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, 2001
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Commission file number 000-19992
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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
-------------- --------------
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, 2001 (unaudited) AND DECEMBER 31, 2000 (audited)
ASSETS
June 30, December 31,
2001 2000
(unaudited) (audited)
-------------- -----------------
Cash $305,657 $269,000
Accounts receivable:
Loans, secured by deeds of trust 9,457,350 12,794,297
Accrued Interest on loans 506,087 363,321
Advances on loans 44,898 29,825
Accounts receivables, unsecured 181,231 188,421
-------------- -----------------
10,189,566 13,375,864
Less allowance for doubtful accounts 871,319 850,548
-------------- -----------------
9,318,247 12,525,316
-------------- -----------------
Real estate owned, acquired through
foreclosure, held for sale 668,064 816,094
-------------- -----------------
Total assets $10,291,968 $13,610,410
============== =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $540,000 $3,500,000
Accounts payable and accrued expenses 4,102 4,102
-------------- ---------------
Total liabilities 544,102 3,504,102
-------------- ---------------
Partners' capital
Limited Partners' capital, subject to redemption
Net of Formation Loan receivable of
$31,668 and $75,612 for 2001 and
2000, respectively 9,735,888 10,094,330
General Partners' capital 11,978 11,978
-------------- ---------------
Total partners' capital 9,747,866 10,106,308
-------------- ---------------
Total liabilities and partners' capital $10,291,968 $13,610,410
============== ===============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (unaudited)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
--------------- ------------- --------------- ----------------
Revenues:
Interest on loans $632,044 $652,571 $285,695 $347,308
Interest on bank deposits 2,411 962 2,374 265
Late charges 3,084 1,104 2,410 786
Other 2,864 9,441 863 7,888
--------------- ------------- --------------- ----------------
640,403 664,078 291,342 356,247
--------------- ------------- --------------- ----------------
Expenses:
Loan servicing fees 39,826 42,003 18,755 21,782
Interest on note payable - bank 92,199 83,867 19,428 56,744
Clerical costs through Redwood Mortgage Corp. 20,379 13,925 9,878 6,779
Asset management fee 18,968 18,500 9,381 10,302
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 20,771 15,634 20,771 15,634
Professional services 20,349 20,850 (499) 12,398
Printing, supplies and postage 5,533 4,953 4,223 3,691
Other 4,004 3,114 2,516 1,251
--------------- ------------- --------------- ----------------
222,029 202,846 84,453 128,581
--------------- ------------- --------------- ----------------
Net Income $418,374 $461,232 $206,889 $227,666
=============== ============= =============== ================
Net income: To General Partners (1%) $4,184 $4,612 $2,069 $2,276
To Limited Partners (99%) 414,190 456,620 204,820 225,390
--------------- ------------- --------------- ----------------
$418,374 $461,232 $206,889 $227,666
=============== ============= =============== ================
Net income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and
compounded $41.65 $41.82 $20.61 $20.65
=============== ============= =============== ================
- where partner receives income in
monthly distributions $40.94 $41.11 $20.47 $20.51
=============== ============= =============== ================
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 2001 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------
Capital Total
Account Formation Limited
Limited Loan Partners'
Partners Receivable Capital
------------- ----------- ----------
Balances at January 1, 1998 $13,208,844 $ (341,275) $12,867,569
Formation Loan collections 0 66,908 66,908
Net Income 838,105 0 838,105
Early withdrawal penalties (30,529) 20,980 (9,549)
Partners' withdrawals (1,826,304) 0 (1,826,304)
--------------- ----------- -------------
Balances at December 31, 1998 $12,190,116 $ (253,387) $11,936,729
Formation Loan collections 0 75,138 75,138
Net Income 900,485 0 900,485
Early withdrawal penalties (18,553) 12,750 (5,803)
Partners' withdrawals (1,909,231) 0 (1,909,231)
-------------- ----------- -------------
Balances at December 31, 1999 $11,162,817 $ (165,499) $10,997,318
Formation Loan collections 0 79,505 79,505
Net Income 891,145 0 891,145
Early withdrawal penalties (15,107) 10,382 (4,725)
Partners' withdrawals (1,868,913) 0 (1,868,913)
-------------- ---------- -------------
Balances at December 31, 2000 $10,169,942 $( 75,612 ) $10,094,330
Formation Loan collections 0 40,563 40,563
Net Income 414,190 0 414,190
Early withdrawal penalties (4,920) 3,381 (1,539)
Partners' withdrawals (811,656) 0 (811,656)
------------- ---------- ------------
Balances at June 30, 2001 $9,767,556 $(31,668) $9,735,888
============= ========== ============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 2001 (unaudited)
PARTNERS' CAPITAL
----------------------------------------
Capital Account
General Total Partners'
Partners Capital
---------------- ----------------
Balances at January 1, 1998 $11,978 $12,879,547
Formation Loan collections 0 66,908
Net income 8,466 846,571
Early withdrawal penalties 0 (9,549)
Partners' withdrawals (8,466) (1,834,770)
---------------- ----------------
Balances at December 31, 1998 $11,978 $11,948,707
Formation Loan collections 0 75,138
Net income 9,096 909,581
Early withdrawal penalties 0 (5,803)
Partners' withdrawals (9,096) (1,918,327)
---------------- ----------------
Balances at December 31, 1999 $11,978 $11,009,296
Formation Loan collections 0 79,505
Net income 9,001 900,146
Early withdrawal penalties 0 (4,725)
Partners' withdrawals (9,001) (1,877,914)
---------------- ----------------
Balances at December 31, 2000 $11,978 $10,106,308
Formation Loan collections 0 40,563
Net income 4,184 418,374
Early withdrawal penalties 0 (1,539)
Partners' withdrawals (4,184) (815,840)
------------------ ----------------
Balances at June 30, 2001 $11,978 $9,747,866
================== ================
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (unaudited)
SIX MONTHS ENDED
JUNE 30,
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $418,374 $461,232
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts 20,771 10,606
Provision for losses on real estate held for sale 0 5,028
Early withdrawal penalty credited to income (1,539) (2,595)
(Increase) decrease in accrued interest and advances (157,839) (84,059)
Increase (decrease) in accounts payable and accrued
expenses 0 (24,199)
Increase (decrease) in deferred interest on loans 0 (115,709)
Increase (decrease) in prepaid expenses 0 0
----------- ----------
Net cash provided by operating activities 279,767 250,304
---------- ----------
Cash flows from investing activities:
Principal collected on loans 4,932,790 2,438,159
Loans made (1,376,306) (3,820,476)
Additions to Real Estate held for sale (105,767) (29,977)
Dispositions of Real Estate held for sale 34,260 0
Accounts Receivable Unsecured (disbursement) (310) (2,477)
Proceeds from unsecured Accounts Receivable 7,500 1,787
----------- ----------
Net cash provided by (used in) investing activities 3,492,167 (1,412,984)
----------- ----------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank (2,960,000) 2,300,000
Formation Loan collections 40,563 38,243
Partners withdrawals (815,840) (939,797)
----------- ----------
Net cash provided by (used in) financing activities (3,735,277) 1,398,446
----------- ----------
Net increase in cash 36,657 235,766
Cash - beginning of period 269,000 388,770
---------- ----------
Cash - end of period $305,657 $624,536
========== ==========
Interest paid $92,199 $83,867
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making 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. At September
30, 1992, the offering had been closed with contributed capital totaling
$11,998,359 for limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As loans were
identified, partners were transferred from applicant status to admitted partners
participating in loan operations. Each month's income is allocated to partners
based upon their proportionate share of partner's capital. Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (Units sold by General Partners) to 10%
of the gross proceeds were paid by Redwood Mortgage Corp., an affiliate of the
General Partners that arranges and services the loans. To finance the sales
commissions, the Partnership was authorized to loan to Redwood Mortgage Corp. an
amount not to exceed 8.3% of the gross proceeds invested in the Partnership. The
Formation Loan for the minimum offering period could be 10% of the gross
proceeds for the minimum offering period. The Formation Loan is unsecured and is
being repaid, without interest, in ten installments of principal, over a
ten-year period commencing January 1, 1992. At December 31, 1992, Redwood
Mortgage Corp. had borrowed $914,369 from the Partnership to cover sales
commissions relating to $11,998,359 limited partner contributions (7.62%).
Through June 30, 2001, $882,701 including $150,635 in early withdrawal penalties
had been repaid leaving a balance of $31,668. The Formation Loan, which is due
from an affiliate of the General Partners', has been deducted from Limited
Partners' capital in the balance sheet. As amounts are collected from Redwood
Mortgage Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000 whichever was less. The General Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were
incurred by the Partnership. The sum of organization and syndication costs,
$425,794, approximated 3.55% of the gross proceeds contributed by the Partners.
Both the Organization and Syndication Costs have been fully amortized and
allocated to the Partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
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.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
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. They are therefore valued at cost
for financial statement purposes with interest thereon being accrued by the
simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 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 the recorded
investment, and related amount due and the impairment is considered to be other
than temporary, the carrying amount of the investment (cost) shall be reduced to
the present value of future cash flows.
At June 30, 2001, and years ended December 31, 2000 and 1999, reductions in
the cost of loans categorized as impaired by the Partnership totaled $137,175,
$137,175 and $152,231, respectively. The reduction in stated value was
accomplished by increasing the allowance for doubtful accounts.
As presented in Note 9 to the financial statements as of June 30, 2001, the
average loan to appraised value of security at the time the loans were
consummated was 62.39%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
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, 2001 and December 31, 2000:
June 30, December 31,
2001 2000
------------ ------------
Costs of properties $1,052,522 $1,258,966
Reduction in value (384,458) (442,872)
------------ -----------
Fair value reflected in financial statements $668,064 $816,094
============ ===========
F. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
G. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $10,102 were capitalized and were
amortized over a five-year period. Syndication costs of $415,692 were charged
against partners' capital and were allocated to individual partners consistent
with the Partnership Agreement.
H. Allowance for Doubtful Accounts
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 bad debts to an amount
considered by management to be adequate, with due consideration to collateral
value, to provide for unrecoverable accounts receivable, including impaired
loans, other loans, accrued interest and advances on loans, and other accounts
receivable (unsecured). The composition of the allowance for doubtful accounts
as of June 30, 2001 and December 31, 2000 was as follows:
June 30, December 31,
2001 2000
--------------- ----------------
Impaired loans $137,175 $137,175
Unspecified loans 590,383 569,612
Accounts receivable, unsecured 143,761 143,761
--------------- ----------------
$871,319 $850,548
=============== ================
I. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who 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 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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
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
Redwood Mortgage Corp. receives mortgage brokerage commissions for services
in connection with the review, selection, evaluation, negotiation and extension
of loans in an amount up to 12% of the principal amount of the loans through the
period ending 6 months after the termination date of the offering. Thereafter,
commissions are limited to an amount not to exceed 4% of the total Partnership
assets per year. Such commissions are paid by the borrowers, and are not an
expense to the Partnership. Loan brokerage fees for six months through June 30,
2001, and years ended December 31, 2000, 1999, and 1998, totaled $45,906,
$130,487, $207,739 and $166,752, respectively.
B. Loan Servicing Fees
Redwood Mortgage Corp. also receives monthly loan 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. Loan servicing fees of $39,826, $110,713, $127,440 and $128,493
were incurred for the six months ended June 30, 2001 and years ended December
31, 2000, 1999 and 1998, respectively.
C. Asset Management Fee
The General Partners receive a monthly fee 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). Asset management fees were $18,968, $38,400, $44,524 and $16,141
during the six months ended June 30, 2001, and the years ended December 31,
2000, 1999 and 1998, 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. Income and Losses
All income and losses are credited or charged to partners in relation to
their respective Partnership interests. The Partnership interest of the General
Partners (combined) is a total of 1%.
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are
reimbursed by the Partnership for all operating expenses actually incurred by
them on behalf of the Partnership, including without limitation, out-of-pocket
general and administration expenses of the Partnership, accounting and audit
fees, legal fees and expenses, postage and preparation of reports to Limited
Partners. Such reimbursements are reflected as expenses in the Statements of
Income.
G. General Partners Contributions
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering were admitted to limited
Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to
the Partnership until appropriate lending opportunities were available. During
the period prior to the time of admission, which ranged between 1-120 days,
purchasers' subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnership's loan
portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As loans were made, applicant subscriptions were transferred to Limited
Partner status to begin sharing in income from loans secured by deeds of trust.
The interest earned prior to admission was either paid to the investors or
transferred to Partners' Capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five years, subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound.
D. 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, 2001
E. 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, 2001. 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 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.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to
the Partnership and ending 3 months after the offering termination date, the
General Partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - LEGAL PROCEEDINGS
Legal actions against borrowers and other involved parties have been
initiated by the Partnership to help assure payments against unsecured accounts
receivable totaling $181,231 at June 30, 2001 ("Collection Suits"). The
Partnership is a defendant, along with numerous other defendants including a
developer, contractor and other lenders, in a lawsuit involving a homeowner's
association's attempt to recover "damages" for faulty construction (the
"Action").
Management anticipates that the ultimate results of these Collection Suits
and the Action will not have a material adverse effect on the net assets of the
Partnership, with due consideration having been given in the case of the
Collection Suits and the Action in arriving at the allowance for doubtful
accounts.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
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,
2001 and December 31, 2000 were $540,000 and $3,500,000 respectively, and the
interest rate was 7.00% (6.75% prime + .25%) at June 30, 2001. This line of
credit expires May 1, 2003.
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,
2001 2000
----------- -------------
Net assets - Partners' Capital per
financial statements $9,747,866 $10,106,308
Formation Loan receivable 31,668 75,612
Allowance for doubtful accounts 871,319 850,548
----------- -----------
Net assets tax basis $10,650,853 $11,032,468
=========== ===========
In 2000 and 1999, approximately 70% and 69%, respectively, of taxable
income was allocated to tax exempt organizations i.e., retirement plans. Such
plans do not have to file income tax returns unless their "unrelated business
income" exceeds $1,000. Applicable amounts become taxable when distribution is
made to participants.
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) Loans (see note 2 (c) had a carrying value of $9,457,350 at June 30,
2001. The fair value of these loans of $9,431,647 was estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for doubtful
accounts along with accrued interest and advances related thereto should also be
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At June 30, 2001, there
were 36 loans outstanding with the following characteristics:
Number of loans outstanding 36
Total loans outstanding $9,457,350
Average loan outstanding $262,704
Average loan as percent of total 2.78%
Largest loan outstanding $1,251,090
Largest loan as percent of total 13.23%
Number of counties where security is located (all California) 11
Largest percentage of loans in one county 29.49%
Average loan to appraised value of security at time loan was
consummated 62.39%
Number of loans in foreclosure 1
The following categories of loans are pertinent at June 30, 2001, and 2000:
June 30, December 31,
2001 2000
-------------- --------------
First Trust Deeds $6,050,967 $8,720,986
Second Trust Deeds 3,209,485 4,000,140
Third Trust Deeds 196,898 73,171
-------------- --------------
Total loans 9,457,350 12,794,297
Prior liens due other lenders 7,675,612 8,761,363
-------------- --------------
Total debt $17,132,962 $21,555,660
=============== ==============
Appraised property value at
time of loan $27,462,242 $35,518,467
=============== ==============
Total investments as a percent
of appraisals 62.39% 60.69%
=============== ==============
Investments by Type of Property:
Owner occupied homes $254,344 $218,942
Non-Owner occupied homes 985,467 1,644,636
Apartments 1,859,815 2,590,022
Commercial 6,357,724 8,340,697
--------------- --------------
$9,457,350 $12,794,297
=============== ==============
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
Scheduled maturity dates of loans are as follows:
Year Ending
December 31, Amount
-------------------- -------------------
2001 $6,400,443
2002 1,426,918
2003 557,083
2004 129,043
2005 513,657
Thereafter 430,206
-------------------
Total $9,457,350
===================
The scheduled maturities for 2001 above include approximately $2,794,284 in
eleven loans, which are past maturity at June 30, 2001. Although interest
payments on most of these loans are current, $2,294,007 of these loans was
categorized as delinquent over 90 days.
The cash balance at June 30, 2001 of $305,657 was in one bank with interest
bearing balances totaling $251,107. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $205,657. The Partnership's bank is the same
financial institution that has provided the Partnership with the $3,500,000
limit line of credit. At June 30, 2001, draw down against this facility was
$540,000. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed in new loans
or used to pay-down on the line of credit balance.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On 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, 2001, Partners' Capital totaled $9,747,866.
At June 30, 2001, the Partnership loans outstanding totaled $9,457,350.
This represents a decline of $3,336,947 from the December 31, 2000 loans
balance. This reduction in loans outstanding as of June 30, 2001 was chiefly due
to loan repayments and loan pay-offs being used to fund withdrawals to the
Limited Partners of $811,656 during six months through June 30, 2001 and partial
reduction in line of credit balance by $2,960,000. Loans decreased from
$13,449,741 from 1997 to $12,794,297 in 2000, a decrease of $655,444 chiefly due
to the ability of the General Partners to reduce amounts of real estate owned by
$289,743, reinvestment of earnings of $390,213, offset by payments to
withdrawing Limited Partners $1,856,833, a reduction of outstanding Note Payable
- - Bank of $1,112,663 and investment of cash. The Partnership began funding loans
on December 27, 1989, and as of June 30, 2001, had credited the Partners'
accounts with income at an average annualized (compounded) yield of 7.85%.
Since the fall of 1999, mortgage interest rates had been rising due
primarily to economic forces and by the Federal Reserve raising its core
interest rates. However, since January 2001, the Federal Reserve has been
dramatically cutting its core interest rates with six successive cuts, ranging
from .25% to .50%. The latest cut being June 27, 2001, which reduced the Federal
Funds Rate to 3.75%. 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,
interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. Although the rates charged by the Partnership are influenced by the
level of interest rates in the market, the General Partners anticipate that
rates charged by the Partnership to its borrowers will be somewhat lower than
the first half of 2001. The General Partners anticipate that new loans will be
placed at rates approximately 1% lower than similar loans during the first half
of 2001. The lowering of interest rates has encouraged those borrowers that hold
higher interest rate loans than those currently available to seek refinancing of
their existing obligations to take advantage of these lower rates. The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage of these lower rates. 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. At this time, we
believe that the average loan portfolio interest rate will decline approximately
.25% to .50% over the remainder of the year. Nevertheless, based upon the rates
expected in connection with the existing loans, and anticipated interest rates
to be charged by the Partnership and the General Partners' experience, the
General Partners anticipate that the annualized yield will range between eight
and eight and one half percent (8.00% - 8.50%) for the remainder of 2001.
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, 2001, the prime rate was 6.75% and
the line of credit rate was 7.00%. As of June 30, 2001, December 31, 2000, and
December 31, 1999, the balances were $540,000, $3,500,000 and $800,000,
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. As of June 30, 2001, the
Partnership is current with its interest payments on the line of credit. For the
years ended December 31, 1998, 1999, 2000 and six months through June 30, 2001,
interest paid was $170,867, $182,350, $257,390 and $92,199, respectively. The
somewhat lower interest paid in the first six months of 2001 is reflective of
both a lower than average 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-four years.
Loan servicing fees in 1998 were $128,493, in 1999 were $127,440, in 2000 were
$110,713, and six months through June 30, 2001 were $39,826. These loan
servicing fees were declining as the outstanding mortgage loan portfolio
balances declined. Asset Management Fees increased to $16,141 in 1998, and to
$44,524 in 1999. For the year 2000, Management Fees paid were $38,400, and for
six months through June 30, 2001, management fee paid was $18,968. In 1997, the
General Partners waived or partially waived this fee to the Partnership and
increased the Asset Management Fee to its allowed amount of 3/8 of 1% in 1999,
2000, and 2001. 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 Doubtful Accounts and losses on Real
Estate Acquired Through Foreclosure 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. As of June 30, 2001, there was one
property in foreclosure. Cash is constantly being generated from interest
earnings, late charges, pre-payment penalties, amortization of loans and pay-off
on notes. Currently, cash flow exceeds Partnership expenses, earnings and
capital payout requirements. Excess cash flow will be invested in new loan
opportunities when available, used to reduce the Partnership credit line or
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, loss reserves 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. Management provided $423,054, $329,057, $65,664,
and $20,771, as provisions for doubtful accounts for the years ended December
31, 1998, 1999, 2000, and six months through June 30, 2001, respectively. The
provision for doubtful accounts was decreased $11,441 to $423,054 in 1998, by
$93,997 to $329,057 in 1999, by $263,393 to $65,664 in 2000 and to $20,771
through June 30, 2001. These decreases reflect reduced expected REO anticipated
losses and improved collections of secured and unsecured receivables.
The Partnership makes loans primarily in Northern California. As of June
30, 2001, approximately 60%, ($5,665,580) of the loans held by the Partnership
were in the five 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.
The United States economy has slowed from the robust Gross Domestic Product
growth levels of 4.2% in 1999 and 5.0% in 2000 to a growth rate of 1.2% for the
1st quarter of 2001. In response to the slow down in economic activity, the
Federal Reserve has been acting primarily through reductions in the Federal
Funds rates to stimulate the United States economy. Their interest rate cuts
have lowered the Federal Funds rate from 6.5% to 3.75% or 42% over the course of
the first half of 2001.
Like the rest of the nation, the San Francisco Bay Area has also felt the
slow down in economic growth. The technology companies of Silicon Valley and
other industries are feeling the effects of the overall US economy slowdown
which include lower earnings, losses and layoffs. This is having some effect
upon the Partnership loan portfolio and the value of real estate which is the
security behind the Partnership loan portfolio. The Northern California real
estate market and particularly the San Francisco Bay Area real estate
marketplace experienced increases in values of over 10% in 1999 and in 2000. In
the residential marketplace throughout 2000, offers for residential real estate
were often at or above asking price. The residential market has slowed and is
returning to a more normal market, wherein buyers and sellers negotiate the
terms of a sale without undue influence from other buyers desiring the property.
This has resulted in longer listing and transaction times. According to
DataQuick Information Systems, April 2001, the number of home sales for the San
Francisco Bay Area were 15.8% lower than the previous April, yet the median
sales price increased 9.4% to $394,000 during this same period. In our opinion
mid priced and lower end homes have continued to increase in value while the
high-end homes have begun to decrease in value. The Partnership may experience
higher delinquencies due to layoffs from borrowers who need to sell their homes
in order to repay their debt not anticipating currently existing transaction
times to sell a home or the lower prices of higher end homes.
For commercial properties vacancy rates continued to increase as space
absorption has slowed and sub lease space has been put on the market. According
to Grubb and Ellis vacancy in Class A and B space in San Francisco reached 7.7
percent at the end of the first quarter of 2001. Vacancy rates for other cities
in the San Francisco Bay Area followed a similar trend. According to Grubb and
Ellis , one indication that the bottom of the market may be reached soon is that
the rate of increase in the vacancy rate has slowed. After increasing by nearly
2 percentage points a month during the first quarter, the vacancy rate increased
at less than 1 percent a month during the second quarter. The best news is that
according to Grubb and Ellis sales volumes are on par with last year and sales
prices per square foot have remained steady because banks never underwrote deals
at the rates at the peak of the market. However, Grubb and Ellis predict a
slowdown in investments until there is comfort that rents and vacancy have
bottomed. The Partnership may experience greater loan delinquencies if landlords
lose their tenants or are unable to rent vacant space.
The Partnership had an average loan to value ratio computed as of the date
the loan was made of 62.39%, as of June 30, 2001. This did not account for any
increases in property values for loans, which were acquired by the Partnership
during 1997, 1998, 1999, and 2000 when Northern California Real Estate
substantially increased in value. This low loan to value will assist the
Partnership in weathering downturns in real estate values if they materialize in
the coming months.
On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest
public utility company filed for Chapter 11 bankruptcy. The full effect of
PG&E's bankruptcy is unknown. Stockholders, other utility companies and banks
that have loaned PG&E millions of dollars were particularly hit hard. When a
company like PG&E goes bankrupt, it has a ripple effect. This has not only
affected the hi-tech and manufacturing industries, professional and commercial
businesses, transportation and utilities sectors, but every household and
individual as a whole. The crisis, which means higher costs to consumers, could
adversely affect the economy, employment and the Partnership's lending in its
commercial sector. The state government, PG&E and others are working diligently
to solve the power crisis in California. The likely result is that electric and
natural gas will cost consumers more than ever before. This may have some effect
upon real estate values as demand for real estate could be reduced as companies
make long term plans to locate in areas without power delivery problems and
lower cost power availability.
The Partnership's interest in land located in East Palo Alto, CA was
acquired through foreclosure. The investment was previously classified as
Investment in Partnership in the Financial Statements and has been reclassified
into Real Estate Owned. The Partnership's basis of $47,052, $38,238, $9,039 and
$ 0, for the six months ended June 30, 2001 and the years ended December 31,
2000, 1999, and 1998, 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 years
ended December 31, 1998, 1999, 2000, and six months through June 30, 2001, the
Partnership made distributions of earnings to Limited Partners after allocation
of syndication costs of $456,358, $490,841, $454,386, and $195,064,
respectively. Distribution of Earnings to Limited Partners after allocation of
syndication costs for the years ended December 31, 1998, 1999, 2000 and six
months through June 30, 2001 to Limited Partners' capital accounts and not
withdrawn was $381,747, $409,644, $436,759, and $219,126, respectively. As of
December 31 1998, 1999, 2000 and six months ended June 30, 2001, Limited
Partners electing to withdraw earnings represented 53%, 54%, 49% and 47% 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 years ended December 31, 1998, 1999, 2000, and
six months through June 30, 2001, $381,458, $231,025, $179,343, and $61,504 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,
1998, 1999, 2000, and six months through June 30, 2001, respectively and is
expected by the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1998, 1999, 2000, and six
months through June 30, 2001, $1,019,017, $1,205,917, $1,250,291, and $560,008,
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 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, 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.
Actual liquidation of both capital and earnings from year five (1994)
through year eleven (2000) and six months through June 30, 2001 is shown
hereunder; which confirms the General Partners theory on the liquidation habits
of the Limited Partners:
Years ended December 31,
Earnings Capital
Liquidation Liquidation Total
-------------- ------------ ------------
1994 $263,206 *$340,011 $603,217
1995 $270,760 *$184,157 $454,917
1996 $336,341 *$722,536 $1,058,877
1997 $399,379 *$1,212,916 $1,612,295
1998 $456,358 *$1,400,475 $1,856,833
1999 $490,841 *$1,436,942 $1,927,783
2000 $454,386 *$1,429,634 $1,884,020
Six months through
June 30, 2001 $195,064 *$621,512 $816,576
* These amounts represent gross of early withdrawal penalties.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership has decided to
retire effective September 30, 2001. "Russ" has enjoyed a long and successful
career. His original business model, upon which our Partnership has its roots,
has withstood the test of time through varying economic cycles. This Partnership
originally raised $11,998,359 in Limited Partner Capital contributions and at
June 30, 2001 had $9,735,888 in remaining Limited Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. These General Partners are
Mr. Michael Burwell and Gymno Corporation, a California Corporation. Mr. Michael
Burwell has been a General Partner of Redwood Mortgage Investors VII since its
inception and has been employed by Redwood Mortgage Corp, an affiliate of the
Partnership, since 1979. The Partnership through the remaining General Partners
and the employees of its affiliate Redwood Mortgage Corp. is well prepared for
Russ's departure and looks forward to emulating the steady consistent returns
that the Limited Partners have enjoyed during Russ' tenure.
The General Partners have determined that for purposes of establishing a
value for reporting purposes, including brokerage and trustee account
statements, the estimated value of the Limited Partnership interests on a per
unit basis is equal to the capital account balance of each investor 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, 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").
The accounting firm of Caporicci, Cropper & Larson, LLP ("CCL"), the
successor in interest to Parodi & Cropper, CPA's, was retained as the
Partnership's independent public accountants when the Partnership commenced
operations in 1993. Bruce Cropper and John Cropper, formerly partners at CCL,
were the Partnership's principal contacts at CCL. Bruce Cropper and John Cropper
have been performing audit and accounting services for the benefit of the
Partnership's General Partners and their affiliates for over 18 years. Effective
as of December 31, 2000, CCL resigned from its engagement as the Partnership's
independent public accountants due to the withdrawal of Bruce Cropper and John
Cropper from the CCL partnership, making it necessary for the Partnership to
retain new independent public accountants. Bruce Cropper and John Cropper
subsequently joined the accounting firm of Armanino McKenna, LLP ("Armanino").
Based upon the long-standing relationship between the Partnership and Bruce
Cropper and John Cropper, the Partnership's General Partner determined that it
was in the best interest of the Partnership to retain Armanino as the
Partnership's independent public accountants, effective as of January 1, 2001.
The Partnership believes, and has been advised by Mr. John Cropper that he
concurs, that for the two fiscal years ended December 31, 2000, the Partnership
and CCL, as well as Armanino, did not have any disagreement on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
CCL, would have caused CCL to make reference in connection with its report on
the Partnership's financial statements to the subject matter of the
disagreement. The report of CCL on the Partnership's financial statements for
the years ending December 31, 1998 and December 31, 1999, as well as the report
of Armanino for the year ending December 31, 2000, did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During that period, there
were no "reportable events" within the meaning of Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Act of 1933.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in Item 10, the Partnership has no officers or
directors. The Partnership is managed by the General Partners. There are certain
fees and other items paid to management and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 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 three months ended June 30, 2001.
All such compensation is in compliance with the guidelines and limitations set
forth in the Prospectus.
Entity Receiving Description of Compensation
Compensation and Services Rendered Amount
- ------------------ ------------------------------------------------- --------
I. Redwood Loan Servicing Fee for servicing loan. . . . . . . $39,826
Mortgage Corp.
General Partners Asset Management Fee for managing assets. . . . . . $18,968
&/or Affiliates
General Partners 1% interest in profits. . . . . . . . . . . . . . . $4,184
General Partners Portion of early withdrawal penalties applied to reduce
&/or Affiliates Formation Loan. . . . . . . . . . . . . . . . . . . $3,381
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. . . . . . . . . . . . . . . . . . . . $45,906
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. . . . . . . . . . . . . . . . . $1,703
Gymno Corporation
Inc. Reconveyance Fee. . . . . . . . . . . . . . . . . . $718
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. . . . . . . . . . . . . . . . . . . . . . . . . . .$20,379
LOAN PORTFOLIO SUMMARY AS OF JUNE 30, 2001
Partnership Highlights
Loan to Value Ratios
First Trust Deeds $6,050,967.28
Appraised Value of Properties * 10,747,643.00
Total Investment as a % of Appraised Value 56.30%
First Trust Deed Loans $6,050,967.28
Second Trust Deed Loans 3,209,485.31
Third Trust Deed Loans 196,897.57
------------------
$9,457,350.16
First Trust Deeds due other Lenders 6,197,516.00
Second Trust Deeds due other Lenders 1,478,096.00
------------------
Total Debt $17,132,962.16
==================
Appraised Property Value * $27,462,242.00
Total Investment as a % of Appraised Value 62.39%
Number of Loans Outstanding 36
Average Investment 262,704.17
Average Investment as a % of total loans 2.78%
Largest Investment Outstanding 1,251,089.72
Largest Investment as a % of total loans 13.23%
Loans as a Percentage of Total Loans
First Trust Deed Loans 63.98%
Second Trust Deed Loans 33.94%
Third Trust Deed Loans 2.08%
-----------------
Total 100.00%
Loans by Type of Property Amount Percent
Owner Occupied Homes $254,344.00 2.69%
Non Owner Occupied Homes 985,467.06 10.42%
Apartments 1,859,814.87 19.67%
Commercial 6,357,724.23 67.22%
------------- -------
Total $9,457,350.16 100.00%
Statement of Conditions of Loans
Number of loans in Foreclosure 1
*Values used are the appraisal values utilized at the time the loan was
consummated.
Diversification by County
County Total loans Percent
Stanislaus $2,789,307.88 29.49%
San Francisco 2,736,808.34 28.94%
Contra Costa 966,893.55 10.22%
Santa Clara 897,925.80 9.50%
Alameda 875,616.60 9.26%
Santa Cruz 473,532.64 5.01%
Placer 330,276.31 3.49%
San Mateo 188,335.39 1.99%
Sacramento 96,716.11 1.02%
Shasta 78,930.45 0.84%
Sonoma 23,007.09 0.24%
------------------- -----------
Total $9,457,350.16 100.00%
=================== ===========
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is a defendant in a legal action.
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
Not Applicable
(b) Form 8-K
Form 8-K was filed on February 7, 2000,
relating to a change by the Partnership's
accountants in accounting firms. Another Form
8-K was filed on February 13, 2001, relating
to the subsequent change by the Partnership's
accountants to another accounting firm. On April
11, 2001, the Partnership filed another Form 8-K
regarding D. RussellBurwell's retirement as
more fully discussed earlier under "Management
Discussion and Analysis" section. An Amended
Form 8-K was filed on August 3, 2001 regarding
the Partnership's change in Accountants as more
fully set forth under the section entitled
"Management Discussion and Analysis".
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 9th day of August
2001.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 9th day of August 2001.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell General Partner August 9, 2001
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell General Partner August 9, 2001
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell President of Gymno Corporation, August 9, 2001
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
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Michael R. Burwell Secretary/Treasurer of Gymno August 9, 2001
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation