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, 1998
- ----------------------------------------------------- --------------------------
Commission file number 33-30427
- ----------------------------------------------------- --------------------------
REDWOOD MORTGAGE INVESTORS VII
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
California 94-3094928
- -------------------------- -----------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
- --------------------------------------------------------------------------------
(address of principal executive office)
(650) 365-5341
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
----------------- --------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
------------------- ------------------ -------------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 (audited) and
September 30, 1998 (unaudited)
ASSETS
<CAPTION>
Sept 30, 1998 Dec 31, 1997
(unaudited) (audited)
--------------- ---------------
<S> <C> <C>
Cash $281,170 $520,837
--------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 14,416,793 13,449,741
Accrued Interest on Mortgage Investments 180,926 427,952
Advances on Mortgage Investments 38,426 33,154
Accounts receivables, unsecured 251,597 252,422
---------------
---------------
14,887,742 14,163,269
Less allowance for doubtful accounts 773,037 424,738
--------------- ---------------
14,114,705 13,738,531
--------------- ---------------
Real estate owned, acquired through foreclosure, held for sale 522,381 687,139
Investment in partnership 0 346,017
--------------- ---------------
$14,918,256 $15,292,524
=============== ===============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Notes payable - bank line of credit $2,662,662 $2,341,816
Accounts payable and accrued expenses 20,629 1,845
Deferred Interest 0 69,316
-------------- --------------
2,683,291 2,412,977
-------------- --------------
Partners Capital
Limited partners capital, subject to redemption (Note 4E):
Net of formation loan receivable of $270,434 and $341,275 for
1998, and 1997, respectively 12,222,987 12,867,569
General partners capital 11,978 11,978
--------------
--------------
Total Partners Capital 12,234,965 12,879,547
-------------- --------------
Total Liabilities and Partners Capital $14,918,256 $15,292,524
============== ==============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997 (unaudited)
<CAPTION>
9 months ended 9 months ended 3 months ended 3 months ended
Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Investments $1,178,911 $1,184,702 $401,928 $418,203
Interest on bank deposits 5,416 5,266 2,176 1,673
Late Charges 12,675 3,946 5,298 1,020
Miscellaneous 8,308 12,122 2,450 3,166
Gain on sale of property 70,805 0 0 0
------------ ------------- ------------ -------------
1,276,115 1,206,036 411,852 424,062
------------ ------------- ------------ -------------
Expenses:
Interest on note payable-bank 126,343 142,691 38,267 59,877
Mortgage servicing fee 104,456 51,621 45,457 19,993
Asset management fees 12,219 0 4,000 0
Clerical costs through Redwood Mortgage 25,895 28,621 8,396 9,285
Professional Fees 18,900 22,882 550 3,156
Provision for doubtful accounts and
losses on
real estate acquired through 346,920 324,027 91,024 122,705
foreclosure
Printing, Supplies and Postage 8,620 8,123 2,349 2,643
Other 6,040 5,576 1,632 1,807
------------ ------------- ------------ -------------
649,393 583,541 191,675 219,466
------------ ------------- ------------ -------------
Net income $626,722 $622,495 $220,177 $204,596
============ ============= ============ =============
Net income: to General Partners (1%) $6,267 $6,225 $2,202 $2,046
Net income: to Limited Partners (99%) $620,455 $616,270 $217,975 $202,550
============ ============= ============ =============
$626,722 $622,495 $220,177 $204,596
============ ============= ============ =============
Net income per $1000 invested by Limited
Partners for entire period:
- where income is reinvested and $48.66 $45.27 $17.13 $14.87
compounded
------------ ------------- ------------ -------------
- where partner receives income in monthly
distributions $47.64 $44.39 $17.03 $14.80
------------ ------------- ------------ -------------
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited)
<CAPTION>
PARTNERS CAPITAL
---------------------------------------------------------------------------
LIMITED PARTNERS CAPITAL
---------------------------------------------------------------------------
Capital
Account Unallocated Formation
Limited Syndication Loan
Partners Costs Receivable Total
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $13,839,989 $(97,088) $(604,939) $13,137,962
Formation Loan collections 0 0 80,542 80,542
Net income 902,840 0 0 902,840
Allocation of syndication costs (80,190) 80,190 0 0
Early withdrawal penalties (10,690) 3,310 7,346 (34)
Partners withdrawals (435,917) 0 0 (435,917)
-------------- --------------- --------------- --------------
Balances at December 31, 1995 14,216,032 (13,588) (517,051) 13,685,393
Formation Loan collections 0 0 62,225 62,225
Net income 850,508 0 0 850,508
Allocation of syndication costs (13,588) 13,588 0 0
Early withdrawal penalties (37,345) 0 25,663 (11,682)
Partners withdrawals (1,013,078) 0 0 (1,013,078)
-------------- --------------- --------------- --------------
Balances at December 31, 1996 $14,002,529 $0 $(429,163) $13,573,366
Formation Loan collections 0 0 60,223 60,223
Net Income 818,610 0 0 818,610
Early withdrawal penalties (40,258) 0 27,665 (12,593)
Partners withdrawals (1,572,037) 0 0 (1,572,037)
-------------- --------------- --------------- --------------
Balances at December 31, 1997 $13,208,844 $0 $(341,275) $12,867,569
Formation Loan collections 0 0 55,023 55,023
Net Income 620,455 0 0 620,455
Early withdrawal penalties (23,018) 0 15,818 (7,200)
Partners withdrawals (1,312,860) 0 0 (1,312,860)
-------------- --------------- --------------- --------------
Balances at September 30, 1998 $12,493,421 $0 $(270,434) $12,222,987
============== =============== =============== ==============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited)
<CAPTION>
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
----------------------------------------------------------
Capital Account Unallocated Total
General Partners Syndication Costs Partners
Total Capital
------------------ ------------------- ------------ ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $11,978 $(981) $10,997 $13,148,959
Formation Loan collections 0 0 0 80,542
Net income 9,120 0 9,120 911,960
Allocation of syndication costs (810) 810 0 0
Early withdrawal penalties 0 34 34 0
Partners withdrawals (8,310) 0 (8,310) (444,227)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1995 11,978 (137) 11,841 13,697,234
Formation Loan collections 0 0 0 62,225
Net income 8,591 0 8,591 859,099
Allocation of syndication costs (137) 137 0 0
Early withdrawal penalties 0 0 0 (11,682)
Partners withdrawals (8,454) 0 (8,454) (1,021,532)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1996 11,978 0 11,978 13,585,344
Formation Loan collections 0 0 0 60,223
Net income 8,269 0 8,269 826,879
Early withdrawal penalties 0 0 0 (12,593)
Partners withdrawals (8,269) 0 (8,269) (1,580,306)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1997 $11,978 $0 $11,978 $12,879,547
Formation Loan collections 0 0 0 55,023
Net income 6,267 0 6,267 626,722
Early withdrawal penalties 0 0 0 (7,200)
Partners withdrawals (6,267) 0 (6,267) (1,319,127)
------------------ ------------------- ------------ ----------------
Balances at September 30, 1998 $11,978 $0 $11,978 $12,234,965
================== =================== ============ ==============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited)
<CAPTION>
9 months ended 9 months ended
Sept 30, 1998 Sept 30, 1997
Cash flows from operating activities: (unaudited) (unaudited)
----------------- ------------------
Net income
<S> <C> <C>
Adjustments to reconcile net income to net cash provided by $626,722 $622,495
operating activities:
Provision for doubtful accounts 346,920 324,027
Provision for losses on real estate held for sale 0 0
Early withdrawal penalty credited to income (7,200) (10,434)
(Increase) decrease in accrued interest & advances 241,754 (110,285)
Increase (decrease) in accounts payable and accrued expenses 18,784 373
Increase (decrease) in deferred interest on Mortgage Investments (69,316) (154,598)
----------------- ------------------
Net cash provided by operating activities 1,157,664 671,578
----------------- ------------------
Cash flows from investing activities:
Principal collected on mortgage investments 4,422,118 4,145,994
Mortgage Investments made (5,499,170) (6,207,324)
Additions to Real Estate held for sale (33,865) (131,707)
Dispositions of real estate held for sale 310,002 684,946
Investment in partnership 346,017 (55,843)
Accounts receivable-unsecured 825 0
----------------- ------------------
Net cash provided by (used in) investing activities (454,073) (1,563,934)
----------------- ------------------
Cash flows from financing activities:
Increase (decrease) in note payable-bank 320,846 1,416,816
Formation loan collections 55,023 48,447
Partners withdrawals (1,319,127) (1,142,831)
----------------- ------------------
Net cash provided by (used in) financing activities ( 943,258) 322,432
----------------- ------------------
Net increase (decrease) in cash (239,667) (569,924)
Cash - beginning of period 520,837 755,089
----------------- ------------------
Cash - end of period $281,170 $185,165
================= ==================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the Partnership) is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Home Loan Co., dba
Redwood Mortgage, an affiliate of the General Partners. At September 30, 1992,
the offering had been closed with contributed capital totaling $11,998,359 for
limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As Mortgage
Investments were identified, partners were transferred from applicant status to
admitted partners participating in Mortgage Investment operations. Each months
income is allocated to partners based upon their proportionate share of partners
capital. Some partners have elected to withdraw income on a monthly, quarterly
or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (Units sold by General Partners) to 10%
of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General
Partners that arranges and services the Mortgage Investments. To finance the
sales commissions, the Partnership was authorized to loan to Redwood Mortgage an
amount not to exceed 8.3% of the gross proceeds provided that the Formation Loan
for the minimum offering period could be 10% of the gross proceeds for that
period. The Formation Loan is unsecured and is being repaid, without interest,
in installments of principal, over a ten year period commencing January 1, 1992.
At December 31, 1992, Redwood Mortgage had borrowed $914,369 from the
Partnership to cover sales commissions relating to $11,998,359 limited partner
contributions (7.62%). Through September 30, 1998, $643,935 including $118,961
in early withdrawal penalties, had been repaid leaving a balance of $270,434.
The Formation Loan, which is due from an affiliate of the General Partners, has
been deducted from Limited Partners capital in the balance sheet. As amounts
are collected from Redwood Mortgage, the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000 whichever was less. The General Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were
incurred by the Partnership. The sum of organization and syndication costs,
$425,794, approximated 3.55% of the gross proceeds contributed by the Partners.
Both the Organization and Syndication Costs have been fully amortized and
allocated to the Partners.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a mortgage investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amount due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was the
valuation method previously used on impaired Mortgage Investments.
At September 30, 1998 and at December 31, 1997, 1996 and 1995, reductions
in the cost of Mortgage Investments categorized as impaired by the Partnership
totalled $0, $0, $9,595, and $0 respectively. The reduction in stated value was
accomplished by increasing the allowance for doubtful accounts.
As presented in Note 10 to the financial statements as of September 30,
1998, the average mortgage investment to appraised value of security at the time
the Mortgage Investments were consummated was 60.40%. When a Mortgage Investment
is valued for impairment purposes, an updating is made in the valuation of
collateral security. However, such a low loan to value ratio tends to minimize
reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of September 30,1998, and December 31, 1997 and 1996:
Sept 30, December 31, December 31,
1998 1997 1996
---------------- ---------------- ----------------
Costs of properties $747,427 $906,499 $1,655,786
Reduction in value 225,046 219,360 187,441
--------------- ---------------- ----------------
Fair value reflected
in financial statements $522,381 $687,139 $1,468,345
================ ================ ================
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership paid its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $10,102 were capitalized and were
amortized over a five year period. Syndication costs of $415,692 were charged
against partners capital and were allocated to individual partners consistent
with the Partnership Agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral value, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
September 30, 1998, and December 31, 1997, and 1996 was as follows:
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
Sept 30, December 31, December 31,
1998 1997 1996
----------- ------------- ---------------
Impaired Mortgage Investments $0 $0 $9,595
Unspecified Mortgage Investments 573,037 284,738 19,052
Accounts receivable, unsecured 200,000 140,000 200,000
=========== ============== ===========
$773,037 $424,738 $228,647
=========== ============== ===========
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions
Redwood Mortgage receives Mortgage Brokerage Commissions for services in
connection with the review, selection, evaluation, negotiation and extension of
Mortgage Investments in an amount up to 12% of the principal through the period
ending 6 months after the termination date of the offering. Thereafter, Mortgage
Investment brokerage commissions are limited to an amount not to exceed 4% of
the total Partnership assets per year. The Mortgage Investment brokerage
commissions are paid by the borrowers, and thus, not an expense of the
Partnership.
B. Mortgage Servicing Fees
Redwood Mortgage also receives monthly mortgage servicing fees of up to 1/8
of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
Mortgage Investment is located. Mortgage servicing fees of $104,456, $83,559,
$97,267 and $33,394 were incurred for nine months through September 30, 1998 and
for years 1997, 1996 and 1995, respectively.
C. Asset Management Fee
The General Partners receive a monthly fee for managing the Partnerships
Mortgage Investment portfolio and operations of up to 1/32 of 1% of the net
asset value (3/8 of 1% annual). No management fees have been incurred for years
1997, 1996 and 1995, respectively. For nine months through September 30, 1998,
management fee of $12,219 was paid to the General Partners.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
Mortgage assumption and Mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the General Partners.
E. Income and Losses
All income is credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) is a total of 1%.
F. Operating Expenses The General Partners or their affiliate (Redwood
Mortgage) are reimbursed by the Partnership for all operating expenses actually
incurred by them on behalf of the Partnership, including without limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees, legal fees and expenses, postage and preparation of reports to
Limited Partners. Such reimbursements are reflected as expenses in the
Statements of Income.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
G. General Partners Contributions
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering were admitted to limited
Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to
the Partnership until appropriate lending opportunities were available. During
the period prior to the time of admission, which ranged between 1-120 days,
purchasers subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnerships Mortgage
Investment portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As Mortgage Investments were made and partners were transferred to
regular status to begin sharing in income from Mortgage Investments secured by
deeds of trust, the interest credited was either paid to the investors or
transferred to Partners Capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five years, subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound for at least a period of 5 years.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is illiquid. Limited Partners have
no right to withdraw from the partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a certain degree of liquidity to the Limited Partners after the
one-year period, Limited Partners may withdraw all or part of their Capital
Accounts from the Partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn as stated in the Notice of Withdrawal and
will be deducted from the Capital Account and the balance distributed in four
quarterly installments. Withdrawal after the one-year holding period and before
the five-year holding period will be permitted only upon the terms set forth
above.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
Limited Partners also have the right after five years from the date of
purchase of the Units to withdraw from the partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. Once this five year period expires, which had occurred for all Partners
by the end of 1997, no penalty would be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the General Partners will liquidate all or part of a Limited
Partners capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty applicable to any
sums withdrawn prior to the time when such sums could have been withdrawn
pursuant to the five-year (or longer) withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to
the Partnership and ending 3 months after the offering termination date, the
General partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with years after 1993, the
guarantee no longer applies.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land located in East Palo Alto, CA., was
acquired through foreclosure. The Partnerships interest was invested with that
of two other Partnerships. The Partnerships had been attempting to develop the
property into single family residences. Significant community resistance, as
well as environmental, and fish and wildlife concerns affected efforts to obtain
the required approvals. The Partnership, in resolving disputes which arose
during the course of the Partnerships attempt to obtain entitlements to develop
the property, entered into agreements on May 8, 1998 with Rhone-Poulanc, Inc.
These agreements, among other things, restrict the property to non-residential
uses, provide for appropriate indemnifications, and include other consideration
including the payment of cash. The Partnership still retains liability for the
remediation of pesticide contamination effecting the property. Investigation of
remediation options are ongoing. At this time management does not believe that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership.
NOTE 6 - LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions. However, legal
actions against borrowers and other involved parties have been initiated by the
Partnership to help assure payments against secured and unsecured accounts
receivable totalling $251,597 at September 30, 1998.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
Management anticipates that the ultimate results of these cases will not
have a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its Mortgage
Investment portfolio of up to $3,000,000 at .50% over prime. The balances
outstanding as of September 30, 1998, December 31, 1997 and December 31, 1996
were $2,662,662, $2,341,816, and $1,175,000 respectively, and the interest rate
at September 30, 1998, was 9.00% (8.50% prime + .50%). The expiration date of
the line of credit is December 31, 1998.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:
Sept 30 Dec. 31 Dec. 31
1998 1997 1996
----------- ----------- ---------
Net assets - Partners Capital
per financial statements $12,234,965 $12,879,547 $13,585,344
Formation Loan receivable 270,434 341,275 429,163
Allowance for doubtful accounts 773,037 424,738 228,647
============ ============ ==========
Net assets tax basis $13,278,436 $13,645,560 $14,243,154
============ ============ ==========
In 1997, approximately 68% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$14,416,793. The September 30, 1998, fair value of these investments of
$14,665,315 is estimated based upon projected cash flows discounted at the
estimated current interest rates at which similar Mortgage Investments would be
made. The applicable amount of the allowance for doubtful accounts along with
accrued interest and advances related thereto should also be considered in
evaluating the fair value versus the carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
September 30, 1998, there were 58 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 58
Total Mortgage Investments outstanding $14,416,793
Average Mortgage Investment outstanding $248,565
Average Mortgage Investment as percent of total 1.72%
Average Mortgage Investment as percent of Partners Capital 2.03%
Largest Mortgage Investment outstanding $1,050,000
Largest Mortgage Investment as percent of total 7.28%
Largest Mortgage Investment as percent of Partners Capital 8.58%
Number of counties where security is located(all California) 14
Largest percentage of Mortgage Investments in one county 20.90%
Average Mortgage Investment to appraised value of security at
time Mortgage Investment was consummated 60.40%
Number of Mortgage Investments in foreclosure 1
The following categories of mortgage investments are pertinent at September
30, 1998, and December 31, 1997, 1996:
Sept 30 December 31 December 31
----------- ------------- ------------
1998 1997 1996
----------- ------------- ------------
First Trust Deeds $8,703,777 $6,810,113 $4,199,552
Second Trust Deeds 5,131,205 5,719,369 6,913,853
Third Trust Deeds 381,810 720,258 722,887
Fourth Trust Deeds 200,001 200,001 200,001
----------- ------------- -----------
Total mortgage investments 14,416,793 13,449,741 12,036,293
Prior liens due other lenders 13,833,431 17,951,579 22,069,554
------------ ------------- -----------
Total debt 28,250,224 $31,401,320 $34,105,847
============ ============= ===========
Appraised property value
at time of loan $46,772,98 $52,077,885 $51,863,991
============ ============= ===========
Total investments as a
percent of appraisals 60.40% 60.30% 65.76%
============ ============= ============
Investments by Type of Property
Owner occupied homes $1,057,055 $1,104,742 $1,742,767
Non-Owner occupied homes 2,326,592 1,464,596 1,112,274
Apartments 868,029 1,666,916 1,325,872
Commercial 10,165,117 9,213,487 7,855,380
============ ============== ============
$14,416,793 $13,449,741 $12,036,293
============ ============== ============
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997(audited) AND
SEPTEMBER 30, 1998 (unaudited)
Scheduled maturity dates of mortgage investments as of September 30, 1998,
are as follows:
Year Ending
December 31,
-------------------
1998 $1,831,572
1999 4,696,628
2000 2,956,756
2001 1,601,955
2002 1,319,271
Thereafter 2,010,611
================
$14,416,793
================
The scheduled maturities for 1998 include approximately $869,290 in nine
mortgage investments which are past maturity at September 30, 1998. Interest
payment on most of these Mortgage Investments are current. None of those
Mortgage Investments were categorized as delinquent over 90 days. Two Mortgage
Investments with principal outstanding of $169,483 had interest payments overdue
in excess of 90 days. Five Mortgage Investments with principal outstanding of
$484,528 at September 30, 1998, had no interest accruals recorded thereon.
The cash balance at September 30, 1998 of $281,170 was in two banks with an
interest bearing balance totalling $214,976. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $86,302. One bank is the same
financial institution that has provided the Partnership with the $3,000,000
limit line of credit. At September 30, 1998, draw down against this facility was
$2,662,662.
<PAGE>
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, 1998, Partners Capital totaled $12,234,965.
At September 30, 1998, the Partnership Mortgage Investments outstanding
totalled $14,416,793, an increase of $1,766,504 from the end of the second
quarter of the year. Mortgage Investments increased from $13,449,741 to
$14,416,793 during nine months through September 30, 1998, an increase of
$967,052 chiefly due to the ability of the General Partners to reduce the net
amounts invested in real estate owned (REO) during the nine months, by
increasing bank credit line borrowing to $2,662,662 as of September 30, 1998,
from $2,341,816 as of December 31, 1997, by reinvestment of earnings of $290,108
and investment of cash. The ability of the Partnership to invest in new Mortgage
Investments was partially offset by withdrawals of income and capital by the
Partners in the amount of $1,335,878. Mortgage Investments decreased slightly,
by $346,348, during the year ended December 31, 1996, from $12,382,641 as of
December 31, 1995, to $12,036,293 as of December 31, 1996. This Mortgage
Investment reduction was due primarily to a reduced usage of the bank line of
credit. The Partnership began funding Mortgage Investments on December 27, 1989,
and as of September 30, 1998, had credited the Partners accounts with income at
an average annualized (compounded) yield of 7.77%.
Currently, general mortgage interest rates are lower than those prevalent
at the inception of the Partnership. New Mortgage Investments are being
originated at these lower interest rates. The result is a reduction of the
average return across the entire portfolio held by the Partnership. In the
future, interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. The General Partners believe the rates charged by the Partnership to
its borrowers will not change significantly in the immediate future. As of
September 30, 1998 the Partnership Real Estate Owned account and the investment
in Partnership account have been reduced to a combined balance of $522,381.
These accounts had combined balances of $1,033,156 and $1,710,739 for the years
ended December 31, 1997 and 1996, respectively. The conversion of these
non-earning assets to income producing assets will generate increased income.
The overall effect of these developments will allow the Partnership to increase
the annualized yields paid by the Partnership in future quarters. The General
Partners anticipate that the annualized yield for the remaining three months and
the overall year 1998 will be higher than the previous years.
The Partnership has a line of credit with a commercial bank secured by its
Mortgage Investments to a limit of $3,000,000, at a variable interest rate set
at one half percent above the prime rate. As of September 30, 1998, it has
borrowed $2,662,662. This facility could increase as the Partnership capital
increases. This added source of funds helped in maximizing the Partnership yield
by allowing the Partnership to minimize the amount of funds in lower yield
investment accounts when appropriate Mortgage Investments are not currently
available. Since most of the Mortgage Investments made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit, once the required principal and interest payments on the line of
credit are paid to the bank, the Mortgage Investments funded using the line of
credit generate revenue for the Partnership. As of September 30, 1998, the
Partnership is current with its interest payments on the line of credit. In
1994, the Partnership incurred $135,790 of interest on note payables. The
interest rate on the line of credit was Prime + 3/4% (now .5% over Prime) and
the Partnership was able to maintain a positive spread between the cost of
borrowing the funds and interest earned on lending the funds. In 1995, the
Partnership incurred $163,361 of interest on note payables reflecting a small
increase in the overall average credit balance outstanding. The Partnership
still maintained a positive spread between the cost of borrowing the funds and
the interest earned in lending the funds. In 1996, interest payments decreased
to $127,454 reflecting the Partnerships overall smaller average outstanding
credit line balance due primarily to a large number of Mortgage Investment
payoffs. For the year ended December 31, 1997, and nine months period ended
September 30, 1998, interest paid was $198,316 and $126,343 respectively,
reflecting an overall greater average utilization of the credit line from the
previous three years.
<PAGE>
The Partnerships income and expenses, accruals and delinquencies are
within the normal range of the General Partners expectations, based upon their
experience in managing similar partnerships over the last twenty-one years.
Borrower foreclosures, as set forth under Results of Operations, are a normal
aspect of Partnership operations and the General Partners anticipate that they
will not have a material effect on liquidity. As of September 30, 1998, there
was one property in foreclosure. Cash is constantly being generated from
interest earnings, late charges, pre-payment penalties, amortization of Mortgage
Investments and pay-off on notes. Currently, cash flow exceeds Partnership
expenses and earnings payout requirements. As Mortgage Investment opportunities
become available, excess cash and available funds are invested in new Mortgage
Investments.
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
properties, the REO expenses and sales activities, borrowers payment records,
etc. Data on the local real estate market and on the national and local economy
are studied. Based upon this information and other data, loss reserves are
increased or decreased. Because of the number of variables involved, the
magnitude of the possible swings and the General Partners inability to control
many of these factors, actual results may and do sometimes differ significantly
from estimates made by the General Partners. Management provided $306,779,
$419,437, $434,495 and $346,920 as provision for doubtful accounts for the years
ended December 31, 1995, 1996, 1997 and nine months through September 30, 1998,
respectively. The provision for doubtful account increased by $112,658 in 1996
as the General Partners determined that additional provision for doubtful
accounts should be made to cover potential losses in REO accounts or potential
losses on unsecured receivables and unspecified losses. The provision for
doubtful account was increased by $15,058 in 1997, to $434,495 as the selling of
REO accumulated primarily in the California recession of the early to mid 1990s
netted less proceeds than originally anticipated and the General Partners
further refinement of anticipated sales proceeds on remaining REO, collections
of unsecured receivables, and additional provisions for unspecified losses. The
Northern California recession reached bottom in 1993. Since then, the California
economy has been improving, slowly at first, but now, more vigorously. This
improvement is reflective in increasing property values, in job growth, personal
income growth, etc., which all translates into an improved real estate market,
solidifying real estate values, and an attractive real estate lending market
place.
The Partnerships interest in land located in East Palo Alto, Ca, was
acquired through foreclosure. The Partnerships interest is invested with that
of two other Partnerships. The Partnerships basis of $ 0, $346,017 and $242,394
for the period ended 9/30/98, and the years ended December 31, 1997 and 1996
respectively, has been invested with that of two other Partnerships. The
Partnership had been attempting to develop property into an approximately 63
units residential subdivision, (the Development). The proposed Development had
gained significant public awareness as a result of certain environmental, fish
and wildlife, density, and other concerns. Incorporated into the proposed
Development were various mitigation measures which included remediation of
hazardous material existing on the property, and protection of potentially
affected species due to the proximity of the property to the San Francisco
Baylands. These issues and others sparked significant public controversy.
Opposition against and support for the proposed Development existed. Among those
in opposition to the project was Rhone Poulanc, Inc. which is responsible for a
nearby hazardous waste site. Rhone Poulanc, Inc. has been identified as the
Responsible Party for the Arsenic Contamination which affected a portion of the
property. On May 8, 1998, the Partnership, in order to resolve disputes which
arose during the course of the attempts to obtain entitlements for this
Development, entered into agreements with Rhone-Poulanc, Inc which among other
things, restricted the property to non residential uses, provided for
appropriate indemnification and included other considerations including a cash
payment to the Partnership. The Partnership has retained ownership of the
property, which is subject to various deed restrictions, options and or first
rights of refusal. The General Partners are pleased with this outcome to the
residential development attempt. The General Partners may now explore other
available options with respect to alternative uses for the property. In order to
pursue these options, rezoning of the propertys existing residential zoning
classification will be required. The Partnership is continuing to explore
remediation options available to mitigate the pesticide contamination, which
affects the property. This pesticide contamination appears to be the result of
agricultural operations by prior owners, and is unrelated to the Arsenic
Contamination for which Rhone-Poulanc, Inc. remains responsible. The General
Partners do not believe at this time that remediation of the pesticide
contaminants will have a material adverse effect on the financial condition of
the Partnership.
<PAGE>
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1995, December 31, 1996, December 31, 1997, and nine months
ended September 30, 1998, the Partnership made distributions of earnings to
Limited Partners after allocation of syndication costs of, $262,450, $327,887,
$399,379 and $330,347 respectively. Distribution of Earnings to Limited Partners
after allocation of syndication costs for the years ended December 31, 1995,
December 31, 1996, December 31, 1997, and nine months ended September 30, 1998
to Limited Partners capital accounts and not withdrawn was $640,390, $522,621,
$419,231, and $290,108 respectively. As of December 31, 1995, December 31, 1996,
December 31, 1997, and September 30, 1998, Limited Partners electing to withdraw
earnings represented 36%, 44%, 53% and 54% of the Limited Partners capital.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1995, December 31,
1996, December 31, 1997, and nine months through September 30, 1998, $106,901,
$412,798, $475,348 and $287,720 respectively, were liquidated subject to the 10%
penalty for early withdrawal. These withdrawals are within the normally
anticipated range that the General Partners would expect in their experience in
this and other partnerships. The General Partners expect that a small percentage
of Limited Partners will elect to liquidate their capital accounts over one year
with a 10% early withdrawal penalty. In originally conceiving the Partnership,
the General Partners wanted to provide Limited Partners needing their capital
returned a degree of liquidity. Generally, Limited Partners electing to withdraw
over one year need to liquidate investment to raise cash. The trend the
Partnership is experiencing in withdrawals by Limited Partners electing a one
year liquidation program represents a small percentage of Limited Partner
capital as of December 31, 1995, December 31, 1996, December 31, 1997, and nine
months to September 30, 1998, respectively and is expected by the General
Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1995, December 31, 1996,
December 31, 1997, and nine months through September 30, 1998, $97,801,
$318,902, $737,568 and $717,811 respectively, were liquidated by Limited
Partners who have elected a liquidation program over a period of five years or
longer. This ability to withdraw after five years by Limited Partners has the
effect of providing Limited Partner liquidity which the General Partners then
expect a portion of the Limited Partners to avail themselves of. This has the
anticipated effect of the Partnership growing, primarily through reinvestment of
earnings in years one through five. The General Partners expect to see
increasing numbers of Limited Partner withdrawals in years five through eleven,
at which time the bulk of those Limited Partners who have sought withdrawal have
been liquidated. After year eleven, liquidation generally subsides and the
Partnership capital again tends to increase.
<TABLE>
Actual liquidation of both capital and earnings from year five (1994)
through year eight (1997) and through nine months ended September 30, 1998 is
shown hereunder:
<CAPTION>
Years ended December 31,
1994 1995 1996 1997 Sept 30, 1998
------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings $263,206 270,760 336,341 399,379 330,347
Capital *$340,011 184,157 722,536 1,212,916 1,005,531
============= ============== ============== ============== ===============
Total $603,217 $454,917 $1,058,877 $1,612,295 $1,335,878
============= ============== ============== ============== ===============
<FN>
* These amounts represent gross of early withdrawal penalties.
</FN>
</TABLE>
The Year 2,000 will be a challenge for the entire world, with respect to
the conversion of existing computerized operations. The Partnership is
completing an assessment of Year 2,000 hardware and software issues. This
assessment is not yet fully complete. The Partnership relies on Redwood Mortgage
Corporation, an affiliate of the
<PAGE>
Partnership, and third parties to provide loan and investor services
effected by Year 2,000 computerized operations. Major services provided to the
Partnership by these companies are loan servicing, accounting and investor
services. The vendors that supply the software for loan servicing have already
confirmed compliance with Year 2,000 issues. Installation of accounting software
that is Year 2,000 compliant will begin after the 1998-year ends. The investor
servicing software Year 2,000 compliance is still under assessment. Existing
investor servicing software maintenance agreements provide for conversion to
Year 2,000 compliance to be provided by the vendor. Additionally, the
Partnership has contacted several vendors that provide investor services as a
possible alternative to continuing to provide investors services in house. It
would appear that these service providers would be more expensive than the
current in house systems but they do provide a back-up alternative in the event
of our own failure to fully convert. Hardware utilized by Redwood Mortgage
Corporation, is currently being tested to insure that modifications necessary to
be made prior to Year 2,000 can be accomplished. At this juncture, existing
hardware appears to be substantially compliant with Year 2,000 issues.
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2,000 issues.
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
effect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an affect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant increased demand for Silicon Valley type services and goods
as companies make ready for the Year 2,000 conversion.
Although not fully developed if all accounting, loan servicing and investor
services conversions should fail the size and scope of the Partnerships
activities are such that they could be handled at an equal or higher cost on a
manual basis or outsourced to other servicers existing in the industry. While
this would entail some initial set up costs, these costs would likely not be so
significant as to have a material effect upon the Partnership.
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 12-13, under the section Compensation of the General partners
and the Affiliates, which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the nine months period ended September
30, 1998. All such compensation is in compliance with the guidelines and
limitations set forth in the Prospectus.
Entity Receiving Description of Compensation
Compensation and Services Rendered Amount
- -------------------------- -------------------------------------------- --------
I. Redwood Mortgage Mortgage Servicing Fee for servicing
Mortgage Investments $104,456
General Partners &/or
Affiliate Asset Management Fee for managing assets $12,219
General Partners 1% interest in profits $6,267
II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES
RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT
OF THE PARTNERSHIP)
Redwood Mortgage. Mortgage Brokerage Commissions for services in
connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers and
not by the Partnership $151,752
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $3,077
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. $25,895
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1998
Partnership Highlights
Mortgage Investment to Value Ratios
First Trust Deeds $8,703,776.80
Appraised Value of Properties * 17,269,209.00
Total Investment as a % of Appraisal 50.40%
First Trust Deed Mortgage Investments 8,703,776.80
Second Trust Deed Mortgage Investments 5,131,204.89
Third Trust Deed Mortgage Investments 381,810.22
Fourth Trust Deed Mortgage Investments ** 200,001.20
-----------------
$14,416,793.11
First Trust Deeds due other Lenders 12,605,645.00
Second Trust Deeds due other Lenders 1,084,928.00
Third Trust Deeds due other Lenders 142,858.00
-----------------
Total Debt $28,250,224.11
Appraised Property Value * 46,772,985.00
Total Investment as a % of Appraisal 60.40%
Number of Mortgage Investments Outstanding 58
Average Investment $248,565.40
Average Investment as a % of Net Assets 2.03%
Largest Investment Outstanding 1,050,000
Largest Investment as a % of Net Assets 8.58%
Loans as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 60.37%
Second Trust Deed Mortgage Investments 35.59%
Third Trust Deed Mortgage Investments 2.65%
Fourth Trust Deed Mortgage Investments 1.39%
----------------
Total 100.00%
Mortgage Investments by Type of
Property Amount Percent
Owner Occupied Homes $1,057,055.34 7.33%
Non Owner Occupied Homes 2,326,591.42 16.14%
Apartments 868,029.37 6.02%
Commercial 10,165,116.98 70.51%
----------------
------------------
Total $14,416,793.11 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure 1
*Values used are the appraisal values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County
County Total Loans Percent
San Francisco $3,012,383.30 20.90%
Stanislaus 2,439,082.26 16.92%
San Mateo 1,725,412.00 11.97%
Alameda 1,709,907.55 11.86%
Santa Clara 1,679,961.01 11.65%
Solano 994,224.00 6.90%
Contra Costa 853,096.98 5.92%
Monterey 702,761.76 4.88%
Marin 685,354.92 4.75%
Sonoma 174,759.45 1.21%
Sacramento 137,374.26 0.95%
Santa Cruz 130,256.66 0.90%
Ventura 91,000.00 0.63%
Shasta 81,218.96 0.56%
------------------ -----------
Total $14,416,793.11 100.00%
** Redwood Mortgage Investors VII, together with other Redwood
Partnerships, holds a second and a fourth trust deed against the secured
property. In addition, the principals behind the borrower corporation have given
personal guarantees as collateral. The loan to value ratio at the issuance of
this loan was 76.52%. Besides the borrower paying a fixed interest rate of
12.25%, the partnership and other lenders will also be entitled to share in
profits generated by the corporation with respect to the secured property. The
affiliates of the Partnership had entered into previous loan transactions with
this borrower which had been concluded successfully, resulting in additional
revenue beyond interest payments for the affiliates involved.
<PAGE>
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
None, where the Partnership is a defendant.
Please refer to Note 6 of Notes to Financial
Statements.
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports on
Form 8-K during the nine month period ending
September 30, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 12th day of
November, 1998.
REDWOOD MORTGAGE INVESTORS VII
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 12th day of November, 1998.
Signature Title Date
/s/ D. Russell Burwell
- -----------------------------
D. Russell Burwell General Partner November 12, 1998
/s/ Michael R. Burwell
- -----------------------------
Michael R. Burwell General Partner November 12, 1998
/s/ D. Russell Burwell
- -----------------------------
D. Russell Burwell President of Gymno November 12, 1998
Corporation, (Principal
Executive Officer);
Director of Gymno
Corporation
/s/ Michael R. Burwell
- ----------------------------
Michael R. Burwell Secretary/Treasurer of November 12, 1998
Gymno Corporation
(Principal Financial
and Accounting Officer);
Director of Gymno
Corporation
<PAGE>
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