-----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, B0+ejzjsibIAc/vmUOFtkRwmH934mV2CCouGvR1Dt7CIN38LtFax3d93uUdLSql4 3HMO8HJG7A1GwCcGJlK+GA== 0000854092-01-500011.txt : 20020410 0000854092-01-500011.hdr.sgml : 20020410 ACCESSION NUMBER: 0000854092-01-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD MORTGAGE INVESTORS VII CENTRAL INDEX KEY: 0000854092 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 943094928 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19992 FILM NUMBER: 1787259 BUSINESS ADDRESS: STREET 1: 650 EL CAMINO STE G CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6503655341 MAIL ADDRESS: STREET 1: 650 EL CAMINO REAL STE G CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 rmi710q3rdqtr2001.txt FORM 10-Q SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Period Ended September 30, 2001 - ------------------------------------------------------------------------------- Commission file number 000-19992 - ------------------------------------------------------------------------------- REDWOOD MORTGAGE INVESTORS VII - ------------------------------------------------------------------------------- (exact name of registrant as specified in its charter) California 94-3094928 - ------------------------------------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation of organization) Identification No. 650 El Camino Real, Suite G, Redwood City, CA 94063 - ------------------------------------------------------------------------------- (address of principal executive office) (650) 365-5341 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO ----------- ------------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES NO NOT APPLICABLE X --------- --------- --------- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest date. NOT APPLICABLE REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) BALANCE SHEETS SEPTEMBER 30, 2001 (unaudited) AND DECEMBER 31, 2000 (audited) ASSETS September 30, December 31, 2001 2000 (unaudited) (audited) ------------- ------------ Cash $301,083 269,000 Accounts receivable: Loans, secured by deeds of trust 10,314,061 12,794,297 Accrued Interest on loans 578,448 363,321 Advances on loans 46,326 29,825 Accounts receivables, unsecured 177,481 188,421 ------------- ------------- 11,116,316 13,375,864 Less allowance for doubtful accounts 871 850,548 ------------- ------------- 10,245,266 12,525,316 ------------- ------------- Real estate owned, acquired through foreclosure, held for sale 987,957 816,094 ------------- ------------- $11,534,306 $13,610,410 ============= ============= LIABILITIES AND PARTNERS' CAPITAL Liabilities Notes payable - bank line of credit $1,902,000 $3,500,000 Accounts payable and accrued expenses 12,797 4,102 ------------- ------------- Total liabilities 1,914,797 3,504,102 ------------- ------------- Partners' capital Limited Partners' capital, subject to redemption Net of Formation Loan receivable of $0 and $75,612 for 2001 and 2000, respectively 9,607,531 10,094,330 General Partners' capital 11,978 11,978 -------------- ------------- Total partners' capital 9,619,509 10,106,308 -------------- ------------- Total liabilities and partners' capital $11,534,306 $13,610,410 ============== ============= The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 (unaudited) Nine Months Nine Months Three Months Three Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ----------------- ----------------- ----------------- ----------------- -- Revenues: Interest on loans $888,060 $1,008,205 $256,016 $355,633 Interest on bank deposits 3,312 1,391 901 429 Late charges 6,478 2,657 3,394 1,553 Other 3,865 14,412 1,001 4,971 ----------------- ----------------- ----------------- ----------------- -- 901,715 1,026,665 261,312 362,586 ----------------- ----------------- ----------------- ----------------- -- Expenses: Loan servicing fees 55,195 70,472 15,369 28,469 Interest on note payable - bank 104,741 170,181 12,542 86,314 Clerical costs through Redwood Mortgage Corp. 29,569 20,310 9,190 6,385 Asset management fee 28,176 28,565 9,208 10,065 Provision for doubtful accounts and losses on real estate acquired through foreclosure 20,503 14,040 -268 - 1,594 Professional services 30,391 28,324 10,042 7,474 Printing, supplies and postage 7,681 8,198 2,148 3,245 Other 4,004 3,373 0 259 ----------------- ----------------- ----------------- ----------------- -- 280,260 343,463 58,231 140,617 ----------------- ----------------- ----------------- ----------------- -- Net Income $621,455 $683,202 $203,081 $221,969 ================= ================= ================= ================= == Net income: To General Partners (1%) $6,215 $6,832 $2,031 $2,220 To Limited Partners (99%) 615,240 676,370 201,050 219,749 ----------------- ----------------- ----------------- ----------------- -- $621,455 $683,202 $203,081 $221,969 ================= ================= ================= ================= == Net income per $1,000 invested by Limited Partners for entire period: - where income is reinvested and compounded $63.11 $63.29 $20.61 $20.61 ================= ================= ================= ================= == - where partner receives income in monthly distributions $61.41 $61.58 $20.47 $20.47 ================= ================= ================= ================= ==
The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited) PARTNERS' CAPITAL ----------------------------------------------------- LIMITED PARTNERS' CAPITAL ----------------------------------------------------- Capital Total Account Formation Limited Limited Loan Partners' Partners Receivable Capital --------------- --------------- -------------- 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 - 12,750 - 5,803 18,553 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 Formation Loan collections 0 71,461 71,461 Net Income 615,240 0 615,240 Early withdrawal penalties - 6,041 4,151 -1,890 Partners' withdrawals -1,171,610 0 -1,171,610 --------------- --------------- -------------- Balances at September 30, 2001 $9,607,531 $ 0 $9,607,531 =============== =============== ==============
The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited) PARTNERS' CAPITAL -------------------------------------- Capital Account General Total Partners' 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 Formation Loan collections 0 71,461 Net income 6,215 621,455 Early withdrawal penalties 0 -1,890 Partners' withdrawals -6,215 -1,177,825 ------------------ ------------------ Balances at September 30, 2001 $11,978 $9,619,509 ================== ================== The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (unaudited) NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 --------- -------- Cash flows from operating activities: Net income $621,455 $683,202 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 20,503 3,940 Provision for losses on real estate held for sale 0 10,100 Early withdrawal penalty credited to income -1,890 -3,816 (Increase) decrease in accrued interest and advances -231,628 -130,293 Increase (decrease) in accounts payable and accrued expenses 8,695 -20,027 Increase (decrease) in deferred interest on loans 0 -115,709 Increase (decrease) in prepaid expenses 0 0 --------- -------- Net cash provided by operating activities 417,135 427,397 --------- -------- Cash flows from investing activities: Principal collected on loans 5,750,503 4,067,472 Loans made -3,050,730 -6,140,661 Additions to Real Estate held for sale -425,660 -47,089 Dispositions of Real Estate held for sale 34,259 58,359 Accounts Receivable Unsecured (disbursement) -310 -1,321 Proceeds from unsecured Accounts Receivable 11,250 3,057 --------- -------- Net cash provided by (used in) investing activities 2,319,312 -2,060,183 --------- --------- Cash flows from financing activities: Net increase (decrease) in note payable-bank -1,598,000 2,700,000 Formation Loan collections 71,461 57,534 Partners withdrawals -1,177,825 -1,402,268 ---------- --------- Net cash provided by (used in) financing activities -2,704,364 1,355,266 ---------- --------- Net increase/(decrease) in cash 32,083 -277,520 Cash - beginning of period 269,000 388,770 ---------- --------- Cash - end of period $301,083 $111,250 =========== ========= Interest paid $104,741 $170,181 The accompanying notes are an integral part of the financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VII, (the "Partnership") is a California Limited Partnership, of which the General Partners are Michael R. Burwell and Gymno Corporation, a California corporation partially owned and operated by the individual General Partner. 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 partner's 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. The Formation Loan for the minimum offering period could be 10% of the gross proceeds for the minimum offering period. The Formation Loan was unsecured and was 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 September 30, 2001, $914,369 including $151,405 in early withdrawal penalties had been repaid leaving a balance of $0. The Formation Loan, which was due from an affiliate of the General Partners', had been deducted from Limited Partners' capital in the balance sheet. As amounts were collected from Redwood Mortgage Corp., the deduction from capital was 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 SEPTEMBER 30, 2001 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 simple 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 September 30, 2001, and years ended December 31, 2000 and 1999, reductions in the cost of loans categorized as impaired by the Partnership totaled $137,175, $137,175 and $152,231, respectively. The reduction in stated value was accomplished by increasing the allowance for doubtful accounts. As presented in Note 9 to the financial statements as of September 30, 2001, the average loan to appraised value of security at the time the loans were consummated was 61.20%. 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 SEPTEMBER 30, 2001 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 September 30, 2001 and December 31, 2000: September 30, December 31, 2001 2000 ------------------ -------------- Costs of properties $1,372,315 $1,258,966 Reduction in value -384,358 -442,872 ------------------ -------------- Fair value reflected in financial statements $987,957 $816,094 ================== ============== 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 applicable 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 debts 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 September 30, 2001 and December 31, 2000 was as follows: September 30, December 31, 2001 2000 ----------------- -------------- Impaired loans $137,175 $137,175 Unspecified loans 590,114 569,612 Accounts receivable, unsecured 143,761 143,761 ----------------- ------------- $871,050 $850,548 ================= ============= 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 SEPTEMBER 30, 2001 NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which are 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 nine months through September 30, 2001, and years ended December 31, 2000, 1999, and 1998, totaled $84,137, $130,487, $207,739 and $166,752, respectively. B. Loan Servicing Fees Redwood Mortgage Corp. also receives monthly loan 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. Loan servicing fees of $55,195, $110,713, $127,440 and $128,493 were incurred for the nine months ended September 30, 2001 and 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 $28,176, $38,400, $44,524 and $16,141 during the nine months ended September 30, 2001, and 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 SEPTEMBER 30, 2001 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 SEPTEMBER 30, 2001 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 September 30, 2001. 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 $177,481 at September 30, 2001 ("Collection Suits"). The Partnership is a defendant, along with numerous other defendants including a developer, contractor and other lenders, in a lawsuit involving a homeowner's association's attempt to recover alleged "damages" for faulty construction (the "Action"). Management anticipates that the ultimate results of these Collection Suits and the Action will not have a material adverse effect on the net assets of the Partnership, with due consideration having been given in the case of the Collection Suits and the Action in arriving at the allowance for doubtful accounts. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 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 September 30, 2001 and December 31, 2000 were $1,902,000 and $3,500,000 respectively, and the interest rate was 6.25% (6.00% prime + .25%) at September 30, 2001. 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: September 30, December 31, 2001 2000 ---------------- -------------- Net assets - Partners' Capital per financial statements $9,619,509 $10,106,308 Formation Loan receivable 0 75,612 Allowance for doubtful accounts 871,050 850,548 ---------------- -------------- Net assets tax basis $10,490,559 $11,032,468 ================ ============== 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) Loans (see note 2 (c) had a carrying value of $10,314,061 at September 30, 2001. The fair value of these loans of $10,454,916 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 SEPTEMBER 30, 2001 NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS The loans are secured by recorded deeds of trust. At September 30, 2001, there were 36 loans outstanding with the following characteristics: Number of loans outstanding 36 Total loans outstanding $10,314,061 Average loan outstanding $286,502 Average loan as percent of total 2.78% Largest loan outstanding $1,109,159 Largest loan as percent of total 10.75% Number of counties where security is located (all California) 11 Largest percentage of loans in one county 33.17% Average loan to appraised value of security at time loan was consummated 61.20% Number of loans in foreclosure 2 The following categories of loans are pertinent at September 30, 2001, and December 31, 2000: September 30, December 31, 2001 2000 --------------- ------------- First Trust Deeds $5,233,894 $8,720,986 Second Trust Deeds 4,849,385 4,000,140 Third Trust Deeds 230,782 73,171 --------------- ------------- Total loan 10,314,061 12,794,297 Prior liens due 9,318,486 8,761,363 --------------- ------------- Total debt $19,632,547 $21,555,660 =============== ============= Appraised property value at time of loan $32,079,580 $35,518,467 =============== ============= Total investments as a percent of appraisals 61.20% 60.69% =============== ============= Investments by Type of Property: Owner occupied homes $607,906 $218,942 Non-Owner occupied homes 1,605,481 1,644,636 Apartments 1,717,884 2,590,022 Commercial 6,382,790 8,340,697 --------------- ------------- $10,314,061 $12,794,297 =============== ============= REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 Scheduled maturity dates of loans are as follows: Year Ending December 31, Amount -------------------- ------------------- 2001 $6,112,539 2002 2,692,117 2003 556,932 2004 503,876 2005 40,125 Thereafter 408,472 ------------------- Total $10,314,061 =================== The scheduled maturities for 2001 above include approximately $4,940,413 in thirteen loans, which are past maturity at September 30, 2001. Although interest payments on some of these loans are current, $3,646,646 of these loans was categorized as delinquent over 90 days. The cash balance at September 30, 2001 of $301,083 was in one bank with interest bearing balances totaling $276,322. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $201,083. The Partnership's bank is the same financial institution that has provided the Partnership with the $3,500,000 limit line of credit. At September 30, 2001, draw down against this facility was $1,902,000. 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. 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 September 30, 2001, Partners' Capital totaled $9,619,509. At September 30, 2001, the Partnership loans outstanding totaled $10,314,061. This represents a decline of $2,480,236 from the December 31, 2000 loans balance. This reduction in loans outstanding as of September 30, 2001 was chiefly due to loan repayments and loan pay-offs being used to fund withdrawals to the Limited Partners of $1,171,610 during nine months through September 30, 2001 and partial reduction in line of credit balance by $1,598,000. Loans decreased from $13,449,741 from 1997 to $12,794,297 in 2000, a decrease of $655,444 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 September 30, 2001, had credited the Partners' accounts with income at an average annualized (compounded) yield of 7.85%. Between the fall of 1999 to January, 2001, mortgage interest rates had been rising due primarily to economic forces and by the Federal Reserve raising its core interest rates. However, since January 2001, the Federal Reserve has been dramatically cutting its core interest rates with eight successive cuts, ranging from .25% to .50%. The latest cut being October 02, 2001, which reduced the Federal Funds Rate to 2.5%. The effect of the cuts has greatly reduced short-term interest rates and to a lesser extent reduced long-term interest rates. 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 anticipate that rates charged by the Partnership to its borrowers will be somewhat lower than the first half of 2001. The General Partners anticipate that new loans will be placed at rates approximately 1% lower than similar loans during the first half of 2001. The lowering of interest rates has encouraged those borrowers that hold higher interest rate loans than those currently available to seek refinancing of their existing obligations to take advantage of these lower rates. The Partnership may face prepayments in the existing portfolio from borrowers taking advantage of these lower rates. However, demand for loans from qualified borrowers continues to be strong and as prepayments occur, we expect to replace these loans with loans at somewhat lower interest rates. At this time, we believe that the average loan portfolio interest rate will decline approximately .25% to .50% over the remainder of the year. Nevertheless, based upon the rates expected in connection with the existing loans, and anticipated interest rates to be charged by the Partnership and the General Partners' experience, the General Partners anticipate that the annualized yield will range between eight and eight and one half percent (8.00% - 8.50%) for the remainder of 2001. 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 September 30, 2001, the prime rate was 6.00% and the line of credit rate was 6.25%. As of September 30, 2001, December 31, 2000, and December 31, 1999, the balances were $1,902,000, $3,500,000 and $800,000, 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 September 30, 2001, the Partnership is current with its interest payments on the line of credit. For the years ended December 31, 1998, 1999, 2000 and nine months through September 30, 2001, interest paid was $170,867, $182,350, $257,390 and $104,741, respectively. The somewhat lower interest paid in the first nine months of 2001 is reflective of both a lower than average credit line usage and the lower existing interest rate. 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-four years. Loan servicing fees in 1998 were $128,493, in 1999 were $127,440, in 2000 were $110,713, and nine months through September 30, 2001 were $55,195. These loan 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 were $38,400, and for nine months through September 30, 2001, management fee paid was $28,176. 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, 2000, and 2001. The Asset Management Fee is declining as the Partnership distributes Partners Capital. 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 September 30, 2001, there were two properties in foreclosure, representing 1.9% of the Partnership's loan portfolio. In November one of the loans which had a balance of $170,000, representing 1.6% of the Partnership loan portfolio, was paid off. 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, $65,664, and $20,503, as provisions for doubtful accounts for the years ended December 31, 1998, 1999, 2000, and nine months through September 30, 2001, respectively. The provision for doubtful accounts was decreased $11,441 to $423,054 in 1998, by $93,997 to $329,057 in 1999, by $263,393 to $65,664 in 2000 and to $20,503 through September 30, 2001. These decreases reflect reduced expected REO anticipated losses and improved collections of secured and unsecured receivables. If conditions change, the Partnership may again increase it's provisions for doubtful accounts. The Partnership makes loans primarily in Northern California. As of September 30, 2001, approximately 65.61%, ($6,766,737) of the loans held by the Partnership were in the five San Francisco Bay Area Counties. The remainder of the loans held were secured primarily by Northern California real estate outside the San Francisco Bay Area. The United States Economy has slowed from the robust Gross Domestic Product growth levels of 4.2% in 1999 and 5.0% in 2000 to a growth rate of 1.2%, and .7% in the 1st and 2nd quarters to a decrease of .4% in the 3rd quarter of 2001. Additionally, the United States was attacked by terrorists on September 11, 2001. Management is deeply saddened by the loss of life and property form these attacks and is outraged at the perpetrators. Our thoughts and prayers go out to all those who have been affected by this horrific event. President Bush has declared war on the terrorists, and the United States has begun military actions in Afghanistan in response. The terrorist attacks occurred on the East Coast of the United States far removed from the operations of the Partnership. The Partnership was not affected directly by these attacks. Indirectly, the Partnership will feel the effects of the attacks. The terrorist attacks have caused a further slowing of the United States economy, the extent of this slow down and it's longevity is not yet known. Key to the Partnership is the ability of borrowers to make the payments associated with their respective loans. In response to the slow down in the United States economy, the Federal Reserve has acted as noted primarily through reductions in the Federal Funds rates to stimulate the United States economy. Their interest rate cuts have lowered the Federal Funds rate form 6.5% to 2.5% or 66.67% over the course of 2001. Like the rest of the nation, the San Francisco Bay Area has also felt the slow down in economic growth. The technology companies of Silicon Valley, and now the airline industry, the tourism industry and other industries are feeling the effects of the overall US economy slowdown, which include lower earnings, losses and layoffs. The Northern California real estate market and particularly the San Francisco Bay Area real estate marketplace experienced increases in values of over 10% in 1999 and 2000. Throughout 2000, in the San Francisco Bay Area residential marketplace, offers for residential real estate were often at or above asking price. The residential market has slowed and is returning to a more normal market, wherein buyers and sellers negotiate the terms of a sale without undue influence from other buyers desiring the property. This has resulted in longer listing and transaction times. According to Dataquick Information Systems, August 2001, residential real estate sales were 14.5% lower than the previous year, with the six San Francisco Bay Area counties experiencing residential sales transactions down between 7.0% and 29.1%. In spite of the lower number of transactions, the median sales price for resale homes increased by 4% from the previous year with variances of between minus 4.2% to a positive 16.7% for the six San Francisco Bay Area Counties. The General Partners believe, mid-priced and lower-end homes have continued to increase in value, although at a reduced rate from 2000, while the high end homes have begun to decrease in value. The Partnership may experience higher delinquencies due to layoffs or from borrowers who need to sell their homes in order to repay their debt not anticipating currently existing transaction times. Significant foreclosures and the take back of the real estate security have not significantly manifested themselves as borrowers have been able to handle their own financial affairs. For commercial properties vacancy rates continued to increase as space absorption has slowed and sub lease space has been put on the market. C.B. Richard Ellis, reports office vacancy in the San Francisco Bay Area at an approximately 14% level as of the 3rd quarter 2001. County variances range from 10.1% to 17.2% of total availability. Lease rates are down as landlords attempt to attract tenants. "Despite the current conditions, many feel the cycle will not be as deep as those seen during the 80's and 90's, where new supply, not decreased demand, drove corrections." The Partnership may experience delinquencies in its commercial portion of the portfolio if landlord's existing leases expire or space becomes available through business failures or the completion of building renovations. The Partnership had an average loan to value ratio computed as of the date the loan was made of 61.20%, as of September 30, 2001. This did not account for any increases in property values for loans, which were acquired by the Partnership during 1997, 1998, 1999, and 2000 when Northern California Real Estate substantially increased in value. This low loan to value will assist the Partnership in weathering downturns in real estate values if they materialize in the coming months. On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest public utility company filed for Chapter 11 bankruptcy. The full effect of PG&E's bankruptcy is unknown. Stockholders, other utility companies and banks that have loaned PG&E millions of dollars were particularly hit hard. When a company like PG&E goes bankrupt, it has a ripple effect. This has not only affected the hi-tech and manufacturing industries, professional and commercial businesses, transportation and utilities sectors, but every household and individual as a whole. The crisis, which means higher costs to consumers, could adversely affect the economy, employment and the Partnership's lending in its commercial sector. The state government, PG&E and others are working diligently to solve the power crisis in California. The likely result is that electric and natural gas will cost consumers more than ever before. This may have some effect upon real estate values as demand for real estate could be reduced as companies make long term plans to locate in areas without power delivery problems and lower cost power availability. 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 $47,363, $38,238, $9,039 and $ 0, for the nine months ended September 30, 2001 and the years ended December 31, 2000, 1999, and 1998, respectively, has been invested with that of two other partnerships. In order to pursue development options, rezoning of the property's 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. 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 efforts of the General Partners to subdivide the land have met with success. The arsenic contaminated portion of the property has been delivered to the party responsible for the arsenic contamination. The remaining land will be made available for development or sale by the Partnership. The General Partners believe this to be a good result for 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, 1998, 1999, 2000, and nine months through September 30, 2001, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of $456,358, $490,841, $454,386, and $284,446, respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1998, 1999, 2000 and nine months through September 30, 2001 to Limited Partners' capital accounts and not withdrawn was $381,747, $409,644, $436,759, and $330,794, respectively. As of December 31 1998, 1999, 2000 and nine months ended September 30, 2001, Limited Partners electing to withdraw earnings represented 53%, 54%, 49% and 45% 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, 2000, and nine months through September 30, 2001, $381,458, $231,025, $179,343, and $75,512 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, 1999, 2000, and nine months through September 30, 2001, respectively and is expected by the General Partners to commonly occur at these levels. Additionally, for the years ended December 31, 1998, 1999, 2000, and nine months through September 30, 2001, $1,019,017, $1,205,917, $1,250,291, and $817,693, 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. The General Partners expect a portion of the Limited Partners to take advantage of this provision. 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, after 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) and nine months through September 30, 2001 is shown hereunder; which confirms the General Partners theory on the liquidation habits of the Limited Partners: Years ended December 31, Earnings Capital Liquidation Liquidation Total --------------- -------------- ------------ 1994 $263,206 *$340,011 $603,217 1995 $270,760 *$184,157 $454,917 1996 $336,341 *$722,536 $1,058,877 1997 $399,379 *$1,212,916 $1,612,295 1998 $456,358 *$1,400,475 $1,856,833 1999 $490,841 *$1,436,942 $1,927,783 2000 $454,386 *$1,429,634 $1,884,020 Nine months through September 30, 2001 $284,446 *$893,205 $1,177,651 * These amounts represent gross of early withdrawal penalties. After 25 years of active participation in the mortgage business, D. Russell Burwell, our founder and a General Partner of the Partnership, has retired effective September 30, 2001. "Russ" 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. This Partnership originally raised $11,998,359 in Limited Partner Capital contributions and at September 30, 2001 had $9,607,531 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 Redwood Mortgage Corp., are well prepared for Russ' departure and look forward to emulating the steady consistent returns that the Limited Partners have enjoyed during Russ' tenure. In some cases in order to satisfy Broker Dealers and other reporting requirements, the General Partners have valued the limited partners' interest in the Partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors' capital account. This information has been reported in this manner in order to allow the Partnership to integrate with certain software used by the Broker Dealers and other reporting entities. In those cases, the Partnership will report to Broker Dealers, Trust Companies and others a "reporting" number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the Limited Partner's capital account value divided by $1.00. Each investor's capital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for Broker Dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners' right or interest in cash flow or any other economic benefit 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, there is no certainty that the units can be sold at a price equal to the stated value of the capital account. Furthermore, 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"). 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 are 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 nine months ended September 30, 2001. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Description of Compensation and Compensation Services Rendered Amount - --------------- ---------------------------------------- ---------- I. Redwood Mortgage Loan Servicing Fee Corp. for servicing loan . . . . . . . . . . $55,195 General Partners Asset Management Fee for &/or Affiliates managing assets . . . . . . . . . . . . $28,176 General Partners 1% interest in profits . . . . . . . . . . . $6,215 General Partners Portion of early withdrawal penalties applied &/or Affiliates to reduce Formation Loan . . . . . . . $4,151 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 loan paid by the borrowers and not by the Partnership . . . . . . . . . . . . . . . . . . $84,137 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 . . . . . . . . . . . . . . . . . . . $2,714 Gymno Corporation Inc. Reconveyance Fee . . . . . . . . . . . . . $903 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. . . . . . . . . . . . . . . . . . . . . . . . . . $29,569 LOAN PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 2001 Partnership Highlights Loan to Value Ratios First Trust Deeds $5,233,894.17 Appraised Value of Properties * 9,469,695.00 Total Investment as a % of Appraised Value 55.27% First Trust Deed Loans $5,233,894.17 Second Trust Deed Loans 4,849,385.10 Third Trust Deed Loans 230,781.39 ------------------ $10,314,060.66 First Trust Deeds due other Lenders 7,840,390.00 Second Trust Deeds due other Lenders 1,478,096.00 ------------------ Total Debt $19,632,546.66 ================== Appraised Property Value * $32,079,580.00 Total Investment as a % of Appraised Value 61.20% Number of Loans Outstanding 36 Average Investment 286,501.68 Average Investment as a % of total loans 2.78% Largest Investment Outstanding 1,109,158.69 Largest Investment as a % of total loans 10.75% Loans as a Percentage of Total Loans First Trust Deed Loans 50.74% Second Trust Deed Loans 47.02% Third Trust Deed Loans 2.24% ----------------- Total 100.00% Loans by Type of Property Amount Percent Owner Occupied Homes $607,906.42 5.89% Non Owner Occupied Homes 1,605,480.72 15.57% Apartments 1,717,883.84 16.66% Commercial 6,382,789.68 61.88% ----------------- ----------------- Total $10,314,060.66 100.00% Statement of Conditions of Loans Number of loans in Foreclosure 2 *Values used are the appraisal values utilized at the time the loan was consummated. Diversification by County County Total loans Percent San Francisco $3,421,167.79 33.17% Stanislaus 2,789,213.33 27.04% Santa Clara 1,336,675.28 12.96% Contra Costa 966,630.50 9.37% Alameda 820,668.60 7.96% Santa Cruz 375,000.00 3.64% San Mateo 221,595.15 2.15% Placer 184,608.82 1.79% Sacramento 96,716.11 .94% Shasta 78,851.91 .76% Sonoma 22,933.17 .22% ------------------- ----------- Total $10,314,060.66 100.00% =================== =========== PART 2 OTHER INFORMATION Item 1. Legal Proceedings The Partnership is a defendant in a legal action. Please refer to Note 5 of the Financial Statements. Item 2. Changes in the Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Not Applicable (b) Form 8-K Form 8-K was filed on February 7, 2000, relating to a change by the Partnership's accountants in accounting firms. A Form 8-K was filed on February 13, 2001, relating to the subsequent change by the Partnership's accountants to another accounting firm. On April 11, 2001, the Partnership filed another Form 8-K regarding D. Russell Burwell's retirement as more fully discussed earlier under "Management Discussion and Analysis" section. An Amended Form 8-K was filed on August 3, 2001 regarding the Partnership's change in Accountants. 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 13th day of November, 2001. REDWOOD MORTGAGE INVESTORS VII 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 13th day of November 2001. Signature Title Date /S/ Michael R. Burwell - ------------------------ Michael R. Burwell General Partner November 13, 2001 /S/ D. Russell Burwell - ------------------------ D. Russell Burwell President of Gymno Corporation, November 13, 2001 (Principal Executive Officer); Director of Gymno Corporation /S/ Michael R. Burwell - ----------------------- Michael R. Burwell Secretary/Treasurer of Gymno November 13, 2001 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation -----END PRIVACY-ENHANCED MESSAGE-----