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REDWOOD MORTGAGE INVESTORS VI
(a California Limited Partnership)
Index to Form 10-K
December 31, 1997
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 4-5
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 Registrants Partners Capital and related 6
matters.
Item 6 - Selected Financial Data 7-8
Item 7 - Managements Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Item 8 - Financial Statements and Supplementary Data 12-33
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 34
Part III
Item 10 - Directors and Executive Officers of the Registrant 34
Item 11- Executive Compensation 35
Item 12 - Security Ownership of certain Beneficial Owners and Management 36
Item 13 - Certain Relationships and Related Transactions 36
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports of Form 8-K 36-37
Signatures 38
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, 1997 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 incorporation (I.R.S. Employer Identification)
or organization)
650 El Camino Real #G, Redwood City, CA 94063
- -------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
Registrants telephone No. 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
- -------------------------------------------------------------------------------
Limited Partnership Units 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 97,715.94 units computed at $100.00 a unit for
$9,771,594, 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), of which D. Russell Burwell, 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 Partnerships primary purpose is to invest its capital in Mortgage
Investments secured by Northern California properties. Mortgage Investments are
arranged and serviced by Redwood Home Loan Co, dba Redwood Mortgage, an
affiliate of the General Partners. The Partnership's objectives are to make
investments, as referred to above, 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 Partnerships capital. The Partnerships 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 Mortgage
Investments in October, 1987. The offering terminated in September, 1989, and as
of that date 97,725.94 Units were sold realizing a proceed of $9,772,594. At
December 31, 1997, the Partnership had a balance of Mortgage Investments
totalling $8,104,984 with interest rates thereon ranging from 4.00% to 17.25%.
Currently First Trust Deeds comprise 56.61% of the Mortgage Investment
portfolio. Second Mortgage Trust Deeds comprise 35.40% of Mortgage Investment
portfolio, third Mortgage Trust Deeds have 4.90% and 4th Mortgage Trust Deeds
have 3.09% of the Mortgage Investment portfolio. Owner-occupied homes, combined
with non-owner occupied homes, total 17.73% of the Mortgage Investments.
Mortgage Investments to apartments make up 9.77% of the total Mortgage
Investments portfolio. Commercial Mortgage Investment origination increased from
last year, now comprising 72.50% of the portfolio, an increase of 6.89%. The
past year brought many outstanding low loan to value lending opportunities in
the commercial segment of the market. The major concentration of Mortgage
Investments, comprising of 81.28% of the total loans, are in seven counties of
the Bay Area. The County of Stanislaus makes up 4.66% of the Mortgage Investment
portfolio and the balance, as stated on page six of this report, are in
primarily Northern California. Currently Mortgage Investment size is averaging
$137,373 per Mortgage Investment. Some of the Mortgage Investments are
fractionalized between affiliated partnerships with objectives similar to those
of the Partnership to further reduce risk. Average equity per loan transaction
stood at 35.52%. A 40% equity average on loan origination is generally
considered very conservative. Generally, the more equity, the more protection
for the lender. The Partnerships Mortgage Investment portfolio is in good
condition with six properties in foreclosure as of the end of December, 1997,
totalling $1,006,355.
Item 2 - Properties
As of December 31, 1997, a summary of the Partnership's Mortgage Investment
portfolio is set forth below.
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds $4,588,168.52
Appraised Value of Properties 6,828,071.00
Total Investment as a % of Appraisal 67.20%
Second Trust Deed Mortgage Investments 2,869,543.28
Third Trust Deed Mortgage Investments 397,273.21
Fourth Trust Deed Mortgage Investments* 249,999.40
First Trust Deeds due other Lenders 9,906,794.00
Second Trust Deeds due other Lenders 990,064.00
Third Trust Deeds due other Lenders 178,571.00
Total Debt $19,180,413.41
Appraised Property Value $28,422,684.00
Total Investments as a % of Appraisal 67.48%
Number of Mortgage Investments Outstanding 59
Average Investment 137,372.62
Average Investment as a % of Net Assets 1.46%
Largest Investment Outstanding 1,376,117.03
Largest Investment as a % of Net Assets 14.59%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 56.61%
Second Trust Deeds 35.40%
Third Trust Deeds 4.90%
Fourth Trust Deeds 3.09%
--------------------
100.00%
Total
Mortgage Investments by Type Amount Percent
of Property
Owner Occupied Homes $1,057,067.24 13.04%
Non-Owner Occupied Homes 380,141.84 4.69%
Apartments 791,755.61 9.77%
Commercial 5,876,019.72 72.50%
----------------- -----------
Total $8,104,984.41 100.00%
*Footnote on following page
The following is a distribution of loans outstanding as of December 31,
1997 by Counties.
Santa Clara $2,429,517.98 29.98%
Alameda 1,411,853.00 17.42%
San Mateo 1,251,050.75 15.44%
Contra Costa 769,133.16 9.49%
Sacramento 644,935.35 7.96%
San Francisco 403,829.99 4.98%
Stanislaus 377,552.00 4.66%
Sonoma 301,043.99 3.71%
El Dorado 214,773.21 2.65%
Ventura 91,000.00 1.12%
Shasta 81,751.22 1.01%
Monterey 71,428.57 0.88%
Santa Cruz 36,159.93 0.44%
Solano 20,955.26 0.26%
------------------- -----------
Total $8,104,984.41 100.00%
* Redwood Mortgage Investors VI, together with other Redwood partnerships
hold a second and a fourth trust deed against the secured property. In addition,
the principals behind the borrower corporation have given personal guarantees as
collateral. The overall loan to value ratio on this loan is 76.52%. In addition
to the borrower paying an interest rate of 12.25%, the Partnership and other
lenders will also participate in profits. The General Partners have had previous
loan activity with this borrower which had been concluded successfully, with
extra earnings earned for the other partnerships involved.
Statement of Condition of Mortgage Investments:
Number of Mortgage Investments in Foreclosure 6
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. Management
anticipates that the ultimate outcome of these legal matters will not have a
material adverse effect on the net assets of the Partnership in light of the
Partnership's allowance for doubtful accounts. As of the date hereof, the
Partnership is not involved in any legal proceedings other than those that would
be considered part of the normal course of business.
Item 4 - Submission of matters to vote of Security Holders (Partners).
No matters have been submitted to a vote of the Partnership.
Part II
Item 5 - Market for the Registrants Partners Capital and Related 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 have been sold
only in California. 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.
As of December 31, 1997, there were 742 holders of record of the
Partnerships Units. A decrease of 19 from 1996.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VI began operations in October 1987. Its
financial condition and results of operation for three years to December 31,
1997 were:
Balance Sheets
Assets
December 31,
------------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Cash $331,143 $180,597 $283,976
-------------- -------------- --------------
Accounts Receivable:
Mortgage Investments, secured by Deeds of Trust 8,104,984 9,313,924 10,402,491
Accrued Interest on Mortgage Investments 617,456 405,783 445,816
Advances on Mortgage Investments 127,519 108,019 131,936
Accounts receivables, unsecured 161,414 251,531 322,913
-------------- -------------- --------------
$9,011,373 $10,079,257 $11,303,156
Less allowance for doubtful accounts 28,614 252,850 283,284
-------------- -------------- --------------
8,982,759 $9,826,407 $11,019,872
-------------- -------------- --------------
Real estate owned, held for sale, acquired through
foreclosure 309,319 1,441,007 1,501,712
Investment in Partnership 708,141 496,040 456,821
-------------- -------------- --------------
$10,331,362 $11,944,051 $13,263,316
============== ============== ==============
Liabilities and Partners Capital
Liabilities:
Notes Payable - Bank Line of Credit $899,011 $1,530,511 $2,041,011
Deferred interest on Mortgage Investments 898 18,522 0
-------------- -------------- --------------
Total Liabilities 899,909 1,549,033 2,041,011
-------------- -------------- --------------
Partners Capital:
Limited Partners capital, subject to 9,421,687 10,385,252 11,212,539
redemption
General Partners capital 9,766 9,766 9,766
-------------- -------------- --------------
Total Partners Capital 9,431,453 10,395,018 11,222,305
-------------- -------------- --------------
Total Liabilities and Partners Capital $10,331,362 $11,944,051 $13,263,316
============== ============== ==============
Statements of Income
1997 1996 1995
-------------- -------------- --------------
Gross Revenue $1,036,596 $1,167,859 $1,277,782
Expenses 507,409 579,697 659,434
============== ============== ==============
Net Income 529,187 588,162 618,348
============== ============== ==============
Net Income: to General Partners (1%) $5,292 $5,882 $6,183
to Limited Partners (99%) 523,895 582,280 612,165
-------------- -------------- --------------
$529,187 $588,162 $618,348
============== ============== ==============
Net Income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $53 $54 $53
============== ============== ==============
-where partner receives income in monthly
distributions $52 $52 $52
============== ============== ==============
In 1995 the annualized yield was 5.30%. In 1996, the annualized yield was
5.35% and in 1997 the annualized yield was 5.29%. The annualized yield since
inception through December 31, 1997, was 7.71%.
Item 7 - Managements Discussion and Analysis of Financial Condition and
Results of Operations
On September 2, 1989, the Partnership had sold 97,725.94 Units and its
contributed capital totalled $9,772,594 of the approved $12,000,000 issue, in
Units of $100 each. As of that date the offering was formally closed. On
December 31, 1997, the Partnerships net capital totalled $9,431,453.
The Partnership began funding Mortgage Investments in October 1987. The
Partnerships Mortgage Investments outstanding for the years ended December 31,
1995, 1996 and 1997 were $10,402,491, $9,313,924 and $8,104,984, respectively.
The decrease in Mortgage Investments outstanding of $1,088,567 from December 31,
1995 to December 31, 1996, was due primarily to the Partnership utilizing
Mortgage Investment payoffs to meet Limited Partner capital liquidations. The
decrease in Mortgage Investments outstanding of $1,208,940 from December 31,
1996 to December 31, 1997, was again due primarily to the Partnership utilizing
Mortgage Investment payoffs to meet Limited Partner capital liquidations. During
the years 1996 and 1997, Mortgage Investment principal collections exceeded
Limited Partner liquidations.
Currently, mortgage interest rates are lower than those prevalent at the
inception of the Partnership. New Mortgage Investments will be originated at
these lower interest rates. The result is to reduce the average return across
the entire Mortgage Investment portfolio held by the Partnership. In the future,
interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. Although the rates charged by the Partnership are influenced by the
level of interest rates in the market, the General Partners do not anticipate
that rates charged by the Partnership to is borrowers will change significantly
from the beginning of 1998 over the next 12 months. Based upon the rates payable
in connection with the existing Mortgage Investments, the current and
anticipated interest rates to be charged by the Partnership and the General
Partners experience, the General Partners anticipate that the annualized yield
next year will range only slightly higher from its current rate.
Each year, the Partnership negotiates a line of credit with a commercial
bank which is secured by its Mortgage Investment portfolio. The outstanding
balance of the bank line of credit was $2,041,011, $1,530,511 and $899,011 for
the years ended December 1995, 1996, and 1997 respectively. The interest rate on
the bank line of credit has remained at Prime plus one percent for the preceding
three years. For the years ended December 31, 1997, 1996 and 1995, interest on
Note Payable-Bank was $133,577, $158,175 and $212,915 respectively. The primary
reason for this decrease was that the Partnership had a lower overall credit
facility utilization from 1995 to 1996 and from 1996 to 1997. As of December 31,
1997, the Partnership has borrowed $899,011 at an interest rate of Prime plus
one percent. This added source of funds will help in maximizing the Partnership
yield by allowing the Partnership to minimize the amount of funds in lower yield
investment accounts when appropriate Mortgage Investments are not currently
available and because the Mortgage Investments made by the Partnership usually
bear interest at a rate in excess of the rate payable to the bank which extended
the line of credit, the amount to be retained by the Partnership, after payment
of the line of credit cost, will be greater than without the use of the line of
credit.
The Partnership's operating results and delinquencies are within the normal
range of the General Partners expectations, based upon their experience in
managing similar Partnerships over the last twenty 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, 1997,
there were six properties in foreclosure. Cash is continually being generated
from interest earnings, late charges, prepayment penalties, amortization of
notes and pay-off of notes. Currently, this amount exceeds Partnership expenses
and earnings and principal payout requirements. As Mortgage Investment
opportunities become available, excess cash and available funds are invested in
new Mortgage Investments.
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, REO expenses, sales activities, and borrowers payment
records and other data relating to the Mortgage Investment portfolio. Data on
the local real estate market, and on the national and local economy are studied.
Based upon this information and more, Mortgage Investment loss reserves and
allowance for doubtful accounts are increased or decreased. Because of the
number of variables involved, the magnitude of possible swings and the General
Partners inability to control many of these factors, actual results may and do
sometimes differ significantly from estimates made by the General Partners.
Management provided $344,807, $312,684 and $268,101 as provision for doubtful
accounts for the years ended December 31, 1995, December 31, 1996 and December
31, 1997, respectively. The decrease in the provision reflects the decrease in
the amount of REO, unsecured receivables and the decreasing levels of
delinquency within the portfolio. Additionally, the General Partners felt that
the bottom of the real estate cycle had been reached, reflecting a decreasing
need to set aside reserves for the continuously declining real estate values as
had been the case in the early 1990s in the California real estate market.
During the year 1997, the Partnership reduced the REO balance from $1,501,712 as
of December 31, 1995, to $306,319 through December 31, 1997. This reduction will
assist the Partnership in increasing yields in 1998, as assets previously lying
idle, may now produce current income.
The Northern California recession reached bottom in 1993. Since then, the
California economy has been improving, slowly at first, but now, more
vigorously. A wide variety of indicators suggest that the economy in California
was strong in 1997, and the State is well - positioned for fast growth. This
improvement is reflective in increasing property values, in job growth, personal
income growth, etc., which should translate into more loan activity. Which of
course, is healthy for the Partnerships lending activity.
The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling $708,141 and $496,040 for the years ended
December 31, 1997 and 1996, respectively has been invested with that of two
other Partnerships in a partnership which is in the process of obtaining
approval for constructing approximately 63 single family homes for sale. (The
Development). The proposed Development has gained significant public awareness.
Incorporated into the proposed Development are various mitigation measures not
limited to, mitigation of hazardous materials existing on the property,
endangered species, and proximity to the San Francisco Baylands. The preceding
issues and others have sparked significant public controversy. Opposition both
for and against the proposed Development exists. Notwithstanding the above, the
General Partners believe that pursuit of the proposed Development approval to be
in the interest of the Partnership. This investment has been classified in the
financial statements as Investment in Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1995, December 31, 1996, and 1997, the Partnership made
distributions of earnings to Limited Partners after allocation of syndication
costs of, $296,915, $288,796 and $252,378 respectively. Distribution of Earnings
to Limited Partners after allocation of syndication costs for the years ended
December 31, 1995, December 31, 1996 and December 31, 1997, to Limited Partners
capital accounts and not withdrawn was $315,250, $293,484 and $271,517
respectively. As of December 31, 1995, December 31, 1996 and December 31, 1997,
Limited Partners electing to withdraw earnings represented 50 %, 49 % and 46% of
the Limited Partners outstanding capital accounts.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1995, December 31,
1996, and December 31, 1997, $43,364, $96,362 and $159,732 respectively, were
liquidated subject to the 10% 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% 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
investment to raise cash. The trend the Partnership is experiencing in
withdrawals by Limited Partners electing a one year liquidation program
represents a small percentage of Limited Partner capital as of December 31,
1995, December 31, 1996 and December 31, 1997, respectively and is expected by
the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1995 and December 31, 1996
and December 31, 1997, $849,589, $1,086,737 and $1,137,677 respectively, were
liquidated by Limited Partners who have elected a liquidation program over a
period of five years or longer. Once the initial five year hold period has
passed (which has), the General Partners expect to see an increase in
liquidations due to the ability of Limited Partners to withdraw without penalty.
This ability to withdraw after five years by Limited Partners has the effect of
providing Limited Partner liquidity which the General Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal will have been liquidated.
After year eleven, liquidation generally subsides and the Partnership capital
again tends to increase.
Actual liquidation of both capital and earnings from year five (1992)
through year ten (1997) is shown hereunder:
Years ended December 31,
1992 1993 1994 1995 1996 1997
----------- ---------- ------------ ------------- ------------ -------------
Earnings $323,037 377,712 303,014 303,098 294,678 257,670
Capital *$232,370 528,737 729,449 892,953 1,183,099 1,297,410
=========== ========== ============ ============= ============ =============
Total $555,407 $906,449 $1,032,463 $1,196,051 $1,477,777 $1,555,080
=========== ========== ============ ============= ============ =============
*These amounts represent gross of early withdrawal penalties.
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VI, a California Limited Partnerships list of
Financial Statements and Financial Statement schedules:
A- Financial Statements
Independent Auditors Report,
Balance Sheets - December 31, 1997, and December 31, 1996,
Statements of Income for the three years ended December 31, 1997,
Statements of Changes in Partners Capital for the three years ended December 31,
1997,
Statements of Cash Flows for the three years ended December 31, 1997,
Notes to Financial Statements - December 31, 1997.
B. - Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Investors
VI are included in Item 8.
Schedule II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule VIII Valuation of Qualifying Accounts
Schedule IX Short Term Borrowings
Schedule XII Mortgage Investments 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 Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with Auditors Report Thereon)
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette California 94549
(510) 284-3590
INDEPENDENT AUDITORS REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VI
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 balance sheets as of December 31, 1997 and 1996 and the
statements of income, changes in partners capital and cash flows for the three
years ended December 31, 1997. These financial statements are the responsibility
of the Partnerships management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 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, 1997 and 1996, and the results of its operations and cash
flows for the three years ended December 31, 1997 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/ Parodi & Cropper
PARODI & CROPPER
Lafayette, California
February 27, 1998
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
--------------- ---------------
Cash $331,143 $180,597
--------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 8,104,984 9,313,924
Accrued Interest on Mortgage Investments 617,456 405,783
Advances on Mortgage Investments 127,519 108,019
Accounts receivables, unsecured 161,414 251,531
--------------- ---------------
9,011,373 10,079,257
Less allowance for doubtful accounts 28,614 252,850
--------------- ---------------
8,982,759 9,826,407
--------------- ---------------
Real estate owned, held for sale, acquired through foreclosure 309,319 1,441,007
Investment in Partnership 708,141 496,040
--------------- ---------------
Total Assets $10,331,362 $11,944,051
=============== ===============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Deferred Interest $898 $18,522
Note payable - bank line of credit 899,011 1,530,511
--------------- ---------------
Total Liabilities 899,909 1,549,033
--------------- ---------------
Partners Capital:
Limited Partners capital, subject to redemption, (note 4D):
net of Formation Loan receivable of $59,521 and $121,849,
for 1997 and 1996, respectively 9,421,687 10,385,252
General Partners Capital: 9,766 9,766
--------------- ---------------
Total Partners capital 9,431,453 10,395,018
--------------- ---------------
Total Liabilities and Partners capital $10,331,362 $11,944,051
=============== ===============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
------------- -------------- -------------
Revenues:
Interest on Mortgage Investments $1,011,621 $1,135,218 $1,256,499
Interest on bank deposits 6,563 4,750 5,206
Late charges, prepayment penalties, and fees 18,412 27,891 16,077
------------- -------------- -------------
1,036,596 1,167,859 1,277,782
------------- -------------- -------------
Expenses:
Mortgage servicing fees 39,918 44,565 42,056
Clerical costs through Redwood Mortgage 27,786 31,838 23,341
Interest and line of credit costs 133,577 158,175 212,915
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 268,101 312,684 344,807
Professional services 23,517 17,825 19,452
Other 14,510 14,610 16,863
------------- -------------- -------------
507,409 579,697 659,434
------------- -------------- -------------
Net Income $529,187 $588,162 $618,348
============= ============== =============
Net income: To General Partners(1%) $5,292 $5,882 $6,183
To Limited Partners (99%) $523,895 $582,280 $612,165
============= ============== =============
$529,187 $588,162 $618,348
============= ============== =============
Net income per $1,000 invested by Limited
Partners for entire period:
-where income is reinvested and compounded $53 $54 $53
============= ============== =============
-where partner receives income in monthly distributions $52 $52 $52
============= ============== =============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
PARTNERS CAPITAL
-------------------------------------------------------------------------------------
LIMITED PARTNERS CAPITAL
--------------------------------------------------
Capital
Account Formation General
Limited Loan Partners
Partners Receivable Total Capital Total
-------------- ------------- --------------- ------------ --------------
Balances at December 31, 1994 $11,974,419 $(246,505) $11,727,914 $9,766 $11,737,680
Formation Loan collections 0 59,581 59,581 0 59,581
Net income 612,165 0 612,165 6,183 618,348
Early withdrawal penalties (4,336) 2,747 (1,589) 0 (1,589)
Partners withdrawals (1,185,532) 0 (1,185,532) (6,183) (1,191,715)
-------------- ------------- --------------- ------------ --------------
Balances at December 31, 1995 11,396,716 (184,177) 11,212,539 $9,766 11,222,305
Formation Loan collections 0 56,803 56,803 0 56,803
Net income 582,280 0 582,280 5,882 588,162
Early withdrawal penalties (8,721) 5,525 (3,196) 0 (3,196)
Partners withdrawals (1,463,174) 0 (1,463,174) (5,882) (1,469,056)
-------------- ------------- --------------- ------------ --------------
Balances at December 31, 1996 10,507,101 (121,849) 10,385,252 9,766 10,395,018
Formation Loan collections 0 53,833 53,833 0 53,833
Net Income 523,895 0 523,895 5,292 529,187
Early withdrawal penalties (13,409) 8,495 (4,914) 0 (4,914)
Partners withdrawals (1,536,379) 0 (1,536,379) (5,292) (1,541,671)
-------------- ------------- -------------- ------------- --------------
Balances at December 31, 1997 $9,481,208 ($59,521) $9,421,687 $9,766 $9,431,453
============== ============= ============== ============= ==============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
--------------- ------------- -------------
Cash flows from operating activities:
Net income $529,187 $588,162 $618,348
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 264,484 65,804 74,718
Provision for Losses on real estate held for sale 3,617 246,880 270,089
Early withdrawal penalty credited to income (4,914) (3,196) (1,589)
(Increase) decrease in assets:
Accrued interest & advances (231,173) 63,950 (225,306)
Prepaid expenses and other assets 0 935 (935)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 0 0 0
Deferred Interest on Mortgage Investments (17,624) 18,522 0
-------------- ------------- -------------
Net cash provided by operating activities 543,577 981,057 735,325
-------------- ------------- -------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 1,634,128 3,295,834 2,273,233
Mortgage Investments made (557,796) (2,474,843) (2,062,626)
Additions to real estate held for sale (47,415) (242,869) (169,015)
Dispositions of real estate held for sale 909,491 299,414 526,889
Investment in Partnership (212,101) (39,219) 0
-------------- ------------- -------------
Net cash provided by (used in) investing activities 1,726,307 838,317 568,481
-------------- ------------- -------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank (631,500) (510,500) (335,500)
Partners withdrawals (1,541,671) (1,469,056) (1,191,715)
Formation Loan collections 53,833 56,803 59,581
-------------- ------------- -------------
Net cash provided by (used in) financing activities (2,119,338) (1,922,753) (1,467,634)
-------------- ------------- -------------
Net increase (decrease) in cash 150,546 (103,379) (163,828)
Cash - beginning of period 180,597 283,976 447,804
-------------- ------------- -------------
Cash - end of period $331,143 $180,597 $283,976
============== ============= =============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VI, (the
Partnership) is a California Limited Partnership, of which the General Partners
are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California
corporation owned and operated by the individual General Partners. The
partnership was organized to engage in business as a mortgage lender for the
primary purpose of making Mortgage Investments secured by Deeds of Trust on
California real estate. Mortgage Investments are being arranged and serviced by
Redwood Home Loan Co. (RHL Co.), dba Redwood Mortgage, an affiliate of the
General Partners. The offering was closed with contributed capital totaling
$9,781,366.
Each months income is distributed to partners based upon their
proportionate share of partners capital. Some partners have elected to withdraw
income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan Sales commissions ranging from 0%
(units sold by General Partners) to 10% of gross proceeds were paid by Redwood
Mortgage., an affiliate of the General Partners that arranges and services the
Mortgage Investments. To finance the sales commissions, the Partnership loaned
to Redwood Mortgage $623,255 (the Formation Loan) relating to contributed
capital of $9,781,366. The Formation Loan is unsecured, and is being repaid,
without interest, in ten annual installments of principal, commencing December
31, 1989.
The following reflects transactions in the Formation Loan account through
December 31, 1997:
Amount loaned during 1987,1988 and 1989 $623,255
Less:
Cash repayments $513,295
Allocation of early withdrawal penalties 50,439 563,734
============ ---------
Balance December 31, 1997 $59,521
========
The Formation Loan, which is receivable from Redwood Mortage, an affiliate
of the General Partners, has been deducted from Limited Partners capital in the
balance sheet. As amounts are collected from Redwood Mortgage, the deduction
from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, and other costs), paid by the Partnership from the offering
proceeds totaled $360,885 or 3.69% of the gross proceeds contributed by the
Partners. Such costs have been fully amortized and allocated to the Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a Mortgage Investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was the
valuation method previously used on impaired loans.
At December 31, 1997, 1996 and 1995, reductions in the cost of Mortgage
Investments categorized as impaired by the Partnership totalled $0, $13,006 and
$45,933, respectively. The reduction in stated value was accomplished by
increasing the allowances for doubtful accounts.
As presented in Note 10 to the financial statements as of December 31,
1997, the average mortgage investment to appraised value of security at the time
the loans were consummated was 67.48%. When a loan is valued for impairment
purposes, an updating is made in the valuation of collateral security. However,
a low loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December 31, 1997 and 1996:
December 31,
-----------------------------------------------
1997 1996
--------------- ---------------
Costs of properties $449,319 $1,743,382
Reduction in value 140,000 302,375
--------------- ---------------
Fair value reflected in financial statements $309,319 $1,441,007
=============== ===============
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
The Partnership accounts for its investment in a partnership as an
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell. At December 31, 1997, cost is considered less than fair
value and the investment is stated at cost in the financial statements.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $14,750 were capitalized and were
amortized over a five year period. Syndication costs of $346,135 were charged
against partners capital and were allocated to individual partners consistent
with the Partnership Agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate with due consideration to
collateral value to provide for unrecoverable accounts receivable, including
impaired Mortgage Investments, unspecified mortgage investments, accrued
interest and advances on Mortgage Investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
December 31, 1997 and 1996 was a follows:
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
December 31,
-----------------------------------------------
1997 1996
--------------- ---------------
Impaired Mortgage Investments $0 $13,006
Unspecified Mortgage Investments 13,432 59,844
Accounts receivable, unsecured 15,182 180,000
-------------- ---------------
$28,614 $252,850
=============== ===============
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital. Because
the net income percentage varies from month to month, amounts per $1,000 will
vary for those individuals who made or withdrew investments during the period,
or select other options. However, the net income per $1,000 average invested has
approximated those reflected for those whose investments and options have
remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions
Mortgage brokerage commissions for services in connection with the review,
selection, evaluation, negotiation and extension of the Mortgage Investments
were limited up to 12% of the principal amount of the loans through the period
ending 6 months after the termination date of the offering. Thereafter,
commissions are limited to an amount not to exceed 4% of the total Partnership
assets per year. Such commissions are paid by the borrowers, thus, not an
expense of the Partnership.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees are paid to Redwood Mortgage up to 1/8 of
1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable
and customary in the geographic area where the property securing the Mortgage
Investment is located. Mortgage servicing fees of $39,918, $44,565, and $42,056
were incurred for years 1997, 1996 and 1995, respectively.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
C. Asset Management Fee
The General Partners are authorized to receive monthly fees for managing
the Partnerships Mortgage Investment portfolio and operations of up to 1/32 of
1% (3/8 of 1% annual). There were no management fees incurred for years 1997,
1996 and 1995, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. These fees are paid by the
borrowers to parties related to the General Partners.
E. Income and Losses
All income is credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) is a total of 1%.
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. In
1995, 1996, and 1997, clerical costs totaling $23,341, $31,838 and $27,786
respectively, were reimbursed to Redwood Mortgage and are included in expenses
in the Statements of Income.
NOTE 4 OTHER PARTNERSHIP PROVISIONS
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provided for no capital withdrawal for
the first five years, subject to the penalty provision set forth in (D) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound for at least a period of 5 years.
C. Profits and Losses
Profits and losses are allocated monthly among the Limited Partners
according to their respective capital accounts after 1% is allocated to the
General Partners.
D. Withdrawal From Partnership
A Limited Partner had no right to withdraw from the Partnership or to
obtain the return of his capital account for at least five years after such
units are purchased which in all instances had occurred by December 31, 1997.
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.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Notwithstanding the above, in order to provide a certain degree of
liquidity to the Limited Partners, the General Partners will liquidate a Limited
Partners entire capital account in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given. Such liquidations shall, however, be subject to a 10% early
withdrawal penalty applicable to any sums withdrawn prior to the time when such
sums otherwise could have been withdrawn pursuant to the liquidation procedure
set forth above. The 10% early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal under the Formation Loan owed to the
Partnership by Redwood Mortgage. Such portion shall be determined by the ratio
between the initial amount of Formation Loan and the total amount of other
organization and syndication costs incurred by the Partnership in this offering.
The balance of any such early withdrawal penalties shall be retained by the
Partnership for its own account and applied against syndication costs. Since the
syndication costs have been fully amortized as of December 31, 1993, the early
withdrawal penalties gained in the future will be applied on the same basis as
before with the amount otherwise being credited to the syndication costs being
credited to income for the period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land acquired through foreclosure, located in
East Palo Alto with costs totalling $708,141 has been invested with that of two
other Partnerships (total cost to date, primarily land, of $1,458,721) in a
partnership which is in the process of constructing approximately 63 single
family homes for sale. Redwood Mortgage Investors V, VI, and VII have first
priority on return of investment plus interest thereon, in addition to a share
of profits realized.
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its Mortgage
Investment portfolio up to $2,500,000 at 1% over prime. The balances were
$1,530,511 and $899,011 at December 31, 1996 and 1997, respectively, and the
interest rate at December 31, 1997 was 9.5% (8.50% prime + 1%). The line of
credit expires December 31, 1998.
NOTE 7 - LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions. However, legal
actions against borrowers and other involved parties have been initiated by the
Partnership to help assure payments against unsecured accounts receivable
totaling $161,414.
Management anticipates that the ultimate outcome of the legal matters will
not have a material adverse effect on the net assets of the Partnership, with
due consideration having been given in arriving at the allowance for doubtful
accounts.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
-----------------------------------------------
1997 1996
---------------- ---------------
Net assets - Partners Capital per financial $9,431,453 $10,395,018
statements
Formation Loan receivable 59,521 121,849
Allowance for doubtful accounts 28,614 252,850
---------------- ---------------
Net assets tax basis $9,519,588 $10,769,717
================ ===============
In 1997, approximately 72% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$8,104,984. The December 31, 1997 fair value of these investments of $8,110,440
is estimated based upon projected cash flows discounted at the estimated current
interest rates at which similar loans would be made. The applicable amount of
the allowance for doubtful accounts along with accrued interest and advances
related thereto should also be considered in evaluating the fair value versus
the carrying value.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
December 31, 1997, there were 59 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 59
Total Mortgage Investments outstanding $8,104,984
Average Mortgage Investment outstanding $137,373
Average Mortgage Investment as percent of total 1.69%
Average Mortgage Investment as percent of Partners Capital 1.46%
Largest Mortgage Investment outstanding $1,376,117
Largest Mortgage Investment as percent of total 16.98%
Largest Mortgage Investment as percent of Partners Capital 14.59%
Number of counties where security is located (all California) 14
Largest percentage of Mortgage Investments in one county 29.98%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 67.48%
Number of Mortgage Investments in foreclosure 6
The following categories of mortgage investments are pertinent at December
31, 1997 and 1996:
December 31,
------------------------------------------
1997 1996
----------------- ---------------
First Trust Deeds $4,588,169 $4,928,794
Second Trust Deeds 2,869,543 3,729,581
Third Trust Deeds 397,273 405,567
Fourth Trust Deeds 249,999 249,982
----------------- ---------------
Total mortgage investments 8,104,984 9,313,924
Prior liens due other lenders 11,075,429 17,200,385
----------------- ---------------
Total debt $19,180,413 $26,514,309
================= ===============
Appraised property value at time of loan $28,422,684 $40,225,303
================= ===============
Total investments as a percent of appraisals 67.48% 65.91%
================= ===============
Investments by Type of Property
Owner occupied homes $1,057,067 $1,443,835
Non-Owner occupied homes 380,142 973,498
Apartments 791,755 786,362
Commercial 5,876,020 6,110,229
================= ===============
$8,104,984 $9,313,924
================= ===============
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Scheduled maturity dates of mortgage investments as of December 31, 1997
are as follows:
Year Ending
December 31,
-------------------
1998 $3,799,251
1999 2,004,478
2000 276,160
2001 493,558
2002 424,620
Thereafter 1,106,917
================
$8,104,984
================
The scheduled maturities for 1998 include $1,545,198 in Mortgage
Investments which are past maturity at December 31, 1997. $54,493 of those
Mortgage Investments were categorized as delinquent over 90 days.
Five Mortgage Investments with principal outstanding of $365,982 had
interest payments overdue in excess of 90 days.
The cash balance at December 31, 1997 of $331,143 was in one bank with
interest bearing balances totalling $290,650. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $231,143. And when deposits in the
Partnerships bank accounts increases significantly beyond the insured limit,
the funds are either placed in new Mortgage Investments or used to pay down on
the line of credit balance.
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES. RULE 12-03
Column A Column B Column C Column D Column E
Name of Debtor Balance Beg. Additions Deductions Balance at end of period
of period
12/31/96
(1) (2) (1) (2)
Amounts Amounts Current Not Current
collected written 12/31/97 12/31/97
off *
Redwood Mortgage. $121,849 $0.00 $53,833 $8,495 $0.00 $59,521
The above schedule represents the Formation Loan borrowed by Redwood
Mortgage from the Partnership to pay for the selling commissions on units. It is
an unsecured loan and bears no interest. It is being repaid to the Partnership
in ten equal annual installments of principal only which began December 31,
1989.
* The amount written off represents the proportionate amount of early
withdrawal penalties allocated to the Formation Loan, as provided for in the
Prospectus.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VI
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 to Charged to
Costs Other
& Expenses Accounts -
Describe
Year Ended
12/31/97
Deducted from
Asset Accounts:
Allowance for
Doubtful Accounts $252,850 $3,617 0 $227,853 $28,614
Cumulative
write-down of
Real Estate held
for sale (REO) $302,375 $264,484 0 $426,859 $140,000
---------- ----------- ------------ -------------- --------------
Total $555,225 $268,101 0 (a) $654,712 $168,614
========== =========== ============ ============== ==============
(a) represents loss on Mortgage Investments and Real Estate held for sale.
SCHEDULE IX
SHORT-TERM BORROWINGS
REDWOOD MORTGAGE INVESTORS VI - RULE 12-10
Col. A Col. B Col. C Col. D Col. E Col. F
Category of Balance at end Weighted Maximum Amount Average Amount Weighted
Aggregate of Period Average Outstanding Outstanding Average
Short-Term Interest Rate During the During the Interest Rate
Borrowings Period Period During the
Period
================== ================= ================= ================= ================= =================
Year-Ended
12/31/97 $899,011 9.58% $1,530,511 $1,393,838 9.58%
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE.
RULE 12-29 MORTGAGE INVESTMENTS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Interest Final Periodic Prior Face Amt. Carrying Principal Type of Geographic
Rate Maturity Payment Liens of amount of amount of Lien County
Date Terms Mortgage Mortgage Mortgage Location
Investment Investment Investments
(original subject to
amount) Delinq.
Principal
or Interest
- --------- --------- --------- ---------- ---------- ------------ ------------ ------------ --------- --------------
Res. 13.500% 03/01/03 467.39 0.00 36,000.00 20,955.26 0.00 1st Mtg Solano
Res. 10.000% 08/01/03 576.96 262,720 49,000.00 29,505.67 0.00 2nd Mtg San Mateo
Comm 13.000% 09/01/98 807.53 0.00 73,000.00 65,491.48 0.00 1st Mtg Alameda
Apts. 13.000% 11/01/03 759.15 341,094 60,000.00 37,118.04 0.00 2nd Mtg San Francisco
Res. 13.750% 11/01/03 2,202.61 0.00 167,500.01 96,574.79 0.00 1st Mtg Alameda
Apts. 14.000% 03/01/92 1,184.87 960,000 100,000.00 96,286.30 0.00 2nd Mtg Santa Clara
Comm 14.500% 05/01/04 4,233.05 532,392 310,000.00 209,695.23 0.00 2nd Mtg San Mateo
Comm 11.500% 05/01/99 3,113.39 0.00 314,000.00 310,254.30 310,254.30 1st Mtg Alameda
Comm 17.250% 11/20/95 2,533.19 185,351 200,000.00 193,387.36 193,387.36 3rd Mtg San Mateo
Apts 14.000% 06/01/92 473.95 1,060,000 40,000.00 38,586.36 0.00 3rd Mtg Santa Clara
Res. 14.250% 07/01/04 984.46 78,672 73,000.00 50,990.79 0.00 2nd Mtg San Francisco
Comm 14.750% 09/01/95 2,241.96 250,000 185,000.00 181,634.83 0.00 2nd Mtg San Mateo
Res. 14.500% 04/01/05 546.20 150,804 40,000.00 30,049.49 0.00 3rd Mtg San Francisco
Res. 14.500% 07/01/92 2,416.67 340,827 200,000.00 179,758.33 0.00 2nd Mtg San Francisco
Apts 11.000% 06/29/98 2,004.26 0.00 210,459.34 195,423.81 0.00 1st Mtg Sacramento
Comm. 10.000% 08/01/00 1,428.14 59,402 160,000.00 158,458.34 0.00 2nd Mtg San Mateo
Res. 13.750% 10/01/96 275.00 55,374 24,000.00 24,000.00 0.00 2nd Mtg San Mateo
Comm. 13.750% 10/01/96 644.53 0.00 56,250.00 56,250.00 0.00 1st Mtg San Mateo
Res. 12.500% 02/01/07 554.63 0.00 45,000.00 36,159.93 0.00 1st Mtg Santa Cruz
Res. 6.000% 04/01/96 106.81 10,470 20,000.00 21,361.99 0.00 2nd Mtg Sacramento
Res. 4.000% 04/01/97 113.30 0.00 22,500.00 23,130.86 0.00 1st Mtg Sacramento
Res. 4.000% 04/01/97 120.00 0.00 24,000.00 23,302.58 0.00 1st Mtg Sacramento
Comm. 12.500% 01/01/08 1,343.45 64,620 109,000.00 92,163.74 92,163.74 2nd Mtg Santa Clara
Comm 12.250% 01/01/98 5,104.16 442,592 170,874.59 499,998.81 0.00 2nd Mtg Contra Costa
Comm 12.000% 06/01/98 497.08 0.00 58,500.00 47,509.78 0.00 1st Mtg Sonoma
Apts 6.500% 05/01/06 540.83 89,904 75,000.00 96,716.11 0.00 2nd Mtg Sacramento
Res 12.000% 07/01/98 2,417.24 67,312 235,000.00 214,773.21 214,773.21 2nd Mtg El Dorado
Res. 13.500% 09/01/08 280.90 18,085 21,635.32 19,134.95 0.00 2nd Mtg Contra Costa
Comm 12.000% 11/01/98 2,057.23 11,864 200,000.00 53,288.35 0.00 2nd Mtg San Francisco
Comm 10.000% 12,01/98 1,755.14 0.00 200,000.00 197,552.12 0.00 1st Mtg Stanislaus
Comm 12.250% 01/01/98 2,601.02 1,126,508 142,856.80 249,999.40 0.00 4th Mtg Contra Costa
Comm 10.000% 12/01/98 5,046.04 0.00 575,000.00 566,694.43 0.00 1st Mtg Alameda
Comm. 7.000% 12/01/03 1,151.48 562,500 99,172.75 81,121.58 0.00 2nd Mtg Alameda
Comm. 12.000% 02/01/99 14,025.08 0.00 1,376,117.03 1,376,117.03 0.00 1st Mtg Santa Clara
Land 12.000% 07/01/96 1,352.50 494,979 135,250.00 135,250.00 135,250.00 3rd Mtg Sonoma
Comm. 8.500% 11/07/99 515.73 0.00 72,809.59 72,809.59 0.00 1st Mtg Sonoma
Land 13.750% 12/20/96 5,524.55 54,724 567,856.74 179,999.88 0.00 2nd Mtg Stanislaus
Res 8.000% 12/01/00 500.00 148,004 52,500.00 46,272.91 0.00 2nd Mtg Santa Clara
Apts. 7.000% 02/10/05 234.06 80,250 40,125.00 40,125.00 0.00 2nd Mtg San Francisco
Res. 12.000% 06/25/94 100.00 0.00 10,000.00 10,000.00 0.00 1st Mtg Sacramento
Res 12.000% 03/01/98 1,562.62 0.00 280,000.00 153,320.98 0.00 1st Mtg Alameda
Apts 11.500% 04/01/05 123.79 0.00 150,000.00 12,499.99 0.00 1st Mtg San Francisco
Comm 12.000% 02/01/11 756.11 0.00 63,000.00 60,526.43 60,526.43 1st Mtg Alameda
Comm 11.875% 02/01/06 1,566.00 0.00 150,000.00 148,105.17 0.00 1st Mtg San Mateo
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Interest Final Periodic Prior Face Amt. Carrying Principal Type of Geographic
Rate Maturity Payment Liens of amount of amount of Lien County
Date Terms Mortgage Mortgage Mortgage Location
Investment Investment Investments
(original subject to
amount) Delinq.
Principal
or Interest
- --------- --------- --------- ---------- ----------- ------------ ----------- ------------ --------- --------------
Comm 12.000% 12/31/01 3,486.42 1,955,550 348,641.64 348,641.64 0.00 2nd Mtg Santa Clara
Land 12.000% 02/01/97 3,822.50 0.00 382,250.00 382,250.00 0.00 1st Mtg Santa Clara
Comm 12.000% 02/01/99 508.40 1,279,200 49,200.00 49,200.00 0.00 2nd Mtg Santa Clara
Res. 13.000% 12/01/99 704.17 0.00 65,000.00 65,000.00 0.00 1st Mtg Ventura
Res. 13.000% 12/01/99 140.83 0.0 65,000.00 13,000.00 0.00 1st Mtg Ventura
Res. 13.000% 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 1st Mtg Ventura
Apts. 7.000% 02/01/98 58.33 265,000 10,000.00 10,000.00 0.00 2nd Mtg Sacramento
Comm. 9.000% 08/06/02 657.42 30,802 82,873.25 77,869.01 0.00 2nd Mtg Alameda
Res 7.000% 12/01/99 926.44 0.00 115,140.00 105,097.62 0.00 1st Mtg San Mateo
Comm 9.000% 05/10/02 670.52 0.00 83,333.33 81,751.22 0.00 1st Mtg Shasta
Res 8.000% 09/27/00 482.54 96,429 72,380.95 71,428.57 0.00 2nd Mtg Monterey
Res. 7.000% 05/15/01 850.00 0.00 145,000.00 144,916.53 0.00 1st Mtg San Mateo
Res 8.000% 09/18/03 166.58 0.00 22,701.51 22,460.90 0.00 1st Mtg Sonoma
Res 8.000% 09/30/03 170.67 0.00 23,259.09 23,013.72 0.00 1st Mtg Sonoma
Apts 7.000% 08/01/02 1,545.83 0.00 265,000.00 265,000.00 0.00 1st Mtg Sacramento
Total $91,174.54 $11,075,429 $8,989,186.94 $8,104,984.41 $106,355.04
Notes: Mortgage Investments calssified as impaired had principal balances
totalling $523,300. Impaired Mortgage Investments are defined as Mortgage
Investments 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 Mortgage Investments)
represents both costs and the tax basis of the Mortgage Investments.
Schedule XII
Reconciliation of carrying amount (cost) of Mortgage Investments at close
of periods
Year ended December 31,
----------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Balance at beginning of year $9,313,924 $10,402,491 $10,993,996
--------------- --------------- ---------------
Additions during period:
New Mortgage Investments 557,796 2,474,843 2,062,626
Other 0 0 0
--------------- --------------- ---------------
Total Additions $557,796 $2,474,843 $2,062,626
--------------- --------------- ---------------
Deductions during period:
Collections of principal 1,634,128 3,295,834 2,273,233
Foreclosures 0 267,576 357,461
Cost of Mortgage Investments sold 0 0 0
Amortization of Premium 0 0 0
Other 132,608 0 23,437
--------------- --------------- ---------------
Total Deductions 1,766,736 3,563,410 2,654,131
--------------- --------------- ---------------
Balance at close of year $8,104,984 $9,313,924 $10,402,491
=============== =============== ===============
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Partnership has neither changed its accountants nor does it have any
disagreement on any matter of accounting principles or practices and financial
statement 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 three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwells are
the two shareholders of this corporation on an equal (50-50) basis. A
description of the General Partners is set forth on page 22 of the Prospectus
under the section Management.
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, 1997. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Description of Compensation and Services Rendered Amount
Compensation
- --------------------------------------------------------------------- ----------
I.
Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage
Investments $39,918
General Partners
&/or Affiliates Asset Management Fee for managing assets $0
General Partners 1% interest in profits $5,292
II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES
RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT
OF THE PARTNERSHIP):
Redwood Mortgage Mortgage Brokerage Commissions for services
in connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers
and not by the Partnership $10,000
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $273
III. IN ADDITION, THE GENERAL PARTNER AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME....................................................$27,786
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 and 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)
24.1 Consent of Parodi & Cropper (1)
24.2 Consent of Stephen C. Ryan & Associates (1)
All of these exhibits were previously filed as the exhibits to Registrants
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.
(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 corporation, 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 25th day of March,
1998.
REDWOOD MORTGAGE INVESTORS VI
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 25th day of March, 1998.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------
D. Russell Burwell General Partner March 25, 1998
/S/ Michael R. Burwell
- -----------------------
Michael R. Burwell General Partner March 25, 1998
/S/ D. Russell Burwell
- -----------------------
D. Russell Burwell President of Gymno Corporation, March 25, 1998
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 25, 1998
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation