10-Q 1 rmi610qrstqtr2001.txt RMI610Q1STQTR2001 24 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 March 31, 2001 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- (Registrant's 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 issuer's class of common stock, as of the latest date. NOT APPLICABLE REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 2000 (audited) AND MARCH 31, 2001 (unaudited) ASSETS March 31, December 31, 2001 2000 (unaudited) (audited) ----------- -------------- Cash $331,800 $354,860 ----------- -------------- Accounts receivable Loans, secured by deeds of trust 5,453,565 5,570,576 Accrued interest on loans 681,410 664,292 Advances on loans 133,166 133,647 Accounts receivables, unsecured 82,362 82,362 ----------- --------------- 6,350,503 6,450,877 Less allowance for doubtful accounts 261,452 261,452 ----------- --------------- 6,089,051 6,189,425 ----------- --------------- Note receivable - Redwood Mortgage Corp. 76,436 125,000 Real estate owned, held for sale, acquired through foreclosure 824,688 767,583 Prepaid expenses 1,830 0 ------------ --------------- Total assets $7,323,805 $7,436,868 ============ =============== LIABILITIES AND PARTNERS' CAPITAL Liabilities Accounts payable $13,068 $13,068 ------------- --------------- Total Liabilities 13,068 13,068 ------------- --------------- Partners' capital Limited Partners' capital, subject to redemption, (note 4D): 7,300,971 7,414,034 General Partners' capital: 9,766 9,766 ------------ --------------- Total Partners' capital 7,310,737 7,423,800 ------------ --------------- Total Liabilities and Partners' capital $7,323,805 $7,436,868 ============ =============== The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited) THREE MONTHS ENDED MARCH 31, ------------------------- 2001 2000 ---------- ---------- Revenues Interest on loans $135,443 $142,104 Interest on bank deposits 1,133 2,865 Late charges, prepayment penalties, and fees 5,065 5,614 Interest on promissory note 1,436 0 ---------- ---------- 143,077 150,583 ---------- ---------- Expenses Loan servicing fees 9,963 9,059 Asset management fee 2,326 2,517 Clerical costs through Redwood Mortgage Corp. 7,712 5,147 Professional services 7,970 6,165 Other 2,591 2,316 --------- ---------- 30,562 25,204 --------- ---------- Net income $112,515 $125,379 ========= ========== Net income To: To General Partners (1%) $1,125 $1,254 To Limited Partners (99%) $111,390 $124,125 ----------- ---------- $112,515 $125,379 =========== ========== Net income per $1,000 invested by Limited Partners for entire period -where income is reinvested and Compounded $15.04 $15.49 =========== ========== -where partner receives income in monthly distributions $14.96 $15.41 =========== ========== The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) and THE THREE MONTHS ENDED MARCH 31, 2001 (unaudited) PARTNERS' CAPITAL ----------------------------------------------------------------------------------- LIMITED PARTNERS' CAPITAL ------------------------------------------------- ------------- -- -------------- -- -------------- Capital Capital Account Formation Account Limited Loan General Partners Receivable Total Partners Total ------------- -------------- -------------- ------------- ------------- Balances at January 1, 1998 $9,481,208 ($59,521) $9,421,687 9,766 $9,431,453 Formation Loan collections 0 53,291 53,291 0 53,291 Net Income 507,380 0 507,380 5,125 512,505 Early withdrawal penalties (9,834) 6,230 (3,604) 0 (3,604) Partners' withdrawals (1,280,986) 0 (1,280,986) (5,125) (1,286,111) ------------- -------------- -------------- ------------- -------------- Balances at December 31, 1998 $8,697,768 0 $8,697,768 $9,766 $8,707,534 Net Income 515,700 0 515,700 5,209 520,909 Early withdrawal penalties (10,028) 0 (10,028) 0 (10,028) Partners' withdrawals (1,182,860) 0 (1,182,860) (5,209) (1,188,069) ------------- -------------- -------------- ------------- -------------- Balances at December 31, 1999 $8,020,580 0 $8,020,580 $9,766 $8,030,346 Net Income 473,150 0 473,150 4,779 477,929 Early withdrawal penalties (16,335) 0 (16,335) 0 (16,335) Partners' withdrawals (1,063,361) 0 (1,063,361) (4,779) (1,068,140) ------------- -------------- -------------- ------------- -------------- Balances at December 31, 2000 7,414,034 0 7,414,034 9,766 7,423,800 Net Income 111,390 0 111,390 1,125 112,515 Early withdrawal penalties (4,024) 0 (4,024) 0 (4,024) Partners' withdrawals (220,429) 0 (220,429) (1,125) (221,554) ------------- -------------- -------------- ------------- -------------- Balances at March 31, 2001 $7,300,971 0 $7,300,971 $9,766 $7,310,737 ============= ============== ============== ============= ============== The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001AND 2000 (unaudited) THREE MONTHS ENDED MARCH 31, ------------------------------- 2001 2000 ------------- ----------- Cash flows from operating activities: Net income $112,515 $125,379 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 0 0 Provision for Losses (recovery) on real estate held for sale 0 0 Early withdrawal penalty credited to income (4,024) (4,586) (Increase) decrease in assets: Accrued interest & advances (16,637) (52,158) Increase (decrease) in liabilities: Accounts payable and accrued expenses 0 0 Deferred Interest on loans 0 0 (Increase) decrease in pre-paid expenses (1,830) (3,602) ------------- ----------- Net cash provided by operating activities 90,024 65,033 ------------- ----------- Cash flows from investing activities: Principal collected on loans 614,195 465,680 Loans made (497,184) (947,156) Additions to real estate held for sale (116,165) (17,809) Dispositions of real estate held for sale 59,060 0 Proceeds from unsecured accounts receivable 0 0 ------------- ----------- Net cash provided by (used in) investing activities 59,906 (499,285) ------------- ----------- Cash flows from financing activities: Partners withdrawals (221,554) (282,974) Note receivable - Redwood Mortgage Corp. 48,564 0 -------------- ----------- Net cash provided by (used in) financing activities (172,990) (282,974) -------------- ----------- Net increase (decrease) in cash (23,060) (717,226) Cash - beginning of period 354,860 1,120,295 -------------- ----------- Cash - end of period $331,800 $403,069 ============== =========== The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 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 loans secured by Deeds of Trust on California real estate. Loans are being arranged and serviced by Redwood Mortgage Corp., (Redwood Mortgage), an affiliate of the General Partners. The offering of partnership units was closed with contributed capital totaling $9,781,366. Each month's 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 Corp. an affiliate of the General Partners that arranges and services the loans. To finance the sales commissions, the Partnership loaned to Redwood Mortgage Corp. $623,255 (the "Formation Loan") relating to contributed capital of $9,781,366. The Formation Loan was unsecured, and was repaid without interest, over 10 years, commencing December 31, 1989. The last payment was made during 1998. 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 Loan is categorized as impaired, interest is no longer accrued thereon. B. Management Estimates In preparing the financial statements, management is required to make estimates based on the information available that affect 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 loans, and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 C. Loans, Secured by Deeds of Trust The Partnership has both the intent and ability to hold the loans 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 effective 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 Loan, 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. As of March 31, 2001 and at December 31, 2000 and 1999, reductions in the cost of loans categorized as impaired by the Partnership totaled $159,090, $159,090 and $283,249, respectively. The reduction in stated value was accomplished by increasing the allowances for doubtful accounts. As presented in Note 9 to the financial statements as of March 31, 2001, the average loan to appraised value of security at the time the loans were consummated was 69.78%. 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 property's estimated fair value, less estimated costs to sell. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 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 March 31, 2001 and December 31, 2000 was as follows: March 31, December 31, 2001 2000 --------------- ---------------- Costs of properties $1,298,346 $1,240,579 Reduction in value (473,658) (472,996) --------------- ---------------- Fair value reflected in financial statements $824,688 $767,583 =============== ================ F. 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. G. 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. H. Allowance for Doubtful Accounts Loans 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 Loan system. A provision is made for bad debt 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 loans, unspecified loans, accrued interest and advances on loans, and other accounts receivable (unsecured). The composition of the allowance for doubtful accounts as of March 31, 2001 and December 31, 2000 was as follows: March 31, December 31, 2001 2000 --------------- ---------------- Impaired loans $159,090 $159,090 Unspecified loans 20,000 20,000 Accounts receivable, unsecured 82,362 82,362 --------------- ---------------- $261,452 $261,452 =============== ================ REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 I. 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 held 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 select other options. 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 loans were limited 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. Such commissions totaled $13,466, $45,164, $46,527 and $36,700 for the three months through March 31, 2001, and for the years ended December 31, 2000, 1999, and 1998, respectively. B. Loan Servicing Fees Monthly loan 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 Loan is located. Loan servicing fees of $9,963, $48,557, $50,150, and $70,630, were incurred for three months through March 31, 2001, and for the years ended December 31, 2000, 1999, and 1998, respectively. C. Asset Management Fee The General Partners are authorized to receive monthly fees for managing the Partnership's Loan portfolio and operations of up to 1/32 of 1% (3/8 of 1% annually). Management fees of $2,326, $9,780, $10,626, and $6,640 were incurred during three months through March 31, 2001, and for the years 2000, 1999, and 1998, respectively. 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 and losses are 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%. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 F. Operating Expenses The General Partners or their affiliate (Redwood Mortgage Corp.) 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. As of March 31, 2001, and in the years 2000, 1999, and 1998, clerical costs totaling $7,712, $19,647, $21,748, and $24,440, respectively, were reimbursed to Redwood Mortgage Corp. 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, without penalty, 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 December 31, 1994. 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. Notwithstanding the above, in order to provide a certain degree of liquidity to the Limited Partners, the General Partners will liquidate a Limited Partner's 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 Corp. 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, and the formation loan was paid in 1998, the early withdrawal penalties gained in the future will be credited to income for the period received. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnership's capacity to return a Limited Partner's 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 - NOTE RECEIVABLE - REDWOOD MORTGAGE CORP. Redwood Mortgage Corp., an affiliate of the General Partners which arranges and services the loans of the Partnership, has subsidized certain loan losses of the Partnership in the form of a note receivable. The note bears interest at 8% and will be paid over a three-year period to the extent that Partnership losses occur relative to certain identified properties. If the identified properties recover from their write-downs, Redwood Mortgage Corp. will be credited or reimbursed up to the amount of the note receivable. NOTE 6 - LEGAL PROCEEDINGS The Partnership is a defendant along with numerous other defendants, including a developer, contractor, and other lenders, in a lawsuit involving a homeowners association's attempt to recover "damages" for faulty construction. 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 7 - 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: March 31, December 31, 2001 2000 --------------- ---------------- Net assets - Partners' Capital per financial statements $7,310,737 $7,423,800 Allowance for doubtful accounts 261,452 261,452 --------------- ---------------- Net assets tax basis $7,572,189 $7,685,252 =============== ================ In 2000 approximately 73% 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. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 8 - 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 accounts are subject to immediate withdrawal. (b) Loans (see note 2 (c))-Loan carrying values were $5,453,565 at March 31, 2001. The fair value of these investments of $5,518,785 was 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. NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS The loans are secured by recorded deeds of trust. At March 31, 2001, there were 29 loans outstanding with the following characteristics: Number of loans outstanding 29 Total loans outstanding $5,453,565 Average Loan outstanding $188,054 Average Loan as percent of total 3.45% Average Loan as percent of Partners' Capital 2.57% Largest Loan outstanding $1,376,117 Largest Loan as percent of total 25.23% Largest Loan as percent of Partners' Capital 18.82% Number of counties where security is located (all California) 9 Largest percentage of loans in one county 32.20% Average Loan to appraised value of security at time Loan was consummated 69.78% Number of loans in foreclosure 0 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 The following categories of loans were held at March 31, 2001 and December 31, 2000: March 31, December 31, 2001 2000 ------------------ ---------------- First Trust Deeds $4,290,698 $4,011,117 Second Trust Deeds 1,099,003 1,385,496 Third Trust Deeds 63,864 173,963 ------------------ ---------------- Total loans 5,453,565 5,570,576 Prior liens due other lenders 5,427,164 8,467,477 ------------------ ---------------- Total debt $10,880,729 $14,038,053 ================== ================ Appraised property value at time of loan $15,593,624 $20,364,599 ================== ================ Total investments as a percent of appraisals 69.78% 68.93% ================== ================ Investments by Type of Property Owner occupied homes $613,583 $755,014 Non-Owner occupied homes 703,026 672,518 Apartments 572,389 575,407 Commercial 3,564,567 3,567,637 ------------------ ---------------- $5,453,565 $5,570,576 ================== ================ REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 Scheduled maturity dates of loans as of March 31, 2001 are as follows: Year Ending December 31, Amount ------------------- ----------------- 2001 $3,565,518 2002 341,985 2003 635,997 2004 321,180 2005 139,635 Thereafter 149,250 ----------------- $5,153,565 ================= The scheduled maturities for 2001 include $2,622,447 (51%) in loans, which are past maturity at March 31, 2001. $1,990,415 (39%) of those loans were categorized as delinquent over 90 days. The cash balance at March 31, 2001 of $331,800 were in two banks with interest bearing balances totaling $326,625. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $131,800. As and when deposits in the Partnership's bank accounts increase significantly beyond the insured limit, the funds are generally either placed in new loans or used to pay down on the line of credit balance, if any. Management's 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 totaled $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 March 31, 2001, the Partnership's net capital totaled $7,310,737. The Partnership began funding loans in October 1987. The Partnership's loans outstanding for the years ended December 31, 1998, 1999, 2000, and three months through March 31, 2001 were $7,969,735, $5,282,773, $5,570,576, and $5,453,565 respectively. The decrease in loans outstanding from December 31, 1998 to March 31, 2001, was due primarily to the Partnership utilizing Loan payoffs to meet Limited Partner capital liquidations, line of credit pay-down, uninvested cash in loans and an increase in Real Estate Owned or in process. During the years 1998, 1999, 2000, and three months through March 31, 2001, loan principal collections exceeded Limited Partner liquidations. Since the fall of 1999, mortgage interest rates have been rising due primarily to economic forces and by the Federal Reserve raising its core interest rates. However, since January 2001, the Federal Reserve has been dramatically cutting its core interest rates with four successive 1/2% cuts. The latest cut being April 18, 2001, which reduced the Federal Funds Rate to 4.50%. The effect of the cuts has greatly reduced short-term interest rates and to a lesser extent reduced long-term interest rates. New loans will be originated at then existing interest rates. 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 2001 over the next 12 months. Based upon the rates payable in connection with the existing loans, the current and anticipated interest rates to be charged by the Partnership and the General Partners' experience, the General Partners anticipate that the annualized yield will range between six and six and one half percent (6.00% - 6.50%). As of March 31, 2001 the Partnership's Real Estate Owned account balance was $824,688. This account had a balance of $169,922, $133,300 and $767,583 as of December 31, 1998, 1999, and 2000, respectively. The increase was due to acquisition of a commercial property through foreclosure recorded as REO in process in December 1999. The General Partners anticipate that the annualized yield for the forthcoming year 2001, will be similar to the current year's performance level. Previously the Partnership had a line of credit with a commercial bank which was secured by its Loan portfolio. On December 31, 1999 the Partnership, on its own accord, closed its line of credit with that bank and since that time has not negotiated a similar credit line with any institution because the borrowing rate for most of 2000 was high and management also felt that the need for the credit line was not all that urgent. 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-four 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 March 31, 2001, there were no 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 Partner liquidation requirements. As Loan opportunities become available, excess cash and available funds are invested in new loans. The General Partners regularly review the Loan portfolio, examining the status of delinquencies, the underlying collateral securing these loans, REO expenses, sales activities, and borrower's payment records and other data relating to the Loan portfolio. Data on the local real estate market, and on the national and local economy are studied. Based upon this information and more, Loan 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 $180,054, $437,558, $193,427, and 0 as provision for doubtful accounts for the years ended December 31, 1998, 1999, 2000, and three months through March 31, 2001, respectively. The decrease in the provision in 1998 reflects the decrease in the amount of REO, unsecured receivables and the decreasing levels of delinquency within the portfolio. The increase in allowance for 1999 was to build up reserve for any potential loss in the future. The Partnership acquired a piece of Real Estate through foreclosure in 2000. In anticipation of this event, the Partnership carried $668,132 in its balance sheet as Real Estate Owned in Process as of December 31, 1999. The Partnership makes loans primarily in Northern California. As of March 31, 2001, approximately 73%, ($3,981,397) of the loans held by the Partnership were in the four San Francisco Bay Area Counties. The remainder of the loans held were secured primarily by Northern California real estate outside the San Francisco Bay Area. Since January 2000, the Federal Reserve has been dramatically cutting its core interest rates with four successive 1/2 % cuts, the latest cut being April 18, 2001, which reduced the Federal Funds Rate to 4.5%. The effect of the cuts has greatly reduced short-term interest rates and to a lesser extent reduced long-term interest rates. The lowering of interest rates has encouraged those borrowers that hold higher interest rate loans than those currently available to seek refinancing of their existing obligations to advantage themselves of these lower rates. The partnership may face prepayments in the existing portfolio from existing borrowers advantaging themselves of these lower rates. However, demand for loans from qualified borrowers continues to be strong. Therefore, at this time we do not believe that the average loan portfolio interest rate will decline substantially in the coming months. The reduction in the Federal Funds rates by the Federal Reserve has been primarily prompted by concerns of the United States economy slowing down and perhaps slipping into recession. Additionally, both the New York and tech-heavy NASDAQ stock markets have suffered significant set backs over the last 10 months. The technology stocks have been particularly hard hit. Many of these technology stocks have their headquarters in the Silicon Valley, one of the primary lending areas of the partnership. This has resulted in significant numbers of lay-offs in that industry. While there certainly has been a decline in economic activity, there has not manifested a clear trend in housing prices, the security behind many of our loans. The housing market has been incredibly strong throughout the San Francisco Bay Area with multiple offers above the asking price a common if not expected occurrence in the sale of residential properties for more than a year. A return to a more normal residential real estate market seems to be developing in the low to high average priced homes with little, if any, value reductions. High end priced homes in the more than one million dollar category may sustain greater price swings. The commercial leasing market is experiencing an increase in available vacancies and considerable available sublease space availability. According to CB Richard Ellis commercial office vacancies have increased in San Francisco from 3.4% in the fourth quarter of 2000 to 6.9% in the first quarter of 2001. Lease rates are falling as landlords compete for tenants. This will have the effect of lowering rents for buildings, which lose tenants through turnover or financial difficulties. There may be some declines in values as commercial property values are primarily reflective of the net income the property can generate. The Partnership had an average loan to value ratio computed as of the date the loan was made of 69.78%, as of March 31, 2001. This did not account for any increases in property values for loans, which were acquired by the Partnership during 1997, 1998, 1999, and 2000 when Northern California Real Estate substantially increased in value. This low loan to value will assist the partnership in weathering downturns in real estate values if they materialize in the coming months. If the economic downturn persists and those employees who have been laid off are unable to locate new jobs, the Partnership may experience delinquencies and possibly foreclosures higher than the low numbers of delinquencies and foreclosures it has enjoyed over the past three years. On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest public utility company filed for Chapter 11 bankruptcy. The full effect of PG&E's bankruptcy is yet to be played out. Stockholders, other utility companies and banks who have loaned PG&E millions of dollars were particularly hit hard. When a company like PG&E goes bankrupt, it has a ripple effect. This has not only affected the hi-tech and manufacturing industries, professional and commercial businesses, transportation and utilities sectors, but every household and individual as a whole. The crisis, which means higher costs to consumers, could adversely affect the economy, employment and the Partnership's lending in its commercial sector. The state government, PG&E and others are working diligently to solve the power crisis in California. The likely result is that electric and natural gas will cost consumers more than ever before. This may have some effect upon real estate values as demand for real estate could be reduced as companies make long term plans to locate in areas without power delivery problems and lower cost power availability. The Partnership's interest in land located in East Palo Alto, CA was acquired through foreclosure. The investment was previously classified as Investment in Partnership in the Financial Statements and has been reclassified into Real Estate Owned. The Partnership's basis of $91,557, $80,142, $20,377 and $ 0, for the three months ended March 31, 2001 and the years ended December 31, 2000, 1999, and 1998, respectively, has been invested with that of two other Partnerships. In order to pursue development options, rezoning of the property's existing residential zoning classification will be required. The Partnership is continuing to explore remediation options available to mitigate the 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. It appears that the efforts of the General Partners to subdivide the land will meet with success. This will allow the arsenic contaminated portion of the property to be delivered to the party responsible for the arsenic contamination. The remaining land will be made available for development or sale by 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, 1998, 1999 and 2000, and three months through March 31, 2001, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of $235,837, $217,526, $192,356, and $43,144, respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1998, 1999, and 2000, and three months through March 31, 2001, to Limited Partners' capital accounts and not withdrawn, was $271,543, $298,174, $280,794, and $69,246, respectively. As of December 31, 1998, 1999, and 2000, Limited Partners electing to withdraw earnings represented 43%, 42% and 41% respectively, 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, 1998, 1999, and 2000, and three months through March 31, 2001, $122,069, $128,295, $200,417, and $50,309, 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, 1998, 1999, 2000, and March 31, 2001, respectively, and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1998, 1999, 2000, and three months through March 31, 2001, $938,040, $847,067, $686,923, and $131,001, 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 twelve (2000) and three months through March 31, 2001, is shown hereunder, which confirms the General Partners theory on the liquidation habits of the Limited Partners: Years ended December 31, 1992 1993 1994 1995 1996 ------------ -------- --------- ----------- ------------- Earnings $323,037 377,712 303,014 303,098 294,678 Capital *232,370 *528,737 *729,449 *892,953 *1,183,099 ----------- --------- --------- ----------- ------------- Total $555,407 $906,449 $1,032,463 $1,196,051 $1,477,777 =========== ========= =========== ============ ============= Three months ended 1997 1998 1999 2000 March 31, 2001 ------------ ---------- ----------- --------- -------------- Earnings 257,670 235,837 217,526 192,356 43,144 Capital *1,297,410 *1,060,109 *975,362 *887,340 *181,309 ------------ --------- ----------- ----------- -------- Total $1,555,080 $1,295,946 $1,192,888 $1,079,696 $224,453 ============ =========== =========== =========== ======== *These amounts represent gross of early withdrawal penalties. After 25 years of active participation in the mortgage business, D. Russell Burwell, our founder and a General Partner of the Partnership has decided to retire effective September 30, 2001. "Russ" has enjoyed a long and successful career. His original business model, upon which our Partnership has its roots, has withstood the test of time through varying economic cycles. Collectively, the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an idea to over $110,000,000 in assets and produced excellent results for the Limited Partners. Under Russ' stewardship Redwood Mortgage Investor's VI originally raised $9,772,594 in Limited Partner Capital contributions and at March 31, 2001 had $7,300,971 in remaining Limited Partner Capital. Over the last few years, Russ has been passing along his duties and responsibilities to the remaining General Partners. The remaining General Partners are Mr. Michael Burwell and Gymno Corporation, a California Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage Investors VI since its inception and has been employed by Redwood Mortgage Corp, an affiliate of the Partnership, since 1979. The Partnership through the remaining General Partners and the employees of its affiliate Redwood Mortgage Corp., is well prepared for Russ's departure and looks forward to emulating the steady consistent returns that the Limited Partners have enjoyed during Russ' tenure. Mr. D. Russell Burwell is providing this notification pursuant to Article 8 Section 8.02 of the Limited Partnership Agreement. The remaining General Partners have elected to continue the business of the Partnership as described in Article 9 Section 9.01(d) of the Limited Partnership Agreement. The General Partners have determined that for purposes of establishing a value for reporting purposes, including brokerage and trustee account statements, the estimated value of the limited partnership interests on a per unit basis is equal to the capital account balance of each investor in the Partnership. Each investor's capital account balance is set forth periodically on the Partnership account statement provided to investors. The amount of Partnership earnings each investor is entitled to receive is determined by the ratio that each investor's capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any NASD member client account statement in providing a per unit estimated value of the client's investment in the Partnership in accordance with NASD Rule 2340. While the General Partners have set an estimated value for the Partnership units, such determination may not be representative of the ultimate price realized by an Investor for such units upon sale. No public trading market exists for the Partnership's units and none is likely to develop. Thus, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the Partnership which may include early withdrawal penalties (See the section of the Prospectus entitled "Risk Factors - Purchase of Units is a long term investment"). Bruce and/or John Cropper (the Croppers) have been performing audit and accounting services to the General Partners of the Partnership and their affiliates for over 16 years through the following CPA firms: 1993-1998 - Parodi & Cropper, CPA's; 1999 - Caporicci, Cropper & Larson, LLP and 2000 - Armanino McKenna LLP. Bruce and John Cropper were shareholders in Cropper Accountancy Corp. through December 31, 2000. Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993 until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper & Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi & Cropper firm was dissolved. Effective January 1, 2001, Cropper Accountancy Corp., withdrew from Caporicci, Cropper & Larson, LLP. John Cropper joined the larger regional firm of Armanino McKenna LLP as a partner and Bruce Cropper continues to provide services through Cropper Accountancy. The Croppers continue to perform audit and accounting services to the General Partners of the partnership and their affiliates. As a result, the Partnership has retained the firm of Armanino McKenna LLP, to provide its audit and financial services. Thus, although there has been a change in accounting firms, there has not been a change in accountants and there have not been any disagreements on any matter of accounting principals, practices or financial status disclosures. 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 their affiliates for services rendered during the three months ended March 31, 2001. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation Amount Compensation and Services Rendered -------------------------------------------------------------------------------- I. Redwood Mortgage Corp. Loan Servicing Fee for servicing loans $9,963 General Partners &/or Affiliates Asset Management Fee for managing assets $2,326 General Partners 1% interest in profits $1,125 II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP): Redwood Mortgage Corp. Mortgage Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the loans paid by the borrowers and not by the Partnership $13,466 Redwood Mortgage Corp. 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 $662 Gymno Corp. Inc. Reconveyance Fee $286 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. . . . . . . . . . . . . . . . . . . . . .$7,712 As of March 31, 2001, a summary of the Partnership's loan portfolio is set forth below. Loans as a Percentage of Total Loans First Trust Deeds $4,290,698 Appraised Value of Properties 6,245,587 Total Investment as a % of Appraised Value 68.70% First Trust Deeds 4,290,698 Second Trust Deed Loans 1,099,004 Third Trust Deed Loans 63,863 -------------------- 5,453,565 First Trust Deeds due other Lenders 5,352,571 Second Trust Deeds due other Lenders 74,593 -------------------- Total Debt $10,880,729 Appraised Property Value $15,593,624 Total Investments as a % of Appraised Value 69.78% Number of Loans Outstanding 29 Average Investment $188,054 Average Investment as a % of Net Assets 2.57% Largest Investment Outstanding 1,376,117 Largest Investment as a % of Net Assets 18.82% Loans as a Percentage of Total Loans First Trust Deeds 78.68% Second Trust Deeds 20.15% Third Trust Deeds 1.17% -------------------- 100.00% Total Loans by Type of Property: Amount Percent Owner Occupied Homes $613,584 11.25% Non-Owner Occupied Homes 703,026 12.89% Apartments 572,389 10.50% Commercial 3,564,566 65.36% ---------------- ------------ Total $5,453,565 100.00% The following is a distribution of loans outstanding as of March 31, 2001 by Counties. Santa Clara 1,756,067 32.20% Alameda 1,042,501 19.12% San Mateo 580,688 10.65% Placer 659,095 12.09% Sacramento 512,359 9.39% San Francisco 602,142 11.04% Stanislaus 177,620 3.26% Shasta 79,162 1.45% Sonoma 43,931 .80% ------------------- ------------ Total $5,453,565 100.00% Statement of Condition of Loans: Number of Loans in Foreclosure 0 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 (6) 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 Form 8-K was filed on February 13, 2001, relating to the subsequent change in accounting firms. On April 11, 2001, the Partnership filed another form 8-K regarding D. Russell Burwell's retirement as more fully discussed earlier under "Management Discussion" area. 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 11th day of May, 2001. 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 11th day of May, 2001. Signature Title Date /S/ D. Russell Burwell ----------------------------------- D. Russell Burwell General Partner May 11, 2001 /S/ Michael R. Burwell ----------------------------------- Michael R. Burwell General Partner May 11, 2001 /S/ D. Russell Burwell ----------------------------------- President of Gymno May 11, 2001 D. Russell Burwell Corporation, (Principal Executive Officer); Director of Gymno Corporation /S/ Michael R. Burwell ----------------------------------- Michael R. Burwell Secretary/Treasurer May 11, 2001 of Gymno Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation