10-Q 1 rmi710q3rdqtr2002.txt UNITED STATES SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarterly Period Ended September 30, 2002 ---------------------------------------------------------------------------- Commission file number 33-30427 ---------------------------------------------------------------------------- REDWOOD MORTGAGE INVESTORS VII, a California Limited Partnership ---------------------------------------------------------------------------- (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. 900 Veterans Blvd., Suite 500, 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, 2002 (unaudited) and DECEMBER 31, 2001 (audited) ASSETS September 30, December 31, 2002 2001 ----------------- --------------- (unaudited) (audited) Cash $ 267,158 $ 389,844 ----------------- --------------- Loans Loans, secured by deeds of trust, held to maturity 9,201,968 10,091,195 Loans, unsecured 132,189 173,731 ----------------- --------------- 9,334,157 10,264,926 Less allowance for loan losses (955,213) (887,578) ----------------- --------------- Net loans 8,378,944 9,377,348 ----------------- --------------- Interest and other receivables Accrued interest 151,624 660,551 Advances on loans 15,080 50,665 ----------------- --------------- Total interest and other receivables 166,704 711,216 ----------------- --------------- Real estate owned, held for sale 1,818,275 872,133 ----------------- --------------- Total assets $10,631,081 $11,350,541 ================= ===============
LIABILITIES AND PARTNERS' CAPITAL Liabilities Notes payable - bank line of credit $1,507,000 $1,907,000 Accounts payable 4,102 11,295 ----------------- --------------- Total liabilities 1,511,102 1,918,295 ----------------- --------------- Partners' capital Limited partners' capital, subject to redemption 9,108,001 9,420,268 General partners' capital 11,978 11,978 ----------------- --------------- Total partners' capital 9,119,979 9,432,246 ----------------- --------------- Total liabilities and partners' capital $10,631,081 $11,350,541 ================= ===============
The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2002 and 2001 (unaudited) NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- --------------------------------- 2002 2001 2002 2001 ------------- -------------- -------------- --------------- Revenues Interest - on loans $896,972 $888,060 $250,757 $256,016 Interest - interest bearing accounts 2,134 3,312 354 901 Late charges 11,376 6,478 5,527 3,394 Other income 18,636 3,865 3,910 1,001 ------------- -------------- -------------- --------------- 929,118 901,715 260,548 261,312 ------------- -------------- -------------- --------------- Expenses Mortgage servicing fees 123,042 55,195 26,717 15,369 Interest on note payable - bank 48,432 104,741 13,839 12,542 Clerical costs through Redwood Mortgage 23,229 29,569 7,541 9,190 Corp. Asset management fees 26,285 28,176 8,650 9,208 Provisions for losses on loans and real estate acquired through foreclosure 78,359 20,503 (5,250) (268) Professional services 35,488 30,391 16,236 10,042 Printing, supplies and postage 6,696 7,681 1,603 2,148 Other 2,703 4,004 434 - ------------- -------------- -------------- --------------- 344,234 280,260 69,770 58,231 ------------- -------------- -------------- --------------- Net income $584,884 $621,455 $190,778 $203,081 ============= ============== ============== =============== Net income: To general partners (1%) 5,849 6,215 1,908 2,031 To limited partners (99%) 579,035 615,240 188,870 201,050 ------------- -------------- -------------- --------------- $584,884 $621,455 $190,778 $203,081 ============= ============== ============== =============== Net income per $1,000 invested by limited partners for entire period -where income is reinvested and compounded $63.69 $63.11 $20.61 $20.61 ============= ============== ============== =============== -where partner receives income in monthly distributions $61.96 $61.41 $20.47 $20.47 ============= ============== ============== ===============
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 NINE MONTHS ENDED SEPTEMBER 30,2002 (unaudited) Limited General Total Partners' Partners' Partners' Accounts Capital Capital ---------------- --------------- ---------------- Balances at December 31, 2001 $9,420,268 $11,978 $9,432,246 Net income 579,035 5,849 584,884 Early withdrawal penalties (9,300) - (9,300) Partners' withdrawals (882,002) (5,849) (887,851) ---------------- --------------- ---------------- Balances at September 30, 2002 $9,108,001 $11,978 $9,119,979 ================ =============== ================
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 NINE MONTHS ENDED SEPTEMBER 30, 2002 and 2001(unaudited) NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------- 2002 2001 --------------- --------------- Cash flows from operating activities Net income $ 584,884 $ 621,455 Adjustments to reconcile net income to net cash provided by operating activities Provision for losses on loans and real estate acquired through foreclosure 78,359 20,503 Early withdrawal penalty credited to income (9,300) (1,890) Change in operating assets and liabilities Accrued interest and advances on loans 506,086 (231,628) Accounts payable (7,193) 8,695 --------------- --------------- Net cash provided by operating activities 1,152,836 417,135 --------------- --------------- Cash flows from investing activities Principal collected on loans 2,060,641 5,750,503 Loans made (1,867,781) (3,050,730) Payments for real estate held for sale (194,220) (425,660) Proceeds from sale of real estate held for sale 2,565 34,259 Proceeds from unsecured loans 11,124 10,940 --------------- --------------- Net cash provided by investing activities 12,329 2,319,312 --------------- --------------- Cash flows from financing activities Net decrease in note payable-bank (400,000) (1,598,000) Formation loan collections - 71,461 Partners withdrawals (887,851) (1,177,825) --------------- --------------- Net cash used in financing activities (1.287,851) (2,704,364) --------------- --------------- Net increase (decrease) in cash (122,686) 32,083 Cash - beginning of year 389,844 269,000 --------------- --------------- Cash - end of period 267,158 301,083 =============== =============== Cash payments for interest $ 48,432 $ 104,741 =============== ===============
The accompanying notes are an integral part of these financial statements. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) 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 owned and operated on an equal 50/50% basis by Michael R. Burwell and by D. Russell Burwell, a former 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. 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. 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 loan losses, 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. Loans are 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 amounts due according to the contractual terms of the loan agreement, and the shortfall in amounts due are not insignificant, the carrying amount of the investment (cost) shall be reduced to the present value of future cash flows discounted at the loan's effective interest rate. If a loan is collateral dependent, it is valued at the estimated fair value of the related collateral. Once a loan is categorized as impaired, interest is no longer accrued thereon. Any subsequent payments on impaired loans are applied to the outstanding balances on the Partnership's books. At September 30, 2002 and December 31, 2001 there were loans categorized as impaired by the Partnership of $335,454 and, $889,439, respectively. In addition, the impaired loans have accrued interest and advances totaling $10,334 and $277,479 at September 30, 2002 and December 31, 2001, respectively. The decrease in carrying value of the impaired loans of $38,634 and $150,092 at September 30, 2002 and December 31, 2001, respectively is included in the allowance for loan losses. The average recorded investment in the impaired loans was $612,447 and $890,018 for the nine months ended September 30, 2002, and for the year ended December 31, 2001, respectively. During the nine months ended September 30, 2002, and the year ended December 31, 2001, $0 and $64,987 was received as cash payments on these loans, respectively. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) As presented in Note 9 to the financial statements as of September 30, 2002, and December 31, 2001, the average loan to appraised value of security at the time the loans were consummated was 65.99% and 60.66%, respectively. When loans are valued for impairment purposes, the allowance is updated to reflect the change in the valuation of collateral security. However, such a low loan-to-value ratio has the tendency to minimize reductions for impairment. D. Cash and Cash Equivalents The Partnership considers all highly liquid financial instruments with a maturity of three months or less to be cash equivalents. 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. 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, 2002 and December 31, 2001 and not including real estate in process of acquisition at September 30, 2002: September 30, December 31, 2002 2001 ----------------- --------------- Costs of properties $2,167,470 $1,252,189 Reduction in value, including estimated costs of sale (349,195) (380,056) ----------------- --------------- Fair value reflected in financial statements $1,818,275 $ 872,133 ================= ===============
F. Income Taxes No provision for Federal and State income taxes, except for a minimum state tax of $800, is made in the financial statements since income taxes are the obligation of the partners if and when income taxes apply. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Allowance for Loan Losses 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 loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral value, to provide for unrecoverable loans and receivables, including impaired loans, other loans, accrued interest and advances on loans. The composition of the allowance for loan losses as of September 30, 2002, and December 31, 2001 was as follows: September 30, December 31, 2002 2001 ----------------- ----------------- Impaired loans $38,634 $150,092 Unspecified loans 784,390 593,500 Unsecured loans 132,189 143,986 ----------------- ----------------- $955,213 $887,578 ================= ================= Allowance for loan losses reconciliation: Activity in the allowance for loan losses is as follows for the nine months through September 30, 2002 and for the year ended December 31, 2001. September 30, December 31, 2002 2001 ----------------- ----------------- Beginning Balance $ 887,578 $850,548 Provision for loan losses 78,359 37,371 Write-offs (10,724) (341) ----------------- ----------------- Ending Balance $ 955,213 $887,578 ================= ================= H. 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 net income 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. I. Late Fee Revenue The Partnership recognizes late fee revenue when it is earned. Late fees are charged at 6% of the monthly balance, and are accrued net of an allowance for uncollectible late fees. For the nine months ended September 30, 2002, and September 30, 2001 late fee revenue of $11,376 and $6,478 respectively, was recorded. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which will be paid to the general partners, and/or related parties. A. Mortgage Brokerage Commissions For fees in connection with the review, selection, evaluation, negotiation and extension of loans the Partnership may collect an amount equivalent to 12% of the loaned amount until 6 months after the termination date of the offering. Thereafter, loan brokerage commissions (points) will be limited to an amount not to exceed 4% of the total Partnership assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the Partnership. For the nine months through September 30, 2002, and September 30, 2001, loan brokerage commissions paid by the borrowers were $24,661 and $84,137, respectively. B. Mortgage Servicing Fees Redwood Mortgage Corp. 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 $123,042 and $55,195 were incurred for the nine months through September 30, 2002, and September 30, 2001, respectively. C. Asset Management Fee The general partners receive monthly fees 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). Management fees of $26,285 and $28,176 were incurred for the nine months through September 30, 2002, and September 30, 2001, 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. Operating Expenses Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed by the Partnership for all operating expenses actually incurred by it 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. During the nine months through September 30, 2002, and September 30, 2001, clerical costs totaling $23,229 and $29,569, respectively, were reimbursed to Redwood Mortgage Corp. Such reimbursements are reflected as expenses in the Statements of Income. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 4 - OTHER PARTNERSHIP PROVISIONS The Partnership is a California limited Partnership. The rights, duties and powers of the general and limited partners of the Partnership are governed by the limited partnership agreement and Sections 15611 et seq. of the California Corporations Code. The general partners are in complete control of the Partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the Partnership. A majority of the outstanding limited partnership interests may, without the permission of the general partners, vote to: (i) terminate the Partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the Partnership and (iv) remove or replace one or all of the general partners. The approval of all limited partners is required to elect a new general partner to continue the Partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal. A. Term of the Partnership The term of the Partnership is approximately 40 years, unless sooner terminated as provided. Investors have the right to withdraw their capital over a five-year period, or longer. B. Election to Receive Monthly, Quarterly or Annual Distributions At subscription, investors elected either to receive monthly, quarterly or annual distributions of earnings allocations, or to allow earnings to compound. Subject to certain limitations, a compounding investor may subsequently change his election, but an investor's election to have cash distributions is irrevocable. C. 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. D. 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, 2002. 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, described below, was permitted only upon the terms set forth above. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued) 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. NOTE 5 - LEGAL PROCEEDINGS The Partnership is involved in various legal actions arising in the normal course of business. In the opinion of management, such matters will not have a material effect upon the financial position of the Partnership. 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, 2002 and December 31, 2001 were $1,507,000 and $1,907,000, respectively, and the interest rate was 5.0% (4.75% prime + .25%) at September 30, 2002. This line of credit expires May 1, 2003. The line of credit requires the Partnership to meet certain financial covenants. As of September 30, 2002, the Partnership was in compliance with all loan covenants. Should the general partners choose not to renew the line of credit, the balance outstanding would be converted to a three year fully amortized loan. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) 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, 2002 2001 ------------------ ----------------- Net assets - partners' capital per financial statements $9,119,979 $9,432,246 Allowance for loan losses 955,213 887,578 ------------------ ----------------- Net assets tax basis $10,075,192 $10,319,824 ================== =================
In 2001 approximately 68% of taxable income was allocated to tax exempt organizations (i.e., retirement plans). Such plans do not have to file income tax returns unless their "unrelated business income" exceeds $1,000. Applicable amounts become taxable when distribution is made to participants. NOTE 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) Secured loans (see note 2 (c)) had a carrying value of $9,201,968 and $10,091,195 at September 30, 2002 and December 31, 2001, respectively. The fair value of these investments of $8,699,544 and $10,107,321 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 loan losses along with accrued interest and advances related thereto is also considered in evaluating the fair value versus the carrying value. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS Most loans are secured by recorded deeds of trust. At September 30, 2002 and at December 31, 2001, there were 31 and 36 secured loans outstanding, respectively, with the following characteristics: September 30, December 31, 2002 2001 ------------------ ----------------- Number of secured loans outstanding 31 36 Total secured loans outstanding $9,201,968 $10,091,195 Average secured loan outstanding 296,838 280,311 Average secured loan as percent of total 3.23% 2.78% Average secured loan as percent of partners' capital 3.25% 2.97% Largest secured loan outstanding 1,000,000 1,000,000 Largest secured loan as percent of total 10.87% 9.91% Largest secured loan as percent of partners' capital 10.96% 10.60% Number of counties where security is located (all California) 11 11 Largest percentage of secured loans in one county 28.89% 31.92% Average secured loan to appraised value of security at time loan was consummated 65.99% 60.66% Number of secured loans in foreclosure 1 2 Amount of secured loans in foreclosure $ 31,807 $ 216,493
The following categories of loans are pertinent at September 30, 2002 and December 31, 2001: September 30, December 31, 2002 2001 ------------------ ----------------- First Trust Deeds $4,735,668 $5,042,062 Second Trust Deeds 4,259,964 4,803,146 Third Trust Deeds 206,336 245,987 ------------------ ----------------- Total loans 9,201,968 10,091,195 Prior liens due other lenders 6,338,955 9,318,486 ------------------ ----------------- Total debt $15,540,923 $19,409,681 ------------------ ----------------- Appraised property value at time of loan $23,550,024 $31,997,080 ------------------ ----------------- Total investments as a percent of appraisals 65.99% 60.66% ------------------ ----------------- Investments by Type of Property Owner occupied homes $1,031,032 $ 622,435 Non-owner occupied homes 1,375,092 1,435,444 Apartments 608,647 1,563,214 Commercial 6,187,197 6,470,102 ------------------ ----------------- $ 9,201,968 $10,091,195 ================== =================
REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited) NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS (Continued) Scheduled maturity dates of loans as of September 30, 2002 are as follows: Year Ending December 31, Amount ------------------ -------------------- 2002 $4,275,336 2003 1,404,893 2004 1,021,797 2005 40,125 2006 96,716 Thereafter 2,363,101 -------------------- Total $9,201,968 ==================== The scheduled maturities for 2002 above include approximately $3,229,004 in 9 loans which are past maturity at September 30, 2002. Although interest payments on most of these loans are current, $2,061,414 of these loans were categorized as delinquent over 90 days. Three loans with principal outstanding of $335,454 were considered impaired at September 30, 2002. That is, interest accruals are no longer recorded thereon. The cash balance per bank statement at September 30, 2002 of $157,519 was in one bank. The balances exceeded FDIC insurance limits (up to $100,000 per bank) by $57,519. 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 September 30, 2002, amounts drawn down against this facility was $1,507,000. Workout Agreements The Partnership has negotiated various contractual workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. The Partnership is not obligated to fund additional money on these loans. As of September 30, 2002 the Partnership had approximately 3 loans under workout agreements totaling $260,270. REDWOOD MORTGAGE INVESTORS VII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (unaudited NOTE 10 - SELECTED FINANCIAL INFORMATION (UNAUDITED) Calendar Quarter -------------------------------------------------------------- First Second Third Fourth Annual ------------- ------------ ------------- ------------ ------------- Revenues 2002 $389,922 278,648 260,548 - - 2001 $349,061 291,342 261,312 290,666 1,192,381 2000 $307,831 356,247 362,586 411,300 1,437,964 Expenses 2002 $193,291 81,173 69,770 - - 2001 $137,576 84,453 58,231 90,924 371,184 2000 $ 74,265 128,581 140,617 194,355 537,818 Net income allocated to general partners 2002 $ 1,966 1,975 1,908 - - 2001 $ 2,115 2,069 2,031 1,997 8,212 2000 $ 2,336 2,276 2,220 2,169 9,001 Net income allocated to limited partners 2002 $194,665 195,500 188,870 - - 2001 $209,370 204,820 201,050 197,745 812,985 2000 $231,230 225,390 219,749 214,776 891,145 Net income per $1,000 invested where income is Reinvested 2002 $ 21 $ 21 $ 21 - - 2001 $ 21 $ 21 $ 21 $ 22 $ 85 2000 $ 21 $ 21 $ 21 $ 22 $ 85 Withdrawn 2002 $ 21 $ 21 $ 20 - - 2001 $ 20 $ 20 $ 20 $ 22 $ 82 2000 $ 20 $ 21 $ 20 $ 21 $ 82
NOTE 11 - RECENT PRONOUNCEMENTS In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of business to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002. Management does not feel that the adoption of this standard will have a material effect on the Partnership's results of operations or financial position. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP Critical Accounting Policies. 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. Such estimates relate principally to the determination of (1) the allowance for doubtful accounts (i.e. the amount of allowance established against loans receivable as an estimate of potential loan losses) including the accrued interest and advances that are estimated to be unrecoverable based on estimates of amounts to be collected plus estimates of the value of the property as collateral and (2) the valuation of real estate acquired through foreclosure. At September 30, 2002, there were 3 properties acquired through foreclosure. Loans and 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. Provisions are made for bad debt to adjust the allowance for doubtful accounts to an amount considered by management to be adequate, with due consideration to collateral values and to provide for unrecoverable accounts receivable, including impaired loans, other loans, accrued interest, late fees and advances on loans, and other accounts receivable (unsecured). Recent trends in the economy have been taken into consideration in the aforementioned process of arriving at the allowance for doubtful accounts. Actual results could vary from the aforementioned provisions for losses. Forward Looking Statements. Some of the information in the Form 10-Q may contain forward looking statements. Uses of words such as "will", "may", "anticipate", "estimate", "continue" or other forward looking words, discuss future expectations or predictions. The foregoing analysis of 2002 includes forward looking statements and predictions about the possibility of future events, results of operations and financial condition. As such, this analysis may prove to be inaccurate because of assumptions made by the general partners or the actual development of the future events. No assurance can be given that any of these statements or predictions will ultimately prove to be correct or substantially correct. Related Parties. The general partners of the Partnership are Gymno Corp. and Michael R. Burwell. Most Partnership business is conducted through Redwood Mortgage Corp., an affiliate of the general partner, which arranges, services and maintains the loan portfolio for the benefit of the Partnership. The following is a list of various Partnership activities for which related parties are compensated. o Mortgage Brokerage Commissions For fees in connection with the review, selection, evaluation, negotiation and extension of loans, the Partnership may collect an amount equivalent to 12% of the loaned amount until 6 months after the termination date of the offering. Thereafter, the loan brokerage commissions (points) will be limited to an amount not to exceed 4% of the total Partnership assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the partnership. For the nine months ended September 30, 2002 and 2001, loan brokerage commissions paid by borrowers were $24,661 and $84,137, respectively. o Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% on an annual basis) of the unpaid principal of the Partnership's loans is paid to Redwood Mortgage Corp., or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Mortgage servicing fees of $123,042 and $55,195 were incurred for the nine months ended September 30, 2002 and 2001, respectively. o Asset Management Fee The general partners receive monthly fees for managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net asset value' (3/8 of 1% on an annual basis). Management fees to the general partners of $26,285 and $28,176 were incurred by the Partnership for the nine months ended September 30, 2002 and 2001, respectively. o Other Fees The Partnership agreement provides that the general partners may receive other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to the general partners. o Income and Losses All income and losses are credited or charged to partners in relation to their respective Partnership interests. The allocation to the general partners (combined) shall be a total of 1%. o Operating Expenses An affiliate of the Partnership, Redwood Mortgage Corp., is reimbursed by the Partnership for all operating expenses actually incurred by it 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 statement of income. o Contributed Capital The general partners jointly and severally contributed 1/10 of 1% in cash contributions as proceeds from the offerings were received from the limited partners. As of September 30, 2002 and 2001, a general partner, Gymno Corporation, had contributed $11,978 as capital in accordance with Section 4.02(a) of the partnership agreement. Results of Operations - For the three and nine months ended September 30, 2002 and 2001 The net income decrease of $12,303 (6.06%) for the three months ended September 30, 2002 versus the three month period ended September 30, 2001 was due primarily to a decrease in interest earned on loans of $5,259 (2.05%), a decrease in interest-interest bearing accounts of $547 (60.71%), an increase in late charges of $2,133 (62.85%), and an increase in other income of $2,909 (290.61%) offset by expense increases. Significant expense increases or (decreases) for the three month period ended September 30, 2002 versus September 30, 2001 included higher mortgage servicing fees of $11,348, change in the provision for losses on loans and real estate acquired through foreclosure of ($4,982) and an increase in professional fee of $6,194. The net income decrease of $36,571 (5.88%) for the nine months ended September 30, 2002 versus the nine month period ended September 30, 2001 was due primarily to an increase in interest earned on loans of $8,912 and an increase in late charges and other income of $19,669; offset by expense increases. Significant expense increases or (decreases) for the nine month period ended September 30, 2002 versus September 30, 2001 included higher mortgage servicing fees of $67,847, an increase in the provision for losses on loans and real estate acquired through foreclosure of $57,856, and an increase in professional fees of $5,097. The increase (decrease) in interest on loans of ($5,259) (2.05%) and $8,912 (1%) for the three and nine month periods ended September 30, 2002 versus September 30, 2001 was due primarily to a reduction of the loan portfolio average interest rate for the third quarter 2002, and the increase for the nine months ended September 30, 2002 was due to collection of interest on loans previously considered impaired; offset by a lower average loan portfolio interest rate as compared to September 30, 2001. The increase (decrease) in interest on note payable-bank of $1,297 (10%) and ($56,309) (54%) for the three and nine month periods ended September 30, 2002 versus September 30, 2001 is due to the approximately 4.0% (9.0% vs. 5.0%) lowering of the interest rate charged the Partnership during the first three-quarters of 2002 as compared to 2001 and due to lower overall usage of the line of credit during the first three-quarters of 2002. The increase in mortgage servicing fees of $11,348 (74%) and $67,847 (123%) for the three and nine month periods ended September 30, 2002 versus September 30, 2001 is primarily attributable to increased servicing of impaired loans. The increase of $57,856 (282%) in provision for losses on loans and real estate acquired through foreclosure for the nine months ended September 30, 2002 versus the respective nine month period ended September 30, 2001 reflects the general partners' estimate of an appropriate allowance for anticipated loan losses. As the Partnership's real estate owned has increased, the provision for estimated loan losses has also been increased. At September 30, 2002, total provisions for losses on loans equaled $955,213, which the general partners consider to be adequate. The decrease in asset management fees of $558 (6%) and $1,891 (7%) for the three and nine months ended September 30, 2002 versus the respective periods ended September 30, 2001 is due to a decrease in the partners' capital under management at September 30, 2002 and 2001 of $9,119,979 and $9,619,509, respectively. The increase in professional fees of $6,194 (62%) and $5,097 (17%) for the three and nine months ended September 30, 2002 versus September 30, 2001 is due to the Partnership incurring greater costs in 2002 than in 2001 in relation to its audit and tax return processing. Partnership capital continued to decrease as the limited partners capital declined due to both earnings distribution and capital liquidations. For the three and nine months ended September 30, 2002 earnings and capital liquidated was $254,823 and $891,302, respectively versus $361,075 and $1,177,651, respectively for the corresponding period in 2001. The Partnership utilized its bank line of credit less during the first three-quarters of 2002 compared to 2001. The outstanding balances of $1,507,000 at September 30, 2002 versus $1,902,000 at September 30, 2001 are reflective of the overall lower credit line usage. Cash generated from interest earnings, late charges, amortization of principal and loan payoffs was utilized to pay down the credit line. At September 30, 2002, outstanding foreclosures decreased to 1 ($31,807) from the two ($201,807) that existed at September 30, 2001. During the three months ended September 30, 2002, the outstanding number of foreclosures stayed at 1. One foreclosure originated in 2002, with a principal balance of $1,251,090 was acquired at foreclosure sale in July 2002. The general partners have reviewed the appraisal, visited the property with real estate professionals and have concluded that a specific reserve for losses against this loan is not necessary as the collateral securing the loan appears adequate to cover collection of sums due. These foreclosures are a reflection of the more difficult economic times at September 30, 2002 as compared to September 30, 2001, yet are not unusual in the general partners' experience and we do not anticipate a reduction in net income due to these foreclosures. The general partners received Mortgage Brokerage Commissions from the loan borrowers of $18,261 and $24,661 for the three and nine months ended September 30, 2002 as compared to $38,231 and $84,137 for the three and nine months ended September 30, 2001. The reduction is due to less loans written in the three months and nine months ended September 30, 2002. As discussed previously, at the time of subscription to the Partnership, limited partners must elect either to receive monthly, quarterly or annual cash distributions from the Partnership, or to compound earnings in their capital account. During the three and nine month periods ended September 30, 2002 stated below, the Partnership made the following allocation of earnings both to the limited partners who elected to compound their earnings, and those that chose to distribute: Nine months ended Three months ended September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001 Compounding $347,885 $330,794 $116,456 $111,668 Distributing $231,150 $284,446 $72,414 $89,382
Also, the Partnership allows the limited partners to withdraw their capital account subject to certain limitations. Earnings and capital liquidations including early withdrawals during the three and nine month periods ended September 30: Nine months ended Three months ended September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001 Cash distributions $231,150 $284,446 $72,414 $89,382 Capital liquidation* $660,152 $893,205 $182,409 $271,693 ---------------------- ---------------------- ---------------------- ---------------------- Total $891,302 $1,177,651 $254,823 $361,075 ====================== ====================== ====================== ======================
*These amounts represent gross of early withdrawal penalties. Current Economic Conditions. The Partnership makes loans primarily in Northern California. As of September 30, 2002, approximately 66.5% of the loans held were in the six 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. Like the rest of the nation, the San Francisco Bay Area has also felt the recession and accompanying slow down in economic growth and increasing unemployment. The technology companies of Silicon Valley, the airline industry, the tourism industry and other industries are feeling the effects of the overall United States recession, which includes lower earnings, losses and layoffs. Despite fears over failing businesses, ongoing job losses and dwindling stock portfolios, the real estate market seems to be doing remarkably well. According to the San Jose Mercury News of August 20, 2002, Bay Area home sales rose 22% in July compared with a year earlier, continuing an upward trend that began in January. The median price of homes in the nine-county area rose nearly 10% from last year to $436,000. With the Bay Area economy still faltering and unemployment as high as 7.6% in Santa Clara County, many had expected real estate prices would be down by now, not up from a year ago. Mortgage rates at historic lows and a decent supply of homes on the market have kept the local market relatively busy, especially for lower-priced homes. Annual price appreciation varied from 5.1% in Santa Clara County, where the median price was $515,000 for existing single-family homes sold in July, to 22.5% in Napa County, where the median price was $359,000. Sales of single-family homes rose 22.8% in Santa Clara County, according to statistics released by DataQuick Information Systems, which gathers data from public records. Most counties saw sales activity increase more than 20% from last year, and the growth was closer to 30% in Alameda and San Mateo counties. But the July data reflects transactions negotiated in May and June, and local real estate agents say the market has slowed dramatically since June. "I think fewer transactions and lower prices are in the near future," said Gary Shapiro of ReMax Real Estate Services in Cupertino. "It's already here." The slowdown is partly a normal seasonal change, real estate agents say, as prospective buyers vacation rather than house hunt. For the Partnership, these statistics imply that the values of the homes secured by mortgages in our portfolio should remain firm and assist in reducing losses if the take back of collateral through the foreclosure process should eventuate. It also implies increased loan activity, as the number of real estate transactions is increasing, leaving more loan opportunities for lenders. According to the San Francisco Chronicle, "The Bay Area commercial market's fundamental indicators are showing signs of hitting bottom, but a recovery is at least 18 months away, according to reports last week from major real estate services firms. At the end of the third quarter, both Cushman & Wakefield and Grubb & Ellis found incremental positive news for the stagnant San Francisco office market, but it was barely reason to smile. Cushman & Wakefield said the rate of decline in asking rents has slowed substantially. Average rent in the central business district fell to $31.56 per square foot from $32.40 the previous quarter. Grubb & Ellis said the San Francisco office market showed a positive net absorption, or demand, for the first time in two years. A grand total of 127,000 square feet was absorbed." To the Partnership, these higher vacancy rates may mean that we could experience higher delinquencies and foreclosures if our borrowers' tenants' leases expire or their rental space becomes available through business failures. For Partnership loans outstanding, as of September 30, 2002, the Partnership had an average loan to value ratio computed as of the date the loan was made of 65.99%. This percentage does not account for any increases or decreases in property values since the date the loan was made, nor does it include any reductions in principal through amortization of payments after the loan was made. This low loan to value ratio will assist the Partnership in weathering loan delinquencies and foreclosures should they eventuate. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following table contains information about the cash held in money market accounts, loans held in the partnership's portfolio and a note payable on our line of credit as of September 30, 2002. The presentation, for each category of information, aggregates the assets and liabilities by their maturity dates for maturities occurring in each of the years 2002 through 2006 and separately aggregates the information for all maturities arising after 2006. The carrying values of these assets and liabilities approximate their fair market values as of September 30, 2002: 2002 2003 2004 2005 2006 Thereafter Total ------------- ------------ ------------- ----------- ----------- ------------ ------------- Interest earning assets: Money market accounts $ 13,280 $ 13,280 Avg. interest rate 1.20% 1.20% Loans secured by deeds Of trust $4,275,336 1,404,893 1,021,797 40,125 96,716 2,363,101 $9,201,968 Average interest rate 11.02% 10.93% 10.60% 7.00% 6.50% 7.46% 9.98% Interest bearing liabilities: Note payable to bank $1,507,000 $1,507,000 Average interest rate 5.00% 5.00%
Market Risk. The Partnership's note payable to the bank for its line of credit bears interest at a variable rate, tied to the prime rate. As a result, the Partnership's primary market risk exposure with respect to its obligations is to changes in interest rates, which will affect the interest cost of outstanding amounts on the note payable. The Partnership may also suffer market risk tied to general trends affecting real estate values that may impact the Partnership's security for its loans. The Partnership's primary market risk in terms of its profitability is the exposure to fluctuations in earnings resulting from fluctuations in general interest rates. The majority of the Partnership's mortgage loans, (100% as of September 30, 2002) earn interest at fixed rates. Changes in interest rates may also affect the value of the Partnership's investment in mortgage loans and the rates at which the Partnership reinvests funds obtained from loan repayments and new capital contributions from limited partners. If interest rates increase, the interest rates the Partnership obtains from reinvested funds will generally increase, but the value of the Partnership's existing loans at fixed rates will generally tend to decrease. The risk is mitigated by the fact that the Partnership does not intend to sell its loan portfolio, rather such loans are held until they are paid off. If interest rates decrease, the amounts becoming available to the Partnership for investment due to repayment of Partnership loans may be reinvested at lower rates than the Partnership had been able to obtain in prior investments, or than the rates on the repaid loans. In addition, interest rate decreases may encourage borrowers to refinance their loans with the Partnership at a time where the Partnership is unable to reinvest in loans of comparable value. The Partnership does not hedge or otherwise seek to manage interest rate risk. The Partnership does not enter into risk sensitive instruments for trading purposes. Controls and Procedures. Within the 90 days prior to the date of this report, the General Partner of the Partnership carried out an evaluation, under the supervision and with the participation of the General Partner's management, including the General Partner's President and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief Financial Officer of the General Partner concluded that the Partnership's disclosure controls and procedures are effective. There were no significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 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 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 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 part of Form S-11 and subsequent amendments related to the offering of Partnership interests, 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, 2002. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Compensation Description of Compensation and Services Rendered Amount ------------------------------------ -------------------------------------------------------------- -------------------- I. Redwood Mortgage Corp. Loan Servicing Fee for servicing loan ........................ $123,042 General Partners &/or Affiliates Asset Management Fee for managing assets ..................... $26,285 General Partners 1% interest in profits ....................................... $5,849
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 Corp. Mortgage Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the loan paid by the borrowers and not by the Partnership............ $24,661 Redwood Mortgage Corp. Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees paid by the borrowers and not by the Partnership ............................ $1,767 Gymno Corporation, Inc. Reconveyance Fee..................................................... $302
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 . . . . . . . . . . . . . . . . . . . . . . . . . . $23,229 PART 2 OTHER INFORMATION Item 1. Legal Proceedings The Partnership periodically is a defendant in various legal actions. 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 (99.1) Certification of Michael R. Burwell, General Partner (99.2) Certification of Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner (b) Form 8-K Not Applicable 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 14th day of November 2002. REDWOOD MORTGAGE INVESTORS VII By: /S/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: /S/ Michael R. Burwell ------------------------------------------------ Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer 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 14th day of November 2002. Signature Title Date /S/ Michael R. Burwell ------------------------ Michael R. Burwell General Partner November 14, 2002 /S/ Michael R. Burwell ------------------------ Michael R. Burwell President, Secretary/Treasurer November 14, 2002 of Gymno Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation Exhibit 99.1 GENERAL PARTNER CERTIFICATION I, Michael R. Burwell, General Partner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VII, a California Limited Partnership (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial date and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Michael R. Burwell _____________________________ Michael R. Burwell, General Partner November 14, 2002 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Redwood Mortgage Investors VII (the "Partnership") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the Partnership, certify, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Michael R. Burwell _____________________________ Michael R. Burwell, General Partner November 14, 2002 Exhibit 99.2 PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION I, Michael R. Burwell, President and Chief Financial Officer of Gymno Corporation, General Partner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VII, a California Limited Partnership (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial date and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Michael R. Burwell _____________________________ Michael R. Burwell, President and Chief Financial Officer, of Gymno Corporation, General Partner November 14, 2002 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Redwood Mortgage Investors VII (the "Partnership") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner of the Partnership, certify that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Michael R. Burwell _____________________________ Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner November 14, 2002