-----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, ThJHsEC3rFOBqk3gTlnGge4kQXLhk0n/b8zyaX1tJJVPXMKHnxuctFoVrAClZtaN fiYSZ2QXinwnQLCEzYqIrQ== 0000854092-99-000003.txt : 19990330 0000854092-99-000003.hdr.sgml : 19990330 ACCESSION NUMBER: 0000854092-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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 SEC ACT: SEC FILE NUMBER: 000-19992 FILM NUMBER: 99575578 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 1 10-K REDWOOD MORTGAGE INVESTORS VII (a California Limited Partnership) Index to Form 10-K December 31, 1998 Part I Page No. Item 1 - Business 3 Item 2 - Properties 4-5 Item 3 - Legal Proceedings 6 Item 4 - Submission of Matters to a vote of Security Holders (partners) 6 Part II Item 5 - Market for the Registrants Partners Capital and related matters 6 Item 6 - Selected Financial Data 6-8 Item 7 - Managements Discussion and Analysis of Financial condition and Results of Operations 9-13 Item 8 - Financial Statements and Supplementary Data 14-38 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39 Part III Item 10 - Directors and Executive Officers of the Registrant 39 Item 11 - Executive Compensation 40 Item 12 - Security Ownership of Certain Beneficial Owners and management 41 Item 13 - Certain Relationships and Related Transactions 41 Part IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.41-42 Signatures 43 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, 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 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 (650) 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 Mortgage Corp., 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 September 30, 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, 1998, the Partnership had a balance in its Mortgage Investments portfolio totalling $13,209,186 with interest rates thereon ranging from 6.50% to 14.50%. Currently, Mortgage Investments secured by First Trust Deeds comprise 65.40% of the amount of funds in the Mortgage Investment portfolio followed by Second Trust Deeds of 31.71%, and Third Trust Deeds of 1.38%. A Fourth Trust Deed makes up the balance. Owner-occupied homes, combined with non-owner occupied homes total 18.45% of the Mortgage Investments. Commercial Mortgage Investments origination increased from last year, now comprising 74.76% of the portfolio, an increase of 6.26%. The past year brought many outstanding low loan to value lending opportunities in the commercial segment of the market. 60.70% of the total Mortgage Investments, are in six counties of the Bay Area. The County of Stanislaus makes up 22.25% of the Mortgage Investments. Stanislaus County is a fringe county to the San Francisco Bay Area. In 1998 the Partnership received many good lending opportunities from this county. The balance of Mortgage Investments are primarily in Northern California. Mortgage Investment size increased this past year, and is now averaging $249,230 per Mortgage Investment, an increase of $32,299. 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 38.82%. 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 no properties in foreclosure as of December, 1998. Item 2 - Properties A summary of the Partnerships Mortgage Investment Portfolio as of December 31, 1998 is set forth below. Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds $8,638,975.93 Appraised Value of Properties 15,017,642.00 Total Investment as a % of Appraisal 57.53% First Trust Deeds $8,638,975.93 Second Trust Deed Mortgage Investments 4,188,401.09 Third Trust Deed Mortgage Investments 181,808.20 Fourth Trust Deed Mortgage Investments * 200,001.20 ------------------- 13,209,186.42 First Trust Deeds due other Lenders 11,769,481.00 Second Trust Deeds due other Lenders 816,528.00 Third Trust Deeds due other Lenders 142,858.00 Total Debt $25,938,053.42 Appraised Property Value $42,393,561.00 Total Investments as a % of Appraisal 61.18% Number of Mortgage Investments Outstanding 53 Average Investment 249,229.93 Average Investment as a % of Net Assets 2.09% Largest Investment Outstanding 1,050,000.00 Largest Investment as a % of Net Assets 8.79% Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deeds 65.40% Second Trust Deeds 31.71% Third Trust Deeds 1.38% Fourth Trust Deeds 1.51% ------------------- Total 100.00% Mortgage Investments by Amount Percent Type of Property Owner Occupied Homes $746,334.37 5.65% Non-Owner Occupied Homes 1,691,015.81 12.80% Apartments 897,291.93 6.79% Commercial 9,874,544.31 74.76% ------------------ ----------- Total $13,209,186.42 100.00% * Footnotes on following page The following is a distribution of Mortgage Investments outstanding as of December 31, 1998 by Counties. County Total Mortgage Percent Investments Stanislaus $2,939,082.26 22.25% San Francisco 1,971,467.60 14.93% Alameda 1,748,735.54 13.24% Santa Clara 1,679,961.01 12.72% San Mateo 1,051,446.21 7.96% Solano 994,111.14 7.53% Contra Costa 850,970.56 6.44% Monterey 757,092.47 5.73% Marin 714,617.48 5.41% Sonoma 174,697.65 1.32% Sacramento 132,372.65 1.00% Ventura 91,000.00 0.69% Shasta 81,033.44 0.61% Santa Cruz 22,598.41 0.17% ------------------ ----------- Total $13,209,186.42 100.00% * 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 at the inception of this loan was 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 -0- Scheduled maturity dates of mortgage investments as of December 31, 1998 are as follows: Year Ending December 31, ------------------- 1999 $4,910,183 2000 3,556,483 2001 1,794,692 2002 1,317,987 2003 1,209,761 Thereafter 420,080 =============== $13,209,186 =============== The scheduled maturities for 1999 include approximately $1,560,605 in twelve mortgage investments which are past maturity at December 31, 1998. Interest payments on most of these loans are current. $479,308 of these Mortgage Investments were categorized as delinquent over 90 days. Five mortgage investments with principal outstanding of $1,566,585 had interest payments overdue in excess of 90 days. Two Mortgage Investments with principal outstanding of $231,966 were considered impaired at December 31, 1998. That is interest accruals are no longer recorded thereon. 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. Also refer to a more precise discussion under Note 6 of the Financial Statements on Page 27 of this report. 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 Registrant 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, 1998 were:
Balance Sheet Assets December 31, ------------------------------------------------------ 1998 1997 1996 -------------- -------------- -------------- Cash $461,544 $520,837 $755,089 Accounts Receivable: Mortgage Investments secured by Deeds of Trust 13,209,186 13,449,741 12,036,293 Accrued interest and other fees 442,350 427,952 264,495 Advances on Mortgage Investments 39,733 33,154 41,203 Other receivables - Unsecured 242,493 252,422 337,242 Less allowance for losses (787,042) (424,738) (228,647) Real Estate Owned acquired through foreclosure at estimated net realizable value 397,396 687,139 1,468,345 Partnership Interest 0 346,017 242,394 -------------- -------------- -------------- $14,005,660 $15,292,524 $14,916,414 -------------- -------------- --------------
Liabilities and Partners Capital December 31, ------------------------------------------------------ 1998 1997 1996 -------------- -------------- -------------- Liabilities: Note payable - Bank $1,912,663 $2,341,816 $1,175,000 Accounts payable and accrued expenses 12,547 1,845 1,472 Deferred Interest 131,743 69,316 154,598 -------------- -------------- -------------- 2,056,953 2,412,977 1,331,070 Partners Capital: General Partners 11,978 11,978 11,978 Limited Partners subject to redemption 11,936,729 12,867,569 13,573,366 -------------- -------------- -------------- Total Partners Capital 11,948,707 12,879,547 13,585,344 -------------- -------------- -------------- $14,005,660 $15,292,524 $14,916,414 -------------- -------------- -------------- Statement of Income Gross revenue $1,657,728 $1,623,863 $1,580,500 Expenses 811,157 796,984 721,401 -------------- -------------- -------------- Net Income 846,571 $826,879 $859,099 -------------- -------------- -------------- Net income to General Partners (1%) 8,466 $8,269 $8,591 ============== ============== ============== Net Income to Limited Partners (99%) 838,105 $818,610 $850,508 ============== ============== ============== Net Income per $1,000 invested by Limited Partners for entire period: - where income is reinvested and compounded $67 $61 $60 ============== ============== ============== - where partner receives income in monthly distributions $65 $59 $59 ============== ============== ============== Net income in 1996 averaged at an annualized yield of 6.02%. In 1997, the annualized yield was 6.10% and in 1998 the annualized yield was 6.69%. Average annualized yield since inception through December 31, 1998, was 7.75%.
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, 1998, Partners Capital totaled $11,948,707. At December 31, 1998, the Partnership Mortgage Investments outstanding totalled $13,209,186. This represents a decline of $240,555 from the 12/31/97 Mortgage Investments balance. This reduction in Mortgage Investments outstanding as of 12/31/98 was chiefly due to payments of cash withdrawals to the Limited Partners of $1,856,833, a reduction of Real Estate owned and a reduction in Partnership Interest of $289,743 and $ 346,017, respectively, a decrease in Note Payable-Bank of $429,153, reinvestment of earnings of $846,571 and investment of cash. The ability of the Partnership to invest in new Mortgage Investments during 1998 was partially offset by withdrawals of income and capital by the Partners in the amount of $1,856,833 including early withdrawal penalties. Mortgage investment increased from $12,036,293 from 1996 to $13,449,741 in 1997, an increase of $1,413,448 chiefly due to the ability of the General Partners to reduce the net amounts invested in real estate owed (REO) during the twelve months, by increasing bank credit line borrowing to $2,341,816 as of December 31, 1997 from $1,175,000 as of December 31, 1996, by reinvesting of earnings of $419,231 and investment of cash. 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 December 31, 1998, had credited the Partners accounts with income at an average annualized (compounded) yield of 7.75%. Currently, general 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 change significantly from the beginning of 1999 over the next twelve months. As of December 31, 1998 the Partnership Real Estate Owned account and the investment in Partnership account have been reduced to a combined balance of $397,396. 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 increased 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 coming new year, 1999, will be higher than the previous years. 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 December 31, 1998, it has borrowed $1,912,663. This line of credit expires on March 31, 1999. The Partnership has successfully negotiated for a replacement line of credit, effective January, 1999, with another institution for a limit of $3,500,000 at prime plus .25% (7.75% + .25% = 8%). 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 December 31, 1998, the Partnership is current with its interest payments on the line of credit. In 1995, the Partnership incurred $163,361 of interest on note payables reflecting a small increase in the overall average credit balance outstanding from the previous year. 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 years ended December 31, 1997 and 1998, interest paid was $198,316 and $170,867 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. Mortgage Servicing Fees decreased from $97,267 in 1996, to $83,559 in 1997, primarily due to timing of receipt of payments from borrowers and actual payment of the Mortgage Servicing Fee. Mortgage Servicing Fees increased in 1998 to $128,493 from $83,559 in 1997 chiefly due to an increase during the 1998 year of the monthly loan service fee to 1/12% (1% per year). Asset Management Fees increased in 1998 from $0 in 1997 and $0 in 1996 to $16,141 in 1998. As for the two previous years, the General Partners waived this fee to the Partnership. All other expenses flucuated in a very close range except for Interest on Note Payable - bank and Provision for Doubtful Accounts and losses on Real Estate acquired through foreclosure each discussed elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations. 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 December 31, 1998, there was no 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, earnings and capital payout requirements. Excess cash flow will be invested in new Mortgage Investment opportunities when available, used to reduce the Partnership credit line or other Partnership business. 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 $419,437, $434,495 and $423,054 as provision for doubtful accounts for the years ended December 31, 1996, 1997 and 1998, respectively. 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 provision for doubtful accounts was decreased by $11,441 to $423,054 in 1998. This decrease reflected reduced expected REO anticipated losses and improved collections of secured and unsecured receivables. The December 1998 issue of Western Economic Developments, published by the Federal Reserve Bank of San Francisco, said the following about the California economy: The pace of economic growth in California was solid in recent months, despite continued contraction in some major industries. Total payroll employment rose 3.2 percent on an annual basis in October and November. This is above the average growth rate for the first eleven months of 1998, but it is below the 3.8 percent pace from last year. Faced by declining export demand and rising import competition, durable goods manufacturers cut employment in November. Manufacturers of computers and electronic components have been particularly hard hit this year, and aerospace employment has contracted. However, the pace of job creation has remained strong in sectors other than manufacturing, and this has helped to lower the state unemployment rate to 5.7 percent in November. Californias state and local governments have created new jobs at about a 2.5 percent annual pace this year, a pickup from prior years that is due in part to improved fiscal capacity. About 21,000 of the 29,000 jobs created this year were for educators at local schools. To the Partnership, the above evaluation of the California economy means an increase in property values, job growth, personal income growth, etc., which all translates into more loan activity, which of course, is healthy for the Partnerships lending activity. The Partnerships interest in land located in East Palo Alto, Ca, was acquired through foreclosure. The investment is classified as Investment in Partnership in the Financial Statements. The Partnerships interest is invested with that of two other Partnerships. The Partnerships basis of $ 0, $346,017 and $242,394 for the years ended December 31, 1998, 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 which 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 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, 1996, December 31, 1997, and December 31, 1998, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $327,887, $399,379 and $456,358 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1996, December 31, 1997, and 1998 to Limited Partners capital accounts and not withdrawn was $522,621, $419,231, and $381,747 respectively. As of December 31, 1996, December 31, 1997 and December 31, 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, 1996, December 31, 1997, and December 31, 1998, $412,798, $475,348 and $381,458 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, 1996, December 31, 1997, and December 31, 1998, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1996, December 31, 1997, and December 31, 1998, $318,902, $737,568 and $1,019,017 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 nine (1998) is shown hereunder: Years ended December 31, 1994 1995 1996 1997 1998 ------------- -------------- -------------- -------------- --------------- Earnings $263,206 270,760 336,341 399,379 456,358 Capital *$340,011 184,157 722,536 1,212,916 1,400,475 ============= ============== ============== ============== =============== Total $603,217 $454,917 $1,058,877 $1,612,295 $1,856,833 ============= ============== ============== ============== ===============
* These amounts represent gross of early withdrawal penalties. The Year 2000 will be a challenge for the entire world, with respect to the conversion of existing computerized operations. The Partnership is completing an assessment of Year 2000 hardware and software issues. This assessment is not yet fully complete. The Partnership relies on Redwood Mortgage Corp., an affiliate of the Partnership, and third parties to provide loan and investor services and other computerized functions effected by Year 2000 computerized operations. Major services provided to the Partnership by these companies are loan servicing, accounting and investor services. The vendors that supply the software for loan servicing have already confirmed compliance with Year 2000 issues. Installation of accounting software that is Year 2000 compliant will begin after the 1998-year end. The investor servicing software Year 2000 compliance is still under assessment. Existing investor servicing software maintenance agreements provide for conversion to Year 2000 compliance to be provided by the vendor. Additionally, the Partnership has contacted several vendors that provide investor services as a possible alternative to continuing to provide investors services in house. It would appear that these service providers would be more expensive than the current in house systems but they do provide a back-up alternative in the event of our own failure to fully convert. Hardware utilized by Redwood Mortgage Corporation, is currently being tested to insure that modifications necessary to be made prior to Year 2000 can be accomplished. At this juncture, existing hardware appears to be substantially compliant with Year 2000 issues. The costs of updating the various software systems will be borne by the various companies that supply the Partnership with services. Therefore, no significant capital outlays are anticipated and the Partnership expects only incidental costs of conversion for Year 2000 issues. The Partnership is in the business of making Mortgage Investments secured by real estate. The most important factor in making the Mortgage Investments is the value of the real estate security. Year 2000 issues have some potential to effect industries and businesses located in the marketplaces in which the Partnership places its Mortgage Investments. This would only have an affect on the Partnership if Year 2000 issues cause a significant downturn in the northern California economy. In fact, Silicon Valley is located in our marketplace. There may be significant increased demand for Silicon Valley type services and goods as companies make ready for the Year 2000 conversion. Although not fully developed if all or any accounting, loan servicing and investor services conversions should fail the size and scope of the Partnerships activities are such that they could be handled at an equal or higher cost on a manual basis or outsourced to other servicers existing in the industry while correcting the systems, and are likely to be temporary in nature. While this would entail some initial set up costs, these costs would likely not be so significant as to have a material effect upon the Partnership, shifting portions of daily operations to manual or outsourced systems may result in time delays. Time delays in providing accurate and pertinent information could negatively affect customer relations and lead to the potential loss of new loans and Limited Partner investments. The foregoing analysis of Year 2000 issues includes forward-looking statements and predictions about possible or future events, results of operations and financial condition. As such, this analysis may prove to be inaccurate because of the assumptions made by the General Partner or the actual development of future events. No assurance can be given that any of these forward-looking statements and predictions will ultimately prove to be correct or even substantially correct. Various other risks and uncertainties could also affect the Year 2000 analysis causing the effect on the Partnership to be more severe than discussed above. The General Partners Year 2000 compliance testing cannot guarantee that all computer systems will function without error beyond the Year 2000. Risks also exist with respect to Year 2000 compliance by external parties who may have no relationship to the Partnership or the General Partner, but who have a significant relationship with one or more third parties, and may have a system failure that adversely affects the Partnerships ability to conduct business. While the General Partner is attempting to identify such external parties, no assurance can be given that it will be able to do so. Furthermore, third parties with direct relationships with the Partnership, whose systems have been identified as likely to be Year 2000 compliant, may suffer a breakdown due to unforeseen circumstances. It is also possible that the information collected by the General Partner for these third parties regarding their compliance with Year 2000 issues may be incorrect. Finally, it should be noted that the foregoing discussion of Year 2000 issues assumes that to the extent the General Partners systems fail, whether because of unforeseen complications or because of third parties failure, switching to manual operations will allow the Partnership to continue to conduct its business. While the General Partner believes this assumption to be reasonable, if it is incorrect, the Partnerships results of operations would likely be adversely affected. 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, 1998, and December 31, 1997, Statements of Income for the three years ended December 31, 1998, Statements of Changes in Partners Capital for the three years ended December 31, 1998, Statements of Cash Flows for the three years ended December 31, 1998, Notes to Financial Statements - December 31, 1998. 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, 1998 (With Auditors Report Thereon) PARODI & CROPPER CERTIFIED PUBLIC ACCOUNTANTS 3658 Mount Diablo Blvd., Suite #205 Lafayette CA 94549 (925) 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, 1998 and 1997 and the statements of income, changes in partners capital and cash flows for the three years ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and cash flows for the three years ended December 31, 1998 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. /s/ Bruce Cropper PARODI & CROPPER Lafayette, California March 3, 1999
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS 1998 1997 -------------- -------------- Cash $461,544 $520,837 -------------- -------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 13,209,186 13,449,741 Accrued Interest on Mortgage Investments 442,350 427,952 Advances on Mortgage Investments 39,733 33,154 Accounts receivables, unsecured 242,493 252,422 -------------- -------------- 13,933,762 14,163,269 Less allowance for doubtful accounts 787,042 424,738 -------------- -------------- 13,146,720 13,738,531 -------------- -------------- Real estate owned, acquired through foreclosure, held for sale 397,396 687,139 Investment in partnership 0 346,017 -------------- -------------- $14,005,660 $15,292,524 ============== ============== LIABILITIES AND PARTNERS CAPITAL Liabilities: Notes payable - bank line of credit $1,912,663 $2,341,816 Accounts payable and accrued expenses 12,547 1,845 Deferred Interest 131,743 69,316 -------------- -------------- 2,056,953 2,412,977 -------------- -------------- Partners Capital Limited partners capital, subject to redemption (Note 4E): Net of Formation Loan receivable of $253,387 and $341,275 for 1998 and 1997, respectively 11,936,729 12,867,569 General partners capital, 11,978 11,978 -------------- -------------- Total Partners Capital 11,948,707 12,879,547 -------------- -------------- Total Liabilities and Partners Capital $14,005,660 $15,292,524 ============== ============== See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 1998 YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1998 1997 1996 ------------- ------------- -------------- Revenues: Interest on Mortgage Investments $1,625,573 $1,593,335 $1,527,450 Interest on bank deposits 7,465 7,882 10,228 Late charges 13,632 8,598 17,266 Other 11,058 14,048 25,556 ------------- ------------- -------------- ------------- ------------- -------------- 1,657,728 1,623,863 1,580,500 ------------- ------------- -------------- Expenses: Mortgage servicing fees 128,493 83,559 97,267 Interest on note payable - bank 170,867 198,316 127,454 Clerical costs through Redwood Mortgage 34,173 37,760 40,874 Asset management fee 16,141 0 0 Amortization of organization costs 0 0 368 Provision for doubtful accounts and losses on real estate acquired through foreclosure 423,054 434,495 419,437 Professional services 19,983 25,107 18,802 Printing, supplies and postage 12,326 11,997 12,466 Other 6,120 5,750 4,733 ------------- ------------- -------------- 811,157 796,984 721,401 ------------- ------------- -------------- Net Income $846,571 $826,879 $859,099 ============= ============= ============== Net income: To General Partners(1%) $8,466 $8,269 $8,591 To Limited Partners (99%) 838,105 818,610 850,508 ============= ============= ============== $846,571 $826,879 $859,099 ============= ============= ============== Net income per $1,000 invested by Limited Partners for entire period: -where income is reinvested and compounded $67 $61 $ 60 ============= ============= ============== -where partner receives income in monthly distributions $65 $59 $ 59 ============= ============= ============== 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, 1998 PARTNERS CAPITAL --------------------------------------------------------------------------- LIMITED PARTNERS CAPITAL --------------------------------------------------------------------------- Capital Account- Unallocated Formation Limited Syndication Loan Partners Costs Receivable Total -------------- --------------- --------------- -------------- 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 66,908 66,908 Net Income 838,105 0 0 838,105 Early withdrawal penalties (30,529) 0 20,980 (9,549) Partners withdrawals (1,826,304) 0 0 (1,826,304) -------------- --------------- --------------- -------------- Balances at December 31, 1998 $12,190,116 $0 $(253,387) $11,936,729 ============== =============== =============== ============== 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, 1998 PARTNERS CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS CAPITAL ---------------------------------------------------------- Capital Account Unallocated Total General Partners Syndication Costs Partners Total Capital ------------------ ------------------- ------------ ---------------- 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 66,908 Net income 8,466 0 8,466 846,571 Early withdrawal penalties 0 0 0 (9,549) Partners withdrawals (8,466) 0 (8,466) (1,834,770) ------------------ ------------------- ------------ ---------------- Balances at December 31, 1998 $11,978 $0 $11,978 $11,948,707 ================== =================== ============ ================ See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1998 1997 1996 -------------- ---------------- ------------- Cash flows from operating activities: Net income $846,571 $826,879 $859,099 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 0 0 368 Provision for doubtful accounts 362,304 374,499 204,398 Provision for losses on real estate held for sale 60,750 59,996 215,039 Early withdrawal penalty credited to income (9,549) (12,593) (11,682) (Increase) decrease in accrued interest & advances (20,977) (155,408) 745,717 Increase (decrease) in accounts payable and accrued expenses 10,702 373 0 (Increase) decrease in amount due from or to Redwood Mortgage 0 0 Increase (decrease) in deferred interest on Mortgage Investments 62,427 (85,282) 154,598 -------------- ---------------- ------------- Net cash provided by operating activities 1,312,228 1,008,464 2,167,537 -------------- ---------------- ------------- Cash flows from investing activities: Principal collected on mortgage investments 6,529,324 6,278,832 8,923,339 Mortgage Investments made (6,398,769) (7,841,128) (9,099,688) Additions to Real Estate held for sale 323,720 (202,645) (147,733) Dispositions of Real Estate held for sale (55,532) 979,115 200,250 Proceeds from Partnership 522,212 0 0 Investment in Partnership (105,390) (103,623) (19,149) Proceeds from unsecured Accounts Receivable 9,929 0 0 -------------- ---------------- ------------- Net cash provided by (used in) investing activities 825,494 (889,449) (142,981) -------------- ---------------- ------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank (429,153) 1,166,816 (825,000) Formation loan collections 66,908 60,223 62,225 Partners withdrawals (1,834,770) (1,580,306) (1,021,532) -------------- ---------------- ------------- Net cash provided by (used in) financing activities (2,197,015) (353,267) (1,784,307) -------------- ---------------- ------------- Net increase (decrease) in cash (59,293) (234,252) 240,249 Cash - beginning of period 520,837 755,089 514,840 -------------- ---------------- ------------- Cash - end of period $461,544 $520,837 $755,089 ============== ================ ============= See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 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 Mortgage Corp., an affiliate of the General Partners. At September 30, 1992, the offering had been closed with contributed capital totalling $11,998,359 for limited partners. A minimum of 2,500 units ($250,000) and a maximum of 120,000 units ($12,000,000) were offered through qualified broker-dealers. As Mortgage Investments were identified, partners were transferred from applicant status to admitted partners participating in Mortgage Investment operations. Each months income is allocated to partners based upon their proportionate share of partners capital. Some partners have elected to withdraw income on a monthly, quarterly or annual basis. A. Sales Commissions - Formation Loan Sales commissions ranging from 0% (Units sold by General Partners) to 10% of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General Partners that arranges and services the Mortgage Investments. To finance the sales commissions, the Partnership was authorized to loan to Redwood Mortgage an amount not to exceed 8.3% of the gross proceeds provided that the Formation Loan for the minimum offering period could be 10% of the gross proceeds for that period. The Formation Loan is unsecured and is being repaid, without interest, in ten installments of principal, over a ten year period commencing January 1, 1992. At December 31, 1992, Redwood Mortgage had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through December 31, 1998, $660,982 including $124,123 in early withdrawal penalties, had been repaid leaving a balance of $253,387. 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, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accrual Basis Revenues and expenses are accounted for on the accrual basis of accounting wherein income is recognized as earned and expenses are recognized as incurred. Once a loan is categorized as impaired, interest is no longer accrued thereon. 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 substantially the valuation method previously used on impaired loans. At December 31, 1998, 1997 and 1996, reductions in the cost of Mortgage Investments categorized as impaired by the Partnership totalled $38,634, $0 and $9,595, 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 December 31, 1998, the average mortgage investment to appraised value of security at the time the loans were consummated was 61.18%. When a loan is valued for impairment purposes, an updating is made in the valuation of collateral security. However, such a low loan to value ratio tends to minimize reductions for impairment. D. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest bearing and non-interest bearing bank deposits. E. Real Estate Owned, Held for Sale Real estate owned, held for sale, includes real estate acquired through foreclosure, and is stated at the lower of the recorded investment in the property, net of any senior indebtedness, or at the propertys estimated fair value, less estimated costs to sell. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 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, 1998 and 1997: December 31, ----------------------------------------------- 1998 1997 --------------- --------------- Costs of properties $765,986 $906,499 Reduction in value (348,590) (219,360) REO prior lien (20,000) 0 --------------- --------------- Fair value reflected in financial statements $397,396 $687,139 =============== =============== 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 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 $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 December 31, 1998 and 1997 was as follows: REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 December 31, ----------------------------------------------- 1998 1997 --------------- --------------- Impaired mortgage investments $38,634 $0 Unspecified mortgage investments 606,299 284,738 Accounts receivable, unsecured 142,109 140,000 --------------- --------------- $787,042 $424,738 =============== =============== 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, 1998 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. Loan brokerage fees for 1998 and 1997 totalled $166,752 and $83,559, respectively. B. Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable and customary in the geographic area where the property securing the Mortgage Investment is located are paid to Redwood Mortgage Corp. Mortgage servicing fees of $128,493, $83,559 and $97,267 were incurred for years 1998, 1997 and 1996, 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). Asset management fees were $16,141 during 1998. No management fees were incurred for either 1997 or 1996. 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, 1998 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. 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 E. Liquidity, Capital Withdrawals and Early Withdrawals There are substantial restrictions on transferability of Units and accordingly an investment in the Partnership is illiquid. Limited Partners have no right to withdraw from the partnership or to obtain the return of their capital account for at least one year from the date of purchase of Units. In order to provide a certain degree of liquidity to the Limited Partners after the one-year period, Limited Partners may withdraw all or part of their Capital Accounts from the Partnership in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable to the amount withdrawn as stated in the Notice of Withdrawal and will be deducted from the Capital Account and the balance distributed in four quarterly installments. Withdrawal after the one-year holding period and before the five-year holding period will be permitted only upon the terms set forth above. Limited Partners also have the right after five years from the date of purchase of the Units to withdraw from the partnership on an installment basis, generally over a five year period in twenty (20) quarterly installments or longer. Once this five year period expires, no penalty will be imposed if withdrawal is made in twenty (20) quarterly installments or longer. Notwithstanding the five-year (or longer) withdrawal period, the General Partners will liquidate all or part of a Limited Partners capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn pursuant to the five-year (or longer) withdrawal period. The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnerships capacity to return a Limited Partners capital account is restricted to the availability of Partnership cash flow. 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 fiscal 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 was 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 Partnerships 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 REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 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. As of December 31, 1998, the Partnership had recovered $70,805 in excess of its costs. NOTE 6 - LEGAL PROCEEDINGS Legal actions against borrowers and other involved parties have been initiated by the Partnership to help assure payments against unsecured accounts receivable totalling $242,493 at December 31, 1998. The Partnership is a defendant, along with numerous defendants including a developer, contractor and other lenders, in a lawsuit involving the Partnerships attempt to recover its investment in Real Estate acquired through foreclosure. Management anticipates that the ultimate results of these cases will not have a material adverse effect on the net assets of the Partnership, with due consideration having been given in arriving at the allowance for doubtful accounts. NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line of credit secured by its Mortgage Investment portfolio of up to $3,000,000 at .50% over prime. The balances outstanding as of December 31, 1998 and 1997 were $1,912,663, and $2,341,816, respectively, and the interest rate at December 31, 1998 was 8.25% (7.75% prime + .50%). The line of credit expired in 1998 but was formally extended to March 31, 1999. In 1999 a new line of credit has been secured with another institution. The new borrowing limit is $3,500,000 at prime +.25%. (7.75% + .25% = 8.00%) 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, -------------------------------------------- 1998 1997 ---------------- --------------- Net assets - Partner Capital per financial statements $11,948,707 $12,879,547 Formation loan receivable 253,387 341,275 Allowance for doubtful accounts 787,042 424,738 ---------------- --------------- Net assets tax basis $12,989,136 $13,645,560 ================ =============== In 1998, 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 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 $13,209,186. The December 31, 1998 fair value of these investments of $13,278,844 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 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At December 31, 1998, there were 53 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 53 Total Mortgage Investments outstanding $13,209,186 Average Mortgage Investment outstanding $249,230 Average Mortgage Investment as percent of total 1.89% Average Mortgage Investment as percent of Partners Capital 2.09% Largest Mortgage Investment outstanding $1,050,000 Largest Mortgage Investment as percent of total 7.95% Largest Mortgage Investment as percent of Partners Capital 8.79% Number of counties where security is located(all California) 14 Largest percentage of Mortgage Investments in one county 22.25% Average Mortgage Investment to appraised value of security at time loan was consummated 61.18% Number of Mortgage Investments in foreclosure -0- REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 The following categories of mortgage investments are pertinent at December 31, 1998 and 1997: December 31, ------------------------------------------ 1998 1997 ----------------- --------------- First Trust Deeds $8,638,976 $6,810,113 Second Trust Deeds 4,188,401 5,719,369 Third Trust Deeds 181,808 720,258 Fourth Trust Deeds 200,001 200,001 ----------------- --------------- Total mortgage investments 13,209,186 13,449,741 Prior liens due other lenders 12,728,867 17,951,579 ----------------- --------------- Total debt $25,938,053 $31,401,320 ================= =============== Appraised property value at time $42,393,561 $52,077,885 of loan ================= =============== Total investments as a percent of appraisals 61.18% 60.30% ================= =============== Investments by Type of Property Owner occupied homes $746,334 $1,104,742 Non-Owner occupied homes 1,691,016 1,464,596 Apartments 897,292 1,666,916 Commercial 9,874,544 9,213,487 ================= =============== $13,209,186 $13,449,741 ================= =============== Scheduled maturity dates of mortgage investments as of December 31, 1998 are as follows: Year Ending December 31, ------------------- 1999 $4,910,183 2000 3,556,483 2001 1,794,692 2002 1,317,987 2003 1,209,761 Thereafter 420,080 ================= $13,209,186 ================= The scheduled maturities for 1999 include approximately $1,560,605 in twelve mortgage investments which are past maturity at December 31, 1998. Interest payments on most of these loans are current. $479,308 of these Mortgage Investments were categorized as delinquent over 90 days. Five mortgage investments with principal outstanding of $1,566,585 had interest payments overdue in excess of 90 days. Two Mortgage Investments with principal outstanding of $231,966 were considered impaired at December 31, 1998. That is interest accruals are no longer recorded thereon. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 The cash balance at December 31, 1998 of $461,544 were in three banks with an interest bearing balance totalling $244,294. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $165,573. The Partnerships main bank is the same financial institution that has provided the Partnership with the $3,000,000 limit line of credit. At December 31, 1998, draw down against this facility was $1,912,663. 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.
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 12/31/97 (1) (2) (1) (2) Amounts Amounts Current Not Current collected written off 12/31/98 Redwood Mortgage $341,275 $0.00 $66,908 $20,980* $0.00 $253,387 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 is being repaid to the Partnership in ten annual installments of principal only which began January 1, 1992. * The amount written off represents the proportionate amount of early withdrawal penalties allocated to the Formation Loan 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 12/31/98 Deducted from Asset accounts: Allowance for Doubtful accts $424,738 $362,304 $0 $0 $787,042 Cumulative write-down of Real Estate held for sale (REO) $219,360 $60,750 $0 $(68,480) $348,590 --------------- ------------------ ------------------- ---------------- ---------------- Total $644,098 $423,054 $0 $(68,480) $1,135,632 ============== =================== =================== ================ ================ (*) represents net loss or net (gain) 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 12/31/98 $1,912,663 8.99% $2,662,663 $1,899,987 8.99%
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 Liens Face Amt. of Carrying Principal Type of Geographic Rate Maturity Payment Mortgage amount of amt of Lien County Date Terms Investments Mortgage Mortgage Location (original Investments Investments amount) subject to Delinq. Prin. or Interest ========= ======== ========= =========== ============== =============== ============== ============== ========= ============== Res 13.75 10/01/96 916.67 369,163.00 80,000.00 80,000.00 0.00 2nd Mtg San Mateo Res 13.75 10/01/96 988.28 0.00 86,250.00 86,250.00 0.00 1st Mtg Santa Clara Res 12.50 02/01/07 369.76 0.00 30,000.00 22,598.41 0.00 1st Mtg Santa Cruz Res 10.00 04/17/97 132.08 126,800.00 15,850.00 15,774.68 0.00 2nd Mtg Sonoma Comm 10.00 08/06/02 400.63 17,382.00 46,803.50 43,409.17 0.00 2nd Mtg Alameda Comm 14.50 01/01/00 4,926.06 354,077.00 400,002.40 400,002.42 0.00 2nd Mtg Contra Costa Res 12.00 01/10/04 150.00 208,000.00 15,000.00 6,773.07 0.00 2nd Mtg San Mateo Apts 6.50 05/01/06 540.83 89,904.00 75,000.00 96,716.11 8,112.45 2nd Mtg Sacramento Res 12.75 07/01/08 370.90 236,164.00 29,700.00 24,529.12 0.00 2nd Mtg San Mateo Res 13.50 09/01/08 1,647.07 106,044.00 126,861.90 107,422.56 0.00 2nd Mtg Contra Costa Comm 12.00 09/01/03 848.61 0.00 82,500.00 80,397.94 0.00 lst Mtg Alameda Comm 10.00 09/01/03 1,167.00 0.00 133,000.00 122,189.51 0.00 lst Mtg San Mateo Comm 12.00 11/01/98 2,057.23 5,635.00 200,000.00 35,656.54 0.00 2nd Mtg Sacramento Res 8.00 05/01/09 753.50 0.00 81,825.00 64,886.89 0.00 lst Mtg Alameda Comm 10.00 12/01/98 647.21 0.00 73,750.00 72,766.69 3,883.26 lst Mtg Stanislaus Comm 14.00 01/01/00 2,760.29 891,453.00 200,001.20 200,001.20 0.00 4th Mtg Contra Costa Comm 10.00 12/01/98 3,619.98 0.00 412,500.00 406,541.72 18,099.90 lst Mtg Alameda Comm 7.00 12/01/03 575.74 281,250.00 49,586.38 40,560.78 2,878.70 2nd Mtg Alameda Comm 12.00 02/01/99 3,420.76 0.00 335,638.30 335,638.30 0.00 1st Mtg Santa Clara Land 12.00 07/01/96 1,352.50 679,258.00 13,250.00 135,250.00 0.00 3rd Mtg Sonoma Land 13.75 12/20/98 7,366.08 338,793.00 757,144.25 232,315.57 14,732.16 2nd Mtg Stanislaus Apts 7.00 02/10/05 234.06 80,250.00 40,125.00 40,125.00 0.00 2nd Mtg San Francisco Apts 11.50 04/01/05 453.88 0.00 550,000.00 45,833.34 0.00 1st Mtg San Francisco Comm 9.00 05/10/02 670.52 0.00 83,333.33 81,033.44 0.00 lst Mtg Shasta Res 8.00 09/27/00 530.79 106,333.00 79,619.05 77,679.33 0.00 2nd Mtg Monterey Comm 12.00 12/31/01 10,106.91 5,492,794.00 955,000.00 1,010,691.25 0.00 2nd Mtg Santa Clara Land 14.00 02/01/97 3,822.50 0.00 382,250.00 235,381.46 0.00 lst Mtg Santa Clara Res 8.00 09/18/03 87.56 0.00 11,932.83 11,688.87 0.00 1st Mtg Sonoma Res 8.00 09/30/03 89.71 0.00 12,225.92 11,984.10 0.00 lst Mtg Sonoma Comm 12.00 02/01/99 124.00 312,000.00 12,000.00 12,000.00 0.00 2nd Mtg Santa Clara Res 13.00 12/01/99 704.17 0.00 65,000.00 65,000.00 248.00 1st Mtg Ventura Res 13.00 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 lst Mtg Ventura Res 13.00 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 lst Mtg Ventura Res 14.00 01/01/98 1,983.34 0.00 340,000.00 170,000.00 0.00 lst Mtg Alameda Land 12.00 01/01/00 9,500.00 89,692.00 950,000.00 950,000.00 28,500.00 2nd Mtg Stanislaus Land 12.00 05/01/99 2,354.00 0.00 235,400.00 235,400.00 0.00 lst Mtg San Mateo Comm 7.00 07/01/02 1,131.11 0.00 146,666.66 143,544.38 0.00 lst Mtg Contra Costa Comm 12.00 07/01/02 10,500.00 0.00 1,350,000.00 1,050,000.00 0.00 lst Mtg San Francisco Res 12.00 01/01/99 6,726.86 250,668.00 700,000.00 679,413.14 0.00 2nd Mtg Monterey Res 9.00 09/01/07 154.77 61,645.00 12,217.98 11,196.31 0.00 2nd Mtg San Mateo Land 12.00 05/01/99 460.00 235,400.00 46,000.00 46,000.00 0.00 2nd Mtg San Mateo Res 12.00 05/01/99 5,773.22 0.00 1,225,000.00 601,484.36 0.00 lst Mtg San Francisco Comm 12.00 01/01/03 9,736.79 0.00 1,075,000.00 942,939.04 0.00 lst Mtg Alameda Land 11.50 09/01/99 3,833.33 0.00 400,000.00 400,000.00 0.00 lst Mtg Stanislaus Land 12.00 03/01/00 4,788.00 0.00 478,800.00 478,800.00 0.00 lst Mtg San Mateo Land 11.00 07/01/99 2,216.74 2,074,689.00 400,000.00 234,024.90 0.00 2nd 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 Liens Face Amt. of Carrying Principal Type of Geographic Rate Maturity Payment Mortgage amount of amount of Lien County Date Terms Investments Mortgage Mortgage Location (original Investments Investments amount) subject to Delinq. Principal or Interest ========= ======== ========= =========== ============== =============== ============== ============== ========= ============== Apts 12.00 08/01/99 7,010.66 0.00 725,000.00 714,617.48 0.00 lst Mtg Marin Comm 11.50 12/05/01 4,791.67 0.00 500,000.00 500,000.00 0.00 lst Mtg Stanislaus Land 13.00 10/01/00 10,291.67 0.00 950,000.00 950,000.00 0.00 lst Mtg Solano Res 11.00 10/01/01 2,603.33 0.00 284,000.00 284,000.00 0.00 lst Mtg Stanislaus Land 11.50 02/01/00 4,791.67 0.00 500,000.00 500,000.00 0.00 lst Mtg Stanislaus Res 10.00 08/01/97 388.67 309,872.00 45,000.00 46,558.20 0.00 3rd Mtg San Mateo Res 15.25 04/01/95 588.29 11,601.00 45,800.00 44,111.14 0.00 2nd Mtg Solano ------------ -------------- --------------- -------------- -------------- $141,741.06 $12,728,867.00 $15,975,033.70 $13,209,186.42 $76,454.47 Notes: Mortgage Investments classified as impaired Mortgage Investments had principal balances totalling $231,966 at December 31, 1998. Impaired Mortgage Investments are defined as Mortgage Investments where the costs of related balances exceeds the anticipated fair value less costs to collect. Accrued interest is no longer recorded thereon. Amounts reflected in column G (carrying amount of Mortgage Investments) represents both costs and the tax basis of the Mortgage Investments.
Schedule XII Reconciliation of carrying amount (cost) of Mortgage Investments at close of periods Year ended December 31, ---------------------------------------------------------- 1998 1997 1996 --------------- --------------- -------------- Balance at beginning of year $13,449,741 $12,036,293 $12,382,641 --------------- --------------- -------------- Additions during period: New Mortgage Investments 6,398,769 7,841,128 9,099,688 Other 0 0 0 --------------- --------------- -------------- Total Additions 6,398,769 7,841,128 9,099,688 --------------- --------------- -------------- Deduction during period: Collections of principal 6,529,324 6,278,832 8,923,339 Foreclosures 110,000 148,848 492,697 Cost of Mortgage Investments sold 0 0 0 Amortization of Premium 0 0 0 Other 0 0 30,000 --------------- --------------- -------------- Total Deductions 6,639,324 6,427,680 9,446,036 --------------- --------------- -------------- Balance at close of year $13,209,186 $13,449,741 $12,036,293 =============== =============== ==============
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, 1998. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation and Amount Compensation Services Rendered - ------------------------- ----------------------------------------- ------------ I. Redwood Mortgage Mortgage Servicing Fee for servicing Mortgage Investments $128,493 General Partners &/or Affiliate Asset Management Fee for managing assets $16,141 General Partners 1% interest in profits $8,466 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 $166,752 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 $3,383 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. $34,173 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 Interes. 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 23rd day of March, 1999. 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 23rd day of March, 1999. Signature Title Date /S/ D. Russell Burwell - --------------------------------- D. Russell Burwell General Partner March 23, 1999 /S/ Michael R. Burwell - --------------------------------- Michael R. Burwell General Partner March 23, 1999 /S/ D. Russell Burwell - --------------------------------- D. Russell Burwell President of Gymno Corporation, March 23, 1999 (Principal Executive Officer); Director of Gymno Corporation /S/ Michael R. Burwell - --------------------------------- Michael R. Burwell Secretary/Treasurer of Gymno March 23, 1999 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 461544 0 13933762 787042 0 0 0 0 14005660 0 0 2056953 0 0 11948707 14005660 0 1657728 0 217236 0 423054 170867 846571 0 846571 0 0 0 846571 0 0
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