-----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, RPtBF19lCphvx74B85litdNnBksAHBT/gkf91J2Dxt4GrRKQAYTUaM8un7RnSll2 L9lfFFalSx2DQM80J2/cgQ== 0000854092-98-000006.txt : 19980817 0000854092-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000854092-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 000-19992 FILM NUMBER: 98688775 BUSINESS ADDRESS: STREET 1: 650 EL CAMINO STE G CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153670121 MAIL ADDRESS: STREET 1: 650 EL CAMINO REAL STE K CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 10Q FORM 10-Q SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Period Ended June 30, 1998 - ---------------------------------------------------- -------------------------- 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) (650) 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, 1997 (audited) and June 30, 1998 (unaudited) ASSETS June 30, 1998 Dec 31, 1997 (unaudited) (audited) --------------- ---------------
Cash $847,438 $520,837 --------------- --------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 12,650,289 13,449,741 Accrued Interest on Mortgage Investments 297,543 427,952 Advances on Mortgage Investments 37,737 33,154 Accounts receivables, unsecured 252,060 252,422 --------------- --------------- 13,237,629 14,163,269 Less allowance for doubtful accounts 682,398 424,738 --------------- --------------- 12,555,231 13,738,531 --------------- --------------- Real estate owned, acquired through foreclosure, held for sale 513,123 687,139 Investment in partnership 0 346,017 --------------- --------------- $13,915,792 $15,292,524 =============== =============== LIABILITIES AND PARTNERS CAPITAL Liabilities: Notes payable - bank line of credit $1,432,663 $2,341,816 Accounts payable and accrued expenses 27,373 1,845 Deferred Interest 0 69,316 -------------- -------------- 1,460,036 2,412,977 -------------- -------------- Partners Capital Limited partners capital, subject to redemption (Note 4E): Net of formation loan receivable of $296,978 and $341,275 for 1998, and 1997, respectively 12,443,778 12,867,569 General partners capital 11,978 11,978 -------------- -------------- Total Partners Capital 12,455,756 12,879,547 -------------- -------------- Total Liabilities and Partners Capital $13,915,792 $15,292,524 ============== ============== 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, 1998 AND 1997 (unaudited) 6 months ended 6 months ended 3 months ended 3 months ended June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 (unaudited) (unaudited) (unaudited) (unaudited)
Revenues: Interest on Mortgage Investments $776,983 $766,499 $390,113 $398,159 Interest on bank deposits 3,240 3,593 1,044 2,196 Late Charges 7,377 2,926 6,813 1,832 Miscellaneous 5,858 8,956 2,888 4,825 Gain on sale of property 70,805 0 70,805 0 ------------ ------------- ------------ ------------- 864,263 781,974 471,663 407,012 ------------ ------------- ------------ ------------- Expenses: Interest on note payable-bank 88,076 82,814 35,630 59,279 Mortgage servicing fee 58,999 31,628 32,586 16,130 Asset management fees 8,219 0 4,074 0 Clerical costs through Redwood Mortgage 17,499 19,336 8,705 9,563 Professional Fees 18,350 19,726 1,408 6,350 Provision for doubtful accounts and losses on real estate acquired through 255,896 201,322 182,498 104,204 foreclosure Printing, Supplies and Postage 6,271 5,480 3,373 3,378 Other 4,408 3,769 500 57 ------------ ------------- ------------ ------------- 457,718 364,075 268,774 198,961 ------------ ------------- ------------ ------------- Net income $406,545 $417,899 $202,889 $208,051 ============ ============= ============ ============= Net income: to General Partners (1%) $4,065 $4,179 $2,029 $2,081 Net income: to Limited Partners (99%) $402,480 $413,720 $200,860 $205,970 ============ ============= ============ ============= $406,545 $417,899 $202,889 $208,051 ============ ============= ============ ============= Net income per $1000 invested by Limited Partners for entire period: - where income is reinvested and $31.00 $29,63 $15.49 $14.89 compounded ------------ ------------- ------------ ------------- - where partner receives income in monthly distributions $30.61 $29.59 $15.41 $14.82 ------------ ------------- ------------ ------------- 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, 1997 (audited) AND THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited) PARTNERS CAPITAL --------------------------------------------------------------------------- LIMITED PARTNERS CAPITAL --------------------------------------------------------------------------- Capital Account Unallocated Formation Limited Syndication Loan Partners Costs Receivable Total
-------------- --------------- --------------- -------------- 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 Formation Loan collections 0 0 60,223 60,223 Net Income 818,610 0 0 818,610 Early withdrawal penalties (40,258) 0 27,665 (12,593) Partners withdrawals (1,572,037) 0 0 (1,572,037) -------------- --------------- --------------- -------------- Balances at December 31, 1997 $13,208,844 $0 $(341,275) $12,867,569 Formation Loan collections 0 0 33,404 33,404 Net Income 402,480 0 0 402,480 Early withdrawal penalties (15,851) 0 10,893 (4,958) Partners withdrawals (854,717) 0 0 (854,717) -------------- --------------- --------------- -------------- Balances at June 30, 1998 $12,740,756 $0 $(296,978) $12,443,778 ============== =============== =============== ============== 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, 1997 (audited) AND THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited) PARTNERS CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS CAPITAL ---------------------------------------------------------- Capital Account Unallocated Total General Partners Syndication Costs Partners Total Capital ------------------ ------------------- ------------ ----------------
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 Formation Loan collections 0 0 0 60,223 Net income 8,269 0 8,269 826,879 Early withdrawal penalties 0 0 0 (12,593) Partners withdrawals (8,269) 0 (8,269) (1,580,306) ------------------ ------------------- ------------ ---------------- Balances at December 31, 1997 $11,978 $0 $11,978 $12,879,547 Formation Loan collections 0 0 0 33,404 Net income 4,065 0 4,065 406,545 Early withdrawal penalties 0 0 0 (4,958) Partners withdrawals (4,065) 0 (4,065) (858,782) ------------------ ------------------- ------------ ---------------- Balances at March 31, 1998 $11,978 $0 $11,978 $12,455,756 ================== =================== ============ See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (unaudited) 6 months ended 6 months ended June 30, 1998 June 30, 1997 Cash flows from operating activities: (unaudited) (unaudited)
----------------- ------------------ Net income Adjustments to reconcile net income to net cash provided by $406,545 $417,899 operating activities: Provision for doubtful accounts 255,896 201,322 Provision for losses on real estate held for sale 0 0 Early withdrawal penalty credited to income (4,958) (18,311) (Increase) decrease in accrued interest & advances 125,826 (88,867) Increase (decrease) in accounts payable and accrued expenses 25,528 3,977 Increase (decrease) in deferred interest on Mortgage Investments (69,316) (154,598) ----------------- ------------------ Net cash provided by operating activities 739,521 361,422 ----------------- ------------------ Cash flows from investing activities: Principal collected on mortgage investments 3,344,181 2,666,905 Mortgage Investments made (2,654,729) (4,912,596) Additions to Real Estate held for sale (24,447) (487,579) Dispositions of real estate held for sale 310,227 996,153 Investment in partnership 346,017 (35,428) Accounts receivable-unsecured 362 1,167 ----------------- ------------------ Net cash provided by (used in) investing activities 1,321,611 (1,771,378) ----------------- ------------------ Cash flows from financing activities: Increase (decrease) in note payable-bank (909,153) 1,825,000 Formation loan collections 33,404 52,291 Partners withdrawals (858,782) (769,613) ----------------- ------------------ Net cash provided by (used in) financing activities (1,734.531) 1,107,678 ----------------- ------------------ Net increase (decrease) in cash 326,601 (302,278) Cash - beginning of period 520,837 755,089 ----------------- ------------------ Cash - end of period $847,438 $452,811 ================= ================== See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997(audited) AND JUNE 30, 1998 (unaudited) NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VII, (the Partnership) is a California Limited Partnership, of which the General Partners are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California corporation owned and operated by the individual General Partners. The Partnership was organized to engage in business as a mortgage lender for the primary purpose of making Mortgage Investments secured by Deeds of Trust on California real estate. Mortgage Investments are being arranged and serviced by Redwood Home Loan Co., dba Redwood Mortgage, an affiliate of the General Partners. At September 30, 1992, the offering had been closed with contributed capital totaling $11,998,359 for limited partners. A minimum of 2,500 units ($250,000) and a maximum of 120,000 units ($12,000,000) were offered through qualified broker-dealers. As Mortgage Investments were identified, partners were transferred from applicant status to admitted partners participating in Mortgage Investment operations. Each months income is allocated to partners based upon their proportionate share of partners capital. Some partners have elected to withdraw income on a monthly, quarterly or annual basis. A. Sales Commissions - Formation Loan Sales commissions ranging from 0% (Units sold by General Partners) to 10% of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General Partners that arranges and services the Mortgage Investments. To finance the sales commissions, the Partnership was authorized to loan to Redwood Mortgage an amount not to exceed 8.3% of the gross proceeds provided that the Formation Loan for the minimum offering period could be 10% of the gross proceeds for that period. The Formation Loan is unsecured and is being repaid, without interest, in installments of principal, over a ten year period commencing January 1, 1992. At December 31, 1992, Redwood Mortgage had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through June 30, 1998, $617,391 including $114,036 in early withdrawal penalties, had been repaid leaving a balance of $296,978. 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997(audited) AND JUNE 30, 1998 (unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accrual Basis Revenues and expenses are accounted for on the accrual basis of accounting wherein income is recognized as earned and expenses are recognized as incurred. Once a Mortgage Investment 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. 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 Mortgage Investments. At June 30, 1998 and at December 31, 1997, 1996 and 1995, reductions in the cost of Mortgage Investments categorized as impaired by the Partnership totalled $0, $0, $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, 1998, the average mortgage investment to appraised value of security at the time the Mortgage Investments were consummated was 60.96%. When a Mortgage Investment 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, 1997(audited) AND JUNE 30, 1998 (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 30,1998, and December 31, 1997 and 1996: June 30, December 31, December 31, 1998 1997 1996 ---------------- ---------------- ----------------
Costs of properties $738,010 $906,499 $1,655,786 Reduction in value 224,887 219,360 187,441 ---------------- ---------------- ---------------- Fair value reflected in financial statements $513,123 $687,139 $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. F. Investment in Partnership (see note 5) 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 paid 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 $415,692 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 June 30, 1998, and December 31, 1997, and 1996 was as follows: REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997(audited) AND JUNE 30, 1998 (unaudited) June 30, December 31, December 31, 1998 1997 1996 ---------------- ---------------- ----------------
Impaired Mortgage Investments $0 $0 $9,595 Unspecified Mortgage Investments 482,398 284,738 19,052 Accounts receivable, unsecured 200,000 140,000 200,000 ================ ================ ================ 682,398 424,738 $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, 1997(audited) AND JUNE 30, 1998 (unaudited) 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 Redwood Mortgage receives 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 Investment brokerage commissions are limited to an amount not to exceed 4% of the total Partnership assets per year. The Mortgage Investment brokerage commissions are paid by the borrowers, and thus, not an expense of the Partnership. B. Mortgage Servicing Fees Redwood Mortgage also receives monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable and customary in the geographic area where the property securing the Mortgage Investment is located. Mortgage servicing fees of $58,999, $83,559, $97,267 and $33,394 were incurred for six months through June 30, 1998 and for years 1997, 1996 and 1995, respectively. C. Asset Management Fee The General Partners receive a monthly fee 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). No management fees have been incurred for years 1997, 1996 and 1995, respectively. For six months through June 30, 1998, management fee of $8,219 was paid to the General Partners. D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, Mortgage assumption and Mortgage extension fees. Such fees are incurred by the borrowers and are paid to parties related to the General Partners. E. Income and Losses All income is credited or charged to partners in relation to their respective partnership interests. The partnership interest of the General Partners (combined) is a total of 1%. F. Operating Expenses The General Partners or their affiliate (Redwood Mortgage) are reimbursed by the Partnership for all operating expenses actually incurred by them on behalf of the Partnership, including without limitation, out-of-pocket general and administration expenses of the Partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to Limited Partners. 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, 1997(audited) AND JUNE 30, 1998 (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 Mortgage Investment portfolio. Interest earned prior to admission was credited to partners in applicant status. As Mortgage Investments were made and partners were transferred to regular status to begin sharing in income from Mortgage Investments secured by deeds of trust, the interest credited was either paid to the investors or transferred to Partners Capital along with the original investment. 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, 1997(audited) AND JUNE 30, 1998 (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. Furthermore, no more than 20% of the total Limited Partners capital accounts outstanding at the beginning of any year shall be liquidated during any calendar year. 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. Beginning with years after 1993, the guarantee no longer applies. NOTE 5 - INVESTMENT IN PARTNERSHIP The Partnerships interest in land located in East Palo Alto, CA., was acquired through foreclosure. The Partnerships interest is invested with that of two other Partnerships. The Partnerships had been attempting to develop the property into single family residences. Significant community resistance, as well as environmental, and fish and wildlife concerns affected efforts to obtain the required approvals. The Partnership, in resolving disputes which arose during the course of the attempt to obtain entitlements to develop the property, entered into agreements on May 8, 1998 with Rhone-Poulanc, Inc. These agreements, among other things, restrict the property to non-residential uses, provide for appropriate indemnifications, and include other consideration including the payment of cash. The Partnership still retains liability for the remediation of pesticide contamination effecting the property. Investigation of remediation options are ongoing. At this time management does not believe that remediation of the pesticide contaminants will have a material adverse effect on the financial condition of the Partnership. 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 $252,060 at June 30, 1998. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997(audited) AND JUNE 30, 1998 (unaudited) 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 June 30, 1998, December 31, 1997 and December 31, 1996 were $1,432,663, $2,341,816, and $1,175,000 respectively, and the interest rate at June 30, 1998, was 9.00% (8.50% prime + .50%). The expiration date of the line of credit is September 1, 1998. 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 Dec. 31 Dec. 31 1998 1997 1996 --------------- -------------- --------------
Net assets - Partners Capital per financial $12,455,756 $12,879,547 $13,585,344 statements Formation Loan receivable 296,978 341,275 429,163 Allowance for doubtful accounts 682,398 424,738 228,647 =============== ============== ============== Net assets tax basis $13,435,132 $13,645,560 $14,243,154 =============== ============== ==============
In 1997, approximately 68% 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 $12,650,289. The June 30, 1998, fair value of these investments of $12,908,016 is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar Mortgage Investments 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, 1997(audited) AND JUNE 30, 1998 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At June 30, 1998, there were 57 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 57 Total Mortgage Investments outstanding $12,650,289 Average Mortgage Investment outstanding $221,935 Average Mortgage Investment as percent of total 1.75% Average Mortgage Investment as percent of Partners Capital 1.78% Largest Mortgage Investment outstanding $1,050,000 Largest Mortgage Investment as percent of total 8.30% Largest Mortgage Investment as percent of Partners Capital 8.43% Number of counties where security is located(all California) 13 Largest percentage of Mortgage Investments in one county 24.90% Average Mortgage Investment to appraised value of security at time Mortgage Investment was consummated 60.96% Number of Mortgage Investments in foreclosure 1
The following categories of mortgage investments are pertinent at June 30, 1998, and December 31, 1997, 1996: June 30 December 31 December 31 ---------------- ----------------- 1998 1997 1996 ---------------- ---------------- -----------------
First Trust Deeds $6,907,546 $6,810,113 $4,199,552 Second Trust Deeds 5,360,930 5,719,369 6,913,853 Third Trust Deeds 181,812 720,258 722,887 Fourth Trust Deeds 200,001 200,001 200,001 ---------------- ---------------- ----------------- Total mortgage investments 12,650,289 13,449,741 12,036,293 Prior liens due other lenders 13,570,589 17,951,579 22,069,554 ---------------- ----------------- ================ Total debt 26,220,878 $31,401,320 $34,105,847 ================ ================ ================= Appraised property value at time of loan $43,011,484 $52,077,885 $51,863,991 ================ ================ ================= Total investments as a percent of appraisals 60.96% 60.30% 65.76% ================ ================ ================= Investments by Type of Property Owner occupied homes $679,912 $1,104,742 $1,742,767 Non-Owner occupied homes 1,940,663 1,464,596 1,112,274 Apartments 182,675 1,666,916 1,325,872 Commercial 9,847,039 9,213,487 7,855,380 ================ ================ ================= $12,650,289 $13,449,741 $12,036,293 ================ ================ =================
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997(audited) AND JUNE 30, 1998 (unaudited) Scheduled maturity dates of mortgage investments as of June 30, 1998, are as follows: Year Ending December 31, ------------------- 1998 $2,031,602 1999 4,658,697 2000 1,507,078 2001 1,117,955 2002 1,320,303 Thereafter 2,014,654 ================ $12,650,289 ================ The scheduled maturities for 1998 include approximately $1,064,425 in thirteen mortgage investments which are past maturity at June 30, 1998. Interest payment on most of these Mortgage Investments are current. None of those Mortgage Investments were categorized as delinquent over 90 days. Two Mortgage Investments with principal outstanding of $329,032 had interest payments overdue in excess of 90 days. Five Mortgage Investments with principal outstanding of $484,528 at June 30, 1998, had no interest accruals recorded thereon. The cash balance at June 30, 1998 of $847,438 was in two banks with an interest bearing balance totalling $774,255. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $652,570. One bank is the same financial institution that has provided the Partnership with the $3,000,000 limit line of credit. At June 30, 1998, draw down against this facility was $1,432,663. As and when deposits in the Partnerships bank accounts increase significantly beyond the insured limit, the funds are either placed on new Mortgage Investments or used to pay-down on the line of credit balance. 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, 1998, Partners Capital totaled $12,455,756. At June 30, 1998, the Partnership Mortgage Investments outstanding totalled $12,650,289, a decrease of $1,386,608 from the end of the first quarter of the year. This reduction in loan portfolio was due primarily to payoffs of Mortgage Investments during the second quarter. Likewise, there was somewhat a corresponding decrease in bank line of credit balance of $1,150,000 during the second quarter, as the loan payoff proceeds were utilized to reduce the line of credit balance. Mortgage Investments increased from $13,449,741 to $14,036,897 during three months through March 31, 1998, an increase of $587,156, chiefly due to the ability of the General Partners to reduce the net amounts invested in real estate owned (REO) during the three months, by increasing bank credit line borrowing to $2,582,663 as of March 31, 1998, from $2,341,816 as of December 31, 1997, by reinvestment of earnings of $203,656 and investment of cash. The ability of the Partnership to invest in new Mortgage Investments was partially offset by withdrawals of income and capital by the Partners in the amount of $421,054. Mortgage Investments decreased slightly, by $346,348, during the year ended December 31, 1996, from $12,382,641 as of December 31, 1995, to $12,036,293 as of December 31, 1996. This Mortgage Investment reduction was due primarily to a reduced usage of the bank line of credit. The Partnership began funding Mortgage Investments on December 27, 1989, and as of June 30, 1998, had credited the Partners accounts with income at an average annualized (compounded) yield of 7.80%. 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. As of June 30, 1998 the Partnership Real Estate Owned account and the investment in Partnership account have been reduced to a combined balance of $513,123. These accounts had combined balances of $1,033,156 and $1,710,739 for the years ended December 31, 1997 and 1996, respectively. The conversion of these non-earning assets to income producing assets will generate current income. The overall effect of these developments will allow the Partnership to increase the annualized yields paid by the Partnership in future quarters. The General Partners anticipate that the annualized yield for the remaining six months and the overall year 1998 will be higher than the previous years performance level. 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. As of June 30, 1998, it has borrowed $1,432,663. 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. 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 June 30, 1998, 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. For the year ended December 31, 1997, and six months period ended June 30, 1998, interest paid was $198,316 and $88,076 respectively, reflecting an overall greater average utilization of the credit line from the previous three years. 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-one 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. As of June 30, 1998, there was one property in foreclosure. 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 $306,779, $419,437, $434,495 and $255,896 as provision for doubtful accounts for the years ended December 31, 1995, 1996, 1997 and six months through June 30, 1998, respectively. The provision for doubtful account increased by $112,658 in 1996 as the General Partners determined that additional provision for doubtful accounts should be made to cover potential losses in REO accounts or potential losses on unsecured receivables and unspecified losses. The provision for doubtful account was increased by $15,058 in 1997, to $434,495 as the selling of REO accumulated primarily in the California recession of the early to mid 1990s netted less proceeds than originally anticipated and the General Partners further refinement of anticipated sales proceeds on remaining REO, collections of unsecured receivables, and additional provisions for unspecified losses. The Northern California recession reached bottom in 1993. Since then, the California economy has been improving, slowly at first, but now, more vigorously. This improvement is reflective in increasing property values, in job growth, personal income growth, etc., which all translates into an improved real estate market, solidifying real estate values, and an attractive real estate lending market place. The Partnerships interest in land located in East Palo Alto, Ca, was acquired through foreclosure. The Partnerships interest is invested with that of two other Partners. The Partnerships basis of $ 0, $346,017 and $242,394 for the period ended 6/30/98, and the years ended December 31, 1997 and 1996 respectively, has been invested with that of two other Partnerships. The Partnership had been attempting to develop property into an approximately 63 units residential subdivision, (the Development). The proposed Development had gained significant public awareness as a result of certain environmental, fish and wildlife, density, and other concerns. Incorporated into the proposed Development were various mitigation measures included remediation of hazardous material existing on the property, and protection of potentially affected species due to the proximity of the property to the San Francisco Baylands. These issues and others sparked significant public controversy. Opposition against and support for the proposed Development existed. Among those in opposition to the project was Rhone Poulanc, Inc. which is responsible for a nearby hazardous waste site. Rhone Poulanc, Inc. has been identified as the Responsible Party for the Arsenic Contamination which affected a portion of the property. On May 8, 1998, the Partnership, in order to resolve disputes which arose during the course of the attempts to obtain entitlements for this Development, entered into agreements with Rhone-Poulanc, Inc which among other things, restricted the property to non residential uses, provided for appropriate indemnification and included other considerations including a cash payment to the Partnership. The Partnership has retained ownership of the property, which is subject to various deed restrictions, options and or first rights of refusal. The General Partners are pleased with this outcome to the residential development attempt. The General Partners may now explore other available options with respect to alternative uses for the property. In order to pursue these options, rezoning of the propertys existing residential zoning classification will be required. The Partnership is continuing to explore remediation options available to mitigate the remaining pesticide contamination, which affects the property. This pesticide contamination appears to be the result of agricultural operations by prior owners, and is unrelated to the Arsenic Contamination for which Rhone-Poulanc, Inc. remains responsible. The General Partners do not believe at this time that remediation of the pesticide contaminants will have a material adverse effect on the financial condition of the Partnership. At the time of subscription to the Partnership, Limited Partners made an irrevocable decision to either take distributions of earnings monthly, quarterly or annually or to compound earnings in their capital account. For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and six months ended June 30, 1998, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $262,450, $327,887, $399,379 and $211,165 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and six months ended June 30, 1998 to Limited Partners capital accounts and not withdrawn was $640,390, $522,621, $419,231, and $191,315 respectively. As of December 31, 1995, December 31, 1996, December 31, 1997, and June 30, 1998, Limited Partners electing to withdraw earnings represented 36%, 44%, 53% and 54% of the Limited Partners capital. The Partnership also allows the Limited Partners to withdraw their capital account subject to certain limitations (see liquidation provisions of Partnership Agreement). For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and six months through June 30, 1998, $106,901, $412,798, $475,348 and $198,140 respectively, 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 the Partnership is experiencing in withdrawals by Limited Partners electing a one year liquidation program represents a small percentage of Limited Partner capital as of December 31, 1995, December 31, 1996, December 31, 1997, and six months to June 30, 1998, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and six months through June 30, 1998, $97,801, $318,902, $737,568 and $461,262 respectively, were liquidated by Limited Partners who have elected a liquidation program over a period of five years or longer. This ability to withdraw after five years by Limited Partners has the effect of providing Limited Partner liquidity 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, liquidation generally subsides and the Partnership capital again tends to increase. Actual liquidation of both capital and earnings from year five (1994) through year eight (1997) and through six months ended June 30, 1998 is shown hereunder: Years ended December 31, 1994 1995 1996 1997 June 30, 1998
------------- -------------- -------------- -------------- --------------- Earnings $263,206 270,760 336,341 399,379 211,165 Capital *$340,011 184,157 722,536 1,212,916 659,402 ============= ============== ============== ============== =============== Total $603,217 $454,917 $1,058,877 $1,612,295 $870,567 ============= ============== ============== ============== =============== * These amounts represent gross of early withdrawal penalties.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP 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 six months period ended June 30, 1998. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation Compensation and Services Rendered Amount - -------------------------- ----------------------------------------------------- I. Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage $58,999 Investments General Partners &/or Affiliate Asset Management Fee for managing assets $8,219 General Partners 1% interest in profits $4,065 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 Investments paid by the borrowers and not by the Partnership $65,152 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 $1,127 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. $17,499 MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF JUNE 30, 1998 Partnership Highlights Mortgage Investment to Value Ratios First Trust Deeds $6,907,545.86 Appraised Value of Properties * 14,222,708.00 Total Investment as a % of Appraisal 48.57% First Trust Deed Mortgage Investments 6,907,545.86 Second Trust Deed Mortgage Investments 5,360,929.33 Third Trust Deed Mortgage Investments 181,812.19 Fourth Trust Deed Mortgage Investments ** 200,001.20 ----------------- $12,650,288.58 First Trust Deeds due other Lenders 12,611,203.00 Second Trust Deeds due other Lenders 816,528.00 Third Trust Deeds due other Lenders 142,858.00 ----------------- Total Debt $26,220,877.58 Appraised Property Value * 43,011,484.00 Total Investment as a % of Appraisal 60.96% Number of Mortgage Investments Outstanding 57 Average Investment $221,935 Average Investment as a % of Net Assets 1.78% Largest Investment Outstanding 1,050,000 Largest Investment as a % of Net Assets 8.43% Loans as a Percentage of Total Mortgage Investments First Trust Deed Mortgage Investments 54.60% Second Trust Deed Mortgage Investments 42.38% Third Trust Deed Mortgage Investments 1.44% Fourth Trust Deed Mortgage Investments 1.58% ---------------- Total 100.00% Mortgage Investments by Type of Property Amount Percent Owner Occupied Homes $679,912.22 5.38% Non Owner Occupied Homes 1,940,662.95 15.34% Apartments 182,674.45 1.44% Commercial 9,847,038.96 77.84% ---------------- ------------------ Total $12,650,288.58 100.00% Statement of Conditions of Mortgage Investments Number of Mortgage Investments in Foreclosure 1 *Values used are the appraisal values utilized at the time the mortgage investment was consummated. Diversification by County County Total Loans Percent San Francisco $3,149,655.01 24.90% Alameda 2,226,153.92 17.60% Santa Clara 1,679,961.01 13.28% Stanislaus 1,655,122.74 13.08% San Mateo 1,631,304.76 12.90% Contra Costa 855,074.09 6.76% Monterey 594,388.73 4.70% Sonoma 369,054.78 2.92% Sacramento 142,228.78 1.12% Santa Cruz 130,639.39 1.03% Ventura 91,000.00 0.72% Shasta 81,400.37 0.64% Solano 44,305.00 0.35% ------------------ ----------- Total $12,650,288.58 100.00% ** 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 loan to value ratio at the issuance of this loan was 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 March 31, 1998 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 May, 1998. 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 May, 1998. Signature Title Date /s/ D. Russell Burwell - ---------------------- D. Russell Burwell General Partner May 12, 1998 /s/ Michael R. Burwell - ---------------------- Michael R. Burwell General Partner May 12, 1998 /s/ D. Russell Burwell - ---------------------- D. Russell Burwell President of Gymno Corporation, May 12, 1998 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - ---------------------- Michael R. Burwell Secretary/Treasurer of Gymno May 12, 1998 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 847438 0 13237629 682398 0 0 0 0 13915792 0 0 1460036 0 0 12455756 13915792 0 864263 0 113746 0 255896 88076 406545 0 406545 0 0 0 406545 .00 .00
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