-----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, UpZO+6zG3PUNLfLKUthcVHm6TNIA+khfzPww7HlEvDRvtlUM9ALasmfG4FlIVDo9 lFsaQLpOWPtEn5xe24WpLw== 0000950005-97-000915.txt : 19971114 0000950005-97-000915.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950005-97-000915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: 97714758 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 FORM 10-Q 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 September 30, 1997 - ------------------------------ ------------------------------------------------- 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) (415) 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, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) ASSETS
Sept 30, 1997 Dec 31, 1996 (unaudited) (audited) ---------------- ---------------- Cash $ 138,216 $ 180,597 ---------------- ---------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 9,078,600 9,313,924 Accrued Interest on Mortgage Investments 650,644 405,783 Advances on Mortgage Investments 123,080 108,019 Accounts receivables, unsecured 25,294 251,531 ---------------- ---------------- 9,877,618 10,079,257 Less allowance for doubtful accounts 8,358 252,850 ---------------- ---------------- 9,869,260 9,826,407 ---------------- ---------------- Real estate owned, held for sale, acquired through foreclosure 469,191 1,441,007 Investment in Partnership 610,345 496,040 ---------------- ---------------- Total Assets $11,087,012 $11,944,051 ================ ================ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Deferred Interest $ 0 $ 18,522 Note payable - bank line of credit 1,439,011 1,530,511 ---------------- --------------- Total Liabilities 1,439,011 1,549,033 ---------------- --------------- Partners' Capital: Limited Partners' capital, subject to redemption, (note 4D): net of formation loan receivable of $73,473 and $121,849, for September 30, 1997 and December 31, 1996 respectively 9,638,235 10,385,252 General Partners' Capital: 9,766 9,766 ---------------- --------------- Total Partners' capital 9,648,001 10,395,018 ---------------- --------------- Total Liabilities and Partners' capital $11,087,012 $11,944,051 ================ =============== See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (unaudited)
9 mos. ended 9 mos. ended 3 mos. ended 3 mos. ended Sept 30, 1997 Sept 30, 1996 Sept 30, 1997 Sept 30, 1996 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Interest on Mortgage Loans $750,968 $881,201 $246,547 $296,218 Interest on Bank Deposits 4,761 3,565 1,992 2,238 Late Charges & Other 3,120 13,471 361 4,176 Miscellaneous 7,963 10,461 1,118 9,001 ---------- ----------- ----------- ----------- 766,812 908,698 250,018 311,633 ---------- ----------- ----------- ----------- Expenses: Mortgage Servicing Fee 23,200 44,348 6,680 15,425 General Partners' asset management fees 0 0 0 0 Clerical costs through Redwood Mortgage 21,191 24,156 6,780 8,055 Interest and line of credit cost 106,441 130,233 35,694 40,027 Provision for losses on real estate acquired through foreclosure and doubtful accounts 182,745 234,909 65,464 99,321 Professional Services 21,591 16,800 2,861 521 Other 10,962 11,999 2,463 2,162 ---------- ----------- ----------- ----------- 366,130 462,445 119,942 165,511 ---------- ----------- ----------- ----------- Net Income $400,682 $446,253 $130,076 $146,122 ========== =========== =========== =========== Net Income: to General Partners (1%) 4,007 4,463 1,301 1,462 to Limited Partners (99%) 396,675 441,790 128,775 144,660 ---------- ----------- ----------- ----------- $400,682 $446,253 $130,076 $146,122 ========== =========== =========== =========== Net income for $1,000 invested by Limited Partner for entire period - where income is reinvested and compounded $39.26 $39.94 $12.93 $13.12 ========== =========== =========== =========== - where Partner received income in monthly distributions $38.59 $39.25 $12.87 $13.07 ========== =========== =========== =========== See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996 (unaudited)
Sept 30, 1997 Sept 30, 1996 (unaudited) (unaudited) ---------------- ---------------- Cash flows from operating activities: Net income $400,682 $446,253 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 32,745 20,042 Early withdrawal penalty credited to income (3,866) (2,044) Provision for Losses on real estate held for sale 150,000 214,867 (Increase) decrease in assets: Accrued interest & advances (259,922) 132,820 Prepaid expenses and other assets 0 935 Increase (decrease) in liabilities: Accounts payable and accrued expenses 0 0 Deferred Interest on Mortgage Investments (18,522) 0 ---------------- ---------------- Net cash provided by operating activities 301,117 812,873 ---------------- ---------------- Cash flows from investing activities: Principal collected on Mortgage Investments 793,120 3,286,920 Mortgage Investments made (557,796) (2,204,242) Additions to real estate held for sale (20,314) (253,771) Dispositions of real estate held for sale 791,130 277,394 Investment in Partnership (114,305) (1,385) ---------------- ---------------- Net cash provided by (used in) investing activities 891,835 1,104,916 ---------------- ---------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank (91,500) (326,000) Partners withdrawals (1,185,527) (1,058,039) Formation loan collections 41,694 45,242 ---------------- ---------------- Net cash provided by (used in) financing activities (1,235,333) (1,338,797) ---------------- ---------------- Net increase (decrease) in cash (42,381) 578,992 Cash - beginning of period 180,597 283,976 ---------------- ---------------- Cash - end of period $138,216 $862,968 ================ ================ 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, 1996 (audited) and NINE MONTHS ENDED SEPTEMBER 30, 1997 (unaudited)
PARTNERS' CAPITAL ------------------------------------------------------------------------------------- LIMITED PARTNERS' CAPITAL -------------------------------------------------- Capital Account Formation Total Total Total Limited Loan Limited General Partners Partners Receivable Partners Partners Capital -------------- ------------- --------------- ------------ -------------- Balances at December 31, 1993 $12,342,173 $(285,771) $12,056,402 $9,773 $12,066,175 Formation loan collections 0 31,164 31,164 0 31,164 Net income 658,055 0 658,055 6,647 664,702 Early withdrawal penalties (12,790) 8,102 (4,688) 0 (4,688) Partners' withdrawals (1,013,019) 0 (1,013,019) (6,654) (1,019,673) -------------- ------------- --------------- ------------ -------------- 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 41,694 41,694 0 41,694 Net income 396,675 0 396,675 4,007 400,682 Early withdrawal penalties (10,548) 6,682 (3,866) 0 (3,866) Partners' withdrawals (1,181,520) 0 (1,181,520) (4,007) (1,185,527) -------------- ------------- --------------- ------------ -------------- Balances at September 30, 1997 $9,711,708 $(73,473) $9,638,235 $9,766 $9,648,001 ============== ============= =============== ============ ============== See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (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., dba Redwood Mortgage, (Redwood Mortgage) an affiliate of the General Partners. The offering 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, 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, in ten annual installments of principal, commencing December 31, 1989. The following reflects transactions in the Formation Loan account through September 30, 1997: Amount loaned during 1987,1988 and 1989 $623,255 Less: Cash repayments $501,156 Allocation of early withdrawal penalties 48,626 549,782 =========== ----------- Balance September 30, 1997 $73,473 =========== 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. (See Note 11) 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. 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. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) 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 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 September 30, 1997, December 31, 1996, 1995 and 1994, reductions in the cost of loans categorized as impaired by the Partnership totalled $3,560, $13,006, $45,933 and $45,000, respectively. The reduction in stated value was accomplished by increasing the allowances for doubtful accounts. As presented in Note 10 to the financial statements as of September 30, 1997, the average mortgage investment to appraised value of security at the time the loans were consummated was 68.29%. When a loan is valued for impairment purposes, an updating is made in the valuation of collateral security. However, such 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 DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (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 September 30, 1997, December 31, 1996 and 1995:
Sept. 30, Dec. 31, Dec. 31, 1997 1996 1995 --------------- --------------- ------------- Costs of properties $597,905 $1,743,382 $1,588,879 Reduction in value 128,714 302,375 87,167 --------------- --------------- ------------- Fair value reflected in financial statements $469,191 $1,441,007 $1,501,712 =============== =============== =============
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 Partnership's financial position because the methods indicated were essentially those previously used by the Partnership. F. Investment in Partnership (see note 5) The Partnership accounts for its investment in a partnership as an investment in real estate, which is at the lower of costs or fair value, less estimated costs to sell. At September 30, 1997, cost is considered less than fair value and the investment is stated at cost in the financial statements. 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 September 30, 1997, December 31, 1996 and 1995 were as follows: REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited)
Sept. 30, Dec. 31, Dec. 31, 1997 1996 1995 --------------- --------------- ------------- Impaired mortgage investments $3,560 $13,006 $45,933 Unspecified mortgage investments 0 59,844 37,351 Accounts receivable, unsecured 4,798 180,000 200,000 --------------- --------------- ------------- $8,358 $252,850 $283,284 =============== =============== =============
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 select other options. However, the net income per $1,000 average invested has approximated those reflected for those whose investments and options have remained constant. K. Reclassifications and Changes in Presentation Certain reclassifications not affecting net income have been made to prior year amounts to conform to the current year presentation. In addition, the formation loan receivable, previously categorized as an asset, has been deducted from Limited Partners' capital until collected from Redwood Mortgage, an affiliate of the General Partners (see Note 11). 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 $23,200, $44,565, $42,056 and $0 were incurred for the nine month period to September 30, 1997, and for years 1996, 1995 and 1994, respectively. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) C. Asset Management Fee The General Partners are entitled to receive monthly fees for managing the Partnership's Mortgage Investment portfolio and operations of up to 1/32 of 1% (3/8 of 1% annual). Management fees of $0, $0, $0 and $8,942 were incurred for nine months to September 30, 1997, and for years 1996, 1995 and 1994, 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 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 1994, 1995, 1996, and nine months to September 30, 1997, clerical costs totaling $0, $23,341, $31,838, and $21,191 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 September 30, 1997. 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, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) 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. 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 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 - INVESTMENT IN PARTNERSHIP The Partnership's interest in land acquired through foreclosure, located in East Palo Alto with costs totalling $610,345 has been invested with that of two other Partnerships (total cost to date, primarily land, of $1,258,649) in a partnership which is in the process of obtaining entitlement to construct approximately 63 single family homes for sale. Redwood Mortgage Investors V, VI, and VII have first priority on return of investment plus interest thereon, in addition to a share of profits realized. NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line of credit secured by its Mortgage Investment portfolio up to $2,500,000 at 1% over prime. The balances were $2,041,011, $1,530,511 and $1,439,011 at December 31, 1995, 1996 and September 30, 1997, respectively, and the interest rate at September 30, 1997 was 9.50% (8.50% prime + 1%). 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 $25,294. 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. REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) 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:
Sept. 30, Dec. 31, Dec. 31, 1997 1996 1995 --------------- --------------- --------------- Net assets - Partners' Capital per financial statements $9,648,001 $10,395,018 $11,222,305 Formation loan receivable 73,473 121,849 184,177 Allowance for doubtful accounts 8,358 252,850 283,284 --------------- --------------- --------------- Net assets tax basis $9,729,832 $10,769,717 $11,689,766 =============== =============== ===============
In 1996, 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. 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 $9,078,600. The September 30, 1997, fair value of these investments of $9,114,933 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, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At September 30, 1997, there were 64 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 64 Total Mortgage Investments outstanding $9,078,600 Average Mortgage Investment outstanding $141,853 Average Mortgage Investment as percent of total 1.56% Average Mortgage Investment as percent of Partners' Capital 1.47% Largest Mortgage Investment outstanding $1,376,117 Largest Mortgage Investment as percent of total 15.16% Largest Mortgage Investment as percent of Partners' Capital 14.26% Number of counties where security is located (all California) 15 Largest percentage of Mortgage Investments in one county 29.56% Average Mortgage Investment to appraised value of security at time Mortgage Investment was consummated 68.29% Number of Mortgage Investments in foreclosure 5
The following categories of mortgage investments were pertinent at September 30, 1997, December 31, 1996 and 1995:
Sept. 30, Dec. 31, Dec. 31, 1997 1996 1995 ---------------- --------------- ---------------- First Trust Deeds $4,837,972 $4,928,794 $4,449,229 Second Trust Deeds 3,592,848 3,729,581 5,187,807 Third Trust Deeds 397,781 405,567 531,527 Fourth Trust Deeds 249,999 249,982 233,928 ---------------- --------------- ---------------- Total mortgage investments 9,078,600 9,313,924 10,402,491 Prior liens due other lenders 17,731,442 17,200,385 21,437,338 ---------------- --------------- ---------------- Total debt $26,810,042 $26,514,309 $31,839,829 ================ =============== ================ Appraised property value at time of loan $39,258,603 $40,225,303 $49,439,750 ================ =============== ================ Total investments as a percent of appraisals 68.29% 65.91% 64.40% ================ =============== ================ Investments by Type of Property Owner occupied homes $1,227,965 $1,443,835 $2,323,009 Non-Owner occupied homes 381,101 973,498 612,008 Apartments 926,289 786,362 1,129,878 Commercial 6,543,245 6,110,229 6,337,596 ---------------- --------------- ---------------- $9,078,600 $9,313,924 $10,402,491 ================ =============== ================
REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and SEPTEMBER 30, 1997 (unaudited) Scheduled maturity dates of mortgage investments as of September 30, 1997 are as follows: Period Ending Sept 30, 1997 ---------------- 1997 $2,285,638 1998 2,260,017 1999 1,920,887 2000 409,652 2001 554,687 Thereafter 1,647,719 ------------- $9,078,600 ============= The scheduled maturities for 1997 include approximately $2,179,723 in loans which are past maturity at September 30, 1997. $848,231 of those loans were categorized as delinquent over 90 days. Seven loans with principal outstanding of $1,124,119 had interest payments overdue in excess of 90 days. Two loans had impaired provisions totalling $3,560 at September 30, 1997. The cash balance at September 30, 1997 of $138,216 was in one bank with interest bearing balances totalling $98,917. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $38,216. NOTE 11 - CHANGE IN PRESENTATION The formation loan receivable from Redwood Mortgage, an affiliate of the General Partners, has been categorized as a reduction in Limited Partners' Capital, the source of the funds. It was previously reflected as an asset. As payments are received, or early withdrawal penalties realized, the formation loan balance will be reduced and restored to Limited Partners' Capital. The total of the formation loan outstanding was $73,473, $121,849 and $184,177 at September 30, 1997 December 31, 1996 and 1995, respectively. In addition, Limited Partners' Capital and General Partners' Capital are reflected separately in the Balance Sheet, whereas they were previously reflected separately in the Statement of Changes in Partners' Capital. Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations On September 30, 1997, the Partnership's net capital totalled $9,648,001. The Partnership began funding Mortgage Investments in October 1987, and as of September 30, 1997, had distributed income at an average annualized (compounded) yield of 7.77%. Current earnings are lower than those prevalent at the outset, primarily because interest rates generally have dropped dramatically since 1988. The Partnership does not anticipate a significant increase or decrease in mortgage rates in the foreseeable future and expects the prevailing interest rates to fluctuate in a narrow range in the near future. Management expects the yield, net of provision for losses, to increase slightly in 1997. Currently, mortgage interest rates are lower than those prevalent at the inception of the Partnership. New Mortgage Investments are being originated at these lower interest rates. The result is a reduction of 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. The General Partners believe the rates charged by the Partnership to its borrowers will not change significantly in the immediate future. Based upon the rates payable in connection with the existing Mortgage Investments, the current and anticipated interest rates to be charged by the Partnerships, and current reserve requirements, the General Partners anticipate that the annualized yield next year will range only slightly higher from its current rate. Each year, the Partnership negotiates a line of credit with a commercial bank which is secured by its Mortgage Investment portfolio. Currently, it has the capacity to borrow up to $2,500,000 at Prime plus 1%, (9.25%). Current borrowings of $1,439,011 have the effect of leveraging the portfolio about 15%. 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. Interest and line of credit costs for the years ended 1994, 1995, 1996 and September 30, 1997 was $185,131, $212,915, $158,175 and $106,441 respectively. The interest rate on the line of credit remained at prime plus one percent. An increase in the average overall usage of the credit line of approximately $310,000 for the years ended 1994 and 1995 resulted in the higher interest and line of credit costs. A decrease in average overall usage of the credit line for 1996 and 1995 of approximately $625,000 resulted in the decreased interest and line of credit costs. Interest expense on line of credit for nine months to September 30, 1997, is at an estimated average annual rate of approximately $141,921, due to an overall decline in the average outstanding credit facility average balance. 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 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 September 30, 1997, there were five 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 borrower's 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 $472,967 and $344,807 as provision for doubtful accounts for the years ended December 31, 1994 and December 31, 1995. 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 1990's in the California real estate market. 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 is 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 our lending activity. 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 and December 31, 1996, and nine months to September 30, 1997, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $296,915, $288,796 and $185,512 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1995, December 31, 1996 and nine months ended September 30, 1997, to Limited Partners' capital accounts and not withdrawn was $315,250, $293,484 and $211,163 respectively. As of December 31, 1995, December 31, 1996 and September 30, 1997, Limited Partners electing to withdraw earnings represented 50%, 49% and 47% 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, and nine months to September September 30, 1997, $43,364, $96,362 and $126,526 were liquidated subject to the 10% 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% 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 investment to raise cash. The trend we are 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 and September 30, 1997, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1995 and December 31, 1996 and nine months to September 30, 1997, $849,599, $1,086,737 and $880,031 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, the gross figures generally should subside and the Partnership capital again tends to increase. I. COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP The following compensation has been paid to the General Partners and Affiliates for services rendered during the nine months ending September 30, 1997. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus and Partnership Agreement. In addition, the General Partners and/or related companies pay certain expenses on behalf of the Partnership for which it is reimbursed as noted in the Statement of Income.
Entity Receiving Description of Compensation Amount Compensation and Services Rendered ========================= ================================================= ============ Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage Investments $23,200 - ------------------------- ------------------------------------------------- ------------ General Partners Asset Management Fee for managing assets $ 0.00 &/or Affiliates - ------------------------- ------------------------------------------------- ------------ General Partners 1% interest in profits, losses and distributions of cash available for distribution $ 4,007 - ------------------------- ------------------------------------------------- ------------ 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 $10,000 - ------------------------- ------------------------------------------------- ------------ Redwood Mortgage Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees payable by the borrower and not by the Partnership $ 273 - ------------------------- ------------------------------------------------- ------------
MORTGAGE INVESTMENT SUMMARY AS OF SEPTEMBER 30, 1997 Partnership Highlights Mortgage Investment to Value ratio First Trust Deed Mortgage Investments $4,837,971.70 Appraised Value of Properties* 7,198,567.00 Total Investment as a % of Appraisal 67.21% First Trust Deed Mortgage Investments $4,837,971.70 Second Trust Deed Mortgage Investments 3,592,848.08 Third Trust Deed Mortgage Investments 397,780.73 Fourth Trust Deed Mortgage Investments** 249,999.40 ---------------- $9,078,599.91 First Trust Deeds due other Lenders $16,562,807.00 Second Trust Deeds due other Lenders 990,064.00 Third Trust Deeds due other Lenders 178,571.00 ---------------- Total Debt $26,810,041.91 Appraised Property Value $39,258,603.00 Total Investment as a % of Appraisal 68.29% Number of Mortgage Investments Outstanding 64 Average Investment $141,853.12 Average Investment as a % of Net Partners Capital 1.47% Largest Investment Outstanding $1,376,117.03 Largest Investment as a % of Net Partners Capital 14.26% * Amounts shown reflect the aggregate appraisal values utilized at the time the mortgage investments were consummated. ** This consists of a mortgage investment in which Redwood Mortgage Investors VI, together with other Redwood partnerships, holds 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 is 76.52%. Besides the borrower paying an interest rate of 12.25%, the partnership and other lenders will participate in profits. The General Partners and its affiliates have previously entered into loan transactions with this borrower, all of which have been concluded successfully, with extra earnings earned for the other lenders.
Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deed Mortgage Investments 53.29% Second Trust Deed Mortgage Investments 39.58% Third Trust Deed Mortgage Investments 4.38% Fourth Trust Deed Mortgage Investments 2.75% ----------- Total 100.00% Mortgage Investments by Type of Property Owner Occupied Homes $1,227,964.90 13.53% Non Owner Occupied Homes 381,100.62 4.20% Apartments 926,288.83 10.20% Commercial 6,543,245.56 72.07% ----------------- ----------- Total $9,078,599.91 100.00% Statement of Conditions of Mortgage Investments Number of Mortgage Investments in Foreclosure 5 Diversification by County County Santa Clara $2,683,958.33 29.56% Alameda 1,694,204.78 18.66% San Mateo 1,258,579.52 13.86% Contra Costa 769,320.34 8.47% Stanislaus 679,802.62 7.49% Sacramento 645,725.83 7.11% San Francisco 430,958.84 4.75% Sonoma 301,210.64 3.32% El Dorado 214,773.21 2.37% Santa Barbara 97,398.65 1.07% Ventura 91,000.00 1.00% Shasta 81,920.83 0.90% Monterey 71,428.57 0.79% Santa Cruz 36,682.90 0.41% Solano 21,634.85 0.24% ----------------- ----------- Total $9,078,599.91 100.00%
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 nine month period ending September 30, 1997. 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 November, 1997. 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 November, 1997.
Signature Title Date - --------- ----- ---- /s/ D. Russell Burwell - --------------------------------- D. Russell Burwell General Partner November 12, 1997 /s/ Michael R. Burwell - --------------------------------- Michael R. Burwell General Partner November 12, 1997 /s/ D. Russell Burwell - --------------------------------- D. Russell Burwell President of Gymno Corporation, November 12, 1997 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - --------------------------------- Michael R. Burwell Secretary/Treasurer of Gymno November 12, 1997 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation
EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 138,216 0 9,877,618 8,358 0 0 0 0 11,087,012 0 0 1,439,011 0 0 9,648,001 11,087,012 0 766,812 0 76,944 0 182,745 106,441 400,682 0 400,682 0 0 0 400,682 .00 .00
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