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
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1996 (audited) and
SEPTEMBER 30, 1997 (unaudited)
<TABLE>
ASSETS
<CAPTION>
Sept 30, 1997 Dec 31, 1996
(unaudited) (audited)
---------------- ----------------
<S> <C> <C>
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
================ ===============
<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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (unaudited)
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
========== =========== =========== ===========
<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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996 (unaudited)
<CAPTION>
Sept 30, 1997 Sept 30, 1996
(unaudited) (unaudited)
---------------- ----------------
<S> <C> <C>
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
================ ================
<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
NINE MONTHS ENDED SEPTEMBER 30, 1997 (unaudited)
<CAPTION>
PARTNERS' CAPITAL
-------------------------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------
Capital
Account Formation Total Total Total
Limited Loan Limited General Partners
Partners Receivable Partners Partners Capital
-------------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
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
============== ============= =============== ============ ==============
<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
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.
<PAGE>
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
SEPTEMBER 30, 1997 (unaudited)
<TABLE>
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:
<CAPTION>
Sept. 30, Dec. 31, Dec. 31,
1997 1996 1995
--------------- --------------- -------------
<S> <C> <C> <C>
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
=============== =============== =============
</TABLE>
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:
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
SEPTEMBER 30, 1997 (unaudited)
<CAPTION>
Sept. 30, Dec. 31, Dec. 31,
1997 1996 1995
--------------- --------------- -------------
<S> <C> <C> <C>
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
=============== =============== =============
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE>
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
<CAPTION>
Sept. 30, Dec. 31, Dec. 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
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
=============== =============== ===============
</TABLE>
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.
<PAGE>
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
<TABLE>
The Mortgage Investments are secured by recorded deeds of trust. At September
30, 1997, there were 64 Mortgage Investments outstanding with the following
characteristics:
<S> <C>
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
</TABLE>
<TABLE>
The following categories of mortgage investments were pertinent at September 30,
1997, December 31, 1996 and 1995:
<CAPTION>
Sept. 30, Dec. 31, Dec. 31,
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
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
================ =============== ================
</TABLE>
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
I.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
<TABLE>
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.
<CAPTION>
Entity Receiving Description of Compensation Amount
Compensation and Services Rendered
========================= ================================================= ============
<S> <C> <C>
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
- ------------------------- ------------------------------------------------- ------------
</TABLE>
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
Mortgage Investments as a Percentage of Total Mortgage Investments
<S> <C> <C>
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%
</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 September 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
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
<TABLE>
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.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 138,216
<SECURITIES> 0
<RECEIVABLES> 9,877,618
<ALLOWANCES> 8,358
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,087,012
<CURRENT-LIABILITIES> 0
<BONDS> 0
1,439,011
0
<COMMON> 0
<OTHER-SE> 9,648,001
<TOTAL-LIABILITY-AND-EQUITY> 11,087,012
<SALES> 0
<TOTAL-REVENUES> 766,812
<CGS> 0
<TOTAL-COSTS> 76,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 182,745
<INTEREST-EXPENSE> 106,441
<INCOME-PRETAX> 400,682
<INCOME-TAX> 0
<INCOME-CONTINUING> 400,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,682
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
