) $ (64,000)
===================== ====================
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 September 30, 2004
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
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.
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, 2004, the Partnership had
incurred acquisition fees of $920,710. Accumulated amortization of these
capitalized costs was $32,655 as of September 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 September 30,
2004, the Partnership had incurred acquisition costs of $263,060.
Accumulated amortization of these capitalized costs was $9,376 as of
September 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 September 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 $35,804 and $9,056 were incurred
during the six months ended September 30, 2004 and 2003, respectively. The
partnership paid $15,000 and $0 of those asset management fees for the six
months ended September 30, 2004 and 2003, respectively.
(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 September 30, 2004, the partnership had
incurred capitalized warehouse interest and fees of $73,075. Accumulated
amortization of these capitalized costs was $3,045 and $609 as of the six
months ended September 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 September 30, 2004
(unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
(g) The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred in behalf of the Partnership. Operating expense
reimbursements were approximately $24,518 and $7,220 during the six months
ended September 30, 2004 and 2003, respectively.
Accrued fees, expenses and loan due to the General Partner and affiliates
consisted of the following as of:
September 30, 2004 March 31, 2004
---------------------- ---------------------
Advance payable to WNC $ 2,213 $ 2,326
Asset management fee payable 47,972 27,168
Other 40 41
---------------------- ---------------------
Total $ 50,225 $ 29,535
====================== =====================
NOTE 4 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships amounting to $3,265,716 and $1,822,497 at
September 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 and six months ended September 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 September 30, 2004 consisted primarily of $3,543,000
in cash and aggregate investments in the six Local Limited Partnerships of
$10,872,000. Liabilities at September 30, 2004 primarily consisted of $3,266,000
due to limited partnerships and $50,000 in advances and other payables due to
the General Partner or affiliates.
Results of Operations
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003. The Partnership's net loss for the three months ended September 30,
2004 was $(103,000), reflecting a $(19,000) increase from the net loss for the
three months ended September 30, 2003 of $(84,000). The increase in net loss is
primarily due to a $(20,000) increase in loss from operations to $(40,000) for
the three months ended September 30, 2004 from $(20,000) for the three months
ended September 30, 2003. Offset by a $1,000 decrease in equity of losses of
limited partnerships to $(63,000) for the three months ended September 30, 2004
from $(64,000) for the three months ended September 30, 2003. The $(20,000)
increase in loss from operations is due to $(6,000) increase in amortization,
$(11,000) increase in asset management fees, an $(11,000) increase in legal and
accounting expenses, offset by a $7,000 increase in interest income along with a
$1,000 decrease in other operating expense.
Six Months Ended September 30, 2004 Compared to Six Months Ended September 30,
2003. The Partnership's net loss for the six months ended September 30, 2004 was
$(156,000), reflecting an increase of $(68,000) from the net loss for the six
months ended September 30, 2003 of $(88,000). The increase in net loss is
primarily due to a $(38,000) increase in loss from operations from $(24,000) for
the six months ended September 30, 2003 to $(62,000) for the six months ended
September 30, 2004. The increase in loss from operations is primarily due to a
$(15,000) increase in amortization, a $(27,000) increase in asset management
fees, a $(9,000) increase in legal and accounting fees, a $(5,000) increase in
other operating expense off set by a $18,000 increase in interest income. Along
with the increase in loss from operations there was also a $(30,000) increase in
equity in losses of limited partnerships to $(93,000) for the six months ended
September 30, 2004 from $(63,000) for the six months ended September 30, 2003.
The increase in equity in losses is largely due to the fact that there were two
investments in local limited partnerships for the six months ended September 30,
2003 compared to six investments in local limited partnerships for the six
months ended September 30, 2004.
15
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations, continued
Cash Flows
Six Months Ended September 30, 2004 Compared to Six Months Ended September 30,
2003. Net cash used for the six months ended September 30, 2004 was
$(3,107,000), compared to the net cash provided in the six months ended
September 30, 2003 of $2,770,000. The $(5,877,000) increase in net cash used is
primarily due to a decrease of $(6,522,000) in cash provided by financing
activities. The decrease was largely due to $7,514,000 in cash provided by the
sales of limited partner units for the six months ended September 30, 2003
compared to $36,000 provided for the six months ended September 30, 2003 which
was offset by $(959,000) cash used for offering expenses compared to only
$(4,000) for the six months ended September 30, 2004. Offset by a decrease in
cash used in investing activities of $659,000 due to a $(89,000) increase in
cash used for investments in limited partnerships, along with a decrease of cash
used of $748,000 for capitalized acquisition costs and fees for the six months
ended September 30, 2004 compared to the six months ended September 30, 2003.
The Partnership expects its future cash flows, together with its net available
assets at September 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
September 30, 2004 that materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.
16
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. 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)
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 15, 2004
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Senior Vice President - Chief Financial Officer of WNC & Associates, Inc.
Date: November 15, 2004
18