-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hj0QBLtzjqAp5pcwTOBfzV/FtwYvyZEVVSp8ysF3KEnzPlvWLEksoGfTW8piVunb AnG161iqUCEd1RVW/vLFuA== 0000811592-98-000007.txt : 19980814 0000811592-98-000007.hdr.sgml : 19980814 ACCESSION NUMBER: 0000811592-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD MORTGAGE INVESTORS VI CENTRAL INDEX KEY: 0000811592 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 943031211 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17573 FILM NUMBER: 98685215 BUSINESS ADDRESS: STREET 1: 650 EL CAMINO REAL STE K CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153655341 MAIL ADDRESS: STREET 1: 650 EL CAMINO REAL SUITE K CITY: REDWWOD CITY STATE: CA ZIP: 94063 10-Q 1 10Q FORM 10-Q SECURITIES & EXCHANGE COMMISSION WASHINGTON DC 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Period Ended June 30, 1998 - ------------------------------------------------ ------------------------------- Commission file number 33-12519 - ------------------------------------------------ ------------------------------- REDWOOD MORTGAGE INVESTORS VI (exact name of registrant as specified in its charter) California 94-3031211 - -------------------------- ----------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 650 El Camino Real, Suite G, Redwood City, CA. 94063 - -------------------------------------------------------------------------------- (address of principal executive office) (650) 365-5341 - -------------------------------------------------------------------------------- (Registrants telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO ---------------- ------------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES NO NOT APPLICABLE XX - ------------- ---------------- ---------------------- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuers class of common stock, as of the latest date. NOT APPLICABLE REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) ASSETS
June 30, 1998 Dec 31, 1997 (unaudited) (audited) ------------------ ---------------- Cash $703,664 $331,143 ------------------ ---------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 8,090,234 8,104,984 Accrued Interest on Mortgage Investments 638,767 617,456 Advances on Mortgage Investments 142,265 127,519 Accounts receivables, unsecured 23,776 161,414 ------------------ ---------------- 8,895,042 9,011,373 Less allowance for doubtful accounts 165,941 28,614 ------------------ ---------------- 8,729,101 8,982,759 ------------------ ---------------- Real estate owned, held for sale, acquired through foreclosure 232,159 309,319 Investment in Partnership 0 708,141 ------------------ ---------------- Total Assets $9,664,924 $10,331,362 ================== ================ LIABILITIES AND PARTNERS CAPITAL Liabilities: Deferred Interest $0 $898 Accounts payable 53,010 0 Note payable - bank line of credit 500,000 899,011 --------------- --------------- Total Liabilities 553,010 899,909 --------------- --------------- Partners Capital: Limited Partners capital, subject to redemption, (note 4D): net of Formation Loan receivable of $28,645 and $59,521, for 1998 and 1997, respectively 9,102,148 9,421,687 General Partners Capital: 9,766 9,766 --------------- --------------- Total Partners capital 9,111,914 9,431,453 --------------- --------------- Total Liabilities and Partners capital 9,664,924 $10,331,362 =============== =============== See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (unaudited) 6 mos. 6 mos. ended 3 mos. ended 3 mos. ended ended June 30, June 30, 1997 June 30, June 30, 1997 1998 1998 (unaudited) (unaudited) (unaudited) (unaudited)
Revenues: Interest on Mortgage Loans 434,317 $504,421 $235,874 $253,776 Interest on Bank Deposits 5,068 2,769 2,411 830 Late Charges & Other 5,307 2,759 3,354 542 Miscellaneous 2,285 6,845 2,285 6,845 Gain on Sale of Property 145,443 0 145,443 0 ---------- ----------- ----------- ----------- 592,420 516,794 389,367 261,993 ---------- ----------- ----------- ----------- Expenses: Mortgage Servicing Fee 30,108 16,520 21,783 7,273 General Partners asset management fees 976 0 976 0 Clerical costs through Redwood Mortgage 12,515 14,411 6,196 7,070 Interest and line of credit cost 35,411 70,747 15,115 35,887 Provision for loss on real estate acquired through foreclosure and doubtful accounts 231,377 117,281 209,566 67,081 Professional Services 16,828 18,730 5,540 7,663 Other 9,634 8,499 3,610 3,231 ---------- ----------- ----------- ----------- 336,849 246,188 262,786 128,205 ---------- ----------- ----------- ----------- Net Income $255,571 $270,606 $126,581 $133,788 ========== =========== =========== =========== Net Income: to General Partners (1%) 2,556 2,706 1,266 1,338 to Limited Partners (99%) 253,015 267,900 125,315 132,450 ========== =========== =========== =========== $255,571 270,606 126,581 133,788 ========== =========== =========== =========== Net income for $1,000 invested by Limited Partners for entire period - where income is reinvested and $27.15 $25.99 $13.48 $12.92 compounded ========== =========== =========== =========== - where Partner received income in monthly distributions $26.84 $25.72 $13.42 $12.87 ========== =========== =========== =========== See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited) PARTNERS CAPITAL ------------------------------------------------------------------------------------- LIMITED PARTNERS CAPITAL -------------------------------------------------- Capital Account Formation General Limited Loan Partners Partners Receivable Total Capital Total -------------- ------------- --------------- ------------ --------------
Balances at December 31, 1994 $11,974,419 $(246,505) $11,727,914 $9,766 $11,737,680 Formation Loan collections 0 59,581 59,581 0 59,581 Net income 612,165 0 612,165 6,183 618,348 Early withdrawal penalties (4,336) 2,747 (1,589) 0 (1,589) Partners withdrawals (1,185,532) 0 (1,185,532) (6,183) (1,191,715) -------------- ------------- --------------- ------------ -------------- Balances at December 31, 1995 11,396,716 (184,177) 11,212,539 $9,766 11,222,305 Formation Loan collections 0 56,803 56,803 0 56,803 Net income 582,280 0 582,280 5,882 588,162 Early withdrawal penalties (8,721) 5,525 (3,196) 0 (3,196) Partners withdrawals (1,463,174) 0 (1,463,174) (5,882) (1,469,056) -------------- ------------- --------------- ------------ -------------- Balances at December 31, 1996 10,507,101 (121,849) 10,385,252 9,766 10,395,018 Formation Loan collections 0 53,833 53,833 0 53,833 Net Income 523,895 0 523,895 5,292 529,187 Early withdrawal penalties (13,409) 8,495 (4,914) 0 (4,914) Partners withdrawals (1,536,379) 0 (1,536,379) (5,292) (1,541,671) -------------- ------------- -------------- ------------- -------------- Balances at December 31, 1997 $9,481,208 ($59,521) $9,421,687 $9,766 $9,431,453 Formation Loan collections 0 27,701 27,701 0 27,701 Net Income 253,015 0 253,015 2,556 255,571 Early withdrawal penalties (5,011) 3,175 (1,836) 0 (1,836) Partners withdrawals (598,419) 0 (598,419) (2,556) (600,975) -------------- ------------- -------------- ------------- -------------- Balances at June 30, 1998 $9,130,793 $(28,645) $9,102,148 $9,766 $9,111,914 ============== ============= ============== ============= ============== See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 and JUNE 30, 1997 (unaudited) June 30, 1998 June 30, 1997
(unaudited) (unaudited) ---------------- ---------------- Cash flows from operating activities: Net income $255,571 $270,606 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 231,191 66,230 Provision for Losses on real estate held for sale 186 51,051 Early withdrawal penalty credited to income (1,836) (5,052) (Increase) decrease in assets: Accrued interest & advances (40,266) (161,279) Prepaid expenses and other assets 0 0 Increase (decrease) in liabilities: Accounts payable and accrued expenses 53,010 0 Deferred Interest on Mortgage Investments (898) (18,522) ---------------- ---------------- Net cash provided by operating activities 496,958 203,034 ---------------- ---------------- Cash flows from investing activities: Principal collected on Mortgage Investments 1,124,708 555,905 Mortgage Investments made (1,062,161) (282,778) Additions to real estate held for sale (10,528) (57,816) Dispositions of real estate held for sale 87,688 372,838 Investment in Partnership 708,141 (72,519) Accounts receivable unsecured 0 (867) ---------------- ---------------- Net cash provided by (used in) investing activities 847,848 514,763 ---------------- ---------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank (399,011) 58,500 Partners withdrawals (600,975) (802,064) Formation Loan collections 27,701 34,190 ---------------- ---------------- Net cash provided by financing activities (972,285) (709,374) ---------------- ---------------- Net increase in cash 372,521 8,423 Cash - beginning of period 331,143 180,597 ---------------- ---------------- Cash - end of period $703,664 $189,020 ================ ================ See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VI, (the Partnership) is a California Limited Partnership, of which the General Partners are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California corporation owned and operated by the individual General Partners. The partnership was organized to engage in business as a mortgage lender for the primary purpose of making Mortgage Investments secured by Deeds of Trust on California real estate. Mortgage Investments are being arranged and serviced by Redwood Home Loan Co. (RHL Co.), dba Redwood Mortgage, an affiliate of the General Partners. The offering was closed with contributed capital totaling $9,781,366. Each months income is distributed to partners based upon their proportionate share of partners capital. Some partners have elected to withdraw income on a monthly, quarterly or annual basis. A. Sales Commissions - Formation Loan Sales commissions ranging from 0% (units sold by General Partners) to 10% of gross proceeds were paid by Redwood Mortgage., an affiliate of the General Partners that arranges and services the Mortgage Investments. To finance the sales commissions, the Partnership loaned to Redwood Mortgage $623,255 (the Formation Loan) relating to contributed capital of $9,781,366. The Formation Loan is unsecured, and is being repaid, without interest, over ten years, commencing December 31, 1989. The following reflects transactions in the Formation Loan account through June 30, 1998: Amount loaned during 1987,1988 and 1989 $623,255 Less: Cash repayments $540,996 Allocation of early withdrawal penalties 53,614 594,610 ============ -------- Balance June 30, 1998 $28,645 ========== The Formation Loan, which is receivable from Redwood Mortgage, an affiliate of the General Partners, has been deducted from Limited Partners capital in the balance sheet. As amounts are collected from Redwood Mortgage, the deduction from capital will be reduced. B. Other Organizational and Offering Expenses Organizational and offering expenses, other than sales commissions, (including printing costs, attorney and accountant fees, and other costs), paid by the Partnership from the offering proceeds totaled $360,885 or 3.69% of the gross proceeds contributed by the Partners. Such costs have been fully amortized and allocated to the Partners. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accrual Basis Revenues and expenses are accounted for on the accrual basis of accounting wherein income is recognized as earned and expenses are recognized as incurred. Once a Mortgage Investment is categorized as impaired, interest is no longer accrued thereon. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) B. Management Estimates In preparing the financial statements, management is required to make estimates based on the information available that affects the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the related periods. Such estimates relate principally to the determination of the allowance for doubtful accounts, including the valuation of impaired mortgage investments, and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. C. Mortgage Investments, Secured by Deeds of Trust The Partnership has both the intent and ability to hold the Mortgage Investments to maturity, i.e., held for long-term investment. They are therefore valued at cost for financial statement purposes with interest thereon being accrued by the simple interest method. Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective January 1, 1995) provide that if the probable ultimate recovery of the carrying amount of a Mortgage Investment, with due consideration for the fair value of collateral, is less than the recorded investment and related amounts due and the impairment is considered to be other than temporary, the carrying amount of the investment (cost) shall be reduced to the present value of future cash flows. The adoption of these statements did not have a material effect on the financial statements of the Partnership because that was the valuation method previously used on impaired loans. At June 30, 1998, December, 31, 1997, 1996 and 1995, reductions in the cost of Mortgage Investments categorized as impaired by the Partnership totalled $0, $0, $13,006 and $45,933, respectively. The reduction in stated value was accomplished by increasing the allowance for doubtful accounts. As presented in Note 10 to the financial statements as of June 30, 1998, the average mortgage investment to appraised value of security at the time the loans were consummated was 65.73%. When a loan is valued for impairment purposes, an updating is made in the valuation of collateral security. However, a low loan to value ratio tends to minimize reductions for impairment. D. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest bearing and non-interest bearing bank deposits. E. Real Estate Owned, Held for Sale Real estate owned, held for sale, includes real estate acquired through foreclosure and is stated at the lower of the recorded investment in the property, net of any senior indebtedness, or at the propertys estimated fair value, less estimated costs to sell. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) The following schedule reflects the costs of real estate acquired through foreclosure and the recorded reductions to estimated fair values, less estimated costs to sell as of June 30, 1998 and December 31, 1997 and 1996: June 30, December 31, December 31, 1998 1997 1996 -------------- ---------------- ------------- Costs of properties $372,010 $449,319 $1,743,382 Reduction in value 139,851 140,000 302,375 -------------- ---------------- ------------ Fair value reflected in financial statements $232,159 $309,319 $1,441,007 ============== ================ =========== Effective January 1, 1996, the Partnership adopted the provisions of statement No 121 (SFAS 121) of the Financial Accounting Standards Board, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be disposed of. The adoption of SFAS 121 did not have a material impact on the Partnerships financial position because the methods indicated were essentially those previously used by the Partnership. F. Investment in Partnership (see note 5) G. Income Taxes No provision for Federal and State income taxes is made in the financial statements since income taxes are the obligation of the partners if and when income taxes apply. H. Organization and Syndication Costs The Partnership bears its own organization and syndication costs (other than certain sales commissions and fees described above) including legal and accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage fee and filing fees. Organizational costs of $14,750 were capitalized and were amortized over a five year period. Syndication costs of $346,135 were charged against partners capital and were allocated to individual partners consistent with the Partnership Agreement. I. Allowance for Doubtful Accounts Mortgage Investments and the related accrued interest, fees and advances are analyzed on a continuous basis for recoverability. Delinquencies are identified and followed as part of the Mortgage Investment system. A provision is made for doubtful accounts to adjust the allowance for doubtful accounts to an amount considered by management to be adequate with due consideration to collateral value to provide for unrecoverable accounts receivable, including impaired Mortgage Investments, unspecified mortgage investments, accrued interest and advances on Mortgage Investments, and other accounts receivable (unsecured). The composition of the allowance for doubtful accounts as of June 30, 1998, December 31, 1997 and 1996 was a follows: REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) June 30, December 31, December 31, 1998 1997 1996 -------------- -------------- -------------- Impaired Mortgage Investments $0 $0 $13,006 Unspecified Mortgage Investments 142,165 13,432 59,844 Accounts receivable, unsecured 23,776 15,182 180,000 ================ =============== ============= $165,941 $28,614 $252,850 ================ =============== ============= J. Net Income Per $1,000 Invested Amounts reflected in the statements of income as net income per $1,000 invested by Limited Partners for the entire period are actual amounts allocated to Limited Partners who have their investment throughout the period and have elected to either leave their earnings to compound or have elected to receive monthly distributions of their net income. Individual income is allocated each month based on the Limited partners pro rata share of Partners Capital. Because the net income percentage varies from month to month, amounts per $1,000 will vary for those individuals who made or withdrew investments during the period, or selected other options. However, the net income per $1,000 average invested has approximated those reflected for those whose investments and options have remained constant. NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which are paid to the General Partners and/or related parties. A. Mortgage Brokerage Commissions Mortgage brokerage commissions for services in connection with the review, selection, evaluation, negotiation and extension of the Mortgage Investments were limited up to 12% of the principal amount of the loans through the period ending 6 months after the termination date of the offering. Thereafter, commissions are limited to an amount not to exceed 4% of the total Partnership assets per year. Such commissions are paid by the borrowers, thus, not an expense of the Partnership. B. Mortgage Servicing Fees Monthly mortgage servicing fees are paid to Redwood Mortgage up to 1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable and customary in the geographic area where the property securing the Mortgage Investment is located. Mortgage servicing fees of $30,108, $39,918, and $44,565, were incurred for six months ended June 30, 1998, and for years 1997 and 1996. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND June 30, 1998 (unaudited) C. Asset Management Fees The General Partners are authorized to receive monthly fees for managing the Partnerships Mortgage Investment portfolio and operations of up to 1/32 of 1% (3/8 of 1% annual). There were no management fees incurred for the years 1997 and 1996 respectively. For six months through June 30, 1998, $976 in management fees was paid to the General Partners D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. These fees are paid by the borrowers to parties related to the General Partners. E. Income and Losses All income is credited or charged to partners in relation to their respective partnership interests. The partnership interest of the General Partners (combined) is a total of 1%. F. Operating Expenses The General Partners or their affiliate (Redwood Mortgage) are reimbursed by the Partnership for all operating expenses actually incurred by them on behalf of the Partnership, including without limitation, out-of-pocket general and administration expenses of the Partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to Limited Partners. In 1996, 1997, and six months period ended June 30, 1998, clerical costs totaling $31,838 $27,786 and $12,515, respectively, were reimbursed to Redwood Mortgage and are included in expenses in the Statements of Income. NOTE 4 OTHER PARTNERSHIP PROVISIONS A. Term of the Partnership The term of the Partnership is approximately 40 years, unless sooner terminated as provided. The provisions provided for no capital withdrawal for the first five years, subject to the penalty provision set forth in (D) below. Thereafter, investors have the right to withdraw over a five-year period, or longer. B. Election to Receive Monthly, Quarterly or Annual Distributions Upon subscriptions, investors elected either to receive monthly, quarterly or annual distributions of earnings allocations, or to allow earnings to compound for at least a period of 5 years. C. Profits and Losses Profits and losses are allocated monthly among the Limited Partners according to their respective capital accounts after 1% is allocated to the General Partners. D. Withdrawal From Partnership A Limited Partner had no right to withdraw from the Partnership or to obtain the return of his capital account for at least five years after such units are purchased which in all instances had occurred by June 30, 1998. After that time, at the election of the Partner, capital accounts can be returned over a five year period in 20 equal quarterly installments or such longer period as is requested. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) Notwithstanding the above, in order to provide a certain degree of liquidity to the Limited Partners, the General Partners will liquidate a Limited Partners entire capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given. Such liquidations shall, however, be subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums otherwise could have been withdrawn pursuant to the liquidation procedure set forth above. The 10% early withdrawal penalty will be received by the Partnership, and a portion of the sums collected as such penalty will be applied toward the next installment(s) of principal under the Formation Loan owed to the Partnership by Redwood Mortgage. Such portion shall be determined by the ratio between the initial amount of Formation Loan and the total amount of other organization and syndication costs incurred by the Partnership in this offering. The balance of any such early withdrawal penalties shall be retained by the Partnership for its own account and applied against syndication costs. Since the syndication costs have been fully amortized as of December 31, 1993, the early withdrawal penalties gained in the future will be applied on the same basis as before with the amount otherwise being credited to the syndication costs being credited to income for the period. The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnership's capacity to return a Limited Partners capital account is restricted to the availability of Partnership cash flow. Furthermore, no more than 20% of the total Limited Partners capital accounts outstanding at the beginning of any year shall be liquidated during any calendar year. NOTE 5 - INVESTMENT IN PARTNERSHIP The Partnerships interest in land located in East Palo Alto, CA., was acquired through foreclosure. The Partnership interest is invested with that of two other Partnerships. The Partnerships had been attempting to develop the property into single family residences. Significant community resistance, as well as environmental, and fish and wildlife concerns affected efforts to obtain the required approvals. The Partnership in resolving disputes which arose during the course of the Partnerships attempt to obtain entitlements to develop the property, entered into agreements on May 8, 1998 with Rhone-Poulanc, Inc. These agreements among other things, restrict the property to non-residential uses, provide for appropriate indemnifications, and other consideration including the payment of cash. The Partnership still retains liability for the remediation of pesticide contamination affecting the property. Investigation of remediation options are ongoing. At this time management does not believe that remediation of the pesticide contaminants will have a material adverse effect on the financial condition of the Partnership. NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership originally had a bank line of credit secured by its Mortgage Investment portfolio up to $2,500,000 at 1% over prime. The balances were $1,530,511 and $899,011 at December 31, 1996 and 1997, respectively, and the interest rate at December 31, 1997 was 9.5% (8.50% prime + 1%). Commencing January 1, 1998, the Partnership had reduced its borrowing limit to $2,000,000 with same conditions as previously stipulated. Balance at June 30, 1998, was $500,000 and the Partnership was current in its interest payment. The line of credit expires December 31, 1998. NOTE 7 - LEGAL PROCEEDINGS The Partnership is not a defendant in any legal actions. However, legal actions against borrowers and other involved parties have been initiated by the Partnership to help assure payments against unsecured accounts receivable totaling $23,776. Management anticipates that the ultimate outcome of the legal matters will not have a material adverse effect on the net assets of the Partnership, with due consideration having been given in arriving at the allowance for doubtful accounts. NOTE 8 - INCOME TAXES The following reflects a reconciliation from net assets (Partners Capital) reflected in the financial statements to the tax basis of those net assets: June 30 Dec. 31 Dec. 31 1998 1997 1996 ---------- ---------- -------------- Net assets - Partners Capital per financial statements $9,111,914 $9,431,453 $10,395,018 Formation Loan receivable 28,645 59,521 121,849 Allowance for doubtful accounts 165,941 28,614 252,850 =========== =========== ============== Net assets tax basis $9,306,500 $9,519,588 $10,769,717 =========== =========== ============== In 1997, approximately 72% of taxable income was allocated to tax exempt organizations i.e., retirement plans. Such plans do not have to file income tax returns unless their unrelated business income exceeds $1,000. Applicable amounts become taxable when distribution is made to participants. NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments: (a) Cash and Cash Equivalents - The carrying amount equals fair value. All amounts, including interest bearing, are subject to immediate withdrawal. (b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is $8,090,234. The June 30, 1998 fair value of these investments of $8,318,633 is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for doubtful accounts along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At June 30, 1998, there were 56 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 56 Total Mortgage Investments outstanding $8,090,234 Average Mortgage Investment outstanding $144,468 Average Mortgage Investment as percent of total 1.79% Average Mortgage Investment as percent of Partners Capital 1.59% Largest Mortgage Investment outstanding $1,376,117 Largest Mortgage Investment as percent of total 17.01% Largest Mortgage Investment as percent of Partners Capital 15.10% Number of counties where security is located (all California) 13 Largest percentage of Mortgage Investments in one county 28.31% Average Mortgage Investment to appraised value of security at time Mortgage Investment was consummated 65.73% Number of Mortgage Investments in foreclosure 4 The following categories of mortgage investments are pertinent at June 30, 1998, and December 31, 1997 and 1996: June 30 December 31 December 31 --------------- ---------------- ----------------- 1998 1997 1996
First Trust Deeds $4,165,907 $4,588,169 $4,928,794 Second Trust Deeds 3,278,333 2,869,543 3,729,581 Third Trust Deeds 395,994 397,273 405,567 Fourth Trust Deeds 250,000 249,999 249,982 --------------- ---------------- ----------------- Total mortgage investments 8,090,234 8,104,984 9,313,924 Prior liens due other lenders 12,195,399 11,075,429 17,200,385 ---------------- ----------------- =============== Total debt $20,285,633 $19,180,413 $26,514,309 =============== ================ ================= Appraised property value at time of loan $30,862,537 $28,422,684 $40,225,303 =============== ================ ================= Total investments as a percent of appraisals 65.73% 67.48% 65.91% =============== ================ ================= Investments by Type of Property Owner occupied homes $526,421 $1,057,067 $1,443,835 Non-Owner occupied homes 378,138 380,142 973,498 Apartments 778,097 791,755 786,362 Commercial 6,407,578 5,876,020 6,110,229 =============== ================ ================= $8,090,234 $8,104,984 $9,313,924 =============== ================ =================
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND JUNE 30, 1998 (unaudited) Scheduled maturity dates of mortgage investments as of June 30, 1998 are as follows: Year Ending December 31, ------------------- 1998 $2,465,055 1999 3,346,785 2000 274,065 2001 504,715 2002 423,821 Thereafter 1,075,793 ================ $8,090,234 ================ The scheduled maturities for 1998 include $1,416,459 in Mortgage Investments which are past maturity at June 30, 1998. $54,493 of those Mortgage Investments were categorized as delinquent over 90 days. Six Mortgage Investments with principal outstanding of $325,445 had interest payments overdue in excess of 90 days. The cash balance at June 30, 1998 of $703,664 was in two banks with interest bearing balances totalling $337,781. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $503,664. As and when deposits in the Partnerships bank accounts increase significantly beyond the insured limit, the funds are either placed in new Mortgage Investments or used to pay down on the line of credit balance. Managements Discussion and Analysis of Financial Condition and Results of Operations On September 2, 1989, the Partnership had sold 97,725.94 Units and its contributed capital totalled $9,772,594 of the approved $12,000,000 issue, in Units of $100 each. As of that date the offering was formally closed. On June 30, 1998, the Partnerships net capital totalled $9,111,914 The Partnership began funding Mortgage Investments in October 1987. The Partnerships Mortgage Investments outstanding for the years ended December 31, 1995, 1996, 1997 and the six months through June 30, 1998, were $10,402,491, $9,313,924, $8,104,984, and $8,090,234 respectively. The decrease in Mortgage Investments outstanding of $1,088,567 from December 31, 1995 to December 31, 1996, was due primarily to the Partnership utilizing Mortgage Investment payoffs to meet Limited Partner capital liquidations. The decrease in Mortgage Investments outstanding of $1,223,690 from December 31, 1996 to June 30, 1998, was again due primarily to the Partnership utilizing Mortgage Investment payoffs to meet Limited Partner capital liquidations and line of credit pay-down. During the years 1996, 1997, and six months period to June 30, 1998, Mortgage Investment principal collections exceeded Limited Partner liquidations. Currently, mortgage interest rates are lower than those prevalent at the inception of the Partnership. New Mortgage Investments will be originated at these lower interest rates. The result is to reduce the average return across the entire Mortgage Investment portfolio held by the Partnership. In the future, interest rates likely will change from their current levels. The General Partners cannot at this time predict at what levels interest rates will be in the future. Although the rates charged by the Partnership are influenced by the level of interest rates in the market, the General Partners do not anticipate that rates charged by the Partnership to its borrowers will change significantly from the beginning of 1998 over the next 12 months. As of June 30, 1998 the Partnerships Real Estate Owned account and the Investment in Partnership account have been reduced to a combined $232,159 balance. These accounts had combined balances of $1,017,460 and $ 1,937,047 as of December 31, 1997 and 1996, respectively. The conversion of these non-earning assets will allow the Partnership to produce current income from previously non earning assets. The overall effect of these developments will allow the Partnerships yield to rise. The General Partners anticipate that the annualized yield for the remaining six months and for the year 1998 will be higher than the previous years performance level. Each year, the Partnership negotiates a line of credit with a commercial bank which is secured by its Mortgage Investment portfolio. The outstanding balance of the bank line of credit was $2,041,011, $1,530,511, $899,011 and $500,000 for the years ended December 1995, 1996, 1997 and six months through June 30, 1998, respectively. The interest rate on the bank line of credit has remained at Prime plus one percent for the preceding three years. For the six months ended June 30, 1998, and the years ended December 31, 1997, 1996 and 1995, interest on Note Payable-Bank was $35,411, $133,577, $158,175 and $212,915 respectively. The primary reason for this decrease was that the Partnership had a lower overall credit facility utilization from 1995 to 1996 and from 1996 to June 30, 1998. As of June 30, 1998, the Partnership has borrowed $500,000 at an interest rate of Prime plus one percent. This added source of funds will help in maximizing the Partnership yield by allowing the Partnership to minimize the amount of funds in lower yield investment accounts when appropriate Mortgage Investments are not currently available and because the Mortgage Investments made by the Partnership usually bear interest at a rate in excess of the rate payable to the bank which extended the line of credit, the amount to be retained by the Partnership, after payment of the line of credit cost, will be greater than without the use of the line of credit. The Partnership's operating results and delinquencies are within the normal range of the General Partners expectations, based upon their experience in managing similar Partnerships over the last twenty- one years. Foreclosures are a normal aspect of partnership operations and the General Partners anticipate that they will not have a material effect on liquidity. As of June 30, 1998, there were four properties in foreclosure. Cash is continually being generated from interest earnings, late charges, prepayment penalties, amortization of notes and pay-off of notes. Currently, this amount exceeds Partnership expenses and earnings and principal payout requirements. As Mortgage Investment opportunities become available, excess cash and available funds are invested in new Mortgage Investments. The General Partners regularly review the Mortgage Investment portfolio, examining the status of delinquencies, the underlying collateral securing these Mortgage Investments, REO expenses, sales activities, and borrowers payment records and other data relating to the Mortgage Investment portfolio. Data on the local real estate market, and on the national and local economy are studied. Based upon this information and more, Mortgage Investment loss reserves and allowance for doubtful accounts are increased or decreased. Because of the number of variables involved, the magnitude of possible swings and the General Partners inability to control many of these factors, actual results may and do sometimes differ significantly from estimates made by the General Partners. Management provided $344,807, $312,684, $268,101 and $231,377 as provision for doubtful accounts for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and for the six months through June 30, 1998, respectively. The decrease in the provision reflects the decrease in the amount of REO, unsecured receivables and the decreasing levels of delinquency within the portfolio. Additionally, the General Partners felt that the bottom of the real estate cycle had been reached, reflecting a decreasing need to set aside reserves for the continuously declining real estate values as had been the case in the early 1990s in the California real estate market. As of June 30, 1998, the Partnership reduced the REO balance from $1,501,712 as of December 31, 1995, to $232,159 through June 30, 1998. This reduction will assist the Partnership in increasing yields in 1998, as assets previously lying idle, may now produce current income. The Northern California recession reached bottom in 1993. Since then, the California economy has been improving, slowly at first, but now, more vigorously. A wide variety of indicators suggest that the economy in California was strong in 1997, and the State is well - positioned for fast growth. This improvement is reflective in increasing property values, in job growth, personal income growth, etc., which should translate into more loan activity. Which of course, is healthy for the Partnerships lending activity. The Partnerships interest in land located in East Palo Alto, Ca, was acquired through foreclosure. The Partnerships interest is invested with that of two other Partners. The Partnerships basis of $0, $708,141 and $496,040 for the period ended 6/30/98, and the years ended December 31, 1997 and 1996 respectively, has been invested with that of two other Partnerships. The Partnership had been attempting to develop property into an approximately 63 units residential subdivision, (the Development). The proposed Development had gained significant public awareness as a result of certain environmental, fish and wildlife density, and other concerns. Incorporated into the proposed Development were various mitigation measures not limited to, mitigation of hazardous material existing on the property, endangered species, and proximity to the San Francisco Baylands. The preceding issues and others had sparked significant public controversy. Opposition against and support for the proposed Development existed. Among those in opposition to the project was Rhone Poulanc, Inc. Rhone Poulanc, Inc. has been identified as the Responsible Party for the Arsenic Contamination which affected a portion of the property. On May 8, 1998, the Partnership, in order to resolve disputes which arose during the course of attempts to obtain entitlements for this Development, entered into agreements with Rhone-Poulanc, Inc., which among other things, restricted the property to non residential uses, provided for appropriate indemnification and other consideration including a cash payment to the Partnership. The Partnership has retained ownership of the property, which is subject to various deed restrictions, options and or first rights of refusal. The General Partners are pleased with this outcome to the residential development attempt. The General Partners may now explore other available options with respect to alternative uses for the property. It is likely that to create other options and/or additional value, rezoning of the propertys existing residential zoning classification will be required. The Partnership is continuing to explore remediation options available to mitigate the remaining pesticide contamination, which affects the property. This pesticide contamination appears to be the result of agricultural operations by prior owners. The General Partners do not believe at this time that remediation of the pesticide contaminants will have a material adverse effect on the financial condition of the Partnership. At the time of subscription to the Partnership, Limited Partners made an irrevocable decision to either take distributions of earnings monthly, quarterly or annually or to compound earnings in their capital account. For the years ended December 31, 1995, December 31, 1996, 1997, and six months through June 30, 1998, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $296,915, $288,796, $252,378 and $111,876 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and six months to June 30, 1998 to Limited Partners capital accounts and not withdrawn was $315,250, $293,484, $271,517 and $141,139 respectively. As of December 31, 1995, December 31, 1996 and December 31, 1997, Limited Partners electing to withdraw earnings represented 50 %, 49 % and 46% of the Limited Partners outstanding capital accounts. The Partnership also allows the Limited Partners to withdraw their capital account subject to certain limitations (see liquidation provisions of Partnership Agreement). For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and for the six months ended June 30, 1998, $43,364, $96,362, $159,732 and $61,771 respectively, were liquidated subject to the 10% and/or 8% penalty for early withdrawal. These withdrawals are within the normally anticipated range that the General Partners would expect in their experience in this and other Partnerships. The General Partners expect that a small percentage of Limited Partners will elect to liquidate their capital accounts over one year with a 10% and/or 8% early withdrawal penalty. In originally conceiving the Partnership, the General Partners wanted to provide Limited Partners needing their capital returned a degree of liquidity. Generally, Limited Partners electing to withdraw over one year need to liquidate investments to raise cash. The trend the Partnership is experiencing in withdrawals by Limited Partners electing a one year liquidation program represents a small percentage of Limited Partner capital as of December 31, 1995, December 31, 1996, December 31, 1997, and six months through June 30, 1998, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and the six months through June 30, 1998, $849,589, $1,086,737, $1,137,677 and $429,783 respectively, were liquidated by Limited Partners who have elected a liquidation program over a period of five years or longer. Once the initial five year hold period has passed, the General Partners expect to see an increase in liquidations due to the ability of Limited Partners to withdraw without penalty. This ability to withdraw after five years by Limited Partners has the effect of providing Limited Partner liquidity which the General Partners then expect a portion of the Limited Partners to avail themselves of. This has the anticipated effect of the partnership growing, primarily through reinvestment of earnings in years one through five. The General Partners expect to see increasing numbers of Limited Partner withdrawals in years five through eleven, at which time the bulk of those Limited Partners who have sought withdrawal will have been liquidated. After year eleven, liquidation generally subsides and the Partnership capital again tends to increase. Actual liquidation of both capital and earnings from year five (1992) through year ten (1997) and six months through June 30, 1998 is shown hereunder: Years ended December 31, 1992 1993 1994 1995 1996 1997 Jun 30, 1998 ----------- ---------- ----------- ----------- ----------- ----------- -------------
Earnings $323,037 377,712 303,014 303,098 294,678 257,670 111,876 Capital *$232,370 528,737 729,449 892,953 1,183,099 1,297,410 491,554 =========== ========== =========== =========== =========== =========== ============= Total $555,407 $906,449 $1,032,463 $1,196,051 $1,477,777 $1,555,080 $603,430 =========== ========== =========== =========== =========== =========== ============= *These amounts represent gross of early withdrawal penalties.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP The Partnership has no officers or directors. The Partnership is managed by the General Partners. There are certain fees and other items paid to management and related parties. A more complete description of management compensation is found in the Prospectus, pages 11-12, under the section Compensation of the General Partners and the Affiliates, which is incorporated by reference. Such compensation is summarized below. The following compensation has been paid to the General Partners and affiliates for services rendered during the six months ended June 30, 1998. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation and Amount Compensation Services Rendered - ---------------------- ---------------------------------------------- ---------- I. Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage Investments $30,108 General Partners &/or Affiliates Asset Management Fee for managing assets $976 General Partners 1% interest in profits $2,556 II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP): Redwood Mortgage Mortgage Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the Mortgage Investments paid by the borrowers and not by the Partnership $21,000 Redwood Mortgage Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees payable by the borrowers and not by the Partnership $199 III. IN ADDITION, THE GENERAL PARTNER AND/OR RELATED COMPANIES PAY CERTAIN EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE STATEMENT OF INCOME..................................................$12,515 As of June 30, 1998, a summary of the Partnership's Mortgage Investment portfolio is set forth below. Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds $4,165,907.22 Appraised Value of Properties 6,199,356.00 Total Investment as a % of Appraisal 67.20% First Trust Deeds $4,165,907.22 Second Trust Deed Mortgage Investments 3,278,333.12 Third Trust Deed Mortgage Investments 395,994.01 Fourth Trust Deed Mortgage Investments* 249,999.40 -------------------- $8,090,233.75 First Trust Deeds due other Lenders 11,026,764 Second Trust Deeds due other Lenders 990,064 Third Trust Deeds due other Lenders 178,571 Total Debt $20,285,632.75 Appraised Property Value $30,862,537.00 Total Investments as a % of Appraisal 65.73% Number of Mortgage Investments Outstanding 56 Average Investment 144,468.46 Average Investment as a % of Net Assets 1.59% Largest Investment Outstanding 1,376,117.03 Largest Investment as a % of Net Assets 15.10% Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds 51.49% Second Trust Deeds 40.52% Third Trust Deeds 4.90% Fourth Trust Deeds 3.09% -------------------- 100.00% Total Mortgage Investments by Type Amount Percent of Property Owner Occupied Homes $526,421.13 6.51% Non-Owner Occupied Homes 378,137.53 4.67% Apartments 778,097.45 9.62% Commercial 6,407,577.64 79.20% ----------------- ----------- Total $8,090,233.75 100.00% *Footnote on following page The following is a distribution of Mortgage Investments outstanding as of June 30, 1998 by Counties. Santa Clara $2,290,581.82 28.31% Alameda 1,246,835.06 15.41% San Mateo 1,131,758.95 13.99% San Francisco 1,048,496.69 12.96% Contra Costa 768,739.41 9.50% Sacramento 633,296.72 7.83% Stanislaus 371,679.49 4.60% Sonoma 300,694.05 3.72% Ventura 91,000.00 1.12% Shasta 81,400.37 1.01% Monterey 71,161.54 0.88% Santa Cruz 35,063.92 0.43% Solano 19,525.73 0.24% ------------------- ----------- Total $8,090,233.75 100.00% * Redwood Mortgage Investors VI, together with other Redwood partnerships hold a second and a fourth trust deed against the secured property. In addition, the principals behind the borrower corporation have given personal guarantees as collateral. The overall loan to value ratio on this loan was 76.52% at inception. In addition to the borrower paying an interest rate of 12.25%, the Partnership and other lenders will also participate in profits. The General Partners have had previous loan activity with this borrower which had been concluded successfully, with extra earnings earned for the other partnerships involved. Statement of Condition of Mortgage Investments: Number of Mortgage Investments in Foreclosure 4 PART 2 OTHER INFORMATION Item 1. Legal Proceedings No legal action has been initiated against the Partnership. The Partnership had filed a legal action for collection against borrowers, which is routine litigation incidental to its business. Please refer to note (7) of financial statements. Item 2. Changes in the Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Not Applicable (b) Form 8-K The registrant has not filed any reports on Form 8-K during the three month period ending June 30, 1998. Signatures Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on the 12th day of August, 1998. REDWOOD MORTGAGE INVESTORS VI By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, General Partner By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, President By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, Secretary/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity indicated on the 12th day of August, 1998. Signature Title Date /s/ D. Russell Burwell - ---------------------- D. Russell Burwell General Partner August 12, 1998 /s/ Michael R. Burwell - ---------------------- Michael R. Burwell General Partner August 12, 1998 /s/ D. Russell Burwell - ---------------------- D. Russell Burwell President of Gymno Corporation, August 12, 1998 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - ---------------------- Michael R. Burwell Secretary/Treasurer of Gymno August 12, 1998 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 703664 0 8895042 165941 0 0 0 0 9664924 0 0 553010 0 0 9111914 9664924 0 592420 0 70061 0 231377 35411 255571 0 255571 0 0 0 255571 .00 .00
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