FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 1997
- -------------------------------------------------------------------------------
Commission file number 33-12519
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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
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
---------------- -------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
------------- ---------------- -------------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
<TABLE>
Part I
Item 1
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
Balance Sheets
December 31, 1996 (audited) and
June 30, 1997 (unaudited)
<CAPTION>
ASSETS
June 30, 1997 Dec. 31, 1996
(unaudited) (audited)
================ ================
<S> <C> <C>
Cash $189,020 $180,597
------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 9,040,797 9,313,924
Accrued interest on mortgage investments 560,014 405,783
Advances on mortgage investments 115,067 108,019
Accounts receivable-unsecured 252,398 251,531
------------- ---------------
9,968,276 10,079,257
Less allowance for doubtful accounts 319,080 252,850
------------- ---------------
9,649,196 9,826,407
------------- ---------------
Real Estate Owned, acquired through foreclosure, held for sale 1,074,934 1,441,007
Investment in Partnership 568,559 496,040
Formation loan due from Redwood Mortgage 87,659 121,849
------------- ---------------
$11,569,368 $12,065,900
============= ===============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Deferred Interest $0 $18,522
Note payable - bank line of credit $1,589,011 $1,530,511
------------- ---------------
Total liabilities $1,589,011 $1,549,033
Partners capital 9,980,357 10,516,867
------------- ---------------
$11,569,368 $12,065,900
============= ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited)
<CAPTION>
6 mos.ended 6 mos. ended 3 mos. ended 3 mos. ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Loans $504,421 $584,983 $253,776 $305,406
Interest on Bank Deposits 2,769 1,327 830 252
Late Charges & Other 2,759 9,295 542 3,294
Miscellaneous 6,845 1,460 6,845 560
---------- ----------- ----------- -----------
516,794 597,065 261,993 309,512
---------- ----------- ----------- -----------
Expenses:
Mortgage Servicing Fee 16,520 28,923 7,273 19,248
General Partners asset management fees 0 0 0 0
Clerical costs through Redwood Mortgage 14,411 16,101 7,070 8,263
Interest and line of credit cost 70,747 90,206 35,887 44,763
Provision for loss on real estate
acquired
through foreclosure and doubtful 117,281 135,588 67,081 83,585
accounts
Professional Services 18,730 16,279 7,663 805
Other 8,499 9,837 3,231 4,131
---------- ----------- ----------- -----------
246,188 296,934 128,205 160,795
---------- ----------- ----------- -----------
Net Income $270,606 300,131 133,788 148,717
========== =========== =========== ===========
Net Income: to General Partners (1%) 2,706 3,001 1,338 1,487
to Limited Partners 267,900 297,130 132,450 147,230
(99%)
========== =========== =========== ===========
$270,606 300,131 133,788 148,717
========== =========== =========== ===========
Net income for $1,000 invested by
Limited
Partner for entire period
- where income is reinvested and $25.99 $26.46 $12.92 $13.13
compounded
========== =========== =========== ===========
- where Partner received income in
monthly
distributions $25.72 $26.18 $12.87 $13.07
========== =========== =========== ===========
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited)
<CAPTION>
June 30, 1997 June 30, 1996
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $270,606 $300,131
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 66,230 135,588
Provision for losses on real estate held for sale 51,051 0
(Increase) decrease in assets:
Accrued interest & advances (161,279) (80,629)
Prepaid expenses and other assets 0 935
Increase (decrease) in liabilities:
Deferred Interest on Mortgage Investments (18,522) 0
--------------- ---------------
Net cash provided by operating activities 208,086 356,025
--------------- ---------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 555,905 2,294,321
Mortgage Investments made (282,778) (1,771,798)
Formation loan collections 34,190 31,164
Additions to real estate held for sale (57,816) (236,408)
Dispositions of real estate held for sale 372,838 200,627
Accounts receivable, unsecured (867) 71,382
Investment in Partnership (72,519) 0
--------------- ---------------
Net cash provided by (used in) investing activities 548,953 589,288
--------------- ---------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank 58,500 (326,000)
Partners withdrawals (802,064) (664,014)
Early withdrawal penalties, net (5,052) (1,704)
--------------- ---------------
Net cash provided by (used in) financing activities (748,616) (991,718)
--------------- ---------------
Net increase (decrease) in cash 8,423 (46,405)
Cash - beginning of period 180,597 283,976
--------------- ---------------
Cash - end of period $189,020 $237,571
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (audited)
AND THE SIX MONTHS ENDED JUNE 30, 1997, (unaudited)
<CAPTION>
PARTNERS CAPITAL
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------------- ---- --------------- ---- ---------------
<S> <C> <C> <C>
Balances at December 31, 1993 9,773 12,342,173 12,351,946
Net income 6,647 658,055 664,702
Early withdrawal penalties 0 (12,790) (12,790)
Partners withdrawals (6,654) (1,013,019) (1,019,673)
-------------- --------------- ---------------
Balances at December 31, 1994 $9,766 11,974,419 11,984,185
Net income 6,183 612,165 618,348
Early withdrawal penalties 0 (4,336) (4,336)
Partners withdrawals (6,183) (1,185,532) (1,191,715)
-------------- --------------- ---------------
Balances at December, 1995 $9,766 11,396,716 11,406,482
Net income 5,882 582,280 588,162
Early withdrawal penalties 0 (8,721) (8,721)
Partners withdrawals (5,882) (1,463,174) (1,469,056)
-------------- --------------- ---------------
Balances at December 31, 1996 $9,766 10,507,101 10,516,867
Net income 2,706 267,900 270,606
Early withdrawal penalties 0 (5,052) (5,052)
Partners withdrawals (2,706) (799,358) (802,064)
-------------- --------------- ---------------
Balances at June 30, 1997 $9,766 $9,970,591 $9,980,357
============== =============== ===============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 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, an affiliate of the General
Partners. The offering was closed with contributed capital totaling $9,781,366.
Each months income is distributed to partners based upon their
proportionate share of partners capital. Some partners have elected to withdraw
income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan Sales commissions ranging from 0%
(units sold by General Partners) to 10% of gross proceeds were paid to 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
June 30, 1997:
Amount loaned during 1987,1988 and 1989 $623,255
Less:
Cash repayments $488,600
Allocation of early withdrawal penalties 46,996 535,596
=========== -----------
Balance December 31, 1996 $87,659
===========
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 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 June 30, 1997, December 31, 1996, and 1995, reductions in the cost of
loans categorized as impaired by the Partnership totalled $13,006, $13,006 and
$45,933, 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 June 30, 1997,
the average mortgage investment to appraised value of security at the time the
loans were consummated was 66.27%. 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 propertys estimated fair
value, less estimated costs to sell.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 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 June 30, 1997, and December 31, 1996:
June 30, December 31,
1997 1996
-------------- ----------------
Cost of properties $1,414,945 $1,743,382
Reduction in value 340,011 302,375
---------------- ---------------
Fair value reflected in financial statements $1,074,934 $1,441,007
============== ==============
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
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 June 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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 30, 1997 (unaudited)
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate with due consideration to
collateral value to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of June
30, 1997, and December 31, 1996 were as follows:
June 30, December 31,
1997 1996
------------ ----------------
Impaired mortgage investments $13,006 $13,006
Unspecified mortgage investments 106,074 59,844
Amounts receivable, unsecured 200,000 180,000
---------------- ----------------
$319,080 $252,850
============ ================
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital. Because
the net income percentage varies from month to month, amounts per $1,000 will
vary for those individuals who made or withdrew investments during the period,
or 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
Certain reclassifications not affecting net income have been made to prior
year amounts to conform to the current year presentation.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 30, 1997 (unaudited)
B. Mortgage Servicing Fees Monthly mortgage servicing fees are paid to
Redwood Mortgage of 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 $16,520, $44,565 and $42,056 were incurred for the six months period
ended June 30, 1997, and for years 1996, and 1995, respectively.
C. Asset Management Fee The General Partners receive monthly fees for
managing the Partnerships Mortgage Investment portfolio and operations of up to
1/32 of 1% (3/8 of 1% annual). Management fees incurred were $0 for the six
months period ended June 30, 1997, and for years 1996, and 1995, 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. Such costs were reimbursed to Redwood Mortgage and are
included in expenses in the Statements of Income.
NOTE 4 OTHER PARTNERSHIP PROVISIONS
A. Term of the Partnership The term of the Partnership is approximately 40
years, unless sooner terminated as provided. The provisions provided for no
capital withdrawal for the first five years, subject to the penalty provision
set forth in (D) below. Thereafter, investors have the right to withdraw over a
five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions Upon
subscriptions, investors elected either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound for at
least a period of 5 years.
C. Profits and Losses Profits and losses are allocated monthly among the
Limited Partners according to their respective capital accounts after 1% is
allocated to the General Partners.
D. Withdrawal From Partnership A Limited Partner had no right to withdraw
from the Partnership or to obtain the return of his capital account for at least
five years after such units are purchased which in all instances had occurred by
June 30, 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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 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
Partners entire capital account in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given. Such liquidations shall, however, be subject to a 10% early
withdrawal penalty applicable to any sums withdrawn prior to the time when such
sums otherwise could have been withdrawn pursuant to the liquidation procedure
set forth above. The 10% early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal under the Formation Loan owed to the
Partnership by Redwood Mortgage. Such portion shall be determined by the ratio
between the initial amount of Formation Loan and the total amount of other
organization and syndication costs incurred by the Partnership in this offering.
The balance of any such early withdrawal penalties shall be retained by the
Partnership for its own account and applied against syndication costs. Since the
syndication costs have been fully amortized as of December 31, 1993, the early
withdrawal penalties gained in the future will be applied on the same basis as
before with the amount otherwise being credited to the syndication costs being
credited to income for the period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
NOTE 5 - INVESTMENT IN PARTNERSHIP. The Partnerships interest in land
acquired through foreclosure, located in East Palo Alto with costs totalling
$568,559 has been invested with that of two other Partnerships (total cost to
date, primarily land, of $1,171,185) in a partnership which is in the process of
securing permits etc. to constructing approximately 72 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 $1,530,511 and $1,589,011 at December 31, 1996,
and June 30, 1997, respectively, and the interest rate at June 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 $252,398.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 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:
June 30, December 31,
1997 1996
--------------- ----------------
Net assets - Partners Capital per
financial statements $9,980,357 $10,516,867
Allowance for doubtful accounts 319,080 252,850
------------- ------------
Net assets tax basis $10,299,437 $10,769,717
=============== ================
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 30, 1997 (unaudited)
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$9,040,797. The June 30, 1997 fair value of these investments of $8,950,598 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.
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments
are secured by recorded deeds of trust. At June 30, 1997, there were 63 Mortgage
Investments outstanding with the following characteristics:
Number of Mortgage Investments outstanding 63
Total Mortgage Investments outstanding $9,040,797
Average Mortgage Investment outstanding $143,505
Average Mortgage Investment as percent of total 1.59%
Average Mortgage Investment as percent of Partners Capital 1.44%
Largest Mortgage Investment outstanding $1,376,117
Largest Mortgage Investment as percent of total 15.22%
Largest Mortgage Investment as percent of Partners Capital 13.79%
Number of counties where security is located (all California) 14
Largest percentage of Mortgage Investments in one county 31.40%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 66.27%
Number of Mortgage Investments in foreclosure 5
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited)
and JUNE 30, 1997 (unaudited)
The following categories of mortgage investments are pertinent at June 30,
1997 and December 31, 1996:
<TABLE>
June 30, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
First Trust Deeds $4,715,010 $4,928,794
Second Trust Deeds 3,677,458 3,729,581
Third Trust Deeds 398,347 405,567
Fourth Trust Deeds 249,982 249,982
---------------- ----------------
Total mortgage investments 9,040,797 9,313,924
Prior liens due other lenders 17,091,313 17,200,385
----------------
================
Total debt $26,132,110 $26,514,309
================ ================
Appraised property value at time of loan $39,431,328 $40,225,303
================ ================
Total investments as a percent of appraisals 66.27% 65.91%
================ ================
Investments by Type of Property
Owner occupied homes $1,368,123 $1,443,835
Non-Owner occupied homes 852,730 973,498
Apartments 719,902 786,362
Commercial 6,100,042 6,110,229
---------------- ----------------
$9,040,797 $9,313,924
================ ================
</TABLE>
Scheduled maturity dates of mortgage investments as of June 30, 1997 are as
follows:
Period Ending
June 30, 1997
-------------------
1997 $2,422,807
1998 2,259,647
1999 1,921,184
2000 412,164
2001 554,924
Thereafter 1,470,071
===============
$9,040,797
===============
The scheduled maturities for 1997 include approximately $1,575,615 in loans
which are past maturity at December 31, 1996. $31,362 of those loans were
categorized as delinquent over 90 days.
Five loans with principal outstanding of $634,959 had interest payments
overdue in excess of 90 days. Two loans had impaired provisions totalling
$13,006 at June 30, 1997.
The cash balance at June 30, 1997 of $189,020 was in one bank with interest
bearing balances totalling $143,081. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $89,020.
<PAGE>
Item 7 - Managements Discussion and Analysis of Financial Condition and
Results of Operations
On June 30, 1997, the Partnerships net capital totalled $9,980,357.
The Partnership began funding Mortgage Investments in October 1987, and as
of June 30, 1997 had distributed income at an average annualized (compounded)
yield of 7.83%. 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 this 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%, (9.50%). Current
borrowings of $1,589,011 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 and because the Mortgage Investments made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit, allows the Partnership to make the spread between the Mortgage
Investment interest rate and the line of credit interest rate.
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 June 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 borrowers payment
records and other data relating to the Mortgage Investment portfolio. Data on
the local real estate market, and on the national and local economy are studied.
Based upon this information and more, Mortgage Investment loss reserves and
allowance for doubtful accounts are increased or decreased. Because of the
number of variables involved, the magnitude of possible swings and the General
Partners inability to control many of these factors, actual results may and do
sometimes differ significantly from estimates made by the General Partners.
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.
<PAGE>
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 three months ending June 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 $16,520
- ------------------------- --------------------------------------- ------------
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 $ 2,706
- ------------------------- ---------------------------------------- ------------
II. FEES PAID BY BORROWERS ON MORTGAGE LOANS 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
- ------------------------- ------------------------------------------------------
<PAGE>
MORTGAGE INVESTMENT SUMMARY AS OF JUNE 30, 1997
Partnership Highlights
Mortgage Investment to Value ratio
First Trust Deed Mortgage Investments $4,715,010.17
Appraised Value of Properties * 7,175,932.00
Total Investment as a % of Appraisal 65.71%
First Trust Deed Mortgage Investments $4,715,010.17
Second Trust Deed Mortgage Investments 3,677,457.58
Third Trust Deed Mortgage Investments 398,347.21
Fourth Trust Deed Mortgage Investments ** 249,982.09
---------------------
$9,040,797.05
First Trust Deeds due other Lenders $15,738,399.00
Second Trust Deeds due other Lenders 1,174,343.00
Third Trust Deeds due other Lenders 178,571.00
---------------------
Total Debt $26,132,110.05
Appraised Property Value $39,431,328.00
Total Investment as a % of Appraisal 66.27%
Number of Mortgage Investments Outstanding 63
Average Investment $143,504.72
Average Investment as a % of Net Partners Capita 1.44%
Largest Investment Outstanding $1,376,117.03
Largest Investment as a % of Net Partners Capital 13.79%
* 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.
<PAGE>
<TABLE>
Mortgage Investments as a Percentage of Total Mortgage Investments
<S> <C>
First Trust Deed Mortgage Investments 52.15%
Second Trust Deed Mortgage Investments 40.68%
Third Trust Deed Mortgage Investments 4.41%
Fourth Trust Deed Mortgage Investments 2.76%
-----------
Total 100.00%
Mortgage Investments by Type of Property
Owner Occupied Homes $1,368,123.16 15.13%
Non Owner Occupied Homes 852,729.90 9.43%
Apartments 719,901.63 7.97%
Commercial 6,100,042.36 67.47%
----------------- -----------
Total $9,040,797.05 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure 5
Diversification by County
County
Santa Clara $2,838,820.12 31.40%
Alameda 1,699,346.34 18.80%
San Mateo 1,345,459.56 14.88%
Contra Costa 769,484.03 8.51%
Stanislaus 679,802.62 7.52%
Sacramento 437,843.66 4.84%
San Francisco 376,131.03 4.16%
Sonoma 374,186.98 4.14%
El Dorado 214,773.21 2.37%
Ventura 91,000.00 1.01%
Shasta 82,086.69 0.91%
Monterey 72,380.95 0.80%
Santa Cruz 37,189.86 0.41%
Solano 22,292.00 0.25%
----------------- -----------
Total $9,040,797.05 100.00%
</TABLE>
<PAGE>
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 June 30, 1997.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 12th day of
August, 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 August, 1997.
Signature Title Date
/s/ D. Russell Burwell
- ---------------------------
D. Russell Burwell General Partner August 12, 1997
/s/ Michael R. Burwell
- ---------------------------
Michael R. Burwell General Partner August 12, 1997
/s/ D. Russell Burwell
- ---------------------------
D. Russell Burwell President of Gymno Corporation, August 12, 1997
Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- --------------------------
Michael R. Burwell Secretary/Treasurer of Gymno August 12, 1997
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
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