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REDWOOD MORTGAGE INVESTORS VI
(a California Limited Partnership)
Index to Form 10-K
December 31, 2001
Part I
Page No.
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Item 1 - Business 3
Item 2 - Properties 4
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security
Holders (Partners) 6
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units"
and Related Unitholder Matters 6
Item 6 - Selected Financial Data 7
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8 - Financial Statements and Supplementary Data 13
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Part III
Item 10 - Directors and Executive Officers of the Registrant 33
Item 11 - Executive Compensation 33
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 34
Item 13 - Certain Relationships and Related Transactions 34
Part IV
Item 14 - Exhibits, Financial Statements and Schedules, and
Reports of Form 8-K 34
Signatures 35
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the year ended December 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 Identification)
incorporation or organization)
650 El Camino Real #G, Redwood City, CA 94063
- -------------------------------------------- ----------------------
(address of principal executive offices) (zip code)
Registrant's telephone number including area code (650) 365-5341
- ---------------------------------------------------- ----------------------
Securities registered pursuant to Section 12 (b) of the Act: None
Title of each class Name of each exchange on which registered
- --------------------------- ----------------------------------------------
None None
- --------------------------------------------------------------------------------
Securities registered pursuant to
Section 12 (g) of the Act: Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES XX NO
------------------- -----------------
At the close of the sale of units in 1989, the limited partnership units
purchased by non-affiliates was 97,725.94 units computed at $100.00 a unit for
$9,772,594, excluding general partners' contribution of $9,772.
Documents incorporated by reference:
Portions of the Prospectus for Redwood Mortgage Investors VI, included as
part of the form S-11 Registration Statement, SEC File No. 33-12519 dated
September 3, 1987 and Supplement No. 6 dated May 16, 1989, incorporated in Parts
II, III, and IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VI is a California Limited Partnership (the
"partnership"). Michael R. Burwell and Gymno Corporation, a California
corporation, are the general partners. The address of the general partners is
650 El Camino Real, Suite G, Redwood City, California 94063. The partnership's
primary purpose is to invest its capital in first and second deeds of trust
secured by Northern California properties. Loans are arranged and serviced by
Redwood Mortgage Corp., an affiliate of the general partners. The partnership's
objectives are to make investments which will: (i) provide the maximum possible
cash returns which limited partners may elect to (a) receive as monthly,
quarterly or annual cash distributions or (b) have earnings credited to their
capital accounts and used to invest in partnership activities; and (ii) preserve
and protect the partnership's capital. The partnership's general business is
more fully described under the section entitled "Investment Objectives and
Criteria", pages 23-26 of the Prospectus, a part of the above-referenced
Registration Statement, which is incorporated by reference.
The partnership was formed in September, 1987, with an approved 120,000
Units of $100 each ($12,000,000). The Units were offered on a "best efforts"
basis through broker/dealer member firms of the National Association of
Securities Dealers, Inc. It immediately began issuing Units and began investing
in loans in October, 1987. The offering terminated in September, 1989, and as of
that date 97,725.94 Units were sold realizing proceeds of $9,772,594. At
December 31, 2001, the partnership had a balance of loans totaling $4,970,433
with interest rates thereon ranging from 6.50% to 14.75%.
Currently First Trust Deeds comprise 75.85% of the total amount of loan
portfolio. Second Mortgage Trust Deeds comprise 22.86% of loan portfolio and
Third Mortgage Trust Deeds comprise 1.29% of the loan portfolio. Owner-occupied
homes, combined with non-owner occupied homes, total 18.57% of the loans. Loans
to apartments make up 11.31% of the total loans portfolio. Commercial loan
origination increased from last year, now comprising 70.12% of the portfolio, an
increase of 6.07% from 2000. The past year brought many outstanding low loan to
value lending opportunities in the commercial segment of the market. The major
concentration of loans, comprising 77.57% of the total loans, are in four
counties of the San Francisco Bay Area. The County of Sacramento makes up 10.20%
of the loan portfolio. The balance, as stated on page five of this report, are
primarily in Northern California. Currently loan size is averaging $184,090 per
loan. Some of the loans are fractionalized between affiliated partnerships with
objectives similar to those of the partnership to further reduce risk. Average
equity per loan transaction stood at 28.73%. A 40% equity average on loan
origination is generally considered very conservative. Generally, the more
equity, the more protection for the lender. The partnership's loan portfolio had
only three properties in foreclosure as of the end of December 2001, which
represents 8.84% of the partnership's loan portfolio. Two of the borrowers are
likely to come out of the foreclosure by March 2002, and the other defaulting
borrower is in bankruptcy.
Item 2 - Properties
As of December 31, 2001, a summary of the partnership's loan portfolio is set
forth below.
Loans as a Percentage of Total Loans
First Trust Deeds $ 3,770,088.60
Appraised Value of Properties 5,013,260.40
--------------------
Total Investment as a % of Appraisal 75.20%
--------------------
First Trust Deeds 3,770,088.60
Second Trust Deed Loans 1,136,480.58
Third Trust Deed Loans 63,863.76
--------------------
$ 4,970,432.94
--------------------
Priority Positions
First Trust Deeds due other Lenders 5,552,409.00
Second Trust Deeds due other Lenders 74,593.00
--------------------
Total Debt $ 10,597,434.94
====================
Appraised Property Value $ 14,868,548.40
Total Investments as a % of Appraisal 71.27%
Number of Loans Outstanding 27
Average Investment 184,090.11
Average Investment as a % of Net Assets 2.63%
Largest Investment Outstanding 1,376,117.03
Largest Investment as a % of Net Assets 19.63%
Loans as a Percentage of Total Loans Percent
- --------------------------------------------- -------------------
First Trust Deeds 75.85%
Second Trust Deeds 22.86%
Third Trust Deeds 1.29%
-------------------
Total 100.00%
Loans by Type of Property Amount Percent
- --------------------------------- ---------------- --------------
Owner Occupied Homes $ 741,153.70 14.91%
Non-Owner Occupied Homes 181,952.27 3.66%
Apartments 562,015.44 11.31%
Commercial 3,485,311.53 70.12%
---------------- --------------
Total $ 4,970,432.94 100.00%
================ ==============
The following is a distribution of loans outstanding as of December 31, 2001 by
Counties.
Total Mortgage
County Investments Percent
- --------------------- --------------------- -----------------
Santa Clara $2,025,328.93 40.75%
Alameda 996,230.25 20.04%
Sacramento 507,101.20 10.20%
San Francisco 418,567.94 8.42%
San Mateo 415,594.29 8.36%
Stanislaus 177,100.64 3.56%
Tuolumne 170,000.00 3.42%
Placer 138,456.63 2.79%
Shasta 78,557.42 1.58%
Sonoma 43,495.64 0.88%
--------------------- -----------------
Total $4,970,432.94 100.00%
===================== =================
Statement of Condition of loans:
Number of Loans in Foreclosure 3
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31,
2002 $3,306,702
2003 434,479
2004 741,154
2005 40,125
2006 96,716
Thereafter 351,257
---------------
$4,970,433
===============
The scheduled maturities for 2002 include $2,935,731, representing 59% of
the portfolio, which are past maturity at December 31, 2001. $439,311 (8.84% of
the loan portfolio) of those loans were categorized as delinquent over 90 days.
. Several of these borrowers were in the process of refinancing the loans
through other institutions as this was an opportune time for them to do so and
take advantage of lower interest rates. Additionally, the partnership allows
borrowers to occasionally continue to make the regular interest payments on debt
past maturity for periods of time. The partnership, in most instances, receives
the benefit of a higher interest rate than would otherwise be available in the
currently existing loan marketplace. Interest payments on three of these loans
were delinquent.
Item 3 - Legal Proceedings
In the normal course of business, the partnership may become involved in
various types of legal proceedings such as assignments of rents, bankruptcy
proceedings, appointments of receivers, unlawful detainers, judicial
foreclosures, etc., to enforce the provisions of the deeds. 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 its
investment in real estate acquired through foreclosure.
Item 4 - Submission of Matters to a Vote of Security Holders (Partners)
No matters have been submitted to a vote of the partnership.
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units"
and Related Unitholder Matters
120,000 Units at $100 each (minimum 20 units) were offered through
broker-dealer member firms of the National Association of Securities Dealers on
a "best efforts" basis (as indicated in Part I item 1). All Units were sold to
California residents. Investors have the option of withdrawing earnings on a
monthly, quarterly or annual basis or reinvesting and compounding earnings.
Limited partners may withdraw from the partnership in accordance with the terms
of the partnership agreement subject to early withdrawal penalties. There is no
established public trading market for the Units.
A description of the partnership's units, transfer restrictions, and
withdrawal provisions is more fully described under the section entitled
"Description of Units" and "Summary of the Limited Partnership Agreement", pages
38-42 of the Prospectus, a part of the above-referenced Registration statement,
which is incorporated by reference.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VI began operations in October 1987. Its
financial condition and results of operation for five years ended December 31,
2001 were:
Balance Sheets
December 31,
------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- -------------- ------------- --------------- -------------
Cash $190,414 $354,860 $1,120,295 $299,775 $331,143
Loans
Loans, secured by deeds of trust 4,970,433 5,570,576 5,282,773 7,969,735 8,104,984
Loans, unsecured 82,362 82,362 - 23,775 161,414
Interest and other receivables
Accrued interest on loans 751,673 664,292 706,841 717,719 617,456
Advances on loans 197,946 133,647 137,930 162,083 127,519
Less allowance for doubtful accounts (462,489) (261,452) (303,249) (202,344) (28,614)
Investment in partnership - - - - 708,141
Note receivable- Redwood Mortgage Corp 188,000 125,000 300,000 - -
Real estate owned (REO), net 1,185,380 767,583 133,300 169,922 309,319
Real estate owned in process - - 668,132 - -
------------- -------------- ------------- --------------- -------------
Total assets $7,103,719 $7,436,868 $8,046,022 $9,140,665 $10,331,362
============= ============== ============= =============== =============
Liabilities and Partners' Capital
Liabilities
Notes payable - bank line of credit $ - $ - $ - $390,000 $899,011
Accounts payable 20,261 13,068 - 22,668 898
Deferred interest on loans 74,022 - 15,676 20,463 -
------------- -------------- ------------- --------------- -------------
Total liabilities 94,283 13,068 15,676 433,131 899,909
============= ============== ============= =============== =============
Partners' capital
Limited partners' capital, subject
to redemption 6,999,670 7,414,034 8,020,580 8,697,768 9,421,687
General partners' capital 9,766 9,766 9,766 9,766 9,766
------------- -------------- ------------- --------------- -------------
Total partners' capital 7,009,436 7,423,800 8,030,346 8,707,534 9,431,453
------------- -------------- ------------- --------------- -------------
Total liabilities and partners' capital $7,103,719 $7,436,868 $8,046,022 $9,140,665 $10,331,362
============= ============== ============= =============== =============
Statements of Income
December 31,
--------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ------------- ------------- -------------- -------------
Gross revenue $735,900 $785,209 $1,086,317 $871,861 $1,036,596
Expenses 309,248 307,280 565,408 359,356 507,409
----------- ------------- ------------- -------------- -------------
Net income $426,652 $477,929 $520,909 $512,505 $529,187
=========== ============= ============= ============== =============
Net income: to general partners (1%) $4,267 $4,779 $5,209 $5,125 $5,292
to limited partners (99%) 422,385 473,150 515,700 507,380 523,895
----------- ------------- ------------- -------------- -------------
$426,652 $477,929 $520,909 $512,505 $529,187
=========== ============= ============= ============== =============
Net income per $1,000 invested by limited partners for entire period:
- where income is retained and compounded $59 $62 $62 $56 $53
=========== ============= ============= ============== =============
-where partner receives income in monthly
distributions $58 $60 $61 $55 $52
=========== ============= ============= ============== =============
The annualized yield for 1999 was 6.24%, for 2000 the annualized yield was
6.22%, and for 2001 the annualized yield was 5.95%. The annualized yield from
inception through December 31, 2001, was 7.16%.
Item 7 - Management Discussion and Analysis of Financial Condition and Results
of Operations Forward Looking Statements.
Some of the information in the Form 10-K may contain forward looking
statements. Uses of words such as "will", "may", "anticipate", "estimate",
"continue" or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of 2001 includes forward looking statements
and predictions about possible of 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 the
future events. No assurance can be given that any of these statements or
predictions will ultimately prove to be correct or substantially correct.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
As of 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
December 31, 2001, the partnership's net capital totaled $7,009,436.
The partnership began funding loans in October 1987. The partnership's
loans outstanding for the years ended December 31, 1999, 2000, and 2001 were
$5,282,773, $5,570,576, and $4,970,433 respectively. The decrease in loans
outstanding from December 31, 1999 to December 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 1999, 2000, and 2001, loan
principal collections exceeded limited partner liquidations.
Beginning 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 eleven successive cuts,
ranging from .25% to .50%. The latest cut being December 11, 2001, which reduced
the Federal Funds Rate to 1.75%. In late January 2002, the Federal Reserve met
and did not change interest rates signaling that it may take a wait and see
course before making any further interest rate changes. 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, the general partners anticipate that interest rates likely
will change from their current levels. The general partners cannot at this time
predict at what levels interest rates will be in the future. The general
partners anticipate that new loans will be placed at rates approximately 1%
lower than similar loans during the first half of 2001. 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
take advantage of these lower rates. The partnership may face prepayments in the
existing portfolio from borrowers taking advantage of these lower rates.
However, demand for loans from qualified borrowers continues to be strong and as
prepayments occur, we expect to replace these loans with loans at somewhat lower
interest rates. At this time, the general partners believe that the average loan
portfolio interest rate will decline approximately .25% to .50% over the year
2002. Nevertheless, based upon the rates expected in connection with the
existing loans, 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 5.75% and 6.25% for the year 2002.
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. Management felt
that the need for the credit line was not necessary as cash flows from loan
payments and payoffs have been in synchronization with loan opportunities and
limited partner liquidations.
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 December 31, 2001,
there were three properties in foreclosure totaling $439,311 or 8.84% of the
loan portfolio. As of December 31, 2001 the partnership's real estate owned
account balance was $1,185,380. This account had a balance of $133,300,
$767,583, and $1,185,380 as of December 31, 1999, 2000, and 2001, respectively.
The increase was due to acquisition and paying off the first lien holder of a
commercial property through foreclosure recorded as REO in process in December
1999. As of December 31, 2001 the partnership disposed of one of its other
pieces of real estate owned property through sale.
Cash is continually being generated from interest earnings, late charges,
prepayment penalties, and amortization of principal and loan pay-offs.
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 $437,558, $193,427, and
$201,036 as provision for doubtful accounts for the years ended December 31,
1999, 2000, and 2001, respectively. The increase in allowance for 1999, 2000,
and 2001 was to build up reserve for any potential loss in the future. The
partnership acquired a piece of property 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. This investment
was reclassified into Real Estate Owned in the year 2000. Management believes
that reserves previously set aside in anticipation of this acquisition are
adequate. The modest incremental increase of $7,609 in doubtful accounts
provision for the year 2001 is due to Managements belief that the current
overall reserve balances of $462,489 are adequate and additional reserves set
aside are not currently warranted.
The partnership makes loans primarily in Northern California. As of
December 31, 2001, approximately 78%, ($3,855,721) 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. Like the rest of the nation, the San Francisco Bay
Area has also felt the recession and accompanying slow down in economic growth
and increasing unemployment. The technology companies of Silicon Valley, the
airline industry, the tourism industry and other industries are feeling the
effects of the overall United States recession, which includes lower earnings,
losses and layoffs.
The Northern California residential real estate market and particularly the
San Francisco Bay Area residential real estate market experienced increases in
values of over 10% in 1999 and 2000, respectively. In 2001, the residential real
estate marketplace slowed, this has resulted in longer listing and transaction
times and lower market prices in some segments. The California Association of
Realtors reported in November 2001 that the statewide median home price had
reached its highest point ever with a median home price of $278,740 up 11.2%
from a year earlier and 2.4% higher than in October of 2001. It also reported
that overall volume of home sales slipped 12.4% from the year earlier. In spite
of these California wide higher home prices, the San Francisco Bay Area
experienced median sales prices through October of 2001 of between minus 4.2% to
a positive 16.7% for resale homes. In spite of these numbers the general
partners believe that lower-end and mid-priced homes have continued to increase
in value, although at a reduced rate from 2000, while high end homes have begun
to decrease in value. This situation is showing some signs of a turnaround.
Inventories of homes available for sale have decreased sharply from their highs
in the spring of 2001. For example, the supply of "for sale" homes, condominiums
and townhomes in Santa Clara County peaked the week of May 25, 2001, at more
than 5,700, according to Coldwell Banker Northern California statistics. As of
January 18, 2002, fewer than 2,500 homes were "for sale" countywide. Other
counties in the San Francisco Bay Area offer similar statistics. The number of
single-family home sales in Santa Clara County was 962 for December 2001 which
is the greatest number of homes sold since records became public in 1984. The
reduction in inventories and the strong sales may indicate that the buyer's
market that prevailed throughout most of 2001 may be coming to an end and may
indicate that a recovery is underway. A stabilization of residential home prices
or a recovery in home prices is good for the partnership since we depend more
heavily than banks and other similar credit type lenders on the value of a
property.
Commercial property vacancy rates have continued to climb with the San
Francisco Bay Area office market surpassing 15% as a whole according to BT
Commercial Real Estate and Grubb and Ellis Co. As a result, rents have dropped
about 40% from last year's highs, giving up nearly all the gains made during the
past three years. Though vacancy rates have leaped from 2 percent in the third
quarter of 2000 to 15% at the end of 2001, landlords are bearing only about half
the pain, since nearly half the office space being offered is for sublease,
meaning landlords generally are still collecting money from the original
tenants. To the partnership the higher overall vacancy rates may mean that we
experience greater delinquencies in its commercial portion of the portfolio if
landlord's existing leases expire or space becomes available through business
failures.
The partnership had an average loan to value ratio computed as of the date
the loan was made of 71.27%, as of December 31, 2001. This did not account for
any changes 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.
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 $128,443, $80,142, and
$20,377, for the years ended December 31, 2001, 2000, and 1999, 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. The efforts of the
general partners to subdivide the land have met with success. The arsenic
contaminated portion of the property has been delivered to the party responsible
for the arsenic contamination. The remaining land will be made available for
development or sale by the partnership. The general partners believe this to be
a good result for 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, 1999 2000, and 2001, the partnership made distributions of
earnings to limited partners after allocation of syndication costs of $217,526,
$192,356, and $164,787, respectively. Distribution of earnings to limited
partners after allocation of syndication costs for the years ended December 31,
1999, 2000, and 2001, to limited partners' capital accounts and not withdrawn,
was $298,174, $280,794, and $257,598, respectively. As of December 31, 1999,
2000, and 2001, limited partners electing to withdraw earnings represented 42%,
41%, and 36%, 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, 1999, 2000, and 2001,
$128,295, $200,417, and $187,804, 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,
1999, 2000, and 2001, respectively, and is expected by the general partners to
commonly occur at these levels.
Additionally, for the years ended December 31, 1999, 2000, and 2001,
$847,067, $686,923, and $484,158, 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. The
general partners expect a portion of the limited partners to take advantage of
this provision. 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 thirteen (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
============= ============= ============= ============= ================
1997 1998 1999 2000 2001
------------- -------------- ------------- ------------- ----------------
Earnings $257,670 $235,837 $217,526 $192,356 $164,787
Capital *1,297,410 *1,060,109 *975,362 *887,340 *671,962
------------- -------------- ------------- ------------- ----------------
Total $1,555,080 $1,295,946 $1,192,888 $1,079,696 $836,749
============= ============== ============= ============= ================
*These amounts represent gross of early withdrawal penalties.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the general partners have valued the limited partners' interest in
the partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the limited
partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit 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, there is
no certainty that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, 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").
Item 8 - Financial Statements and Supplementary Data
A- Financial Statements
The following financial statements of Redwood Mortgage Investors VI are included
in Item 8:
o Independent Auditors' Report
o Balance Sheets - December 31, 2001, and December 31, 2000
o Statements of Income for the three years ended December 31, 2001
o Statements of Changes in Partners' Capital for the three years ended
December 31, 2001
o Statements of Cash Flows for the three years ended December 31, 2001
o Notes to Financial Statements
B. - Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Investors VI are
included in Item 8.
o Schedule II Valuation and Qualifying Accounts
o Schedule IV Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Parternship)
FINANCIAL STATEMENTS
DECEMBER 31, 2001
ARMANINO McKENNA LLP
CERTIFIED PUBLIC ACCOUNTANTS
1855 Olympic Boulevard, Suite 225
Walnut Creek, CA 94596
(925) 939-8500
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VI
REDWOOD CITY, CALIFORNIA
We have audited the accompanying balance sheet of REDWOOD MORTGAGE
INVESTORS VI (A California Limited Partnership) as of December 31, 2001 and 2000
and the related statements of income, changes in partners' capital and cash
flows for the two years then ended. Our audit also included the financial
statement schedule listed in the Index at Item 8. These financial statements and
schedules are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VI as of December 31, 2001 and 2000, and the results of its operations and cash
flows for the two years then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ARMANINO McKENNA LLP
Walnut Creek, California
February 28, 2002
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd, Suite 208
Walnut Creek, CA 94596
(925) 932-3860
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VI
REDWOOD CITY, CALIFORNIA
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VI (A California Limited Partnership) listed in Item 8 on
form 10-K including the accompanying statements of income, changes in partners'
capital and cash flows for the year ended December 31, 1999. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VI operations and cash flows for the year ended December 31, 1999 in conformity
with generally accepted accounting principles. Further, it is our opinion that
the schedules referred to above present fairly the information set forth therein
in compliance with the applicable accounting regulations of the Securities and
Exchange Commission.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
-------------- -----------
Cash $ 190,414 $ 354,860
-------------- -----------
Loans
Loans, secured by deeds of trust 4,970,433 5,570,576
Loans, unsecured 82,362 82,362
-------------- -----------
5,052,795 5,652,938
Less allowance for doubtful accounts 370,612 261,452
-------------- -----------
Net loans 4,682,183 5,391,486
-------------- -----------
Interest and other receivables
Accrued interest and late fees 761,473 664,292
Advances on loans 197,946 133,647
-------------- -----------
Total interest and other receivables 959,419 797,939
-------------- -----------
Note receivable - Redwood Mortgage Corp. 178,200 125,000
Real estate owned, held for sale, net
of allowance 1,093,503 767,583
-------------- -----------
Total assets $ 7,103,719 $7,436,868
============== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $ 20,261 $ 13,068
Deferred interest 74,022 -
-------------- -----------
Total liabilities 94,283 13,068
-------------- -----------
Partners' capital
Limited partners' capital, subject
to redemption 6,999,670 7,414,034
General partners' capital 9,766 9,766
-------------- -----------
Total partners' capital 7,009,436 7,423,800
-------------- -----------
Total liabilities and partners' capital $7,103,719 $7,436,868
============== ===========
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2001 2000 1999
------------- ------------- --------------
Revenues
Interest - deeds of trust $512,383 $ 597,996 $ 743,319
Interest - interest bearing accounts 12,927 17,021 14,086
Interest on promissory note 4,912 16,091 -
Late charges, prepayment penalties, and fees 27,478 29,101 28,912
Mortgage servicer subsidy 178,200 125,000 300,000
------------- ------------- --------------
735,900 785,209 1,086,317
------------- ------------- --------------
Expenses
Loan servicing fees 41,406 48,557 50,150
Asset management fees 9,115 9,780 10,626
Clerical costs through Redwood Mortgage Corp. 28,156 19,647 21,748
Interest and line of credit costs - - 14,714
Provisions for losses on loans
and real estate acquired through foreclosure 201,036 193,427 437,558
Professional services 19,866 25,462 18,068
Other 9,670 10,407 12,544
------------- ------------- --------------
309,249 307,280 565,408
------------- ------------- --------------
Net income $426,651 $ 477,929 $ 520,909
============= ============= ==============
Net income
General partners (1%) $ 4,266 $ 4,779 $ 5,209
Limited partners (99%) 422,385 473,150 515,700
------------- ------------- --------------
$426,651 $477,929 $520,909
============= ============= ==============
Net income per $1,000 invested by limited partners for entire period:
-where income is reinvested and compounded $59 $62 $62
============= ============= ==============
-where partner receives income in monthly distributions $58 $61 $61
============= ============= ==============
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 YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
Limited General
Partners Partners Total
------------- ------------ ------------
Balances at December 31, 1998 $8,697,768 $9,766 $8,707,534
Net income 515,700 5,209 520,909
Early withdrawal penalties (10,028) - (10,028)
Partners' withdrawals (1,182,860) (5,209) (1,188,069)
------------- ------------ ------------
Balances at December 31, 1999 8,020,580 9,766 8,030,346
Net income 473,150 4,779 477,929
Early withdrawal penalties (16,335) - (16,335)
Partners' withdrawals (1,063,361) (4,779) (1,068,140)
------------- ------------ ------------
Balances at December 31, 2000 7,414,034 9,766 7,423,800
Net income 422,385 4,266 426,651
Early withdrawal penalties (15,024) - (15,024)
Partners' withdrawals (821,725) (4,266) (825,991)
------------- ------------ ------------
Balances at December 31, 2001 $6,999,670 $ 9,766 $ 7,009,436
============= ============ ============
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 YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
YEARS ENDED DECEMBER 31,
---------------------------------------------------
2001 2000 1999
------------- -------------- -------------
Cash flows from operating activities
Net income $426,651 $477,929 $520,909
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for doubtful accounts 201,037 34,738 442,480
Provision for losses (recovery) on real
estate held for sale 158,689 (4,922)
-
Early withdrawal penalties credited to income (15,024) (16,335) (10,028)
Change in operating assets and liabilities
Accrued interest and advances (161,480) (24,769) (200,903)
Accounts payable and accrued expenses 7,192 13,068 (22,668)
Deferred interest on loans 74,022 (15,676) (4,787)
------------- -------------- -------------
Net cash provided by operating activities 532,398 627,644 720,081
------------- -------------- -------------
Cash flows from investing activities
Principal collected on loans 2,548,178 2,058,681 2,859,900
Loans made (1,838,265) (2,434,422) (922,936)
Payments for real estate held for sale 60,872 (129,557) (24,112)
Proceeds on sale of real estate held for sale (588,438) 5,359 65,656
------------- -------------- -------------
Net cash provided by (used in) investing activities 182,347 (499,939) 1,978,508
------------- -------------- -------------
Cash flows from financing activities
Payments on notes 125,000 300,000 (390,000)
Partners' withdrawals (825,991) (1,068,140) (1,188,069)
Note receivable - Redwood Mortgage Corp. (178,200) (125,000) (300,000)
------------- -------------- -------------
Net cash used in financing activities (879,191) (893,140) (1,878,069)
------------- -------------- -------------
Net increase (decrease) in cash (164,446) (765,435) 820,520
Cash - beginning of year 354,860 1,120,295 299,775
------------- -------------- -------------
Cash - end of year $190,414 $354,860 $1,120,295
============= ============== =============
Cash paid for interest $0 $0 $14,714
============= ============== =============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VI, (the "partnership") is a California Limited
Partnership, of which the general partners are Michael R. Burwell and Gymno
Corporation, a California corporation owned and operated on an equal 50/50%
basis by Michael R Burwell and by D. Russell Burwell, a former general partner.
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., 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 the 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 expenses, and other costs,
paid by the partnership from the offering proceeds totaled $360,885 or 3.69% of
the gross proceeds contributed by the limited partners. Such costs have been
fully amortized and allocated to the limited 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.
Any subsequent payments on impaired loans are applied to the outstanding
balances on the partnership's books.
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
DECEMBER 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 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.
At December 31, 2001 and 2000, there were loans categorized as impaired by
the partnership of $2,467,891 and $2,469,505, respectively. In addition the
impaired loans have accrued interest and advances totaling $828,967 and $744,127
at December 31, 2001 and 2000. The decrease in the carrying value of the
impaired loans of $287,985, and $159,090 at December 31, 2001 and 2000,
respectively is included in the allowance for doubtful accounts. The average
recorded investment in the impaired loans was $2,468,698, $2,470,686, and
$2,471,869 for the years ended December 31, 2001, 2000, and 1999, respectively.
During the year ended December 31, 2001 and 2000, $189,690 and $158,761 was
received as cash payments on these loans, respectively.
As presented in Note 10 to the financial statements as of December 31,
2001, the average loan to appraised value of security at the time the loans were
consummated at December 31, 2001 and 2000 was 71.27 and 68.93% respectively.
When a loan is valued for impairment purposes, an updating is made in the
valuation of collateral security. However, this loan to value ratio tends to
minimize reductions for impairment.
D. Cash and Cash Equivalents
The partnership considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents.
The partnership maintains deposits in financial institutions that are in
excess of amounts that would be covered by federal insurance. The maximum amount
of loss based upon the deposits held in the bank that could result from this
risk at December 31, 2001 and 2000 is approximately $130,439 and $154,860
respectively.
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
DECEMBER 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:
December 31,
---------------------------------------
2001 2000
--------------- -------------
Costs of properties $1,627,696 $1,240,579
Reduction in value (534,193) (472,996)
--------------- -------------
Fair value reflected in
financial statements 1,093,503 $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. 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 December 31, 2001 and
2000 was as follows:
December 31,
--------------------------------
2001 2000
--------------- -------------
Impaired loans $287,985 $159,090
Unspecified loans 265 20,000
Accounts receivable, unsecured 82,362 82,362
--------------- -------------
$370,612 $261,452
=============== =============
Allowance for Doubtful Accounts Reconciliation:
Activity in the allowance for doubtful accounts is as follows for the years
ending December 31:
2001 2000 1999
------------ ----------- -----------
Beginning Balance $261,452 $303,249 $202,344
Provision for bad debt 109,160 34,738 542,845
Write-off of bad debt - (76,535) (441,940)
------------ ----------- -----------
Ending Balance $370,612 $261,452 $303,249
------------ ----------- -----------
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
H. 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.
I. Late Fee Revenue
The partnership recognizes late fee revenue when it is earned. Late fees
are charged at 6% of the monthly balance, and are accrued net of an allowance
for uncollectible late fees. For the year ended December 31, 2001, 2000, and
1999 late fee revenue of $27,748, $29,101, and $28,912, respectively, was
recorded.
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
For fees in connection with the review, selection, evaluation, negotiation
and extension of the loans the partnership may collect an amount equivalent to
12% of the loaned amount until 6 months after the termination date of the
offering. Thereafter, loan brokerage commissions (points) will be limited to an
amount not to exceed 4% of the total partnership assets per year. The loan
brokerage commissions are paid by the borrowers, and thus, are not an expense of
the partnership. Such commissions totaled $46,581, $45,164, and $46,527 for the
years ended December 31, 2001, 2000 and 1999 respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $41,406, $48,556, and $50,150, were
incurred for years ended December 31, 2001, 2000 and 1999, respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the partnership's
loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annually). Management fees of $9,115, $9,780, and $10,626 were incurred
for the years 2001, 2000, and 1999, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. These fees are incurred by the
borrowers and paid 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
DECEMBER 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. In 2001, 2000 and 1999, clerical costs totaling $28,156, $19,647, and
$21,748, respectively, were reimbursed to Redwood Mortgage Corp. and are
included in expenses in the Statements of Income.
G. Contributed Capital
The general partners jointly or severally were to contribute 1/10 of 1% in
cash contributions as proceeds from the offerings are received from the limited
partners. . As of December 31, 1989, a general partner, GYMNO Corporation, had
contributed $9,772, 1/10 of 1% of limited partner contributions in accordance
with the Partnership Agreement.
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, partners 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. Subject to certain limitations, a
compounding investor may subsequently change his election, but an investor's
election to have cash distributions is irrevocable.
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 penalties collected by the partnership
are currently credited to income since the syndication costs have been fully
allocated and the formation loan has been entirely paid.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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. Mortgage servicer subsidies
for the years 2001, 2000, and 1999 were $178,200, $125,000, and $300,000,
respectively.
NOTE 6 - LEGAL PROCEEDINGS
The partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the partnership.
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:
December 31,
--------------------------------
2001 2000
---------- ----------
Net assets - partners' capital
per financial statements $7,009,436 $7,423,800
Allowance for doubtful accounts 370,612 261,452
--------------- --------------
Net assets tax basis $7,380,048 $7,685,252
=============== ==============
In 2001 and 2000, approximately 73% and 73%, respectively, 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
DECEMBER 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)) carrying value was $4,970,433 and $5,570,576
at December 31, 2001 and 2000 respectively. The fair value of these investments
of $5,036,556 and $5,639,252 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 December 31, 2001 and 2000,
there were 27 and 31 loans outstanding, respectively, with the following
characteristics:
2001 2000
------ ------
Number of loans outstanding 27 31
Total loans outstanding $4,970,433 $5,570,576
Average loan outstanding $184,090 $179,696
Average loan as percent of total 3.70% 3.23%
Average loan as percent of partners' capital 2.63% 2.42%
Largest loan outstanding $1,376,117 $1,376,117
Largest loan as percent of total 27.69% 24.70%
Largest loan as percent of partners' capital 19.63% 18.54%
Number of counties where security is located
(all California) 10 9
Largest percentage of loans in one county 40.75% 38.75%
Average loan to appraised value of security
at time loan was consummated 71.27% 68.93%
Number of loans in foreclosure 3 2
Amount of loans in foreclosure $439,311 $354,195
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
The following categories of loans were held at December 31, 2001 and 2000:
December 31,
--------------------------------
2001 2000
------------- --------------
First Trust Deeds $ 3,770,088 $ 4,011,117
Second Trust Deeds 1,136,481 1,385,496
Third Trust Deeds 63,864 173,963
------------- --------------
Total loans 4,970,433 5,570,576
Prior liens due other lenders 5,627,002 8,467,477
------------- --------------
Total debt $ 10,597,435 $14,038,053
============= ==============
Appraised property value at time of loan $ 14,868,548 $20,364,599
============= ==============
Total investments as a percent of appraisals 71.27% 68.93%
============= ==============
Investments by type of property
Owner occupied homes $ 741,154 $ 755,014
Non-owner occupied homes 181,952 672,518
Apartments 562,015 575,407
Commercial 3,485,312 3,567,637
------------- --------------
$ 4,970,433 $ 5,570,576
============= ==============
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31,
-------------------
2002 $ 3,306,702
2003 434,479
2004 741,154
2005 40,125
2006 96,716
Thereafter 351,257
-----------------
$ 4,970,433
=================
The scheduled maturities for 2002 include eight loans totaling $2,935,731
(59%) which are past maturity at December 31, 2001. Of these loans, three loans
totaling $439,311 (8.84%) were categorized as delinquent over 90 days.
The cash balance at December 31, 2001 of $230,439 was in one bank with
interest bearing balances totaling $167,312. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $130,439.
Workout Agreements
The partnership has negotiated various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments. The partnership is not obligated to fund additional money as of
December 31, 2001. As of December 31, 2001 the partnership had approximately 8
loans totaling $2,652,764 of which 5 of these totaling $2,401,070 were paid off
by March 15, 2002.
SCHEDULE II
REDWOOD MORTGAGE INVESTORS VI
VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
Description Balance Additions Deductions Balance at
Beginning --------------------- Describe End of Period
of Period
(1) (2)
Charged Charged to
to Other
Costs & Accounts
Expenses Describe
Year Ended
12/31/01
Deducted from
Asset
Accounts:
Allowance for
Doubtful
Accounts $261,452 $109,160 $- $- (b)
$370,612
Cumulative
write-down of
Real Estate
held for
Sale (REO) $473,710 (a) $91,913 $- $(31,430) (b) $534,193
-------------- ----------- ----- ----------------- --------------------
Total $735,162(a) $201,073 $- $(31,430) (b) $904,805
============== =========== ===== ================= ====================
Note (a) - The beginning balance (Col B) includes $287,548 write
down of Real Estate in the process of becoming REO at December
31,1999.
Note (b) - Write-offs of loans/properties during the year.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE.
RULE 12-29 LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Desc. Interest Final Periodic Prior Liens Face Amount of Carrying Principal Type Geographic
Rate % maturity Payment Loan (original Amount of Loan Amount of of Lien County
Date Terms amount) Loans Location
Subject to
Delinquent
Principal
or Interest
- ---------- ---------- ---------- ------------- --------------- ---------------- --------------- ------------- -------- -------------
Comm. 14.75% 09/01/95 $2,241.96 $250,000.00 $185,000.00 $176,471.62 - 2nd San Mateo
Apts. 6.50% 05/01/06 540.83 89,904.00 100,000.00 96,716.11 27,582.33 2nd Sacramento
Comm. 10.00% 12/01/98 5,046.04 - 575,000.00 563,881.68 - 1st Alameda
Comm. 7.00% 12/01/03 1,151.48 562,500.00 99,172.75 81,121.58 56,422.52 2nd Alameda
Comm. 12.00% 02/01/99 14,025.12 - 1,376,117.03 1,376,117.03 - 1st Santa Clara
Apts. 7.00% 02/10/05 234.06 80,250.00 40,125.00 40,125.00 - 2nd San Francisco
Comm. 9.00% 05/10/02 670.52 - 83,333.33 78,557.42 - 1st Shasta
Comm. 12.00% 02/01/11 756.11 - 63,000.00 50,372.60 - 1st Alameda
Res. 8.00% 09/18/03 166.58 - 22,701.51 21,455.93 - 1st Sonoma
Res. 8.00% 09/30/03 170.67 - 23,259.09 22,039.71 - 1st Sonoma
Comm. 12.00% 02/01/99 508.40 1,279,200.00 49,200.00 49,200.00 - 2nd Santa Clara
Apts. 7.00% 08/01/02 1,545.83 - 265,000.00 260,228.74 - 1st Sacramento
Apts 7.00% 08/01/03 1,022.35 - 153,660.00 147,999.38 - 1st Sacramento
Apts. 9.00% 02/01/99 38.42 153,534.00 5,122.00 2,156.97 - 2nd Sacramento
Apts. 13.00% 11/01/03 759.15 341,094.00 60,000.00 14,789.24 - 2nd San Francisco
Comm. 11.50% 05/01/99 3,113.39 - 314,000.00 300,854.39 37,360.68 1st Alameda
Res. 12.00% 05/01/01 745.93 600,000.00 74,592.87 74,592.87 - 2nd Placer
Comm. 10.00% 12/01/03 1,276.47 - 145,454.55 144,916.12 5,105.88 1st Stanislaus
Comm. 10.00% 12/01/01 283.66 208,012.00 32,323.23 32,184.52 - 2nd Stanislaus
Land 12.00% 12/01/01 3,307.50 - 330,750.00 330,750.00 - 1st Santa Clara
Res 13.00% 05/01/01 691.86 674,593.00 63,863.76 63,863.76 - 3rd Placer
Res 11.00% 02/01/04 3,380.22 - 363,700.00 363,653.70 - 1st San Francisco
Comm. 11.50% 06/01/09 1,901.36 42,294.00 192,000.00 191,622.67 - 2nd San Mateo
Comm. 10.00% 07/01/11 997.47 - 109,768.75 109,261.90 - 1st Santa Clara
Res 11.50% 07/01/01 1,629.17 502,305.00 170,000.00 170,000.00 - 2nd Tuolumne
Res 11.00% 11/01/04 485.42 127,188.91 285,000.00 47,500.00 - 2nd San Mateo
Res 11.00% 12/01/04 1,466.69 716,126.57 250,000.00 160,000.00 - 2nd Santa Clara
-----------------------------------------------------------------------------
$48,156.66 $5,627,001.48 $5,432,143.87 $4,970,432.94 $126,471.41
=============================================================================
Notes: Loans classified as impaired had principal balances totaling
$2,467,891. Impaired loans are defined as loans where the costs of related
balances exceeds the anticipated fair value less costs to collect. Interest is
no longer accrued thereon.
Amounts reflected in column G (carrying amount of loans) represents both
costs and the tax basis of the loans.
Schedule IV
Reconciliation of carrying amount (cost) of loans at close of periods
Year ended December 31,
----------------------------------------------------------
2001 2000 1999
-------------- --------------- -----------------
Balance at beginning of year $5,570,576 $5,282,773 $7,969,735
-------------- --------------- -----------------
Additions during period:
New loans 1,838,266 2,434,422 922,936
Other 109,769 - -
--------------- -----------------
Total Additions $1,948,035 $2,434,422 $922,936
-------------- --------------- -----------------
Deductions during period:
Collections of principal 2,548,178 2,058,681 2,859,900
Foreclosures - - 499,999
Cost of loans sold - -
Amortization of Premium - - -
Other - 87,938 249,999
-------------- --------------- -----------------
Total Deductions 2,548,178 2,146,619 3,609,898
-------------- --------------- -----------------
Balance at close of year $4,970,433 $5,570,576 $5,282,773
============== =============== =================
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
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 17 years. They have been providing auditing and accounting
services to the partnership for the past 15 years through the following CPA
firms: 1987-1998 - Parodi & Cropper, CPA's; 1999 - Caporicci, Cropper & Larson,
LLP and 2000-2001 - 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 1987
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm with offices in Irvine
and Walnut Creek, California. The Parodi & Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from the
Caporicci, Cropper & Larson, LLP partnership. John Cropper joined the larger
regional firm of Armanino McKenna LLP as a partner and Bruce Cropper continues
to provide services through Cropper Accountancy. 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.
Part III
Item 10 - Directors and Executive Officers of the Registrant.
The partnership has no Officers or Directors. Rather, the activities of the
partnership are managed by the two general partners of which one individual is
Michael R. Burwell. The second general partner is Gymno Corporation, a
California corporation, formed in 1986. Mr. Burwell is one of the two
shareholders of Gymno Corporation, a California corporation, on an equal (50-50)
basis.
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in item 10, the partnership has no officers or
directors. The partnership is managed by the general partners. There are certain
fees and other items paid to management and related parties. A more complete
description of management compensation is found in the Prospectus, pages 11-12,
under the section "Compensation of the General Partners and the Affiliates",
which is incorporated by reference. Such compensation is summarized below.
The following compensation has been paid to the general partners and
affiliates for services rendered during the year ended December 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 Loan Servicing Fee for
Corp. servicing loans Investments $41,406
General Partners
&/or Affiliates Asset Management Fee for managing assets $9,115
General Partners 1% interest in profits $4,266
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 Mortgage Brokerage Commissions for services in
Corp. connection with the review, selection, evaluation,
negotiation, and extension of the loans paid by the
borrowers and not by the partnership $46,581
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 $2,300
Gymno Corporation,
Inc. Reconveyance Fee $804
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED
IN THE STATEMENT OF INCOME $28,156
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The general partners receive a combined total of a 1% interest in
partnership income and losses and distributions of cash available for
distribution.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to Financial Statements in Part II item 8
which describes related party fees and data.
Also refer to sections of the Prospectus "Compensation of General Partners
and Affiliates", page 11, and "Conflicts of Interest", page 13, as part of the
above-referenced Registration Statement which is incorporated by reference.
Part IV
Item 14 - Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(A) Documents filed as part of this report:
1. The Financial Statements are listed in Part II, Item 8 under
A-Financial Statements.
2. The Financial Statement Schedules are listed in Part II, Item 8
under B-Financial Statement Schedules.
3. Exhibits.
Exhibit No. Description of Exhibits
3.1 Limited Partnership Agreement
3.2 Form of Certificate of Limited Partnership Interest
3.3 Certificate of Limited Partnership
10.1 Escrow Agreement (1)
10.2 Servicing Agreement (1)
10.3 (a) Form of Note secured by Deed of Trust which provides for
principal and interest payments (1)
(b) Form of Note secured by Deed of Trust which provides
principal and interest payments and right of assumption (1)
(c) Form of Note secured by Deed of Trust which provides for
interest only payments (1)
(d) Form of Note (1)
10.4 (a) Deed of Trust and Assignment of Rents to accompany
Exhibits 10.3 (a) and (c) (1)
(b) Deed of Trust and Assignment of Rents to accompany
Exhibits 10.3 (b) (1)
(c) Deed of Trust to accompany Exhibit 10.3 (d) (1)
10.5 Promissory Note for Formation Loan (1)
10.6 Agreement to Seek a Lender (1)
All of these exhibits were previously filed as the exhibits to Registrant's
Statement on Form S-11 (Registration No. 33-12519) and incorporated by reference
herein.
(B) Reports on form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report. A Form 8-K was filed on February 7, 2000
relating to a change in accounting firm. Another Form 8-K was filed on
February 13, 2001, relating to the subsequent change in accounting firm
(see Item 9 above).
(C) See (A) 3 above
(D) See (A) 2 above. Additional reference is made to prospectus (S-11)
dated September 3, 1987 to pages 56 through 59 and supplement #6 dated
May 16, 1989 pages 16-18, for financial data related to Gymno Corpora-
tion, a general partner.
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 26th day of March,
2002.
REDWOOD MORTGAGE INVESTORS VI
By: /S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, President, Secretary &
Chief Financial Officer
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 26th day of March, 2002.
Signature Title Date
/S/ Michael R. Burwell
- ----------------------
Michael R. Burwell General Partner March 26, 2002
/S/ Michael R. Burwell
- ----------------------
Michael R. Burwell President, Secretary & Chief March 26, 2002
Financial Officer of Gymno
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation