FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 2000
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Commission file number 33-12519
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REDWOOD MORTGAGE INVESTORS VI
(exact name of registrant as specified in its charter)
California 94-3031211
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
---------------- -------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
- -------------- ---------------- -----------------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 (audited) AND
JUNE 30, 2000 (unaudited)
ASSETS
June 30, December 31,
2000 1999
(unaudited) (audited)
------------- --------------
Cash $597,004 $1,120,295
------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 5,359,146 5,282,773
Accrued Interest on Mortgage Investments 803,571 706,841
Advances on Mortgage Investments 136,891 137,930
------------- --------------
6,299,608 6,127,544
Less allowance for doubtful accounts 270,501 303,249
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6,029,107 5,824,295
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Note receivable - Redwood Mortgage Corp. 263,000 300,000
Real estate owned, held for sale, acquired through foreclosure 845,119 133,300
Real estate in process of acquisition, to be sold 0 668,132
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Total Assets $7,734,230 $8,046,022
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Deferred Interest $0 $15,676
Other 13,423 0
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Total Liabilities 13,423 15,676
------------- --------------
Partners' Capital:
Limited Partners' capital, subject to redemption, (note 4D): 7,711,041 8,020,580
General Partners' Capital: 9,766 9,766
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Total Partners' capital 7,720,807 8,030,346
------------- --------------
Total Liabilities and Partners' capital $7,734,230 $8,046,022
============= ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (unaudited)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
Revenues:
Interest on Mortgage Investments $293,154 $407,836 $151,050 $201,479
Interest on bank deposits 6,620 2,003 3,755 1,376
Late charges, prepayment penalties, and fees 13,388 12,235 7,774 9,862
Interest on Promissory Note 10,000 0 10,000 0
------------ ------------ ------------- -------------
323,162 422,074 172,579 212,717
------------ ------------ ------------- -------------
Expenses:
Mortgage servicing fees 16,681 31,616 7,622 14,821
Asset management fee 4,983 5,409 2,466 2,680
Clerical costs through Redwood Mortgage Corp. 10,075 11,131 4,928 5,458
Interest and line of credit costs 0 12,131 0 8,847
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 12,963 75,450 12,963 44,866
Professional services 25,558 16,106 19,393 1,016
Other 6,988 8,645 4,672 4,362
------------ ------------ ------------- -------------
77,248 160,488 52,044 82,050
------------ ------------ ------------- -------------
Net Income $245,914 $261,586 $120,535 $130,667
============ ============ ============= =============
Net income: To General Partners(1%) $2,459 $2,616 $1,205 $1,307
To Limited Partners (99%) $243,455 $258,970 $119,330 $129,360
------------ ------------ ------------- -------------
$245,914 $261,586 $120,535 $130,667
============ ============ ============= =============
Net income per $1,000 invested by Limited Partners for entire period:
-where income is reinvested and
compounded $30.93 $30.30 $15.20 $15.16
============ ============ ============= =============
-where partner receives income
in monthly distributions $30.53 $29.92 $15.12 $15.08
============ ============ ============= =============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) and
THE SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
PARTNERS' CAPITAL
-----------------------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-------------------------------------------------
Capital Capital
Account Formation Account
Limited Loan General
Partners Receivable Total Partners Total
------------- -------------- -------------- ------------- -------------
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 53,291 53,291 0 53,291
Net Income 507,380 0 507,380 5,125 512,505
Early withdrawal penalties (9,834) 6,230 (3,604) 0 (3,604)
Partners' withdrawals (1,280,986) 0 (1,280,986) (5,125) (1,286,111)
------------- -------------- -------------- ------------- --------------
Balances at December 31, 1998 $8,697,768 0 $8,697,768 $9,766 $8,707,534
Net Income 515,700 0 515,700 5,209 520,909
Early withdrawal penalties (10,028) 0 (10,028) 0 (10,028)
Partners' withdrawals (1,182,860) 0 (1,182,860) (5,209) (1,188,069)
------------- -------------- -------------- ------------- --------------
Balances at December 31, 1999 $8,020,580 0 $8,020,580 $9,766 $8,030,346
Net Income 243,455 0 243,455 2,459 245,914
Early withdrawal penalties (9,275) 0 (9,275) 0 (9,275)
Partners' withdrawals (543,719) 0 (543,719) (2,459) (546,178)
------------- -------------- -------------- ------------- --------------
Balances at June 30, 2000 $7,711,041 0 $7,711,041 $9,766 $7,720,807
============= ============== ============== ============= ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (unaudited)
SIX MONTHS ENDED
JUNE 30
--------------------------------
2000 1999
------------- -------------
Cash flows from operating activities:
Net income $245,914 $261,586
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 12,413 74,907
Provision for Losses (recovery) on real estate
held for sale 550 543
Early withdrawal penalty credited to income (9,275) (3,950)
(Increase) decrease in assets:
Accrued interest & advances (96,278) (61,366)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 13,423 (20,895)
Deferred Interest on Mortgage Investments (15,676) (20,463)
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Net cash provided by operating activities 151,071 230,362
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Cash flows from investing activities:
Principal collected on Mortgage Investments 836,565 1,131,134
Mortgage Investments made (958,062) (533,940)
Additions to real estate held for sale (43,687) (2,245)
Dispositions of real estate held for sale 0 62,271
Investment in Partnership 0 0
Proceeds from Partnership 0 0
Proceeds from unsecured accounts receivable 0 0
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Net cash provided by (used in)
investing activities (165,184) 657,220
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Cash flows from financing activities:
Net increase (decrease) in note payable-bank 0 10,000
Partners withdrawals (546,178) (562,581)
Note receivable - Redwood Mortgage Corp. 37,000 0
------------- --------------
Net cash provided by (used in)
financing activities (509,178) (552,581)
------------- ------------
Net increase (decrease) in cash (523,291) 335,001
Cash - beginning of period 1,120,295 299,775
------------- --------------
Cash - end of period $597,004 $634,776
============= ============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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 Mortgage Corp., (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 Corp. an affiliate of the General
Partners that arranges and services the Mortgage Investments. To finance the
sales commissions, the Partnership loaned to Redwood Mortgage Corp. $623,255
(the "Formation Loan") relating to contributed capital of $9,781,366. The
Formation Loan was unsecured, and was repaid without interest, over 10 years,
commencing December 31, 1989. The last payment was made during 1998.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, and other costs), paid by the
Partnership from the offering proceeds totaled $360,885 or 3.69% of the gross
proceeds contributed by the Partners. Such costs have been fully amortized and
allocated to the Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for the
related periods. Such estimates relate principally to the determination of the
allowance for doubtful accounts, including the valuation of impaired Mortgage
Investments, and the valuation of real estate acquired through foreclosure.
Actual results could differ significantly from these estimates.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage Investments
to maturity, i.e., held for long-term investment. They are therefore valued at
cost for financial statement purposes with interest thereon being accrued by the
simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective
January 1, 1995) provide that if the probable ultimate recovery of the carrying
amount of a Mortgage Investment, with due consideration for the fair value of
collateral, is less than the recorded investment and related amounts due and the
impairment is considered to be other than temporary, the carrying amount of the
investment (cost) shall be reduced to the present value of future cash flows.
The adoption of these statements did not have a material effect on the financial
statements of the Partnership because that was the valuation method previously
used on impaired loans.
At June 30, 2000, December 31, 1999 and 1998, reductions in the cost of Mortgage
Investments categorized as impaired by the Partnership totalled $283,249,
$283,249 and $84,736, respectively. The reduction in stated value was
accomplished by increasing the allowances for doubtful accounts.
As presented in Note 10 to the financial statements as of June 30, 2000, the
average mortgage investment to appraised value of security at the time the loans
were consummated was 65.08%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, a low loan to
value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1999, one property that was
in the process of becoming Real Estate Owned, actually became Real Estate Owned
as of March 31, 2000. It was valued at fair value of $668,132 based on a current
appraisal. The $668,132 is net of reduction in value of $287,548.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of June 30, 2000 and December 31, 1999:
June 30, 2000 December 31, 1999
------------------ -------------------
Costs of properties $1,160,232 $161,415
Reduction in value 315,113 28,115
------------------- -------------------
Fair value reflected
in financial statements $845,119 $133,300
=================== ===================
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. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
G. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. 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.
H. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the Mortgage Investment system. A provision is made for
doubtful accounts to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate with due consideration to collateral
value to provide for unrecoverable accounts receivable, including impaired
Mortgage Investments, unspecified Mortgage Investments, accrued interest and
advances on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of June 30, 2000 and
December 31, 1999 was as follows:
June 30, 2000 December 31, 1999
--------------- -----------------
Impaired Mortgage Investments $250,501 $283,249
Unspecified Mortgage Investments 20,000 20,000
Accounts receivable, unsecured 0 0
---------------- -----------------
$270,501 $303,249
================ =================
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
I. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000 invested
by Limited Partners for the entire period are actual amounts allocated to
Limited Partners who 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. Such commissions totalled $14,047 and $46,527 for
the six months ended June 30, 2000 and for the year ended December 31, 1999,
respectively.
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 $16,681, $50,150 and $70,630,
were incurred for the six months ended June 30, 2000, and the years ended
December 31, 1999 and 1998, respectively.
C. Asset Management Fee
The General Partners are authorized 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% annually). Management fees incurred for the six months ended June 30,
2000 and for years ended December 31, 1999 and 1998 were $4,983, $10,626 and
$6,640, 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%.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. For
the six months ended June 30, 2000 and for the years 1999 and 1998, clerical
costs totaling $10,075, $21,748 and $24,440, respectively, were reimbursed to
Redwood Mortgage Corp. and are included in expenses in the Statements of Income.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner terminated
as provided. The provisions provided for no capital withdrawal for the first
five years, subject to the penalty provision set forth in (D) below. Thereafter,
investors have the right to withdraw over a five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound
for at least a period of 5 years.
C. Profits and Losses
Profits and losses are allocated monthly among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
D. Withdrawal From Partnership
A Limited Partner had no right to withdraw from the Partnership or to obtain the
return of his capital account for at least five years after such units are
purchased which in all instances had occurred by June 30, 2000. After that time,
at the election of the Partner, capital accounts can be returned over a five
year period in 20 equal quarterly installments or such longer period as is
requested.
Notwithstanding the above, in order to provide a certain degree of liquidity to
the Limited Partners, the General Partners will liquidate a Limited Partner's
entire capital account in four quarterly installments beginning on the last day
of the calendar quarter following the quarter in which the notice of withdrawal
is given. Such liquidations shall, however, be subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums
otherwise could have been withdrawn pursuant to the liquidation procedure set
forth above. The 10% early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal under the Formation Loan owed to the
Partnership by Redwood Mortgage Corp. Such portion shall be determined by the
ratio between the initial amount of Formation Loan and the total amount of other
organization and syndication costs incurred by the Partnership in this offering.
The balance of any such early withdrawal penalties shall be retained by the
Partnership for its own account and applied against syndication costs. Since the
syndication costs have been fully amortized as of December 31, 1993, and the
formation loan was paid in 1998, the early withdrawal penalties gained in the
future will be credited to income for the period received.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
The Partnership will not establish a reserve from which to fund withdrawals and,
accordingly, the Partnership's capacity to return a Limited Partner's capital
account is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total Limited Partners' capital accounts outstanding at
the beginning of any year shall be liquidated during any calendar year.
NOTE 5 - NOTE RECEIVABLE - REDWOOD MORTGAGE CORP.
Redwood Mortgage Corp., an affiliate of the General Partners which arranges and
services the Mortgage Investments of the Partnership, has subsidized certain
loan losses of the Partnership in the form of a note receivable. The note bears
interest at 8% and will be paid over a three year period to the extent that
Partnership losses occur relative to certain identified properties net of
assigned allowance and write-offs. If the identified properties recover from
their write-downs, Redwood Mortgage Corp. will be credited or reimbursed up to
the amount of the note receivable.
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership had a bank line of credit secured by its Mortgage Investment
portfolio up to $2,000,000 at 1% over prime. The balances were $0 and $390,000
at December 31, 1999 and 1998, respectively, and the interest rate at December
31, 1999 was 9.25% (8.25% prime + 1%). The line of credit expired December 31,
1999.
NOTE 7 - LEGAL PROCEEDINGS
The Partnership is a defendant along with numerous defendants, including a
developer, contractor, and other lenders, in a lawsuit involving the
Partnership's attempt to recover it's investment in real estate acquired through
foreclosure.
Management anticipates that the ultimate outcome of the legal matters will not
have a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
June 30, 2000 December 31, 1999
-------------------- -------------------
Net assets - Partners'
Capital per financial statements $7,720,807 $8,030,346
Allowance for doubtful accounts 270,501 303,249
--------------- --------------
Net assets tax basis $7,991,308 $8,333,595
=============== ==============
As of June 30, 2000 and December 31, 1999, 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.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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)) was $5,359,146
at June 30, 2000. The fair value of these investments of $5,406,486 was
estimated based upon projected cash flows discounted at the estimated current
interest rates at which similar loans would be made. The applicable amount of
the allowance for doubtful accounts along with accrued interest and advances
related thereto should also be considered in evaluating the fair value versus
the carrying value.
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At June 30,
2000, there were 35 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 35
Total Mortgage Investments outstanding $5,359,146
Average Mortgage Investment outstanding $153,118
Average Mortgage Investment as percent of total 2.86%
Average Mortgage Investment as percent of Partners' Capital 1.98%
Largest Mortgage Investment outstanding $1,376,117
Largest Mortgage Investment as percent of total 25.68%
Largest Mortgage Investment as percent of Partners' Capital 17.82%
Number of counties where security is located (all California) 10
Largest percentage of Mortgage Investments in one county 31.74%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 65.08%
Number of Mortgage Investments in foreclosure 0
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
The following categories of Mortgage Investments are pertinent at June 30, 2000
and December 31, 1999:
June 30, 2000 December 31, 1999
-------------------- -------------------
First Trust Deeds 4,085,239 3,810,670
Second Trust Deeds 1,250,400 1,273,693
Third Trust Deeds 23,507 198,410
-------------------- -------------------
Total Mortgage Investments 5,359,146 5,282,773
Prior liens due other lenders 4,964,676 6,705,986
-------------------- -------------------
Total debt $10,323,822 $11,988,759
==================== ===================
Appraised property value
at time of loan $15,864,162 $18,027,960
==================== ===================
Total investments as a
percent of appraisals 65.08% 66.50%
==================== ===================
Investments by Type of Property
Owner occupied homes 323,339 264,673
Non-Owner occupied homes 552,364 403,809
Apartments 581,713 730,934
Commercial 3,901,730 3,883,357
-------------------- -------------------
$5,359,146 $5,282,773
==================== ===================
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
Scheduled maturity dates of Mortgage Investments as of June 30, 2000 are as
follows:
Year Ending
December 31,
-------------------
2000 $3,079,629
2001 961,259
2002 379,828
2003 362,745
2004 193,257
Thereafter 382,428
------------
$5,359,146
============
The scheduled maturities for 2000 include $1,508,492 in Mortgage Investments
which are past maturity at June 30, 2000.
Seven Mortgage Investments with principal outstanding of $1,020,804 had interest
payments overdue in excess of 90 days.
The cash balance at June 30, 2000 of $597,004 were in two banks with interest
bearing balances totalling $588,770. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $397,003. As and when deposits in the Partnership's
bank accounts increase significantly beyond the insured limit, the funds are
generally placed in new Mortgage Investments.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
On September 2, 1989, the Partnership had sold 97,725.94 Units and its
contributed capital 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 June
30, 2000, the Partnership's net capital totalled $7,720,807.
The Partnership began funding Mortgage Investments in October 1987. The
Partnership's Mortgage Investments outstanding for the years ended December 31,
1998, 1999 and for the six months ended June 30, 2000, were $7,969,735,
$5,282,773 and $5,359,146, respectively. The decrease in Mortgage Investments
outstanding from December 31, 1998 to June 30, 2000, was due primarily to the
Partnership utilizing Mortgage Investment payoffs to meet Limited Partner
capital liquidations, line of credit pay-down, uninvested cash in Mortgage
Investments and an increase in Real Estate Owned or in process. During the years
1998, 1999 and six months through June 30, 2000, Mortgage Investment principal
collections exceeded Limited Partner liquidations.
Since the Fall of 1999, mortgage interest rates have been rising due
primarily to economic forces and by the Federal Reserve raising its core
interest rates. New Mortgage Investments will be originated at these higher
interest rates which could increase 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 2000 over the next 12 months. As of June 30, 2000 the Partnership's
Real Estate Owned account balance was $845,119. This account had a balance of
$1,017,460 and $169,922, as of December 31, 1997 and 1998, respectively. The
General Partners anticipate that the annualized yield for the forthcoming year
2000, will be similar to the current year's performance level.
Previously the Partnership had a line of credit with a commercial bank
which was secured by its Mortgage Investment portfolio. The outstanding balance
of the bank line of credit was $390,000, $0 and $0 for the years ended December
1998 and 1999. For the years ended December 31, 1999 and 1998, interest on Note
Payable-Bank was $14,714 and $43,170, respectively. The primary reason for this
decrease was that the Partnership had a lower overall credit facility
utilization from 1998 to December 31, 1999. During 1999 the Partnership's
borrowing ranged between $0 and $410,000, at an interest rate of Prime plus one
percent. This added source of funds helped 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. On December 31, 1999 the Partnership closed its line of credit with the
existing bank. The General Partners may seek a replacement lender during the
year 2000. As of December 31, 1999, all accrued interest and the line of credit
balances were paid in full.
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- three years. Foreclosures
are a normal aspect of partnership operations and the General Partners
anticipate that they will not have a material effect on liquidity. As of June
30, 2000, there were no properties in foreclosure. Cash is continually being
generated from interest earnings, late charges, prepayment penalties,
amortization of notes and pay-off of notes. Currently, this amount exceeds
Partnership expenses and earnings and 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 $180,054, $437,558 and $12,963 as provision for doubtful
accounts for the years ended December 31, 1998, December 31, 1999 and six months
ended June 30, 2000, respectively. The decrease in the provision in 1998
reflects the decrease in the amount of REO, unsecured receivables and the
decreasing levels of delinquency within the portfolio. The increase in allowance
for 1999 is to build up reserve for any potential loss in the future. The
Partnership acquired a piece of Real Estate through foreclosure in 2000. In
anticipation of this event, the Partnership carried $668,132 in its balance
sheet as Real Estate Owned in Process as of December 31, 1999.
The February 18, 2000 issue of the "Alert" publication, published by the
California Chamber of Commerce, said the following about California's thriving
economy:
"Job gains grew in the fourth quarter of 1999, as the California economy
accelerated. For the year as a whole, employment grew by 2.9 percent,
considerably stronger than in the nation. This gain likely will be revised
upward to 3.3 percent, or so, in the benchmark revisions to be released in late
February.
State unemployment, at 4.9 percent in the last four months, is lower than in
more than 30 years. Tax revenues are flooding into Sacramento, in part because
of the strong economy, but also because of exercised stock options, strong
bonuses and huge realized stock market gains.
The state economy's strength has been widespread across major industries, but
concern about residential real estate is growing.
Housing permits were issued at an annual rate of 139,000 units through November
1999, well below almost everyone's expectations and the 220,000 units averaged
annually in the 1980s. Clearly, not enough housing is being built in the state.
High land prices, restrictive local land use policies, the re-emergence of the
slow growth/no growth movement, and federal environmental regulations are
constraining home building. As a result, affordability is declining at an
alarming rate.
The affordability of existing homes is low in San Diego and Orange counties and
extremely low almost everywhere in the San Francisco Bay Area. In what seems
like a paradox, an oversupply of expensive new homes is developing. This also
happened under similar circumstances in the late 1980s.
In areas of particularly high land prices and long permitting and other building
delays, building entry-and mid-level housing becomes more difficult to "pencil
out." As developers turn increasingly to expensive housing, the supply of
expensive housing can quickly outstrip demand. Also, the affordability of new
homes can dip considerably below that of existing homes.
In Orange County, for example, a relatively low 32 percent of households could
afford to buy the median-priced existing home sold in November; only 19 percent
could afford to buy the median-priced new home."
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnership's lending activity.
The Partnership's interest in land located in East Palo Alto, Ca, was acquired
through foreclosure. The investment was previously classified as Investment in
Partnership in the Financial Statements and has been reclassified into Real
Estate Owned. The Partnership's basis of $39,790, $20,377 and $ 0, for the six
months ended June 30, 2000, and for the years ended December 31, 1999 and 1998,
respectively, has been invested with that of two other Partnerships. In order to
pursue development options, rezoning of the property's existing residential
zoning classification will be required. The Partnership is continuing to explore
remediation options available to mitigate the pesticide contamination, which
affects the property.
This pesticide contamination appears to be the result of agricultural operations
by prior owners. The General Partners do not believe at this time that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1998 and 1999, and for the six months through June 30, 2000,
the Partnership made distributions of earnings to Limited Partners after
allocation of syndication costs of $235,837, $217,526 and $94,128, respectively.
Distribution of Earnings to Limited Partners after allocation of syndication
costs for the years ended December 31, 1998, December 31, 1999 and for six
months through June 30, 2000 to Limited Partners' capital accounts and not
withdrawn, was $271,543, $298,174, and $149,327, respectively. As of December
31, 1998, December 31, 1999 and June 30, 2000, Limited Partners electing to
withdraw earnings represented 43%, 42% and 40% respectively, of the Limited
Partners outstanding capital accounts.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1998, December 31, 1999
and six months through June 30, 2000, $122,069, $128,295 and $112,176
respectively, were liquidated subject to the 10% and/or 8% penalty for early
withdrawal. These withdrawals are within the normally anticipated range that the
General Partners would expect in their experience in this and other
Partnerships. The General Partners expect that a small percentage of Limited
Partners will elect to liquidate their capital accounts over one year with a 10%
and/or 8% early withdrawal penalty. In originally conceiving the Partnership,
the General Partners wanted to provide Limited Partners needing their capital
returned a degree of liquidity. Generally, Limited Partners electing to withdraw
over one year need to liquidate investments to raise cash. The trend the
Partnership is experiencing in withdrawals by Limited Partners electing a one
year liquidation program represents a small percentage of Limited Partner
capital as of December 31, 1998, December 31, 1999 and June 30, 2000
respectively, and is expected by the General Partners to commonly occur at these
levels.
Additionally, for the years ended December 31, 1998, December 31, 1999 and the
six months through June 30, 2000, $938,040, $847,067 and $346,690 respectively,
were liquidated by Limited Partners who have elected a liquidation program over
a period of five years or longer. Once the initial five-year hold period has
passed, the General Partners expect to see an increase in liquidations due to
the ability of Limited Partners to withdraw without penalty. This ability to
withdraw after five years by Limited Partners has the effect of providing
Limited Partner liquidity which the General Partners then expect a portion of
the Limited Partners to avail themselves of. This has the anticipated effect of
the partnership growing, primarily through reinvestment of earnings in years one
through five. The General Partners expect to see increasing numbers of Limited
Partner withdrawals in years five through eleven, at which time the bulk of
those Limited Partners who have sought withdrawal will have been liquidated.
After year eleven, liquidation generally subsides and the Partnership capital
again tends to increase.
Actual liquidation of both capital and earnings from year five (1992) through
year twelve (1999), and for six months through June 30, 2000 is shown hereunder:
Years ended December 31,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ------------
Earnings $323,037 377,712 303,014 303,098 294,678
Capital *$232,370 *528,737 *729,449 *892,953 *1,183,099
----------- ----------- ----------- ----------- ------------
Total $555,407 $906,449 $1,032,463 $1,196,051 $1,477,777
=========== =========== =========== =========== ============
6 months
1997 1998 1999 through June
30, 2000
------------ ----------- ----------- ----------------
Earnings 257,670 235,837 217,526 $94,128
Capital *1,297,410 *1,060,109 *975,362 *458,866
------------ ----------- ----------- ----------------
Total $1,555,080 $1,295,946 $1,192,888 $552,994
============ =========== =========== ================
*These amounts represent gross of early withdrawal penalties.
The Year 2000 was considered by most to be a challenge for the entire world with
respect to the conversion of existing computerized operations. The Partnership
relies on Redwood Mortgage Corp., third parties and various software vendors for
its hardware and software needs. Since year 2000 has come, we have not
experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems are being
addressed by the appropriate software vendors or software programmers. All
annual computerized functions have not yet been run, however, testing of the
operations has taken place. We do not expect any significant problems.
The costs of updating our computer systems were substantially borne by the non
affiliated software vendors and the in house system conversion costs to the
partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant manner, any
industries or businesses in the marketplace in which the Partnership places its
loans. We believe that year 2000 issues are a non-event and will have little if
any future effect on the Partnership, its affiliates or the people and
businesses with which it associates.
The foregoing analysis of year 2000 issues includes forward-looking statements
and predictions about possible or future events, results of operations, and
financial condition. As such, this analysis may prove to be inaccurate because
of assumptions made by the General Partners or the actual development of future
events. No assurance can be given that any of these statements or predictions
will ultimately prove to be correct or substantially correct.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is
managed by the General Partners. There are certain fees and other items paid to
management and related parties. A more complete description of management
compensation is found in the Prospectus, pages 11-12, under the section
"Compensation of the General Partners and the Affiliates", which is incorporated
by reference. Such compensation is summarized below.
The following compensation has been paid to the General Partners and
their affiliates for services rendered during the six months ended June 30,
2000. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Entity Receiving Description of Compensation and
Compensation Services Rendered Amount
- ------------------------ ------------------------------------------------------
I.
Redwood Mortgage Mortgage Servicing Fee for
Corp. servicing Mortgage Investments $16,681
General Partners
&/or Affiliates Asset Management Fee for managing assets $4,983
General Partners 1% interest in profits $2,459
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
Corp. in connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers
and not by the Partnership $14,047
Redwood Mortgage Processing and Escrow Fees for services in
Corp. connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $925
Gymno Corp. Inc. Reconveyance Fee $ 256
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.. . . . . . . . . . . . . . . . . .$10,075
As of June 30, 2000, 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 $4,085,238.96
Appraised Value of Properties 6,262,214.00
Total Investment as a % of Appraised Value 65.24%
First Trust Deeds $4,085,238.96
Second Trust Deed Mortgage Investments 1,250,400.24
Third Trust Deed Mortgage Investments 23,506.57
--------------------
5,359,145.77
First Trust Deeds due other Lenders 4,892,278.00
Second Trust Deeds due other Lenders 72,398.00
--------------------
Total Debt $10,323,821.77
Appraised Property Value $15,864,162.00
Total Investments as a % of Appraised Value 65.08%
Number of Mortgage Investments Outstanding 35
Average Investment 153,118.45
Average Investment as a % of Net Assets 1.98%
Largest Investment Outstanding 1,376,117.03
Largest Investment as a % of Net Assets 17.82%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 76.23%
Second Trust Deeds 23.33%
Third Trust Deeds 0.44%
-------------
100.00%
Total
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $323,339.33 6.03%
Non-Owner Occupied Homes 552,364.10 10.31%
Apartments 581,712.50 10.85%
Commercial 3,901,729.84 72.81%
---------------- ------------
Total $5,359,145.77 100.00%
The following is a distribution of Mortgage Investments outstanding as of March
31, 2000 by Counties.
Santa Clara $1,700,869.82 31.74%
Alameda 1,061,218.46 19.80%
San Mateo 874,021.42 16.31%
Sacramento 546,784.81 10.20%
Placer 441,127.52 8.23%
San Francisco 346,533.42 6.47%
Stanislaus 197,333.47 3.68%
Shasta 79,828.60 1.49%
Santa Cruz 67,123.24 1.25%
Sonoma 44,305.01 0.83%
------------------- ------------
Total $5,359,145.77 100.00%
Statement of Condition of Mortgage Investments:
Number of Mortgage Investments in Foreclosure 0
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
No legal action has been initiated against the
Partnership. The Partnership had filed a legal
action for collection against borrowers, which
is routine litigation incidental to its
business.
Please refer to note (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 June 30, 2000.
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 9th day of August,
2000.
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 9th day of August, 2000.
Signature Title Date
/S/ D. Russell Burwell
- ---------------------------
D. Russell Burwell General Partner August 9, 2000
/S/ Michael R. Burwell
- ---------------------------
Michael R. Burwell General Partner August 9, 2000
/S/ D. Russell Burwell
- ---------------------------
D. Russell Burwell President of Gymno Corporation,
(Principal Executive Officer);
Director of Gymno Corporation August 9, 2000
/S/ Michael R. Burwell
- ---------------------------
Michael R. Burwell Secretary/Treasurer of Gymno
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation August 9, 2000