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FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 2002
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Commission file number 33-30427
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REDWOOD MORTGAGE INVESTORS VII
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(exact name of registrant as specified in its charter)
California 94-3094928
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
JUNE 30, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
June 30, December 31,
2002 2001
---------------- ----------------
(unaudited) (audited)
Cash $ 378,074 $ 389,844
---------------- ----------------
Loans
Loans, secured by deeds of trust, held to maturity 9,522,503 10,091,195
Loans, unsecured 135,813 173,731
---------------- ----------------
9,658,316 10,264,926
Less allowance for loan losses (971,187) (887,578)
---------------- ----------------
Net loans 8,687,129 9,377,348
---------------- ----------------
Interest and other receivables
Accrued interest 272,716 660,551
Advances on loans 76,544 50,665
---------------- ----------------
Total interest and other receivables 349,260 711,216
---------------- ----------------
Real estate owned, held for sale 672,588 872,133
Prepaid expense 9,983 -
---------------- ----------------
Total assets $ 10,097,034 $ 11,350,541
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $ 907,000 $ 1,907,000
Accounts payable 4,102 11,295
---------------- ----------------
Total liabilities 911,102 1,918,295
---------------- ----------------
Partners' capital
Limited partners' capital, subject to redemption 9,173,954 9,420,268
General partners' capital 11,978 11,978
---------------- ----------------
Total partners' capital 9,185,932 9,432,246
---------------- ----------------
Total liabilities and partners' capital $10,097,034 $11,350,541
================ ================
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2002 and JUNE 30, 2001 (unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ---------------------------------
2002 2001 2002 2001
------------- -------------- -------------- ---------------
Revenues
Interest - on loans $646,215 $632,044 $273,185 $285,695
Interest - interest bearing accounts 1,780 2,411 695 2,374
Late charges 5,849 3,084 1,349 2,410
Other income 14,726 2,864 3,419 863
------------- -------------- -------------- ---------------
668,570 640,403 278,648 291,342
------------- -------------- -------------- ---------------
Expenses
Mortgage servicing fees 96,325 39,826 44,658 18,755
Interest on note payable - bank 34,593 92,199 12,366 19,428
Clerical costs through Redwood 15,688 20,379 7,674 9,878
Mortgage Corp.
Asset management fees 17,635 18,968 8,754 9,381
Provisions for losses on loans and
real estate acquired through foreclosure 83,609 20,771 - 20,771
Professional services 19,252 20,349 3,017 (499)
Printing, supplies and postage 5,093 5,533 3,858 4,223
Other 2,269 4,004 846 2,516
------------- -------------- -------------- ---------------
274,464 222,029 81,173 84,453
------------- -------------- -------------- ---------------
Net income $394,106 $418,374 $197,475 $206,889
============= ============== ============== ===============
Net income: To general partners (1%) $ 3,941 $ 4,184 $ 1,975 $ 2,069
To limited partners (99%) 390,165 414,190 195,500 204,820
------------- -------------- -------------- ---------------
$394,106 $418,374 $197,475 $206,889
============= ============== ============== ===============
Net income per $1,000 invested by limited
partners for entire period:
-where income is reinvested and
compounded $42.21 $41.65 $21.08 $20.61
============= ============== ============== ===============
-where partner receives income in
monthly distributions $41.49 $40.94 $20.94 $20.47
============= ============== ============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED ENDED JUNE 30,2002 (unaudited)
Limited General Total
Partners' Partners' Partners'
Accounts Capital Capital
------------- ------------ ------------
Balances at December 31, 2001 9,420,268 11,978 9,432,246
Net income 390,165 3,941 394,106
Early withdrawal penalties (5,982) - (5,982)
Partners' withdrawals (630,497) (3,941) (634,438)
------------- ------------ ------------
Balances at June 30, 2002 $9,173,954 $ 11,978 $ 9,185,932
============= ============ ============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 and 2001(unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
2002 2001
--------------- ---------------
Cash flows from operating activities
Net income $ 394,106 $ 418,374
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 83,609 20,771
Early withdrawal penalty credited to income (5,982) (1,539)
Change in operating assets and liabilities
Accrued interest and advances on loans 334,254 (157,839)
Accounts payable (7,193) -
Prepaid expenses (9,983) -
--------------- ---------------
Net cash provided by operating activities 788,811 279,767
--------------- ---------------
Cash flows from investing activities
Principal collected on loans 1,537,076 4,932,790
Loans made (710,262) (1,376,306)
Payments for real estate held for sale (3,022) (105,767)
Proceeds from sale of real estate held for sale 2,565 34,260
Proceeds from unsecured loans 7,500 7,190
--------------- ---------------
Net cash provided by investing activities 833,857 3,492,167
--------------- ---------------
Cash flows from financing activities
Net decrease in note payable-bank (1,000,000) (2,960,000)
Formation loan collections - 40,563
Partners withdrawals (634,438) (815,840)
--------------- ---------------
Net cash used in financing activities (1,634,438) (3,735,277)
--------------- ---------------
Net increase (decrease) in cash (11,770) 36,657
Cash - beginning of year 389,844 269,000
--------------- ---------------
Cash - end of year $ 378,074 $ 305,657
=============== ===============
Cash payments for interest $ 34,593 $ 92,199
=============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the general partners are Michael R. Burwell and Gymno
Corporation, a California corporation owned and operated on an equal 50/50%
basis by Michael R. Burwell and by D. Russell Burwell, a former general partner.
The Partnership was organized to engage in business as a mortgage lender for the
primary purpose of making loans secured by Deeds of Trust on California real
estate. Loans are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the general partners. Each month's income is allocated to partners
based upon their proportionate share of partners' capital. Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
Any subsequent payments on impaired loans are applied to the outstanding
balances on the Partnership's books.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for loan losses, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans to
maturity, i.e., held for long-term investment. Loans are valued at cost for
financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable ultimate recovery of the carrying amount of a loan, with
due consideration for the fair value of collateral, is less than amounts due
according to the contractual terms of the loan agreement, and the shortfall in
amounts due are not insignificant, the carrying amount of the investment (cost)
shall be reduced to the present value of future cash flows discounted at the
loan's effective interest rate. If a loan is collateral dependent, it is valued
at the estimated fair value of the related collateral.
At June 30, 2002 and December 31, 2001 there were loans categorized as
impaired by the Partnership of $335,454 and, $889,439, respectively. In
addition, the impaired loans have accrued interest and advances totaling $18,428
and $277,479 at June 30, 2002 and December 31, 2001, respectively. The decrease
in carrying value of the impaired loans of $38,634 and $150,092 at June 30, 2002
and December 31, 2001, respectively is included in the allowance for loan
losses. The average recorded investment in the impaired loans was $612,447 and
$890,018 for the six months ended June 30, 2002, and for the year ended December
31, 2001, respectively. During the six months ended June 30, 2002, and the year
ended December 31, 2001, $0 and $64,987 was received as cash payments on these
loans, respectively.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
As presented in Note 9 to the financial statements as of June 30, 2002, the
average loan to appraised value of security at the time the loans were
consummated was 63.97% and 60.66%, respectively. When loans are valued for
impairment purposes, the allowance is updated to reflect the change in the
valuation of collateral security. However, such a low loan-to-value ratio has
the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
The Partnership considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of June 30, 2002 and December 31, 2001 and not including real
estate in process of acquisition at June 30, 2002:
June 30, December 31,
2002 2001
---------------- ---------------
Costs of properties $ 1,021,783 $ 1,252,189
Reduction in value (349,195) (380,056)
------------- ------------
Fair value reflected in financial statements $ 672,588 $ 872,133
============= ============
F. Income Taxes
No provision for Federal and State income taxes, except for a minimum state
tax of $800, is made in the financial statements since income taxes are the
obligation of the partners if and when income taxes apply.
G. Allowance for Loan Losses
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral value, to provide for unrecoverable loans
and receivables, including impaired loans, other loans, accrued interest and
advances on loans. The composition of the allowance for loan losses as of June
30, 2002, and December 31, 2001 was as follows:
June 30, December 31,
2002 2001
---------------- ---------------
Impaired loans $ 38,634 $ 150,092
Unspecified loans 796,740 593,500
Unsecured loans 135,813 143,986
---------------- ---------------
$ 971,187 $ 887,578
================ ===============
Allowance for loan losses reconciliation: Activity in the allowance for
loan losses is as follows for the six months through June 30, 2002 and for the
year ended December 31, 2001.
June 30, December 31,
2002 2001
------------------ -------------------
Beginning Balance $887,578 $850,548
- -----------------
Provision for loan losses 83,609 37,371
Write-offs - (341)
------------------ -------------------
Ending Balance $971,187 $887,578
================== ===================
H. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by limited partners for the entire period are actual amounts allocated
to limited partners who had their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the limited partners' pro rata share of partners' capital.
Because net income varies from month to month, amounts per $1,000 will vary for
those individuals who made or withdrew investments during the period, or select
other options.
I. Late Fee Revenue
The Partnership recognizes late fee revenue when it is earned. Late fees
are charged at 6% of the monthly balance, and are accrued net of an allowance
for uncollectible late fees. For the six months ended June 30, 2002, and for the
year ended December 31, 2001 late fee revenue of $5,849 and $8,495 respectively,
was recorded.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the general
partners, and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of loans the Partnership may collect an amount equivalent to 12%
of the loaned amount until 6 months after the termination date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the total Partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
Partnership. For the six months through June 30, 2002, and for the year 2001,
loan brokerage commissions paid by the borrowers were $6,400 and $84,137,
respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $96,325 and $94,396 were incurred
for the six months through June 30, 2002, and for the year ended December 31,
2001, respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the Partnership's
loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annual). Management fees of $$17,635 and $37,233, were incurred for the
six months through June 30, 2002, and for the year 2001, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.
E. Operating Expenses
Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the Partnership for all operating expenses actually incurred by it on behalf
of the Partnership, including without limitation, out-of-pocket general and
administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners.
During the six months through June 30, 2002, and for the year 2001, clerical
costs totaling $15,688 and $38,313, respectively, were reimbursed to Redwood
Mortgage Corp. Such reimbursements are reflected as expenses in the Statements
of Income.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited Partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. Investors have the right to withdraw their capital over
a five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
Subject to certain limitations, a compounding investor may subsequently change
his election, but an investor's election to have cash distributions is
irrevocable.
C. Profits and Losses
Profits and losses are allocated among the limited partners according to
their respective capital accounts after 1% is allocated to the general partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
D. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is not liquid. Limited partners had
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of June 30, 2002. In order to provide a certain
degree of liquidity to the limited partners after the one-year period, limited
partners may withdraw all or part of their capital accounts from the Partnership
in four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the Notice of Withdrawal is given, subject to a
10% early withdrawal penalty. The 10% penalty is applicable to the amount
withdrawn early and will be deducted from the capital account. Withdrawal after
the one-year holding period and before the five-year holding period, described
below, was permitted only upon the terms set forth above.
After five years from the date of purchase of the Units, limited partners
have the right to withdraw from the Partnership, on an installment basis.
Generally this is done over a five-year period in twenty (20) quarterly
installments. Once a limited partner has been in the Partnership for the minimum
five-year period, no penalty will be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the general partners may liquidate all or part of a limited
partner's 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. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
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 - LEGAL PROCEEDINGS
The Partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of June 30,
2002 and December 31, 2001 were $907,000 and $1,907,000, respectively, and the
interest rate was 5.0% (4.75% prime + .25%) at June 30, 2002. This line of
credit expires May 1, 2003. The line of credit requires the Partnership to meet
certain financial covenants. As of June 30, 2002, the Partnership was in
compliance with all loan covenants.
Should the general partners choose not to renew the line of credit, the
balance outstanding would be converted to a three year fully amortized loan.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 7 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
June 30, December 31,
2002 2001
------------------ -----------------
Net assets - partners' capital per financial statements $9,185,932 $9,432,246
Allowance for loan losses 971,187 887,578
------------------ -----------------
Net assets tax basis $10,157,119 $10,319,824
================== =================
In 2001 approximately 68% of taxable income was allocated to tax exempt
organizations (i.e., retirement plans). Such plans do not have to file income
tax returns unless their "unrelated business income" exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) Secured loans (see note 2 (c)) had a carrying value of $9,522,503 and
$10,091,195 at June 30, 2002 and December 31, 2001, respectively. The fair value
of these investments of $9,123,638 and $10,107,321 was estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for loan
losses along with accrued interest and advances related thereto is also
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
Most loans are secured by recorded deeds of trust. At June 30, 2002 and at
December 31, 2001, there were 33 and 36secured loans outstanding, respectively,
with the following characteristics:
June 30, December 31,
2002 2001
------------------ -----------------
Number of secured loans outstanding 33 36
Total secured loans outstanding $9,522,503 $10,091,195
Average secured loan outstanding 288,561 280,311
Average secured loan as percent of total 3.03% 2.78%
Average secured loan as percent of partners' capital 3.14% 2.97%
Largest secured loan outstanding 1,000,000 1,000,000
Largest secured loan as percent of total 10.50% 9.91%
Largest secured loan as percent of partners' capital 10.89% 10.60%
Number of counties where security is located (all California) 12 11
Largest percentage of secured loans in one county 33.83% 31.92%
Average secured loan to appraised value of security at time
loan was consummated 63.97% 60.66%
Number of secured loans in foreclosure 2 2
Amount of secured loans in foreclosure $986,372 $ 216,493
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
The following categories of loans are pertinent at June 30, 2002 and December
31, 2001:
June 30, December 31,
2002 2001
-------------------- -------------------
First Trust Deeds $ 5,227,783 $ 5,042,062
Second Trust Deeds 4,103,501 4,803,146
Third Trust Deeds 191,219 245,987
-------------------- -------------------
Total loans 9,522,503 10,091,195
Prior liens due other lenders 6,999,510 9,318,486
-------------------- -------------------
Total debt $16,522,013 $19,409,681
==================== ===================
Appraised property value at time of loan $25,826,553 $31,997,080
==================== ===================
Total investments as a percent of appraisals 63.97% 60.66%
==================== ===================
Investments by Type of Property
Owner occupied homes $ 456,428 $ 622,435
Non-owner occupied homes 914,731 1,435,444
Apartments 1,563,213 1,563,214
Commercial 6,588,131 6,470,102
-------------------- -------------------
$ 9,522,503 $10,091,195
==================== ===================
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited)
Scheduled maturity dates of loans as of June 30, 2002 are as follows:
Year Ending
December 31, Amount
------------------ --------------------
2002 $6,533,511
2003 604,945
2004 458,347
2005 40,125
2006 210,999
Thereafter 1,674,576
--------------------
Total $ 9,522,503
====================
The scheduled maturities for 2002 above include approximately $4,551,609 in
12 loans which are past maturity at June 30, 2002. Although interest payments on
most of these loans are current, $1,459,543 of these loans were categorized as
delinquent over 90 days.
Three loans with principal outstanding of $335,454 were considered impaired
at June 30, 2002. That is, interest accruals are no longer recorded thereon.
The cash balance per bank statement at June 30, 2002 of $632,279 was in one
bank with interest bearing balances totaling $290,362. The balances exceeded
FDIC insurance limits (up to $100,000 per bank) by $532,279. The Partnership's
main bank is the same financial institution that has provided the Partnership
with the $3,500,000 limit line of credit. At June 30, 2002, amounts drawn down
against this facility was$907,000.
Workout Agreements
The Partnership has negotiated various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments. The Partnership is not obligated to fund additional money on these
loans. As of June 30, 2002 the Partnership had approximately 4 loans under
workout agreements totaling $1,019,833.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited
NOTE 10: SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
2002 $ 389,922 $278,648 - - -
2001 $ 349,061 291,342 261,312 290,666 1,192,381
2000 $ 307,831 356,247 362,586 411,300 1,437,964
Expenses
2002 $ 193,291 81,173 - - -
2001 $ 137,576 84,453 58,231 90,924 371,184
2000 $ 74,265 128,581 140,617 194,355 537,818
Net income allocated to general partners
2002 $ 1,966 1,975 - - -
2001 $ 2,115 2,069 2,031 1,997 8,212
2000 $ 2,336 2,276 2,220 2,169 9,001
Net income allocated to limited partners
2002 $ 194,665 195,500 - - -
2001 $ 209,370 204,820 201,050 197,745 812,985
2000 $ 231,230 225,390 219,749 214,776 891,145
Net income per $1,000 invested
where income is
Reinvested
2002 $ 21 $ - - -
21
2001 $ 21 $ 21 $ 21 $ 22 $ 85
2000 $ 21 $ 21 $ 21 $ 22 $ 85
Withdrawn
2002 $ 21 $ 21 - - -
2001 $ 20 $ 20 $ 20 $ 22 $ 82
2000 $ 20 $ 21 $ 20 $ 21 $ 82
NOTE 11: RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date, and revenue and expenses
for the related period. Such estimates relate principally to the determination
of (1) the allowance for loan losses (i.e. the amount of allowance established
against loans receivable as an estimate of potential loan losses) including the
accrued interest and advances that are estimated to be unrecoverable based on
estimates of amounts to be collected plus estimates of the value of the property
as collateral and (2) the valuation of real estate acquired through foreclosure.
Loans and related accrued interest, fees, and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. Provisions are made for loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral values and to provide for unrecoverable
loans and receivables, including impaired loans, other loans, accrued interest,
late fees and advances on loans, and other accounts receivable (unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for loan losses. Actual
results could vary from the aforementioned provisions for losses.
Forward Looking Statements.
Some of the information in Form 10-Q may contain forward looking
statements. Uses of words such as "will", "may", "anticipate", "estimate",
"continue", or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of year 2002 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.
As of September 30, 1992, the Partnership had sold 119,983.59 Units and its
contributed capital totaled $11,998,359 of the approved $12,000,000 issue, in
Units of $100 each. As of that date, the offering was formally closed. At June
30, 2002, Partners' Capital totaled $9,185,932.
At June 30, 2002, the Partnership secured loans outstanding totaled
$9,522,503. This represents a decline of $568,692 from the December 31, 2001
secured loans balance.. This reduction in loans outstanding as of June 30, 2002
was chiefly due to loan repayments and loan pay-offs being used to fund
withdrawals to the limited partners of $630,497 and $1,554,751 and paydown the
credit line $1,000,000 and $1,593,000 during six months through June 30, 2002,
and twelve months through December 31, 2001. The Partnership began funding loans
on December 27, 1989, and as of June 30, 2002, had credited the partners'
accounts with income at an average annualized (compounded) yield of 7.89%.
Since January 2001, the Federal Reserve has been dramatically cutting its
core interest rates with eleven successive cuts, ranging from .25% to .50%. The
latest cut occurred on December 11, 2001, which reduced the Federal Funds Rate
to 1.75%. In May 2002, the Federal Reserve met and did not change interest
rates. The effect of the cuts has greatly reduced short-term interest rates and
to a lesser extent reduced long-term interest rates. New loans will be
originated at then existing interest rates. The general partners cannot at this
time predict at what levels interest rates will be in the future. The general
partners anticipate that new loans will be placed at rates approximately 1%
lower than similar loans during the first half of 2001. The lowering of interest
rates has encouraged those borrowers that hold higher interest rate loans than
those currently available to seek refinancing of their existing obligations to
take advantage of these lower rates. The Partnership may face prepayments in the
existing portfolio from borrowers taking advantage of lower interest rates.
Demand for loans from qualified borrowers continues to be strong and as
prepayments occur, we expect to replace these loans with loans at somewhat
lower interest rates. At this time, we believe that the average loan portfolio
interest rate will decline approximately .25% to .50% over the year. The quarter
ended June 30, 2002 reflects a reduction in interest income of $12,510 over the
corresponding quarter of 2001. Interest income for the six month period through
June 30, 2002, however, shows an overall increase of $14,171 over June 30, 2001
interest income. This occurred due to 1st quarter 2002 collection of interest on
loans, previously considered impaired. Based upon the rates expected in
connection with the existing loans, anticipated interest rates to be charged by
the Partnership and the general partners' experience, the general partners
anticipate that the annualized yield will range between eight and nine percent
(8.00% - 9.00%) in 2002.
The Partnership has a line of credit with a commercial bank secured by its
loans to a limit of $3,500,000, at a variable interest rate set at one-quarter
percent above the prime rate. As of June 30, 2002, the prime rate was 4.75% and
the line of credit rate was 5.0%. As of June 30, 2002 and December 31, 2001, the
balances outstanding were $907,000 and, $1,907,000, respectively. This line of
credit expires on May 01, 2003. 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 loans are not
currently available. Since most of the loans made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit, once the required principal and interest payments on the line of
credit are paid to the bank, the loans funded using the line of credit generate
revenue for the Partnership without further interest costs. As of June 30, 2002,
the Partnership is current with its interest payments on the line of credit. For
the six (and three months) ended June 30, 2002 and 2001, interest paid was
$$34,593, and $92,199 ($12,366 and $19,428), respectively. The somewhat lower
interest paid in 2002 versus 2001 is reflective of both a lower credit line
usage and the lower existing interest rate.
The Partnership's income and expenses, accruals and delinquencies are
within the normal range of the general partners' expectations, based upon their
experience in managing similar partnerships over the last twenty-five years.
Loan servicing fees for the six (and three months) ended June 30, 2002 and 2001
were $96,325 and $39,826 ($44,658 and $18,755), respectively. These loan
servicing fees were declining as the outstanding mortgage loan portfolio
balances declined except for the quarter ended June 30, 2002 when the
Partnership collected some borrower payments which were in arrears and hence
paid the loan servicing fees to Redwood Mortgage Corp. Asset Management Fees for
the six (and three months) ended June 30, 2002 and 2001 were $17,635 and $18,968
($8,754 and $9,381), respectively. The Asset Management Fee is declining as the
Partnership distributes partners' capital.
All other expenses fluctuated in a very close range except for Interest on
Note Payable - bank and Provision for Loan Losses and losses on Real Estate
Acquired Through Foreclosure which are each discussed elsewhere in this
Management Discussion and Analysis of Financial Condition and Results of
Operations. Borrower foreclosures, as set forth under Results of Operations, are
a normal aspect of Partnership operations and the general partners anticipate
that they will not have a material effect on liquidity. Cash is constantly being
generated from interest earnings, late charges, pre-payment penalties,
amortization of principal and loan pay-offs. Currently, cash flow exceeds
Partnership expenses, earnings and capital payout requirements. Excess cash flow
will be invested in new loan opportunities, when available, and will be used to
reduce the Partnership credit line or in other Partnership business.
The general partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these properties,
the REO expenses and sales activities, borrowers payment records, etc. Data on
the local real estate market and on the national and local economy are studied.
Based upon this information and other data, the allowance for loan losses are
increased or decreased. Because of the number of variables involved, the
magnitude of the 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. As of June 30, 2002, we have
commenced foreclosure proceedings against two loans. Management has provided
$83,609 and $20,771 ($0 and $20,771) as provisions for loan losses for the six
(and three months) ended June 30, 2002 and 2001, respectively. The total
cumulative provision for loan losses as of June 30, 2002 is $971,187 and is
considered by the general partners to be adequate.
The Partnership makes loans primarily in Northern California. As of June
30, 2002, approximately 68.30%, ($6,503,301) of the loans held by the
Partnership were in the six San Francisco Bay Area Counties. The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area. Like the rest of the nation, the San Francisco Bay
Area has also felt the recession and accompanying slow down in economic growth
and increasing unemployment. The technology companies of Silicon Valley,
the airline industry, the tourism industry and other industries are feeling the
effects of the overall United States recession, which includes lower earnings,
losses and layoffs.
Despite fears over failing businesses, ongoing job losses and dwindling
stock portfolios, the real estate market seems to be doing remarkably well.
According to the California Association of Realtors president Robert Bailey,
"Residential real estate in California, particularly in the San Francisco Bay
Area, continued to rebound aggressively last month (April 2002) compared to
2001." Sales in the San Francisco Bay Area increased 73% in April 2002 compared
to a year ago and surged nearly 120% in Santa Clara County. The median price of
homes sold in Santa Clara County in April 2002 was $552,250 according to the
California Association of Realtors. The median price of an existing single
family detached home in California during April 2002 was $321,950, a 26.1%
increase over the $255,310 median for April 2001 the association's report says.
"Low inventory, favorable mortgage interest rates and rapidly rising home price
appreciation will continue to intensify the pace of home sales in the coming
months", says Leslie Appleton-Young, the association's vice president and chief
economist. For the Partnership these statistics imply that the values of the
homes secured by mortgages in our portfolio should remain firm and assist in
reducing losses if the take back of collateral through the foreclosure process
should eventuate. It also implies increased loan activity, as the number of real
estate transactions is increasing, leaving more loan opportunities for lenders.
Commercial property vacancy rates have continued to climb. According to BT
Commercial overall San Francisco Bay Area vacancy rates have risen to almost
20%, up from 16.6% in the last quarter of 2001. Rental rates plunged 9% from $30
per square foot in the fourth quarter of 2001 to $27.24 in the first quarter of
2002. Average asking rates in the San Francisco Bay Area the first quarter a
year ago were $57.24. To the Partnership, these higher vacancy rates may mean
that we could experience higher delinquencies and foreclosures if our borrowers'
tenants' leases expire or their rental space becomes available through business
failures.
For Partnership loans outstanding as of June 30, 2002, the Partnership had
an average loan to value ratio computed as of the date the loan was made of
63.97%. This percentage does not account for any increases or decreases in
property values since the date the loan was made, nor does it include any
reductions in principal through amortization of payments after the loan was
made. This low loan to value ratio will assist the Partnership in weathering
loan delinquencies and foreclosures should they eventuate.
The Partnership has an interest in land located in East Palo Alto, CA which
was acquired through foreclosure. The Partnership's basis of $61,347 for both
the six months through June 30, 2002, and for the year ended December 31, 2001,
respectively, has been invested with that of two other partnerships. In order to
pursue development options, rezoning of the property's existing residential
zoning classification will be required. The Partnership is continuing to explore
remediation options available to mitigate the pesticide contamination, which
affects the property. This pesticide contamination appears to be the result of
agricultural operations by prior owners. The general partners do not believe at
this time that remediation of the pesticide contaminants will have a material
adverse effect on the financial condition of the Partnership.
The efforts of the general partners to subdivide the land have met with
success. The arsenic contaminated portion of the property has been delivered to
the party responsible for the arsenic contamination. The remaining land will be
made available for development or sale by the Partnership. The general partners
believe this to be a good result for the Partnership.
At the time of subscription to the Partnership, limited partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the six (and
three months) through June 30, 2002 and 2001, the Partnership made distributions
of earnings to limited partners after allocation of syndication costs of
$158,736 and $195,064 ($78,288 and $95,120), respectively. Distribution and
retention of Earnings to limited partners after allocation of syndication costs
for the six (and three months) through June 30, 2002 and 2001, to limited
partners' capital was $231,429 and $219,126 ($117,212 and $109,700),
respectively. As of June 30, 2002 and December 31, 2001, limited partners
electing to withdraw earnings represented 41% and 42% of the limited partners'
capital.
The Partnership also allows the limited partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
partnership agreement). For the six months (and three months) through June 30,
2002 and 2001, $74,772 and $61,504 ($41,481 and $16,508), 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
their 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,
2001, and June 30, 2002, respectively and is expected by the general partners to
commonly occur at these levels.
Additionally, for the six months (and three months) ended June 30, 2002 and
2001, $402,971 and $560,008 ($185,840 and $276,762), respectively, were
liquidated by limited partners who have elected a liquidation program over a
period of five years or longer. This ability to withdraw after five years by
limited partners has the effect of providing limited partner liquidity. The
general partners expect a portion of the limited partners to take advantage of
this provision. This had the anticipated effect of the Partnership growing,
primarily through reinvestment of earnings in years one through five. Then,
general partners expect to see increasing numbers of limited partner withdrawals
in years five through eleven, after which time the bulk of those limited
partners who have sought withdrawal have been liquidated. After year eleven,
liquidation generally subsides and the Partnership capital again tends to
increase.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the general partners have valued the limited partners' interest in
the Partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the Partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the Partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of Units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the limited
partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the Partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
Units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit in the Partnership. Each investor's
capital account balance is set forth periodically on the Partnership account
statement provided to investors. The amount of Partnership earnings each
investor is entitled to receive is determined by the ratio that each investor's
capital account bears to the total amount of all investor capital accounts then
outstanding. The capital account balance of each investor should be included on
any NASD member client account statement in providing a per Unit estimated value
of the client's investment in the Partnership in accordance with NASD Rule 2340.
While the general partners have set an estimated value for the Partnership
Units, such determination may not be representative of the ultimate price
realized by an investor for such Units upon sale. No public trading market
exists for the Partnership Units and none is likely to develop. Thus, there is
no certainty that the Units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain liquidation rights provided by the
Partnership, which may include early withdrawal penalties (See the section of
the Prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus part of Form S-11 and subsequent amendments related to the offering
of Partnership interests, pages 12-13, under the section "Compensation of the
General Partners and the Affiliates", which are 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 six months ended June 30, 2002. 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 Loan Servicing Fee for servicing loan ........................ $96,325
Corp.
General Partners Asset Management Fee for managing assets ..................... $17,635
&/or Affiliates
General Partners 1% interest in profits ....................................... $3,941
II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE
GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP)
Redwood Mortgage Mortgage Brokerage Commissions for services in connection
Corp. with the review, selection, evaluation, negotiation, and
extension of the loan paid by the borrowers and not by the
Partnership................................................... $6,400
Redwood Mortgage Processing and Escrow Fees for services in connection with
Corp. notary, document preparation, credit investigation, and escrow
fees payable by the borrowers and not by the Partnership ..... $603
Gymno Corporation
Inc. Reconveyance Fee.............................................. $183
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $15,688
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership periodically is a defendant in various legal
actions. Please refer to Note 5 of the Financial Statements.
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(99.1) Certification of Michael R. Burwell, General Partner
(99.2) Certification of Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of
Gymno Corporation, General Partner
(b) Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 14th day of August
2002.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
------------------------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 14th day of August 2002.
Signature Title Date
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell General Partner August 14, 2002
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell President, Secretary/Treasurer August 14, 2002
of Gymno Corporation (Principal
Financial and Accounting
Officer); Director of Gymno
Corporation
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VII
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the
Partnership, certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
company.
/s/ Michael R. Burwell
- -----------------------------
Michael R. Burwell, General Partner
August 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VII
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General
Partner of the Partnership, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
company.
/s/ Michael R. Burwell
- -----------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner
August 14, 2002