FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended March 31, 1998
- --------------------------------------------------------------------------------
Commission file number 33-12519
- -------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VI
(exact name of registrant as specified in its charter)
California 94-3031211
- ------------------------- -----------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
- --------------------------------------------------------------------------------
(address of principal executive office)
(650) 365-5341
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
---------------- -------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
------------ --------------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
ASSETS
Mar 31, 1998 Dec 31, 1997
(unaudited) (audited)
------------------ ----------------
<CAPTION>
<S> <C> <C>
Cash $168,920 $331,143
------------------ ----------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 8,452,382 8,104,984
Accrued Interest on Mortgage Investments 654,260 617,456
Advances on Mortgage Investments 141,783 127,519
Accounts receivables, unsecured 23,775 161,414
------------------ ----------------
9,272,200 9,011,373
Less allowance for doubtful accounts 50,425 28,614
------------------ ----------------
9,221,775 8,982,759
------------------ ----------------
Real estate owned, held for sale, acquired through foreclosure 228,180 309,319
Investment in Partnership 722,751 708,141
------------------ ----------------
Total Assets $10,341,626 $10,331,362
================== ================
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Deferred Interest $0 $898
Note payable - bank line of credit 1,068,000 899,011
--------------- ---------------
Total Liabilities 1,068,000 899,909
--------------- ---------------
Partners Capital:
Limited Partners capital, subject to redemption, (note 4D):
net of Formation Loan receivable of $42,208 and $59,521,
for 1998 and 1997, respectively 9,263,860 9,421,687
General Partners Capital: 9,766 9,766
--------------- ---------------
Total Partners capital 9,273,626 9,431,453
--------------- ---------------
Total Liabilities and Partners capital $10,341,626 $10,331,362
=============== ===============
<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 MONTHS ENDED MARCH 31, 1998 AND 1997 (unaudited)
3 mos. ended 3 mos. ended
Mar 31, 1998 Mar 31, 1997
(unaudited) (unaudited)
<CAPTION>
Revenues:
<S> <C> <C>
Interest on Mortgage Investments $198,443 $250,645
Interest on Bank Deposits 2,657 1,939
Late charges, prepayment penalties and 1,953 2,217
fees
----------- -----------
203,053 254,801
----------- -----------
Expenses:
Mortgage Servicing fees 8,325 9,247
Clerical costs through Redwood Mortgage 6,319 7,341
Interest and line of credit cost 20,296 34,860
Provision for losses on real estate
acquired
through foreclosure and doubtful 21,811 50,200
accounts
Professional Services 11,288 11,067
Other 6,024 5,268
----------- -----------
74,063 117,983
----------- -----------
Net Income $128,990 $136,818
=========== ===========
Net Income: to General Partners (1%) $1,290 $1,368
to Limited Partners $127,700 $135,450
(99%)
=========== ===========
$128,990 $136,818
=========== ===========
Net income for $1,000 invested by
Limited
Partners for entire period
- where income is reinvested and $13.48 $12.90
compounded
=========== ===========
- where Partner received income in
monthly
distributions $13.42 $12.85
=========== ===========
<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, 1997 (audited) AND
THE THREE MONTHS ENDED MARCH 31, 1998 (unaudited)
PARTNERS CAPITAL
-------------------------------------------------------------------------------------
LIMITED PARTNERS CAPITAL
--------------------------------------------------
Capital
Account Formation General
Limited Loan Partners
Partners Receivable Total Capital Total
-------------- ------------- --------------- ------------ --------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $11,974,419 $(246,505) $11,727,914 $9,766 $11,737,680
Formation Loan collections 0 59,581 59,581 0 59,581
Net income 612,165 0 612,165 6,183 618,348
Early withdrawal penalties (4,336) 2,747 (1,589) 0 (1,589)
Partners withdrawals (1,185,532) 0 (1,185,532) (6,183) (1,191,715)
-------------- ------------- --------------- ------------ --------------
Balances at December 31, 1995 11,396,716 (184,177) 11,212,539 $9,766 11,222,305
Formation Loan collections 0 56,803 56,803 0 56,803
Net income 582,280 0 582,280 5,882 588,162
Early withdrawal penalties (8,721) 5,525 (3,196) 0 (3,196)
Partners withdrawals (1,463,174) 0 (1,463,174) (5,882) (1,469,056)
-------------- ------------- --------------- ------------ --------------
Balances at December 31, 1996 10,507,101 (121,849) 10,385,252 9,766 10,395,018
Formation Loan collections 0 53,833 53,833 0 53,833
Net Income 523,895 0 523,895 5,292 529,187
Early withdrawal penalties (13,409) 8,495 (4,914) 0 (4,914)
Partners withdrawals (1,536,379) 0 (1,536,379) (5,292) (1,541,671)
-------------- ------------- -------------- ------------- --------------
Balances at December 31, 1997 $9,481,208 ($59,521) $9,421,687 $9,766 $9,431,453
Formation Loan collections 0 15,582 15,582 0 15,582
Net Income 127,700 0 127,700 1,290 128,990
Early withdrawal penalties (2,733) 1,731 (1,002) 0 (1,002)
Partners withdrawals (300,107) 0 (300,107) (1,290) (301,397)
-------------- ------------- -------------- ------------- --------------
Balances at March 31, 1998 $9,306,068 $(42,208) $9,263,860 $9,766 $9,273,626
============== ============= ============== ============= ==============
<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 THREE MONTHS ENDED MARCH 31, 1998 and MARCH 31, 1997 (unaudited)
Mar 31, 1998 Mar 31, 1997
(unaudited) (unaudited)
<CAPTION>
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $128,990 $136,818
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 21,625 36,766
Provision for Losses on real estate held for sale 186 13,434
Early withdrawal penalty credited to income (1,002) (1,172)
(Increase) decrease in assets:
Accrued interest & advances (51,068) (118,683)
Prepaid expenses and other assets 0 0
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 0 0
Deferred Interest on Mortgage Investments (898) (18,522)
---------------- ----------------
Net cash provided by operating activities 97,833 48,641
---------------- ----------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 146,395 95,942
Mortgage Investments made (493,793) (31,063)
Additions to real estate held for sale (4,346) (26,726)
Dispositions of real estate held for sale 223,124 320,121
Investment in Partnership (14,610) (44,695)
---------------- ----------------
Net cash provided by (used in) investing activities (143,230) 313,579
---------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank 168,989 (55,500)
Partners withdrawals (301,397) (383,418)
Formation Loan collections 15,582 15,582
---------------- ----------------
Net cash provided by (used in) financing activities (116,826) (423,336)
---------------- ----------------
Net increase (decrease) in cash (162,223) (61,116)
Cash - beginning of period 331,143 180,597
---------------- ----------------
Cash - end of period $168,920 $119,481
================ ================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VI, (the
Partnership) is a California Limited Partnership, of which the General Partners
are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California
corporation owned and operated by the individual General Partners. The
partnership was organized to engage in business as a mortgage lender for the
primary purpose of making Mortgage Investments secured by Deeds of Trust on
California real estate. Mortgage Investments are being arranged and serviced by
Redwood Home Loan Co. (RHL Co.), dba Redwood Mortgage, an affiliate of the
General Partners. The offering was closed with contributed capital totaling
$9,781,366.
Each months income is distributed to partners based upon their
proportionate share of partners capital. Some partners have elected to withdraw
income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan Sales commissions ranging from 0%
(units sold by General Partners) to 10% of gross proceeds were paid by Redwood
Mortgage., an affiliate of the General Partners that arranges and services the
Mortgage Investments. To finance the sales commissions, the Partnership loaned
to Redwood Mortgage $623,255 (the Formation Loan) relating to contributed
capital of $9,781,366. The Formation Loan is unsecured, and is being repaid,
without interest, over ten years, commencing December 31, 1989.
The following reflects transactions in the Formation Loan account through
March 31, 1998:
<TABLE>
<S> <C>
Amount loaned during 1987,1988 and 1989 $623,255
Less:
<S> <C>
Cash repayments $528,877
Allocation of early withdrawal penalties 52,170 581,047
============ -----------
Balance March 31, 1998 $42,208
===========
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage, an affiliate
of the General Partners, has been deducted from Limited Partners capital in the
balance sheet. As amounts are collected from Redwood Mortgage, the deduction
from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, and other costs), paid by the Partnership from the offering
proceeds totaled $360,885 or 3.69% of the gross proceeds contributed by the
Partners. Such costs have been fully amortized and allocated to the Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affects the reported amounts
of assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a Mortgage Investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was the
valuation method previously used on impaired loans.
At March 31, 1998, December, 31, 1997, 1996 and 1995, reductions in the
cost of Mortgage Investments categorized as impaired by the Partnership totalled
$0, $0, $13,006 and $45,933, respectively. The reduction in stated value was
accomplished by increasing the allowance for doubtful accounts.
As presented in Note 10 to the financial statements as of March 31, 1998,
the average mortgage investment to appraised value of security at the time the
loans were consummated was 68.96%. When a loan is valued for impairment
purposes, an updating is made in the valuation of collateral security. However,
a low loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of March 31, 1998 and December 31, 1997 and 1996:
<TABLE>
March 31, December 31, December 31,
1998 1997 1996
---------------- ---------------- ----------------
<CAPTION>
<S> <C> <C> <C>
Costs of properties $368,031 $449,319 $1,743,382
Reduction in value 139,851 140,000 302,375
---------------- ---------------- ----------------
Fair value reflected in financial statements $228,180 $309,319 $1,441,007
================ ================ ================
</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
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 March 31, 1998, 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 March
31, 1998, December 31, 1997 and 1996 was a follows:
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
<TABLE>
March 31, December 31, December 31,
1998 1997 1996
---------------- ---------------- ----------------
<CAPTION>
<S> <C> <C> <C>
Impaired Mortgage Investments $0 $0 $13,006
Unspecified Mortgage Investments 26,650 13,432 59,844
Accounts receivable, unsecured 23,775 15,182 180,000
================ ================ ================
$50,425 $28,614 $252,850
================ ================ ================
</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.
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 $8,325, $39,918, and $44,565,
were incurred for three months ended March 31, 1998, and for years 1997 and
1996.
<PAGE>
6
C. Asset Management Fee
The General Partners are authorized to receive monthly fees for managing
the Partnerships Mortgage Investment portfolio and operations of up to 1/32 of
19 (3/8 of 1% annual). There were no management fees incurred for the three
months ended March 31, 1998, and for years 1997 and 1996 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
1996, 1997, and three months period ended March 31, 1998, clerical costs
totaling $31,838 $27,786 and $6,319, 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 March 31, 1998. After
that time, at the election of the Partner, capital accounts can be returned over
a five year period in 20 equal quarterly installments or such longer period as
is requested.
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
Notwithstanding the above, in order to provide a certain degree of
liquidity to the Limited Partners, the General Partners will liquidate a Limited
Partners entire capital account in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given. Such liquidations shall, however, be subject to a 10% early
withdrawal penalty applicable to any sums withdrawn prior to the time when such
sums otherwise could have been withdrawn pursuant to the liquidation procedure
set forth above. The 10% early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal under the Formation Loan owed to the
Partnership by Redwood Mortgage. Such portion shall be determined by the ratio
between the initial amount of Formation Loan and the total amount of other
organization and syndication costs incurred by the Partnership in this offering.
The balance of any such early withdrawal penalties shall be retained by the
Partnership for its own account and applied against syndication costs. Since the
syndication costs have been fully amortized as of December 31, 1993, the early
withdrawal penalties gained in the future will be applied on the same basis as
before with the amount otherwise being credited to the syndication costs being
credited to income for the period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land acquired through foreclosure, located in
East Palo Alto, CA, with costs totalling $722,751 has been invested with that of
two other Partnerships (total cost to date, primarily land, of $1,488,817) in a
partnership which is in the process of constructing 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 originally had a bank line of credit secured by its
Mortgage Investment portfolio up to $2,500,000 at 1% over prime. The balances
were $1,530,511 and $899,011 at December 31, 1996 and 1997, respectively, and
the interest rate at December 31, 1997 was 9.5% (8.50% prime + 1%). Commencing
January 1, 1998, the Partnership had reduced its borrowing limit to $2,000,000
with same conditions as previously stipulated. Balance at March 31, 1998, was
$1,068,000 and the Partnership was current in its interest payment. The line of
credit expires December 31, 1998.
NOTE 7 - LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions. However, legal
actions against borrowers and other involved parties have been initiated by the
Partnership to help assure payments against unsecured accounts receivable
totaling $23,775.
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, 1997 (audited) AND
MARCH 31, 1998 (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:
March 31, Dec. 31 Dec. 31
1998 1997 1996
<CAPTION>
--------------- -------------- --------------
<S> <C> <C> <C>
Net assets - Partners Capital per financial $9,273,626 $9,431,453 $10,395,018
statements
Formation Loan receivable 42,208 59,521 121,849
Allowance for doubtful accounts 50,425 28,614 252,850
=============== ============== ==============
Net assets tax basis $9,366,259 $9,519,588 $10,769,717
=============== ============== ==============
<FN>
In 1997, approximately 72% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
</FN>
</TABLE>
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$8,452,382. The March 31, 1998 fair value of these investments of $8,475,037 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>
<TABLE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At March
31, 1998, there were 59 Mortgage Investments outstanding with the following
characteristics:
<CAPTION>
<S> <C>
Number of Mortgage Investments outstanding 59
Total Mortgage Investments outstanding $8,452,382
Average Mortgage Investment outstanding $143,261
Average Mortgage Investment as percent of total 1.69%
Average Mortgage Investment as percent of Partners Capital 1.54%
Largest Mortgage Investment outstanding $1,376,117
Largest Mortgage Investment as percent of total 16.28%
Largest Mortgage Investment as percent of Partners Capital 14.84%
Number of counties where security is located (all California) 14
Largest percentage of Mortgage Investments in one county 28.86%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 68.96%
Number of Mortgage Investments in foreclosure 4
<FN>
The following categories of mortgage investments are pertinent at March 31, 1998, and December 31, 1997 and 1996:
</FN>
</TABLE>
<TABLE>
March 31 December 31 December 31
1998 1997 1996
--------------- ---------------- -----------------
<CAPTION>
<S> <C> <C> <C>
First Trust Deeds $4,474,974 $4,588,169 $4,928,794
Second Trust Deeds 3,330,953 2,869,543 3,729,581
Third Trust Deeds 396,455 397,273 405,567
Fourth Trust Deeds 250,000 249,999 249,982
--------------- ---------------- -----------------
Total mortgage investments 8,452,382 8,104,984 9,313,924
Prior liens due other lenders 16,241,184 11,075,429 17,200,385
---------------- -----------------
===============
Total debt $24,693,566 $19,180,413 $26,514,309
=============== ================ =================
Appraised property value at time of loan $35,810,217 $28,422,684 $40,225,303
=============== ================ =================
Total investments as a percent of appraisals 68.96% 67.48% 65.91%
=============== ================ =================
Investments by Type of Property
Owner occupied homes $943,166 $1,057,067 $1,443,835
Non-Owner occupied homes 379,153 380,142 973,498
Apartments 1,261,995 791,755 786,362
Commercial 5,868,068 5,876,020 6,110,229
=============== ================ =================
$8,452,382 $8,104,984 $9,313,924
=============== ================ =================
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
MARCH 31, 1998 (unaudited)
Scheduled maturity dates of mortgage investments as of March 31, 1998 are
as follows:
Year Ending
December 31,
-------------------
1998 $3,776,304
1999 1,898,255
2000 407,601
2001 504,729
2002 424,225
Thereafter 1,441,268
================
$8,452,382
================
The scheduled maturities for 1998 include $2,267,032 in Mortgage
Investments which are past maturity at March 31, 1998. $54,493 of those Mortgage
Investments were categorized as delinquent over 90 days.
Six Mortgage Investments with principal outstanding of $498,207 had
interest payments overdue in excess of 90 days.
The cash balance at March 31, 1998 of $168,920 was in one bank with
interest bearing balances totalling $146,234. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $68,920. As and when deposits in
the Partnerships bank accounts increase significantly beyond the insured limit,
the funds are either placed in new Mortgage Investments or used to pay down on
the line of credit balance.
<PAGE>
Managements Discussion and Analysis of Financial Condition and Results of
Operations
On September 2, 1989, the Partnership had sold 97,725.94 Units and its
contributed capital totalled $9,772,594 of the approved $12,000,000 issue, in
Units of $100 each. As of that date the offering was formally closed. On March
31, 1998, the Partnerships net capital totalled $9,273,626.
The Partnership began funding Mortgage Investments in October 1987. The
Partnerships Mortgage Investments outstanding for the years ended December 31,
1995, 1996, 1997 and the three months through March 31, 1998, were $10,402,491,
$9,313,924, $8,104,984, and $8,452,382 respectively. The decrease in Mortgage
Investments outstanding of $1,088,567 from December 31, 1995 to December 31,
1996, was due primarily to the Partnership utilizing Mortgage Investment payoffs
to meet Limited Partner capital liquidations. The decrease in Mortgage
Investments outstanding of $861,542 from December 31, 1996 to March 31, 1998,
was again due primarily to the Partnership utilizing Mortgage Investment payoffs
to meet Limited Partner capital liquidations. During the years 1996, 1997, and
three months period to March 31, 1998, Mortgage Investment principal collections
exceeded Limited Partner liquidations.
Currently, mortgage interest rates are lower than those prevalent at the
inception of the Partnership. New Mortgage Investments will be originated at
these lower interest rates. The result is to reduce the average return across
the entire Mortgage Investment portfolio held by the Partnership. In the future,
interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. Although the rates charged by the Partnership are influenced by the
level of interest rates in the market, the General Partners do not anticipate
that rates charged by the Partnership to its borrowers will change significantly
from the beginning of 1998 over the next 12 months. Based upon the rates payable
in connection with the existing Mortgage Investments, the current and
anticipated interest rates to be charged by the Partnership and the General
Partners experience, the General Partners anticipate that the annualized yield
this year will range only slightly higher from the past year.
Each year, the Partnership negotiates a line of credit with a commercial
bank which is secured by its Mortgage Investment portfolio. The outstanding
balance of the bank line of credit was $2,041,011, $1,530,511, $899,011 and
$1,068,000 for the years ended December 1995, 1996, 1997 and three months
through March 31, 1998, respectively. The interest rate on the bank line of
credit has remained at Prime plus one percent for the preceding three years. For
the three months ended March 31, 1998, and the years ended December 31, 1997,
1996 and 1995, interest on Note Payable-Bank was $20,296, $133,577, $158,175 and
$212,915 respectively. The primary reason for this decrease was that the
Partnership had a lower overall credit facility utilization from 1995 to 1996
and from 1996 to March 31, 1998. As of March 31, 1998, the Partnership has
borrowed $1,068,000 at an interest rate of Prime plus one percent. This added
source of funds will help in maximizing the Partnership yield by allowing the
Partnership to minimize the amount of funds in lower yield investment accounts
when appropriate Mortgage Investments are not currently available and because
the Mortgage Investments made by the Partnership usually bear interest at a rate
in excess of the rate payable to the bank which extended the line of credit, the
amount to be retained by the Partnership, after payment of the line of credit
cost, will be greater than without the use of the line of credit.
The Partnership's operating results and delinquencies are within the normal
range of the General Partners expectations, based upon their experience in
managing similar Partnerships over the last twenty- one years. Foreclosures are
a normal aspect of partnership operations and the General Partners anticipate
that they will not have a material effect on liquidity. As of March 31, 1998,
there were four properties in foreclosure. Cash is continually being generated
from interest earnings, late charges, prepayment penalties, amortization of
notes and pay-off of notes. Currently, this amount exceeds Partnership expenses
and earnings and principal payout requirements. As Mortgage Investment
opportunities become available, excess cash and available funds are invested in
new Mortgage Investments.
<PAGE>
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, REO expenses, sales activities, and borrowers payment
records and other data relating to the Mortgage Investment portfolio. Data on
the local real estate market, and on the national and local economy are studied.
Based upon this information and more, Mortgage Investment loss reserves and
allowance for doubtful accounts are increased or decreased. Because of the
number of variables involved, the magnitude of possible swings and the General
Partners inability to control many of these factors, actual results may and do
sometimes differ significantly from estimates made by the General Partners.
Management provided $344,807, $312,684, $268,101 and $21,811 as provision for
doubtful accounts for the years ended December 31, 1995, December 31, 1996,
December 31, 1997, and for the three months through March 31, 1998,
respectively. The decrease in the provision reflects the decrease in the amount
of REO, unsecured receivables and the decreasing levels of delinquency within
the portfolio. Additionally, the General Partners felt that the bottom of the
real estate cycle had been reached, reflecting a decreasing need to set aside
reserves for the continuously declining real estate values as had been the case
in the early 1990s in the California real estate market. As of March 31, 1998,
the Partnership reduced the REO balance from $1,501,712 as of December 31, 1995,
to $228,180 through March 31, 1998. This reduction will assist the Partnership
in increasing yields in 1998, as assets previously lying idle, may now produce
current income.
The Northern California recession reached bottom in 1993. Since then, the
California economy has been improving, slowly at first, but now, more
vigorously. A wide variety of indicators suggest that the economy in California
was strong in 1997, and the State is well - positioned for fast growth. This
improvement is reflective in increasing property values, in job growth, personal
income growth, etc., which should translate into more loan activity. Which of
course, is healthy for the Partnerships lending activity.
The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto, CA, with costs totalling $722,751, $708,141 and $496,040 for the
three months ended March 31, 1998 and for the years ended December 31, 1997 and
1996, respectively has been invested with that of two other Partnerships in a
partnership which is in the process of obtaining approval for constructing
approximately 63 single family homes for sale. (The Development). The proposed
Development has gained significant public awareness. Incorporated into the
proposed Development are various mitigation measures not limited to, mitigation
of hazardous materials existing on the property, endangered species, and
proximity to the San Francisco Baylands. The preceding issues and others have
sparked significant public controversy. Opposition both for and against the
proposed Development exists. Notwithstanding the above, the General Partners
believe that pursuit of the proposed Development approval to be in the interest
of the Partnership. This investment has been classified in the financial
statements as Investment in Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1995, December 31, 1996, 1997, and three months through March
31, 1998, the Partnership made distributions of earnings to Limited Partners
after allocation of syndication costs of, $296,915, $288,796, $252,378 and
$57,159 respectively. Distribution of Earnings to Limited Partners after
allocation of syndication costs for the years ended December 31, 1995, December
31, 1996, December 31, 1997, and three months to March 31, 1998 to Limited
Partners capital accounts and not withdrawn was $315,250, $293,484, $271,517
and $70,541 respectively. As of December 31, 1995, December 31, 1996 and
December 31, 1997, Limited Partners electing to withdraw earnings represented 50
%, 49 % and 46% of the Limited Partners outstanding capital accounts.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1995, December 31,
1996, December 31, 1997, and for the three months ended March 31, 1998, $43,364,
$96,362, $159,732 and $33,301 respectively, were liquidated subject to the 10%
and/or 8% penalty for early withdrawal. These withdrawals are within the
normally anticipated range that the General Partners would expect in their
experience in this and other Partnerships. The General Partners expect that a
small percentage of Limited Partners will elect to liquidate their capital
accounts over one year with a 10% and/or 8% early withdrawal penalty. In
originally conceiving the Partnership, the General Partners wanted to provide
<PAGE>
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 the Partnership is experiencing in
withdrawals by Limited Partners electing a one year liquidation program
represents a small percentage of Limited Partner capital as of December 31,
1995, December 31, 1996, December 31, 1997, and three months through March 31,
1998, respectively and is expected by the General Partners to commonly occur at
these levels.
Additionally, for the years ended December 31, 1995, December 31, 1996,
December 31, 1997, and the three months through March 31, 1998, $849,589,
$1,086,737, $1,137,677 and $212,380 respectively, were liquidated by Limited
Partners who have elected a liquidation program over a period of five years or
longer. Once the initial five year hold period has passed (which has), the
General Partners expect to see an increase in liquidations due to the ability of
Limited Partners to withdraw without penalty. This ability to withdraw after
five years by Limited Partners has the effect of providing Limited Partner
liquidity which the General Partners then expect a portion of the Limited
Partners to avail themselves of. This has the anticipated effect of the
partnership growing, primarily through reinvestment of earnings in years one
through five. The General Partners expect to see increasing numbers of Limited
Partner withdrawals in years five through eleven, at which time the bulk of
those Limited Partners who have sought withdrawal will have been liquidated.
After year eleven, liquidation generally subsides and the Partnership capital
again tends to increase.
Actual liquidation of both capital and earnings from year five (1992)
through year ten (1997) is shown hereunder:
<TABLE>
Years ended December 31,
1992 1993 1994 1995 1996 1997
----------- ---------- ------------ ------------- ------------ -------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Earnings $323,037 377,712 303,014 303,098 294,678 257,670
Capital *$232,370 528,737 729,449 892,953 1,183,099 1,297,410
=========== ========== ============ ============= ============ =============
Total $555,407 $906,449 $1,032,463 $1,196,051 $1,477,777 $1,555,080
=========== ========== ============ ============= ============ =============
<FN>
*These amounts represent gross of early withdrawal penalties.
</FN>
</TABLE>
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties. A more complete description of management compensation is
found in the Prospectus, pages 11-12, under the section Compensation of the
General Partners and the Affiliates, which is incorporated by reference. Such
compensation is summarized below.
The following compensation has been paid to the General Partners and
affiliates for services rendered during the three months ended march 31, 1998.
All such compensation is in compliance with the guidelines and limitations set
forth in the Prospectus.
Entity Receiving Description of Compensation and Services Rendered Amount
Compensation
- ---------------------- ---------------------------------------------- ----------
I.
Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage
Investments $8,325
General Partners
&/or Affiliates Asset Management Fee for managing assets $0
General Partners 1% interest in profits $1,290
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 $0
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $0
III. IN ADDITION, THE GENERAL PARTNER AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME.......................................$6,319
<PAGE>
As of March 31, 1998, a summary of the Partnership's Mortgage Investment
portfolio is set forth below.
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds $4,474,974.18
Appraised Value of Properties 6,709,856.00
Total Investment as a % of Appraisal 66.69%
First Trust Deeds $4,474,974.18
Second Trust Deed Mortgage Investments 3,330,953.10
Third Trust Deed Mortgage Investments 396,455.27
Fourth Trust Deed Mortgage Investments* 249,999.40
--------------------
8,452,381.95
First Trust Deeds due other Lenders 15,072,549.00
Second Trust Deeds due other Lenders 990,064.00
Third Trust Deeds due other Lenders 178,571.00
Total Debt $24,693,565.95
Appraised Property Value $35,810,217.00
Total Investments as a % of Appraisal 68.96%
Number of Mortgage Investments Outstanding 59
Average Investment 143,260.71
Average Investment as a % of Net Assets 1.54%
Largest Investment Outstanding 1,376,117.03
Largest Investment as a % of Net Assets 14.84%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 52.94%
Second Trust Deeds 39.41%
Third Trust Deeds 4.69%
Fourth Trust Deeds 2.96%
--------------------
100.00%
Total
Mortgage Investments by Type Amount Percent
of Property
Owner Occupied Homes $943,165.71 11.16%
Non-Owner Occupied Homes 379,153.72 4.49%
Apartments 1,261,994.66 14.93%
Commercial 5,868,067.86 69.42%
----------------- -----------
Total $8,452,381.95 100.00%
*Footnote on following page
<PAGE>
The following is a distribution of Mortgage Investments outstanding as of
March 31, 1998 by Counties.
Santa Clara $2,439,676.92 28.86%
Alameda 1,888,579.28 22.34%
San Mateo 1,138,979.19 13.48%
Contra Costa 768,939.59 9.10%
Sacramento 634,125.81 7.50%
San Francisco 394,843.33 4.67%
Stanislaus 371,788.36 4.40%
Sonoma 300,871.11 3.56%
El Dorado 214,773.21 2.54%
Ventura 91,000.00 1.08%
Shasta 81,577.76 0.97%
Monterey 71,354.46 0.84%
Santa Cruz 35,620.44 0.42%
Solano 20,252.49 0.24%
------------------- -----------
Total $8,452,381.95 1.00%
* Redwood Mortgage Investors VI, together with other Redwood partnerships
hold a second and a fourth trust deed against the secured property. In addition,
the principals behind the borrower corporation have given personal guarantees as
collateral. The overall loan to value ratio on this loan is 76.52%. In addition
to the borrower paying an interest rate of 12.25%, the Partnership and other
lenders will also participate in profits. The General Partners have had previous
loan activity with this borrower which had been concluded successfully, with
extra earnings earned for the other partnerships involved.
Statement of Condition of Mortgage Investments:
Number of Mortgage Investments in Foreclosure 4
<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 three month period ending March 31, 1998.
<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 May,
1998.
REDWOOD MORTGAGE INVESTORS VI
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 12th day of May, 1998.
Signature Title Date
/s/ D. Russell Burwell
- -----------------------
D. Russell Burwell General Partner May 12, 1998
/s/ Michael R. Burwell
- -----------------------
Michael R. Burwell General Partner May 12, 1998
/s/ D. Russell Burwell
- -----------------------
D. Russell Burwell President of Gymno Corporation, May 12, 1998
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- -----------------------
Michael R. Burwell Secretary/Treasurer of Gymno May 12, 1998
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 168920
<SECURITIES> 0
<RECEIVABLES> 9272200
<ALLOWANCES> 50425
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10341626
<CURRENT-LIABILITIES> 0
<BONDS> 0
1068000
0
<COMMON> 0
<OTHER-SE> 9273626
<TOTAL-LIABILITY-AND-EQUITY> 10341626
<SALES> 0
<TOTAL-REVENUES> 203053
<CGS> 0
<TOTAL-COSTS> 31956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21811
<INTEREST-EXPENSE> 20296
<INCOME-PRETAX> 128990
<INCOME-TAX> 0
<INCOME-CONTINUING> 128990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128990
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
