10-Q 1 rmi610q3rdqtr2003.txt UNITED STATES SECURITIES & EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarterly Period Ended September 30, 2003 -------------------------------------------------------------------------------- Commission file number 33-12519 -------------------------------------------------------------------------------- REDWOOD MORTGAGE INVESTORS VI, a California Limited Partnership (exact name of registrant as specified in its charter) California 94-3031211 -------------------------------------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 900 Veterans Blvd., Suite 500, Redwood City, CA 94063 -------------------------------------------------------------------------------- (address of principal executive office) (650) 365-5341 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------------------------------------------------------------------------- (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 ----------- ----------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES NO NOT APPLICABLE XX ------------ ------------ -------------- 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 1 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) BALANCE SHEETS SEPTEMBER 30, 2003 and DECEMBER 31, 2002 (unaudited) ASSETS September 30, December 31, 2003 2002 ----------------- ---------------- Cash $ 577,238 $ 341,127 ----------------- ---------------- Loans Loans, secured by deeds of trust 4,814,880 5,183,100 Loans, unsecured, net discount of $131,352 223,697 223,697 Less allowance for loan losses (299,860) (275,294) ----------------- ---------------- Net loans 4,738,717 5,131,503 ----------------- ---------------- Interest and other receivables Accrued interest and late fees 55,685 61,384 Advances on loans 4,101 31,007 ----------------- ---------------- Total interest and other receivables 59,786 92,391 ----------------- ---------------- Real estate held for sale, net 1,323,986 1,234,541 Prepaid expenses 3,014 - ----------------- ---------------- Total assets $ 6,702,741 $ 6,799,562 ================= ================ LIABILITIES AND PARTNERS' CAPITAL Liabilities Accounts payable $ 13,068 $ 11,953 Payable to affiliate 12,478 14,643 ----------------- --------------- Total liabilities 25,546 26,596 ----------------- --------------- Partners' capital Limited partners' capital, subject to redemption 6,667,429 6,763,200 General partners' capital 9,766 9,766 ----------------- --------------- Total partners' capital 6,677,195 6,772,966 ----------------- --------------- Total liabilities and partners' capital $ 6,702,741 $ 6,799,562 ================= ===============
The accompanying notes are an integral part of these financial statements. 2 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF INCOME FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 and 2002 (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------------ 2003 2002 2003 2002 -------------- ------------ ------------- ------------ Revenues Interest on loans $ 102,705 $122,405 $ 336,765 $ 479,892 Interest - interest bearing accounts 640 1,263 2,374 4,098 Interest on promissory note - - - 7,128 Late charges, prepayment penalties, and fees 4,268 1,673 28,542 29,958 -------------- ------------ ------------- ------------ 107,613 125,341 367,681 521,076 -------------- ------------ ------------- ------------ Expenses Loan servicing fees 12,053 12,381 36,710 111,836 Asset management fees 2,105 2,162 6,337 6,535 Clerical costs through Redwood Mortgage Corp. 4,042 5,663 13,285 17,372 Provisions for losses on loans and real estate 2,932 1,677 24,566 68,895 Professional services 2,205 11,492 29,689 26,725 Other 1,129 1,613 6,644 7,102 -------------- ------------ ------------- ------------ 24,466 34,988 117,231 238,465 -------------- ------------ ------------- ------------ Net income $ 83,147 $ 90,353 $ 250,450 $ 282,611 ============== ============ ============= ============ Net income General partners (1%) $ 832 $ 903 $ 2,505 $ 2,826 Limited partners (99%) 82,315 89,450 247,945 279,785 -------------- ------------ ------------- ------------ $ 83,147 $ 90,353 $ 250,450 $ 282,611 ============== ============ ============= ============ Net income per $1,000 invested by limited partners for entire period: -where income is reinvested and compounded $12.28 $12.99 $37.29 $40.86 ============== ============ ============= ============ -where partner receives income in monthly distributions $12.23 $12.93 $36.68 $40.13 ============== ============ ============= ============
The accompanying notes are an integral part of these financial statements. 3 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 and 2002 (unaudited) NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------- 2003 2002 ------------- -------------- Cash flows from operating activities Net income $ 250,450 $ 282,611 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 24,566 68,895 Early withdrawal penalties credited to income (3,598) (5,833) Change in operating assets and liabilities Accrued interest and advances on loans 32,605 766,901 Accounts payable and payable to affiliate (1,050) (7,193) Deferred interest - (74,022) Prepaid expenses (3,014) - ------------- -------------- Net cash provided by operating activities 299,959 1,031,359 ------------- -------------- Cash flows from investing activities Principal collected on loans 1,208,576 1,116,703 Loans originated (840,356) (1,615,402) Payments for real estate held for sale (89,445) (16,961) Proceeds from disposition of real estate - 5,191 ------------- -------------- Net cash provided by (used in) investing activities 278,775 (510,469) ------------- -------------- Cash flows from financing activities Partners' withdrawals (342,623) (442,965) Collection of note receivable - Redwood Mortgage Corp. - 178,200 ------------- -------------- Net cash used in financing activities (342,623) (264,765) ------------- -------------- Net increase in cash 236,111 256,125 Cash - beginning of year 341,127 190,414 ------------- -------------- Cash - end of period $ 577,238 $ 446,539 ============= ==============
The accompanying notes are an integral part of these financial statements. 4 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 1 - General In the opinion of the management of the Partnership, the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the Partnership's Form 10-K for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission. The results of operations for the nine month period ended September 30, 2003 are not necessarily indicative of the operating results to be expected for the full year. note 2 - Summary of Significant Accounting Policies Loans, secured by deeds of trust At September 30, 2003 the Partnership had one loan past due 90 days or more totaling $144,349 (3.0% of the secured loan portfolio) and at December 31, 2002 the Partnership had two loans past due 90 days or more totaling $207,648 (4.01% of the secured loan portfolio). The Partnership does not consider these loans to be impaired because there is sufficient collateral to cover the amount outstanding to the Partnership, and the Partnership is still accruing interest on these loans. At September 30, 2003 and December 31, 2002, loans categorized as impaired by the Partnership were $96,716 and $96,716, respectively, with a reduction in the carrying value of the impaired loans of $6,620, and $6,620, respectively. The reduction in the carrying value of the impaired loans is included in the allowance for loan losses. The impaired loans have accrued interest, late charges and advances totaling $10,973 and $10,973 at September 30, 2003 and December 31, 2002. The average recorded investment in the impaired loans was $96,716 for the nine months ended September 30, 2003 and $1,282,304 for the year ended December 31, 2002, respectively. Allowance for loan losses The composition of the allowance for loan losses as of September 30, 2003 and December 31, 2002 was as follows: September 30, December 31, 2003 2002 ---------------- ---------------- Impaired loans $ 6,620 $ 6,620 Specified loans 44,977 44,977 General 24,566 - Unsecured loans 223,697 223,697 ---------------- ---------------- $ 299,860 $ 275,294 ================ ================ Activity in the allowance for loan losses is as follows for the nine months ended September 30, 2003 and 2002: September 30, December 31, 2003 2002 ---------------- ---------------- Beginning balance $ 275,294 $ 370,612 Provision for loan losses 24,566 3,083 Recoveries - (8,947) Restructures - (48,009) Write-offs - (41,445) ---------------- ---------------- $ 299,860 $ 275,294 ================ ================ 5 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 2 - Summary of Significant Accounting Policies (continued) 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. 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 amounts allocated to limited partners who held their investment throughout the period and have elected to either leave their earnings to compound or have elected to receive periodic 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. Management estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported 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 held for sale. Actual results could differ significantly from these estimates. Reclassifications Certain reclassifications, not affecting previously reported net income or total partners' capital, have been made to the previously issued financial statements to conform to the current year classification. Profits and losses Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after 1% of the profits and losses are allocated to the general partners. note 3 - General Partners and Related Parties The following are commissions and fees that are paid to the general partners and affiliates. Mortgage brokerage commissions For fees in connection with the review, selection, evaluation, negotiation and extension of loans, Redwood Mortgage Corp., an affiliate, 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. 6 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 3 - General Partners and Related Parties (continued) Mortgage servicing fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal are paid to Redwood Mortgage Corp., based on the unpaid principal balance of the loan portfolio, or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Once a loan is categorized as impaired, mortgage servicing fees are no longer accrued. Additional service fees are recorded upon the receipt of any subsequent payments on impaired loans. 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% (3/8 of 1% annually) of the "net asset value", which is the Partnership's total assets less its total liabilities. Other fees The partnership agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. These fees are incurred by the borrowers and paid to the general partners. Operating expenses The general partners or their affiliate, Redwood Mortgage Corp., are reimbursed by the Partnership for all operating expenses 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. note 4 - Real Estate Held for Sale The following schedule reflects the costs of real estate acquired through foreclosure and the recorded reductions to estimated fair values, including estimated costs to sell, as of September 30, 2003 and December 31, 2002: September 30, December 31, 2003 2002 ---------------- ---------------- Costs of properties $ 2,108,177 $ 2,018,732 Reduction in value (784,191) (784,191) ---------------- ---------------- Real estate held for sale $ 1,323,986 $ 1,234,541 ================ ================ 7 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 5 - Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of financial instruments: Secured loans carrying value was $4,814,880 and $5,183,100 at September 30, 2003 and December 31, 2002, respectively. The fair value of these loans of $4,793,825 and $4,862,646, respectively, 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 should also be considered in evaluating the fair value versus the carrying value. note 6 - Asset Concentrations and Characteristics Loans are secured by recorded deeds of trust. At September 30, 2003 and December 31, 2002, there were 17 and 22 secured loans outstanding respectively, with the following characteristics: September 30, December 31, 2003 2002 ----------------- ---------------- Number of secured loans outstanding 17 22 Total secured loans outstanding $ 4,814,880 $ 5,183,100 Average secured loan outstanding $ 283,228 $ 235,595 Average secured loan as percent of total 5.88% 4.55% Average secured loan as percent of partners' capital 4.24% 3.48% Largest secured loan outstanding $ 2,103,300 $ 2,103,300 Largest secured loan as percent of total 43.68%* 40.58%* Largest secured loan as percent of partners' capital 31.50%* 31.05%* Number of counties where security is located (all California) 9 10 Largest percentage of secured loans in one county 50.27% 42.67% Average secured loan to appraised value of security at time loan was consummated 79.61% 79.68% Number of secured loans in foreclosure 0 0 Amounts of secured loans in foreclosure $ 0 $ 0
* At loan inception this loan represented 8.8% of outstanding loans and 8.7% of Partners' capital. 8 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 6 - Asset Concentrations and Characteristics (continued) The following categories of secured loans were held at September 30, 2003 and December 31, 2002: September 30, December 31, 2003 2002 ----------------- ---------------- First trust deeds $ 3,981,346 $ 4,392,120 Second trust deeds 833,534 790,980 ----------------- ---------------- Total loans 4,814,880 5,183,100 Prior liens due other lenders 2,483,709 2,779,170 ----------------- ---------------- Total debt $ 7,298,589 $ 7,962,270 ================= ================ Appraised property value at time of loan $ 9,167,569 $ 9,992,743 ================= ================ Total investments as a percent of appraisals 79.61% 79.68% ================= ================ Investments by type of property Owner occupied homes $ 565,000 $ 749,707 Non-owner occupied homes 323,974 74,674 Apartments 137,592 566,600 Commercial 3,788,314 3,792,119 ----------------- ---------------- $ 4,814,880 $ 5,183,100 ================= ================
Scheduled maturity dates of secured loans as of September 30, 2003 are as follows: Year Ending December 31, ----------------------------------- 2003 $ 254,368 2004 460,000 2005 416,403 2006 96,716 2007 3,258,952 Thereafter 328,441 --------------- $4,814,880 =============== Cash deposits at September 30, 2003 of $554,476, before clearing deposits in transit and outstanding checks, were in one bank. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $454,476. The Partnership has a substantial amount of its loan receivable balance from one borrower at September 30, 2003 and December 31, 2002. This borrower accounted for approximately 64% and 62% of the loan balances at such dates. This borrower accounted for approximately 51% and 31% of interest revenue for the nine months ended September 30, 2003 and year ended December 31, 2002, respectively. At September 30, 2003 and December 31, 2002 there was a collateral shortfall related to certain of these loans. These loans are making regular monthly payments according to their terms. Redwood Mortgage Corp. has provided a guarantee of any such shortfalls incurred by the Partnership, therefore they are not considered impaired. 9 REDWOOD MORTGAGE INVESTORS VI (A California Limited Partnership) Notes to Financial Statements SEPTEMBER 30, 2003 (unaudited) note 7 - Commitments and Contingencies Workout agreements The Partnership has negotiated various contractual workout agreements with borrowers. Under the terms of these workout agreements the Partnership is not obligated to make any additional monetary advances for the maintenance or repair of the collateral securing the loans as of September 30, 2003 and December 31, 2002. There are two loans totaling $176,142 in workout agreements as of these dates. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP 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 dates and revenues and expenses for the reporting periods. 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. At September 30, 2003, there were three real estate properties held for sale, all acquired through foreclosure; one in 2002 and the other two in prior years. Loans and the related accrued interest, late fees and advances are analyzed on a continuous basis for recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. 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 values, 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). The Partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined that the full amount is not collectible. Statement of Financial Accounting Standards Nos. 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 the amounts due are not insignificant, the carrying amount of the investment 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. If events and or changes in circumstances cause management to have serious doubts about the collectibility of the contractual payments, a loan may be categorized as impaired and interest is no longer accrued. Any subsequent payments on impaired loans are applied to reduce the outstanding loan balances, including accrued interest and advances. 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. 10 Forward Looking Statements. Some of the information in the Form 10-Q may contain forward looking statements. Uses of words such as "will", "may", "anticipate", "estimate", "continue" or other forward looking words, discuss future expectations or predictions. The analysis of 2003 includes forward looking statements and predictions about the possibility of future events, results of operations and financial condition. As such, this analysis may prove to be inaccurate because of assumptions made by the general partners or the actual development of the future events. No assurance can be given that any of these statements or predictions will ultimately prove to be correct or substantially correct. Related Parties. The general partners of the Partnership are Gymno Corporation and Michael R. Burwell. Most Partnership business is conducted through Redwood Mortgage Corp., an affiliate of the general partner, which arranges, services and maintains the loan portfolio for the benefit of the Partnership. The fees received by the affiliate are paid pursuant to the partnership agreement and are determined at the sole discretion of the affiliate. In the past the affiliate has elected not to take the maximum compensation. The following is a list of various Partnership activities for which related parties are compensated. o Mortgage Brokerage Commissions For fees in connection with the review, selection, evaluation, negotiation and extension of loans, Redwood Mortgage Corp. may collect an amount equivalent to 12% of the loaned amount until 6 months after the termination date of the offering. Thereafter, the 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. Loan brokerage commissions paid by the borrowers were $17,573 and $15,551 for the nine months ended September 30, 2003 and 2002, and $11,159 and $13,645 for the three months ended September 30, 2003 and 2002, respectively. o Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% on an annual basis) of the unpaid principal of the Partnership's loans are paid to Redwood Mortgage Corp., or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Mortgage servicing fees of $36,710 and $111,836 were incurred for the nine months ended September 30, 2003 and 2002, and $12,053 and $12,381 were incurred for the three months ended September 30, 2003 and 2002, respectively. o Asset Management Fees The general partners receive monthly fees for managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net asset value' (3/8 of 1% on an annual basis). Management fees to the general partners of $6,337 and $6,535 were incurred by the Partnership for the nine months ended September 30, 2003 and 2002, and $2,105 and $2,162 were incurred for the three months ended September 30, 2003 and 2002, respectively. o Other Fees The Partnership agreement provides that the general partners may receive other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to the general partners. o Income and Losses All income and losses are credited or charged to partners in relation to their respective Partnership interests. The allocation to the general partners (combined) shall be a total of 1%. o Operating Expenses An affiliate of the Partnership, Redwood Mortgage Corp. 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. o Contributed Capital The general partners jointly and severally were to contribute 1/10 of 1% in cash contributions as proceeds from the offerings are received from the limited partners. As of September 30, 2003 and December 31, 2002, a general partner, Gymno Corporation, had contributed $9,772 and $9,772 respectively, as capital in accordance with Section 4.02(a) of the partnership agreement. 11 Results of Operations - For the nine and three months ended September 30, 2003 and 2002 The net income decrease of $32,161 (11%) for the nine months, and $7,206 (8%) for the three months ended September 30, 2003 versus September 30, 2002 was due primarily to a decrease in interest earned on loans of $143,127 for the nine months and $19,700 for the three months, and a decrease in late charges and other fees of $1,416 for the nine months and an increase of $2,595 for the three months. These income changes were offset by significant expense changes for the nine and three months ended September 30, 2003 including a decrease in loan servicing fees of $75,126 for the nine months and $328 for the three months, a decrease in the provision for losses on loans and real estate acquired through foreclosure of $44,329 for the nine months and an increase of $1,255 for the three months, decreases in clerical costs of $4,087 for the nine months and $1,621 for the three months, and an increase in professional services of $2,964 for the nine months and a decrease of $9,287 for the three months. The decrease in interest on loans of $143,127 for the nine months ended September 30, 2003 was due to lower average outstanding loan portfolio, a lower average loan portfolio interest rate and the collection of interest in 2002 on a previously impaired loan. The decrease in interest income for the third quarter of 2003 of $19,700 is also due to lower average loan portfolio and lower average interest rates. The decrease in late charge revenue and other fees of $1,416 for the nine months ended September 30, 2003 versus 2002 is reflective of more loans being current. An increase of $2,595 in late charge revenue for the three months ended September 30, 2003 versus September 30, 2002, represents collection of additional late charges and fee income from delinquent loans during the third quarter. The decrease in loan servicing fees of $75,126 for the nine months and $328 for the three months ended September 30, 2003 versus September 30, 2002 is primarily attributable to the lower average loan portfolio balances during 2003 and to additional servicing fees incurred on impaired loans collected in the first quarter of 2002. The Partnership does not accrue servicing fees to Redwood Mortgage Corp. on impaired loans. Rather, servicing fees on impaired loans are incurred as borrower payments are received. The decrease of $44,329 in provision for losses on loans and real estate acquired through foreclosure for the nine months ended September 30, 2003 versus 2002 reflects the general partners' estimate that the existing reserves are adequate as supplemented by a guarantee received from Redwood Mortgage Corp. relating to the collectibility of certain Partnership loans. The increase in professional services of $2,964 for the nine months, and a decrease of $9,287 for the three months ended September 30, 2003, was due to timing of services provided in 2003 compared to 2002 and increases in costs of such services. Partnership capital decreased from $6,772,966 at December 31, 2002 to $6,677,195 at September 30, 2003. The decrease is attributable to continued earnings and capital liquidations. The Partnership began funding loans in October 1987. The Partnership's secured loans outstanding as of September 30, 2003 and 2002 were $4,814,880 and $5,593,401, respectively. The overall decrease in loans outstanding at September 30, 2003 from the $5,183,100 outstanding at December 31, 2002, was due primarily to the Partnership utilizing loan payoffs to meet limited partner capital liquidations. During this period, loan principal collections exceeded limited partner liquidations. Since January 2001, and through September 30, 2003, the Federal Reserve has reduced interest rates significantly by cutting the Federal Funds Rate to 1.00%. The effect of the cuts has greatly reduced short-term interest rates and to a lesser extent reduced long-term interest rates. New loans will be originated at then existing interest rates. In the future, the general partners anticipate that interest rates likely will change from their current levels. The general 12 partners cannot at this time predict at what levels interest rates will be in the future. The general partners anticipate that new loans placed in 2003 will be placed at rates approximately 1% lower than loans placed at similar times during 2002. The lowering of interest rates has encouraged those borrowers that hold higher interest rate loans than those currently available to seek refinancing of their existing obligations to take advantage of these lower rates. The Partnership may face prepayments in the existing portfolio from borrowers taking advantage of these lower rates. However, demand for loans from qualified borrowers continues to be strong and as prepayments occur, we expect to replace these loans with loans at somewhat lower interest rates. 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, but do not guarantee, that the annualized yield for compounding limited partners will range between 4.75% and 5.00% for the year 2003. The Partnership's operating results and delinquencies are within the normal range of the general partners' expectations, based upon their experience in managing similar partnerships over the last twenty-four years. Foreclosures are a normal aspect of Partnership operations and the general partners anticipate that they will not have a material effect on liquidity. As of September 30, 2003, there were no properties in foreclosure. As of September 30, 2003 and 2002, the Partnership's real estate held for sale account balance was $1,323,986 and $1,143,903, respectively. The increase in 2003 was due primarily to improvement made to these properties. The Partnership intends to sell these properties. Cash is continually being generated from interest earnings, late charges, prepayment penalties and amortization of principal and loan pay-offs. Currently, this amount exceeds Partnership expenses and earnings and partner liquidation requirements. As loan opportunities become available, excess cash and available funds are invested in new loans. Allowance for Losses. The general partners regularly review the loan portfolio, examining the status of delinquencies, the underlying collateral securing these loans, real estate held for sale expenses, and sales activities and borrower's payment records and other data relating to the loan portfolio. Data on the local real estate market, and on the national and local economy are studied. Based upon this information and more, loan loss reserves are increased or decreased. Borrower foreclosures are a normal aspect of Partnership operations. The Partnership is not a credit based lender and hence while it reviews the credit history and income of borrowers, and if applicable, the income from income producing properties, the general partners expect that we will on occasion take back real estate security. During 2001, and continuing in 2002 and 2003, the Northern California real estate market slowed and the national and local economies have slipped into recession. As of September 30, 2003, no notices of default were filed on existing loans. The Partnership also entered into workout agreements with borrowers who are delinquent in their regular payments. The Partnership had workout agreements on approximately 2 loans totaling $176,142 (3.66% of the secured loan portfolio) as of September 30, 2003. Typically, a workout agreement allows the borrower to extend the maturity date of the balloon payment and/or allows the borrower to make current monthly payments while deferring for periods of time, past due payments or allows time to pay the loan in full. These workout agreements and foreclosures generally exist within our loan portfolio to greater or lesser degrees, depending primarily on the health of the economy. The number of foreclosures and workout agreements will rise during difficult times and conversely fall during good economic times. The delinquencies and workout agreements existing at September 30, 2003, in management's opinion, do not have a material effect on our results of operations or liquidity. These workouts have been considered when management arrived at appropriate loan loss reserves and based on our experience, are reflective of our loan marketplace segment. 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 $24,566 and $68,895 as provision for loan losses for the nine months through September 30, 2003 and 2002, respectively. As of September 30, 2003, there is a collateral shortfall on certain secured loans that has not been reserved for. Redwood Mortgage Corp. has guaranteed to cover any losses sustained by the Partnership related to these loans. Management believes that reserves previously set aside are adequate. 13 PORTFOLIO REVIEW - For the nine months ended September 30, 2003 and 2002. Loan Portfolio The Partnership's loan portfolio consists primarily of short-term (one to five years), fixed rate loans secured by real estate. As of September 30, 2003 and 2002 the Partnership's loans secured by real property collateral in the six San Francisco Bay Area counties (San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, and Marin) represented $4,464,547 (93%) and $4,740,152 (85%) of the outstanding loan portfolio. The remainder of the portfolio represented loans secured by real estate located primarily in Northern California. As of September 30, 2003, approximately 18.46% ($888,974), was invested in loans secured by single family homes (1-4 units), approximately 2.86% ($137,592), was invested in loans secured by multifamily dwellings (apartments over 4 units), approximately 78.68% ($3,788,314), was invested in loans secured by commercial properties. As of September 30, 2002, approximately 14.63% ($818,302), was invested in loans secured by single family homes (1-4 units), approximately 11.19% ($626,137) was invested in loans secured by multifamily dwellings (apartments over 4 units), approximately 74.18% ($4,148,962) was invested in loans secured by commercial properties. As of September 30, 2003, the Partnership held 17 loans secured by deeds of trust. The following table sets forth the priorities, asset concentrations and maturities of the loans held by the Partnership as of September 30, 2003: PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS As of September 30, 2003 # of Loans Amount Percent ------------ ------------ ---------- 1st Mortgages 8 $3,981,346 83% 2nd Mortgages 9 833,534 17% ============ ============ ========== Total 17 $4,814,880 100% Maturing 12/31/03 and prior 4 $ 254,368 5% Maturing prior to 12/31/04 2 460,000 10% Maturing prior to 12/31/05 3 416,403 9% Maturing after 12/31/05 8 3,684,109 76% ============ ============ ========== Total 17 $4,814,880 100% Average Loan $ 283,228 6% Largest Loan 2,103,300 44% Smallest Loan 751 0.02% Average Loan-to-Value 80% Borrower Liquidity and Capital Resources. 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 nine and three months ended September 30, 2003 and 2002, the Partnership made distributions of earnings to limited partners of $83,254 and $95,484 for the nine months, and $27,845 and $30,071 for the three months, respectively. Distribution of earnings to limited partners for the nine and three months ended September 30, 2003 and 2002, to limited partners' capital accounts and not withdrawn, was $164,691 and $184,301 for the nine months, and $54,470 and $59,379 for the three months, respectively. As of September 30, 2003 and 2002, limited partners electing to withdraw earnings represented 35% and 35%, respectively, of the limited partners outstanding capital accounts. 14 The Partnership also allows the limited partners to withdraw their capital account subject to certain limitations (see liquidation provisions of Partnership Agreement). For the nine and three months ended September 30, 2003 and 2002, $44,943 and $72,922 for the nine months, and $29,409 and $17,257 for the three months, 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 demand 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 September 30, 2003 and 2002, respectively, and is expected by the general partners to commonly occur at these levels. Additionally, for the nine and three months ended September 30, 2003 and 2002, $255,966 and $277,567 for the nine months, and $70,149 and $101,141 for the three months, respectively, were liquidated by limited partners who have elected a liquidation program over a period of five years or longer. Once the initial five-year hold period has passed, the general partners expect to see an increase in liquidations due to the ability of limited partners to withdraw without penalty. This ability to withdraw after five years by limited partners has the effect of providing limited partner liquidity. The general partners expect a portion of the limited partners to take advantage of this provision. This has the anticipated effect of the Partnership growing, primarily through reinvestment of earnings in years one through five. The general partners expect to see increasing numbers of limited partner withdrawals in years five through eleven, at which time the bulk of those limited partners who have sought withdrawal will have been liquidated. After year eleven, liquidation generally subsides and the Partnership capital again tends to increase. In some cases in order to satisfy broker dealers and other reporting requirements, the general partners have valued the limited partners' interest in the Partnership on a basis which utilizes a per Unit system of calculation, rather than based upon the investors' capital account. This information has been reported in this manner in order to allow the Partnership to integrate with certain software used by the broker dealers and other reporting entities. In those cases, the Partnership will report to broker dealers, Trust Companies and others a "reporting" number of Units based upon a $1.00 per Unit calculation. The number of reporting Units provided will be calculated based upon the limited partner's capital account value divided by $1.00. Each investor's capital account balance is set forth periodically on the Partnership account statement provided to investors. The reporting Units are solely for broker dealers requiring such information for their software programs and do not reflect actual Units owned by a limited partner or the limited partners' right or interest in cash flow or any other economic benefit in the Partnership. Each investor's capital account balance is set forth periodically on the Partnership account statement provided to investors. The amount of Partnership earnings each investor is entitled to receive is determined by the ratio that each investor's capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any NASD member client account statement in providing a per Unit estimated value of the client's investment in the Partnership in accordance with NASD Rule 2340. While the general partners have set an estimated value for the Partnership Units, such determination may not be representative of the ultimate price realized by an investor for such Units upon sale. No public trading market exists for the Partnership's Units and none is likely to develop. Thus, there is no certainty that the Units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the Partnership, which may include early withdrawal penalties (See the section of the Prospectus entitled "Risk Factors - Purchase of Units is a Long Term Investment"). 15 Current Economic Conditions. The Partnership makes loans primarily in Northern California. As of September 30, 2003, approximately 93%, ($4,464,547) of the loans held by the Partnership were in 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. As contained in an article in the San Francisco Chronicle dated October 4, 2003, mortgage rates are down again while home sales are soaring. The article stated, "Rates on benchmark 30-year mortgages dropped for the fourth week in a row, good news for people thinking about refinancing their home mortgage. For the week ending October 3, the average rate on 30-year mortgages dipped to 5.77%, down from last week's rate of 5.98%, Freddie Mac, the mortgage giant, reported Thursday in its weekly nation-wide survey of mortgage rates. This week's rate was the lowest since the middle of July, when rates on 30-year mortgage averaged 5.67%. Rates on 30-year mortgages slid to 5.21%, the lowest level in more than four decades, in the middle of June. But in late June, those rates started marching back up. They have retreated in the past four weeks. Even with the recent gyration in mortgage rates, sales of both new homes and previously owned ones soared in August and are on track to set record highs this year. And, home-mortgage refinancing activity remains healthy, economists said." According to the San Francisco Chronicle of the week of September 9, 2003, house prices were showing steady appreciation across the U.S. The article stated, "Defying gloom and doom predictions of impending deflation, the value of the average U.S. home continues to appreciate at more than twice the rate of inflation. In the latest nationwide survey of prices of existing houses, average values rose by 5.56% from the second quarter of 2002 through the second quarter of 2003. The study was done by the Office of Federal Housing Enterprise Oversight (OFHEO), which monitors the market value changes of millions of individual properties financed or refinanced by giant investors Fannie Mae and Freddie Mac. Dozens of local markets experienced much higher average gains than 5.56%, including double-digit appreciation rates in large swaths of California and Florida." The article also stated "Houses in the District of Columbia appreciated at 10.1% on average, while California houses gained an average of 9.4%. Formerly superheated markets, such as San Francisco where values rose at 20% and more per year during the dot-com boom, continue to readjust. San Jose houses gained an average 1.6% in resale value from 2002 to 2003 but lost 0.56% during the last quarter measured by the study. San Francisco houses gained an average 3.81% during the year, but rose by just 0.22% during the quarter ending June 30." These articles and statistics imply that interest rates are stabilizing near historical lows and that the real estate market for single-family residences is strong, but that the San Francisco Bay Area values are continuing to fall slightly as they readjust from the robust markets of the late 1990's and early 2000. On the commercial scene, according to the San Francisco Business Times for the week of October 3, 2003, the San Francisco real estate market is showing signs of life. The article stated, "San Francisco's office market, among the most depressed in the nation, appears to have finally started to recover. Slowly. Third-quarter numbers released this week from three major San Francisco brokerage firms show leasing creeping upward, vacancy dropping slightly and rents stabilizing after almost three years of free fall. Numbers from Newmark & Co. Real Estate, for example, showed "positive absorption" - the amount of new leases compared to new vacancies - of 415,000 square feet citywide in the third quarter, with the vacancy rate declining to 16.7% from 17% overall and to 18.3% from 19.3% among Class A buildings. Numbers from two other real estate firms show the same trend, with Cushman & Wakefield reporting more than 500,000 square feet absorbed, and Grubb & Ellis Co. showing 100,000 square feet absorption. Both those firms also saw the vacancy rate declining 0.1% citywide." The article also stated, "Newmark managing principal Monica Finnegan said the numbers make her cautiously optimistic that the market has bottomed out, but she is still keeping an eye out for what happens in the fourth quarter. Still, Newmark says in its report that "we expect several consecutive years of positive absorption beginning in 2004." Newmark's outlook is buoyed by federal employment statistics that show the rate of job loss in San Francisco slowing dramatically, with jobs falling 1.9% in the year to August, compared to declines of 5.8% in August 2002 and 4.9% in August 2001." The commercial real estate market seems to be stabilizing but it will take a long time to absorb the large vacancies that have built up in this recession. Values have decreased but lowered capitalization rates have helped keep commercial property values from large reductions. 16 To the Partnership, lower interest rates may mean more borrowers coming forward for equity loans or for refinancing. Stabilizing commercial vacancies and little appreciation in rental rates may mean that the economy is at the vacancy rate bottom. For Partnership loans outstanding, as of September 30, 2003, the partnership had an average loan to value ratio computed as of the date the loan was made of 79.61%. 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 loan to value ratio will assist the Partnership in weathering loan delinquencies and foreclosures should they eventuate. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following table contains information about the cash held in money market accounts, and loans held in the Partnership's portfolio as of September 30, 2003. The presentation, for each category of information, aggregates the assets and liabilities by their maturity dates for maturities occurring in each of the years 2003 through 2007 and separately aggregates the information for all maturities arising after 2007. The carrying values of these assets and liabilities approximate their fair market values as of September 30, 2003: 2003 2004 2005 2006 2007 Thereafter Total ----------- ----------- ----------- ----------- ----------- ------------ ------------ Interest earning assets: Money market accounts $513,675 $ 513,675 Average interest rate 0.60% 0.60% Loans secured by deeds of trust $254,368 460,000 416,403 96,716 3,258,952 328,441 $4,814,880 Average interest rate 10.24% 10.14% 8.96% 6.50% 7.68% 10.00% 8.30%
Market Risk. The Partnership's primary market risk in terms of its profitability is the exposure to fluctuations in earnings resulting from fluctuations in general interest rates. The majority of the Partnership's mortgage loans, (100% as of September 30, 2003) earn interest at fixed rates. Changes in interest rates may also affect the value of the Partnership's investment in mortgage loans and the rates at which the Partnership reinvests funds obtained from loan repayments and new capital contributions from limited partners. If interest rates increase, the interest rates the Partnership obtains from reinvested funds will generally increase, but the value of the Partnership's existing loans at fixed rates will generally tend to decrease. The risk is mitigated by the fact that the Partnership does not intend to sell its loan portfolio, rather such loans are held until they are paid off. If interest rates decrease, the amounts becoming available to the Partnership for investment due to repayment of Partnership loans may be reinvested at lower rates than the Partnership had been able to obtain in prior investments, or than the rates on the repaid loans. In addition, interest rate decreases may encourage borrowers to refinance their loans with the Partnership at a time where the Partnership is unable to reinvest in loans of comparable value. The Partnership does not hedge or otherwise seek to manage interest rate risk. The Partnership does not enter into risk sensitive instruments for trading purposes. ASSET QUALITY A consequence of lending activities is that occasionally losses will be experienced and that the amount of such losses will vary from time to time, depending upon the risk characteristics of the loan portfolio as affected by economic conditions and the financial experiences of borrowers. Many of these factors are beyond the control of the general partners. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio, especially in light of the current economic environment. 17 The conclusion that a loan may become uncollectible, in whole or in part, is a matter of judgment. Although institutional lenders are subject to requirements and regulations that, among other things, require them to perform ongoing analyses of their portfolios, loan-to-value ratios, reserves, etc., and to obtain and maintain current information regarding their borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted all of these practices. Rather, the general partners, in connection with the periodic closing of the accounting records of the Partnership and the preparation of the financial statements, determine whether the allowance for loan losses is adequate to cover potential loan losses of the Partnership. As of September 30, 2003 the general partners have determined that the allowance for loan losses and real estate owned of $1,084,051 (16.24% of net assets) is adequate in amount. Because of the number of variables involved, the magnitude of the swings possible 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 September 30, 2003, one loan was delinquent over 90 days amounting to $144,349. Two loans, including the delinquent loan, totaling $176,142 were subject to workout agreements, which require the borrower to make regular monthly loan payments and/or payments plus additional catch up amounts. The Partnership owns three properties, each acquired through foreclosure. One property, located in Alameda County, was acquired in 2002. The property was renovated during late 2002 and 2003 and was listed for sale during the third quarter of 2003. As of November 2003 the Partnership entered into a contract of sale, which calls for a closing in 2003. The second property is located in Contra Costa County and was acquired in 2000. The Partnership has entered into a contract of sale. The buyer has passed to the Partnership monies, which are non-refundable. The contract contains closing dates with possible extensions. The Partnership anticipates the sale to close in early 2004. The Partnership's final property is in San Mateo County and was acquired in 1993. After acquisition contamination was discovered on this property. The Partnership sought relief from the responsible party and in 1998 entered into a settlement agreement, which required clean up to standards approved by the Regional Water Quality Control Board. The Partnership is currently negotiating an offer on this property, which may lead to a long-term sales contract. Controls and Procedures. As of September 30, 2003, the general partner of the Partnership carried out an evaluation, under the supervision and with the participation of the general partner's management, including the general partner's President and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief Financial Officer of the general partner concluded that the Partnership's disclosure controls and procedures are effective. There were no significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 18 COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP The Partnership has no officers or directors. The Partnership is managed by the general partners. There are certain fees and other items paid to management and related parties. A more complete description of management compensation is found in the Prospectus, part of the Form S-11 and subsequent amendments related to the offering of Partnership investments, pages 11-12, under the section "Compensation of the General Partners and the Affiliates," which is incorporated by reference. Such compensation is summarized below. The following compensation has been paid to the general partners and their affiliates for services rendered during the nine months ended September 30, 2003. 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. Loan Servicing Fee for servicing loans ........................ $36,710 General Partners &/or Affiliates Asset Management Fee for managing assets ...................... $6,337 General Partners 1% interest in profits ........................................ $2,505
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 Corp. Mortgage Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the loans paid by the borrowers and not by the Partnership ...................... $17,573 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 ................................................... $758 Gymno Corporation Reconveyance Fee .............................................. $189
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 . . . . . . . . . . . . . . . . . . . . . . . . . . $13,285 19 PART 2 OTHER INFORMATION Item 1. Legal Proceedings The Partnership periodically is a defendant in various legal actions. Please refer to note (7) of financial statements. Item 2. Changes in the Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (99.1) Certification of Michael R. Burwell, General Partner (99.2) Certification of Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner (b) Form 8-K There were no 8-K filings in the quarter ended September 30, 2003. 20 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 November 2003. REDWOOD MORTGAGE INVESTORS VI By: /S/ Michael R. Burwell ------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: /S/ Michael R. Burwell ----------------------------------------------- Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity indicated on the 14th day of November 2003. Signature Title Date /S/ Michael R. Burwell ------------------------ Michael R. Burwell General Partner November 14, 2003 /S/ Michael R. Burwell ------------------------ Michael R. Burwell President, Secretary/Treasurer & November 14, 2003 CFO of Gymno Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation 21 Exhibit 99.1 GENERAL PARTNER CERTIFICATION I, Michael R. Burwell, General Partner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VI, a California Limited Partnership (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, is made known to us, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of September 30, 2003 (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Michael R. Burwell ----------------------------------- Michael R. Burwell, General Partner November 14, 2003 22 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Redwood Mortgage Investors VI (the "Partnership") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the Partnership, certify, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Michael R. Burwell ----------------------------------- Michael R. Burwell, General Partner November 14, 2003 23 Exhibit 99.2 PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION I, Michael R. Burwell, President and Chief Financial Officer of Gymno Corporation, General Partner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VI, a California Limited Partnership (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, is made known to us, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of September 30, 2003 (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Michael R. Burwell --------------------------------- Michael R. Burwell, President and Chief Financial Officer, of Gymno Corporation, General Partner November 14, 2003 24 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Redwood Mortgage Investors VI (the "Partnership") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner of the Partnership, certify that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner November 14, 2003 25