-----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, VmQQHF0+EHZBxyEqdFN660iBMQh3O8WRug21zjJ/b9kJJsJoVCJO0dwEqVnOBIAX Bytgfsktb3ZWRp9YeWXb6A== 0000854092-97-000006.txt : 19970811 0000854092-97-000006.hdr.sgml : 19970811 ACCESSION NUMBER: 0000854092-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 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: 97653517 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 JUNE 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, 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 REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1996 (audited) and JUNE 30, 1997, (unaudited)
ASSETS June 30, 1997 Dec 31, 1996 (unaudited) (audited) --------------- --------------- Cash $452,811 $755,089 --------------- --------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 14,281,984 12,036,293 Accrued Interest on Mortgage Investments 350,387 264,495 Advances on Mortgage Investments 44,178 41,203 Accounts receivables, unsecured 336,075 337,242 --------------- --------------- 15,012,624 12,679,233 Less allowance for doubtful accounts 379,740 228,647 --------------- --------------- 14,632,884 12,450,586 --------------- --------------- Real estate owned, acquired through foreclosure, held for sale 909,542 1,468,345 Investment in partnership 277,822 242,394 Formation loan due from Redwood Mortgage 376,872 429,163 --------------- --------------- $16,649,931 $15,345,577 =============== =============== LIABILITIES AND PARTNERS CAPITAL Liabilities: Notes payable - bank line of credit $3,000,000 $1,175,000 Accounts payable and accrued expenses 5,449 1,472 Deferred Interest 0 154,598 -------------- -------------- 3,005,449 1,331,070 Partners Capital 13,644,482 14,014,507 -------------- -------------- $16,649,931 $15,345,577 ============== ============== 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, 1997 AND 1996 (unaudited)
6 months ended 6 months ended 3 months ended 3 months ended June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Interest on mortgage loans $766,499 $746,876 $398,159 $372,258 Interest on bank deposits 3,593 2,851 2,196 2,183 Late Charges 2,926 8,366 1,832 4,198 Miscellaneous 8,956 6,165 4,825 2,645 ------------ ------------- ------------ ------------- 781,974 764,258 407,012 381,284 ------------ ------------- ------------ ------------- Expenses: Interest on note payable-bank 82,814 88,659 59,279 46,112 Mortgage Servicing Fee 31,628 32,733 16,130 15,522 Amortization of organization costs 0 368 0 0 Clerical costs through Redwood Mortgage 19,336 20,294 9,563 10,512 Professional Fees 19,726 17,164 6,350 1,062 Provision for doubtful accounts and losses on real estate acquired through 201,322 157,661 104,204 91,991 foreclosure Printing, Supplies and Postage 5,480 6,720 3,378 4,514 Other 3,769 4,384 57 31 ------------ ------------- ------------ ------------- 364,075 327,983 198,961 169,744 ------------ ------------- ------------ ------------- Net income $417,899 $436,275 $208,051 $211,540 ============ ============= ============ ============= Net income: to General Partners (1%) $4,179 $4,363 $2,081 $2,116 Net income: to Limited Partners (99%) $413,720 $431,912 $205,970 $209,424 ============ ============= ============ ============= $417,899 $436,275 $208,051 $211,540 ============ ============= ============ ============= Net income per $1000 invested by Limited Partners for entire period: - where income is reinvested and $29.96 $29.64 $14.89 $14.72 compounded ------------ ------------- ------------ ------------- - where partner receives income in monthly distributions $29.59 $29.28 $14.82 $14.65 ------------ ------------- ------------ ------------- See accompanying notes to Financial Statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1997 and 1996 (unaudited) June 30, 1997 June 30, 1996 (unaudited) (unaudited) Cash flows from operating activities: Net income $417,899 $436,275 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 0 368 Provision for doubtful accounts 201,322 107,661 Provision for losses on real estate held for sale 0 50,000 (Increase) decrease in accrued interest and advances (88,867) (83,015) Increase (decrease) in accounts payable and accrued expenses 3,977 0 Increase (decrease) in deferred interest on Mortgage Investments (154,598) 0 ------------- -------------- Net cash provided by operating activities 379,733 511,289 ------------- -------------- Cash flows from investing activities: Principal collected on mortgage investments 2,666,905 6,007,554 Mortgage investments made (4,912,596) (5,780,954) Formation loan collections 52,291 52,886 Additions to Real Estate held for sale (487,579) (311,410) Dispositions of real estate held for sale 996,153 37,556 Accounts receivable - unsecured 1,167 71,133 Investment in partnership (35,428) 0 ------------- -------------- Net cash provided by (used in) investing activities (1,719,087) 76,765 ------------- -------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank 1,825,000 (500) Early withdrawal penalties (18,311) (8,942) Partners withdrawals (769,613) (385,388) ------------- -------------- Net cash provided by (used in) financing activities 1,037,076 (394,830) ------------- -------------- Net increase (decrease) in cash (302,278) 193,224 Cash - beginning of period 755,089 514,840 ============= ============== Cash - end of period $452,811 $708,064 ============= ============== 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 SIX MONTHS ENDED JUNE 30, 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 December 31, 1996 $11,978 $14,002,529 $0 $14,014,507 Net income 4,179 413,720 0 417,899 Allocation of Syndication 0 0 0 0 Costs Early withdrawal penalties 0 (18,311) 0 (18,311) Partners withdrawals (4,179) (765,434) 0 (769,613) ------------ -------------- ------------- ------------ Balance at June 30, 1997 $11,978 $13,632,504 $0 $13,644,482 ============ ============== ============= ============ See accompanying notes to Financial Statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 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 ten installments of principal, over a ten year period commencing January 1, 1992. At December 31, 1992, Redwood Mortgage had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through June 30, 1997, $537,497 including $84,420 in early withdrawal penalties, had been repaid leaving a balance of $376,872. 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 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) B. Management Estimates In preparing the financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the related periods. Such estimates relate principally to the determination of the allowance for doubtful accounts, including the valuation of impaired mortgage investments, and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. C. Mortgage Investments, Secured by Deeds of Trust The Partnership has both the intent and ability to hold the mortgage investments to maturity, i.e., held for long-term investment. They are therefore valued at cost for financial statement purposes with interest thereon being accrued by the simple interest method. Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective January 1, 1995) provide that if the probable ultimate recovery of the carrying amount of a mortgage investment, 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. The adoption of these statements did not have a material effect on the financial statements of the Partnership because that was the valuation method previously used on impaired loans. At June 30, 1997, and at December 31, 1996, and 1995, reductions in the cost of loans categorized as impaired by the Partnership totalled $9,595, $9,595, and 0 respectively. The reduction in stated value was accomplished by increasing the allowance for doubtful accounts. As presented in Note 10 to the financial statements as of June 30, 1997, the average mortgage investment to appraised value of security at the time the loans were consummated was 64.71%. When a loan is valued for impairment purposes, an updating is made in the valuation of collateral security. However, such a low loan to value ratio tends to minimize reductions for impairment. D. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest bearing and non-interest bearing bank deposits. E. Real Estate Owned, Held for Sale Real estate owned, held for sale, includes real estate acquired through foreclosure, and is stated at the lower of the recorded investment in the property, net of any senior indebtedness, or at the propertys estimated fair value, less estimated costs to sell. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) The following schedule reflects the costs of real estate acquired through foreclosure and the recorded reductions to estimated fair values, less estimated costs to sell as of June 30, 1997, and December 31, 1996: June 30, Dec. 31, 1997 1996 --------------- --------------- Cost of properties $1,109,542 $1,655,786 Reduction in value 200,000 187,441 --------------- --------------- $909,542 $1,468,345 =============== =============== Effective January 1, 1996, the Partnership adopted the provisions of statement No 121 (SFAS 121) of the Financial Accounting Standards Board, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be disposed of. The adoption of SFAS 121 did not have a material impact on the Partnerships financial position because the methods indicated were essentially those previously used by the Partnership. I. Allowance for Doubtful Accounts 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, with due consideration to collateral value, to provide for unrecoverable accounts receivable, including impaired mortgage investments, unspecified mortgage investments, accrued interest and advances on mortgage investments, and other accounts receivable (unsecured). The composition of the allowance for doubtful accounts as of June 30, 1997, and December 31, 1996 were as follows: June 30, December 31, 1997 1996 ------------- ------------- Impaired mortgage investments $9,595 $9,595 Unspecified mortgage investments 170,145 19,052 Amounts receivable, unsecured 200,000 200,000 ------------- ------------ $379,740 $228,647 ============= ============ J. 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 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) K. Reclassifications Certain reclassifications not affecting net income have been made to prior year amounts to conform to the current year presentation. 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. 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 is paid to Redwood Mortgage. Mortgage servicing fees of $31,628, $97,267, and $33,394 were incurred for the six months through June 30, 1997, and for years 1996, and 1995, respectively. C. Asset Management Fees The General Partners receive monthly fees for managing the Partnerships Mortgage Investment portfolio and operations of up to 1/32 of 1% of the net asset value (3/8 of 1% annual). Management fees of $0, were incurred for the six months through June 30, 1997, and for years 1996, and 1995, respectively. D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, Mortgage assumption and Mortgage extension fees. Such fees are incurred by the borrowers and are paid to parties related to the General Partners. E. Income and Losses All income 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. Such reimbursements are reflected as expenses in the Statements of Income. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) 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 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 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. 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) 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, 1993, and thereafter actual realization exceeded the guaranteed amount each month. This guarantee is now no longer applicable. NOTE 5 - INVESTMENT IN PARTNERSHIP The Partnerships interest in land, acquired through foreclosure, located in East Palo Alto with costs totalling $277,822 has been invested with that of two other Partnerships (total cost to date, primarily land, of $1,171,185) 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 $336,075 at June 30, 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 June 30, 1997, were $1,175,000 and $3,000,000 respectively, and the interest rate at June 30, 1997 was 9.00% (8.50% prime + .50%). REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) NOTE 8 - INCOME TAXES The following reflects a reconciliation from net assets (Partners Capital) reflected in the financial statements to the tax basis of those net assets: June 30, December 31, 1997 1996 ---------------- ---------------- Net assets Partners Capital per financial statements $13,644,482 $14,014,507 Allowance for doubtful accounts 379,740 228,647 ---------------- ================ Net assets tax basis $14,024,222 $14,243,154 ================ ================
In 1996, approximately 69% 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 9 - 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) The Carrying Value of Mortgage Investments - (see note 2 (c)) is $14,281,984. The June 30, 1997 fair value of these investments of $14,240,106 is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for doubtful accounts along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At June 30, 1997, there were 66 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 66 Total Mortgage Investments outstanding $14,281,984 Average Mortgage Investment outstanding $216,394 Average Mortgage Investment as percent of total 1.52% Average Mortgage Investment as percent of Partners Capital 1.59% Largest Mortgage Investment outstanding $1,400,000 Largest Mortgage Investment as percent of total 9.80% Largest Mortgage Investment as percent of Partners Capital 10.26% Number of counties where security is located(all California) 16 Largest percentage of Mortgage Investments in one county 20.74% Average Mortgage Investment to appraised value of security at time loan was consummated 64.71%
Number of Mortgage Investments in foreclosure 4 The following categories of mortgage investments are pertinent at June 30, 1997, and December 31, 1996: June 30, December 31, 1997 1996 ----------------- -------------- First Trust Deeds $5,683,840 $4,199,552 Second Trust Deeds 7,676,531 6,913,853 Third Trust Deeds 721,612 722,887 Fourth Trust Deeds 200,001 200,001 ----------------- -------------- Total mortgage investments 14,281,984 12,036,293 Prior liens due other lenders 21,969,730 22,068,554 ----------------- ============== Total debt $36,251,714 $34,104,847 ================= ============== Appraised property value at time of loan $56,021,569 $51,863,991 ================= ============== Total investments as a percent of appraisals 64.71% 65.76% ================= ============== Investments by Type of Property Owner occupied homes $1,505,619 $1,742,767 Non-Owner occupied homes 845,948 1,112,274 Apartments 2,580,680 1,325,872 Commercial 9,349,737 7,855,380 ================= ============== $14,281,984 $12,036,293 ================= ==============
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited) and JUNE 30, 1997 (unaudited) Scheduled maturity dates of mortgage investments as of June 30, 1997 are as follows: Period Ending December 31, ------------------- 1997 $2,543,741 1998 3,176,480 1999 2,249,560 2000 1,029,619 2001 1,076,631 Thereafter 4,205,953 =============== $14,281,984 =============== The scheduled maturities for 1997 include approximately $1,467,613 in loans which are past maturity at December 31, 1996. Interest payment on most of these loans are current. $199,037 of those loans were categorized as delinquent over 90 days. Three loans with principal outstanding of $473,215 had interest payments overdue in excess of 90 days. Two loans had impaired provisions totalling $9,595 at June 30, 1997. The cash balance at June 30, 1997 of $452,811 was in one bank with an interest bearing balance totalling $357,299. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $352,811. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On September 30, 1992, the Partnership had sold 119,983.59 units and its contributed capital totaled $11,998,359 of the approved $12,000,000 issue, in units of $100 each. As of that date, the offering was formally closed. At June 30, 1997, Partners Capital totaled $13,644,482. The Partnership began funding Mortgage Investments on December 27, 1989 and as of June 30, 1997 had credited the Partners accounts with income at an average annualized (compounded) yield of 8.02%. 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 6.08%. 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 $3,000,000. 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 June 30, 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 June 30, 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 $31,628 General Partners Asset Management Fee for managing assets $0 &/or Affiliates General Partners 1% interest in profits, losses and distributions of cash available for distribution $4,179 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. $195,416 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 $2,793 II. 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 JUNE 30, 1997 Partnership Highlights Mortgage Investment to Value Ratios First Trust Deeds $5,683,839.97 Appraised Value of Properties * 11,632,935.00 Total Investment as a % of Appraisal 48.86% First Trust Deed Mortgage Investments 5,683,839.97 Second Trust Deed Mortgage Investments 7,676,530.56 Third Trust Deed Mortgage Investments 721,611.88 Fourth Trust Deed Mortgage Investments ** 200,001.20 ----------------- $14,281,983.61 First Trust Deeds due other Lenders 20,847,470.00 Second Trust Deeds due other Lenders 979,402.00 Third Trust Deeds due other Lenders 142,858.00 ----------------- Total Debt $36,251,713.61 Appraised Property Value * 56,021,569.00 Total Investment as a % of Appraisal 64.71% Number of Mortgage Investments Outstanding 66 Average Investment $216,393.69 Average Investment as a % of Net Assets 1.59% Largest Investment Outstanding 1,400,000.00 Largest Investment as a % of Net Assets 10.26% Loans as a Percentage of Total Mortgage Investments First Trust Deed Mortgage Investments 39.80% Second Trust Deed Mortgage Investments 53.75% Third Trust Deed Mortgage Investments 5.05% Fourth Trust Deed Mortgage Investments 1.40% ---------------- Total 100.00% Mortgage Investments by Type of Property Amount Percent Owner Occupied Homes $1,505,618.71 10.54% Non Owner Occupied Homes 845,948.22 5.92% Apartments 2,580,679.95 18.07% Commercial 9,349,736.73 65.47% ---------------- ------------------ Total $14,281,983.61 100.00% 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 Alameda $2,961,368.62 20.74% San Francisco 2,618,782.73 18.34% Santa Clara 2,495,411.23 17.47% Stanislaus 1,665,745.47 11.66% San Mateo 1,509,096.01 10.57% Contra Costa 1,290,822.03 9.04% Sonoma 370,365.33 2.59% Monterey 335,932.05 2.35% El Dorado 274,178.59 1.92% Sacramento 273,062.01 1.91% Santa Barbara 122,039.62 0.85% Solano 104,583.15 0.73% Ventura 91,000.00 0.64% Shasta 82,086.69 0.58% Marin 62,716.85 0.44% Santa Cruz 24,793.23 0.17% ------------------- ----------- Total $14,281,983.61 100.00% ** 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. 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 June 30, 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 12th day of August, 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 12th day of August, 1997. Signature Title Date /s/ D. Russell Burwell - --------------------------------- D. Russell Burwell General Partner August 12, 1997 /s/ Michael R. Burwell - --------------------------------- Michael R. Burwell General Partner August 12, 1997 /s/ D. Russell Burwell - --------------------------------- D. Russell Burwell President of Gymno Corporation, August 12, 1997 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - --------------------------------- Michael R. Burwell Secretary/Treasurer of Gymno August 12, 1997 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
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