24
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, 2001
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------ ----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
----------- ------------ --------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2000 (audited) AND
MARCH 31, 2001 (unaudited)
ASSETS
March 31, December 31,
2001 2000
(unaudited) (audited)
----------- --------------
Cash $331,800 $354,860
----------- --------------
Accounts receivable
Loans, secured by deeds of trust 5,453,565 5,570,576
Accrued interest on loans 681,410 664,292
Advances on loans 133,166 133,647
Accounts receivables, unsecured 82,362 82,362
----------- ---------------
6,350,503 6,450,877
Less allowance for doubtful accounts 261,452 261,452
----------- ---------------
6,089,051 6,189,425
----------- ---------------
Note receivable - Redwood Mortgage Corp. 76,436 125,000
Real estate owned, held for sale,
acquired through foreclosure 824,688 767,583
Prepaid expenses 1,830 0
------------ ---------------
Total assets $7,323,805 $7,436,868
============ ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $13,068 $13,068
------------- ---------------
Total Liabilities 13,068 13,068
------------- ---------------
Partners' capital
Limited Partners' capital, subject
to redemption, (note 4D): 7,300,971 7,414,034
General Partners' capital: 9,766 9,766
------------ ---------------
Total Partners' capital 7,310,737 7,423,800
------------ ---------------
Total Liabilities and Partners' capital $7,323,805 $7,436,868
============ ===============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
---------- ----------
Revenues
Interest on loans $135,443 $142,104
Interest on bank deposits 1,133 2,865
Late charges, prepayment penalties, and fees 5,065 5,614
Interest on promissory note 1,436 0
---------- ----------
143,077 150,583
---------- ----------
Expenses
Loan servicing fees 9,963 9,059
Asset management fee 2,326 2,517
Clerical costs through Redwood Mortgage Corp. 7,712 5,147
Professional services 7,970 6,165
Other 2,591 2,316
--------- ----------
30,562 25,204
--------- ----------
Net income $112,515 $125,379
========= ==========
Net income To:
To General Partners (1%) $1,125 $1,254
To Limited Partners (99%) $111,390 $124,125
----------- ----------
$112,515 $125,379
=========== ==========
Net income per $1,000 invested by Limited
Partners for entire period
-where income is reinvested and
Compounded $15.04 $15.49
=========== ==========
-where partner receives income
in monthly distributions $14.96 $15.41
=========== ==========
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) and
THE THREE MONTHS ENDED MARCH 31, 2001 (unaudited)
PARTNERS' CAPITAL
-----------------------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-------------------------------------------------
------------- -- -------------- -- --------------
Capital Capital
Account Formation Account
Limited Loan General
Partners Receivable Total Partners Total
------------- -------------- -------------- ------------- -------------
Balances at January 1, 1998 $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 473,150 0 473,150 4,779 477,929
Early withdrawal penalties (16,335) 0 (16,335) 0 (16,335)
Partners' withdrawals (1,063,361) 0 (1,063,361) (4,779) (1,068,140)
------------- -------------- -------------- ------------- --------------
Balances at December 31, 2000 7,414,034 0 7,414,034 9,766 7,423,800
Net Income 111,390 0 111,390 1,125 112,515
Early withdrawal penalties (4,024) 0 (4,024) 0 (4,024)
Partners' withdrawals (220,429) 0 (220,429) (1,125) (221,554)
------------- -------------- -------------- ------------- --------------
Balances at March 31, 2001 $7,300,971 0 $7,300,971 $9,766 $7,310,737
============= ============== ============== ============= ==============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001AND 2000 (unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
------------- -----------
Cash flows from operating activities:
Net income $112,515 $125,379
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 0 0
Provision for Losses (recovery) on real estate
held for sale 0 0
Early withdrawal penalty credited to income (4,024) (4,586)
(Increase) decrease in assets:
Accrued interest & advances (16,637) (52,158)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 0 0
Deferred Interest on loans 0 0
(Increase) decrease in pre-paid expenses (1,830) (3,602)
------------- -----------
Net cash provided by operating activities 90,024 65,033
------------- -----------
Cash flows from investing activities:
Principal collected on loans 614,195 465,680
Loans made (497,184) (947,156)
Additions to real estate held for sale (116,165) (17,809)
Dispositions of real estate held for sale 59,060 0
Proceeds from unsecured accounts receivable 0 0
------------- -----------
Net cash provided by (used in)
investing activities 59,906 (499,285)
------------- -----------
Cash flows from financing activities:
Partners withdrawals (221,554) (282,974)
Note receivable - Redwood Mortgage Corp. 48,564 0
-------------- -----------
Net cash provided by (used in)
financing activities (172,990) (282,974)
-------------- -----------
Net increase (decrease) in cash (23,060) (717,226)
Cash - beginning of period 354,860 1,120,295
-------------- -----------
Cash - end of period $331,800 $403,069
============== ===========
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 loans secured by
Deeds of Trust on California real estate. Loans are being arranged and serviced
by Redwood Mortgage Corp., (Redwood Mortgage), an affiliate of the General
Partners. The offering of partnership units 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 loans. 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 Loan 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
loans, 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
MARCH 31, 2001
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans 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
effective 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 Loan, 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. As
of March 31, 2001 and at December 31, 2000 and 1999, reductions in the cost of
loans categorized as impaired by the Partnership totaled $159,090, $159,090 and
$283,249, respectively. The reduction in stated value was accomplished by
increasing the allowances for doubtful accounts.
As presented in Note 9 to the financial statements as of March 31, 2001,
the average loan to appraised value of security at the time the loans were
consummated was 69.78%. 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.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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, 2001 and December 31, 2000 was as follows:
March 31, December 31,
2001 2000
--------------- ----------------
Costs of properties $1,298,346 $1,240,579
Reduction in value (473,658) (472,996)
--------------- ----------------
Fair value reflected in
financial statements $824,688 $767,583
=============== ================
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.
H. Allowance for Doubtful Accounts
Loans 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 Loan system. A provision is made for bad debt 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 loans, unspecified loans, accrued
interest and advances on loans, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of March 31, 2001 and
December 31, 2000 was as follows:
March 31, December 31,
2001 2000
--------------- ----------------
Impaired loans $159,090 $159,090
Unspecified loans 20,000 20,000
Accounts receivable, unsecured 82,362 82,362
--------------- ----------------
$261,452 $261,452
=============== ================
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 held 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.
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 loans were limited 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 totaled $13,466, $45,164, $46,527 and $36,700 for the three
months through March 31, 2001, and for the years ended December 31, 2000, 1999,
and 1998, respectively.
B. Loan Servicing Fees
Monthly loan 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 Loan is
located. Loan servicing fees of $9,963, $48,557, $50,150, and $70,630, were
incurred for three months through March 31, 2001, and for the years ended
December 31, 2000, 1999, and 1998, respectively.
C. Asset Management Fee
The General Partners are authorized to receive monthly fees for managing
the Partnership's Loan portfolio and operations of up to 1/32 of 1% (3/8 of 1%
annually). Management fees of $2,326, $9,780, $10,626, and $6,640 were incurred
during three months through March 31, 2001, and for the years 2000, 1999, and
1998, 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 and losses are 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
MARCH 31, 2001
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. As of March 31, 2001, and in the years 2000, 1999, and 1998, clerical
costs totaling $7,712, $19,647, $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, without penalty, 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
December 31, 1994. 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
MARCH 31, 2001
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 loans 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. 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 - LEGAL PROCEEDINGS
The Partnership is a defendant along with numerous other defendants,
including a developer, contractor, and other lenders, in a lawsuit involving a
homeowners association's attempt to recover "damages" for faulty construction.
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 7 - 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:
March 31, December 31,
2001 2000
--------------- ----------------
Net assets - Partners' Capital
per financial statements $7,310,737 $7,423,800
Allowance for doubtful accounts 261,452 261,452
--------------- ----------------
Net assets tax basis $7,572,189 $7,685,252
=============== ================
In 2000 approximately 73% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their "unrelated business income" exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 8 - 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 accounts are subject to immediate
withdrawal.
(b) Loans (see note 2 (c))-Loan carrying values were $5,453,565 at March
31, 2001. The fair value of these investments of $5,518,785 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 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At March 31, 2001, there were
29 loans outstanding with the following characteristics:
Number of loans outstanding 29
Total loans outstanding $5,453,565
Average Loan outstanding $188,054
Average Loan as percent of total 3.45%
Average Loan as percent of Partners' Capital 2.57%
Largest Loan outstanding $1,376,117
Largest Loan as percent of total 25.23%
Largest Loan as percent of Partners' Capital 18.82%
Number of counties where security is located (all California) 9
Largest percentage of loans in one county 32.20%
Average Loan to appraised value of security at time
Loan was consummated 69.78%
Number of loans in foreclosure 0
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
The following categories of loans were held at March 31, 2001 and December 31,
2000:
March 31, December 31,
2001 2000
------------------ ----------------
First Trust Deeds $4,290,698 $4,011,117
Second Trust Deeds 1,099,003 1,385,496
Third Trust Deeds 63,864 173,963
------------------ ----------------
Total loans 5,453,565 5,570,576
Prior liens due other lenders 5,427,164 8,467,477
------------------ ----------------
Total debt $10,880,729 $14,038,053
================== ================
Appraised property value at time of loan $15,593,624 $20,364,599
================== ================
Total investments as a percent of appraisals 69.78% 68.93%
================== ================
Investments by Type of Property
Owner occupied homes $613,583 $755,014
Non-Owner occupied homes 703,026 672,518
Apartments 572,389 575,407
Commercial 3,564,567 3,567,637
------------------ ----------------
$5,453,565 $5,570,576
================== ================
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
Scheduled maturity dates of loans as of March 31, 2001 are as follows:
Year Ending
December 31, Amount
------------------- -----------------
2001 $3,565,518
2002 341,985
2003 635,997
2004 321,180
2005 139,635
Thereafter 149,250
-----------------
$5,153,565
=================
The scheduled maturities for 2001 include $2,622,447 (51%) in loans, which
are past maturity at March 31, 2001. $1,990,415 (39%) of those loans were
categorized as delinquent over 90 days.
The cash balance at March 31, 2001 of $331,800 were in two banks with
interest bearing balances totaling $326,625. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $131,800. As and when deposits in
the Partnership's bank accounts increase significantly beyond the insured limit,
the funds are generally either placed in new loans or used to pay down on the
line of credit balance, if any.
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 totaled $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, 2001, the Partnership's net capital totaled $7,310,737.
The Partnership began funding loans in October 1987. The Partnership's
loans outstanding for the years ended December 31, 1998, 1999, 2000, and three
months through March 31, 2001 were $7,969,735, $5,282,773, $5,570,576, and
$5,453,565 respectively. The decrease in loans outstanding from December 31,
1998 to March 31, 2001, was due primarily to the Partnership utilizing Loan
payoffs to meet Limited Partner capital liquidations, line of credit pay-down,
uninvested cash in loans and an increase in Real Estate Owned or in process.
During the years 1998, 1999, 2000, and three months through March 31, 2001, loan
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. However, since January 2001, the Federal Reserve has been
dramatically cutting its core interest rates with four successive 1/2% cuts. The
latest cut being April 18, 2001, which reduced the Federal Funds Rate to 4.50%.
The effect of the cuts has greatly reduced short-term interest rates and to a
lesser extent reduced long-term interest rates. New loans will be originated at
then existing interest rates. 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 2001 over the next 12
months. Based upon the rates payable in connection with the existing loans, 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 will range between six and six and one half percent (6.00% -
6.50%). As of March 31, 2001 the Partnership's Real Estate Owned account balance
was $824,688. This account had a balance of $169,922, $133,300 and $767,583 as
of December 31, 1998, 1999, and 2000, respectively. The increase was due to
acquisition of a commercial property through foreclosure recorded as REO in
process in December 1999. The General Partners anticipate that the annualized
yield for the forthcoming year 2001, 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 Loan portfolio. On December 31, 1999 the Partnership,
on its own accord, closed its line of credit with that bank and since that time
has not negotiated a similar credit line with any institution because the
borrowing rate for most of 2000 was high and management also felt that the need
for the credit line was not all that urgent.
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-four 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, 2001,
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 Partner liquidation requirements. As Loan opportunities become
available, excess cash and available funds are invested in new loans.
The General Partners regularly review the Loan portfolio, examining the
status of delinquencies, the underlying collateral securing these loans, REO
expenses, sales activities, and borrower's payment records and other data
relating to the Loan portfolio. Data on the local real estate market, and on the
national and local economy are studied. Based upon this information and more,
Loan 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, $193,427,
and 0 as provision for doubtful accounts for the years ended December 31, 1998,
1999, 2000, and three months through March 31, 2001, 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 was 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 Partnership makes loans primarily in Northern California. As of March
31, 2001, approximately 73%, ($3,981,397) of the loans held by the Partnership
were in the four San Francisco Bay Area Counties. The remainder of the loans
held were secured primarily by Northern California real estate outside the San
Francisco Bay Area. Since January 2000, the Federal Reserve has been
dramatically cutting its core interest rates with four successive 1/2 % cuts,
the latest cut being April 18, 2001, which reduced the Federal Funds Rate to
4.5%. The effect of the cuts has greatly reduced short-term interest rates and
to a lesser extent reduced long-term interest rates. The lowering of interest
rates has encouraged those borrowers that hold higher interest rate loans than
those currently available to seek refinancing of their existing obligations to
advantage themselves of these lower rates. The partnership may face prepayments
in the existing portfolio from existing borrowers advantaging themselves of
these lower rates. However, demand for loans from qualified borrowers continues
to be strong. Therefore, at this time we do not believe that the average loan
portfolio interest rate will decline substantially in the coming months.
The reduction in the Federal Funds rates by the Federal Reserve has been
primarily prompted by concerns of the United States economy slowing down and
perhaps slipping into recession. Additionally, both the New York and tech-heavy
NASDAQ stock markets have suffered significant set backs over the last 10
months. The technology stocks have been particularly hard hit. Many of these
technology stocks have their headquarters in the Silicon Valley, one of the
primary lending areas of the partnership. This has resulted in significant
numbers of lay-offs in that industry. While there certainly has been a decline
in economic activity, there has not manifested a clear trend in housing prices,
the security behind many of our loans. The housing market has been incredibly
strong throughout the San Francisco Bay Area with multiple offers above the
asking price a common if not expected occurrence in the sale of residential
properties for more than a year. A return to a more normal residential real
estate market seems to be developing in the low to high average priced homes
with little, if any, value reductions. High end priced homes in the more than
one million dollar category may sustain greater price swings.
The commercial leasing market is experiencing an increase in available
vacancies and considerable available sublease space availability. According to
CB Richard Ellis commercial office vacancies have increased in San Francisco
from 3.4% in the fourth quarter of 2000 to 6.9% in the first quarter of 2001.
Lease rates are falling as landlords compete for tenants. This will have the
effect of lowering rents for buildings, which lose tenants through turnover or
financial difficulties. There may be some declines in values as commercial
property values are primarily reflective of the net income the property can
generate.
The Partnership had an average loan to value ratio computed as of the date
the loan was made of 69.78%, as of March 31, 2001. This did not account for any
increases in property values for loans, which were acquired by the Partnership
during 1997, 1998, 1999, and 2000 when Northern California Real Estate
substantially increased in value. This low loan to value will assist the
partnership in weathering downturns in real estate values if they materialize in
the coming months.
If the economic downturn persists and those employees who have been laid
off are unable to locate new jobs, the Partnership may experience delinquencies
and possibly foreclosures higher than the low numbers of delinquencies and
foreclosures it has enjoyed over the past three years.
On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest
public utility company filed for Chapter 11 bankruptcy. The full effect of
PG&E's bankruptcy is yet to be played out. Stockholders, other utility companies
and banks who have loaned PG&E millions of dollars were particularly hit hard.
When a company like PG&E goes bankrupt, it has a ripple effect. This has not
only affected the hi-tech and manufacturing industries, professional and
commercial businesses, transportation and utilities sectors, but every household
and individual as a whole. The crisis, which means higher costs to consumers,
could adversely affect the economy, employment and the Partnership's lending in
its commercial sector. The state government, PG&E and others are working
diligently to solve the power crisis in California. The likely result is that
electric and natural gas will cost consumers more than ever before. This may
have some effect upon real estate values as demand for real estate could be
reduced as companies make long term plans to locate in areas without power
delivery problems and lower cost power availability.
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 $91,557, $80,142, $20,377 and
$ 0, for the three months ended March 31, 2001 and the years ended December 31,
2000, 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.
It appears that the efforts of the General Partners to subdivide the land
will meet with success. This will allow the arsenic contaminated portion of the
property to be delivered to the party responsible for the arsenic contamination.
The remaining land will be made available for development or sale by 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, 1999 and 2000, and three months through March 31, 2001,
the Partnership made distributions of earnings to Limited Partners after
allocation of syndication costs of $235,837, $217,526, $192,356, and $43,144,
respectively. Distribution of Earnings to Limited Partners after allocation of
syndication costs for the years ended December 31, 1998, 1999, and 2000, and
three months through March 31, 2001, to Limited Partners' capital accounts and
not withdrawn, was $271,543, $298,174, $280,794, and $69,246, respectively. As
of December 31, 1998, 1999, and 2000, Limited Partners electing to withdraw
earnings represented 43%, 42% and 41% 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, 1999, and 2000,
and three months through March 31, 2001, $122,069, $128,295, $200,417, and
$50,309, 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, 1999, 2000, and March 31, 2001, respectively,
and is expected by the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1998, 1999, 2000, and three
months through March 31, 2001, $938,040, $847,067, $686,923, and $131,001,
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 (2000) and three months through March 31, 2001, is shown
hereunder, which confirms the General Partners theory on the liquidation habits
of the Limited Partners:
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
=========== ========= =========== ============ =============
Three months
ended
1997 1998 1999 2000 March 31, 2001
------------ ---------- ----------- --------- --------------
Earnings 257,670 235,837 217,526 192,356 43,144
Capital *1,297,410 *1,060,109 *975,362 *887,340 *181,309
------------ --------- ----------- ----------- --------
Total $1,555,080 $1,295,946 $1,192,888 $1,079,696 $224,453
============ =========== =========== =========== ========
*These amounts represent gross of early withdrawal penalties.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership has decided to
retire effective September 30, 2001. "Russ" has enjoyed a long and successful
career. His original business model, upon which our Partnership has its roots,
has withstood the test of time through varying economic cycles. Collectively,
the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an
idea to over $110,000,000 in assets and produced excellent results for the
Limited Partners. Under Russ' stewardship Redwood Mortgage Investor's VI
originally raised $9,772,594 in Limited Partner Capital contributions and at
March 31, 2001 had $7,300,971 in remaining Limited Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. The remaining General
Partners are Mr. Michael Burwell and Gymno Corporation, a California
Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors VI since its inception and has been employed by Redwood Mortgage Corp,
an affiliate of the Partnership, since 1979. The Partnership through the
remaining General Partners and the employees of its affiliate Redwood Mortgage
Corp., is well prepared for Russ's departure and looks forward to emulating the
steady consistent returns that the Limited Partners have enjoyed during Russ'
tenure.
Mr. D. Russell Burwell is providing this notification pursuant to Article 8
Section 8.02 of the Limited Partnership Agreement. The remaining General
Partners have elected to continue the business of the Partnership as described
in Article 9 Section 9.01(d) of the Limited Partnership Agreement.
The General Partners have determined that for purposes of establishing a
value for reporting purposes, including brokerage and trustee account
statements, the estimated value of the limited partnership interests on a per
unit basis is equal to the capital account balance of each investor in the
Partnership. Each investor's capital account balance is set forth periodically
on the Partnership account statement provided to investors. The amount of
Partnership earnings each investor is entitled to receive is determined by the
ratio that each investor's capital account bears to the total amount of all
investor capital accounts then outstanding. The capital account balance of each
investor should be included on any NASD member client account statement in
providing a per unit estimated value of the client's investment in the
Partnership in accordance with NASD Rule 2340.
While the General Partners have set an estimated value for the Partnership
units, such determination may not be representative of the ultimate price
realized by an Investor for such units upon sale. No public trading market
exists for the Partnership's units and none is likely to develop. Thus, the
ability of an investor to liquidate his or her investment is limited subject to
certain liquidation rights provided by the Partnership which may include early
withdrawal penalties (See the section of the Prospectus entitled "Risk Factors -
Purchase of Units is a long term investment").
Bruce and/or John Cropper (the Croppers) have been performing audit and
accounting services to the General Partners of the Partnership and their
affiliates for over 16 years through the following CPA firms: 1993-1998 - Parodi
& Cropper, CPA's; 1999 - Caporicci, Cropper & Larson, LLP and 2000 - Armanino
McKenna LLP.
Bruce and John Cropper were shareholders in Cropper Accountancy Corp.
through December 31, 2000.
Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper &
Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi &
Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from
Caporicci, Cropper & Larson, LLP. John Cropper joined the larger regional firm
of Armanino McKenna LLP as a partner and Bruce Cropper continues to provide
services through Cropper Accountancy. The Croppers continue to perform audit and
accounting services to the General Partners of the partnership and their
affiliates.
As a result, the Partnership has retained the firm of Armanino McKenna LLP,
to provide its audit and financial services. Thus, although there has been a
change in accounting firms, there has not been a change in accountants and there
have not been any disagreements on any matter of accounting principals,
practices or financial status disclosures.
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 three months ended March 31, 2001.
All such compensation is in compliance with the guidelines and limitations set
forth in the Prospectus.
Entity Receiving Description of Compensation Amount
Compensation and Services Rendered
- --------------------------------------------------------------------------------
I.
Redwood Mortgage Corp. Loan Servicing Fee for servicing loans $9,963
General Partners
&/or Affiliates Asset Management Fee for managing assets $2,326
General Partners 1% interest in profits $1,125
II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE GENERAL
PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP):
Redwood Mortgage Corp. Mortgage Brokerage Commissions for services
in connection with the review, selection,
evaluation, negotiation, and extension of the
loans paid by the borrowers
and not by the Partnership $13,466
Redwood Mortgage Corp. 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 $662
Gymno Corp. Inc. Reconveyance Fee $286
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. . . . . . . . . . . . . . . . . . . . . .$7,712
As of March 31, 2001, a summary of the Partnership's loan portfolio is set forth
below.
Loans as a Percentage of Total Loans
First Trust Deeds $4,290,698
Appraised Value of Properties 6,245,587
Total Investment as a % of Appraised Value 68.70%
First Trust Deeds 4,290,698
Second Trust Deed Loans 1,099,004
Third Trust Deed Loans 63,863
--------------------
5,453,565
First Trust Deeds due other Lenders 5,352,571
Second Trust Deeds due other Lenders 74,593
--------------------
Total Debt $10,880,729
Appraised Property Value $15,593,624
Total Investments as a % of Appraised Value 69.78%
Number of Loans Outstanding 29
Average Investment $188,054
Average Investment as a % of Net Assets 2.57%
Largest Investment Outstanding 1,376,117
Largest Investment as a % of Net Assets 18.82%
Loans as a Percentage of Total Loans
First Trust Deeds 78.68%
Second Trust Deeds 20.15%
Third Trust Deeds 1.17%
--------------------
100.00%
Total
Loans by Type of Property: Amount Percent
Owner Occupied Homes $613,584 11.25%
Non-Owner Occupied Homes 703,026 12.89%
Apartments 572,389 10.50%
Commercial 3,564,566 65.36%
---------------- ------------
Total $5,453,565 100.00%
The following is a distribution of loans outstanding as of March 31, 2001 by
Counties.
Santa Clara 1,756,067 32.20%
Alameda 1,042,501 19.12%
San Mateo 580,688 10.65%
Placer 659,095 12.09%
Sacramento 512,359 9.39%
San Francisco 602,142 11.04%
Stanislaus 177,620 3.26%
Shasta 79,162 1.45%
Sonoma 43,931 .80%
------------------- ------------
Total $5,453,565 100.00%
Statement of Condition of Loans:
Number of Loans 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 (6) 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
Form 8-K was filed on February 13, 2001,
relating to the subsequent change in
accounting firms. On April 11, 2001, the
Partnership filed another form 8-K regarding
D. Russell Burwell's retirement as more
fully discussed earlier under "Management
Discussion" area.
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 11th day of May,
2001.
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 11th day of May, 2001.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell General Partner May 11, 2001
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell General Partner May 11, 2001
/S/ D. Russell Burwell
- ----------------------------------- President of Gymno May 11, 2001
D. Russell Burwell Corporation,
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell Secretary/Treasurer May 11, 2001
of Gymno Corporation
(Principal Financial
and Accounting Officer);
Director of Gymno Corporation