-----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, UfpFMlVpBq6AQUwi6cR3dh98tUMxEU60qTHw2Ty6EF4HgoMeVVTQPFTEPKbqvIN/ p8cmO1zC8Xeioq++PLWSXQ== 0000854092-97-000004.txt : 19970508 0000854092-97-000004.hdr.sgml : 19970508 ACCESSION NUMBER: 0000854092-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970507 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: 97597577 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 10Q 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, 1997 - ------------------------------------------------------------------------------- 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 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 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, 1996 (audited) and March 31, 1997 (unaudited)
ASSETS Mar. 31, 1997 Dec. 31, 1996 (unaudited) (audited) Cash $449,953 $755,089 --------------- --------------- Accounts Receivable: Mortgage investments, secured by deeds of trust 13,851,467 12,036,293 Accrued interest on mortgage investments 239,903 264,495 Advances on mortgage investments 37,922 41,203 Accounts receivable - unsecured 336,842 337,242 --------------- --------------- 14,466,134 12,679,233 Less allowance for doubtful accounts 325,764 228,647 --------------- --------------- 14,140,370 12,450,586 --------------- --------------- Real estate owned, acquired through foreclosure, at estimated net realizable value 1,243,602 1,468,345 Investment in Partnership 264,231 242,394 Formation loan due from Redwood Mortgage 398,547 429,163 --------------- --------------- $16,496,703 $15,345,577 =============== =============== LIABILITIES AND PARTNERS CAPITAL Liabilities: Note payable - bank line of credit $2,625,000 $1,175,000 Accounts payable and accrued expenses 1,472 1,472 Deferred Interest 0 154,598 --------------- --------------- 2,626,472 1,331,070 Partners capital 13,870,231 14,014,507 --------------- --------------- $16,496,703 $15,345,577 =============== =============== See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 and 1996 (unaudited)
3 months ended 3 months ended Mar. 31, 1997 Mar. 31, 1996 (unaudited) (unaudited) Revenues: Interest on mortgage investments 352,842 357,407 Interest on bank deposits 1,397 668 Late charges 1,094 4,168 Other 4,131 3,520 -------------- ----------- 359,464 365,763 -------------- ----------- Expenses: Interest on note payable - bank 23,535 42,547 Clerical costs through Redwood Mortgage 9,773 9,782 Amortization of organization costs 0 368 General Partner asset management fees 0 0 Provision for doubtful accounts and losses on real estate acquired . through foreclosure 97,118 65,670 Professional Services 13,376 16,102 Printing, supplies and postage 2,102 0 Other 3,712 6,559 -------------- ----------- 149,616 141,028 -------------- ----------- Net income $209,848 $224,735 ============== =========== Net income: to General Partners (1%) $2,098 $2,247 Net income: to Limited Partners (99%) 207,750 222,488 ============== =========== $209,848 $224,735 ============== =========== Net income per $1000 invested by Limited Partners for entire period: - where income is reinvested and compounded $14.85 $14.71 -------------- ----------- - where partner receives income in monthly $14.78 $14.64 distributions -------------- ----------- See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THREE MONTHS ENDED MARCH 31, 1996 (unaudited) AND 1997 (unaudited)
Mar. 31, 1997 Mar. 31, 1996 (unaudited) (unaudited) Cash flows from operating activities: Net income $209,848 $224,735 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 0 368 Increase in allowance for doubtful accounts 97,117 (10,000) (Increase) decrease in accrued interest and advances 27,873 (36,789) Increase (decrease) in accounts payable and accrued expenses 0 17,275 Increase (decrease) in deferred interest on Mortgage Investments (154,598) 0 ------------- ------------- Net cash provided by operating activities 180,240 195,589 ------------- ------------- Cash flows from investing activities: Net (increase) decrease in: Mortgage investments (1,815,174) (49,321) Formation loans 30,616 25,977 Real estate owned 224,743 (201,114) Other receivables - unsecured 400 70,533 Investment in Partnership (21,837) 0 ------------- ------------- Net cash provided by (used in) investing activities (1,581,252) (153,925) ------------- ------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank 1,450,000 (500) Early withdrawal penalties, net of credit to syndication costs (8,644) (4,005) Partners withdrawals (345,480) (180,008) ------------- ------------- Net cash provided by (used in) financing activities 1,095,876 (184,513) ------------- ------------- Net increase (decrease) in cash (305,136) (142,849) Cash - beginning of period 755,089 514,840 ============= ============= Cash - end of period $449,953 $371,991 ============= ============= 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, 1996 (audited) AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (unaudited)
PARTNERS CAPITAL --------------------------------------------------------------------- UNALLOCATED GENERAL LIMITED SYNDICATION PARTNERS PARTNERS COSTS TOTAL -------------- ------------- ----------------- ------------ 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 (810) (80,190) 81,000 0 costs 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 (810) (80,190) 81,000 0 costs 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 8,591 850,508 0 859,099 Allocation of Syndication (137) (13,588) 13,725 0 Costs Early withdrawal penalties 0 (37,345) 0 (37,345) Partners withdrawals (8,454) (1,013,078) 0 (1,021,532) ------------ -------------- ------------- ------------ Balances at September 30, $11,978 $14,002,529 $0 $14,014,507 1996 Net income 2,098 207,750 0 209,848 Early withdrawal penalties 0 (8,644) 0 (8,644) Partners withdrawals (2,098) (343,382) 0 (345,480) ------------ -------------- ------------- ------------ Balance at March 31, 1997 $11,978 $13,858,253 $0 $13,870,231 ============ ============== ============= ============ See accompanying notes to Financial Statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and MARCH 31, 1997 (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 Mortgage Investments secured by Deeds of Trust on California real estate. Mortgage Investments are being arranged and serviced by Redwood Home Loan Co., dba Redwood Mortgage, 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 Mortgage Investments were identified, partners were transferred from applicant status to admitted partners participating in Mortgage Investment 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 Redwood Mortgage, an affiliate of the General Partners that arranges and services the Mortgage Investments. To finance the sales commissions, the Partnership was authorized to loan to Redwood Mortgage 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, in installments of principal, over a ten year period commencing January 1, 1992. At December 31, 1992, Redwood Mortgage has borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through March 31, 1997, $515,822 including $84,122 in early withdrawal penalties, had been repaid leaving a balance of $398,547. B. Other Organizational and Offering Expenses Organizational and offering expenses, other than sales commissions, (including printing costs, attorney and accountant fees, and other costs), were paid by the Partnership. Such costs were limited to 10% of the gross proceeds of the offering or $500,000 whichever was less. The General Partners were to pay any amount of such expenses in excess of 10% of the gross proceeds or $500,000. Organization costs of $10,102 and syndication costs of $415,692 were incurred by the Partnership. The sum of organization and syndication costs, $425,794, approximated 3.55% of the gross proceeds contributed by the Partners. Both the Organization and Syndication Costs have been fully amortized and allocated to the Partners. 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 were amortized over a five year period. Syndication costs were charged against partners capital and were allocated to individual partners consistent with the Partnership Agreement. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and MARCH 31, 1997 (unaudited) Property acquired through foreclosure will be held for sale to return the funds to the Mortgage Investment portfolio. Such property is recorded at cost which includes the principal balance of the former Mortgage Investment 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 Investments 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 Investment 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 select 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 March 31, 1997, 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 March 31, 1997 have been made. NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which will be paid to the General Partners and/or related parties. A. Mortgage Brokerage Commissions For services in connection with the review, selection, evaluation, negotiation and extension of Mortgage Investments in an amount up to 12% of the principal through the period ending 6 months after the termination date of the offering. Thereafter, mortgage brokerage commissions are limited to an amount not to exceed 4% of the total Partnership assets per year. The mortgage brokerage commissions are paid by the borrowers, and thus, not an expense of the Partnership. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and MARCH 31, 1997 (unaudited) B. Mortgage Servicing Fees 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 Mortgage Investment is located are paid to Redwood Mortgage. Amounts remitted to Redwood Mortgage and recorded as interest on Mortgage Investments is net of such fees. In 1994, all $124,049 in mortgage servicing fees were waived by Redwood Mortgage. In 1995, $66,888 of the total mortgage servicing fees of $100,282 were waived. In 1996, $92,249 of the total mortgage servicing fees of $189,516 and for three months through March 31, 1997, $5,920 of the total mortgage servicing fees of $21,418, were waived by Redwood Mortgage. C. Asset Management Fee The General Partners receive a monthly fee for managing the Partnerships Mortgage Investment portfolio and operations equal to 1/32 of 1% of the net asset value (3/8 of 1% annual). For the quarter under review and in 1996, 1995 and 1994, the asset management fees charged were $0, $0, $0, and $10,008 respectively. The computed management fees were $13,180, $51,519, $50,360, and $53,537 respectively, with the difference being waived by the General Partners. D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, Mortgage assumption and Mortgage extension fees. Such fees are incurred by the borrowers and are paid to parties related to the General Partners. E. Income and Losses All income 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 Mortgage) 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 Mortgage. For the three months through March 31, 1997, and in 1996 and 1995, reimbursed expenses totalled $9,773, $40,874 and $27,762, respectively. 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 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 mortgage investment portfolio. Interest earned prior to admission was credited to partners in applicant status. As Mortgage Investments were made and partners were transferred to regular status to begin sharing in income from Mortgage Investments secured by deeds of trust, the interest credited was either paid to the investors or transferred to Partners Capital along with the original investment. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and MARCH 31, 1997 (unaudited) 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 have 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 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 monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855 and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization exceeded the guaranteed amount each month. None of 1994, or thereafter, was subject to the guarantee. This guarantee is now no longer applicable. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and MARCH 31, 1997 (unaudited) NOTE 5 - INVESTMENT IN PARTNERSHIP The Partnerships interest in land, acquired through foreclosure, located in East Palo Alto with costs totalling $264,231 has been invested with that of two other Partnerships (total cost to date, primarily land, of $1,113,870) in a partnership which is in the process of obtaining approval for constructing 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 $336,842 at March 31, 1997. 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 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line of credit secured by its Mortgage Investment portfolio of up to $3,000,000 at .50% over prime. The balances outstanding as of December 31, 1996 and March 31, 1997, were $1,175,000 and $2,625,000 respectively, and the interest rate at March 31, 1997 was 9.0% (8.50% prime + .50%). NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At March 31, 1997, there were 69 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 69 Total Mortgage Investments outstanding $13,851,467 Average Mortgage Investment outstanding $200,746 Average Mortgage Investment as percent of total 1.45% Average Mortgage Investment as percent of Partners Capital 1.45% Largest Mortgage Investment outstanding $1,400,000 Largest Mortgage Investment as percent of total 10.11% Largest Mortgage Investment as percent of Partners Capital 10.09% Number of counties where security is located(all California) 17 Largest percentage of Mortgage Investments in one county 20.90% Average Mortgage Investment to appraised value of security at time loan was consummated 67.06% Number of Mortgage Investments in foreclosure 4 The cash balance at March 31. 1997 of $449,953 was in one bank with interest bearing balance totalling $143,328. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $349,953. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On September 30, 1992, the Partnership had sold 119,983.59 units and its contributed capital totaled $11,998,359 of the approved $12,000,000 issue, in units of $100 each. As of that date, the offering was formally closed. At March 31, 1997, Partners Capital totaled $13,870,231. The Partnership began funding Mortgage Investments on December 27, 1989 and as of March 31, 1997 had credited the Partners accounts with income at an average annualized (compounded) yield of 8.08%. Currently, mortgage interest rates are lower than those prevalent at the inception of the Partnership. New Mortgage Investments 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 Mortgage Investments, the current and anticipated interest rates to be charged by the Partnership, and current reserve requirements, the General Partners anticipate that the annualized yield this year will range only slightly higher from its current rate of 6.07%. The Partnership has a line of credit with a commercial bank secured by its Mortgage Investments to a limit of $3,000,000, at a variable interest rate set at one half percent above the prime rate. Currently, it has borrowed $2,625,000. This facility could increase as the Partnership capital increases. 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 Mortgage Investments were not available and since most of the Mortgage Investments made by the Partnership bear interest at a rate in excess of the rate payable to the bank which extended the line of credit by making the interest rate spread between the mortgage coupon rate and the credit line rate. As of March 31, 1997, 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 twenty years. 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 Mortgage Investments and pay-off on notes. Currently, cash flow exceeds Partnership expenses and earnings payout requirements. As Mortgage Investment opportunities become available, excess cash and available funds are invested in new Mortgage Investments. The General Partners regularly review the Mortgage Investment 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. 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 1996, and the State is well - positioned for fast growth. 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 the Partnerships 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 nine months ending March 31, 1997. 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 - -------------------------------------------------------------------------------- Redwood Mortgage Mortgage servicing fees for servicing Mortgage Investments ($5,920 waived by the General Partners.) $15,498 General Partners Asset Management Fee for managing assets $0 &/or Affiliates ($13,180 waived by the General Partners). General Partners 1% interest in profits, losses and distributions of cash available for distribution $2,098 II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS 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 with the review, selection, evaluation, negotiation, and extension of the Mortgage Investment paid by the borrower and not by the Partnership. $73,700 Redwood Mortgage 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 $924 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. MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1997 Partnership Highlights
Mortgage Investment to Value Ratios First Trust Deeds $4,161,021.46 Appraised Value of Properties * 8,591,228.00 Total Investment as a % of Appraisal 48.43% First Trust Deed Mortgage Investments 4,161,021.46 Second Trust Deed Mortgage Investments 8,768,185.73 Third Trust Deed Mortgage Investments 722,259.07 Fourth Trust Deed Mortgage Investments ** 200,001.20 ----------------- $13,851,467.46 First Trust Deeds due other Lenders 25,233,269.00 Second Trust Deeds due other Lenders 979,402.00 Third Trust Deeds due other Lenders 142,858.00 ----------------- Total Debt $40,206,996.46 Appraised Property Value * 59,957,905.00 Total Investment as a % of Appraisal 67.06% Number of Mortgage Investments Outstanding 69 Average Investment $200,745.91 Average Investment as a % of Net Assets 1.45% Largest Investment Outstanding $1,400,000.00 Largest Investment as a % of Net Assets 10.09% Loans as a Percentage of Total Mortgage Investments First Trust Deed Mortgage Investments 30.04% Second Trust Deed Mortgage Investments 63.30% Third Trust Deed Mortgage Investments 5.22% Fourth Trust Deed Mortgage Investments 1.44% ---------------- Total 100.00% Mortgage Investments by Type of Property Amount Percent Owner Occupied Homes $1,524,337.67 11.01% Non Owner Occupied Homes 1,263,686.30 9.12% Apartments 2,933,452.47 21.18% Commercial 8,129,991.02 58.69% ---------------- ------------------ Total $13,851,467.46 100.00% Statement of Conditions of Mortgage Investments Number of Mortgage Investments in Foreclosure 4 *Values used are the appraisal values utilized at the time the mortgage investment was consummated.
Diversification by County County Total Loans Percent Santa Clara $2,895,411.23 20.90% Alameda 2,635,139.35 19.02% San Francisco 2,557,078.31 18.46% Stanislaus 1,665,745.47 12.03% San Mateo 1,363,611.91 9.85% Contra Costa 1,146,871.31 8.28% Sonoma 370,658.88 2.68% El Dorado 274,178.59 1.98% Sacramento 206,716.11 1.49% Ventura 195,000.00 1.41% Santa Barbara 122,229.04 0.88% Solano 104,648.06 0.76% Monterey 79,619.05 0.57% Marin 62,765.54 0.45% Santa Cruz 25,120.86 0.18% Miscellaneous 146,673.75 1.06% ------------------- ----------- Total $13,851,467.46 100.00% ** 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 nine month period ending March 31, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on the 9th day of May, 1997. REDWOOD MORTGAGE INVESTORS VII By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, General Partner By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, President By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, Secretary/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity indicated on the 9th day of May, 1997. Signature Title Date /s/ D. Russell Burwell - ----------------------- D. Russell Burwell General Partner May 9, 1997 /s/ Michael R. Burwell - ----------------------- Michael R. Burwell General Partner May 9, 1997 /s/ D. Russell Burwell - ---------------------- D. Russell Burwell President of Gymno Corporation, May 9, 1997 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - ---------------------- Michael R. Burwell Secretary/Treasurer of Gymno May 9, 1997 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 449953 0 14466134 325764 0 0 0 0 16496703 0 0 2626472 0 0 13870231 16496703 0 359464 0 26861 0 97118 23535 209848 0 209848 0 0 0 209848 .00 .00
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