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FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 2002
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Commission file number 33-12519
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REDWOOD MORTGAGE INVESTORS VI
(exact name of registrant as specified in its charter)
California 94-3031211
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
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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
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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
JUNE 30, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
June 30, December 31,
2002 2001
--------------- ---------------
(unaudited) (audited)
Cash $ 681,218 $ 190,414
--------------- ---------------
Loans
Loans, secured by deeds of trust, held to maturity 5,435,518 4,970,433
Loans, unsecured - 82,362
--------------- ---------------
5,435,518 5,052,795
Less allowance for loan losses (437,830) (370,612)
--------------- ---------------
Net loans 4,997,688 4,682,183
--------------- ---------------
Interest and other receivables
Accrued interest and late fees 36,862 761,473
Advances on loans 61,301 197,946
--------------- ---------------
Total interest and other receivables 98,163 959,419
--------------- ---------------
Note receivable - Redwood Mortgage Corp. - 178,200
Real estate owned, held for sale, net of allowance 1,132,493 1,093,503
Prepaid expenses 5,774 -
--------------- ---------------
Total assets $6,915,336 $7,103,719
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $ 13,068 $ 20,261
Deferred interest - 74,022
--------------- ---------------
Total liabilities 13,068 94,283
--------------- ---------------
Partners' capital
Limited partners' capital, subject to redemption 6,892,502 6,999,670
General partners' capital 9,766 9,766
--------------- ---------------
Total partners' capital 6,902,268 7,009,436
--------------- ---------------
Total liabilities and partners' capital $6,915,336 $7,103,719
=============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2002 and 2001 (unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- -------------- --------------
Revenues
Interest - on loans $357,487 $ 267,421 $108,940 $ 131,978
Interest - interest bearing accounts 2,835 7,943 1,678 6,810
Interest on promissory note 7,128 1,436 7,128 -
Late charges, prepayment penalties, and fees 28,285 8,858 2,813 3,793
------------- ------------- -------------- --------------
395,735 285,658 120,559 142,581
------------- ------------- -------------- --------------
Expenses
Loan servicing fees 99,455 21,853 12,377 11,890
Asset management fees 4,373 4,617 2,177 2,291
Clerical costs through Redwood Mortgage Corp. 11,709 15,252 5,755 7,540
Provisions for losses on loans
and real estate acquired through foreclosure 67,218 - (593) -
Professional services 15,233 16,123 2,725 8,153
Other 5,489 6,970 3,653 4,379
------------- ------------- -------------- --------------
203,477 64,815 26,094 34,253
------------- ------------- -------------- --------------
Net income $192,258 $ 220,843 $94,465 $ 108,328
============= ============= ============== ==============
Net income
General partners (1%) $ 1,923 $ 2,208 $ 945 $ 1,083
Limited partners (99%) 190,335 218,635 93,520 107,245
------------- ------------- -------------- --------------
$192,258 $ 220,843 $94,465 $108,328
============= ============= ============== ==============
Net income per $1,000 invested by limited
partners for entire period:
-where income is reinvested and compounded $27.51 $29.96 $13.48 $14.70
============= ============= ============== ==============
-where partner receives income in monthly
distributions $27.20 $29.60 $13.42 $14.63
============= ============= ============== ==============
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 SIX MONTHS ENDED JUNE 30, 2002 (unaudited)
Limited General
Partners Partners Total
------------- -------------- -------------
Balances of December 31, 2001 6,999,670 9,766 7,009,436
Net income 190,335 1,923 192,258
Early withdrawal penalties (4,453) - (4,453)
Partners' withdrawals (293,050) (1,923) (294,973)
------------- -------------- -------------
Balances of June 30, 2002 $6,892,502 $ 9,766 $ 6,902,268
============= ============== =============
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 SIX MONTHS ENDED JUNE 30, 2002 and 2001 (unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
2002 2001
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Cash flows from operating activities
Net income $ 192,258 $ 220,843
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 67,218 -
Early withdrawal penalties credited to income (4,453) (6,925)
Change in operating assets and liabilities
Accrued interest and advances on loans 780,718 (63,816)
Accounts payable (7,193) -
Deferred interest (74,022) -
Pre paid expenses (5,774) (748)
-------------- ---------------
Net cash provided by operating activities 948,752 149,354
-------------- ---------------
Cash flows from investing activities
Principal collected on loans 756,882 1,328,058
Loans made (1,097,697) (1,103,266)
Payments for real estate owned held for sale (5,551) (149,736)
Proceeds on sale of real estate owned, held for sale 5,191 60,345
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Net cash provided by (used in) investing activities (341,175) 135,401
-------------- ---------------
Cash flows from financing activities
Partners' withdrawals (294,973) (417,012)
Note receivable - Redwood Mortgage Corp. 178,200 48,564
-------------- ---------------
Net cash used in financing activities (116,773) (368,448)
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Net increase (decrease) in cash 490,804 (83,693)
Cash - beginning of year 190,414 354,860
-------------- ---------------
Cash - end of year $ 681,218 $ 271,167
============== ===============
Cash paid for interest $ - $ -
============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
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
in 1989, with contributed capital totaling $9,772,594.
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.
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 loan losses, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
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. Loans are 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 amounts due
according to the contractual terms of the loan agreement, and the shortfall in
amounts due are not insignificant, the carrying amount of the investment (cost)
shall be reduced to the present value of future cash flows discounted at the
loan's effective interest rate. If a loan is collateral dependent, it is valued
at the estimated fair value of the related collateral.
At June 30, 2002 and December 31, 2001, there were loans categorized as
impaired by the Partnership of $451,765 and $2,467,891, respectively. In
addition the impaired loans have accrued interest and advances totaling $10,837
and $828,967 at June 30, 2002, and December 31, 2001. During the first quarter
of 2002, impaired loans including accrued interest and advances thereon totaling
$2,933,698 were paid-off and re-written. The decrease in the carrying value of
the impaired loans of $38,634, and $287,985, at June 30, 2002 and December 31,
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(unaudited)
2001, respectively, is included in the allowance for loan losses. The
average recorded investment in the impaired loans was $451,765 and $2,468,698,
for the six months ended June 30, 2002, and for the year ended December 31,
2001, respectively. During the six months through June 30, 2002, and the year
ended December 31, 2001, $0 and $189,690, was received as cash payments on these
loans, respectively.
As presented in Note 9 to the financial statements, the average loan to
appraised value of security at the time the loans were consummated at June 30,
2002 and at December 31, 2001 was 86.30% and 71.27%, respectively. When loans
are valued for impairment purposes, the allowance is updated to reflect the
change 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.
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.
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:
June 30, December 31,
2002 2001
----------------- ---------------
Costs of properties $1,628,074 $1,627,696
Reduction in value (495,581) (534,193)
-------------- -------------
Fair value reflected in financial statements $1,132,493 $1,093,503
============== =============
F. Income Taxes
No provision for Federal and State income taxes, except for a minimum state
tax of $800, is made in the financial statements since income taxes are the
obligation of the partners if and when income taxes apply.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
G. Allowance for Loan Losses
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 loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate
with due consideration to collateral value to provide for unrecoverable loans
and receivables, including impaired loans, unspecified loans, accrued interest
and advances on loans, and other accounts receivable (unsecured). The
composition of the allowance for loan losses as of June 30, 2002 and December
31, 2001 was as follows:
June 30, December 31,
2002 2001
---------------- ---------------
Impaired loans $ 38,634 $ 287,985
Unspecified loans 399,196 265
Accounts receivable, unsecured - 82,362
-------------- --------------
$437,830 $ 370,612
============== ==============
Allowance for Loan Losses Reconciliation:
Activity in the allowance for loan losses is as follows for the six months
ending June 30, 2002, and for the year ending December 31, 2001:
June 30, December 31,
2002 2001
----------------- -----------------
Beginning Balance $ 370,612 $ 261,452
Provision for loan losses 67,218 109,160
Write-offs - -
-------------- --------------
Ending Balance $ 437,830 $ 370,612
============== ==============
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 net income 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 six months ended June 30, 2002 and for the
year ended December 31, 2001, late fee revenue of $544 and $27,748,
respectively, was recorded.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
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 $1,906 and $46,581, for the six months
ended June 30, 2002 and for the year ended December 31, 2001, 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 $99,455 and $41,406, were incurred
for the six months through June 30, 2002, and for year ended December 31, 2001,
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 $4,373 and $9,115 were incurred for the six
months through June 30, 2002, and for the year 2001, 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. 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. During six months through June 30, 2002, and for the year 2001,
clerical costs totaling $11,709 and $28,156, respectively, were reimbursed to
Redwood Mortgage Corp. and are included in expenses in the Statements of Income.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. Investors have the right to withdraw their capital over
a five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscription, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound. 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
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is not liquid. Limited partners had
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of June 30, 2002. In order to provide a certain
degree of liquidity to the limited partners after the one-year period, limited
partners may withdraw all or part of their capital accounts from the Partnership
in four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the Notice of Withdrawal is given, subject to a
10% early withdrawal penalty. The 10% penalty is applicable to the amount
withdrawn early and will be deducted from the capital account. Withdrawal after
the one-year holding period and before the five-year holding period described
below was permitted only upon the terms set forth above.
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.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
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 committed to subsidize 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 year 2001, was $178,200, and was paid-off, together
with accrued interest, in June, 2002.
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:
June 30, December 31,
2002 2001
----------------- ----------------
Net assets - partners' capital per financial statements $6,902,268 $7,009,436
Allowance for loan losses 437,830 370,612
--------------- ---------------
Net assets tax basis $7,340,098 $7,380,048
=============== ===============
In 2001 approximately 73% of taxable income was allocated to tax exempt
organizations (i.e., retirement plans). Such plans do not have to file income
tax returns unless their "unrelated business income" exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 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) Secured loans - (see note 2 (c)) carrying value was $5,435,518 and
$4,970,433 at June 30, 2002 and December 31, 2001, respectively. The fair value
of these investments of $4,670,397 and $5,036,556 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 loan
losses along with accrued interest and advances related thereto is also
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
Most loans are secured by recorded deeds of trust. At June 30, 2002, and at
December 31, 2001 there were 23 and 27 secured loans outstanding, respectively,
with the following characteristics:
June 30, December 31,
2002 2001
--------------- ---------------
Number of secured loans outstanding 23 27
Total secured loans outstanding $5,435,518 $4,970,433
Average secured loan outstanding $ 236,327 $ 184,090
Average secured loan as percent of total 4.35% 3.70%
Average secured loan as percent of partners' capital 3.42% 2.63%
Largest secured loan outstanding $2,103,300 $1,376,117
Largest secured loan as percent of total 38.70% 27.69%
Largest secured loan as percent of partners' capital 30.47% 19.63%
Number of counties where security is located (all California) 10 10
Largest percentage of secured loans in one county 40.70% 40.75%
Average secured loan to appraised value of security at time
loan was consummated 86.30% 71.27%
Number of secured loans in foreclosure 0 3
Amount of secured loans in foreclosure $ 0 $ 439,311
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
The following categories of loans were held at June 30, 2002 and at
December 31, 2001:
June 30, December 31,
2002 2001
------------------ ------------------
First Trust Deeds $ 4,662,244 $ 3,770,088
Second Trust Deeds 770,450 1,136,481
Third Trust Deeds 2,824 63,864
------------------ ------------------
Total loans 5,435,518 4,970,433
Prior liens due other lenders 2,189,876 5,627,002
------------------ ------------------
Total debt $ 7,625,394 $10,597,435
================== ==================
Appraised property value at time of loan $ 8,836,259 $14,868,548
================== ==================
Total investments as a percent of appraisals 86.30% 71.27%
================== ==================
Investments by type of property
Owner occupied homes $ 511,200 $ 741,154
Non-owner occupied homes 99,310 181,952
Apartments 630,284 562,015
Commercial 4,194,724 3,485,312
------------------ ------------------
$ 5,435,518 $ 4,970,433
================== ==================
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
Scheduled maturity dates of loans as of June 30, 2002 are as follows:
Year Ending
December 31,
-----------------------
2002 $ 621,017
2003 402,448
2004 511,200
2005 40,125
2006 96,716
Thereafter 3,764,012
--------------------
$ 5,435,518
====================
The scheduled maturities for 2002 include four loans totaling $331,079 (6%)
which are past maturity at June 30, 2002. Of these loans, none were categorized
as delinquent over 90 days.
The bank cash balance at June 30, 2002 of $676,521, before clearing
deposits in transit and outstanding checks, was in one bank with interest
bearing balances totaling $575,661. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $576,521.
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 June
30, 2002. There are approximately two loans totaling $177,050 in workout
agreements as of June 30, 2002.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 10: SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
Revenues
2002 $ 275,176 $120,559 - - -
2001 $ 143,077 142,581 134,603 315,639 735,900
2000 $ 150,583 172,579 158,243 303,804 785,209
Expenses
2002 $ 177,383 $ 26,094 - - -
2001 $ 30,562 34,253 29,249 215,185 309,249
2000 $ 25,204 52,044 41,218 188,814 307,280
Net income allocated to general partners
2002 $ 978 $ 945 - - -
2001 $ 1,125 1,083 1,054 1,004 4,266
2000 $ 1,254 1,205 1,170 1,150 4,779
Net income allocated to limited partners
2002 $ 96,815 $ 93,520 - - -
2001 $ 111,390 107,245 104,300 99,450 422,385
2000 $ 124,125 119,330 115,855 113,840 473,150
Net income per $1,000 invested
where income is
Reinvested
2002 $ 14 $ 13 - - -
2001 $ 15 $ 15 $ 14 $ 15 $ 59
2000 $ 15 $ 15 $ 15 $ 17 $ 62
Withdrawn
2002 $ 14 $ 13 - - -
2001 $ 15 $ 15 $ 14 $ 14 $ 58
2000 $ 15 $ 15 $ 15 $ 16 $ 61
NOTE 11: RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies. 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 revenue and expenses for the related period. Such estimates relate
principally to the determination of (1) the allowance for loan losses (i.e. the
amount of allowance established against loans receivable as an estimate of
potential loan losses) including the accrued interest and advances that are
estimated to be unrecoverable based on estimates of amounts to be collected plus
estimates of the value of the property as collateral and (2) the valuation of
real estate acquired through foreclosure.
Loans and 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. Provisions are made for loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral values and to provide for unrecoverable
loans and receivables, including impaired loans, other loans, accrued interest,
late fees and advances on loans, and other accounts receivable (unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for loan losses. Actual
results could vary from the aforementioned provisions for losses.
Forward Looking Statements.
Some of the information in the Form 10-Q 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 2002 includes forward looking statements
and predictions about the possibility 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.
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 June
30, 2002, the Partnership's net capital totaled $6,902,268.
The Partnership began funding loans in October 1987. The Partnership's
loans outstanding for the year ended December 31, 2001, and for the six months
through June 30, 2002 were $4,970,433 and $5,435,518, respectively. During the
year 2001, and the six months through June 30, 2002, loan principal collections
and net income exceeded limited partner liquidations. This excess was
re-invested in new loans accounting for the increase of $465,085.
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 occurred on December 11, 2001, which reduced the Federal Funds Rate
to 1.75%. In May 2002, the Federal Reserve met and did not change interest
rates. 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. 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. Demand for loans
from qualified borrowers continues to be strong and as prepayments occur, we
expect to replace paid off 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. The June 2002
quarter shows a reduction in interest income of $23,038 over the corresponding
quarter of 2001. Interest income for the six month period through June 30, 2002,
however, shows an overall increase of $90,066 over the June 30, 2001 interest
income. This occurred due to 1st quarter 2002 collection of interest on loans,
previously considered impaired. 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 5.25% and 6.00% for the
year 2002.
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-five years. Foreclosures are
a normal aspect of Partnership operations and the general partners anticipate
that they will not have a material effect on liquidity. As of June 30, 2002,
there were no loans in foreclosure. As of June 30, 2002 the Partnership's real
estate owned account balance was $1,132,493. This account had a balance of
$1,093,503 as of December 31, 2001.
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 loan losses 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 $67,218 and $0, (($593) and $0) as
provision for loan losses for the six (and three months) ended June 30, 2002 and
2001, respectively. The increase in allowance for the six months through June
30, 2002 was to build up reserves for potential losses in the future. The
Partnership acquired a piece of property through foreclosure as of June 30,
2002. . Management believes that reserves previously set aside in anticipation
of this acquisition are adequate. The modest provision of $67,218 in loan losses
for the six months through June 30, 2002 is due to Management's belief that the
current overall reserve balances of $437,830 are adequate, and additional
reserves set aside are not currently warranted.
The Partnership makes loans primarily in Northern California. As of June
30, 2002, approximately 83%, ($4,502,235) 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.
Despite fears over failing businesses, ongoing job losses and dwindling
stock portfolios, the real estate market seems to be doing remarkably well.
According to the California Association of Realtors president Robert Bailey,
"Residential real estate in California, particularly in the San Francisco Bay
Area, continued to rebound aggressively last month (April 2002) compared to
2001." Sales in the San Francisco Bay Area increased 73% in April 2002 compared
to a year ago and surged nearly 120% in Santa Clara County. The median price of
homes sold in Santa Clara County in April 2002 was $552,250 according to the
California Association of Realtors. The median price of an existing single
family detached home in California during April 2002 was $321,950, a 26.1%
increase over the $255,310 median for April 2001 the association's report says.
"Low inventory, favorable mortgage interest rates and rapidly rising home price
appreciation will continue to intensify the pace of home sales in the coming
months", says Leslie Appleton-Young, the association's vice president and chief
economist. For the Partnership, these statistics imply that the values of the
homes secured by mortgages in our portfolio should remain firm and assist in
reducing losses if the take back of collateral through the foreclosure process
should eventuate. It also implies increased loan activity, as the number of real
estate transactions is increasing, leaving more loan opportunities for lenders.
Commercial property vacancy rates have continued to climb. According to BT
Commercial overall San Francisco Bay Area vacancy rates have risen to almost
20%, up from 16.6% in the last quarter of 2001. Rental rates plunged 9% from $30
per square foot in the fourth quarter of 2001 to $27.24 in the first quarter of
2002. Average asking rates in the San Francisco Bay Area the first quarter a
year ago were $57.24. To the Partnership, these higher vacancy rates may mean
that we could experience higher delinquencies and foreclosures if our borrowers'
tenants' leases expire or their rental space becomes available through business
failures.
As of June 30, 2002 the Partnership had an average loan to value ratio
computed as of the date the loan was made of 86.30%. This did not account for
any changes in property values for loans, which were acquired by the Partnership
during 1998, 1999, 2000, and 2001 when Northern California Real Estate
substantially increased in value. This loan to value will assist the Partnership
in weathering downturns in real estate values if they materialize in the coming
months.
The Partnership has an interest in land located in East Palo Alto, CA which
was acquired through foreclosure. The Partnership's basis of $127,440 and
$128,443 for the six months through June 30, 2002 and for the year ended
December 31, 2001, 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 six (and
three months) ended June 30, 2002 and 2001, the Partnership made distributions
of earnings to limited partners of $65,412 and $83,129 ($31,751 and $39,985),
respectively. Distribution of earnings to limited partners for the six and
(three months) ended June 30, 2002 and 2001, to limited partners' capital
accounts and not withdrawn, was $124,923 and $135,506 ($61,769 and $66,260),
respectively. As of June 30, 2002 and December 31, 2001, limited partners
electing to withdraw earnings represented 35%, 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 six (and three months) ended June 30, 2002 and
2001, $55,665 and $86,561 ($27,243 and $36,252), 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,
2001, and the six months through June 30, 2002, respectively, and is expected by
the general partners to commonly occur at these levels.
Additionally, for the six (and three months) ended June 30, 2002 and 2001,
$176,426 and $252,039 ($85,091 and $121,038), respectively, were liquidated by
limited partners who have elected a liquidation program over a period of five
years or longer. The general partners expect a portion of the limited partners
to take advantage of this provision. This had the anticipated effect of the
Partnership growing, primarily through reinvestment of earnings in years one
through five. Then 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.
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 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").
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, part of the Form S-11 and subsequent amendments related
to the offering of Partnership investments, pages 11-12, under the section
"Compensation of the General Partners and the Affiliates," which is incorporated
by reference. Such compensation is summarized below.
The following compensation has been paid to the General Partners and their
affiliates for services rendered during the six months ended June 30, 2002. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Description of Compensation and Services Rendered Amount
Compensation
- ------------------- ------------------------------------------------------- ----------------------
I.
Redwood Mortgage Loan Servicing Fee for servicing loans $ 99,455
Corp.
General Partners
&/or Affiliates Asset Management Fee for managing assets $ 4,373
General Partners 1% interest in profits $ 1,923
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
Corp. in connection with the review, selection,
evaluation, negotiation, and extension of the
loans paid by the borrowers and not by the
Partnership $ 1,906
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 $ 117
Gymno Corp. Inc. Reconveyance Fee $ 160
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 . . . . . . . . . . . . . . . . . . . . . . . . . $11,709
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership periodically is a defendant in various legal
actions. 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
(99.1) Certification of Michael R. Burwell, General Partner
(99.2) Certification of Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of
Gymno Corporation, General Partner
(b) Form 8-K
There were no 8-K filings in the quarter ended June 30, 2002.
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 14th day of
August, 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/Treasurer & 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 14th day of August, 2002.
Signature Title Date
/S/ Michael R. Burwell
- --------------------------
Michael R. Burwell General Partner August 14, 2002
/S/ Michael R. Burwell
- --------------------------
Michael R. Burwell President, Secretary/Treasurer & August 14, 2002
CFO of Gymno Corporation
(Principal Financial and
Accounting Officer);
Director of Gymno Corporation
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VI
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the
Partnership, certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
- -----------------------------
Michael R. Burwell, General Partner
August 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VI
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General
Partner of the Partnership, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
- -----------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner
August 14, 2002