10-Q 1 q106504d.txt FORM 10-Q 2004 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 For the quarterly period ended September 30, 2004 For the quarterly period ended December 31, 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: 0-24855 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 California 33-0745418 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17782 Sky Park Circle, Irvine, CA 92614 ( Address of principle executive offices ) (714) 622-5565 ( 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.: Large accelerated filer___ Accelerated filer___ Non-accelerated filer___X__ Smaller reporting company___ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___No _X__ WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) INDEX TO FORM 10-Q For the Quarterly periods Ended June 30, 2004, September 30, 2004 and December 31, 2004 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets As of June 30, 2004, September 30, 2004, December 31, 2004 and March 31, 2004..............................................3 Statements of Operations For the Three Months Ended June 30, 2004 and 2003.................4 For the Three and Six Months Ended September 30, 2004 and 2003....5 For the Three and Nine Months Ended December 31, 2004 and 2003....6 Statements of Partners' Equity (Deficit) For the Three Months Ended June 30, 2004 .........................7 For the Six Months Ended September 30, 2004 ......................7 For the Nine Months Ended December 31, 2004 ......................7 Statements of Cash Flows For the Three Months Ended June 30, 2004 and 2003.................8 For the Six Months Ended September 30, 2004 and 2003..............9 For the Nine Months Ended December 31, 2004 and 2003.............10 Notes to Financial Statements............................................11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................22 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......25 Item 4. Controls and Procedures ........................................25 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......25 Item 3. Defaults Upon Senior Securities..................................25 Item 4. Submission of Matters to a Vote of Security Holders..............25 Item 5. Other Information................................................25 Item 6. Exhibits.........................................................26 Signatures...............................................................26 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) BALANCE SHEETS (unaudited)
December 31, June 30, 2004 September 30, 2004 2004 March 31, 2004 -------------------- --------------------- ----------------- ------------------ ASSETS Cash $ 12,348 $ 29,857 $ 157,488 $ 17,196 Funds held in escrow disbursement account 209,711 209,711 - 209,711 Investments in Local Limited Partnerships, net (Note 2) 12,703,555 12,373,077 12,042,599 13,614,334 Due from affiliates (see Note 3) 11,114 11,114 11,114 11,114 -------------------- --------------------- ----------------- ------------------ Total Assets $ 12,936,728 $ 12,623,759 $ 12,211,201 $ 13.852.355 ==================== ===================== ================= ================== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Payables to Local Limited Partnerships (Note 4) $ 156,021 $ 143,271 $ - $ 163,671 Accrued fees and expenses due to General Partner and affiliates (Note 3) 666,784 700,502 706,250 643,362 -------------------- --------------------- ----------------- ------------------ Total Liabilities 822,805 843,773 706,250 807,033 -------------------- --------------------- ----------------- ------------------ Partners' equity (deficit): General Partner (127,954) (131,293) (134,044) (118,640) Limited Partners (25,000 Partnership Units authorized; 25,000 12,241,877 11,911,279 11,638,995 13,163,962 Units issued and outstanding) -------------------- --------------------- ----------------- ------------------ Total Partners' Equity 12,113,923 11,779,986 11,504,951 13,045,322 -------------------- --------------------- ----------------- ------------------ Total Liabilities and Partners' Equity $ 12,936,728 $ 12,623,759 $ 12,211,201 $ 13,852,355 ==================== ===================== ================= ==================
See accompanying notes to financial statements 3 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF OPERATIONS For the Three Months Ended June 30, 2004 and 2003 (unaudited)
2004 2003 ----------------- ------------------ Three Months Three Months ----------------- ------------------- Reporting fees $ 2,800 $ 1,000 ----------------- ------------------- Operating expenses: Amortization (Note 2) 16,134 16,134 Asset management fees (Note 3) 17,517 17,517 Impairment loss (Note 2) 580,301 154,864 Legal and accounting fees 525 3,989 Write off of advances to Local Limited Partnerships (Note 5) - 16,921 Other 5,381 3,705 ----------------- ------------------- Total operating expenses 619,858 213,130 ----------------- ------------------- Loss from operations (617,058) (212,130) Equity in losses of Local Limited Partnerships (Note 2) (314,344) (308,384) Interest income 3 963 ----------------- ------------------- Net loss $ (931,399) $ (519,551) ================= =================== Net loss allocated to: General Partner $ (9,314) $ ( 5,196) ================= =================== Limited Partners $ (922,085) $ (514,355) ================= =================== Net loss per Partnership Unit $ (37) $ (21) ================= =================== Outstanding weighted Partnership Units 25,000 25,000 ================= ===================
See accompanying notes to financial statements 4 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF OPERATIONS For the Three and Six Months Ended September 30, 2004 and 2003 (unaudited)
2004 2003 ------------------------------------- --------------------------------------- Three Six Three Six Months Months Months Months ----------------- --------------- ---------------- ----------------- Reporting fees $ 17,500 $ 20,300 $ 12,288 $ 13,288 ----------------- --------------- ---------------- ----------------- Operating expenses: Amortization (Note 2) 16,134 32,268 16,134 32,268 Asset management fees (Note 3) 17,517 35,034 17,517 35,034 Impairment loss (Note 2) - 580,301 - 154,864 Legal and accounting fees 2,252 2,777 12,073 16,062 Write off of advances to Local Limited Partnerships (Note 5) - - - 16,921 Other 1,199 6,580 1,524 5,229 ----------------- --------------- ---------------- ----------------- Total operating expenses 37,102 656,960 47,248 260,378 ----------------- --------------- ---------------- ----------------- Loss from operations (19,602) (636,660) (34,960) (247,090) Equity in losses of Local Limited Partnerships (Note 2) (314,344) (628,688) (308,384) (616,768) Interest income 9 12 35 998 ----------------- --------------- ---------------- ----------------- Net loss $ (333,937) $ (1,265,336) $ (343,309) $ (862,860) ================= =============== ================ ================= Net loss allocated to: General Partner $ (3,339) $ (12,653) $ (3,433) $ (8,629) ================= =============== ================ ================= Limited Partners $ (330,598) $ (1,252,683) $ (339,876) $ (854,231) ================= =============== ================ ================= Net loss per Partnership Unit $ (13) $ (50) $ (14) $ (34) ================= =============== ================ ================= Outstanding weighted Partnership Units 25,000 25,000 25,000 25,000 ================= =============== ================ =================
See accompanying notes to financial statements 5 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF OPERATIONS For the Three and Nine Months Ended December 31, 2004 and 2003 (unaudited)
2004 2003 ---------------------------------- ---------------------------------------- Three Nine Three Nine Months Months Months Months -------------- ------------- ----------------- -------------- Reporting fees $ - $ 20,300 $ - $ 13,288 Recovery of bad debt (Note 5) 118,272 118,272 - - -------------- ------------- ----------------- -------------- Total income 118,272 138,572 - 13,288 Operating expenses: Amortization (Note 2) 16,134 48,402 16,134 48,402 Asset management fees (Note 3) 17,517 52,551 17,517 52,551 Impairment loss (Note 2) - 580,301 - 154,864 Legal and accounting fees - 2,777 1,230 17,292 Write off of advances to Local Limited Partnerships (Note 5) 49,000 49,000 - 16,921 Other 602 7,182 2,547 7,776 -------------- ------------- ----------------- -------------- Total operating expenses 83,253 740,213 37,428 297,806 -------------- ------------- ----------------- -------------- Income (loss) from operations 35,019 (601,641) (37,428) (284,518) Equity in losses of Local Limited Partnerships (Note 2) (314,344) (943,032) (308,384) (925,152) Interest income 4,290 4,302 34 1,032 -------------- ------------- ----------------- -------------- Net loss $ (275,035) $ (1,540,371) $ (345,778) $ (1,208,638) ============== ============= ================= ============== Net loss allocated to: General Partner $ (2,751) $ (15,404) $ (3,458) $ (12,086) ============== ============= ================= ============== Limited Partners $ (272,284) $ (1,524,967) $ (342,320) $ (1,196,552) ============== ============= ================= ============== Net loss per Partnerships Units $ (11) $ (61) $ (14) $ (48) ============== ============= ================= ============== Outstanding weighted Partnership Units 25,000 25,000 25,000 25,000 ============== ============= ================= ==============
See accompanying notes to financial statements 6 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Three Months Ended June 30, 2004, Six Months Ended September 30, 2004 And Nine Months Ended December 31, 2004 (unaudited)
For the Three Months Ended June 30, 2004 General Limited Partner Partners Total --------------- ---------------- ------------------ Partners' equity (deficit) at March 31, 2004 $ (118,640) $ 13,163,962 $ 13,045,322 Net loss (9,314) (922,085) (931,399) --------------- ---------------- ------------------ Partners' equity (deficit) at June 30, 2004 $ (127,954) $ 12,241,877 $ 12,113,923 =============== ================ ================== For the Six Months Ended September 30, 2004 General Limited Partner Partners Total --------------- ---------------- ------------------ Partners' equity (deficit) at March 31, 2004 $ (118,640) $ 13,163,962 $ 13,045,322 Net loss (12,653) (1,252,683) (1,265,336) --------------- ---------------- ------------------ Partners' equity (deficit) at September 30, 2004 $ (131,293) $ 11,911,279 $ 11,779,986 =============== ================ ================== For the Nine Months Ended December 31, 2004 General Limited Partner Partners Total --------------- ---------------- ------------------ Partners' equity (deficit) at March 31, 2004 $ (118,640) $ 13,163,962 $ 13,045,322 Net loss (15,404) (1,524,967) (1,540,371) --------------- ---------------- ------------------ Partners' equity (deficit) at December 31, 2004 $ (134,044) $ 11,638,995 $ 11,504,951 =============== ================ ==================
See accompanying notes to financial statements 7 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 STATEMENTS OF CASH FLOWS For the Three Months Ended June 30, 2004 and 2003 (unaudited)
2004 2003 -------------- --------------- Cash flows from operating activities: Net loss $ (931,399) $ (519,551) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 16,134 16,134 Equity in losses of Local Limited Partnerships 314,344 308,384 Impairment loss 580,301 154,864 Change in escrow disbursement account - (933) Advances to Local Limited Partnerships - (16,921) Write off of Advances to Local Limited Partnerships - 16,921 Change in accrued fees and expenses due to General Partner and affiliates 23,422 42,132 -------------- --------------- Net cash provided by operating activities 2,802 1,030 -------------- --------------- Cash flow used in investing activities: Capital contributions paid to Local Limited Partnerships (7,650) - -------------- --------------- Net cash used in investing activities (7,650) - -------------- --------------- Net increase (decrease) in cash (4,848) 1,030 Cash, beginning of period 17,196 22,868 -------------- --------------- Cash, end of period $ 12,348 $ 23,898 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ - $ - ============== ===============
See accompanying notes to financial statements 8 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Six Months Ended September 30, 2004 and 2003 (unaudited)
2004 2003 -------------- --------------- Cash flows from operating activities: Net loss $ (1,265,336) $ (862,860) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 32,268 32,268 Equity in losses of Local Limited Partnerships 628,688 616,768 Impairment loss 580,301 154,864 Change in escrow disbursement account - (933) Advances to Local Limited Partnerships - (16,921) Write off of advances to Local Limited Partnerships - 16,921 Change in accrued fees and expenses due to General Partner and affiliates 57,140 63,246 -------------- --------------- Net cash provided by operating activities 33,061 3,353 -------------- --------------- Cash flows used in investing activities: Capital contributions paid to Local Limited Partnerships (20,400) - -------------- --------------- Net cash used in investing activities (20,400) - -------------- --------------- Net increase in cash 12,661 3,353 Cash, beginning of period 17,196 22,868 -------------- --------------- Cash, end of period $ 29,857 $ 26,221 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ - $ - ============== ===============
See accompanying notes to financial statements 9 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Nine Months Ended December 31, 2004 and 2003 (unaudited)
2004 2003 -------------- --------------- Cash flows from operating activities: Net loss $ (1,540,371) $ (1,208,638) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 48,402 48,402 Recovery of bad debt (118,272) - Equity in losses of Local Limited Partnerships 943,032 925,152 Impairment loss 580,301 154,864 Release of escrow disbursement account 209,711 (933) Advances to Local Limited Partnerships (49,000) (16,921) Write off of advances to Local Limited Partnerships 49,000 16,921 Change in accrued fees and expenses due to General Partner and affiliates 62,888 98,157 -------------- --------------- Net cash provided by operating activities 185,691 17,004 -------------- --------------- Cash flows used in investing activities: Capital contributions paid to Local Limited Partnerships (45,399) (16,800) -------------- --------------- Net cash used in investing activities (45,399) (16,800) -------------- --------------- Net increase in cash 140,292 204 Cash, beginning of period 17,196 22,868 -------------- --------------- Cash, end of period $ 157,488 $ 23,072 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ - $ 800 ============== ===============
See accompanying notes to financial statements 10 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 1 - 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, six months ended September 30, 2004 and nine months ended December 31, 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 annual report on Form 10-K for the fiscal year ended March 31, 2004. Organization ------------ WNC Housing Tax Credit Fund VI, L.P., Series 5 a California Limited Partnership (the "Partnership") was formed under the laws of the State of California on March 3, 1997 and commenced operations on August 29, 1997. The Partnership was formed to invest primarily in other limited partnerships or limited liability companies ("Local Limited Partnerships") which own multi-family housing complexes ("Housing Complexes") that are eligible for Federal low-income housing tax credits ("Low Income Housing Tax Credits"). The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the "Local Limited Partnership Agreement"). The general partner of the Partnership is WNC & Associates, Inc. ("Associates" or the "General Partner"). The chairman and president of Associates own substantially all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through the General Partner, as the Partnership has no employees of its own. The Partnership shall continue to be in full force and effect until December 31, 2052, 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. The Partnership Agreement authorized the sale of up to 25,000 units of limited partnership interest ("Partnership Units) at $1,000 per Partnership Unit. The offering of Partnership Units has concluded and 25,000 Partnership Units, representing subscriptions in the amount of $24,918,175, net of dealer and volume discounts of $81,825 had been accepted. The General Partner has a 1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and Low Income Housing Tax Credits of the Partnership. The investors (the "Limited Partners") will be allocated the remaining 99% of these items in proportion to their respective investments. The proceeds from the disposition of any of the Housing Complexes will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement. Any remaining proceeds will then be paid to the partners of the Local Limited Partnership, including the Partnership, in accordance with the terms of the particular Local Limited Partnership Agreement. The sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership. Should such distributions occur, the Limited Partners will be entitled to receive distributions from the proceeds remaining after payment of Partnership 11 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- obligations and funding reserves, equal to their capital contributions and their return on investment (as defined in the Partnership Agreement). The General Partner would then be entitled to receive proceeds equal to their capital contributions 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. 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 Tax Credits rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Tax Credits and the fractional recapture of Low Income Housing Tax Credits already taken. In most cases the annual amount of Low Income Housing Tax 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 Partnership realizing cash distributions or proceeds from the transaction. Accordingly, the Partnership may be unable to distribute any cash to its Limited Partners. Low Income Housing Tax Credits may be the only benefit from an investment in the Partnership. The Partnership has invested 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 is 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 Tax Credits, a fractional recapture of prior Low Income Housing Tax Credits, and a loss of the Partnership's investment in the Housing Complex would occur. The Partnership is a limited partner or a 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, are 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 Tax Credits and recapture of Low Income Housing Tax 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 Tax 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 Partnership Units exists or is expected to develop. 12 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- Limited Partners may be unable to sell their Partnership Units except at a discount and should consider their Partnership 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. The Partnership currently has insufficient working capital to fund its operations. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through April 30, 2009. Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason. Exit Strategy ------------- The IRS compliance period for Low-Income Housing Tax Credit properties is generally 15 years from occupancy following construction or rehabilitation completion. Associates was one of the first in the industry to offer syndicated investments using the Low Income Housing Tax Credits. The initial programs are completing their compliance periods. As of December 31, 2004, none of the Local Limited Partnerships had completed the 15 year compliance period. With that in mind, the Partnership is continuing to review the Housing Complexes, with special emphasis on the more mature Housing Complexes such as any that have satisfied the IRS compliance requirements. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes. Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners' return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of December 31, 2004. As of December 31, 2004, no Housing Complexes had been selected for disposition. Method of Accounting for Investments in Local Limited Partnerships ------------------------------------------------------------------ The Partnership accounts for its investments in Local 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 reviews 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 the estimated value derived by management, generally consisting of the sum of the remaining future Low Income Housing Tax Credits estimated to be allocated to the Partnership and the estimated residual value to the Partnership. If an investment is considered to be impaired, the Partnership reduces the carrying value of its investment in any such Local Limited Partnership. The accounting policies of the Local Limited Partnerships, generally, are expected to be consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are 13 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- capitalized as part of the investment and are being amortized over 30years. (See Note 2) "Equity in losses of Local Limited Partnerships" for each of the periods ended December 31, 2004, September 30, 2004, June 30, 2004 and 2003, respectively have been recorded by the Partnership. Management's estimate for the three, six and nine-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. In subsequent annual financial statements, upon receiving the actual annual results reported by the Local Limited Partnerships, management reverses its prior estimate and records the actual results reported by the Local Limited Partnerships. Equity in losses of 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 impaired (see Note 2). If the Local Limited Partnerships reported 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. The Partnership does not consolidate the accounts and activities of the Local Limited Partnerships, which are considered Variable Interest Entities under Financial Accounting Standards Board Interpretation No. 46-Revised, "Consolidation of Variable Interest Entities", because the Partnership is not considered the primary beneficiary. The Partnership's balance in investments in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on such investments, represents the maximum exposure to loss in connection with such investments. The Partnership's exposure to loss on the Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the local General Partners and their guarantees against Low Income Housing Tax Credit recapture. Distributions received from the Local Limited Partnerships are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as distribution income. For all periods presented, no investment accounts in Local Limited Partnerships had reached a zero balance. 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 an original maturity of three months or less when purchased to be cash equivalents. The Partnership had no cash equivalents for all periods presented. 14 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- 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 all periods presented, as defined by SFAS No. 130. Concentration of Credit Risk ---------------------------- At June 30, 2004, September 30, 2004 and December 31, 2004 the Partnership maintained cash balances at certain financial institutions in excess of the federally insured maximum. The Partnership believes it is not exposed to any significant financial risk on cash. Income Taxes ------------ No provision for income taxes has been recorded in the financial statements as any liability and or benefits for income taxes 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. Net Loss Per Partnership Unit ----------------------------- Net loss per Partnership Unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per Partnership Unit includes no dilution and is computed by dividing loss allocated to Limited Partners by the weighted average number of Partnership Units outstanding during the period. Calculation of diluted net loss per Partnership Unit is not required. Impairment ----------- A loss in value from a Local Limited Partnership other than a temporary decline is recorded as an impairment loss. Impairment is measured by comparing the investment carrying amount to the sum of the total of the remaining Low Income Housing Tax Credits allocated to the fund and the estimated residual value to the Partnership. Amortization ------------ Acquisition fees and costs are being amortized over 30 years using the straight-line method. Amortization expense for each of the three months ended June 30, 2004 and 2003 was $16,134. For each of the six months ended September 30, 2004 and 2003 amortization expense was $32,268, and for each of the nine months ended December 31, 2004 and 2003 it was $48,402. Revenue Recognition ------------------- The Partnership is entitled to receive reporting fees from the Local Limited Partnerships. The intent of the reporting fees is to offset (in part) administrative costs incurred by the Partnership in corresponding with the Local Limited Partnerships. Due to the uncertainty of the collection of these fees, the Partnership recognizes reporting fees as collections are made. 15 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS -------------------------------------------------- As of period presented, the Partnership has acquired limited partnership interests in fifteen Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate of 624 apartment units. The respective Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions, as defined, require approval from the Partnership. The Partnership, as a Limited Partner, is generally entitled to 99%, as specified in the Local Limited Partnership agreements, of the operating profits and losses, taxable income and losses, and Low tax Credits of the Local Limited Partnerships. A loss in value from a Local Limited Partnership other than a temporary decline is recorded as an impairment loss. Impairment is measured by comparing the investment carrying amount to the sum of the total amount of the remaining tax credits allocated to the fund and the estimated residual value to the Partnership. Accordingly, the Partnership recorded an impairment loss of $580,301 and $154,864, during the three months ended June 30, 2004 and 2003, respectively. There were no additional impairment losses for the periods ended September 30, 2004 and 2003 and December 31, 2004 and 2003. The following is a summary of the equity method activity of the investments in Local Limited Partnerships for the periods presented below:
For the Three For the Year Months Ended Ended June 30, 2004 March 31, 2004 ----------------------- ------------------ Investments per balance sheet, beginning of period $ 13,614,334 $ 15,089,794 Impairment loss (580,301) (154,864) Equity in losses of Local Limited Partnerships (314,344) (1,256,060) Amortization of capitalized acquisition fees and costs (16,134) (64,536) --------------------- ------------------ Investments per balance sheet, end of period $ 12,703,555 $ 13,614,334 ===================== ================== For the Six For the Year Months Ended Ended September 30, 2004 March 31, 2004 ----------------------- ------------------ Investments per balance sheet, beginning of period $ 13,614,334 $ 15,089,794 Impairment loss (580,301) (154,864) Equity in losses of Local Limited Partnerships (628,688) (1,256,060) Amortization of capitalized acquisition fees and costs (32,268) (64,536) --------------------- ------------------ Investments per balance sheet, end of period $ 12,373,077 $ 13,614,334 ===================== ================== For the Nine For the Year Months Ended Ended December 31, 2004 March 31, 2004 ----------------------- ------------------ Investments per balance sheet, beginning of period $ 13,614,334 $ 15,089,794 Impairment loss (580,301) (154,864) Equity in losses of Local Limited Partnerships (943,032) (1,256,060) Amortization of capitalized acquisition fees and costs (48,402) (64,536) --------------------- ------------------ Investments per balance sheet, end of period $ 12,042,599 $ 13,614,334 ===================== ==================
16 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited)
For the Three Months For the Year Ended Ended June 30, 2004 March 31, 2004 ----------------------- -------------------- Investments in Local Limited Partnerships, net $ 11,171,498 $ 12,066,143 Acquisition fees and costs, net of accumulated amortization of $403,677 and $387,543 1,532,057 1,548,191 ----------------------- -------------------- Investments per balance sheet, end of period $ 12,703,555 $ 13,614,334 ======================= ==================== For the Six Months Ended For the Year Ended September 30, 2004 March 31, 2004 ----------------------- -------------------- Investments in Local Limited Partnerships, net $ 10,857,154 $ 12,066,143 Acquisition fees and costs, net of accumulated amortization of $419,811 and $387,543 1,515,923 1,548,191 ----------------------- -------------------- Investments per balance sheet, end of period $ 12,373,077 $ 13,614,334 ======================= ====================
17 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued -------------------------------------------------------------
For the Nine Months Ended For the Year Ended December 31, 2004 March 31, 2004 ----------------------- -------------------- Investments in Local Limited Partnerships, net $ 10,542,810 $ 12,066,143 Acquisition fees and costs, net of accumulated amortization of $435,945 and $387,543 1,499,789 1,548,191 ----------------------- -------------------- Investments per balance sheet, end of period $ 12,042,599 $ 13,614,334 ======================= ====================
Selected financial information for the three months ended June 30, 2004 and 2003 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows: COMBINED CONDENSED STATEMENTS OF OPERATIONS
2004 2003 ---------------------- ------------------ Revenues $ 782,000 $ 776,000 ---------------------- ------------------ Expenses: Interest expense 227,000 236,000 Depreciation and amortization 312,000 320,000 Operating expenses 559,000 531,000 ---------------------- ------------------ Total expenses 1,098,000 1,087,000 ---------------------- ------------------ Net loss $ (316,000) $ (311,000) ====================== ================== Net loss allocable to the Partnership $ (314,000) $ (308,000) ====================== ================== Net loss recorded by the Partnership $ (314,000) $ (308,000) ====================== ==================
18 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued ------------------------------------------------------------- Selected financial information for the six months ended September 30, 2004 and 2003 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows: COMBINED CONDENSED STATEMENTS OF OPERATIONS
2004 2003 ------------------- --------------------- Revenues $ 1,564,000 $ 1,553,000 ------------------- --------------------- Expenses: Interest expense 453,000 471,000 Depreciation and amortization 625,000 640,000 Operating expenses 1,119,000 1,062,000 ------------------- --------------------- Total expenses 2,197,000 2,173,000 ------------------- --------------------- Net loss $ (633,000) $ (620,000) =================== ===================== Net loss allocable to the Partnership $ (629,000) $ (617,000) =================== ===================== Net loss recorded by the Partnership $ (629,000) $ (617,000) =================== =====================
Selected financial information for the nine months ended December 31, 2004 and 2003 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows: COMBINED CONDENSED STATEMENTS OF OPERATIONS
2004 2003 ---------------------- ------------------ Revenues $ 2,347,000 $ 2,329,000 ---------------------- ------------------ Expenses: Interest expense 680,000 707,000 Depreciation and amortization 937,000 960,000 Operating expenses 1,678,000 1,593,000 ---------------------- ------------------ Total expenses 3,295,000 3,260,000 ---------------------- ------------------ Net loss $ (948,000) $ (931,000) ====================== ================== Net loss allocable to the Partnership $ (943,000) $ (926,000) ====================== ================== Net loss recorded by the Partnership $ (943,000) $ (926,000) ====================== ==================
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 Partners 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 and recapture of the related tax credits could occur. 19 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 3 - RELATED PARTY TRANSACTIONS ----------------------------------- Under the terms of the Partnership Agreement, the Partnership has paid or is obligated to the General Partner or its affiliates the following fees: (a) Acquisition fees of up to 7% of the gross proceeds from the sale of Partnership Units as compensation for services rendered in connection with the acquisition of Local Limited Partnerships. At the end of all periods presented, the Partnership incurred acquisition fees of $1,750,000. Accumulated amortization of these capitalized costs was $395,269, $380,684, $366,099 and $351,514 as of December 31, 2004, September 30, 2004, June 30, 2004 and March 31, 2004, respectively. (b) Reimbursement of costs incurred by the General Partner or an affiliate of Associates in connection with the acquisition of Local Limited Partnerships. These reimbursements have not exceeded 1.5% of the gross proceeds. As of the end of all periods presented, the Partnership incurred acquisition costs of $185,734, which have been included in investments in Local Limited Partnerships. Accumulated amortization was $40,676, $39,127, $37,578, and $36,029 as of December 31, 2004, September 30, 2004, June 30, 2004 and March 31, 2004, respectively. (c) An annual asset management fee in an amount equal to 0.2% of the Invested Assets of the Partnership, as defined. "Invested Assets" means the sum of the Partnership's Investment in Local Limited Partnerships and the Partnership's allocable share of the amount of the mortgage loans on and other debts related to, the Housing Complexes owned by such Local Limited Partnerships. Asset management fees of $17,517 were incurred during each of the three months ended June 30, 2004 and 2003. For each of the six months ended September 30, 2004 and 2003, the Partnership incurred asset management fees of $35,034. Management fees of $52,551 were incurred during each of the nine months ended December 31, 2004 and 2003. The Partnership paid the General Partner or its affiliates $0 of those fees during each of he three months ended June 30, 2004 and 2003. For the six months ended September 30, 2004 and 2003 the Partnership paid $0 and $10,000, respectively. For each of the nine months ended December 31, 2004 and 2003, the Partnership paid $0 and $10,000, respectively. (d) A subordinated disposition fee is 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 preferred return of 12% through December 31, 2008 and 6% thereafter (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. No disposition fees have been earned and/or paid to the Partnership. (e) The Partnership reimburses the General Partner or its affiliates for operating expenses incurred on behalf of the Partnership. Operating expense reimbursements were approximately $0 during each of the three months ended June 30, 2004 and 2003 and for each of the six months ended September 30, 2004 and 2003. For the nine months ended December 31, 2004 and 2003, operating expense reimbursements were $12,370 and $3,183, respectively. 20 WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For the Quarterly periods ended June 30, 2004, September 30, 2004 and December 31, 2004 (unaudited) NOTE 3 - RELATED PARTY TRANSACTIONS, continued ---------------------------------------------- (f) Due from affiliates in the amount of $11,114 is recorded as of December 31, 2004, September 30, 2004, June 30, 2004 and March 31, 2004. The accrued fees and expenses due to General Partner and affiliates consisted of the following at:
June 30, 2004 September 30, December 31, March 31, 2004 2004 2004 ---------------- ----------------- ----------------- --------------- Accrued asset management fees $ 225,090 $ 242,607 $ 260,124 $ 207,573 Expenses paid by the General Partners or an affiliates on behalf of the Partnership 441,694 457,895 446,126 435,789 ---------------- ----------------- ----------------- --------------- Total $ 666,784 $ 700,502 $ 706,250 $ 643,362 ================ ================= ================= ===============
The General Partner and/or its affiliates do not anticipate that these accrued fees will be paid in full until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership. NOTE 4 - PAYABLES TO LOCAL LIMITED PARTNERSHIPS ----------------------------------------------- Payables to Local Limited Partnerships represent amounts which are due at various times based on conditions specified in the Local Limited Partnership agreements. These contributions are payable in installments and are generally due upon the Local Limited Partnerships achieving certain operating and development benchmarks (generally within two years of the Partnership's initial investment). As of June 30, 2004, September 30, 2004, December 31, 2004 and March 31, 2004 $156,021, $143,271, $0 and $163,671 respectively was payable. NOTE 5 -ADVANCES TO LOCAL LIMITED PARTNERSHIPS ---------------------------------------------- During the nine months ended December 31, 2004, the Partnership advanced approximately $49,000 to one of the Local Limited Partnerships in which the Partnership is a limited partner. These advances were used to facilitate timely escrow payments.As of December 31, 2004, total advances made to Local Limited Partnerships were $834,501, all of which was reserved.The Partnership determined the recoverability of these advances to be improbable and, accordingly, a reserve had been recorded. Income of $118,272 was recognized in the quarter ended December 31, 2004 as recovery of bad debt. This was due to advances made to a Local Limited Partnership that were subsequently reserved in previous years. However, upon further research and understanding among the parties it was determined that capital contributions payables which were originally established by setting up an escrow disbursement account would not be paid due to the advances previously made and other extenuating situations. 21 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, this "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 the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-Q and in other reports filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this filing. The following discussion and analysis compares the results of operations for the three months ended June 30, 2004 and 2003, the three and six months ended September 30, 2004 and 2003, and the three and nine months ended December 31, 2004 and 2003, and should be read in conjunction with the condensed consolidated financial statements and accompanying notes included within this report. Financial Condition The Partnership's assets at June 30, 2004 consisted primarily of $12,000 in cash, $210,000 being held in an escrow account, $11,000 of other assets and aggregate investments in the fifteen Local Limited Partnerships of $12,704,000. Liabilities at June 30, 2004 primarily consisted of $156,000 of payables to Local Limited Partnerships, $667,000 of accrued annual asset management fees and reimbursement for expenses paid by the General Partner and/or its affiliates. The Partnership's assets at September 30, 2004 consisted primarily of $30,000 in cash, $210,000 being held in an escrow account, $11,000 of other assets and aggregate investments in the fifteen Local Limited Partnerships of $12,373,000. Liabilities at September 30, 2004 primarily consisted of $143,000 of payables to Local Limited Partnerships, $701,000 of accrued annual asset management fees and reimbursement for expenses paid by the General Partner and/or its affiliates. The Partnership's assets at December 31, 2004 consisted primarily of $157,000 in cash, $11,000 of other assets and aggregate investments in the fifteen Local Limited Partnerships of $12,043,000. Liabilities at December 31, 2004 consisted of $706,000 of accrued annual asset management fees and reimbursement for expenses paid by the General Partner and/or its affiliates. Results of Operations 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 $(931,000), reflecting an increase of approximately $(411,000) from the net loss of $(520,000) for the three months ended June 30, 2003. The increase in net loss was primarily due to the increase in impairment loss of $(425,000). The impairment loss can vary each year depending on the annual decrease in Low Income Housing Tax Credits allocated to the Partnership and the current estimated residual value of the investments compared to the current carrying value of each of the investments. There was also an increase of equity in losses of limited partnerships which increased by $(6,000) to $(314,000) for the three months ended June 30, 2004 from $(308,000) for the three months ended June 30, 2003. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. Additionally the accounting and legal expenses decreased by $3,000 for the three months ended June 30, 2004 compared to the three months ended June 30, 2003 due to a timing issue of accounting work 22 being performed. The other operating expenses also increased by $(2,000). Additionally the reporting fee income increased by $2,000 for the three months ended June 30, 2004 compared to the three months ended June 30, 2003 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. There was a decrease of $17,000 in bad debt expense for the three months ended June 30, 2004 due to an advance being made during the three months ended June 30, 2003 and reserved for in the same quarter. A Local Limited Partnership was experiencing some operations issues and the Partnership advanced the fund that were necessary. Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003 The Partnership's net loss for the three months ended September 30, 2004 was $(334,000), reflecting a decrease of approximately $(9,000) from the net loss of $(343,000) for the three months ended September 30, 2003. There was an increase of equity in losses of limited partnerships which increased by $(6,000) to $(314,000) for the three months ended September 30, 2004 from $(308,000) for the three months ended September 30, 2003. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. Additionally the reporting fee income increased by $5,000 for the three months ended September 30, 2004 compared to the three months ended September 30, 2003 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. The accounting and legal expenses decreased by $10,000 for the three months ended September 30, 2004 compared to the three months ended September 30, 2003. As discussed in the above comparison between three months ended June 30, 2004 and three months ended June 30, 2003, the difference in the accounting expense is a timing issue. Six Months Ended September 30, 2004 Compared to the Six Months Ended September 30, 2003 The Partnership's net loss for the six months ended September 30, 2004 was $(1,265,000), reflecting an increase of approximately $(402,000) from the net loss of $(863,000) for the six months ended September 30, 2003. The increase in net loss was primarily due to the increase in impairment loss of $(425,000). The impairment loss can vary each year depending on the annual decrease in Low Income Housing Tax Credits allocated to the Partnership and the current estimated residual value of the investments compared to the current carrying value of each of the investments. The reporting fee income increased by $7,000 for the six months ended September 30, 2004 compared to the six months ended September 30, 2003 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. Additionally, there was a decrease of $17,000 in bad debt expense for the six months ended September 30, 2004 due to an advance being made during the six months ended September 30, 2003 and reserved for in the same quarter. Additionally the accounting and legal expenses decreased by $13,000 for the six months ended September 30, 2004 compared to the six months ended September 30, 2003 due to the timing issue of accounting work being performed. There was also an increase of equity in losses of limited partnerships which increased by $(12,000) to $(629,000) for the six months ended September 30, 2004 from $(617,000) for the six months ended September 30, 2003. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. Interest income decreased by $(1,000) along with an increase in other operating expenses of $1,000 for the six months ended September 30, 2004. Three Months Ended December 31, 2004 Compared to the Three Months Ended December 31, 2003 The Partnership's net loss for the three months ended December 31, 2004 was $(275,000), reflecting a decrease of approximately $70,000 from the net loss of $(346,000) for the three months ended December 31, 2003. The decrease is largely due to $118,000 in recovery of bad debt that was recognized for the three months ended December 31, 2004 compared to $0 for the three months ended December 31, 2003. This was due to advances made to a Local Limited Partnership that were subsequently reserved in previous years. However, upon further research and understanding among the parties it was determined that capital contributions payables which were originally established by setting up an escrow disbursement account would not be paid due to the advances previously made and other extenuating situations. There was also an increase of equity in losses of limited partnerships which increased by $(6,000) to $(314,000) for the three months ended December 31, 2004 from $(308,000) for the three months ended December 31, 2003. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. Additionally, there was a increase of $(49,000) in bad debt expense for the three months ended December 31, 2004 due to an advance being made during that three month time period and being reserved for in the same quarter. Additionally the accounting and legal expenses decreased by $1,000 for the three months ended December 31, 2004 compared to the three months ended December 31, 2003 due to the timing issue of accounting work being performed. The other operating expenses also decreased by $2,000 along with a $4,000 increase in interest income due. 23 Nine Months Ended December 31, 2004 Compared to Nine Months Ended December 31, 2003 The Partnership's net loss for the nine months ended December 31, 2004 was $(1,540,000), reflecting an increase of approximately $(331,000) from the net loss of $(1,209,000) for the nine months ended December 31, 2003. The increase in net loss was primarily due to the increase in impairment loss of $(425,000). The impairment loss can vary each year depending on the annual decrease in Low Income Housing Tax Credits allocated to the Partnership and the current estimated residual value of the investments compared to the current carrying value of each of the investments. The reporting fee income increased by $7,000 for the nine months ended December 31, 2004 compared to the nine months ended December 31, 2003 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. Additionally, there was an increase of $(32,000) in bad debt expense for the nine months ended December 31, 2004 due to advances being made and reserved for in the same quarter during the nine months ended December 31, 2003 of $17,000 compared to the $49,000 for the nine months ended December 31, 2004. The accounting and legal expenses decreased by $15,000 for the nine months ended December 31, 2004 compared to the nine months ended December 31, 2003 due to the timing issue of accounting work being performed. Interest income increased by approximately $3,000. There was also an increase of equity in losses of limited partnerships which increased by $(18,000) to $(943,000) for the nine months ended December 31, 2004 from $(925,000) for the nine months ended December 31, 2003. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. There was also a recovery of bad debt of $118,000 that was recognized for the nine months ended December 31, 2004 compared to $0 for the nine months ended December 31, 2003. This was due to advances made to a Local Limited Partnership that were subsequently reserved in previous years. However, upon further research and understanding among the parties it was determined that capital contributions payables which were originally established by setting up an escrow disbursement account would not be paid due to the advances previously made and other extenuating situations. Capital Resources and Liquidity Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 Net cash used during the three months ended June 30, 2004 was $(5,000), compared to net cash provided during the three months ended June 30, 2003 of $1,000, reflecting a change of $(6,000). The change was due to an $(8,000) capital contribution paid to a Local Limited Partnership for the three months ended June 30, 2004 compared to $0 in capital contributions being paid for the three months ended June 30, 2003. The capital contribution payment was offset by a $2,000 increase in reporting fees that was collected by the Partnership during the three months ended June 30, 2004 compared to June 30, 2003. Six Months Ended September 30, 2004 Compared to Six Months Ended September 30, 2003 Net cash provided during the six months ended September 30, 2004 was $13,000, compared to net cash provided during the six months ended September 30, 2003 of $3,000, reflecting a change of $10,000. This change was due to a $17,000 advance made to a Local Limited Partnership during the six months ended September 30, 2003 compare to no advances made during the six months ended September 30, 2004. The reporting fee income increased by $7,000 which contributed to the increase in cash provided by operating activities. The General Partner or an affiliate advanced $13,000 to the Partnership, so the Partnership could make its capital contribution to a Local Limited Partnership. Finally, there was a capital contribution of $(21,000) made to a Local Limited Partnership Nine Months Ended December 31, 2004 Compared to Nine Months Ended December 31, 2003 Net cash provided during the nine months ended December 31, 2004 was $140,000, which reflected a $140,000 increase. The increase was due in large part to the $210,000 of cash that was being held in an escrow account that was released to the Partnership during the nine months ended December 31, 2004. There was also an increase of $(32,000) of cash used for advances to Local Limited Partnerships. For the nine months ended December 31, 2004 the Partnership advanced $49,000 to Local Limited Partnerships compared to $17,000 for the nine months ended December 31, 2003. During the nine months ended December 31, 2003 there was $17,000 in capital contribution payments to the Local Limited Partnerships compared to $45,000 for the nine months ended December 31, 2003. Lastly, during the nine months ended December 31, 2004 the Partnership paid the General Partner or an affiliate $(10,000) for accrued asset management fees compared to $0 for the nine months ended December 31, 2003. The Partnership expects its future cash flows, together with its net available assets as of December 31, 2004, to be insufficient working capital to fund its operations. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of he Partnership through April 30, 2009. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 Chief 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 quarters ended June 30, 2004, September 30, 2004 and December 31, 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 2. Unregistered Sales of Equity 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 25 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) 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 5 By: WNC & ASSOCIATES, INC. General Partner By: /s/ Wilfred N. Cooper, Jr. ------------------------------ Wilfred N. Cooper, Jr. Chairman and Chief Executive Officer of WNC & Associates, Inc. Date: May 16, 2008 By: /s/ Thomas J. Riha ----------------------- Thomas J. Riha Senior Vice-President - Chief Financial Officer of WNC & Associates, Inc. Date: May 16, 2008 26