-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WDau8BcruLB7Nc8kaUhbpauPGRZxKlCxVbnPijzopb8dRM0KydCdrxzm70jJtv7i ygnCySkZpQkfVn/JCNDJtA== 0000854092-96-000010.txt : 19960808 0000854092-96-000010.hdr.sgml : 19960808 ACCESSION NUMBER: 0000854092-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD MORTGAGE INVESTORS VII CENTRAL INDEX KEY: 0000854092 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 943094928 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19992 FILM NUMBER: 96605279 BUSINESS ADDRESS: STREET 1: 650 EL CAMINO STE G CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153670121 MAIL ADDRESS: STREET 1: 650 EL CAMINO REAL STE K CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 FORM 10-Q 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, 1996 - ------------------------------------------------------------------------------- Commission file number 33-30427 - ------------------------------------------------------------------------------- REDWOOD MORTGAGE INVESTORS VII - ------------------------------------------------------------------------------- (exact name of registrant as specified in its charter) California 94-3094928 - ------------------------------------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation of organization) Identification No. 650 El Camino Real, Suite G, Redwood City, CA. 94063 - ------------------------------------------------------------------------------- (address of principal executive office) (415) 365-5341 - ------------------------------------------------------------------------------- (Registrants telephone number, including area code) NOT APPLICABLE - ------------------------------------------------------------------------------- (Former name,former address and former fiscal year,if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO ------------------- -------------------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRODDING 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 issuers class of common stock, as of the latest date. NOT APPLICABLE Part I Item 1 REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) Balance Sheets December 31, 1995 (audited) and June 30, 1996 (unaudited)
ASSETS June 30, 1996 Dec.31, 1995 (unaudited) (audited) Cash ..............................................$ 708,064 $ 514,840 ----------- ----------- Accounts Receivable: Mortgage loans, secured by deeds of trust ......12,156,041 12,382,641 Accrued interest on mortgage loans ............. 1,012,541 940,541 Advances on mortgage loans ..................... 121,889 110,874 Other receivables - unsecured .................. 307,067 378,200 ----------- ----------- 13,597,538 13,812,256 Less allowance for doubtful accounts ........... 204,000 200,000 ----------- ----------- 13,393,538 13,612,256 ----------- ----------- Real estate owned, acquired through foreclosure, at estimated net realizable value .............. 1,468,190 1,347,997 Investment in Partnership ........................... 223,245 223,245 Formation loan due from Redwood Home Loan Co. ....... 464,165 517,051 Organization costs, less accumulated amortization of $10,102 and $9,734 respectively .............. -0- 368 ----------- ----------- $16,257,202 $16,215,757 =========== =========== LIABILITIES AND PARTNERS CAPITAL Liabilities: Notes payable - Bank line of credit .............$ 1,999,500 $ 2,000,000 Accounts payable and accrued expenses ........... 1,472 1,472 ----------- ----------- 2,000,972 2,001,472 Partners capital .................................... 14,256,230 14,214,285 ----------- ----------- $16,257,202 $16,215.757 =========== =========== See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (unaudited)
6 months ended 6 months ended 3 months ended 3 months ended June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Interest on mortgage loans ..............$ 714,143 $703,940 $356,736 $ 345,982 Interest on bank deposits ............... 2,851 4,354 2,183 2,114 Late Charges ............................ 8,366 3,301 4,198 2,451 Miscellaneous ........................... 6,165 719 2,645 322 -------- -------- -------- -------- 731,525 712,314 365,762 350,869 -------- -------- -------- -------- Expenses: Interest on note payable - bank ......... 88,659 78,231 46,112 35,779 General Partner management fees ......... -0- -0- -0- -0- Amortization of organization costs ....... 368 1,008 -0- 504 Clerical costs through Redwood Home ..... Loan Co................................ 20,294 10,713 10,512 5,321 Professional Fees ...................... 17,164 17,002 1,062 1,310 Provision for loss on real estate acquired through foreclosure and doubtful accounts....................... 157,661 140,735 91,991 73,409 Electronic Processing .................. -0- 2,280 -0- 2,027 Other .................................. 11,104 9,845 4,545 5,289 -------- -------- -------- -------- 295,250 259,814 154,222 123,639 -------- -------- -------- -------- Net income ................................. $ 436,275 $452,500 $211,540 $227,230 ======== ======== ======== ======== Net income: to General Partners (1%) ....... $ 4,363 $ 4,525 $ 2,116 $ 2,272 Net income: to Limited Partners (99%) ...... $431,912 $447,975 $209,424 $224,958 ======== ======== ======== ======== $436,275 $452,500 $211,540 $227,230 ======== ======== ======== ======== Net income per $1000 invested by Limited Partners for entire period: - where income is reinvested and compounded $ 29.64 $ 29.57 $ 14.72 $ 14.70 -------- -------- -------- -------- - where partner receives income in monthly distributions ........................ $ 29.28 $ 29.21 $ 14.65 $ 14.60 -------- -------- -------- -------- See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (unaudited)
June 30, 1996 June 30, 1995 (unaudited) (unaudited) Cash flows from operating activities: Net income: ................................................ $436,275 $452,500 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs ..................... 368 1,008 Increase (decrease) in allowance for doubtful accounts ................................... 4,000 392 (Increase) decrease in accrued interest and advances ............................................ ( 83,015) (147,986) Increase (decrease) in accounts payable and accrued expenses .................................... -0- ( 7,164) (Increase) decrease in expenses and other assets ........................................ -0- -0- -------- -------- Net cash provided by operating activities .................. 357,628 298,750 -------- ------- Cash flows from investing activities: Net (increase) decrease in: Real estate acquired through foreclosure ............. ( 120,193) 583,541 Mortgage loans ....................................... 226,600 (298,803) Formation loans ...................................... 52,886 37,356 Partnership interests ................................ -0- (223,244) Other accounts receivables - unsecured ............... 71,133 ( 19,093) -------- ------- Net cash provided by (used in) investing activities ............................. 230,426 79,757 -------- ------- Cash flows from financing activities: Net increase (decrease) in note payable-Bank .......... ( 500) (299,630) Partners withdrawals ................................. ( 385,388) (143,881) Syndication costs incurred ............................ -0- -0- Early withdrawal penalties, Net ....................... ( 8,942) ( 736) -------- ------- Net cash provided by (used in) financing activities ............................ (394,830) (444,247) -------- ------- Net increase (decrease) in cash .............................. 193,224 ( 65,740) Cash - beginning of period ................................... 514,840 462,681 -------- ------- Cash - end of period ......................................... $708,064 $396,941 ======== ======= See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (audited) AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (unaudited)
PARTNERS CAPITAL --------------------------------------------------------------------- UNALLOCATED GENERAL LIMITED SYNDICATION PARTNERS PARTNERS COSTS TOTAL -------------- ------------- --------------- -------------- Balances at December 31, 1992 ................. $ 11,987 $13,121,673 $(277,899) $12,855,761 Net income .................................... 11,260 1,114,723 -0- 1,125,983 Allocation of syndication costs................ ( 810) ( 80,190) 81,000 -0- Early withdrawal penalties .................... -0- ( 23,000) 7,195 ( 15,805) Partners withdrawals ......................... ( 10,459) ( 536,291) -0- ( 546,750) ----------- ----------- ----------- ----------- Balances at December 31, 1993 ................. 11,978 13,596,915 (189,704) 13,419,189 Net income .................................... 9,273 918,018 -0- 927,291 Allocation of syndication costs................ ( 810) ( 80,190) 81,000 -0- Early withdrawal penalties .................... -0- ( 34,001) 10,635 ( 23,366) Partners withdrawals........................... ( 8,463) ( 560,753) -0- ( 569,216) ----------- ----------- ----------- ----------- Balances at December 31, 1994 ................. 11,978 13,839,989 ( 98,069) 13,753,898 Net income .................................... 9,120 902,840 -0- 911,960 Allocation of syndication costs .............. ( 810) ( 80,190) 81,000 -0- Early withdrawal penalties .................... -0- ( 10,690) 3,344 ( 7,346) Partners withdrawals ......................... ( 8,310) ( 435,917) -0- ( 444,227) ----------- ----------- ----------- ----------- Balances at December 31, 1995 ................. 11,978 14,216,032 ( 13,725) 14,214,285 Net income .................................... 4,363 431,912 -0- 436,275 Allocation of Syndication Costs................ ( 138) ( 13,587) 13,725 -0- Early withdrawal penalties .................... -0- ( 8,942) -0- ( 8,942) Partners withdrawals .......................... ( 4,225) ( 381,163) -0- ( 385,388) ----------- ----------- ----------- ----------- Balance at June 30, 1996 ...................... $ 11,978 $14,244,252 -0- $14,256,230 =========== ============ =========== =========== See accompanying notes to Financial Statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (audited) and JUNE 30, 1996 (unaudited) 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. Partnership loans are being arranged and serviced by Redwood Home Loan Co. (RHL Co.), dba Redwood Mortgage, an affiliate of the General Partners. At December 31, 1992, the offering had been closed with contributed capital totaling $11,998,359 for limited partners with none left in applicant status. 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 mortgage loans were identified, partners were transferred from applicant status to admitted partners participating in mortgage loan operations. Each months 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 ranging from 0% (units sold by General Partners) to 10% of the gross proceeds were paid by RHL Co., an affiliate of the General Partners that arranges and services the mortgage loans. To finance the sales commissions, the Partnership was authorized to loan to RHL Co. an amount not to exceed 8.3% of the gross proceeds provided that the Formation Loan for the minimum offering period could be 10% of the gross proceeds for that period. The Formation Loan is unsecured and is being repaid, without interest, over a ten year period commencing January 1, 1992. At December 31, 1992, RHL Co. had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through June 30, 1996, $450,204 including $58,756 in early withdrawal penalties, had been repaid leaving a balance of $464,165. 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. As of March 31, 1996, both, the Organization and Syndication Costs were fully amortized. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenues and expenses are accounted for on the accrual basis of accounting. 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 were capitalized and amortized over a five year period. Syndication costs were charged against partners capital and were allocated to individual partners consistent with the partnership agreement. As of March 31, 1996, these costs have been fully amortized. Property acquired through foreclosure will be held for prompt sale to return the funds to the loan portfolio. Such property is recorded at cost which includes the principal balance of the former loan made by the Partnership plus accrued interest, payments made to keep the senior loans current, costs of obtaining title and possession, less rental income or at estimated net realizable value, if less. The difference between such costs and estimated net realizable value is deducted from cost in the Balance Sheet to arrive at the carrying value of such property. Mortgage 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 mortgage loan system. A provision is made for doubtful accounts to adjust the allowance for doubtful accounts to an amount considered by management to be adequate to provide for unrecoverable accounts receivable. 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 and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. 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. Amounts reflected in the statements of income as net income per $1,000 invested by Limited Partners for the entire period are actual amounts allocated to Limited Partners who have their investment throughout the period and have elected to either leave their earnings to compound or have elected to receive monthly distributions of their net income. Individual income is allocated each month based on the Limited partners pro rata share of Partners Capital. Because the net income percentage varies from month to month, amounts per $1,000 will vary for those individuals who made or withdrew investments during the period, or selected other options. However, the net income per $1,000 average invested has approximated those reflected for those whose investments and options have remained constant. The interim financial statements dated June 30, 1996, are unaudited, but in the opinion of the General Partners all adjustments (consisting solely of normal adjustments) necessary to a fair presentation of the financial statements at June 30, 1996 have been made. NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which are paid to the General Partners and/or related parties. A. Loan Brokerage Commissions Loan brokerage commissions are paid for services in connection with the review, selection, evaluation, negotiation and extension of Partnership loans in an amount up to 12% of the principal through the period ending 6 months after the termination date of the offering. Thereafter, loan brokerage commissions are 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, not an expense of the partnership. B. Loan Servicing Fees Monthly loan servicing fees are payable to RHL Co. 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. Amounts remitted to the Company and recorded as interest on mortgage loans is net of such fees. In 1993, $57,825 of the total loan servicing fees of $116,627 were waived by Redwood Home Loan Co. In 1994, all $124,049 in loan servicing fees were waived. In 1995, $66,888 of the total loan servicing fees of $100,282 were waived and during the six months through June 30, 1996, $26,934 of the total loan servicing fees of $59,667 were also waived by RHL Co. C. Asset Management Fee The General Partners receive a monthly fee for managing the Partnerships loan portfolio and operations equal to 1/32 of 1% of the net asset value (3/8 of 1% annual). In 1995, 1994 and 1993, the asset management fees charged were $-0-, $10,008, and $16,735, respectively. The computed management fees were $ 52,801, $51,519, and $50,360 respectively, with the difference being waived by the General Partners. During the six months through June 30, 1996, management fees totalling $26,786 were also waived by the General Partners. D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, loan assumption and loan 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 is credited or charged to partners in relation to their respective partnership interests. The partnership interest of the General Partners (combined) is a total of 1%. F. Operating Expenses The General Partners or their affiliate (Redwood Home Loan Co.) are reimbursed by the Partnership for all operating expenses actually incurred by them on behalf of the Partnership, including without limitation, out-of-pocket general and administration expenses of the Partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to Limited Partners. In 1994, all such expenses were absorbed by Redwood Home Loan Co. In 1995 and 1993, reimbursed expenses totalled $27,762 and $33,641, respectively. During the six month period under review, Redwood Home Loan Co. was paid $20,294 for operating expenses. 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 partners 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 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 Partnerships loan portfolio. Interest earned prior to admission was credited to partners in applicant status. As loans were made and partners were transferred to regular status to begin sharing in income from loans secured by deeds of trust, the interest credited 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 for at least a period of 5 years. 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. E. Liquidity, Capital Withdrawals and Early Withdrawals There are substantial restrictions on transferability of Units and accordingly an investment in the Partnership is illiquid. 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. 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 as stated in the Notice of Withdrawal and will be deducted from the Capital Account and the balance distributed in four quarterly installments. Withdrawal after the one-year holding period and before the five-year holding period will be permitted only upon the terms set forth above. Limited Partners will also have the right after five years from the date of purchase of the Units to withdraw from the partnership on an installment basis, generally over a five year period in twenty (20) quarterly installments or longer. Once this five year period expires, 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 will liquidate all or part of a Limited Partners 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, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn pursuant to the five-year (or longer) withdrawal period. The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnerships capacity to return a Limited Partners capital account is restricted to the availability of Partnership cash flow. 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, 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. None of 1994 or 1995 was subject to the guarantee. This guarantee is not applicable now. NOTE 5 - INVESTMENT IN PARTNERSHIP The Partnerships interest in land, acquired through foreclosure, located in East Palo Alto with costs totalling $223,245 has been invested with that of two other Partnerships (total cost of $941,050) in a partnership which is in the preliminary process of getting approval to construct approximately 72 single family homes for sale. Redwood Mortgage Investors V, VI and VII have first priority on return of investment plus interest thereon, in addition to a share of profits realized. NOTE 6 - LEGAL PROCEEDINGS The Partnership is not a defendant in any legal actions. However, legal actions against borrowers and other involved parties have been initiated by the Partnership to help assure payments against unsecured accounts receivable totalling $307,067 at June 30, 1996. Management anticipates that the ultimate results of these cases will not have a material adverse effect on the net assets of the Partnership, with due consideration having been given in arriving at the allowance for doubtful accounts. NOTE 7 - NOTES PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line of credit secured by its mortgage loan portfolio up to $2,000,000 at 1% over prime. The balance outstanding as of June 30, 1996 was $1,999,500, and the interest rate at June 30, 1996 was 9.25% (8.25% prime + 1%). NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS The mortgage loans are secured by recorded deeds of trust. At June 30, 1996, there were 68 loans outstanding with the following characteristics: Number of loans outstanding 68 Total loans outstanding $12,156,041 Average loan outstanding $ 178,765 Average loan as percent of total 1.47% Average loan as percent of Partners Capital 1.25% Largest loan outstanding $955,000 Largest loan as percent of total 7.86% Largest loan as percent of Partners Capital 6.70% Number of counties where security is located (all California) 16 Largest percentage of loans in one county 24.36% Average loan to appraised value of security at time loan was consummated 65.96% Number of loans in foreclosure status 7 Amount of loans in foreclosure $1,461,511 The cash balance at June 30, 1996 of $708,064 were in two banks with interest bearing balances totalling $663,965 The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $563,965. 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 totalled $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, 1996, Partners Capital totalled $14,256,230. The Partnership began funding mortgage investments on December 27, 1989 and as of June 30, 1996 had credited the Partners accounts with income at an average annualized (compounded) yield of 8.31%. Currently, mortgage interest rates are lower than those prevalent at the inception of the Partnership. New loans are being originated at these lower interest rates. The result is a reduction of the average return across the entire portfolio held by the Partnership. In the future, interest rates likely will change from their current levels. The General Partners cannot at this time predict at what levels interest rates will be in the future. The General Partners believe the rates charged by the Partnership to its borrowers will not change significantly in the immediate future. Based upon the rates payable in connection with the existing loans, the current and anticipated interest rates to be charged by the Partnerships, and current reserve requirements, the General Partners anticipate that the annualized yield this year will range only slightly higher from its current rate. The Partnership has a line of credit with a commercial bank secured by its mortgage loans to a limit of $2,000,000, at a variable interest rate set at one percent above the prime rate. Currently, it has borrowed $1,999,500. This facility could increase as the Partnership capital increases. This added source of funds helped in maximizing the Partnership yield because 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. As a result, 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, 1996, the Partnership is current with its interest payments on the line of credit. The Partnerships 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 nineteen years. Borrowers 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 Notes and pay-off on Notes. Currently, cash flow exceeds Partnership expenses and earnings payout requirements. As loan opportunities become available, excess cash and available funds are invested in new loans. The General Partners are continually reviewing 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. Its now clear the Northern California recession reached bottom in 1993. Since then, the California economy has been improving, slowly at first, but now, more vigorously. A wide variety of indicators suggest that the economy in California was strong in the first half of 1996, and the State is well - positioned for fast growth in the second half of the year. This improvement is reflective in increasing property values, in job growth, personal income growth, etc., which all translates into more loan activity. Which of course, is healthy for our lending activity. I. COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP The following compensation has been paid to the General Partners and Affiliates for services rendered during the six months ending June 30, 1996. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus: ENTITY RECEIVING DESCRIPTION OF COMPENSATION AMOUNT COMPENSATION and SERVICES RENDERED - ------------------------------------------------------------------------------- RHL Co. Loan servicing fees for servicing loans $32,733 ($26,934 waived by the General Partners.) General Partners &/or Affiliates Asset Management Fee for managing assets $ -0- ($26,786 waived by the General Partners). General Partners 1% interest in profits, losses and distributions of cash available for distribution $ 4,363 Less allocation for Syndication Costs $ 138 ----------- $ 4,225 II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS, NOT OF THE PARTNERSHIP): RHL Co. Loan Brokerage Commissions for services in connection with the review,selection, evaluation, negotiation, and extension of the Partnership Loans paid by the borrower and not by the Partnership. $140,440 RHL Co. Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees payable by the borrower and not by the Partnership $ 1,582 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. LOAN PORTFOLIO SUMMARY AS OF JUNE 30, 1996 Partnership Highlights Loan to Value Ratios First Trust Deeds $3,761,320.17 Appraised Value of Properties * 8,063,919.00 Total Investment as a % of Appraisal 46.64% First Trust Deed Loans 3,761,320.17 Second Trust Deed Loans 7,473,010.02 Third Trust Deed Loans 724,150.25 Fourth Trust Deed Loans ** 197,560.33 ----------------- $12,156,040.77 First Trust Deeds due other Lenders 26,415,999.00 Second Trust Deeds due other Lenders 979,402.00 Third Trust Deeds due other Lenders 142,858.00 ----------------- Total Debt $39,694,299.77 Appraised Property Value * 60,175,032.00 Total Investment as a % of Appraisal 65.96% Number of Loans Outstanding 68 Average Investment $178,765.31 Average Investment as a % of Net Assets 1.25% Largest Investment Outstanding $955,000.00 Largest Investment as a % of Net Assets 6.70% Loans as a Percentage of Total Loans First Trust Deed Loans 30.94% Second Trust Deed Loans 61.48% Third Trust Deed Loans 5.96% Fourth Trust Deed Loans 1.62% ----------------- Total 100.00% Loans by Type of Property Amount Percent Owner Occupied Homes $1,984,458.19 16.32% Non Owner Occupied Homes 515,879.72 4.24% Apartments 1,211,565.88 9.97% Commercial 8,444,136.98 69.47% ------------- ------------------ Total $12,156,040.77 100.00% Statement of Conditions of Loans Number of Loans in Foreclosure 7 *Values used are the appraisal values utilized at the time the loan was consummated. Diversification by County County Total Loans Percent Santa Clara $2,961,388.30 24.36% San Mateo 2,215,830.97 18.23% San Francisco 2,176,579.52 17.91% Alameda 1,157,876.86 9.53% Contra Costa 1,147,893.33 9.44% Stanislaus 830,031.39 6.83% Sonoma 377,308.88 3.10% Monterey 308,912.99 2.54% El Dorado 276,493.42 2.27% Sacramento 207,246.57 1.71% Santa Barbara 123,121.62 1.01% Solano 104,887.23 0.86% Marin 63,014.43 0.52% Santa Cruz 56,040.25 0.46% Miscellaneous *** 149,415.01 1.23% ----------------- ----------- Total $12,156,040.77 100.00% ** Redwood Mortgage Investors VII, together with other Redwood Partnerships, holds a second and a fourth trust deed against the secured property. In addition, the principals behind the borrower corporation have given personal guarantees as collateral. The overall loan to value ratio on this loan is 76.52%. Besides the borrower paying a fixed interest rate of 12.25%, the partnership and other lenders will also be entitled to share in profits generated by the corporation with respect to the secured property. The affiliates of the Partnership had entered into previous loan transactions with this borrower which had been concluded successfully, resulting in additional revenue beyond interest payments for the affiliates involved. *** Tuolume, Shasta PART 2 OTHER INFORMATION Item 1. Legal Proceedings None, where the Partnership is a defendant. Please refer to Note 6 of Notes to 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 The registrant has not filed any reports on Form 8-K during the six month period ending June 30, 1996. 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 3rd day of August, 1996. REDWOOD MORTGAGE INVESTORS VII By: --------------------------------------------- D. Russell Burwell, General Partner By: --------------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: --------------------------------------------- D. Russell Burwell, President By: --------------------------------------------- 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 3rd day of August, 1996. Signature Title Date - -------------------- D. Russell Burwell General Partner August 3, 1996 - -------------------- Michael R. Burwell General Partner August 3, 1996 - --------------------- D. Russell Burwell President of Gymno Corporation, August 3, 1996 (Principal Executive Officer); Director of Gymno Corporation - ---------------------- Michael R. Burwell Secretary/Treasurer of Gymno August 3, 1996 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 708064 0 13597538 204000 0 0 0 0 16257202 0 0 2000972 0 0 14256230 16257202 0 731525 0 48930 0 157661 88059 436275 0 436275 0 0 0 436275 .00 .00
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