-----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, B6FYjAUlpDOoYpoLow9yHmntzqIHh7yNtLW/bufiJGSULBuNXDmhPUUtU1DkfDq9 jYh6Zy4Gh2RDj9tAI/CVWA== 0000854092-01-000005.txt : 20010402 0000854092-01-000005.hdr.sgml : 20010402 ACCESSION NUMBER: 0000854092-01-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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: 1587797 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 0001.txt 10-K REDWOOD MORTGAGE INVESTORS VII (a California Limited Partnership) Index to Form 10-K December 31, 2000 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 Registrant's "Limited Partnership Units" and Relate Unitholder Matters 6 Item 6 - Selected Financial Data 6-8 Item 7 - Management's Discussion and Analysis of Financial condition and Results of Operations 9-13 Item 8 - Financial Statements and Supplementary Data 13-33 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 Part III Item 10 - Directors and Executive Officers of the Registrant 34 Item 11 - Executive Compensation 35 Item 12 - Security Ownership of Certain Beneficial Owners and Management 36 Item 13 - Certain Relationships and Related Transactions 36 Part IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8- K. 36-37 Signatures 38 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, 2000 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) Registrant's telephone number 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, 2000, 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 incorporated 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 Partnership and 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 loans secured by deeds of trust on California real estate. Loans are arranged and serviced by Redwood Mortgage Corp., an affiliate of the General Partners. The Partnership's 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 Partnership's capital. The Partnership's 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 totaled $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, 2000, the Partnership had a balance in its loans portfolio totaling $12,794,297 with interest rates thereon ranging from 6.50% to 14.50%. Currently, loans secured by First Trust Deeds comprise 68.16% of the amount of funds in the loan portfolio followed by Second Trust Deeds of 31.27% and Third Trust Deeds of 0.57%. Owner-occupied homes, combined with non-owner occupied homes total 14.57% of the loans. Commercial loans origination decreased from last year, now comprising 65.19% of the portfolio, a decrease of 8.74%. Loans to apartments totaled 20.24%. The past year brought many outstanding low loan to value lending opportunities in the commercial segment of the market. 66.38% of the total loans, are in five counties of the Bay Area. The County of Stanislaus makes up 21.80% of the loans. Stanislaus County is an adjacent county to the San Francisco Bay Area, located approximately 65 miles from San Francisco. The balance of loans are primarily in Northern California. Loan size increased the past year, and is now averaging $336,692 per loan, an increase of $74,510. Some of the larger loans 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 39.31%. A 40% equity average on loan origination is generally considered very conservative. Generally, the more equity, the more protection for the lender. The Partnership's loan portfolio is in good condition with no property in foreclosure as of December 2000. Item 2 - Properties A summary of the Partnership's loan portfolio as of December 31, 2000 is set forth below. Loans as a Percentage of Total Loans First Trust Deeds $8,720,985.58 Appraised Value of Properties 15,179,235.00 Total Investment as a % of Appraisal 57.45% First Trust Deeds $8,720,985.58 Second Trust Deed Loans 4,000,140.40 Third Trust Deed Loans 73,170.73 ------------------- 12,794,296.71 Priority positions: First Trust Deeds due other Lenders 7,761,363.00 Second Trust Deeds due other Lenders 1,000,000.00 Total Debt $21,555,659.71 Appraised Property Value $35,518,467.00 Total Investments as a % of Appraisal 60.69% Number of Loans Outstanding 38 Average Investment 336,692.02 Average Investment as a % of Net Assets 3.33% Largest Investment Outstanding 1,995,451.75 Largest Investment as a % of Net Assets 19.74% Loans as a Percentage of Total Loans First Trust Deeds 68.16% Second Trust Deeds 31.27% Third Trust Deeds 0.57% ------------------- Total 100.00% Loans by Amount Percent Type of Property Owner Occupied Homes $218,941.63 1.71% Non-Owner Occupied Homes 1,644,636.22 12.86% Apartments 2,590,022.29 20.24% Commercial 8,340,696.57 65.19% ------------------ ------------------ Total $12,794,296.71 100.00 % The following is a distribution of loans outstanding as of December 31, 2000 by Counties. Total Mortgage County Investments Percent San Francisco 3,769,959.58 29.47% Stanislaus 2,789,455.34 21.80% Contra Costa 2,115,418.47 16.53% Alameda 1,027,809.79 8.03% San Mateo $901,599.29 7.05% Placer 837,967.10 6.55% Santa Clara 678,388.30 5.30% Santa Cruz 474,294.01 3.71% Sacramento 96,716.11 0.76% Shasta 79,538.11 0.62% Sonoma 23,150.61 0.18% ------------------ ------------ Total $12,794,296.71 100.00% Statement of Condition of Loans Number of Loans in Foreclosure -0- Scheduled maturity dates of loans as of December 31, 2000 are as follows: Year Ending December 31, Amount ------------------- -------------------- 2001 $10,100,308 2002 1,317,339 2003 557,348 2004 130,010 2005 514,419 Thereafter 174,873 -------------------- Total $12,794,297 ==================== The scheduled maturities for 2001 include approximately $1,664,181 in seven loans which are past maturity at December 31, 2000. Interest payments on most of these loans are current. $753,320 of these loans were categorized as delinquent over 90 days. This represents only 5.89% of the Partnership's loan portfolio. Five loans with principals outstanding of $890,597 had interest payments overdue in excess of 90 days. Which is only 6.96% of the Partnership's loan balance as of December 31, 2000. Five loans with principals outstanding of $890,597 were considered impaired at December 31, 2000. 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 a Vote of Security Holders (Partners). No matters have been submitted to a vote of the Partnership. Part II Item 5 - Market for the Registrant's "Limited Partnership Units" and Related Unitholder 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 five years to December 31, 2000 were: Balance Sheet Assets December 31, ------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 -------------- --------------- --------------- -------------- --------------- Cash $269,000 $388,770 $461,544 $520,837 $755,089 Accounts receivable: Loans secured by deeds of trust 12,794,297 11,011,660 13,209,186 13,449,741 12,036,293 Accrued interest and other fees 363,321 357,177 442,350 427,952 264,495 Advances on loans 29,825 31,669 39,733 33,154 41,203 Other receivables - unsecured 188,421 163,085 242,493 252,422 337,242 Less allowance for losses (850,548) (828,563) (787,042) (424,738) (228,647) Real estate owned ("REO") acquired through foreclosure at estimated net realizable value 816,094 307,931 397,396 687,139 1,468,345 Real estate owned in process 0 525,510 0 0 0 Partnership interest 0 0 0 346,017 242,394 -------------- --------------- --------------- -------------- --------------- $13,610,410 $11,957,239 $14,005,660 $15,292,524 $14,916,414 -------------- --------------- --------------- -------------- --------------- Liabilities and Partners Capital December 31 ------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------------- -------------- --------------- --------------- --------------- Liabilities: Note payable - bank $3,500,000 $800,000 $1,912,663 $2,341,816 $1,175,000 Accounts payable and accrued expenses 4,102 32,234 12,547 1,845 1,472 Deferred interest 0 115,709 131,743 0 0 Discount of loans 0 0 0 69,316 154,598 --------------- --------------- -------------- -------------- ---------------- 3,504,102 947,943 2,056,953 2,412,977 1,331,070 Partners' capital: General partners 11,978 11,978 11,978 11,978 11,978 Limited partners subject to redemption 10,094,330 10,997,318 11,936,729 12,867,569 13,573,366 --------------- --------------- -------------- -------------- ---------------- Total partners capital 10,106,308 11,009,296 11,948,707 12,879,547 13,585,344 --------------- --------------- -------------- -------------- ---------------- $13,610,410 $11,957,239 $14,005,660 $15,292,524 $14,916,414 =============== =============== ============== ============== ================
Statement of Income Gross revenue $1,437,964 $1,663,245 $1,657,728 $1,623,863 $1,580,500 Expenses 537,818 753,664 811,157 796,984 721,401 ------------- --------------- -------------- -------------- ---------------- Net Income 900,146 909,581 846,571 826,879 859,099 ------------- --------------- -------------- -------------- ---------------- Net income to general partners (1%) 9,001 9,096 8,466 8,269 8,591 ============= =============== ============== ============== ================ Net income to limited partners (99%) 891,145 900,485 838,105 818,610 850,508 ============= =============== ============== ============== ================ Net income per $1,000 invested by limited Partners for entire period: - where income is reinvested and compounded $85 $79 $67 $61 $60 ============= =============== ============== ============== ================ - where partner receives income in monthly distributions $82 $76 $65 $59 $59 ============= =============== ============== ============== ================
Net income in 1998 averaged at an annualized yield of 6.69%, in 1999 the annualized yield was 7.86% and in 2000 the annualized yield was 8.52%. Average annualized yield since inception through December 31, 2000, was 7.85%. ITEM 7 - 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, 2000, Partners' Capital totaled $10,106,308. At December 31, 2000, the Partnership loans outstanding totaled $12,794,297. This represents a decline of $414,889 from the December 31, 1998 loans balance. This reduction in loans outstanding as of December 31, 2000 was chiefly due to cash proceeds from Mortgage Investment repayments being used to fund withdrawals to the Limited Partners of $3,811,803, during 1999 and 2000. This was offset by an increase in Note Payable-Bank of $2,700,000 reinvestment of earnings of $846,403, reduction in accrued interest, other receivables and investment of cash. Loans decreased from $13,449,741 from 1997 to $13,209,186 in 1998, a decrease of $240,555 chiefly due to the ability of the General Partners to reduce amounts of real estate owned by $289,743, reinvestment of earnings of $390,213, offset by payments to withdrawing Limited Partners $1,856,833, a reduction of outstanding Note Payable - Bank of $1,112,663 and investment of cash. The Partnership began funding loans on December 27, 1989, and as of December 31, 2000, had credited the Partners accounts with income at an average annualized (compounded) yield of 7.85%. Since the fall of 1999, mortgage interest rates have been rising due primarily to economic forces and by the Federal Reserve raising its core interest rates. However, in 2001 the Federal Reserve has reversed its policy towards higher rates and is lowering its core interest rates. This will have the effect of lowering interest rates in the marketplace. New loans will be originated at then existing interest rates. 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. Although the rates charged by the Partnership are influenced by the level of interest rates in the market, the General Partners do not anticipate that rates charged by the Partnership to its borrowers will change significantly from the beginning of 2001 over the next 12 months. As of December 31, 2000 the Partnership Real Estate Owned account and the investment in Partnership account had a combined balance of $816,094. These accounts had combined balances of $397,396 and $307,931 for the years ended December 31, 1998 and 1999, respectively. The increase in the Partnership Real Estate Owned account is the result of the acquisition of one property through foreclosure. The General Partners anticipate that the annualized yield for the new year, 2001, will be higher than the previous year. The Partnership has a line of credit with a commercial bank secured by its loans to a limit of $3,500,000, at a variable interest rate set at one-quarter percent above the prime rate. As of December 31, 2000, the prime rate was 9.50% and the line of credit rate was 9.75%. As of December 31, 2000, December 31, 1999 and December 31, 1998, the balances were $3,500,000, $800,000 and $1,912,663, respectively. This line of credit expires on May 01, 2003. 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 loans are not currently available. Since most of the loans 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 loans funded using the line of credit generate revenue for the Partnership. As of December 31, 2000, the Partnership is current with its interest payments on the line of credit. For the years ended December 31, 1998, 1999 and 2000, interest paid was $170,867, $182,350 and $257,390, respectively. The Partnership's 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-three years. Mortgage Servicing Fees in 1998 were $128,493, in 1999 were $127,440 and in 2000 were $110,713. These Mortgage Servicing Fees were declining as the outstanding mortgage loan portfolio balances declined. Asset Management Fees increased to $16,141 in 1998, and to $44,524 in 1999. For the year 2000, Management Fees paid was $38,400. In 1997, the General Partners waived or partially waived this fee to the Partnership and increased the Asset Management Fee to its allowed amount of 3/8 of 1% in 1999 and 2000. All other expenses fluctuated 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, 2000, there were no properties in foreclosure. Cash is constantly being generated from interest earnings, late charges, pre-payment penalties, amortization of loans and pay-off on notes. Currently, cash flow exceeds Partnership expenses, earnings and capital payout requirements. Excess cash flow will be invested in new loan opportunities when available, used to reduce the Partnership credit line or other Partnership business. The General Partners regularly review the loan 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 $423,054, $329,057 and $65,664, as provision for doubtful accounts for the years ended December 31, 1998, 1999 and 2000, respectively. The provision for doubtful accounts was decreased $11,441 to $423,054 in 1998, by $93,997 to $329,057 in 1999, and by $263,393 to $65,664 in 2000. These decreases reflect reduced expected REO anticipated losses and improved collections of secured and unsecured receivables. The much publicized California energy crises has not only affected the hi-tech, manufacturing, service and agro based industries, the professional and commercial businesses, transportation and utilities sectors, but every household and individual as a whole. The crises, which means higher cost to the consumers, could adversely affect the economy, employment and the Partnership's lending in its commercial sector. On the real estate scene, The San Mateo Times February 22, 2001 issue, reported that despite the energy crises and talk of recession, the median price of a San Mateo County home soared to near record levels in January. "The median price of a single-family home jumped 4 percent over December to $651,000, nearing the record $653,000 of last May, during the spring price-soaring frenzy. Realtors insist the hysteria of last spring, causing real estate values to soar, is over and the market has plateaued. But prices are not reflecting that yet. For example, the median price of a home in East Palo Alto jumped 25 percent in January to $736,000. This is especially shocking, considering East Palo Alto's median was well under $200,000 in January 1998, with fixer-uppers in the low $100,000s. While a few high price homes can skew median home prices, it is an indication that the real estate market has not completely plateaued. Popular three-bedroom, two-bath homes settled in between $600,000 and $800,000. Many two-bedroom, one-bath homes are selling for $500,000 and up. Sales slowed in January, as usual, to 269 from 362 in December countywide. They were off from 315 sales in January 2000. "There are still plenty of buyers wanting to buy, and now there are more people wanting to sell," said Denise Aquila, a real estate agent at ReMax in San Carlos. Despite the stock market's recent tanking and many dot-com failures, Aquila and other realtors see a strong market this year countywide with prices holding their own. Part of the reason for the resilience is that entry-level homes are in the $500,000 to $700,000 range countywide, and "they aren't making any more of them," Aquila said. The County's median price for January climbed 21 percent over the same period last year. Although the article focuses on single-family residences only, corresponding increase in values had similar impact on commercial, industrial and apartment buildings in general. To the Partnership, these sales statistics indicate a strong real estate market that is beginning to slow down from the rapid appreciation that has occurred over the last 3 years. The real estate market appears to be coming more into balance with similar numbers of buyers and sellers which will allow buyers more opportunity to negotiate and be selective in their real estate purchases. The California energy crisis is a longer-term problem, which the Partnership cannot affect. Creative and pragmatic solutions will need to be developed by Industry and Government so as not to stifle the business growth in California. The crises which means higher cost to the consumers in the near term could adversely affect the economy, employment and the Partnership's lending in its residential and commercial loans by lowering real estate values. Bank discount rate fell from 6.00% in May 2000 to 4.5% in March 2001. The price hike in real estate properties means more equity to the homeowners, which increases equity on the existing portfolio. Lower interest rates mean cutting the cost of capital, improving profit margins and encouraging expansion. It also helps to induce consumer spending, sparking home sales and mortgage refinancing. This all translates into more loan activity, which, of course, is healthy for the Partnership's lending activity. The Partnership's interest in land located in East Palo Alto, CA, was acquired through foreclosure. The investment was previously classified as Investment in Partnership in the Financial Statements and has been reclassified into Real Estate Owned. The Partnership's basis of $38,238, $9,039, and $ 0, for the years ended December 31, 2000, December 31, 1999 and 1998, respectively, has been invested with that of two other Partnerships. 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 a major chemical company 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. The General Partners are attempting to subdivide this land into two parcels and exploring the ability to obtain new zoning for this property. 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, 1998, 1999 and 2000, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of $456,358, $490,841 and $454,386, respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1998, 1999 and 2000 to Limited Partners' capital accounts and not withdrawn was $381,747, $409,644 and $436,759, respectively. As of December 31 1998, December 31, 1999 and December 31, 2000, Limited Partners electing to withdraw earnings represented 53%, 54% and 49% 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, 1998, 1999 and 2000, $381,458, $231,025 and $179,343, 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 their 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, 1998, December 31, 1999 and December 31, 2000, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1998, December 31, 1999 and December 31, 2000, $1,019,017, $1,205,917 and $1,250,291, 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 eleven (2000) is shown hereunder; which confirms the General Partners theory on the liquidation habits of the Limited Partners: Years ended December 31, 1994 1995 1996 1997 --------------- -------------- -------------- ---------------- Earnings $263,206 $270,760 $336,341 $399,379 Capital *$340,011 *$184,157 *$722,536 *$1,212,916 --------------- -------------- -------------- ---------------- Total $603,217 $454,917 $1,058,877 $1,612,295 =============== ============== ============== ================ 1998 1999 2000 --------------- -------------- -------------- Earnings $456,358 $490,841 $454,386 Capital *$1,400,475 *$1,436,942 *1,429,634 --------------- -------------- -------------- Total $1,856,833 $1,927,783 $1,884,020 =============== ============== ==============
* These amounts represent gross of early withdrawal penalties. The Year 2000 was considered by most to be a challenge for the entire world with respect to the conversion of existing computerized operations. The Partnership relied on Redwood Mortgage Corp., third parties and various software vendors for its hardware and software needs. The year 2000 has come and gone and we have not experienced any computer hardware breakdowns. We assume that our testing and upgrading of computer hardware prior to year 2000 identified all hardware areas of concern. Computer software programs are all operational with only minor problems being experienced with some programs. These problems have been addressed by the appropriate software vendors or software programmers. All annual computerized functions have been run, and testing of the operations has taken place. We do not expect any problems hereafter. The costs of updating our computer systems were substantially borne by the non-affiliated software vendors and the in house system conversion costs to the Partnership were marginal. Year 2000 issues do not appear to have affected, in any significant manner, any industries or businesses in the marketplace in which the Partnership places its loans. We believe that year 2000 issues were a non-event and will have little, if any, future effect on the Partnership, its affiliates or the people and businesses with which it associates. With this report we hereby conclude our discussion on the Y2K issue. After 25 years of active participation in the mortgage business, D. Russell Burwell, our founder and a General Partner of the Partnership has decided to retire effective September 30, 2001. "Russ" has enjoyed a long and successful career. His original business model, upon which our Partnership has its roots, has withstood the test of time through varying economic cycles. Collectively, the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an idea to over $110,000,000 in assets and produced excellent results for the Limited Partners under Russ's stewardship in Redwood Mortgage Investor's VII. This Partnership originally raised $11,998,359 in Limited Partner Capital contributions and at December 31, 2000 had $10,094,330 in remaining Limited Partner Capital. Over the last few years, Russ has been passing along his duties and responsibilities to the remaining General Partners. The remaining General Partners are Mr. Michael Burwell and Gymno Corporation, a California Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage Investors VII since its inception and has been employed by Redwood Mortgage Corp, an affiliate of the Partnership, since 1979. The Partnership through the remaining General Partners and the employees of its affiliate Redwood Mortgage Corp., is well prepared for Russ's departure and looks forward to emulating the steady consistent returns that the Limited Partners have enjoyed during Russ' tenure. Mr. D. Russell Burwell is providing this notification pursuant to Article 8 Section 8.02 of the Limited Partnership Agreement.The remaining General Partners have elected to continue the business of the Partnership as described in Article 9 Section 9.01(d) of the Limited Partnership Agreement. The General Partners have determined that for purposes of establishing a value for reporting purposes, including brokerage and trustee account statements, the estimated value of the limited partnership interests on a per unit basis is equal to the capital account balance of each investor in the Partnership. Each investor's capital account balance is set forth periodically on the Partnership account statement provided to investors. The amount of Partnership earnings each investor is entitled to receive is determined by the ratio that each investor's capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any NASD member client account statement in providing a per unit estimated value of the client's investment in the Partnership in accordance with NASD Rule 2340. While the General Partners have set an estimated value for the Partnership units, such determination may not be representative of the ultimate price realized by an Investor for such units upon sale. No public trading market exists for the Partnership's units and none is likely to develop. Thus, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the Partnership which may include early withdrawal penalties (See the section of the Prospectus entitled "Risk Factors - Purchase of Units is a long term investment"). 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: o Independent Auditors' Report o Balance Sheets - December 31, 2000, and December 31, 1999 o Statements of Income for the three years ended December 31, 2000 o Statements of Changes in Partners' Capital for the three years ended December 31, 2000 o Statements of Cash Flows for the three years ended December 31, 2000 o Notes to Financial Statements B-Financial Statement Schedules The following financial statement schedules of Redwood Mortgage Inventors VII are included in Item 8. o Schedule II Valuation and Qualifying Accounts o Schedule IV 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, 2000 (With Auditors' Report Thereon) ARMANINO McKENNA LLP CERTIFIED PUBLIC ACCOUNTANTS 1855 Olympic Blvd., Suite 225 Walnut Creek, CA 94596 (925) 939-8500 INDEPENDENT AUDITOR'S REPORT THE PARTNERS REDWOOD MORTGAGE INVESTORS VII REDWOOD CITY, CALIFORNIA We have audited the accompanying balance sheet of REDWOOD MORTGAGE INVESTORS VII (a California Limited Partnership) and the related statements of income, changes in partners' capital and cash flows as of and for the year ended December 31, 2000. Our audit also included the financial statement schedules listed in the Index at Item 8. These financial statements and schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements as of December 31, 1999 and the two years then ended, were audited by other auditors whose report dated March 15, 2000, expressed an unqualified opinion on these financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2000, and the results of its operations and cash flows for the year ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statements schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ARMANINO McKENNA LLP Walnut Creek, California February 23, 2001 Caporicci, Cropper & Larson, LLP CERTIFIED PUBLIC ACCOUNTANTS 1575 Treat Blvd., Suite 208 Walnut Creek, CA 94598 (925) 932-3860 INDEPENDENT AUDITOR'S 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, 1999 and 1998 and the statements of income, changes in partners' capital and cash flows for the three years ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 1999 and 1998, and the results of its operations and cash flows for the three years ended December 31, 1999 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/ A. Bruce Cropper Caporicci, Cropper & Larson, LLP Walnut Creek, California March 15, 2000 REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 2000 AND 1999 ASSETS 2000 1999 ----------- ---------- Cash $269,000 $388,770 ----------- ---------- Accounts receivable: Loans, secured by deeds of trust 12,794,297 11,011,660 Accrued Interest on loans 363,321 357,177 Advances on loans 29,825 31,669 Accounts receivables, unsecured 188,421 163,085 ----------- ---------- 13,375,864 11,563,591 Less allowance for doubtful accounts 850,548 828,563 ----------- ---------- 12,525,316 10,735,028 ----------- ---------- Real estate in process of acquisition, to be sold - 525,510 Real estate owned, held for sale 816,094 307,931 ----------- ---------- $13,610,410 $11,957,239 =========== ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Notes payable - bank line of credit $3,500,000 $800,000 Accounts payable and accrued expenses 4,102 32,234 Deferred interest - 115,709 ---------- ---------- 3,504,102 947,943 ---------- ---------- Partners' capital Limited partners' capital, subject to redemption Net of formation loan receivable of $75,612 and $165,499 for 2000 and 1999, respectively 10,094,330 10,997,318 General partners' capital 11,978 11,978 ----------- ---------- Total partners' capital 10,106,308 11,009,296 ----------- ---------- Total liabilities and partners'capital $13,610,410 $11,957,239 =========== ========== The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 2000 YEARS ENDED DECEMBER 31, ---------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- Revenues: Interest on loans $1,406,098 $1,634,416 $1,625,573 Interest on bank deposits 4,725 6,813 7,465 Late charges 11,219 14,367 13,632 Other 15,922 7,649 11,058 ------------- ------------- ------------- 1,437,964 1,663,245 1,657,728 ------------- ------------- ------------- Expenses: Mortgage servicing fees 110,713 127,440 128,493 Interest on note payable - bank 257,640 182,350 170,867 Clerical costs through Redwood Mortgage Corp. 27,032 30,367 34,173 Asset management fee 38,400 44,524 16,141 Provision for bad debts and losses on real estate acquired through foreclosure 65,664 329,057 423,054 Professional services 22,068 21,521 19,983 Printing, supplies and postage 10,293 12,554 12,326 Other 6,008 5,851 6,120 ------------- ------------- ------------- 537,818 753,664 811,157 ------------- ------------- ------------- Net income $900,146 $909,581 $846,571 ============= ============= ============= Net income: To General Partners (1%) $9,001 $9,096 $8,466 To Limited Partners (99%) 891,145 900,485 838,105 ------------- ------------- ------------- $900,146 $909,581 $846,571 ============= ============= ============= Net income per $1,000 invested by Limited Partners for entire period: -where income is reinvested and compounded $85 $79 $67 ============= ============= ============= -where partner receives income in monthly distributions $82 $76 $65 ============= ============= =============
The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 2000 PARTNERS' CAPITAL ----------------------------------------------------- LIMITED PARTNERS' CAPITAL ----------------------------------------------------- Capital Account- Formation Limited Loan Partners Receivable Total --------------- --------------- -------------- Balances at January 1, 1998 $13,208,844 $(341,275) $12,867,569 Formation loan collections 0 66,908 66,908 Net income 838,105 0 838,105 Early withdrawal penalties (30,529) 20,980 (9,549) Partners' withdrawals (1,826,304) 0 (1,826,304) --------------- --------------- -------------- Balances at December 31, 1998 $12,190,116 $(253,387) $11,936,729 Formation loan collections 0 75,138 75,138 Net income 900,485 0 900,485 Early withdrawal penalties (18,553) 12,750 (5,803) Partners' withdrawals (1,909,231) 0 (1,909,231) --------------- --------------- -------------- Balances at December 31, 1999 $11,162,817 $(165,499) $10,997,318 Formation loan collections 0 79,505 79,505 Net income 891,145 0 891,145 Early withdrawal penalties (15,107) 10,382 (4,725) Partners' withdrawals (1,868,913) 0 (1,868,913 --------------- --------------- -------------- Balances at December 31, 2000 $10,169,942 $(75,612) $10,094,330 =============== =============== ==============
The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 2000 PARTNERS' CAPITAL ---------------------------------------------- GENERAL PARTNERS' CAPITAL ---------------------------------------------- Capital Account Total Partners' General Partners Capital ------------------ ---------------- Balances at January 1, 1998 $11,978 $12,879,547 Formation loan collections 0 66,908 Net income 8,466 846,571 Early withdrawal penalties 0 (9,549) Partners' withdrawals (8,466) (1,834,770) ------------------ ---------------- Balances at December 31, 1998 $11,978 $11,948,707 Formation loan collections 0 75,138 Net income 9,096 909,581 Early withdrawal penalties 0 (5,803) Partners' withdrawals (9,096) (1,918,327) ------------------ ---------------- Balances at December 31, 1999 $11,978 $11,009,296 Formation loan collections 0 79,505 Net income 9,001 900,146 Early withdrawal penalties 0 (4,725) Partners' withdrawals (9,001) (1,877,914) ------------------ ---------------- ------------------ ---------------- Balances at December 31, 2000 $11,978 $10,106,308 ================== ================ The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 2000 YEARS ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 1998 -------------- --------------- -------------- Cash flows from operating activities: Net income $900,146 $909,581 $846,571 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 25,160 332,013 362,304 Provision for losses on real estate held for sale 40,504 (2,956) 60,750 Early withdrawal penalty credited to income (4,725) (5,803) (9,549) Change in operating assets and liabilities: Accrued interest & advances (33,072) (62,310) (20,977) Accounts payable and accrued expenses (28,132) 19,687 10,702 Deferred interest on loans (115,709) (16,034) 62,427 -------------- --------------- -------------- Net cash provided by operating activities 784,172 1,174,178 1,312,228 -------------- --------------- -------------- Cash flows from investing activities: Principal collected on loans 5,324,620 9,314,140 6,529,324 Loans made (7,112,078) (7,716,617) (6,398,769) Payments for Real Estate held for sale (87,392) (14,111) 323,720 Proceeds from of Real Estate held for sale 64,235 106,532 (55,532) Proceeds from Partnership 0 0 522,212 Investment in Partnership 0 0 (105,390) Proceeds from unsecured Accounts Receivable 5,082 18,956 9,929 -------------- --------------- -------------- Net cash provided by (used in) investing activities (1,805,533) 1,708,900 825,494 -------------- --------------- -------------- Cash flows from financing activities: Net increase (decrease) in note payable-bank 2,700,000 (1,112,663) (429,153) Formation loan collections 79,505 75,138 66,908 Partners withdrawals (1,877,914) (1,918,327) (1,834,770) -------------- --------------- -------------- Net cash provided by (used in) financing activities 901,591 (2,955,852) (2,197,015) -------------- --------------- -------------- Net increase in cash (119,770) (72,774) (59,293) Cash - beginning of period 388,770 461,544 520,837 -------------- --------------- -------------- Cash - end of period $269,000 $388,770 $461,544 ============== =============== ============== Cash payments for interest $257,640 $182,350 $170,867
The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 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 loans secured by Deeds of Trust on California real estate. Loans 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 totaling $11,998,359 for limited partners. A minimum of 2,500 units ($250,000) and a maximum of 120,000 units ($12,000,000) were offered through qualified broker-dealers. As loans were identified, partners were transferred from applicant status to admitted partners participating in loan operations. Each month's 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 Corp., an affiliate of the General Partners that arranges and services the loans. To finance the sales commissions, the Partnership was authorized to loan to Redwood Mortgage Corp. an amount not to exceed 8.3% of the gross proceeds invested in the Partnership, provided that the formation loan for the minimum offering period could be 10% of the gross proceeds for the minimum offering 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 Corp. had borrowed $914,369 from the Partnership to cover sales commissions relating to $11,998,359 limited partner contributions (7.62%). Through December 31, 2000, $838,757 including $147,254 in early withdrawal penalties had been repaid leaving a balance of $75,612. 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 Corp., 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, 2000 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 loans, and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. C. Loans, Secured by Deeds of Trust The Partnership has both the intent and ability to hold the loans 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 effective interest method. Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide that if the probable ultimate recovery of the carrying amount of a loan, 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. At December 31, 2000 and 1999, reductions in the cost of loans categorized as impaired by the Partnership totaled $137,175 and $152,231, 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, 2000, the average loan to appraised value of security at the time the loans were consummated was 60.69%. 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 property's estimated fair value, less estimated costs to sell. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 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, 2000 and 1999, not including real estate in process of acquisition at December 31, 1999: December 31, ---------------------------------- 2000 1999 --------- --------- Costs of properties $1,258,966 $1,182,701 Reduction in value (442,872) (349,260) REO prior lien 0 0 ------------ ------------ Fair value reflected in financial statements $816,094 $833,441 ============ ============ F. 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. G. 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. H. Allowance for Doubtful Accounts Loans 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 loan system. A provision is made for bad debt to an amount considered by management to be adequate, with due consideration to collateral value, to provide for unrecoverable accounts receivable, including impaired loans, other loans, accrued interest and advances on loans, and other accounts receivable (unsecured). The composition of the allowance for doubtful accounts as of December 31, 2000 and 1999 was as follows: December 31, -------------------------------- 2000 1999 --------- --------- Impaired loans $137,175 $152,231 Unspecified loans 569,612 598,803 Accounts receivable, unsecured 143,761 77,529 --------- --------- $850,548 $828,563 ========= ========= I. 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 had 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which will be paid to the General Partners and/or related parties. A. Mortgage Brokerage Commissions Redwood Mortgage Corp. receives mortgage brokerage commissions for services in connection with the review, selection, evaluation, negotiation and extension of loans in an amount up to 12% of the principal amount of the loans through the period ending 6 months after the termination date of the offering. Thereafter, commissions are limited to an amount not to exceed 4% of the total Partnership assets per year. Such commissions are paid by the borrowers, and are not an expense to the Partnership. Loan brokerage fees for 2000, 1999, and 1998, totaled $130,487, $207,739 and $166,752, respectively. B. Mortgage Servicing Fees Redwood Mortgage Corp. also receives monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable and customary in the geographic area where the property securing the loan is located. Mortgage servicing fees of $110,713, $127,440 and $128,493 were incurred for the years ended December 31, 2000, 1999 and 1998, respectively. C. Asset Management Fee The General Partners receive a monthly fee for managing the Partnership's loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8 of 1% annual). Asset management fees were $38,400, $44,524 and $16,141 during the years ended December 31, 2000, 1999 and 1998, respectively. D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, Mortgage assumption and Mortgage extension fees. Such fees are incurred by the borrowers and are paid to parties related to the General Partners. E. Income and Losses All income and losses are credited or charged to partners in relation to their respective partnership interests. The partnership interest of the General Partners (combined) is a total of 1%. F. Operating Expenses The General Partners or their affiliate (Redwood Mortgage Corp.) 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 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 Partnership's loan portfolio. Interest earned prior to admission was credited to partners in applicant status. As loans were made, applicant subscriptions were transferred to Limited Partner status to begin sharing in income from loans secured by deeds of trust. The interest earned prior to admission 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. 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, 2000 E. Liquidity, Capital Withdrawals and Early Withdrawals There are substantial restrictions on transferability of Units and accordingly an investment in the Partnership is not liquid. Limited Partners had 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 which in all instances had occurred as of December 31, 2000. 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 early and will be deducted from the Capital Account. Withdrawal after the one-year holding period and before the five-year holding period was permitted only upon the terms set forth above. After five years from the date of purchase of the Units, Limited Partners have the right to withdraw from the Partnership, on an installment basis, generally this is done over a five-year period in twenty (20) quarterly installments. Once a Limited Partner has been in the Partnership for the minimum five-year period, 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 may liquidate all or part of a Limited Partner's 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. This withdrawal is subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn without penalty. The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnership's capacity to return a Limited Partner's 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 - LEGAL PROCEEDINGS Legal actions against borrowers and other involved parties have been initiated by the Partnership to help assure payments against unsecured accounts receivable totaling $188,421 at December 31, 2000. The Partnership is a defendant, along with numerous other defendants including a developer, contractor and other lenders, in a lawsuit involving the Partnership's attempt to recover it's 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. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line of credit secured by its loan portfolio of up to $3,500,000 at .25% over prime. The balances outstanding as of December 31, 2000 and 1999 were $3,500,000, and $800,000, respectively, and the interest rate was 9.75% (9.50% prime + .25%) at December 31, 2000. This line of credit expires May 1, 2003. NOTE 7 - 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, ------------------------ 2000 1999 ------- ------- Net assets - Partners' Capital per financial statements $10,106,308 $11,009,296 Formation loan receivable 75,612 165,499 Allowance for doubtful accounts 850,548 828,563 ----------- ---------- Net assets tax basis $11,032,468 $12,003,358 =========== ========== In 2000 and 1999, approximately 70% and 69%, respectively, of taxable income was allocated to tax exempt organizations i.e., retirement plans. Such plans do not have to file income tax returns unless their "unrelated business income" exceeds $1,000. Applicable amounts become taxable when distribution is made to participants. NOTE 8 - 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) Mortgage Investments (see note 2 (c) had a carrying value of $12,794,297 at December 31, 2000. The fair value of these investments of $12,792,716 was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for doubtful accounts along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS The loans are secured by recorded deeds of trust. At December 31, 2000, there were 38 loans outstanding with the following characteristics: Number of loans outstanding 38 Total loans outstanding $12,794,297 Average loan outstanding $336,692 Average loan as percent of total 2.63% Average loan as percent of Partners' Capital 3.33% Largest loan outstanding $1,995,452 Largest loan as percent of total 15.60% Largest loan as percent of Partners' Capital 19.74% Number of counties where security is located (all California) 11 Largest percentage of loans in one county 29.47% Average loan to appraised value of security at time loan was consummated 60.69% Number of loans in foreclosure 0 The following categories of loans are pertinent at December 31, 2000 and 1999: December 31, ------------------- 2000 1999 -------- -------- First Trust Deeds $8,720,986 $6,077,532 Second Trust Deeds 4,000,140 4,272,714 Third Trust Deeds 73,171 661,414 ----------- ---------- Total loans 12,794,297 11,011,660 Prior liens due other lenders 8,761,363 10,389,233 ------------ ---------- Total debt $21,555,660 $21,400,893 ============ ========== Appraised property value at time of loan $35,518,467 $34,223,193 ============ ========== Total investments as a percent of appraisals 60.69% 62.53% ============ ========== Investments by Type of Property Owner occupied homes $218,942 $340,864 Non-Owner occupied homes 1,644,636 2,347,394 Apartments 2,590,022 182,675 Commercial 8,340,697 8,140,727 ------------ ---------- $12,794,297 $11,011,660 ============ ========== REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 Scheduled maturity dates of loans as of December 31, 2000 are as follows: Year Ending December 31, Amount -------------------- ------------------- 2001 $10,100,308 2002 1,317,339 2003 557,348 2004 130,010 2005 514,419 Thereafter 174,873 ------------ Total $12,794,297 ============ The scheduled maturities for 2001 above include approximately $1,664,181 in seven loans which are past maturity at December 31, 2000. Although interest payments on most of these loans are current, $753,320 of these loans were categorized as delinquent over 90 days. Five loans with interest overdue in excess of 90 days and principal outstanding of $890,597 were considered impaired at December 31, 2000. That is, interest accruals are no longer recorded thereon. The cash balance at December 31, 2000 of $269,000 was in two banks with interest bearing balances totaling $107,578. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $69,000. The Partnership's main bank is the same financial institution that has provided the Partnership with the $3,500,000 limit line of credit. At December 31, 2000, draw down against this facility was $3,500,000. As and when deposits in the Partnership's bank accounts increase significantly beyond the insured limit, the funds are either placed in new loans or used to pay-down on the line of credit balance. SCHEDULE II - 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 (a) Costs & Expenses Other accounts - Describe Year Ended 12/31/00 Deducted from Asset accounts: Allowance for Doubtful accts $828,563 $25,160 $0 $(3,175) $850,548 Cumulative write-down of Real Estate held For sale (REO) (b) $349,260 $40,504 $0 $53,108 $442,872 -------------- -------------- ---------- ----------- ---------- Total $1,177,823 $65,664 $0 $49,933 $1,293,420 ============== ============== ========== =========== ==========
(a) Represents net loss or net (gain) on loans and real estate held for sale. (b) The beginning balance of REO includes actual REO of $119,220 and $230,040 for REO in process at 12/31/99 which became REO in year 2000. SCHEDULE IV LOANS 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. Int. Final Periodic Prior Liens Face Amt. of Carrying Principal Type Geographic Rate % Maturity Payment Loans (original amount of Loans amt of of County Date Terms amount) Loans Lien Location subject to Delinq. Prin. or Int. =========== ======== =========== ============= ================= ================= ================ ============= ======= ========== Res 12.00 01/10/04 $150.00 $208,000.00 $15,000.00 $646.71 $0.00 2nd San Mateo Apts 6.50 05/01/06 $540.83 $89,904.00 $75,000.00 $96,716.11 $21,092.37 2nd Sacramnto Res 12.75 07/01/08 $370.90 $236,164.00 $29,700.00 $21,589.46 $0.00 2nd San Mateo Res 8.00 05/01/09 $753.50 $0.00 $81,825.00 $56,566.84 $0.00 1st Alameda Comm 10.00 12/01/98 $3,619.98 $0.00 $412,500.00 $405,682.17 $83,259.54 1st Alameda Comm 7.00 12/01/03 $575.74 $281,250.00 $49,586.38 $40,560.78 $16,696.46 2nd Alameda Comm 12.00 02/01/99 $3,420.76 $0.00 $335,638.30 $335,638.30 $66,134.56 1st S Clara Apts 7.00 02/10/05 $234.06 $80,250.00 $40,125.00 $40,125.00 $0.00 2nd San Fran Comm 9.00 05/10/02 $670.52 $0.00 $83,333.33 $79,538.11 $0.00 1st Shasta Res 8.00 09/18/03 $87.56 $0.00 $11,932.83 $11,422.21 $0.00 1st Sonoma Res 8.00 09/30/03 $89.71 $0.00 $12,225.92 $11,728.40 $0.00 1st Sonoma Comm 12.00 02/01/99 $124.00 $312,000.00 $12,000.00 $12,000.00 $3,446.09 2nd S Clara Res 14.00 01/01/98 $1,983.34 $0.00 $340,000.00 $170,000.00 $0.00 1st Alameda Comm 7.00 07/01/02 $1,131.11 $0.00 $146,666.66 $138,418.47 $0.00 1st Con Costa Land 11.50 09/01/99 $3,833.33 $0.00 $400,000.00 $400,000.00 $0.00 1st Stanislas Land 11.50 02/01/00 $4,791.67 $0.00 $500,000.00 $267,689.91 $0.00 1st Stanislas Comm 10.50 04/01/99 $14,000.00 $1,464,790 $1,600,000.00 $750,000.00 $0.00 2nd San Mateo Land 11.00 01/01/01 $9,166.67 $201,686.00 $1,000,000.00 $800,112.32 $0.00 2nd Stanislas Land 11.00 07/01/01 $9,166.67 $137,737.00 $1,000,000.00 $1,000,000.00 $0.00 2nd Stanislas Res 12.00 05/01/01 $2,782.54 $0.00 $800,000.00 $738,509.95 $0.00 1st Placer Land 11.00 11/01/00 $782.52 $1,141,690.00 $85,365.85 $73,170.73 $0.00 3rd Stanislas Res 11.00 11/01/04 $1,238.02 $553,179.00 $130,000.00 $129,363.12 $0.00 2nd San Mateo Comm 10.25 12/01/01 $10,121.87 $0.00 $1,185,000.00 $829,500.00 $0.00 1st Con Costa Res 11.00 01/01/05 $4,535.44 $0.00 $476,250.00 $474,294.01 $0.00 1st Santa Crz Comm 11.50 03/01/02 $4,165.48 $0.00 $434,659.10 $434,659.10 $0.00 1st San Fran Comm 11.50 03/01/02 $4,156.03 $434,659.00 $565,340.92 $441,994.30 $0.00 2nd San Fran Land 11.50 07/01/01 $1,753.05 $1,000,000.00 $182,926.83 $182,926.83 $0.00 2nd Stanislas Res 12.00 05/01/01 $994.57 $800,000.00 $99,457.15 $99,457.15 $0.00 2nd Placer Res 11.00 04/01/01 $1,375.00 $986,950.00 $150,000.00 $150,000.00 $0.00 2nd Alameda Apts 12.00 05/01/01 $19,680.91 $0.00 $2,010,689.63 $1,995,451.75 $0.00 1st San Fran Comm 12.00 12/01/01 $11,475.00 $0.00 $1,147,500.00 $1,147,500.00 $0.00 1st Co Costa Comm 11.00 07/01/01 $3,666.66 $0.00 $500,000.00 $400,000.00 $0.00 1st San Fran Apts 12.00 08/01/03 $4,400.00 $0.00 $720,000.00 $440,000.00 $0.00 1st San Fran Apts 12.50 04/01/02 $119.83 $440,000.00 $31,884.05 $17,729.43 $0.00 2nd San Fran Comm 13.00 11/01/02 $2,220.84 $310,381.00 $205,000.00 $205,000.00 $0.00 2nd Alameda Comm 10.00 12/01/03 $470.70 $0.00 $53,636.36 $53,636.36 $0.00 1st Stanislas Comm 10.00 12/01/01 $104.60 $82,723.00 $11,919.19 $11,919.19 $0.00 2nd Stanislas Land 12.00 12/01/01 $3,307.50 $0.00 $330,750.00 $330,750.00 $0.00 1st S Clara ------------- ----------------- ----------------- ---------------- ------------- 132,060.91 8,761,363.00 15,265,912.50 12,794,296.71 190,629.02 ============= ================= ================= ================ =============
Notes: Loans classified as `impaired loans' had principal balances totaling $890,597 at December 31, 2000. Impaired loans are defined as loans 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 loans) represents both costs and the tax basis of the loans. Schedule IV Reconciliation of carrying amount (cost) of loans at close of periods Year ended December 31, --------------------------------------- 2000 1999 1998 ---------- ------- ------- Balance at beginning of year $11,011,660 $13,209,186 $13,449,741 ------------- ----------- ----------- Additions during period: New loans 7,112,078 7,716,617 6,398,769 Other 0 0 0 ------------- ----------- ----------- Total Additions 7,112,078 7,716,617 6,398,769 ------------- ----------- ----------- Deduction during period: Collections of principal 5,324,620 9,314,140 6,529,324 Foreclosures 400,002 110,000 Cost of loans sold 0 0 Amortization of Premium 0 0 Other 4,821 200,001 0 ------------- ------------ ----------- Total Deductions 5,329,441 9,914,143 6,639,324 ------------- ------------ ----------- Balance at close of year $12,794,297 $11,011,660 $13,209,186 ============= ============ =========== Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Bruce and/or John Cropper (the Croppers) have been providing audit and accounting services to the General Partners of the Partnership and their affiliates for over 16 years through the following CPA firms: 1993-1998- Parodi & Cropper, CPA's; 1999 - Caporicci, Cropper & Larson, LLP; 2000 - Armanino McKenna LLP. Bruce and John Cropper were shareholders in Cropper Accountancy Corp. through December 31, 2000. Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993 until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper & Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi & Cropper firm was dissolved. Effective January 1, 2001, Cropper Accountancy Corp., withdrew from Caporicci, Cropper & Larson, LLP partnership. John Cropper joined the larger regional firm of Armanino McKenna, LLP as a partner and Bruce Cropper continues to provide services through Cropper Accountancy. The Croppers continue to perform audit and accounting services to the General Partners of the partnership and their affiliates. As a result, the Partnership has retained the firm of Armanino McKenna, LLP, to provide its audit and financial services. Thus, although there has been a change in accounting firms, there has not been a change in accountants and there have not been any disagreement on any matter of accounting principles, practices or financial status 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. After 25 years of active participation in the mortgage business, D. Russell Burwell, our founder and a General Partner of the Partnership has decided to retire effective September 30, 2001. "Russ" has enjoyed a long and successful career. His original business model, upon which our Partnership has its roots, has withstood the test of time through varying economic cycles. Collectively, the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an idea to over $110,000,000 in assets and produced excellent results for the Limited Partners under Russ's stewardship in Redwood Mortgage Investor's VII. This Partnership originally raised $11,998,359 in Limited Partner Capital contributions and at December 31, 2000 had $10,094,330 in remaining Limited Partner Capital. Over the last few years, Russ has been passing along his duties and responsibilities to the remaining General Partners. The remaining General Partners are Mr. Michael Burwell and Gymno Corporation, a California Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage Investors VII since its inception and has been employed by Redwood Mortgage Corp, an affiliate of the Partnership, since 1979. The Partnership through the remaining General Partners and the employees of its affiliate Redwood Mortgage Corp., is well prepared for Russ's departure and looks forward to emulating the steady consistent returns that the Limited Partners have enjoyed during Russ' tenure. Mr. D. Russell Burwell is providing this notification pursuant to Article 8 Section 8.02 of the Limited Partnership Agreement. The remaining General Partners have elected to continue the business of the Partnership as described in Article 9 Section 9.01(d) of the Limited Partnership Agreement. 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, 2000. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation Compensation and Services Rendered Amount - ----------------------- ----------------------------------- ----------- I. Redwood Mortgage Mortgage Servicing Fee Corp. for servicing loans $ 110,713 General Partners &/or Asset Management Fee Affiliates managing assets......................... $38,400 General Partners 1% interest in profits.................. $9,001 General Partners &/or Portion of early withdrawal penalties Affiliates applied to reduce Formation Loan........ $10,382 II. FEES PAID BY BORROWERS ON LOANS 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 Corp. with the review, selection, evaluation, negotiation, and extension of the loans paid by the borrowers and not by the Partnership............................... $130,487 Redwood Mortgage Processing and Escrow Fees for services in connection with Corp. notary, document preparation, credit investigation, and escrow fees payable by the borrowers and not by the Partnership................................... $4,498 Gymno Corporation Inc. Reconveyance Fee.............................. $816 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 $27,032 Item 12 - Security Ownership of Certain Beneficial Owners and Management The General Partners are to own a combined total of 1% of the Partnership including a 1% portion of income and losses. Item 13 - Certain Relationships and Related Transactions Refer to footnote 3 of the notes to financial statements in Part II item 8 which describes related party fees and data. Also refer to the Prospectus dated October 20, 1989 (incorporated herein by reference) on page 12 "Compensation of General Partners and Affiliates" and page 14 "Conflicts of Interest". Part IV Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K. A. Documents filed as part of this report are incorporated: 1. In Part II, Item 8 under A - Financial Statements. 2. The Financial Statement Schedules are listed in Part II - Item 8 under B - Financial Statement Schedules. 3. Exhibits. Exhibit No. Description of Exhibits - ------------------ ------------------------- 3.1 Limited Partnership Agreement 3.2 Form of Certificate of Limited Partnership Interest 3.3 Certificate of Limited Partnership 10.1 Escrow Agreement 10.2 Servicing Agreement 10.3 (a) Form of Note secured by Deed of Trust which provides for principal and interest payments (b) Form of Note secured by Deed of Trust which provides principal and interest payments and right of assumption (c) Form of Note secured by Deed of Trust which provides for interest only payments (d) Form of Note 10.4 (a) Deed of Trust and Assignment of Rents to accompany Exhibits 10.3 (a), and (c) (b) Deed of Trust and Assignment of Rents to accompany Exhibit 10.3 (b) (c) Deed of Trust to accompany Exhibit 10.3 (d) 10.5 Promissory Note for Formation Loan 10.6 Agreement to Seek a Lender 24.1 Consent of Caporicci, Cropper & Larson, LLP 24.3 Consent of McCutchen, Doyle, Brown & Enersen, LLP All of these exhibits were previously filed as the exhibits to Registrant's 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. A Form 8-K was filed on February 7, 2000 relating to a change in accounting firm. Another Form 8-K was filed on February 13, 2001, relating to the subsequent change in accounting firm (see Item 9 above). 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 29th day of March 2001. 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 29th day of March 2001. Signature Title Date /S/ D. Russell Burwell - ---------------------- D. Russell Burwell General Partner March 29, 2001 /S/ Michael R. Burwell - ---------------------- Michael R. Burwell General Partner March 29, 2001 /S/ D. Russell Burwell - ---------------------- D. Russell Burwel President of Gymno Corpor March 29, 2001 (Principal Executive Officer); Director of Gymno Corporation /S/ Michael R. Burwell - ---------------------- Michael R. Burwell Secretary/Treasurer of Gymno March 29, 2001 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 0002.txt FDS --
5 12-MOS DEC-31-2000 JAN-01-2000 DEC-31-2000 269,000 0 13,375,864 850,548 0 0 0 0 13,610,410 0 0 3,504,102 0 0 10,106,308 13,610,410 0 1,437,964 0 214,514 0 65,664 257,640 900,146 0 900,146 0 0 0 900,146 .00 .00
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