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REDWOOD MORTGAGE INVESTORS VI
(a California Limited Partnership)
Index to Form 10-K
December 31, 1999
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 Registrant's Partners' Capital
and related matters. 6
Item 6 - Selected Financial Data 7-8
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
Item 8 - Financial Statements and Supplementary Data 13-33
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, 1999 Commission File number 33-12519
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VI
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-3031211
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real #G, Redwood City, CA 94063
- --------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
Registrant's telephone 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 97,725.94 units computed at $100.00 a unit for
$9,772,594, excluding General Partners' Contribution of $9,772.
Documents incorporated by reference:
Portions of the Prospectus for Redwood Mortgage Investors VI, included
as part of the form S-11 Registration Statement, SEC File No. 33-12519 dated
September 3, 1987 and Supplement No. 6 dated May 16, 1989, incorporated in Parts
II, III, and IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VI is a California limited partnership (the
"Partnership"). 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
Partnership's primary purpose is to invest its capital in Mortgage Investments
secured by Northern California properties. Mortgage Investments are arranged and
serviced by Redwood Mortgage Corp., an affiliate of the General Partners. The
Partnership's objectives are to make Investments which will: (i) provide the
maximum possible cash returns which Limited Partners may elect to (a) receive as
monthly, quarterly or annual cash distributions or (b) have earnings credited to
their capital accounts and used to invest in Partnership activities; and (ii)
preserve and protect the Partnership's capital. The Partnership's general
business is more fully described under the section entitled "Investment
Objectives and Criteria", pages 23-26 of the Prospectus, a part of the
above-referenced Registration Statement, which is incorporated by reference.
The Partnership was formed in September, 1987, with an approved 120,000
Units of $100 each ($12,000,000). The Units were offered on a "best efforts"
basis through broker/dealer member firms of the National Association of
Securities Dealers, Inc. It immediately began issuing Units and began investing
in Mortgage Investments in October, 1987. The offering terminated in September,
1989, and as of that date 97,725.94 Units were sold realizing proceeds of
$9,772,594. At December 31, 1999, the Partnership had a balance of Mortgage
Investments totalling $5,282,773 with interest rates thereon ranging from 4.00%
to 16.25%.
Currently First Trust Deeds comprise 72.13% of the total amount of
Mortgage Investment portfolio. Second Mortgage Trust Deeds comprise 24.11% of
Mortgage Investment portfolio and Third Mortgage Trust Deeds have 3.76% of the
Mortgage Investment portfolio. Owner-occupied homes, combined with non-owner
occupied homes, total 12.65% of the Mortgage Investments. Mortgage Investments
to apartments make up 13.84% of the total Mortgage Investments portfolio.
Commercial Mortgage Investment origination increased from last year, now
comprising 73.51% of the portfolio, an increase of 0.32% from 1998. 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 74.13% of the total loans, are in four counties of the
San Francisco Bay Area. The County of Sacramento makes up 11.23% of the Mortgage
Investment portfolio. The balance, as stated on page five of this report, are
primarily in Northern California. Currently Mortgage Investment size is
averaging $128,848 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 33.50%. A 40% equity average on loan origination is generally
considered very conservative. Generally, the more equity, the more protection
for the lender. The Partnership's Mortgage Investment portfolio had only one
property in foreclosure as of the end of December, 1999.
Item 2 - Properties
As of December 31, 1999, 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 $3,810,669.95
Appraised Value of Properties 5,944,647.00
Total Investment as a % of Appraisal 64.10%
First Trust Deeds 3,810,669.95
Second Trust Deed Mortgage Investments 1,273,692.98
Third Trust Deed Mortgage Investments 198,410.28
------------
5,282,773.21
First Trust Deeds due other Lenders 6,349,308.00
Second Trust Deeds due other Lenders 356,678.00
Total Debt $11,988,759.21
Appraised Property Value $18,027,960.00
Total Investments as a % of Appraisal 66.50%
Number of Mortgage Investments Outstanding 41
Average Investment 128,848.13
Average Investment as a % of Net Assets 1.60%
Largest Investment Outstanding 1,376,117.03
Largest Investment as a % of Net Assets 17.14%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 72.13%
Second Trust Deeds 24.11%
Third Trust Deeds 3.76%
--------------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $264,673.54 5.01%
Non-Owner Occupied Homes 403,808.56 7.64%
Apartments 730,934.15 13.84%
Commercial 3,883,356.96 73.51%
----------------- -----------
Total $5,282,773.21 100.00%
The following is a distribution of loans outstanding as of December 31, 1999 by
Counties.
Santa Clara $1,834,750.61 34.73%
Alameda 1,149,547.81 21.76%
Sacramento 593,364.14 11.23%
San Mateo 578,325.40 10.95%
San Francisco 353,616.11 6.69%
Placer 246,661.14 4.67%
Stanislaus 197,333.47 3.74%
Sonoma 179,809.09 3.40%
Shasta 80,248.34 1.52%
Santa Cruz 69,117.10 1.31%
------------------- ------------
Total $5,282,773.21 100.00%
Statement of Condition of Mortgage Investments:
Number of Mortgage Investments in Foreclosure 1
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
2000 $3,498,114
2001 453,996
2002 456,011
2003 371,008
2004 203,747
Thereafter 299,897
---------------
$5,282,773
The scheduled maturities for 2000 include $3,301,156 in Mortgage Investments
which are past maturity at December 31, 1999. $2,242,215 of those Mortgage
Investments were categorized as delinquent over 90 days.
Nine Mortgage Investments with principal outstanding of $2,420,052 had interest
payments overdue in excess of 90 days.
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. The Partnership is a defendant
along with numerous defendants, including a developer, contractor, and other
lenders, in a lawsuit involving the Partnership's attempt to recover it's
investment in real estate acquired through foreclosure.
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 Registrant's 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 were sold to
California residents. Investors have the option of withdrawing earnings on a
monthly, quarterly or annual basis or reinvesting and compounding earnings.
Limited Partners may withdraw from the Partnership in accordance with the terms
of the Partnership Agreement subject to early withdrawal penalties. There is no
established public trading market for the Units.
A description of the Partnership's Units, transfer restrictions, and
withdrawal provisions is more fully described under the section entitled
"Description of Units" and "Summary of the Limited Partnership Agreement", pages
38-42 of the Prospectus, a part of the above-referenced Registration statement,
which is incorporated by reference.
As of December 31, 1999, there were 565 holders of record of the Partnership's
Units. A decrease of 150 from 1998.
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,
1999 were:
Balance Sheets
Assets
December 31,
------------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
Cash $1,120,295 $299,775 $331,143
--------------- --------------- --------------
Accounts Receivable:
Mortgage Investments, secured by Deeds of Trust 5,282,773 7,969,735 8,104,984
Accrued Interest on Mortgage Investments 706,841 717,719 617,456
Advances on Mortgage Investments 137,930 162,083 127,519
Accounts receivables, unsecured 0 23,775 161,414
--------------- --------------- --------------
$6,127,544 $8,873,312 $9,011,373
Less allowance for doubtful accounts 303,249 202,344 28,614
--------------- --------------- --------------
$5,824,295 $8,670,968 $8,982,759
--------------- --------------- --------------
Note Receivable Redwood Mortgage Corp. $300,000 0 0
Real estate owned, held for sale, acquired through
Foreclosure 133,300 169,922 309,319
REO in process 668,132 0 0
Investment in Partnership 0 0 708,141
--------------- --------------- --------------
$8,046,022 $9,140,665 $10,331,362
=============== =============== ==============
Liabilities and Partners' Capital
Liabilities:
Notes Payable - Bank Line of Credit $0 $390,000 $899,011
Accounts Payable 0 22,668 0
Deferred interest on Mortgage Investments 15,676 20,463 898
--------------- --------------- --------------
Total Liabilities 15,676 433,131 899,909
--------------- --------------- --------------
Partners' Capital:
Limited Partners' capital, subject to redemption 8,020,580 8,697,768 9,421,687
General Partners' capital 9,766 9,766 9,766
--------------- --------------- --------------
Total Partners' Capital 8,030,346 8,707,534 9,431,453
--------------- --------------- --------------
Total Liabilities and Partners' Capital $8,046,022 $9,140,665 $10,331,362
=============== =============== ==============
Statements of Income
1999 1998 1997
--------------- --------------- --------------
Gross Revenue $1,086,317 $871,861 $1,036,596
Expenses 565,408 359,356 507,409
--------------- --------------- --------------
Net Income 520,909 512,505 529,187
=============== =============== ==============
Net Income: to General Partners (1%) $5,209 $5,125 $5,292
to Limited Partners (99%) 515,700 507,380 523,895
--------------- --------------- --------------
$520,909 $512,505 $529,187
=============== =============== ==============
Net Income per $1,000 invested by Limited Partners for entire period:
- where income is reinvested and compounded $62 $56 $53
=============== =============== ==============
-where partner receives income in monthly
distributions $61 $55 $52
=============== =============== ==============
In 1997 the annualized yield was 5.29%, in 1998 the annualized yield was 5.63%,
and in 1999 the annualized yield was 6.24%. The annualized yield since inception
through December 31, 1999, was 7.40%.
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
On September 2, 1989, the Partnership had sold 97,725.94 Units and its
contributed capital totalled $9,772,594 of the approved $12,000,000 issue, in
Units of $100 each. As of that date the offering was formally closed. On
December 31, 1999, the Partnership's net capital totalled $8,030,346.
The Partnership began funding Mortgage Investments in October 1987. The
Partnership's Mortgage Investments outstanding for the years ended December 31,
1997, 1998, and 1999 were $8,104,984, $7,969,735, and $5,282,773, respectively.
The decrease in Mortgage Investments outstanding from December 31, 1996 to
December 31, 1999, was due primarily to the Partnership utilizing Mortgage
Investment payoffs to meet Limited Partner capital liquidations, line of credit
pay-down, uninvested cash in Mortgage Investments and an increase in Real Estate
Owned or in process. During the years 1997, 1998 and 1999 Mortgage Investment
principal collections exceeded Limited Partner liquidations.
Since the Fall of 1999, mortgage interest rates have been rising due
primarily to economic forces and by the Federal Reserve raising its core
interest rates. New Mortgage Investments will be originated at high interest
rates which could increase the average return across the entire Mortgage
Investment portfolio held by the Partnership. In the future, interest rates
likely will change from their current levels. The General Partners cannot at
this time predict at what levels interest rates will be in the future. Although
the rates charged by the Partnership are influenced by the level of interest
rates in the market, the General Partners do not anticipate that rates charged
by the Partnership to its borrowers will change significantly from the beginning
of 2000 over the next 12 months. As of December 31, 1999 the Partnership's Real
Estate Owned account and the Investment in Partnership account was a combined
$801,432 balance. These accounts had combined balances of $1,017,460 and
$169,922 as of December 31, 1997 and 1998, respectively. The General Partners
anticipate that the annualized yield for the forthcoming year 2000, will be
similar to the current year's performance level.
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 $899,011, $390,000 and $0 for
the years ended December 1997, 1998 and 1999, 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, 1999, 1998, and 1997, interest on
Note Payable-Bank was $14,714, $43,170, and $133,577, respectively. The primary
reason for this decrease was that the Partnership had a lower overall credit
facility utilization from 1997 to December 31, 1999. During 1999 the
Partnership's borrowing ranged between $0 and $410,000, at an interest rate of
Prime plus one percent. This added source of funds helped in maximizing the
Partnership yield by allowing the Partnership to minimize the amount of funds in
lower yield investment accounts when appropriate Mortgage Investments are not
currently available and because the Mortgage Investments made by the Partnership
usually bear interest at a rate in excess of the rate payable to the bank which
extended the line of credit, the amount to be retained by the Partnership, after
payment of the line of credit cost, will be greater than without the use of the
line of credit. On December 31, 1999 the Partnership closed its line of credit
with the existing bank. The General Partners may seek a replacement lender
during the year 2000. As of December 31, 1999, all accrued interest and the line
of credit balances were paid in full.
The Partnership's operating results and delinquencies are within the
normal range of the General Partners expectations, based upon their experience
in managing similar Partnerships over the last twenty- two 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, 1999, there was one property in foreclosure. Cash is continually
being generated from interest earnings, late charges, prepayment penalties,
amortization of notes and pay-off of notes. Currently, this amount exceeds
Partnership expenses and earnings and principal payout requirements. As Mortgage
Investment opportunities become available, excess cash and available funds are
invested in new Mortgage Investments.
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, REO expenses, sales activities, and borrower's payment
records and other data relating to the Mortgage Investment portfolio. Data on
the local real estate market, and on the national and local economy are studied.
Based upon this information and more, Mortgage Investment loss reserves and
allowance for doubtful accounts are increased or decreased. Because of the
number of variables involved, the magnitude of possible swings and the General
Partners inability to control many of these factors, actual results may and do
sometimes differ significantly from estimates made by the General Partners.
Management provided $268,101, $180,054 and $437,558 as provision for doubtful
accounts for the years ended December 31, 1997, December 31, 1998 and December
31, 1999, respectively. The decrease in the provision in 1997 and 1998 reflects
the decrease in the amount of REO, unsecured receivables and the decreasing
levels of delinquency within the portfolio. The increase in allowance for 1999
is to build up reserve for any potential loss in the future. The Partnership
anticipates it will acquire a piece of Real Estate through foreclosure in 2000.
In anticipation of this event, the Partnership is carrying $668,132 in its
balance sheet as Real Estate Owned in Process. As of December 31, 1999, the
Partnership reduced the REO balance from $309,319, as of December 31, 1997, to
$133,300 through December 31, 1999. This reduction assisted the Partnership in
increasing yields in 1998, as assets previously lying idle, now produced current
income.
The February 18, 2000 issue of the "Alert" publication, published by the
California Chamber of Commerce, said the following about California's thriving
economy:
"Job gains grew in the fourth quarter of 1999, as the California economy
accelerated. For the year as a whole, employment grew by 2.9 percent,
considerably stronger than in the nation. This gain likely will be revised
upward to 3.3 percent, or so, in the benchmark revisions to be released in late
February.
State unemployment, at 4.9 percent in the last four months, is lower than in
more than 30 years. Tax revenues are flooding into Sacramento, in part because
of the strong economy, but also because of exercised stock options, strong
bonuses and huge realized stock market gains.
The state economy's strength has been widespread across major industries, but
concern about residential real estate is growing.
Housing permits were issued at an annual rate of 139,000 units through November
1999, well below almost everyone's expectations and the 220,000 units averaged
annually in the 1980s. Clearly, not enough housing is being built in the state.
High land prices, restrictive local land use policies, the re-emergence of the
slow growth/no growth movement, and federal environmental regulations are
constraining home building. As a result, affordability is declining at an
alarming rate.
The affordability of existing homes is low in San Diego and Orange counties and
extremely low almost everywhere in the San Francisco Bay Area. In what seems
like a paradox, an oversupply of expensive new homes is developing. This also
happened under similar circumstances in the late 1980s.
In areas of particularly high land prices and long permitting and other building
delays, building entry-and mid-level housing becomes more difficult to "pencil
out". As developers turn increasingly to expensive housing, the supply of
expensive housing can quickly outstrip demand. Also, the affordability of new
homes can dip considerably below that of existing homes.
In Orange County, for example, a relatively low 32 percent of households could
afford to buy the median-priced existing home sold in November; only 19 percent
could afford to buy the median-priced new home."
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnership's lending activity.
The Partnership's interest in land located in East Palo Alto, Ca, was acquired
through foreclosure. The investment was previously classified as Investment in
Partnership in the Financial Statements and has been reclassified into Real
Estate Owned. The Partnership's basis of $20,377, $ 0, and $708,141 for the
years ended December 31, 1999, 1998 and 1997, respectively, has been invested
with that of two other Partnerships. The Partnership had been attempting to
develop property into an approximately 63 units residential subdivision, (the
"Development"). The proposed Development had gained significant public awareness
as a result of certain environmental, fish and wildlife, density, and other
concerns. Incorporated into the proposed Development were various mitigation
measures which included remediation of hazardous material existing on the
property, and protection of potentially affected species due to the proximity of
the property to the San Francisco Baylands. These issues and others sparked
significant public controversy. Opposition against and support for the proposed
Development existed. Among those in opposition to the project was Rhone Poulanc,
Inc. which is responsible for a nearby hazardous waste site. Rhone Poulanc, Inc.
has been identified as the Responsible Party for the Arsenic Contamination which
affected a portion of the property. On May 8, 1998, the Partnership, in order to
resolve disputes which arose during the course of the attempts to obtain
entitlements for this Development, entered into agreements with Rhone-Poulanc,
Inc which among other things, restricted the property to non residential uses,
provided for appropriate indemnification and included other considerations
including a cash payment to the Partnership. The Partnership has retained
ownership of the property, which is subject to various deed restrictions,
options and or first rights of refusal. The General Partners are pleased with
this outcome to the residential development attempt. The General Partners may
now explore other available options with respect to alternative uses for the
property. In order to pursue these 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, and is unrelated to the Arsenic Contamination for which
Rhone-Poulanc, Inc. remains responsible. The General Partners do not believe at
this time that remediation of the pesticide contaminants will have a material
adverse effect on the financial condition of the Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1997, 1998 and 1999, the Partnership made distributions of
earnings to Limited Partners after allocation of syndication costs of $257,670,
$235,837, and $217,526, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs for the years ended December 31,
1997, December 31, 1998 and December 31, 1999 to Limited Partners' capital
accounts and not withdrawn was $266,225, $271,543, and $298,174, respectively.
As of December 31, 1997, December 31, 1998 and December 31, 1999, Limited
Partners electing to withdraw earnings represented 46%, 43% and 42% respectively
of the Limited Partners outstanding capital accounts.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1997, December 31, 1998
and December 31, 1999, $159,732, $122,069 and $128,295, 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, 1997, December 31, 1998 and December 31, 1999, respectively, and
is expected by the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, $1,137,677, $938,040 and $847,067, respectively, were
liquidated by Limited Partners who have elected a liquidation program over a
period of five years or longer. Once the initial five year hold period has
passed, the General Partners expect to see an increase in liquidations due to
the ability of Limited Partners to withdraw without penalty. This ability to
withdraw after five years by Limited Partners has the effect of providing
Limited Partner liquidity which the General Partners then expect a portion of
the Limited Partners to avail themselves of. This has the anticipated effect of
the partnership growing, primarily through reinvestment of earnings in years one
through five. The General Partners expect to see increasing numbers of Limited
Partner withdrawals in years five through eleven, at which time the bulk of
those Limited Partners who have sought withdrawal will have been liquidated.
After year eleven, liquidation generally subsides and the Partnership capital
again tends to increase.
Actual liquidation of both capital and earnings from year
five (1992) through year twelve (1999) is shown
hereunder: Years ended December 31,
1992 1993 1994 1995
----------- ----------- ----------- -----------
Earnings $323,037 377,712 303,014 303,098
Capital *$232,370 *528,737 *729,449 *892,953
----------- ----------- ----------- -----------
Total $555,407 $906,449 $1,032,463 $1,196,051
=========== =========== =========== ===========
1996 1997 1998 1999
------------ ----------- ----------- -----------
Earnings 294,678 257,670 235,837 217,526
Capital *1,183,099 *1,297,410 *1,060,109 *975,362
------------ -----------
------------ ----------- ----------- -----------
Total $1,477,777 $1,555,080 $1,295,946 $1,192,888
============ =========== =========== ===========
*These amounts represent gross of early withdrawal penalties.
The Year 2000 was considered by most to be a challenge for the entire
world with respect to the conversion of existing computerized operations. The
Partnership relies on Redwood Mortgage Corp., third parties and various software
vendors for its hardware and software needs. Since year 2000 has come, we have
not experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems are being
addressed by the appropriate software vendors or software programmers. All
month-end, quarterly, and annual computerized functions have not yet been run,
however testing of the operations has taken place. We do not expect any
significant problems.
The costs of updating our computer systems were substantially borne by
the non affiliated software vendors and the in house system conversion costs to
the partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant
manner, any industries or businesses in the marketplace in which the Partnership
places its loans. We believe that year 2000 issues are a non-event and will have
little if any future effect on the Partnership, its affiliates or the people and
businesses with which it associates.
The foregoing analysis of year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations, and financial condition. As such, this analysis may prove to be
inaccurate because of assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VI, a California Limited Partnership's list
of Financial Statements and Financial Statement schedules:
A- Financial Statements
o Independent Auditor's Report,
o Balance Sheets - December 31, 1999, and December 31, 1998, o Statements of
Income for the three years ended December 31, 1999,
o Statements of Changes in Partners' Capital for the three years ended December
31, 1999, o Statements of Cash Flows for the three years ended December 31,
1999, o Notes to Financial Statements - December 31, 1999.
B. - Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage
Investors VI are included in Item 8.
o Schedule II Amounts receivable from related parties and
underwriters, promoters, and employees other than
related parties
o Schedule VIII Valuation of Qualifying Accounts
o Schedule IX Short Term Borrowings
o 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, 1999
(with Auditor's Report Thereon)
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd. Ste. 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S 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, 1999 and 1998 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31, 1999. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our 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, 1999 and 1998, and the results of its operations and cash
flows for the three years ended December 31, 1999 in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
-------------- --------------
Cash $1,120,295 $299,775
-------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 5,282,773 7,969,735
Accrued Interest on Mortgage Investments 706,841 717,719
Advances on Mortgage Investments 137,930 162,083
Accounts receivables, unsecured 0 23,775
-------------- --------------
6,127,544 8,873,312
Less allowance for doubtful accounts 303,249 202,344
-------------- --------------
5,824,295 8,670,968
-------------- --------------
Note receivable - Redwood Mortgage Corp. 300,000 0
Real estate owned, held for sale, acquired through foreclosure 133,300 169,922
Real estate in process of acquisition, to be sold 668,132 0
-------------- --------------
Total Assets $8,046,022 $9,140,665
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts Payable $0 $22,668
Deferred Interest 15,676 20,463
Note payable - bank line of credit 0 390,000
-------------- --------------
Total Liabilities 15,676 433,131
-------------- --------------
Partners' Capital:
Limited Partners' capital, subject to redemption, (note 4D): 8,020,580 8,697,768
General Partners' Capital: 9,766 9,766
-------------- --------------
Total Partners' capital 8,030,346 8,707,534
-------------- --------------
Total Liabilities and Partners' capital $8,046,022 $9,140,665
============== ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
------------- ------------- --------------
Revenues:
Interest on Mortgage Investments $743,319 $847,960 $1,011,621
Interest on bank deposits 14,086 8,487 6,563
Late charges, prepayment penalties, and fees 28,912 15,414 18,412
Mortgage Servicer subsidy 300,000 0 0
------------- ------------- --------------
------------- ------------- --------------
1,086,317 871,861 1,036,596
------------- ------------- --------------
Expenses:
Mortgage servicing fees 50,150 70,630 39,918
Asset management fee 10,626 6,640 0
Clerical costs through Redwood Mortgage 21,748 24,440 27,786
Interest and line of credit costs 14,714 43,170 133,577
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 437,558 180,054 268,101
Professional services 18,068 18,831 23,517
Other 12,544 15,591 14,510
------------- ------------- --------------
565,408 359,356 507,409
------------- ------------- --------------
Net Income $520,909 $512,505 $529,187
============= ============= ==============
Net income: To General Partners(1%) $5,209 $5,125 $5,292
To Limited Partners (99%) $515,700 $507,380 $523,895
------------- ------------- --------------
$520,909 $512,505 $529,187
============= ============= ==============
Net income per $1,000 invested by Limited Partners for entire period:
-where income is reinvested and compounded $62 $53 $53
============= ============= ==============
-where partner receives income in monthly distributions $61 $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, 1999
PARTNERS' CAPITAL
-----------------------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-------------------------------------------------
Capital
Account Formation General
Limited Loan Partners
Partners Receivable Total Capital Total
------------- -------------- -------------- ------------- -------------
Balances at December 31, 1996 10,507,101 (121,849) 10,385,252 $9,766 10,395,018
Formation Loan collections 0 53,833 53,833 0 53,833
Net income 523,895 0 523,895 5,292 529,187
Early withdrawal penalties (13,409) 8,495 (4,914) 0 (4,914)
Partners' withdrawals (1,536,379) 0 (1,536,379) (5,292) (1,541,671)
------------- -------------- -------------- ------------- -------------
Balances at December 31, 1997 $9,481,208 ($59,521) $9,421,687 9,766 $9,431,453
Formation Loan collections 0 53,291 53,291 0 53,291
Net Income 507,380 0 507,380 5,125 512,505
Early withdrawal penalties (9,834) 6,230 (3,604) 0 (3,604)
Partners' withdrawals (1,280,986) 0 (1,280,986) (5,125) (1,286,111)
------------- -------------- -------------- ------------- --------------
Balances at December 31, 1998 $8,697,768 0 $8,697,768 $9,766 $8,707,534
Net Income 515,700 0 515,700 5,209 520,909
Early withdrawal penalties (10,028) 0 (10,028) 0 (10,028)
Partners' withdrawals (1,182,860) 0 (1,182,860) (5,209) (1,188,069)
------------- -------------- -------------- ------------- --------------
Balances at December 31, 1999 $8,020,580 0 $8,020,580 $9,766 $8,030,346
============= ============== ============== ============= ==============
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, 1999
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
------------- -------------- -------------
Cash flows from operating activities:
Net income $520,909 $512,505 $529,187
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 442,480 268,764 264,484
Provision for Losses (recovery) on real estate held
Early withdrawal penalty credited to income (10,028) (3,604) (4,914)
(Increase) decrease in assets:
Accrued interest & advances (200,903) (134,827) (231,173)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (22,668) 22,668 0
Deferred Interest on Mortgage Investments (4,787) 19,565 (17,624)
------------- -------------- -------------
Net cash provided by operating activities 720,081 596,361 543,577
------------- -------------- -------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 2,859,900 1,934,071 1,634,128
Mortgage Investments made (922,936) (1,798,822) (557,796)
Additions to real estate held for sale (24,112) (2,785) (47,415)
Dispositions of real estate held for sale 65,656 85,449 909,491
Investment in Partnership 0 (215,281) (212,101)
Proceeds from Partnership 0 1,068,865 0
Proceeds from unsecured accounts receivable 0 42,605 0
------------- -------------- -------------
Net cash provided by (used in) investing activities 1,978,508 1,114,102 1,726,307
------------- -------------- -------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank (390,000) (509,011) (631,500)
Partners withdrawals (1,188,069) (1,286,111) (1,541,671)
Formation Loan collections 0 53,291 53,833
Note receivable - Redwood Mortgage Corp. (300,000) 0 0
------------- -------------- -------------
Net cash provided by (used in) financing activities (1,878,069) (1,741,831) (2,119,338)
------------- -------------- -------------
Net increase (decrease) in cash 820,520 (31,368) 150,546
Cash - beginning of period 299,775 331,143 180,597
------------- -------------- -------------
Cash - end of period $1,120,295 $299,775 $331,143
============= ============== =============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VI, (the "Partnership") is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The partnership was organized to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Mortgage Corp., (Redwood
Mortgage), an affiliate of the General Partners. The offering was closed with
contributed capital totaling $9,781,366.
Each month's income is distributed to partners based upon their proportionate
share of partners' capital. Some partners have elected to withdraw income on a
monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (units sold by General Partners) to 10% of
gross proceeds were paid by Redwood Mortgage Corp. an affiliate of the General
Partners that arranges and services the Mortgage Investments. To finance the
sales commissions, the Partnership loaned to Redwood Mortgage Corp. $623,255
(the "Formation Loan") relating to contributed capital of $9,781,366. The
Formation Loan was unsecured, and was repaid without interest, over 10 years,
commencing December 31, 1989. The last payment was made during 1998.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, and other costs), paid by the
Partnership from the offering proceeds totaled $360,885 or 3.69% of the gross
proceeds contributed by the Partners. Such costs have been fully amortized and
allocated to the Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for the
related periods. Such estimates relate principally to the determination of the
allowance for doubtful accounts, including the valuation of impaired mortgage
investments, and the valuation of real estate acquired through foreclosure.
Actual results could differ significantly from these estimates.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, 1999, 1998 and 1997, reductions in the cost of Mortgage
Investments categorized as impaired by the Partnership totalled $283,249,
$84,736 and $0, 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, 1999, the
average mortgage investment to appraised value of security at the time the loans
were consummated was 66.50%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, a low loan to
value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1999 one property was in
the process of becoming Real Estate Owned. It was valued at fair value of
$668,132 based on a current appraisal. The $668,132 is net of reduction in value
of $287,548.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, 1999 and 1998 not including the aforementioned
Real Estate in the process of acquisition:
December 31,
------------------------------------------------
1999 1998
--------------- ----------------
Costs of properties $161,415 $366,655
Reduction in value 28,115 196,733
--------------- ----------------
Fair value reflected
in financial statements $133,300 $169,922
=============== ================
Effective January 1, 1996, the Partnership adopted the provisions of statement
No 121 (SFAS 121) of the Financial Accounting Standards Board, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be disposed
of". The adoption of SFAS 121 did not have a material impact on the
Partnership's financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
G. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $14,750 were capitalized and were
amortized over a five year period. Syndication costs of $346,135 were charged
against partners' capital and were allocated to individual partners consistent
with the Partnership Agreement.
H. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the Mortgage Investment system. A provision is made for
doubtful accounts to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate with due consideration to collateral
value to provide for unrecoverable accounts receivable, including impaired
Mortgage Investments, unspecified mortgage investments, accrued interest and
advances on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of December 31, 1999 and
1998 was as follows:
December 31,
------------------------------------------------
1999 1998
--------------- ----------------
Impaired Mortgage Investments $283,249 $84,736
Unspecified Mortgage Investments 20,000 93,732
Accounts receivable, unsecured 0 23,776
--------------- ----------------
$303,249 $202,244
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
I. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000 invested
by Limited Partners for the entire period are actual amounts allocated to
Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited Partners' pro rata share of Partners' Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General Partners
and/or related parties.
A. Mortgage Brokerage Commissions
Mortgage brokerage commissions for services in connection with the review,
selection, evaluation, negotiation and extension of the Mortgage Investments
were limited up to 12% of the principal amount of the loans through the period
ending 6 months after the termination date of the offering. Thereafter,
commissions are limited to an amount not to exceed 4% of the total Partnership
assets per year. Such commissions are paid by the borrowers, thus, not an
expense of the Partnership. Such commissions totalled $46,527 and $36,700 for
the years ended December 31, 1999 and 1998, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees are paid to Redwood Mortgage up to 1/8 of 1%
(1.5% annual) of the unpaid principal, or such lesser amount as is reasonable
and customary in the geographic area where the property securing the Mortgage
Investment is located. Mortgage servicing fees of $50,150, $70,630, and $39,918,
were incurred for years 1999, 1998 and 1997, respectively.
C. Asset Management Fee
The General Partners are authorized to receive monthly fees for managing the
Partnership's Mortgage Investment portfolio and operations of up to 1/32 of 1%
(3/8 of 1% annually). Management fees incurred for 1999 and 1998 were $10,626
and $6,640, respectively. There were no Management fees in 1997.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage extension fees. These fees are paid by the borrowers to
parties related to the General Partners.
E. Income and Losses
All income is credited or charged to partners in relation to their respective
partnership interests. The partnership interest of the General Partners
(combined) is a total of 1%.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. In
1999, 1998 and 1997, clerical costs totaling $21,748, $24,440, and $27,786,
respectively, were reimbursed to Redwood Mortgage Corp. and are included in
expenses in the Statements of Income.
NOTE 4 OTHER PARTNERSHIP PROVISIONS
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner terminated
as provided. The provisions provided for no capital withdrawal for the first
five years, subject to the penalty provision set forth in (D) below. Thereafter,
investors have the right to withdraw over a five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound
for at least a period of 5 years.
C. Profits and Losses
Profits and losses are allocated monthly among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
D. Withdrawal From Partnership
A Limited Partner had no right to withdraw from the Partnership or to obtain the
return of his capital account for at least five years after such units are
purchased which in all instances had occurred by December 31, 1999. After that
time, at the election of the Partner, capital accounts can be returned over a
five year period in 20 equal quarterly installments or such longer period as is
requested.
Notwithstanding the above, in order to provide a certain degree of liquidity to
the Limited Partners, the General Partners will liquidate a Limited Partner's
entire capital account in four quarterly installments beginning on the last day
of the calendar quarter following the quarter in which the notice of withdrawal
is given. Such liquidations shall, however, be subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums
otherwise could have been withdrawn pursuant to the liquidation procedure set
forth above. The 10% early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal under the Formation Loan owed to the
Partnership by Redwood Mortgage Corp. Such portion shall be determined by the
ratio between the initial amount of Formation Loan and the total amount of other
organization and syndication costs incurred by the Partnership in this offering.
The balance of any such early withdrawal penalties shall be retained by the
Partnership for its own account and applied against syndication costs. Since the
syndication costs have been fully amortized as of December 31, 1993, and the
formation loan was paid in 1998, the early withdrawal penalties gained in the
future will be credited to income for the period received.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The Partnership will not establish a reserve from which to fund withdrawals and,
accordingly, the Partnership's capacity to return a Limited Partner's capital
account is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total Limited Partners' capital accounts outstanding at
the beginning of any year shall be liquidated during any calendar year.
NOTE 5 - NOTE RECEIVABLE - REDWOOD MORTGAGE CORP.
Redwood Mortgage Corp., an affiliate of the General Partners which arranges and
services the Mortgage Investments of the Partnership, has subsidized certain
loan losses of the Partnership in the form of a note receivable. The note bears
interest at 8% and will be paid over a three year period to the extent that
Partnership losses occur relative to certain identified properties. If the
identified properties recover from their writedowns, Redwood Mortgage Corp. will
be credited or reimbursed up to the amount of the note receivable.
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership had a bank line of credit secured by its Mortgage Investment
portfolio up to $2,000,000 at 1% over prime. The balances were $0 and $390,000
at December 31, 1999 and 1998, respectively, and the interest rate at December
31, 1999 was 9.25% (8.25% prime + 1%). The line of credit expired December 31,
1999.
NOTE 7 - LEGAL PROCEEDINGS
The Partnership is a defendant along with numerous defendants, including a
developer, contractor, and other lenders, in a lawsuit involving the
Partnership's attempt to recover it's investment in real estate acquired through
foreclosure.
Management anticipates that the ultimate outcome of the legal matters will not
have a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
----------------------------------
1999 1998
--------------- ----------------
Net assets - Partners' Capital
per financial statements $8,030,346 $8,707,534
Allowance for doubtful accounts 303,249 202,344
--------------- ----------------
Net assets tax basis $8,333,595 $8,909,878
In 1999 and 1998, approximately 72% and 71%, respectively, of taxable income was
allocated to tax exempt organizations i.e., retirement plans. Such plans do not
have to file income tax returns unless their "unrelated business income" exceeds
$1,000. Applicable amounts become taxable when distribution is made to
participants.
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) was $5,282,773
at December 31, 1999. The fair value of these investments of $5,290,784 was
estimated based upon projected cash flows discounted at the estimated current
interest rates at which similar loans would be made. The applicable amount of
the allowance for doubtful accounts along with accrued interest and advances
related thereto should also be considered in evaluating the fair value versus
the carrying value.
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At December 31,
1999, there were 41 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 41
Total Mortgage Investments outstanding $5,282,773
Average Mortgage Investment outstanding $128,848
Average Mortgage Investment as percent of total 2.44%
Average Mortgage Investment as percent of Partners' Capital 1.60%
Largest Mortgage Investment outstanding $1,376,117
Largest Mortgage Investment as percent of total 26.05%
Largest Mortgage Investment as percent of Partners' Capital 17.14%
Number of counties where security is located (all California) 10
Largest percentage of Mortgage Investments in one county 34.73%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 66.50%
Number of Mortgage Investments in foreclosure 1
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following categories of mortgage investments are pertinent at December 31,
1999 and 1998:
December 31,
-------------------------------------
1999 1998
----------------- -------------
First Trust Deeds 3,810,670 4,432,246
Second Trust Deeds 1,273,693 2,892,870
Third Trust Deeds 198,410 394,620
Fourth Trust Deeds 0 249,999
----------------- -------------
Total mortgage investments 5,282,773 7,969,735
Prior liens due other lenders 6,705,986 12,348,933
----------------- -------------
Total debt $11,988,759 $20,318,668
================= =============
Appraised property value at time of loan $18,027,960 $31,128,892
================= =============
Total investments as a percent of appraisals 66.50% 65.27%
================== =============
Investments by Type of Property
Owner occupied homes 264,673 944,491
Non-Owner occupied homes 403,809 374,408
Apartments 730,934 817,819
Commercial 3,883,357 5,833,017
------------- -------------
$5,282,773 $7,969,735
============= =============
REDWOOD MORTGAGE INVESTORS VI
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
-------------------
2000 $3,498,114
2001 453,996
2002 456,011
2003 371,008
2004 203,747
Thereafter 299,897
-----------------
$5,282,773
The scheduled maturities for 2000 include $3,301,156 in Mortgage Investments
which are past maturity at December 31, 1999. $2,242,215 of those Mortgage
Investments were categorized as delinquent over 90 days.
Nine Mortgage Investments with principal outstanding of $2,420,052 had interest
payments overdue in excess of 90 days.
The cash balance at December 31, 1999 of $1,120,295 were in two banks with
interest bearing balances totalling $1,105,464. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $920,295. As and when deposits in
the Partnership's bank accounts increase significantly beyond the insured limit,
the funds are generally either placed in new Mortgage Investments or used to pay
down on the line of credit balance, if any.
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
& Expenses Accounts -
Describe
Year Ended
12/31/99
Deducted from
Asset Accounts:
Allowance for
Doubtful Accounts $202,344 $442,480 $0 $(341,575) $303,249
Cumulative
writedown of
Real Estate held
for sale (REO) $196,733 ($4,922) $0 ($163,696) $28,115
---------- ----------- ------------ --------------- ------------------
Total $399,077 $437,558 $0 $(505,271) $331,364
.
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
12/31/99 $0 10.55% $400,000 $139,453 10.55%
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 Liens Face Amt Carrying Prin. Amt Type of Geographic
Rate Maturity Payment of amount of of Lien County
Date Terms Mortgage Mortgage Mtg Invmts Location
Investment Investment subject to
(original Delinq
amt) Prin. or
Interest
- -------- -------- --------- ---------- ------------ ------------ ------------ ------------- ---------- ------------
Comm 14.75% 09/01/95 2,241.96 250,000.00 185,000.00 179,044.28 2nd Mtg San Mateo
Res 13.75% 10/01/96 275.00 55,374.00 24,000.00 24,000.00 2nd Mtg San Mateo
Comm 13.75% 10/01/96 644.53 0.00 56,250.00 21,917.87 1st Mtg San Mateo
Res 12.50% 02/01/07 554.63 0.00 45,000.00 31,501.47 1st Mtg Santa Cruz
Res 6.00% 04/01/96 106.81 10,470.00 20,000.00 19,738.80 19,738.80 2nd Mtg Sacramento
Res 4.00% 04/01/97 113.30 0.00 22,500.00 23,130.86 23,130.86 1st Mtg Sacramento
Res 4.00% 04/01/97 120.00 0.00 24,000.00 22,103.04 1st Mtg Sacramento
Comm 10.00% 08/06/02 709.38 30,802.00 82,873.25 75,763.37 2nd Mtg Alameda
Apts 6.500% 05/01/06 540.83 89,904.00 100,000.00 96,716.11 13,520.75 2nd Mtg Sacramento
Comm 10.00% 12/01/98 1,755.14 0.00 200,000.00 197,333.47 197,333.47 1st Mtg Stanislaus
Comm 10.00% 12/01/98 5,046.04 0.00 575,000.00 566,694.43 566,694.43 1st Mtg Alameda
Comm 7.00% 12/01/03 1,151.48 562,500.00 99,172.75 81,121.58 17,272.20 2nd Mtg Alameda
Comm 12.00% 02/01/99 14,025.12 0.00 1,376,117.03 1,376,117.03 1,376,117.03 1st Mtg Santa Clara
Land 12.00% 07/01/96 1,352.50 494,979.00 135,250.00 135,250.00 3rd Mtg Sonoma
Res 8.00% 12/01/00 500.00 148,004.00 52,500.00 41,526.48 2nd Mtg Santa Clara
Apts 7.00% 02/10/05 234.06 80,250.00 40,125.00 40,125.00 2nd Mtg San Francisco
Res 12.00% 06/25/94 100.00 0.00 10,000.00 10,000.00 10,000.00 1st Mtg Sacramento
Apts 11.50% 04/01/05 123.79 0.00 150,000.00 12,499.99 lst Mtg San Francisco
Comm 9.00% 05/10/02 670.52 0.00 83,333.33 80,248.34 lst Mtg Shasta
Comm 12.00% 02/01/11 756.11 0.00 63,000.00 56,376.37 1st Mtg Alameda
Land 14.00% 02/01/97 3,822.50 0.00 382,250.00 235,381.46 1st Mtg Santa Clara
Res 8.00% 09/18/03 166.58 0.00 22,701.51 21,992.54 lst Mtg Sonoma
Res 8.00% 09/30/03 170.67 0.00 23,259.09 22,566.55 1st Mtg Sonoma
Comm 12.00% 02/01/99 508.40 1,279,200.00 49,200.00 49,200.00 49,200.00 2nd Mtg Santa Clara
Apts 7.00% 08/01/02 1,545.83 0.00 265,000.00 265,000.00 lst Mtg Sacramento
Apts 7.00% 08/01/03 1,022.35 0.00 153,660.00 151,553.33 lst Mtg Sacramento
Apts 9.00% 02/01/99 38.42 153,534.00 5,122.00 5,122.00 2nd Mtg Sacramento
Res 12.00% 04/01/14 459.06 33,287.00 38,250.00 37,615.63 2nd Mtg Santa Cruz
Comm 12.00% 06/01/01 1,000.00 0.00 100,000.00 100,000.00 lst Mtg San Francisco
Apts 13.00% 11/01/03 759.15 341,094.00 60,000.00 27,392.08 2nd Mtg San Francisco
Res 13.75% 11/01/03 2,202.61 0.00 167,500.00 66,381.46 lst Mtg Alameda
Apts 14.00% 03/01/92 1,184.87 960,000.00 100,000.00 94,593.44 2nd Mtg Santa Clara
Comm 14.50% 05/01/04 4,233.05 532,392.00 310,000.00 162,711.06 2nd Mtg San Mateo
Comm 11.50% 05/01/99 3,113.39 0.00 314,000.00 303,210.60 lst Mtg Alameda
Apts 14.00% 06/01/92 473.95 1,060,000.00 40,000.00 37,932.20 3rd Mtg Santa Clara
Res 14.25% 07/01/04 984.46 78,672.00 73,000.00 41,036.05 2nd Mtg San Francisco
Res 14.50% 04/01/05 546.20 150,804.00 40,000.00 25,228.08 3rd Mtg San Francisco
Comm 10.00% 08/01/00 1,428.14 59,402.00 160,000.00 155,652.19 2nd Mtg San Mateo
Comm 12.00% 06/01/01 993.53 100,000.00 120,952.39 107,334.91 2nd Mtg San Francisco
Res 12.00% 05/01/01 2,086.91 0.00 600,000.00 246,661.14 1st Mtg Placer
Res 11.00% 11/01/02 320.83 235,318.00 35,000.00 35,000.00 2nd Mtg San Mateo
$58,082.10 $6,705,986.00 $6,404,016.35 $5,282,773.21 $2,273,007.54
Notes:
Mortgage Investments classified as impaired had principal balances
totalling $2,880,778. 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,
----------------------------------------------------------
1999 1998 1997
-------------- --------------- ----------------
Balance at beginning of year $7,969,735 $8,104,984 $9,313,924
-------------- --------------- ----------------
Additions during period:
New Mortgage Investments 922,936 1,798,822 557,796
Other 0 0 0
-------------- --------------- ----------------
Total Additions $922,936 $1,798,822 $557,796
-------------- --------------- ----------------
Deductions during period:
Collections of principal 2,859,900 1,934,071 1,634,128
Foreclosures 499,999 0 0
Cost of Mortgage Investments sold 0 0 0
Amortization of Premium 0 0 0
Other 249,999 0 132,608
-------------- --------------- ----------------
Total Deductions 3,609,898 1,934,071 1,766,736
-------------- --------------- ----------------
Balance at close of year $5,282,773 $7,969,735 $8,104,984
============== =============== ================
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
A. Bruce Cropper, a partner in the accounting firm of Parodi & Cropper has been
providing audit and accounting services to the Partnership since its inception
in 1993. Mr. Cropper also has been performing audit and accounting services to
the General Partners of the Partnership and their affiliates for over 15 years.
In 1999, Mr. Cropper's partner sold his portion of their practice. Mr. Cropper
decided to merge his portion of the practice into an existing CPA firm known as
"Caporicci & Larson" with offices in Irvine and Walnut Creek, California. Upon
the merging, the firm of Parodi & Cropper was dissolved, and Caporicci & Larson
became Caporicci, Cropper and Larson, LLP. As a result, the Partnership has
retained the firm of Caporicci, Cropper and Larson, LLP, to provide its audit
and financial services. Thus, although there has been a change in accounting
firms, there has not been a change in accountants and there has not been any
disagreement on any matter of accounting principles, practices or financial
status disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant.
The Partnership has no Officers or Directors. Rather, the activities of the
Partnership are managed by the 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 Gymno Corporation, a California corporation, on an equal
(50-50) basis.
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in item 10, the Partnership has no officers or
directors. The Partnership is managed by the General Partners. There are certain
fees and other items paid to management and related parties. A more complete
description of management compensation is found in the Prospectus, pages 11-12,
under the section "Compensation of the General Partners and the Affiliates",
which is incorporated by reference. Such compensation is summarized below.
The following compensation has been paid to the General Partners and
affiliates for services rendered during the year ended December 31, 1999. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Compensation Description of Compensation and Services Rendered Amount
- --------------------------------------- ----------------------------------------------------- -------------
I.
Redwood Mortgage Corp. Mortgage Servicing Fee for servicing Mortgage $50,150
Investments
General Partners &/or Affiliates Asset Management Fee for managing Assets $10,626
General Partners 1% interest in profits $5,209
II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES RELATE
TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT
OF THE PARTNERSHIP):
Redwood Mortgage Corp. Mortgage Brokerage Commissions for services
in connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers
and not by the Partnership $46,527
Redwood Mortgage Corp. Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $1,704
Gymno Corporation, Inc. Reconveyance Fee $7,075
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 $21,748
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 for
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 Caporicci, Cropper & Larson, LLP
24.3 Consent of Landels, Ripley & Diamond
All of these exhibits were previously filed as the exhibits to
Registrant's Statement on Form S-11 (Registration No. 33-12519) and incorporated
by reference herein.
(B) Reports on form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(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 24th day of March,
2000.
REDWOOD MORTGAGE INVESTORS VI
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity indicated on the 24th day of March, 2000.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell General Partner March 24, 2000
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell General Partner March 24, 2000
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell President of Gymno Corporation, March 24, 2000
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 24, 2000
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation