-----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, Cw0qxd918CsSaKw7A6nh2XbnOi5t1q83MwEq7IC0XtrsdiBnVu6SkpAJSmKsQCUd ElPMRNkrpVOn8iaFNBIcKQ== 0000854092-97-000008.txt : 19971001 0000854092-97-000008.hdr.sgml : 19971001 ACCESSION NUMBER: 0000854092-97-000008 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970930 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-K/A SEC ACT: SEC FILE NUMBER: 000-19992 FILM NUMBER: 97688489 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-K/A 1 REVISED 10K REDWOOD MORTGAGE INVESTORS VII (a California Limited Partnership) Index to Form 10-K December 31, 1996 Part I Page No. Item 1 - Business 4 Item 2 - Properties 4-6 Item 3 - Legal Proceedings 6 Item 4 - Submission of Matters to a vote of Security Holders (partners) 7 Part II Item 5 - Market for the Registrants Partners Capital and related matters 7 Item 6 - Selected Financial Data 7-8 Item 7 - Managements Discussion and Analysis of Financial condition and Results of Operations 9 Item 8 - Financial Statements and Supplementary Data 11-35 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36 Part III Item 10 - Directors and Executive Officers of the Registrant 36 Item 11 - Executive Compensation 37 Item 12 - Security Ownership of Certain Beneficial Owners and management 38 Item 13 - Certain Relationships and Related Transactions 38 Part IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8- K. 38-39 Signatures 40 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the year ended December 31, 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 Identification) incorporation or organization) 650 El Camino Real Suite G, Redwood City, CA 94063 - ------------------------------------------------------------------------------- (address of principal executive offices) (zip code) Registrants telephone No. including area code (415) 365-5341 - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------------- ----------------------------------------------------- Limited Partnership Units None - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XXXX NO - --------------- -------------------- Through December 31, 1992, the limited partnership units purchased by non affiliates was 119,983.59 units computed at $100.00 a unit for $11,998,359. The offering was closed on September 30, 1992. Documents incorporated by reference: Portions of the Prospectus dated October 20, 1989, and Supplement #5 dated February 14, 1992, filed on form S-11, are incorporated in Parts II, III, and IV. Exhibits filed as part of Form S-11 Registration Statement #33-30427 are referenced in part IV. Part I Item 1 - Business Redwood Mortgage Investors VII, a California limited partnership (the Partnership), was organized in 1989 of which D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California corporation, are the General Partners. The address of the General Partners is 650 El Camino Real, Suite G, Redwood City, California 94063. The Partnership is 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 arranged and serviced by Redwood Home Loan Co., dba Redwood Mortgage, an affiliate of the General Partners. The Partnerships objectives are to make investments, as referred to above, which will: (i) provide the maximum possible cash returns which Limited Partners may elect to (a) receive as monthly, quarterly or annual cash distributions or (b) have credited to their capital accounts and applied to Partnership activities; and (ii) preserve and protect the PartnershiPs capital. The Partnerships general business is more fully described under the section entitled Investment Objectives and Criteria pages 26-31 of the Prospectus which is incorporated by reference. Originally, 60,000 Units were offered on a best efforts basis through broker/dealer member firms of the National Association of Security Dealers, Inc. In accordance with the terms of the Prospectus, the General Partners increased the number of units for sale from 60,000 to 120,000 and elected to continue the offering until October 19, 1992. The offering closed on September 30, 1992, and the Limited Partners contributed capital totalled $11,998,359 of an approved $12,000,000 issue, in units of $100 each. At that date all the applicants had been admitted into the Partnership with none left in the applicant status. The final SR report (Report of Sales of Securities and use of proceeds therefrom), was filed on September 21, 1992. The Partnership began selling units in October, 1989 and began investing in mortgages in December, 1989. At December 31, 1996, the Partnership had a balance in its Mortgage Investments portfolio totalling $12,036,293 with interest rates thereon ranging from 4% to 15.50%. Currently, Mortgage Investments secured by First Trust Deeds comprise 34.89% of the Mortgage Investment portfolio followed by Second Trust Deeds of 57.44%, and Third Trust Deeds of 6.01%. A Fourth Trust Deed makes up the balance. Owner-occupied homes, combined with non-owner occupied homes total 23.72 % of the Mortgage Investments. Commercial Mortgage Investments origination increased from last year, now comprising 65.26% of the portfolio, an increase of 10.99%. The past year brought us many outstanding low loan to value lending opportunities in this segment of the market. Mortgage Investment size increased this past year, and is now averaging $169,525 per Mortgage Investment, an increase of $2,192. Some of the larger Mortgage Investments invested in by the Partnership are fractionalized between other affiliated partnerships with objectives similar to those of the Partnership to further reduce risk. Average equity per loan transaction stood at 34.24%. A 40% equity average on loan origination is generally considered very conservative. Generally, the more equity, the more protection for the lender. The Partnerships Mortgage Investment portfolio is in good condition with five properties in foreclosure. Item 2 - Properties A summary of the Partnerships Mortgage Investment Portfolio as of December 31, 1996, is set forth below. Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds $4,199,551.40 Appraised Value of Properties 8,799,746.00 Total Investment as a % of Appraisal 47.72% Second Trust Deed Mortgage Investments 6,913,852.90 Third Trust Deed Mortgage Investments 722,887.23 Fourth Trust Deed Mortgage Investments * 200,001.20 First Trust Deeds due other Lenders 20,947,294.00 Second Trust Deeds due other Lenders 979,402.00 Third Trust Deeds due other Lenders 142,858.00 Total Debt $34,105,846.73 Appraised Property Value 51,863,991.00 Total Investments as a % of Appraisal 65.76% Number of Mortgage Investments Outstanding 71 Average Investment 169,525.25 Average Investment as a % of Net Assets 1.21% Average Investment as a % of Net Assets 1.25% Largest Investment Outstanding 979,272.93 Largest Investment as a % of Net Assets 6.99% Largest Investment as a % of Net Assets 7.21% Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds 34.89% Second Trust Deeds 57.44% Third Trust Deeds 6.01% Fourth Trust Deeds 1.66% ------------ Total 100.00% Mortgage Investments by Amount Percent Type of Property Owner Occupied Homes $1,742,767.10 14.48% Non-Owner Occupied Homes 1,112,274.08 9.24% Apartments 1,325,871.63 11.02% Commercial 7,855,379.92 65.26% ------------------ ----------- Total $12,036,292.73 100.00% * Footnotes on following page The following is a distribution of Mortgage Investments outstanding as of December 31, 1996 by Counties. County Total Mortgage Percent Investments Santa Clara $2,888,907.85 24.00% San Francisco 1,950,728.50 16.21% Stanislaus 1,665,745.47 13.84% San Mateo 1,536,899.28 12.77% Alameda 1,233,138.15 10.25% Contra Costa 1,147,497.77 9.53% Sonoma 370,953.22 3.08% El Dorado 274,178.59 2.28% Sacramento 206,893.59 1.72% Ventura 195,000.00 1.62% Santa Barbara 122,596.76 1.02% Solano 104,713.29 0.87% Shasta 82,407.46 0.68% Monterey 79,619.05 0.66% Tuoloume 65,213.37 0.54% Marin 62,836.42 0.52% Santa Cruz 48,963.96 0.41% ------------------ ----------- Total $12,036,292.73 100.00% * Redwood Mortgage Investors VII, together with other Redwood PartnershiPs, hold 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%. In addition to the borrower paying an interest rate of 12.25%, the Partnership and other lenders will also participate in profits. The General Partners have had previous loan activity with this borrower which had been concluded successfully, with extra earnings earned for the other partnerships involved. Statement of Condition of Mortgage Investments Number of Mortgage Investments in Foreclosure 5 Item 3 - Legal Proceedings In the normal course of business the Partnership may become involved in various types of legal proceedings such as assignments of rents, bankruptcy proceedings, appointments of receivers, unlawful detainers, judicial foreclosures, etc., to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes or to protect/recoup its investment from the real property secured by the deeds. As of the date hereof, the Partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business. Management anticipates that the ultimate result 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. Item 4 - Submission of matters to vote of Security Holders (Partners). No matters have been submitted to a vote of the Partnership. Part II Item 5 - Market for the Registrants Units and Related Partnership Matters. 120,000 units at $100 each (minimum 20 units) were offered through broker-dealer member firms of the National Association of Securities Dealers on a best efforts basis (as indicated in Part I item 1). Investors have the option of withdrawing earnings on a monthly, quarterly, or annual basis or reinvesting and compounding the earnings. Limited Partners may withdraw from the Partnership in accordance with the terms of the Partnership Agreement subject to possible early withdrawal penalties. There is no established public trading market. A description of the Partnership units, transfer restrictions and withdrawal provisions is more fully described under the section entitled Description of Units and summary of Limited Partnership Agreement, pages 47 to 50 of the Prospectus, a part of the referenced Registration Statement, which is incorporated by reference. Item 6 - Selected Financial Data Redwood Mortgage Investors VII began operations in December 1989. Financial results for years 1984 to 1989 for prior partnerships are incorporated by reference to the Prospectus (S-11) dated October 20, 1989, Table III pages 7 through 11 and Supplement No. 3 dated October 2, 1990 to Prospectus dated October 20, 1989, Table III pages 27 through 33. Financial condition and results of operation for the Partnership for three years to December 31, 1996 were: Balance Sheet Assets December 31, ------------------------------------------------------
1996 1995 1994 -------------- -------------- ------------- Cash $755,089 $514,840 $462,681 Accounts Receivable: Mortgage Investments secured by Deeds of Trust 12,036,293 12,382,641 11,345,566 Accrued interest and other fees 264,495 940,541 738,142 Advances on Mortgage Investments 41,203 110,874 28,767 Other receivables - Unsecured 337,242 378,200 359,072 Less allowance for losses (228,647) (200,000) (201,608) Real Estate Owned acquired through foreclosure at estimated net realizable value 1,468,345 1,347,997 2,352,221 Formation loan due from Redwood Mortgage. 429,163 517,051 604,939 Partnership Interest 242,394 223,245 0 Organization cost net of amortization 0 368 2,384 -------------- -------------- ------------- $15,345,577 $16,215,757 $15,692,164 -------------- -------------- ------------- -------------- -------------- ------------- $14,916,414 $15,698,706 $15,087,225 -------------- -------------- -------------
Liabilities and Partners Capital December 31, ------------------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Liabilities: Note payable - Bank $1,175,000 $2,000,000 $1,929,630 Accounts payable and accrued expenses 1,472 1,472 2,973 Discount of Mortgage Investments 154,598 0 0 Due to Related Companies 0 0 5,663 -------------- -------------- -------------- 1,331,070 2,001,472 1,938,266 Partners Capital 14,014,507 14,214,285 13,753,898 Partners Capital 13,573,366 13,685,393 13,137,962 Limited Partners subject to redemption 11,978 11,881 10,997 -------------- -------------- -------------- General Partners 13,585,344 13,697,234 13,148,959 -------------- -------------- -------------- $14,916,414 $15,698,706 $15,087,225 -------------- -------------- -------------- -------------- -------------- -------------- $15,345,577 $16,215,757 $15,692,164 -------------- -------------- -------------- Statement of Income Gross revenue $1,483,233 $1,450,487 $1,489,882 Gross revenue $1,580,500 $1,483,881 $1,489,882 Expenses 624,134 538,527 562,591 -------------- -------------- -------------- Expenses 721,401 571,921 562,591 -------------- -------------- -------------- Net Income $859,099 $911,960 $927,291 -------------- -------------- -------------- Net income to General Partners (1%) $8,591 $9,120 $9,273 ============== ============== ============== Net Income to Limited Partners (99%) $850,508 $902,840 $918,018 ============== ============== ============== Net Income per $1,000 invested by Limited Partners for entire period: - where income is reinvested and compounded $60 $60 $63 ============== ============== ============== - where partner receives income in monthly distributions $59 $58 $61 ============== ============== ============== Net income in 1994 averaged at an annualized yield of 6.28%. In 1995, the annualized yield was 6.00% and in 1996 the annualized yield was 6.02%.
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 December 31, 1996, Partners Capital totaled $14,014,507 $13,585,344. The Partnership began funding Mortgage Investments on December 27, 1989 and as of December 31, 1996 had credited the Partners accounts with income at an average annualized (compounded) yield of 8.14%. 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 next year will range only slightly higher from its current rate of 6.02%. 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 $1,175,000. 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 are not currently 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. Once the required principal and interest payments on the line of credit are paid to the bank, the Mortgage Investments funded using the line of credit generate revenue for the Partnership. As of December 31, 1996, the Partnership is current with its interest payments on the line of credit. In 1994, the Partnership incurred $135,790 of interest on note payables. The interest rate on the line of credit was Prime + 3/4% and the Partnership was able to maintain a positive spread between the cost of borrowing the funds and interest earned on lending the funds. In 1995, the Partnership incurred $163,361 of interest on note payables reflecting a small increase in the overall average credit balance outstanding. The Partnership still maintained a positive spread between the cost of borrowing the funds and the interest earned in lending the funds. In 1996, interest payments decreased to $127,454 reflecting the Partnerships overall smaller average outstanding credit line balance due primarily to a large number of Mortgage Investment payoffs. 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. Professional services were higher in 1993 and into 1994 as a result of a lawsuit initiated to collect an outstanding debt. The debt was collected in 1994. 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. Management provided $335,955 and $306,779 as provision for doubtful accounts for the years ended December 31, 1994 and December 31, 1995. The decrease in the provision reflects the decrease in the amount of REO, unsecured receivables and the decreasing levels of delinquency within the portfolio. Additionally, the General Partners felt that the bottom of the real estate cycle had been reached, reflecting a decreasing need to set aside reserves for continuously declining real estate values as had been the case in the early 1990s in the California real estate market. 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. At the time of subscription to the Partnership, Limited Partners make an irrevocable decision to either take distributions of earnings monthly, quarterly or annually or to compound earnings in their capital account. For the years ended December 31, 1995 and December 31, 1996 the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $262,450 and $327,887 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1995 and December 31, 1996 to Limited Partners capital accounts and not withdrawn was $640,390 and $522,621 respectively. As of December 31, 1995 and December 31, 1996 Limited Partners electing to withdraw earnings represented 36.00% and 44.00% of the Limited Partners outstanding capital accounts. The Partnership also allows the Limited Partners to withdraw their capital account subject to certain limitations (see liquidation provisions of Partnership Agreement). For the years ended December 31, 1995 and December 31, 1996, $ and $ were liquidated subject to the 10% penalty for early withdrawal. These withdrawals are within the normally anticipated range that the General Partners would expect in their experience in this and other Partnerships. The General Partners expect that a small percentage of Limited Partners will elect to liquidate their capital accounts over one year with a 10% early withdrawal penalty. In originally conceiving the Partnership, the General Partners wanted to provide Limited Partners needing their capital returned a degree of liquidity. Generally, Limited Partners electing to withdraw over one year need to liquidate investment to raise cash. The trend we are experiencing in withdrawals by Limited Partners electing a one year liquidation program represents a small percentage of Limited Partner capital as of December 31, 1995 and December 31, 1996 respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1995 and December 31,1996 $97,801 and $318,902 were liquidated by Limited Partners who have elected a liquidation program over a period of five years or longer. Once the initial five year hold period has passed the General Partners expect to see an increase in liquidations due to the ability of Limited Partners to withdraw without penalty. This ability to withdraw after five years by Limited Partners has the effect of providing Limited Partner liquidity which the General Partners then expect a portion of the Limited Partners to avail themselves of. This has the anticipated effect of the partnership growing, primarily through reinvestment of earnings in years one through five. The General Partners expect to see increasing numbers of Limited Partner withdrawals in years five through eleven, at which time the bulk of those Limited Partners who have sought withdrawal have been liquidated. After year eleven, the gross figures generally should subside and the Partnership capital again tends to increase. Item 8 - Financial Statements and Supplementary Data Redwood Mortgage Investors VII, a California Limited Partnership's list of Financial Statements and Financial Statement schedules: A-Financial Statements The following financial statements of Redwood Mortgage Investors VII are included in Item 8: Independent Auditors Report, Balance Sheets - December 31, 1996, and December 31, 1995, Statements of Income for the three years ended December 31, 1996, Statements of Changes in Partners Capital for the three years ended December 31, 1996, Statements of Cash Flows for the three years ended December 31, 1996, Notes to Financial Statements - December 31, 1996. B-Financial Statement Schedules The following financial statement schedules of Redwood Mortgage Inventors VII are included in Item 8. Schedule II Amounts receivable from related parties and underwriters, promoters, and employees other than related parties Schedule VIII Valuation of Qualifying Accounts Schedule IX Short Term Borrowings Schedule XII Mortgage loans on real estate All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) FINANCIAL STATEMENTS DECEMBER 31, 1996 (With Auditors Report Thereon) PARODI & CROPPER CERTIFIED PUBLIC ACCOUNTANTS 3658 Mount Diablo Blvd., Suite #205 Lafayette CA 94549 (510) 284-3590 INDEPENDENT AUDITORS REPORT THE PARTNERS REDWOOD MORTGAGE INVESTORS VII We have audited the financial statements and related schedules of REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) listed in Item 8 on form 10-K including balance sheets as of December 31, 1996 and 1995 and the statements of income, changes in partners capital and cash flows for the three years ended December 31, 1996. These financial statements are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VII as of December 31, 1996 and 1995, and the results of its operations and cash flows for the three years ended December 31, 1996 in conformity with generally accepted accounting principles. Further, it is our opinion that the schedules referred to above present fairly the information set forth therein in compliance with the applicable accounting regulations of the Securities and Exchange Commission. As explained in notes 1(a) and 11 to the financial statements, the formation loan receivable from Redwood Mortgage has been reclassified as a reduction in Partners Capital until collections are received. There was no effect on net income. /S/ A. Bruce Cropper PARODI & CROPPER Lafayette, California February 28, 1997 REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995 -------------- -------------- Cash $755,089 $514,840 -------------- -------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 12,036,293 12,382,641 Accrued Interest on Mortgage Investments 264,495 940,541 Advances on Mortgage Investments 41,203 110,874 Accounts receivables, unsecured 337,242 378,200 -------------- -------------- 12,679,233 13,812,256 Less allowance for doubtful accounts 228,647 200,000 -------------- -------------- 12,450,586 13,612,256 -------------- -------------- Real estate owned, acquired through foreclosure, held for sale 1,468,345 1,347,997 Investment in partnership 242,394 223,245 Formation loan due from Redwood Mortgage 429,163 517,051 Organization costs, less accumulated amortization of $10,102 and $9,734, respectively 0 368 -------------- -------------- $15,345,577 $16,215,757 ============== ============== $14,916,414 $15,698,706 ============== ============== LIABILITIES AND PARTNERS CAPITAL Liabilities: Notes payable - bank line of credit $1,175,000 $2,000,000 Accounts payable and accrued expenses 1,472 1,472 Deferred Interest 154,598 0 -------------- -------------- 1,331,070 2,001,472 Partners Capital 14,014,507 14,214,285 -------------- -------------- Limited partners capital, subject to redemption (Note 4E): Net of unallocated sundication costs of $0 and $13,588 for 1996 and 1995 respectively; and formation loan receivable of $429,163 and $517,051 for 1996 and 1995, respectively 13,573,366 13,685,393 General partners capital, net of unallocated syndication costs of $0 and $137, for 1996 and 1995, respectively 11,978 11,841 -------------- -------------- Total Partners Capital 13,585,344 13,697,234 $15,345,577 $16,215,757 Total Liabilites and Partners Capital $14,916,414 $15,698,706 ============== ============== See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 1996
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 ------------- ------------- -------------- Revenues: Interest on Mortgage Investments $1,430,183 $1,430,742 $1,453,969 Interest on Mortgage Investments $1,527,450 $1,464,136 $1,453,969 Interest on bank deposits 10,228 8,407 13,843 Late charges 17,266 9,038 20,232 Other 25,556 2,300 1,838 ------------- ------------- -------------- ------------- ------------- -------------- 1,483,233 1,450,487 1,489,882 ------------- ------------- -------------- ------------- ------------- -------------- 1,580,500 1,483,881 1,489,882 ------------- ------------- -------------- Expenses: Mortgage sevicing fees 97,267 33,394 0 Interest on note payable - bank 127,454 163,361 135,790 Clerical costs through Redwood Mortgage 40,874 27,762 0 Amortization of organization costs 368 2,016 2,016 General partners asset management fee 0 0 10,008 Provision for doubtful accounts and losses on real estate acquired through foreclosure 419,437 306,779 335,955 Professional services 18,802 19,557 53,250 Printing, supplies and postage 12,466 14,703 17,282 Other 4,733 4,349 8,290 ------------- ------------- -------------- 624,134 538,527 562,591 ------------- ------------- -------------- 721,401 571,921 562,591 Net Income $859,099 $911,960 $927,291 ============= ============= ============== Net income: To General Partners(1%) $8,591 $9,120 $9,273 To Limited Partners (99%) 850,508 902,840 918,018 ============= ============= ============== $859,099 $911,960 $927,291 ============= ============= ============== Net income per $1,000 invested by Limited Partners for entire period: -where income is reinvested and compounded $ 60 $ 60 $ 63 ============= ============= ============== -where partner receives income in monthly distributions $ 59 $ 58 $ 61 ============= ============= ============== 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
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 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 8,591 850,508 0 859,099 Allocation of syndication costs (137) (13,588) 13,725 0 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 ============== =============== ================ =============== 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
PARTNERS CAPITAL --------------------------------------------------------------------------- LIMITED PARTNERS CAPITAL --------------------------------------------------------------------------- Capital Account Unallocated Formation Limited Syndication Loan Partners Costs Receivable Total --------------- --------------- -------------- --------------- Balances at December 31, 1993 $13,596,915 $(187,807) $(693,471) $12,715,637 Formation loan collections 0 0 65,166 65,166 Net income 918,018 0 0 918,018 Allocation of syndication costs (80,190) 80,190 0 0 Early withdrawal penalties (34,001) 10,529 23,366 (106) Partners withdrawals (560,753) 0 0 (560,753) --------------- --------------- -------------- --------------- Balances at December 31, 1994 13,839,989 (97,088) (604,939 13,137,962 Formation loan collections 0 0 80,542 80,542 Net income 902,840 0 0 902,840 Allocation of syndication costs (80,190) 80,190 0 0 Early withdrawal penalties (10,690) 3,310 7,346 (34) Partners withdrawals (435,917) 0 0 (435,917) --------------- --------------- -------------- --------------- Balances at December 31, 1995 14,216,032 (13,588) (517,051) 13,685,393 Formation loan collections 0 0 62,225 62,225 Net income 850,508 0 0 850,508 Allocation of syndication costs (13,588) 13,588 0 0 Early withdrawal penalties (37,345) 0 25,663 (11,682) Partners withdrawals (1,013,078) 0 0 (1,013,078) --------------- --------------- -------------- --------------- Balances at December 31, 1996 $14,002,529 $0 $(429,163) $13,573,366 =============== =============== ============== =============== 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
PARTNERS CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS CAPITAL ---------------------------------------------------------- Capital Account Unallocated Total General Partners Syndication Costs Partners Total Capital ------------------ ------------------- ------------ --------------- Balances at December 31, 1993 $11,978 $(1,897) $10,081 $12,725,718 Formation loan collections 0 0 0 65,166 Net income 9,273 0 9,273 927,291 Allocation of syndication costs (810) 810 0 0 Early withdrawal penalties 0 106 106 0 Partners withdrawals (8,463) 0 (8,463) (569,216) ------------------ ------------------- ------------ --------------- Balances at December 31, 1994 11,978 (981) 10,997 13,148,959 Formation loan collections 0 0 0 80,542 Net income 9,120 0 9,120 911,960 Allocation of syndication costs (810) 810 0 0 Early withdrawal penalties 0 34 34 0 Partners withdrawals (8,310) 0 (8,310) (444,227) ------------------ ------------------- ------------ --------------- Balances at December 31, 1995 11,978 (137) 11,841 13,697,234 Formation loan collections 0 0 0 62,225 Net income 8,591 0 8,591 859,099 Allocation of syndication costs (137) 137 0 0 Early withdrawal penalties 0 0 0 (11,682) Partners withdrawals (8,454) 0 (8,454) (1,021,532) ------------------ ------------------- ------------ --------------- Balances at December 31, 1996 $11,978 $0 $11,978 $13,585,344 ------------------ ------------------- ------------ --------------- See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VII (A Califonira Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1996
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Cash flows from operating activities: Net income $859,099 $911,960 $927,291 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 368 2,016 2,016 Provision for doubtful accounts 204,398 74,812 106,950 Provision for losses on real estate held for sale 215,039 231,967 229,005 Early withdrawal penalty credited to income (11,682) 0 0 (Increase) decrease in accrued interest & advances 745,717 (284,506) (140,657) Increase (decrease) in accounts payable and accrued expenses 0 (1,501) (37,549) (Increase) decrease in amount due from or to Redwood Mortgage 0 (5,663) 3,806 Increase (decrease) in deferred interest on Mortgage Investments 154,598 0 (8,548) ------------- ------------- ------------- Net cash provided by operating activities 2,167,537 929,085 1,082,314 ------------- ------------- ------------- Cash flows from investing activities: Principal collected on mortgage investments 8,923,339 1,980,879 3,383,366 Mortgage Investments made (9,099,688) (3,592,507) (4,671,889) Formation loan collections 87,888 87,888 88,532 Additions to Real Estate held for sale (147,733) (170,194) (647,609) Dispositions of real estate held for sale 200,250 1,198,211 334,102 Investment in partnership (19,149) 0 0 ------------- ------------- ------------- Net cash provided by (used in) investing activities (55,093) (495,723) (1,513,498) ------------- ------------- ------------- Net cash provided by (used in) investing activities (142,981) (583,611) (1,602,030) ------------- ------------- ------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank (825,000) 70,370 999,137 Formation loan collections 62,225 80,542 65,166 Early withdrawal penalties, net of credit to syndication costs (37,345) (444,227) (569,216) Partners withdrawals (1,021,532) (444,227) (569,216) ------------- ------------- ------------- Net cash provided by (used in) financing activities (1,883,877) (381,203) 406,555 ------------- ------------- ------------- Net cash provided by (used in) financing activities (1,784,307) (293,315) 495,087 ------------- ------------- ------------- Net increase (decrease) in cash 240,249 52,159 (24,629) Cash - beginning of period 514,840 462,681 487,310 ------------- ------------- ------------- Cash - end of period $755,089 $514,840 $462,681 ============= ============= ============= See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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 has had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through December 31, 1996, $485,206 including $75,478 in early withdrawal penalties, had been repaid leaving a balance of $429,163. The formation loan, which is due from an affiliate of the General Partners, has been deducted from Limited Partners capital in the balance sheet. As amounts are collected from Redwood Mortgage, the deduction from capital will be reduced. B. Other Organizational and Offering Expenses Organizational and offering expenses, other than sales commissions, (including printing costs, attorney and accountant fees, and other costs), were paid by the Partnership. Such costs were limited to 10% of the gross proceeds of the offering or $500,000 whichever was less. The General Partners were to pay any amount of such expenses in excess of 10% of the gross proceeds or $500,000. Organization costs of $10,102 and syndication costs of $415,692 were incurred by the Partnership. The sum of organization and syndication costs, $425,794, approximated 3.55% of the gross proceeds contributed by the Partners. Both the Organization and Syndication Costs have been fully amortized and allocated to the Partners. 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 partnerP capital and were allocated to individual partners consistent with the Partnership Agreement. Property acquired through foreclosure will be held for prompt 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 account 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. A. Accrual Basis Revenues and expenses are accounted for on the accrual basis of accounting wherein income is recognized as earned and expenses are recognized as incurred. Once a loan is categorized as impaired, interest is no longer accrued thereon. B. Management Estimates In preparing the financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the related periods. Such estimates relate principally to the determination of the allowance for doubtful accounts, including the valuation of impaired 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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 December 31, 1996, 1995 and 1994, reductions in the cost of loans categorized as impaired by the Partnership totalled $9,595, $0 and $10,000 respectively. The reduction in stated value was accomplished by increasing the allowance for doubtful accounts. As presented in Note 8 to the financial statements as of December 31, 1996, the average mortgage investment to appraised value of security at the time the loans were consummated was 65.76%. 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. 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 December 31, 1996 and 1995: December 31, ---------------------------------- 1996 1995 ----- ------ Costs of properties $1,655,786 $1,410,571 Reduction in value 187,441 62,574 --------------- --------------- Fair value reflected in financial statements $1,468,345 $1,347,997 ============= ============ 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 F. Investment in Partnership (see note 5) The Partnership accounts for its investment in a partnership as an investment in real estate, which is at the lower of costs or fair value, less estimated costs to sell. At December 31, 1996, cost is considered less than fair value and the investment is stated at cost in the financial statements. G. Income Taxes No provision for Federal and State income taxes is made in the financial statements since income taxes are the obligation of the partners if and when income taxes apply. H. Organization and Syndication Costs The Partnership bears its own organization and syndication costs (other than certain sales commissions and fees described above) including legal and accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage fee and filing fees. Organizational costs of $10,102 were capitalized and were amortized over a five year period. Syndication costs of $425,794 were charged against partners capital and were allocated to individual partners consistent with the Partnership Agreement. 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 December 31, 1996 and 1995 was as follows: December 31, ----------------------------------------------- 1996 1995 --------------- --------------- Impaired mortgage investments $9,595 $0 Unspecified mortgage investments 19,052 50,000 Accounts receivable, unsecured 200,000 150,000 ------------ --------------- $228,647 $200,000 ============ =============== 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 K. Reclassifications and Changes in Presentation Certain reclassifications not affecting net income have been made to prior year amounts to conform to the current year presentation. In addition, the formation loan which was previously categorized as an asset, has been deducted from Limited Parteners capital until collected from Reddwood Mortgage, an affiliate of the General Partners. 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, 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. 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. Amounts remitted to Redwood Mortgage and recorded as interest on Mortgage Investments is net of such fees. In 1994, all $124,049 in loan servicing fees were waived by Redwood Mortgage. In 1995, $66,888 of the total loan servicing fees of $100,282 were waived. In 1996, $92,249 of the total loan servicing fees of $189,516 were waived by Redwood Mortgage. Mortgage servicing fees of $97,267, $33,394 and $0 were incurred for years 1996, 1995 and 1994, respectively. 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). In 1996, 1995 and 1994, the asset management fees charged were $10,008, $16,735, and $0.00 respectively. The computed management fees were $51,519, $50,360, and $53,537 respectively, with the difference being waived by the General Partners. Management fees of $0, 0 and $10,008 were incurred for years 1996, 1995 and 1994, 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%. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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. In 1996 and 1995, reimbursed expenses totalled $40,874 and $27,762, respectively. Such reimbursements are reflected as expenses in the Statements of Income. G. General Partners Contributions The General Partners collectively or severally were to contribute 1/10 of 1% in cash contributions as proceeds from the offering were admitted to limited Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation, had contributed $11,998, 1/10 of 1% of limited partner contributions in accordance with Section 4.02(a) of the Partnership Agreement. NOTE 4 - OTHER PARTNERSHIP PROVISIONS 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, REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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, 1995, or 1996, was subject to the guarantee. 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 $242,394 has been invested with that of two other Partnerships (total cost to date, primarily land, of $1,021,798) 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 $337,242 at December 31, 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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, 1995 and 1996 were $2,000,000, and $1,175,000 respectively, and the interest rate at December 31, 1996 was 8.75% (8.25% prime + .50%). 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: December 31, ------------------------------- 1996 1995 -------- ------- Net assets - Partners Capital per financial $13,585,344 $13,697,234*- statements Formation loan receivable 429,163 517,051 Allowance for doubtful accounts 228,647 200,000 ---------- -------- Net assets tax basis $14,243,154 $14,414,285 ============= ============ 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 $12,036,293. The December 31, 1996 fair value of these investments of $12,001,000 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. NOTE 8 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At December 31, 1996, there were 71 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 71 Total Mortgage Investments outstanding $12,036,293 Average Mortgage Investment outstanding $169,525 Average Mortgage Investment as percent of total 1.41% Average Mortgage Investment as percent of Partners Capital 1.21% Average Mortgage Investment as percent of Partners Capital 1.25% Largest Mortgage Investment outstanding $979,273 Largest Mortgage Investment as percent of total 8.14% Largest Mortgage Investment as percent of Partners Capital 6.99% Largest Mortgage Investment as percent of Partners Capital 7.21% Number of counties where security is located(all California) 17 Largest percentage of Mortgage Investments in one county 24.00% Average Mortgage Investment to appraised value of security at time loan was consummated 65.76% Number of Mortgage Investments in foreclosure 5 The following categories of mortgage investments are pertinent at December 31, 1996 and 1995: December 31, ------------------------------------ 1996 1995 ----------- --------------- First Trust Deeds $4,199,552 $3,922,120 Second Trust Deeds 6,913,853 7,377,189 Third Trust Deeds 722,887 896,188 Fourth Trust Deeds 200,001 187,144 ----------- ---------- Total mortgage investments 12,036,293 12,382,641 Prior liens due other lenders 22,068,554 30,575,880 ----------- ---------- Total debt $34,105,847 $42,958,491 =========== =========== Appraised property value at time of loan $51,863,991 $68,888,224 =========== =========== Total investments as a percent of appraisals 65.76% 62.36% =========== ============ Investments by Type of Property Owner occupied homes $1,742,767 $2,621,800 Non-Owner occupied homes 1,112,274 651,528 Apartments 1,325,872 1,828,877 Commercial 7,855,380 7,280,436 =========== ============ $12,036,293 $12,382,641 =========== ============ REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 Scheduled maturity dates of mortgage investments as of December 31, 1996 are as follows: Year Ending December 31, ------------------- 1997 $2,825,886 1998 3,834,232 1999 1,295,510 2000 1,029,619 2001 1,076,994 Thereafter 1,974,052 =============== $12,036,293 =============== The scheduled maturities for 1997 include approximately $1,597,297 in loans which are past maturity at December 31, 1996. Interest payment on most of these loans are current. $315,066 of those loans were categorized as delinquent over 90 days. Five loans with principal outstanding of $652,081 had interest payments overdue in excess of 90 days. Two loans had impaired provisions totalling $9,595 at December 31, 1996. The cash balance at December 31, 1996 of $755,089 was in one bank with an interest bearing balance totalling $179,572. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $655,089. NOTE 11 - CHANGE IN PRESENTATION The formation loan receivable from Redwood Mortgage, an affiliate of the General Partners, has been categorized as a reduction in Limited Partners Capital, the source of the funds. It was previously reflected as an asset. As payments are received, or early withdrawal penalties realized, the formation loan balance will be reduced and restored to Limited Partners Capital. The total of the formation loan outstanding was $429,163 and 517,051 at December 31, 1996 and 1995, respectively. SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03 Column A Column B Column C Column D Column E Name of Debtor Balance Beginning Additions Deductions Balance at end of period of period 12/31/95 (1) (2) (1) (2) Amounts Amounts Current Not Current collected written off 12/31/96
Redwood Mortgage . $517,051 $0.00 $62,225 $25,663* $0.00 $429,163 The above schedule represents the formation loan borrowed by Redwood Mortgage from the Partnership to pay for the selling commissions on units. It is an unsecured loan and will not bear interest. It will be repaid to the Partnership in ten annual installments of principal only commencing January 1, 1992. * The amount written off is comprised of the applications of the applicable portions of early withdrawal penalty as provided for in the prospectus.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS REDWOOD MORTGAGE INVESTORS VII Column A Column B Column C Column D Column E Description Balance at Additions Deductions Balance at ------------------------------------ beginning of (1) (2) Describe End of Period of period Charged to Charged to Costs & Expenses Other accounts - Describe
Year Ended 12/31/96 Deducted from Asset accounts: Allowance for Doubtful accts $200,000 $419,437 $0.00 $390,790 $228,647 Doubtful accts $200,000 $204,398 $175,751 $0 $228,647 Cumulative write-down of Real Estate held for sale (REO) $62,574 $215,039 $90,172 $0 $187,441 Total $262,574 $419,437 $265,923 $0 $416,088 (2) represents loss on mortgage investments and real estate held for sale.
SCHEDULE IX SHORT TERM BORROWINGS REDWOOD MORTGAGE INVESTORS VII RULE 12-10 Column A Column B Column C Column D Column E Column F Category of Aggregate Balance at End Weighted Average Maximum Amount Average Amount Weighted Average Short-Term Borrowings of Period Interest Rate Outstanding Outstanding Interest Rate during During the Period During the Period the period - ----------------------- ---------------- ------------------- --------------------- ------------------- -------------------
Year-Ended 12/31/96 $1,175,000 9.300% $2,000,000 $1,370,413 9.300%
SCHEDULE XII MORTGAGE INVESTMENTS ON REAL ESTATE. RULE 12-29 MORTGAGE LOANS ON REAL ESTATE Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J Descp. Interest Final Periodic Prior Face Amt. Carrying Principal Type of Geographic Rate Maturity Payment Liens of amount of amount of Lien County Date Terms Mortgage Mortgage Mortgage Location Investments Investments Investments (original subject to amount) Delinq. Principal or Interest ========= ========= ========= =========== ========== ============ ============ ============ ========= ==============
Res. 14.500% 12/01/95 $1,114.35 $336,591 $91,000.00 $89,074.94 $89,074.94 2nd Mtg San Mateo Res 14.000% 09/01/94 175.00 67,583 15,000.00 14,708.39 0.00 2nd Mtg San Mateo Res 14.500% 06/01/01 782.62 84,303 63,910.49 62,836.42 62,836.42 2nd Mtg Marin Res 13.750% 08/01/96 1,258.32 0.00 108,000.00 105,694.70 0.00 1st Mtg San Francisco Res 15.000% 09/01/96 1,251.80 319,721 99,000.00 90,740.78 90,740.78 2nd Mtg San Mateo Res 12.000% 08/01/04 710.00 70,729 62,000.00 64,393.56 0.00 2nd Mtg Alameda Res 13.750% 10/01/96 916.67 369,163 80,000.00 80,000.00 0.00 2nd Mtg San Mateo Res 13.750% 10/01/96 988.28 0.00 86,250.00 86,250.00 0.00 1st Mtg Santa Clara Res 12.500% 02/01/07 369.76 0.00 30,000.00 25,438.43 0.00 1st Mtg Santa Cruz Res 10.000% 12/24/01 308.28 0.00 37,984.50 34,884.05 0.00 1st Mtg Alameda Res 10.000% 04/17/97 132.08 126,800 15,850.00 15,788.90 0.00 2nd Mtg Sonoma Land 15.000% 06/01/93 1,375.00 210,000 110,000.00 110,000.00 0.00 3rd Mtg Sacramento Res 13.000% 07/01/97 1,603.99 254,505 145,000.00 142,127.61 0.00 2nd Mtg San Mateo Res 12.500% 07/01/97 453.58 129,491 42,500.00 41,717.30 0.00 2nd Mtg San Mateo Res 12.750% 07/01/97 880.22 592,878 81,000.00 79,123.10 0.00 2nd Mtg San Mateo Land 15.500% 07/15/94 1,453.13 0.00 112,500.00 112,500.00 0.00 1st Mtg San Mateo Comm 7.000% 08/06/02 311.38 17,382 46,803.50 44,532.37 0.00 2nd Mtg Alameda Comm 12.000% 10/01/97 4,517.38 796,163 439,172.47 431,064.13 0.00 3rd Mtg Contra Costa Res 10.000% 11/06/07 65.91 48,829 6,133.33 5,242.28 0.00 2nd Mtg San Francisco Comm 12.500% 01/01/98 587.00 0.00 55,000.00 54,128.70 0.00 1st Mtg San Mateo Comm 12.250% 01/01/98 4,083.36 354,077 400,002.42 400,002.42 0.00 2nd Mtg Contra Costa Res 12.000% 02/01/98 150.00 208,000 15,000.00 8,528.06 0.00 2nd Mtg San Mateo Comm 12.500% 04/05/08 921.02 0.00 175,000.00 65,213.37 0.00 1st Mtg Tuoloume Res 12.000% 05/01/98 514.31 0.00 50,000.00 49,257.75 0.00 1st Mtg San Francisco Comm 12.000% 06/01/98 2,038.01 0.00 239,850.00 195,804.52 0.00 1st Mtg Sonoma Apts 4.000% 05/01/06 540.83 89,904 100,000.00 96,893.59 0.00 2nd Mtg Sacramento Res 12.000% 07/01/98 3,085.84 85,930 300,000.00 274,178.59 274,178.59 2nd Mtg El Dorado Res 12.750% 07/01/08 370.90 236,164 29,700.00 26,875.11 0.00 2nd Mtg San Mateo Res 13.500% 09/01/08 1,647.07 106,044 126,861.90 116,430.02 0.00 2nd Mtg Contra Costa Comm 12.000% 09/01/03 848.61 0.00 82,500.00 81,345.94 0.00 1st Mtg Alameda Comm 6.000% 09/01/03 885.00 0.00 133,000.00 125,200.12 0.00 1st Mtg San Mateo Comm 12.000% 11/01/98 2,057.23 5,635 200,000.00 74,423.44 0.00 2nd Mtg San Francisco Res 8.000% 05/01/09 753.50 0.00 81,825.00 71,982.62 0.00 1st Mtg Alameda Comm 10.000% 12/01/98 647.21 0.00 73,750.00 72,887.14 0.00 1st Mtg Stanislaus Comm 12.250% 01/01/98 2,080.84 891,453 200,001.20 200,001.20 0.00 4th Mtg Contra Costa Comm 10.000% 12/01/98 3,619.98 0.00 412,500.00 407,226.68 0.00 1st Mtg Alameda Comm 7.000% 12/01/03 575.74 281,250 49,586.38 41,566.43 0.00 2nd Mtg Alameda Comm 12.000% 02/01/99 3,420.75 0.00 312,000.00 335,638.30 0.00 1st Mtg Santa Clara Comm 12.000% 06/01/04 1,316.53 0.00 125,000.00 122,596.76 0.00 1st Mtg Santa Barbara Land 12.000% 07/01/96 1,352.50 679,258 135,250.00 135,250.00 135,250.00 3rd Mtg Sonoma Res 11.000% 10/01/99 571.39 478,120 60,000.00 59,375.29 0.00 2nd Mtg San Mateo Comm 15.250% 10/01/95 1,270.83 510,979 100,000.00 23,525.53 0.00 2nd Mtg Santa Cruz Land 11.500% 12/20/96 6,160.73 907,480 757,144.25 642,858.33 0.00 2nd Mtg Stanislaus Apts 7.000% 02/10/05 234.06 80,250 40,125.00 40,125.00 0.00 2nd Mtg San Francisco Res 12.000% 03/01/98 1,500.29 0.00 280,000.00 147,206.50 0.00 1st Mtg Alameda Apts 11.500% 04/01/05 2,651.89 0.00 550,000.00 267,792.71 0.00 1st Mtg San Francisco Comm 11.875% 05/01/05 2,088.00 0.00 200,000.00 197,605.96 0.00 1st Mtg San Francisco Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J Descp. Interest Final Periodic Prior Face Amt. Carrying Principal Type of Geographic Rate Maturity Payment Liens of amount of amount of Lien County Date Terms Mortgage Mortgage Mortgage Location Investments Investments Investments (original subject to amount) Delinq. Principal or Interest ========= ========= ========= =========== ========== ============ ============ ============ ========= ============== Comm 9.000% 05/10/02 670.52 0.00 83,333.33 82,407.46 0.00 1st Mtg Shasta Comm 12.000% 10/31/99 7,000.00 2,684,430 700,000.00 700,000.00 0.00 2nd Mtg Santa Clara Res 8.000% 09/27/00 530.79 106,333 79,619.05 79,619.05 0.00 2nd Mtg Monterey Land 8.000% 12/01/97 400.00 0.00 60,000.00 60,000.00 0.00 1st Mtg Solano Comm. 11.875% 02/01/06 4,437.00 0.00 425,000.00 422,581.57 0.00 1st Mtg San Mateo Comm. 12.000% 12/31/01 9,792.73 5,492,794 955,000.00 979,272.93 0.00 2nd Mtg Santa Clara Comm 12.000% 03/15/98 4,000.00 3,000,000 400,000.00 400,000.00 0.00 2nd Mtg Santa Clara Land 12.000% 02/01/97 3,822.50 0.00 382,250.00 382,250.00 0.00 1st Mtg Santa Clara Apts 12.000% 02/01/98 9,106.84 883,750 1,427,500.00 921,060.33 0.00 2nd Mtg San Francisco Res 12.000% 02/01/98 2,107.47 825,000 320,000.00 246,903.83 0.00 2nd Mtg San Francisco Res 8.000% 09/18/03 87.56 0.00 11,932.83 11,908.65 0.00 1st Mtg Sonoma Res 12.000% 05/01/98 235.43 0.00 238,000.00 42,622.50 0.00 1st Mtg San Francisco Res 8.000% 09/30/03 89.71 0.00 12,225.92 12,201.15 0.00 1st Mtg Sonoma Res 8.000% 04/10/97 199.63 0.00 29,944.39 29,944.39 0.00 1st Mtg San Mateo Comm 12.000% 02/01/99 56.65 312,000 12,000.00 5,496.62 0.00 2nd Mtg Santa Clara Res 13.000% 12/01/99 704.17 0.00 65,000.00 65,000.00 0.00 1st Mtg Ventura Res 13.000% 12/01/99 704.17 0.00 65,000.00 65,000.00 0.00 1st Mtg Ventura Res 13.000% 12/01/99 704.17 0.00 65,000.00 65,000.00 0.00 1st Mtg Ventura Res 12.000% 01/01/98 3,400.00 0.00 340,000.00 340,000.00 0.00 1st Mtg Alameda Land 12.000% 01/01/00 9,500.00 89,692 950,000.00 950,000.00 0.00 2nd Mtg Stanislaus Res 13.000% 01/01/03 999.54 15,400 79,000.00 51,719.39 0.00 2nd Mtg San Mateo Res 10.000% 08/01/97 388.67 309,872 45,000.00 46,573.10 0.00 3rd Mtg San Mateo Res 13.500% 04/01/95 732.61 0.00 63,960.00 61,981.43 0.00 1st Mtg San Mateo Res 15.250% 04/01/95 588.29 11,601 45,800.00 44,713.29 0.00 2nd Mtg Solano ----------- ---------- ------------ ------------ ------------ Totals $124,899.62 $22,069,554 $13,811,765.96 $12,036,292.73 $652,080.73 Notes: Two loans had impaired provisions totalling $9,595 included in the allowance for doubtful accounts of $28,647 relating to mortgage investments at December 31, 1996. Impaired loans are defined as loans where the costs of related balances exceeds the anticipated fair value less costs to collect. Amounts reflected in column G (carrying amount of mortgage investments) represents both costs and the tax basis of the loans.
Schedule XII Reconciliation of carrying amount of Mortgage Investments at close of period (12/31/96) Balance at beginning of period 1/01/96 $12,382,641 Additions during period: New Mortgage Investments $9,099,688 Other 0 $9,099,688 - ------------------------------------------- ------------------ ---------------- $21,482,329 Deduction during period: Collections of principal $8,923,339 Foreclosures 492,697 Cost of Mortgage Investment sold 0 Amortization of Premium 0 Other 30,000 $9,446,036 - -------------------------------------------- ------------------ ---------------- Balance at close of period (12/31/96) $12,036,293 ------------ Schedule XII Reconciliation of carrying amount (cost) of Mortgage Investments at close of periods Year ended December 31, ---------------------------------------------------------- 1996 1995 1994 --------------- --------------- ---------------
Balance at beginning of year $12,382,641 $11,345,566 $11,766,189 --------------- --------------- --------------- Additions during period: New Mortgage Investments 9,099,688 3,592,507 4,671,889 Other 0 0 0 --------------- --------------- --------------- Total Additions 9,099,688 3,592,507 4,671,889 --------------- --------------- --------------- Deduction during period: Collections of principal 8,923,339 1,980,879 3,383,366 Foreclosures 492,697 485,322 1,709,146 Cost of Mortgage Investments sold 0 0 0 Amortization of Premium 0 0 0 Other 30,000 89,231 0 --------------- --------------- --------------- Total Deductions 9,446,036 2,555,432 5,092,512 --------------- --------------- --------------- Balance at close of year $12,036,293 $12,382,641 $11,345,566 =============== =============== ===============
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Partnership has neither changed its accountants nor does it have any disagreement on any matter of accounting principles or practices of financial statement disclosures. Part III Item 10 - Directors and Executive Officers of the Registrant The Partnership has no Officers or Directors. Rather, the activities of the Partnership are managed by the three General Partners of which two individuals are D. Russell Burwell and Michael R. Burwell. The third General Partner is Gymno Corporation, a California corporation, formed in 1986. The Burwells are the two shareholders of Gymno Corporation, a California corporation, on an equal (50-50) basis. Item 11 - Executive Compensation COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP As indicated above in Item 10, the Partnership has no officers or directors. The Partnership is managed by the General Partners. There are certain fees and other items paid to management and related parties. A more complete description of management compensation is found in the Prospectus, pages 12-13, under the section Compensation of the General partners and the Affiliates, which is incorporated by reference. Such compensation is summarized below. The following compensation has been paid to the General Partners and Affiliates for services rendered during the year ended December 31, 1996. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation and Services Rendered Amount Compensation - ------------------------------------------------------------------ ------------ I. Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage Investments................ $97,267 General Partners &/or Affiliate Asset Management Fee for managing assets........................... $0 General Partners 1% interest in profits........... $8,591 Less allowance for syndication costs 137 $8,454 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) Redwood Mortgage. Loan Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the Mortgage Investments paid by the borrowers and not by the Partnership $236,310 Redwood Mortgage Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees payable by the borrowers and not by the Partnership............... $5,609 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. $40,874 Item 12 - Security Ownership of Certain Beneficial Owners and Management The General Partners are to own a combined total of 1% of the Partnership including a 1% portion of income and losses. Item 13 - Certain Relationships and Related Transactions Refer to footnote 3 of the notes to financial statements in Part II item 8 which describes related party fees and data. Also refer to the Prospectus dated October 20, 1989 (incorporated herein by reference) on page 12 Compensation of General Partners and Affiliates and page 14 Conflicts of Interest. Part IV Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K. A. Documents filed as part of this report are incorporated: 1. In Part II, Item 8 under A - Financial Statements. 2. The Financial Statement Schedules are listed in Part II - Item 8 under B - Financial Statement Schedules. 3. Exhibits. Exhibit No. Description of Exhibits - ----------------- -------------------------- 3.1 Limited Partnership Agreement 3.2 Form of Certificate of Limited Partnership Interest 3.3 Certificate of Limited Partnership 10.1 Escrow Agreement 10.2 Servicing Agreement 10.3 (a) Form of Note secured by Deed of Trust which provides for principal and interest payments. (b) Form of Note secured by Deed of Trust which provides principal and interest payments and right of assumption (c) Form of Note secured by Deed of Trust which provides for interest only payments (d) Form of Note 10.4 (a) Deed of Trust and Assignment of Rents to accompany Exhibits 10.3 (a), and (c) (b) Deed of Trust and Assignment of Rents to accompany Exhibit 10.3 (b) (c) Deed of Trust to accompany Exhibit 10.3 (d) 10.5 Promissory Note for Formation Loan 10.6 Agreement to Seek a Lender 24.1 Consent of Parodi & Cropper 24.2 Consent of Stephen C. Ryan & Associates. All of these exhibits were previously filed as the exhibits to Registrants Statement on Form S-11 (Registration No. 33-30427 and incorporated by reference herein). B. Reports of Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. C. See A (3) above. D. See A (2) above. Additional reference is made to the prospectus (S-11 filed as part of the Registration Statement) dated October 20, 1989 to pages 65 through 67 and Supplement #5 dated February 14, 1992 for financial data related to Gymno Corporation, a General Partner. 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 18th day of March, 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 18th day of March, 1997. Signature Title Date /S/ D. Russell Burwell - -------------------------- D. Russell Burwell General Partner March 18, 1997 /S/ Michael R. Burwell - -------------------------- Michael R. Burwell General Partner March 18, 1997 /S/ D. Russell Burwell - -------------------------- D. Russell Burwell President of Gymno Corporation, March 18, 1997 (Principal Executive Officer); Director of Gymno Corporation /S/ Michael R. Burwell - -------------------------- Michael R. Burwell Secretary/Treasurer of Gymno March 18, 1997 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 755089 0 12679233 228647 0 0 0 0 14916414 0 0 1331070 0 0 13585344 14916414 0 1580500 0 174510 0 419437 127454 859099 0 859099 0 0 0 859099 .00 .00
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