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 March 31, 2002
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Commission file number 33-30427
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REDWOOD MORTGAGE INVESTORS VII
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(exact name of registrant as specified in its charter)
California 94-3094928
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
- ------------------- ----------------- -------------------------------
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 VII
(A California Limited Partnership)
BALANCE SHEETS
MARCH 31, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
March 31, December 31,
2002 2001
---------------- ---------------
(unaudited) (audited)
Cash $ 308,148 $ 389,844
---------------- ---------------
Loans
Loans, secured by deeds of trust,
held to maturity 9,899,551 10,091,195
Loans, unsecured 139,563 173,731
---------------- ---------------
10,039,114 10,264,926
Less allowance for loan losses (971,187) (887,578)
---------------- ---------------
Net loans 9,067,927 9,377,348
---------------- ---------------
Interest and other receivables
Accrued interest 476,046 660,551
Advances on loans 22,817 50,665
---------------- ---------------
Total interest and other receivables 498,863 711,216
---------------- ---------------
Real estate owned, held for sale 671,367 872,133
---------------- ---------------
Total assets $ 10,546,305 $ 11,350,541
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $ 1,207,000 $ 1,907,000
Accounts payable 43,263 11,295
---------------- ----------------
Total liabilities 1,250,263 1,918,295
---------------- ----------------
Partners' capital
Limited partners' capital, subject to
redemption 9,284,064 9,420,268
General partners' capital 11,978 11,978
---------------- ----------------
Total partners' capital 9,296,042 9,432,246
---------------- ----------------
Total liabilities and partners'
capital $10,546,305 $11,350,541
================ ================
The accompanying notes are an integral part of these financial statements.
2
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 and MARCH 31, 2001 (unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------------------------
2002 2001
-------------- --------------
Revenues
Interest - on loans $373,030 $346,349
Interest - interest bearing accounts 1,085 37
Late charges 4,500 674
Other income 11,307 2,001
-------------- --------------
389,922 349,061
-------------- --------------
Expenses
Mortgage servicing fees 51,667 21,071
Interest on note payable - bank 22,227 72,771
Clerical costs through Redwood Mortgage Corp. 8,014 10,501
Asset management fees 8,881 9,587
Provisions for losses on loans
and real estate acquired through foreclosure 83,609 -
Professional services 16,235 20,848
Printing, supplies and postage 1,235 1,310
Other 1,423 1,488
-------------- --------------
193,291 137,576
-------------- --------------
Net income $196,631 $211,485
============== ==============
Net income: To general partners (1%) $ 1,966 $ 2,115
To limited partners (99%) 194,665 209,370
-------------- --------------
$196,631 $211,485
============== ==============
Net income per $1,000 invested by limited
partners for entire period:
-where income is reinvested and
compounded $21 $21
============== ==============
-where partner receives income in
monthly distributions $21 $20
============== ==============
The accompanying notes are an integral part of these financial statements.
3
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, and 2000 (audited)
and THE THREE MONTHS ENDED MARCH 31,2002 (unaudited)
GENERAL
PARTNERS'
LIMITED PARTNERS' CAPITAL CAPITAL
---------------------------------------------------- -------------
Limited Formation Net Limited General Total
Partners' Loan Partners' Total Partners' Partners'
Accounts Receivable Capital Capital
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 1999 $11,162,817 $(165,499) $10,997,318 $11,978 $11,009,296
Collections on Formation Loan - 79,505 79,505 - 79,505
Net income 891,145 891,145 9,001 900,146
Early withdrawal penalties (15,107) 10,382 (4,725) - (4,725)
Partners' withdrawals (1,868,913) - (1,868,913) (9,001) (1,877,914)
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 2000 10,169,942 (75,612) 10,094,330 11,978 10,106,308
Collections on Formation Loan 71,460 71,460 - 71,460
Net income 812,985 - 812,985 8,212 821,197
Early withdrawal penalties (7,908) 4,152 (3,756) - (3,756)
Partners' withdrawals (1,554,751) - (1,554,751) (8,212) (1,562,963)
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 2001 9,420,268 0 9,420,268 11,978 9,432,246
Net income 194,665 - 194,665 1,966 196,631
Early withdrawal penalties (2,663) - (2,663) - (2,663)
Partners' withdrawals (328,206) - (328,206) (1,966) (330,172)
-------------- ------------- ---------------- ------------- ---------------
Balances at March 31, 2002 $9,284,064 $0 $ 9,284,064 $ 11,978 $ 9,296,042
============== ============= ================ ============= ===============
The accompanying notes are an integral part of these financial statements.
4
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 and 2001(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2002 2001
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Cash flows from operating activities
Net income $ 196,631 $ 211,485
Adjustments to reconcile net income to net
cash provided by operating activities
Provision (gain) for loan losses 83,609 -
Early withdrawal penalty credited to income (2,663) (1,126)
Change in operating assets and liabilities
Accrued interest and advances 176,332 (89,207)
Accounts payable and accrued expenses 13,040 7,347
------------- --------------
Net cash provided by operating activities 466,949 128,499
------------- --------------
Cash flows from investing activities
Principal collected on loans 1,040,727 3,336,295
Loans made (563,714) (1,336,373)
Payments for real estate held for sale (1,801) (71,590)
Proceeds from sale of real estate held
for sale 2,565 31,689
Proceeds from unsecured loans 3,750 3,697
------------- --------------
Net cash provided by investing activities 481,527 1,963,718
------------- --------------
Cash flows from financing activities
Net decrease in note payable-bank (700,000) (1,600,000)
Formation loan collections - 19,498
Partners withdrawals (330,172) (426,701)
------------- --------------
Net cash used in financing activities (1,030,172) (2,007,203)
------------- --------------
Net increase (decrease) in cash (81,696) 85,014
Cash - beginning of year 389,844 269,000
------------- --------------
Cash - end of year $ 308,148 $ 354,014
============= ==============
Cash payments for interest $ 22,227 $ 72,771
============= ==============
The accompanying notes are an integral part of these financial statements.
5
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the general partners are Michael R. Burwell and Gymno
Corporation, a California corporation owned and operated on an equal 50/50%
basis by Michael R. Burwell and by D. Russell Burwell, a former general partner.
The Partnership was organized to engage in business as a mortgage lender for the
primary purpose of making loans secured by Deeds of Trust on California real
estate. Loans are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the general partners. 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 partners' capital. Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions were not paid directly by the Partnership out of the
offering proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., an
affiliate of the general partners, amounts to pay all sales commissions and
amounts payable in connection with unsolicited orders. This loan was referred to
as the "Formation Loan". It was unsecured and non-interest bearing.
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,
provided that the formation loan for the minimum offering period could be 10% of
the gross proceeds for the minimum offering period. The formation loan was 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%). At December 31, 2001, the
entire balance had been repaid. The Formation Loan, which was due from an
affiliate of the general partners', had been deducted from limited partners'
capital in the balance sheet. As amounts were collected from Redwood Mortgage
Corp., the deduction from capital was reduced.
B. Other Organizational and Offering Expenses
The Partnership paid its syndication costs, other than certain sales
commissions, including legal and accounting expenses, printing costs, selling
expenses, and filing fees. Syndication costs were charged against partners'
capital and are being allocated to the individual partners consistent with the
Partnership Agreement. 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 limited
partners. Both the organization and syndication costs have been fully amortized
and allocated to the limited partners.
6
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
Any subsequent payments on impaired loans are applied to the outstanding
balances on the Partnership's books.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for loan losses, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans to
maturity, i.e., held for long-term investment. Therefore the loans are valued at
cost for financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable ultimate recovery of the carrying amount of a loan, with
due consideration for the fair value of collateral, is less than 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 March 31, 2002, December 31, 2001 and 2000, there were loans categorized
as impaired by the Partnership of $335,454, $889,439, and $890,597,
respectively. In addition, the impaired loans have accrued interest and advances
totaling $18,230, $277,479 and $276,204 at March 31, 2002, December 31, 2001 and
2000, respectively. The decrease in carrying value of the impaired loans of
$38,634, $150,092 and $137,175 at March 31, 2002, December 31, 2001 and 2000,
respectively is included in the allowance for loan losses. The average recorded
investment in the impaired loans was $612,447, $890,018, and $687,563 for the
three months ended March 31, 2002, and for the years ended December 31, 2001,
and 2000, respectively. During the quarter ended March 31, 2002, and the years
ended December 31, 2001 and 2000, $0, $64,987 and $44,999 was received as cash
payments on these loans, respectively.
As presented in Note 9 to the financial statements as of March 31, 2002,
the average loan to appraised value of security at the time the loans were
consummated at March 31, 2002, December 31, 2001 and 2000 was 62.65%, 60.66% and
60.69%, respectively. When loans are valued for impairment purposes, the
allowance is updated to reflect the change in the valuation of collateral
security. However, such a low loan-to-value ratio has the tendency to minimize
reductions for impairment.
D. Cash and Cash Equivalents
The Partnership considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents. The Partnership
maintains deposits in financial institutions that are in excess of amounts that
would be covered by federal insurance. The maximum amount of loss based upon the
deposits held in the bank that could result from this risk at March 31, 2002,
December 31, 2001 and 2000, is approximately $397,310, $678,630 and $69,000,
respectively.
7
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of March 31, 2002, December 31, 2001 and 2000, not including
real estate in process of acquisition at March 31, 2002:
March 31, December 31,
-------------- --------------------------------
2002 2001 2000
-------------- ------------- -------------
Costs of properties $1,020,562 $1,252,189 $1,258,966
Reduction in value (349,195) (380,056) (442,872)
-------------- ------------- -------------
Fair value reflected in
financial statements $ 671,367 $ 872,133 $ 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. Allowance for Loan Losses
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for bad debt to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral value, to provide for unrecoverable
accounts receivable, including impaired loans, other loans, accrued interest and
advances on loans. The composition of the allowance for loan losses as of March
31, 2002, December 31, 2001 and 2000 was as follows:
March 31, December 31,
--------------- --------------------------------
2002 2001 2000
--------------- ------------- -------------
Impaired loans $ 38,634 $ 150,092 $ 137,175
Unspecified loans 792,990 593,500 569,612
Unsecured loans 139,563 143,986 143,761
--------------- ------------- -------------
$ 971,187 $ 887,578 $ 850,548
=============== ============= =============
Allowance for loan losses reconciliation:
Activity in the allowance for loan losses is as follows for three months through
March 31, 2002 and for the years ended December 31:
March 31, December 31,
--------------- --------------------------------
2002 2001 2000
--------------- ------------- -------------
Beginning Balance $887,578 $850,548 $828,563
- -----------------
Provision for bad debt 83,609 37,371 25,160
Write-off of bad debt - (341) (3,175)
--------------- ------------- -------------
Ending Balance $971,187 $887,578 $850,548
=============== ============= =============
8
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
H. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by limited partners for the entire period are actual amounts allocated
to limited partners who had their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the limited partners' pro rata share of partners' capital.
Because 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.
I. Late Fee Revenue
The Partnership recognizes late fee revenue when it is earned. Late fees
are charged at 6% of the monthly balance, and are accrued net of an allowance
for uncollectible late fees. For the three months ended March 31, 2002, and for
the years ended December 31, 2001, and 2000, late fee revenue of $4,500, $8,495,
and $11,219, respectively, was recorded.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the general
partners.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of loans the Partnership may collect an amount equivalent to 12%
of the loaned amount until 6 months after the termination date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the total Partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
Partnership. For three months through March 31, 2002, and for the years 2001,
and 2000, loan brokerage commissions paid by the borrowers were $3,900, $84,137,
and $130,487, respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $51,667, $94,396, and $110,713, were
incurred for three months through March 31, 2002, and for the years ended
December 31, 2001, and 2000, respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the Partnership's
loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annual). Management fees of $8,881, $37,233, and $38,400, were incurred
for three months through March 31, 2002, and for the years 2001, and 2000,
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.
9
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
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
Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the Partnership for all operating expenses actually incurred by it on behalf
of the Partnership, including without limitation, out-of-pocket general and
administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners.
During the three months tthrough March 31, 2002, and for the years 2001 and
2000, clerical costs totaling $8,014, $38,313, and $27,032, respectively, were
reimbursed to Redwood Mortgage Corp. 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.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited Partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first year. For years two through five, limited partners may withdraw their
capital balance subject to the penalty provision set forth in (D) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
10
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
B. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
Subject to certain limitations, a compounding investor may subsequently change
his election, but an investor's election to have cash distributions is
irrevocable.
C. Profits and Losses
Profits and losses are allocated among the limited partners according to
their respective capital accounts after 1% is allocated to the general partners.
D. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is not liquid. Limited partners had
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of March 31, 2002. In order to provide a
certain degree of liquidity to the limited partners after the one-year period,
limited partners may withdraw all or part of their capital accounts from the
Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the Notice of Withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn early and will be deducted from the capital account.
Withdrawal after the one-year holding period and before the five-year holding
period was permitted only upon the terms set forth above.
After five years from the date of purchase of the Units, limited partners
have the right to withdraw from the Partnership, on an installment basis,
generally this is done over a five-year period in twenty (20) quarterly
installments. Once a limited partner has been in the Partnership for the minimum
five-year period, no penalty will be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the general partners may liquidate all or part of a limited
partner's capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a limited partner's
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total limited partners' capital accounts
outstanding at the beginning of any year, shall be liquidated during any
calendar year.
NOTE 5 - LEGAL PROCEEDINGS
The Partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
11
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
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 March 31,
2002, December 31, 2001 and 2000 were $1,207,000, $1,907,000, and $3,500,000,
respectively, and the interest rate was 5.0% (4.75% prime + .25%) at March 31,
2002. This line of credit expires May 1, 2003. The line of credit requires the
Partnership to meet certain financial covenants. As of March 31, 2002, the
Partnership was in compliance with all loan covenants.
Should the general partners choose not to renew the line of credit, the
balance would be converted to a three year fully amortized loan.
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:
March 31, December 31,
------------ -----------------------------
2002 2001 2000
------------ ------------ -------------
Net assets - partners' capital per
financial statements $9,296,042 $9,432,246 $10,106,308
Formation loan receivable - - 75,612
Allowance for loan losses 971,187 887,578 850,548
------------ ------------- -------------
Net assets tax basis $10,267,229 $10,319,824 $11,032,468
============ ============= =============
In 2001 and 2000, approximately 68% and 70%, 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 $9,899,551, $10,091,195
and $12,794,297, at March 31, 2002, December 31, 2001 and 2000, respectively.
The fair value of these investments of $9,508,059, $10,107,321 and $12,792,716
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.
12
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At March 31, 2002 and at
December 31, 2001 and 2000, there were 34, 36 and 38 loans outstanding,
respectively, with the following characteristics:
March 31, December 31,
------------- -----------------------------
2002 2001 2000
------------- -------------- --------------
Number of loans outstanding 34 36 38
Total loans outstanding $9,899,551 $10,091,195 $12,794,297
Average loan outstanding 291,163 280,311 336,692
Average loan as percent of total 2.94% 2.78% 2.63%
Average loan as percent of partners' capital 3.13% 2.97% 3.33%
Largest loan outstanding 1,000,000 1,000,000 1,995,452
Largest loan as percent of total 10.10% 9.91% 15.60%
Largest loan as percent of partners' capital 10.76% 10.60% 19.74%
Number of counties where security is located (all California) 12 11 11
Largest percentage of loans in one county 32.54% 31.92% 29.47%
Average loan to appraised value of security at time loan was consummated 62.65% 60.66% 60.69%
Number of loans in foreclosure 2 2 -
Amount of loans in foreclosure $986,372 $ 216,493 $ -
The following categories of loans are pertinent at March 31, 2002, December 31,
2001 and 2000:
March 31, December 31,
---------------- --------------------------------------
2002 2001 2000
---------------- ---------------- ---------------
First Trust Deeds $ 5,140,449 $ 5,042,062 $ 8,720,986
Second Trust Deeds 4,505,664 4,803,146 4,000,140
Third Trust Deeds 253,438 245,987 73,171
---------------- ---------------- ---------------
Total loans 9,899,551 10,091,195 12,794,297
Prior liens due other lenders 8,347,243 9,318,486 8,761,363
---------------- ---------------- ---------------
Total debt $18,246,794 $19,409,681 $21,555,660
================ ================ ===============
Appraised property value at time of loan $29,126,975 $31,997,080 $35,518,467
================ ================ ===============
Total investments as a percent of appraisals 62.65% 60.66% 60.69%
================ ================ ===============
Investments by Type of Property
Owner occupied homes $ 824,184 $ 622,435 $ 218,942
Non-Owner occupied homes 996,155 1,435,444 1,644,636
Apartments 1,563,213 1,563,214 2,590,022
Commercial 6,515,999 6,470,102 8,340,697
---------------- ---------------- ---------------
$ 9,899,551 $10,091,195 $12,794,297
================ ================ ===============
13
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
Scheduled maturity dates of loans as of March 31, 2002 are as follows:
Year Ending
December 31, Amount
------------------ --------------------
2002 $6,642,407
2003 516,223
2004 833,528
2005 40,125
2006 191,831
Thereafter 1,675,437
--------------------
Total $ 9,899,551
====================
The scheduled maturities for 2002 above include approximately $4,549,852 in
10 loans which are past maturity at March 31, 2002. Although interest payments
on most of these loans are current, $954,488 of these loans were categorized as
delinquent over 90 days.
Three loans with principal outstanding of $335,454 were considered impaired
at March 31, 2002. That is, interest accruals are no longer recorded thereon.
The cash balance per bank statement at March 31, 2002 of $497,310 was in
one bank with interest bearing balances totaling $144,067. The balances exceeded
FDIC insurance limits (up to $100,000 per bank) by $397,310. The Partnership's
main bank is the same financial institution that has provided the Partnership
with the $3,500,000 limit line of credit. At March 31, 2002, draw down against
this facility was $1,207,000.
Workout Agreements
The Partnership has negotiated various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments. The Partnership is not obligated to fund additional money as of March
31, 2002. As of March 31, 2002 the Partnership had approximately 11 loans under
workout agreements totaling $3,178,001.
14
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited
NOTE 10: SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
Revenues
2002 $ 389,922 - - - -
2001 $ 349,061 291,342 261,312 290,666 1,192,381
2000 $ 307,831 356,247 362,586 411,300 1,437,964
Expenses
2002 $ 193,291 - - - -
2001 $ 137,576 84,453 58,231 90,924 371,184
2000 $ 74,265 128,581 140,617 194,355 537,818
Net income allocated to general partners
2002 $ 1,966 - - - -
2001 $ 2,115 2,069 2,031 1,997 8,212
2000 $ 2,336 2,276 2,220 2,169 9,001
Net income allocated to limited partners
2002 $ 194,665 - - - -
2001 $ 209,370 204,820 201,050 197,745 812,985
2000 $ 231,230 225,390 219,749 214,776 891,145
Net income per $1,000 invested
where income is
Reinvested
2002 $ 21 - - - -
2001 $ 21 $ 21 $ 21 $ 22 $ 85
2000 $ 21 $ 21 $ 21 $ 22 $ 85
Withdrawn
2002 $ 21 - - - -
2001 $ 20 $ 20 $ 20 $ 22 $ 82
2000 $ 20 $ 21 $ 20 $ 21 $ 82
NOTE 11: RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
15
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date. Such estimates relate
principally to the determination of (1) the allowance for doubtful accounts
(i.e. the amount of allowance established against loans receivable as an
estimate of potential loan losses) including the accrued interest and advances
that are estimated to be unrecoverable based on estimates of amounts to be
collected plus estimates of the value of the property as collateral and (2) the
valuation of real estate acquired through foreclosure.
Loans and related accrued interest, fees, and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. Provisions are made for bad debt to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral values and to provide for unrecoverable
accounts receivable, including impaired loans, other loans, accrued interest,
late fees and advances on loans, and other accounts receivable (unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for loan losses. Actual
results could vary from the aforementioned provisions for losses.
Forward Looking Statements
Some of the information in Form 10-Q may contain forward looking
statements. Uses of words such as "will", "may". "anticipate", "estimate",
"continue", or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of year 2002 issues includes forward-looking
statements and predictions about possible or future events, results of
operations, and financial condition. As such, this analysis may prove to be
inaccurate because of assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
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 March
31, 2002, Partners' Capital totaled $9,296,042.
At March 31, 2002, the Partnership loans outstanding totaled $9,899,551.
This represents a decline of $191,644 from the December 31, 2001 loans balance
and $2,894,746 from the December 31, 2000 loans balance. This reduction in loans
outstanding as of March 31, 2002 was chiefly due to loan repayments and loan
pay-offs being used to fund withdrawals to the limited partners of $328,206 and
$1,554,751 and paydown the credit line $700,000 and $1,593,000 during three
months through March 31, 2002, and twelve months through December 31, 2001 and
partial reduction in line of credit balance by $2,293,000. The Partnership began
funding loans on December 27, 1989, and as of March 31, 2002, had credited the
partners' accounts with income at an average annualized (compounded) yield of
7.86%.
Since January 2001, the Federal Reserve has been dramatically cutting its
core interest rates with eleven successive cuts, ranging from .25% to .50%. The
latest cut being December 11, 2001, which reduced the Federal Funds Rate to
1.75%. In May 2002, the Federal Reserve met and did not change interest rates.
The effect of the cuts has greatly reduced short-term interest rates and to a
lesser extent reduced long-term interest rates. New loans will be originated at
then existing interest rates. The general partners cannot at this time predict
at what levels interest rates will be in the future. The general partners
anticipate that new loans will be placed at rates approximately 1% lower than
similar loans during the first half of 2001. The lowering of interest rates has
encouraged those borrowers that hold higher interest rate loans than those
currently available to seek refinancing of their existing obligations to take
advantage of these lower rates. The Partnership may face prepayments in the
existing portfolio from borrowers taking advantage of these lower rates.
However, demand for loans from qualified borrowers continues to be strong
16
and as prepayments occur, we expect to replace these loans with loans at
somewhat lower interest rates. At this time, we believe that the average loan
portfolio interest rate will decline approximately .25% to .50% over the year.
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 nine percent (8.00% - 9.00%) in
2002.
The Partnership has a line of credit with a commercial bank secured by its
loans to a limit of $3,500,000, at a variable interest rate set at one-quarter
percent above the prime rate. As of March 31, 2002, the prime rate was 4.75% and
the line of credit rate was 5.0%. As of March 31, 2002, December 31, 2001, and
December 31, 2000, the balances were $1,207,000, $1,907,000, and $3,500,000,
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 March 31, 2002, the
Partnership is current with its interest payments on the line of credit. For the
years ended December 31, 2000, and 2001, and three month period ended March 31,
2002, interest paid was $257,640, $128,224, and $22,227, respectively. The
somewhat lower interest paid in 2001 and 2002 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-five years.
Loan servicing fees in 1999 were $127,440, in 2000 were $110,713, in 2001 were
$94,396, and during three months through March 31, 2002 were $51,667. These loan
servicing fees were declining as the outstanding mortgage loan portfolio
balances declined except for the quarter ended March 31, 2002 when the
Partnership collected some borrower payments which were in arrears and hence
paid the loan servicing fees to Redwood Mortgage Corp. Asset Management Fees
were $38,400, $37,233, and $8,881 for the years ended December 31, 2000, and
2001, and during three months through March 31, 2002, respectively. The Asset
Management Fee is declining as the Partnership distributes partners' capital.
All other expenses fluctuated in a very close range except for Interest on
Note Payable - bank and Provision for Loan Losses and losses on Real Estate
Acquired Through Foreclosure each discussed elsewhere in this Management
Discussion and Analysis of Financial Condition and Results of Operations.
Borrower foreclosures, as set forth under Results of Operations, are a normal
aspect of Partnership operations and the general partners anticipate that they
will not have a material effect on liquidity. Cash is constantly being generated
from interest earnings, late charges, pre-payment penalties, amortization of
principal and loan pay-offs. Currently, cash flow exceeds Partnership expenses,
earnings and capital payout requirements. Excess cash flow will be invested in
new loan opportunities, when available, and will be used to reduce the
Partnership credit line or in other Partnership business.
The general partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these properties,
the REO expenses and sales activities, borrowers payment records, etc. Data on
the local real estate market and on the national and local economy are studied.
Based upon this information and other data, 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. As of March 31, 2002 we have commenced foreclosure
proceedings against two loans. Of these two loans, one has entered into a
workout agreement in which monthly payments are being made. Management provided
$65,664, $37,371, and $83,609, as provisions for loan losses for the years ended
December 31, 2000, and 2001, and three months through March 31, 2002,
respectively. The provision for loan losses was decreased by $263,393 to $65,664
in 2000, and by $28,293 to $37,371 in 2001. As a prudent guard against potential
losses, the Partnership increased the provision for loan losses to $83,609 for
the quarter ended March 31, 2002. The total cumulative provision for loan losses
as of March 31, 2002 is $971,187 and is considered by the general partners to be
adequate. 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.
17
The Partnership makes loans primarily in Northern California. As of March
31, 2002, approximately 65.51%, ($6,485,539) of the loans held by the
Partnership were in the six San Francisco Bay Area Counties. The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area. Like the rest of the nation, the San Francisco Bay
Area has also felt the recession and accompanying slow down in economic growth
and increasing unemployment. The technology companies of Silicon Valley, the
airline industry, the tourism industry and other industries are feeling the
effects of the overall United States recession, which includes lower earnings,
losses and layoffs.
The Northern California residential real estate market and particularly the
San Francisco Bay Area residential real estate market experienced increases in
values of over 10% in 1999 and 2000, respectively. In 2001, the residential real
estate marketplace slowed, this has resulted in longer listing and transaction
times and lower market prices in some segments. In spite of the U.S. recession,
the California Association of Realtors reported that in March 2002 the statewide
median home price had reached its highest point ever of $305,940 up 18.8% from a
year earlier and 6.3% higher than in February 2002. It also reported that
overall volume of pre-owned home sales surged 13.1% from the year earlier. In
spite of these numbers the general partners believe that lower-end and
mid-priced homes have continued to increase in value, although at a reduced rate
from 2000, while high end homes have decreased in value compared to 2001. This
situation is showing some signs of a turnaround. Inventories of homes available
for sale have decreased sharply from their highs in the spring of 2001. For
example, the supply of "for sale" homes, condominiums and townhomes in Santa
Clara County peaked the week of May 25, 2001, at more than 5,700, according to
Coldwell Banker Northern California statistics. As of January 18, 2002, fewer
than 2,500 homes were "for sale" countywide. Other counties in the San Francisco
Bay Area offer similar statistics. The number of single-family home sales in
Santa Clara County was 962 for December 2001 which is the greatest number of
homes sold since records became public in 1984. In Santa Clara County, the
median home price hit $535,000 in March 2002, up 1.9% from February but down
5.3% from March, 2001. The reduction in inventories and the strong sales may
indicate that the buyer's market that prevailed throughout most of 2001 may be
coming to an end and may indicate that a recovery is underway. A stabilization
of residential home prices or a recovery in home prices is good for the
Partnership since it depends more heavily than banks and other similar credit
type lenders on the value of a property.
18
Commercial property vacancy rates have continued to climb with the San
Francisco Bay Area office market surpassing 15% as a whole according to BT
Commercial Real Estate and Grubb and Ellis Co. As a result, rents have dropped
about 40% from last year's highs, giving up nearly all the gains made during the
past three years. Though vacancy rates have leaped from 2 percent in the third
quarter of 2000 to 15% at the end of 2001, landlords are bearing only about half
the pain, since nearly half the office space being offered is for sublease,
meaning landlords generally are still collecting money from the original
tenants. To the Partnership, the higher overall vacancy rates may mean that it
experiences greater delinquencies in its commercial portion of the portfolio if
landlord's existing leases expire or space becomes available through business
failures.
As of March 31, 2002, the Partnership had an average loan to value ratio
computed as of the date the loan was made of 62.65%. This percentage does not
account for any increases or decreases in property values since the date the
loan was made, nor does it include any reductions in principal through
amortization of payments after the loan was made. This low loan to value ratio
will assist the Partnership in weathering loan delinquencies and foreclosures
should they eventuate.
The Partnership'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 $60,841, $61,837, and
$38,238, for the three months through March 31, 2002, and for the years ended
December 31, 2001, and 2000, 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 three
months through March 31, 2002, and the years ended December 31, 2001 and 2000,
the Partnership made distributions of earnings to limited partners after
allocation of syndication costs of $80,447, $374,689, and $454,386,
respectively. Distribution of Earnings to limited partners after allocation of
syndication costs for three months through March 31, 2002, and for the years
ended December 31, 2001 and 2000 to limited partners' capital accounts and not
withdrawn was $114,218, $438,296, and $436,759, respectively. As of December 31
2001 and 2000, limited partners electing to withdraw earnings represented 42%
and 49% 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 three months through March 31, 2002, and the
years ended December 31, 2001 and 2000, and $33,291, $98,857, and $179,343, 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.
19
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,
1999, 2000, 2001, and March 31, 2002, respectively and is expected by the
general partners to commonly occur at these levels.
Additionally, for the years ended December 31, 2000, 2001, and three months
through March 31, 2002, $1,250,291, $1,089,113, and $217,131, 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 twelve (2001) and three months through March 31, 2002, 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 $1,927,784
2000 $454,386 *$1,429,634 $1,884,020
2001 $374,689 *$1,187,970 $1,562,659
3 months to March 31, 2002 $80,447 *$250,422 $330,869
* These amounts represent gross of early withdrawal penalties.
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
20
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").
21
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 March 31, 2002.
All such compensation is in compliance with the guidelines and limitations set
forth in the Prospectus.
Entity Receiving
Compensation Description of Compensation and Services Rendered Amount
- --------------------------------------------------------------------------------
I. Redwood Mortgage Loan Servicing Fee for servicing loan . . . $51,667
Corp.
General Partners Asset Management Fee for managing assets . . $8,881
&/or Affiliates
General Partners 1% interest in profits . . . . . . . . . . . $1,966
. . . . . . . . .
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 . . . . . . . . . . . . . . . $3,900
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 . . . . . . . . . . . . . . . . $450
Gymno Corporation
Inc. Reconveyance Fee . . . . . . . . . . . . . $125
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. . . . . . . . . . . . . . . . . . . . . . . $8,014
22
LOAN PORTFOLIO SUMMARY AS OF MARCH 31, 2002
Partnership Highlights
Loan to Value Ratios
First Trust Deeds $5,140,449.01
Appraised Value of Properties * 8,267,090.00
Total Investment as a % of Appraised Value 62.18%
First Trust Deed Loans $5,140,449.01
Second Trust Deed Loans 4,505,664.11
Third Trust Deed Loans 253,437.69
------------------
$9,899,550.81
First Trust Deeds due other Lenders 6,869,147.00
Second Trust Deeds due other Lenders 1,478,096.00
------------------
Total Debt $18,246,793.81
==================
Appraised Property Value * $29,126,975.00
==================
Total Investment as a % of Appraised Value 62.65%
Number of Loans Outstanding 34
Average Investment $291,163.26
Average Investment as a % of total loans 2.94%
Largest Investment Outstanding $1,000,000.00
Largest Investment as a % of total loans 10.10%
Loans as a Percentage of Total Loans
First Trust Deed Loans 51.93%
Second Trust Deed Loans 45.51%
Third Trust Deed Loans 2.56%
-----------------
Total 100.00%
Loans by Type of Property Amount Percent
Owner Occupied Homes $ 824,183.62 8.33%
Non Owner Occupied Homes 996,155.04 10.06%
Apartments 1,563,213.50 15.79%
Commercial 6,515,998.65 65.82%
----------------- -----------------
Total $9,899,550.81 100.00%
Statement of Conditions of Loans
Number of loans in Foreclosure 2
*Values used are the appraisal values utilized at the time the loan was
consummated.
23
Diversification by County
County Total loans Percent
San Francisco $3,221,042.90 32.54%
Stanislaus 2,521,507.80 25.47%
Alameda 1,130,004.68 11.41%
Contra Costa 965,548.75 9.75%
Santa Clara 730,997.78 7.39%
Los Angeles 375,000.00 3.79%
San Mateo 242,944.66 2.46%
Sacramento 231,716.11 2.34%
Marin 195,000.00 1.97%
Placer 184,608.82 1.86%
Shasta 78,394.13 .79%
Sonoma 22,785.18 .23%
------------------- -----------
Total $9,899,550.81 100.00%
=================== ===========
24
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. A 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. Russell
Burwell's retirement. An Amended Form 8-K
was filed on August 3, 2001 regarding the
Partnership's change in Accountants.
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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 13th day of May
2002.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
------------------------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 13th day of May 2002.
Signature Title Date
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell General Partner May 13, 2002
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell President, Secretary/Treasurer May 13, 2002
of Gymno Corporation (Principal
Financial and Accounting
Officer); Director of Gymno
Corporation
26