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 March 31, 1999
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Commission file number 33-30427
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REDWOOD MORTGAGE INVESTORS VII
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(exact name of registrant as specified in its charter)
California 94-3094928
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
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(address of principal executive office)
(650) 365-5341
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(Registrants telephone number, including area code)
NOT APPLICABLE
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(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
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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>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 (audited) and
MARCH 31, 1999 (unaudited)
ASSETS
Mar 31, 1999 Dec 31, 1998
(unaudited) (audited)
--------------- ---------------
Cash $380,697 $461,544
--------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds
of trust 14,745,001 13,209,186
Accrued Interest on Mortgage Investments 327,616 442,350
Advances on Mortgage Investments 49,662 39,733
Accounts receivables, unsecured 243,240 242,493
--------------- ---------------
15,365,519 13,933,762
Less allowance for doubtful accounts 868,573 787,042
--------------- ---------------
14,496,946 13,146,720
--------------- ---------------
Real estate owned, acquired through foreclosure,
held for sale 363,112 397,396
--------------- ---------------
$15,240,755 $14,005,660
=============== ==============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Notes payable - bank line of credit $3,500,000 $1,912,663
Accounts payable and accrued expenses 19,721 12,547
Deferred Interest 0 131,743
-------------- --------------
3,519,721 2,056,953
-------------- --------------
Partners Capital
Limited partners capital, subject to redemption (Note 4E):
Net of formation loan receivable of
$235,663 and $253,387 for 1999,
and 1998, respectively 11,709,056 11,936,729
General partners capital 11,978 11,978
-------------- --------------
Total Partners Capital 11,721,034 11,948,707
-------------- --------------
Total Liabilities and Partners
Capital $15,240,755 $14,005,660
============== ==============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1998 (unaudited)
3 months ended 3 months ended
Mar. 31, 1999 Mar. 31, 1998
(unaudited) (unaudited)
Revenues:
Interest on Mortgage Investments $416,849 $386,870
Interest on bank deposits 858 2,196
Late charges 645 564
Other 2,001 2,970
-------------- -------------
420,353 392,600
-------------- -------------
Expenses:
Interest on note payable - bank 47,227 52,446
Clerical costs through Redwood Mortgage
Corp. 7,967 8,794
Mortgage Servicing Fees 31,563 26,413
General Partner asset management fees 3,827 4,145
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 81,531 73,398
.
Professional Services 20,933 16,942
Printing, supplies and postage 3,464 2,898
Other 3,296 3,908
-------------- -------------
199,808 188,944
-------------- -------------
Net income $220,545 $203,656
============== =============
Net income: to General Partners (1%) $2,205 $2,036
Net income: to Limited Partners (99%) 218,340 201,620
-------------- =============
$220,545 $203,656
============== =============
Net income per $1000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $17.93 $15.28
-------------- -------------
- where partner receives income in monthly $17.83 $15.20
distributions
-------------- -------------
See accompanying notes to Financial Statements
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
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, 1995 $14,216,032 $(13,588) $(517,051) $13,685,393
Formation Loan collections 0 0 62,225 62,225
Net income 850,508 0 0 850,508
Allocation of syndication costs (13,588) 13,588 0 0
Early withdrawal penalties (37,345) 0 25,663 (11,682)
Partners withdrawals (1,013,078) 0 0 (1,013,078)
-------------- --------------- --------------- --------------
Balances at December 31, 1996 $14,002,529 $0 $(429,163) $13,573,366
Formation Loan collections 0 0 60,223 60,223
Net Income 818,610 0 0 818,610
Early withdrawal penalties (40,258) 0 27,665 (12,593)
Partners withdrawals (1,572,037) 0 0 (1,572,037)
-------------- --------------- --------------- --------------
Balances at December 31, 1997 $13,208,844 $0 $(341,275) $12,867,569
Formation Loan collections 0 0 66,908 66,908
Net Income 838,105 0 0 838,105
Early withdrawal penalties (30,529) 0 20,980 (9,549)
Partners withdrawals (1,826,304) 0 0 (1,826,304)
-------------- --------------- --------------- --------------
Balances at December 31, 1998 $12,190,116 $0 $(253,387) $11,936,729
Formation Loan collections 0 0 14,648 14,648
Net Income 218,340 0 0 218,340
Early withdrawal penalties (4,477) 0 3,076 (1,401)
Partners withdrawals (459,260) 0 0 (459,260)
-------------- --------------- --------------- --------------
Balances at March 31, 1999 $11,944,719 $0 ($235,663) $11,709,056
============== =============== =============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
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, 1995 $11,978 $(137) $11,841 $13,697,234
Formation Loan collections 0 0 0 62,225
Net income 8,591 0 8,591 859,099
Allocation of syndication costs (137) 137 0 0
Early withdrawal penalties 0 0 0 (11,682)
Partners withdrawals (8,454) 0 (8,454) (1,021,532)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1996 $11,978 $0 $11,978 $13,585,344
Formation Loan collections 0 0 0 60,223
Net income 8,269 0 8,269 826,879
Early withdrawal penalties 0 0 0 (12,593)
Partners withdrawals (8,269) 0 (8,269) (1,580,306)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1997 $11,978 $0 $11,978 $12,879,547
Formation Loan collections 0 0 0 66,908
Net income 8,466 0 8,466 846,571
Early withdrawal penalties 0 0 0 (9,549)
Partners withdrawals (8,466) 0 (8,466) (1,834,770)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1998 $11,978 $0 $11,978 $11,948,707
Formation Loan collections 0 0 0 14,648
Net income 2,205 0 2,205 220,545
Early withdrawal penalties 0 0 0 (1,401)
Partners withdrawals (2,205) 0 (2,205) (461,465)
------------------ ------------------- ------------ ----------------
Balances at March 31, 1999 $11,978 $0 $11,978 $11,721,034
================== =================== ============ ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (unaudited)
3 months ended 3 months ended
Mar 31, 1999 Mar 31, 1998
Cash flows from operating activities: (unaudited) (unaudited)
----------------- ----------------
Net income
Adjustments to reconcile net income to net
cash provided by operating activities: $220,545 $203,656
Provision for doubtful accounts 81,531 73,398
Provision for losses on real estate held for sale 0 0
Early withdrawal penalty credited to income (1,401) (2,399)
(Increase) decrease in accrued interest &
advances 104,805 126,097
Increase (decrease) in accounts payable and
accrued expenses 7,174 0
Increase (decrease) in deferred interest on
Mortgage Investments (131,743) (69,316)
Net cash provided by operating activities 280,911 331,436
----------------- ----------------
Cash flows from investing activities:
Principal collected on mortgage investments 942,300 536,021
Mortgage Investments made (2,478,115) (1,123,177)
Additions to Real Estate held for sale (2,456) (3,785)
Dispositions of real estate held for sale 35,993 47,411
Investment in partnership 0 (7,138)
----------------- ----------------
Net cash provided by (used in) investing
activities (1,502,278) (550,668)
Cash flows from financing activities:
Increase in note payable-bank 1,587,337 240,847
Formation loan collections 14,648 21,972
Partners withdrawals (461,465) (421,054)
----------------- ----------------
Net cash provided by (used in) financing
activities 1,140,520 (158,235)
----------------- ----------------
Net increase (decrease) in cash (80,847) (377,467)
Cash - beginning of period 461,544 520,837
----------------- ----------------
Cash - end of period $380,697 $143,370
================= ================
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (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 Mortgage Corp., an
affiliate of the General Partners. At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As 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
Corp., 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 Corp. had
borrowed $914,369 from the Partnership to cover sales commissions relating to
$11,998,359 Limited Partner contributions (7.62%). Through March 31, 1999,
$678,706 including $127,199 in early withdrawal penalties, had been repaid
leaving a balance of $235,663. The Formation Loan, which is due from an
affiliate of the General Partners, has been deducted from Limited Partners
capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000 whichever was less. The General Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were
incurred by the Partnership. The sum of organization and syndication costs,
$425,794, approximated 3.55% of the gross proceeds contributed by the Partners.
Both the Organization and Syndication Costs have been fully amortized and
allocated to the Partners.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (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 March 31, 1999 and at December 31, 1998, and 1997, reductions in the
cost of Mortgage Investments categorized as impaired by the Partnership totalled
$38,634, $38,634, 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 March 31, 1999,
the average mortgage investment to appraised value of security at the time the
Mortgage Investments were consummated was 63.06%. 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, 1998(audited) AND
MARCH 31, 1999 (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 March 31,1999, and December 31, 1998, 1997:
March 31, December 31, December 31,
1999 1998 1997
-------------- --------------- ----------------
Costs of properties $630,544 $765,986 $906,499
Reduction in value (267,432) (348,590) (219,360)
REO prior lien 0 (20,000) 0
-------------- --------------- ----------------
Fair value reflected in
financial statements $363,112 $397,396 $687,139
============== =============== ================
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $10,102 were capitalized and were
amortized over a five year period. Syndication costs of $415,692 were charged
against partners capital and were allocated to individual partners consistent
with the Partnership Agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral value, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of March
31, 1999, and December 31, 1998, and 1997 was as follows:
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (unaudited)
March 31, December 31, December 31,
1999 1998 1997
------------ ------------- -------------
Impaired Mortgage Investments $38,634 $38,634 $0
Unspecified Mortgage Investments 687,830 606,299 284,738
Accounts receivable, unsecured 142,109 142,109 140,000
============ ============== ============
$868,573 $787,042 $424,738
============ ============== ============
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital. Because
the net income percentage varies from month to month, amounts per $1,000 will
vary for those individuals who made or withdrew investments during the period,
or select other options. However, the net income per $1,000 average invested has
approximated those reflected for those whose investments and options have
remained constant.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (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 Corp. 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,
commissions are limited to an amount not to exceed 4% of the total Partnership
assets per year. Such commissions are paid by the borrowers, and thus, not an
expense of the Partnership.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. also receives monthly mortgage servicing fees of up
to 1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
Mortgage Investment is located. Mortgage servicing fees of $31,563, $83,559, and
$97,267 were incurred for three months through March 31, 1999 and for years 1998
and 1997, 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 were incurred for year 1997.
For three months through March 31, 1999, and for the year ended December 31,
1998, management fees of $3,827 and $16,141, respectively, were 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%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (unaudited)
F. Operating Expenses The General Partners or their affiliate (Redwood
Mortgage Corp.) are reimbursed by the Partnership for all operating expenses
actually incurred by them on behalf of the Partnership, including without
limitation, out-of-pocket general and administration expenses of the
Partnership, accounting and legal fees and expenses, postage and preparation of
reports to Limited Partners. Such reimbursements are reflected as expenses in
the Statements of Income.
G. General Partners Contributions
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering were admitted to limited
Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to
the Partnership until appropriate lending opportunities were available. During
the period prior to the time of admission, which ranged between 1-120 days,
purchasers subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnerships 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 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 accrued as of March 31, 1999. 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,
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (unaudited)
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 was permitted only upon the terms set forth above.
Limited Partners also have the right after five years from the date of
purchase of the Units to withdraw from the partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. Once this five year period expires, no penalty will be imposed if
withdrawal is made in twenty (20) quarterly installments or longer.
Notwithstanding the five-year (or longer) withdrawal period, the General
Partners will liquidate all or part of a Limited Partners capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given, subject to a
10% early withdrawal penalty applicable to any sums withdrawn prior to the time
when such sums could have been withdrawn pursuant to the five-year (or longer)
withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners capital
account is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total Limited Partners capital accounts outstanding at
the beginning of any year shall be liquidated during any calendar year.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to
the Partnership and ending 3 months after the offering termination date, the
General partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land located in East Palo Alto, CA., was
acquired through foreclosure. The Partnerships interest was invested with that
of two other Partnerships. The Partnerships had been attempting to develop the
property into single family residences. Significant community resistance, as
well as environmental, and fish and wildlife concerns affected efforts to obtain
the required approvals. The Partnership, in resolving disputes which arose
during the course of the Partnerships attempt to obtain entitlements to develop
the property, entered into agreements on May 8, 1998 with Rhone-Poulanc, Inc.
These agreements, among other things, restrict the property to non-residential
uses, provide for appropriate indemnifications, and include other consideration
including the payment of cash. The Partnership still retains liability for the
remediation of pesticide contamination affecting the property. Investigation of
remediation options are ongoing. At this time management does not believe that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership. As of December 31, 1998, the
Partnership had recovered $70,805 in excess of its costs.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (unaudited)
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 unsecured accounts receivable
totalling $243,240 at March 31, 1999. 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 had a bank line of credit secured by its Mortgage
Investment portfolio of up to $3,000,000 at .50% over prime. The balances
outstanding as of December 31, 1998, and December 31, 1997 were $2,341,816, and
$1,175,000 respectively, and the interest rate was 9.00% (8.50% prime + .50%).
This line of credit expired in December, 1998, but was formally extended to
March 31, 1999. In 1999 a new line of credit was secured with another
institution. The new borrowing limit is $3,500,000, at prime, plus .25% (7.75% +
.25% = 8.00%). The balance outstanding as of March 31, 1999 is $3,500,000.
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:
March 31, Dec. 31 Dec. 31
1999 1998 1997
------------ ------------ -----------
Net assets - Partners Capital per
financial statements $11,721,034 $11,948,707 $12,879,547
Formation Loan receivable 235,663 253,387 341,275
Allowance for doubtful accounts 868,573 787,042 424,738
============= ============= ===========
Net assets tax basis $12,825,270 $12,989,136 $13,645,560
============= ============= ===========
In 1998, approximately 68% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
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
$14,745,001. The March 31, 1999, fair value of these investments of $14,224,031
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, 1998(audited) AND
MARCH 31, 1999 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At March
31, 1999, there were 52 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 52
Total Mortgage Investments outstanding $14,745,001
Average Mortgage Investment outstanding $283,558
Average Mortgage Investment as percent of total 1.92%
Average Mortgage Investment as percent of Partners Capital 2.42%
Largest Mortgage Investment outstanding $1,600,000
Largest Mortgage Investment as percent of total 10.85%
Largest Mortgage Investment as percent of Partners Capital 13.65%
Number of counties where security is located(all California) 14
Largest percentage of Mortgage Investments in one county 18.15%
Average Mortgage Investment to appraised value of security at time
Mortgage Investment was consummated 63.06%
Number of Mortgage Investments in foreclosure 0
The following categories of mortgage investments are pertinent at March 31,
1999, and December 31, 1998, 1997:
March 31 December 31 December 31
------------- ------------- -------------
1999 1998 1997
------------- ------------- -------------
First Trust Deeds $8,649,103 $8,638,976 $6,810,113
Second Trust Deeds 5,565,763 4,188,401 5,719,369
Third Trust Deeds 330,134 181,808 720,258
Fourth Trust Deeds 200,001 200,001 200,001
------------- -------------- -------------
Total mortgage investments 14,745,001 13,209,186 13,449,741
Prior liens due other lenders 15,116,132 12,728,867 17,951,579
------------- -------------- =============
Total debt $29,861,133 $25,938,053 $31,401,320
============= ============== =============
Appraised property value
at time of loan $47,356,649 $42,393,561 $52,077,885
============= ============== =============
Total investments as a percent
of appraisals 63.06% 61.18% 60.30%
============= ============== =============
Investments by Type of Property
Owner occupied homes $573,999 $746,334 $1,104,742
Non-Owner occupied homes 1,934,597 1,691,016 1,464,596
Apartments 907,674 897,292 1,666,916
Commercial 11,328,731 9,874,544 9,213,487
============= ============== =============
$14,745,001 $13,209,186 $13,449,741
============= ============== =============
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998(audited) AND
MARCH 31, 1999 (unaudited)
Scheduled maturity dates of mortgage investments as of March 31, 1999, are
as follows:
Year Ending
December 31,
-------------------
1999 $4,208,377
2000 4,380,175
2001 3,027,117
2002 1,609,893
2003 1,183,850
Thereafter 335,589
===============
$14,745,001
===============
The scheduled maturities for 1999 include approximately $1,493,030 in ten
mortgage investments which are past maturity at March 31, 1999. Interest payment
on most of these Mortgage Investments are current.
Six Mortgage Investments with principal outstanding of $1,798,901 had
interest payments overdue in excess of 90 days. Two Mortgage Investments with
principal outstanding of $231,966 were considered impaired at March 31, 1999.
That is interest accruals are no longer recorded thereon.
The cash balance at March 31, 1999 of $380,697 was in three banks with
interest bearing balances totalling $193,494. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $170,229.
<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 March
31, 1999, Partners Capital totaled $11,721,034.
At March 31, 1999, the Partnership Mortgage Investments outstanding
totalled $14,745,001. This represents an increase of $1,535,815 from the
12/31/98 Mortgage Investments balance. This increase in Mortgage Investments
outstanding as of 3/31/99 was chiefly due to an increase in Note Payable-Bank of
$1,587,337, reinvestment of earnings of $99,469, reduction in real estate owned
by $34,284 and investment of cash. The ability of the Partnership to invest in
new Mortgage Investments during three months through March 31, 1999, was
partially offset by withdrawals of income and capital by the Partners in the
amount of $463,737 including early withdrawal penalties. Mortgage Investments
increased from $12,036,293 from 1996 to $13,449,741 in 1997, an increase of
$1,413,448 chiefly due to the ability of the General Partners to reduce the net
amounts invested in real estate owed (REO) during the twelve months, by
increasing bank credit line borrowing to $2,341,816 as of December 31, 1997 from
$1,175,000 as of December 31, 1996, by reinvesting of earnings of $419,231 and
investment of cash. Mortgage Investments decreased slightly, by $346,348, during
the year ended December 31, 1996, from $12,382,641 as of December 31, 1995, to
$12,036,293 as of December 31, 1996. This Mortgage Investment reduction was due
primarily to a reduced usage of the bank line of credit. The Partnership began
funding Mortgage Investments on December 27, 1989, and as of December 31, 1998,
had credited the Partners accounts with income at an average annualized
(compounded) yield of 7.75%.
Currently, general mortgage interest rates are lower than those prevalent
at the inception of the Partnership. New Mortgage Investments are being
originated at these lower interest rates. The result is a reduction of the
average return across the entire portfolio held by the Partnership. In the
future, interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. The General Partners believe the rates charged by the Partnership to
its borrowers will change significantly from the beginning of 1999 over the next
twelve months. As of March 31, 1999 the Partnership Real Estate Owned account
and the investment in Partnership account have been reduced to $363,112 and $0,
respectively. These accounts had combined balances of $397,396, $1,033,156 and
$1,710,739 for the years ended December 31, 1998 and 1997, and 1996,
respectively. The conversion of these non-earning assets to income producing
assets will generate increased income. The overall effect of these developments
will allow the Partnership to increase the annualized yields paid by the
Partnership in future quarters. The General Partners anticipate that the
annualized yield for the coming new year, 1999, will be higher than the previous
year.
<PAGE>
The Partnership had a line of credit with a commercial bank secured by its
Mortgage Investments to a limit of $3,000,000, at a variable interest rate set
at one half percent above the prime rate. As of December 31, 1998, it has
borrowed $1,912,663. This line of credit expired on March 31, 1999. The
Partnership has successfully negotiated for a replacement line of credit,
effective January, 1999, with another institution for a limit of $3,500,000 at
prime plus .25% (7.75% + .25% = 8%). This facility could increase as the
Partnership capital increases. This added source of funds helped in maximizing
the Partnership yield by allowing the Partnership to minimize the amount of
funds in lower yield investment accounts when appropriate Mortgage Investments
are not currently available. Since most of the Mortgage Investments made by the
Partnership bear interest at a rate in excess of the rate payable to the bank
which extended the line of credit, once the required principal and interest
payments on the line of credit are paid to the bank, the Mortgage Investments
funded using the line of credit generate revenue for the Partnership. As of
March 31, 1999, the Partnership is current with its interest payments on the
line of credit. In 1995, the Partnership incurred $163,361 of interest on note
payables reflecting a small increase in the overall average credit balance
outstanding from the previous year. The Partnership still maintained a positive
spread between the cost of borrowing the funds and the interest earned in
lending the funds. In 1996, interest payments decreased to $127,454 reflecting
the Partnerships overall smaller average outstanding credit line balance due
primarily to a large number of Mortgage Investment payoffs. For the years ended
December 31, 1997 and 1998, interest paid was $198,316 and $170,867
respectively, reflecting an overall greater average utilization of the credit
line from the previous three years.
The Partnerships income and expenses, accruals and delinquencies are within
the normal range of the General Partners expectations, based upon their
experience in managing similar partnerships over the last twenty-two years.
Mortgage Servicing Fees decreased from $97,267 in 1996, to $83,559 in 1997,
primarily due to timing of receipt of payments from borrowers and actual payment
of the Mortgage Servicing Fee. Mortgage Servicing Fees increased in 1998 to
$128,493 from $83,559 in 1997 chiefly due to an increase during the 1998 year of
the monthly loan service fee to 1/12% (1% per year). For three months through
March 31, 1999, Mortgage Servicing Fees incurred were $31,563. Asset Management
Fees increased from $0 in 1997 and $0 in 1996 to $16,141 in 1998. Asset
Management Fees for the quarter under review was $3,827. As for the two previous
years, the General Partners waived this fee to the Partnership. All other
expenses flucuated in a very close range except for Interest on Note Payable -
bank and Provision for Doubtful Accounts and losses on Real Estate acquired
through foreclosure each discussed elsewhere in this Management Discussion and
Analysis of Financial Condition and Results of Operations. Borrower
foreclosures, as set forth under Results of Operations, are a normal aspect of
Partnership operations and the General Partners anticipate that they will not
have a material effect on liquidity. As of March 31, 1999, there was no property
in foreclosure. Cash is constantly being generated from interest earnings, late
charges, pre-payment penalties, amortization of Mortgage Investments and pay-off
on notes. Currently, cash flow exceeds Partnership expenses, earnings and
capital payout requirements. Excess cash flow will be invested in new Mortgage
Investment opportunities when available, used to reduce the Partnership credit
line or other Partnership business.
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
properties, the REO expenses and sales activities, borrowers payment records,
etc. Data on the local real estate market and on the national and local economy
are studied. Based upon this information and other data, loss reserves are
increased or decreased. Because of the number of variables involved, the
magnitude of the possible swings and the General Partners inability to control
many of these factors, actual results may and do sometimes differ significantly
from estimates made by the General Partners. Management provided $419,437,
$434,495 and $423,054 as provision for doubtful accounts for the years ended
December 31, 1996, 1997 and 1998, respectively. During three months through
March 31, 1999, the Partnership provided $81,531 for doubtful accounts. The
provision for doubtful account was increased by $15,058 in 1997, to $434,495 as
the selling of REO accumulated primarily in the California recession of the
early to mid 1990s netted less proceeds than originally anticipated and the
General Partners further refinement of anticipated sales proceeds on remaining
REO, collections of unsecured receivables, and additional provisions for
unspecified losses. The provision for doubtful accounts was decreased by $11,441
to $423,054 in 1998. This decrease reflected reduced expected REO anticipated
losses and improved collections of secured and unsecured receivables.
The December 1998 issue of Western Economic Developments, published by the
Federal Reserve Bank of San Francisco, said the following about the California
economy:
The pace of economic growth in California was solid in recent months,
despite continued contraction in some major industries. Total payroll employment
rose 3.2 percent on an annual basis in October and November. This is above the
average growth rate for the first eleven months of 1998, but it is below the 3.8
percent pace from last year. Faced by declining export demand and rising import
competition, durable goods manufacturers cut employment in November.
Manufacturers of computers and electronic components have been particularly hard
hit this year, and aerospace employment has contracted. However, the pace of job
creation has remained strong in sectors other than manufacturing, and this has
helped to lower the state unemployment rate to 5.7 percent in November.
<PAGE>
Californias state and local governments have created new jobs at about a
2.5 percent annual pace this year, a pickup from prior years that is due in part
to improved fiscal capacity. About 21,000 of the 29,000 jobs created this year
were for educators at local schools.
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnerships lending activity.
The Partnerships interest in land located in East Palo Alto, Ca, was
acquired through foreclosure. The Partnerships interest was invested with that
of two other Partnerships. The Partnerships basis of $ 0, $346,017 and $242,394
for the years ended December 31, 1998, 1997 and 1996 respectively, has been
invested with that of two other Partnerships. The Partnership had been
attempting to develop property into an approximately 63 units residential
subdivision, (the Development). The proposed Development had gained significant
public awareness as a result of certain environmental, fish and wildlife,
density, and other concerns. Incorporated into the proposed Development were
various mitigation measures which included remediation of hazardous material
existing on the property, and protection of potentially affected species due to
the proximity of the property to the San Francisco Baylands. These issues and
others sparked significant public controversy. Opposition against and support
for the proposed Development existed. Among those in opposition to the project
was Rhone Poulanc, Inc. which is responsible for a nearby hazardous waste site.
Rhone Poulanc, Inc. has been identified as the Responsible Party for the Arsenic
Contamination which affected a portion of the property. On May 8, 1998, the
Partnership, in order to resolve disputes which arose during the course of the
attempts to obtain entitlements for this Development, entered into agreements
with Rhone-Poulanc, Inc which among other things, restricted the property to non
residential uses, provided for appropriate indemnification and included other
considerations including a cash payment to the Partnership. The Partnership has
retained ownership of the property, which is subject to various deed
restrictions, options and or first rights of refusal. The General Partners are
pleased with this outcome to the residential development attempt. The General
Partners may now explore other available options with respect to alternative
uses for the property. In order to pursue these options, rezoning of the
propertys existing residential zoning classification will be required. The
Partnership is continuing to explore remediation options available to mitigate
the pesticide contamination, which affects the property. This pesticide
contamination appears to be the result of agricultural operations by prior
owners, and is unrelated to the Arsenic Contamination for which Rhone-Poulanc,
Inc. remains responsible. The General Partners do not believe at this time that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1996, December 31, 1997, December 31, 1998, and three months
through March 31, 1999, the Partnership made distributions of earnings to
Limited Partners after allocation of syndication costs of, $327,887, $399,379,
$456,358 and $118,871, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs for the years ended December 31,
1996, December 31, 1997, December 31, 1998 and three months through March 31,
1999, to Limited Partners capital accounts and not withdrawn was $522,621,
$419,231, $381,747 and $99,469, respectively. As of December 31, 1996, December
31, 1997, December 31, 1998 and three months through March 31, 1999, Limited
Partners electing to withdraw earnings represented 36%, 44%, 53%, 54% and 56% of
the Limited Partners capital.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1996, December 31,
1997, December 31, 1998, and three months through March 31, 1999, $412,798,
$475,348, $381,458 and $55,801, 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
<PAGE>
electing to withdraw over one year need to liquidate investment to raise
cash. The trend the Partnership is experiencing in withdrawals by Limited
Partners electing a one year liquidation program represents a small percentage
of Limited Partner capital as of December 31, 1996, December 31, 1997, December
31, 1998 and March 31, 1999, respectively and is expected by the General
Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1996, December 31, 1997,
December 31, 1998 and three months through March 31, 1999, $318,902, $737,568,
$1,019,017 and $289,064, respectively, were liquidated by Limited Partners who
have elected a liquidation program over a period of five years or longer. This
ability to withdraw after five years by Limited Partners has the effect of
providing Limited Partner liquidity which the General Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the Partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven, liquidation generally subsides and the Partnership capital again
tends to increase.
Actual liquidation of both capital and earnings from year five (1994)
through year nine (1998), and three months through March 31, 1999, is shown
hereunder: Years ended December 31,
1994 1995 1996
------------- -------------- --------------
Earnings $263,206 270,760 336,341
Capital* $340,011 184,157 722,536
------------- ============== ==============
Total $603,217 $454,917 $1,058,877
============== ==============
============= -------------- --------------
1997 1998 3 months
thru 3/31/99
------------- -------------- --------------
Earnings 399,379 456,358 118,872
Capital* 1,212,916 1,400,475 344,865
------------- -------------- --------------
Total $1,612,295 $1,856,833 $463,737
============= ============== ==============
* These amounts represent gross of early withdrawal penalties.
The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment of Year 2000 hardware and software issues. This assessment is not yet
fully complete. The Partnership relies on Redwood Mortgage Corp., an affiliate
of the Partnership, and third parties to provide loan and investor services and
other computerized functions effected by Year 2000 computerized operations.
Major services provided to the Partnership by these companies are loan
servicing, accounting and investor services. The vendors that supply the
software for loan servicing have already confirmed compliance with Year 2000
issues. Installation of accounting software that is Year 2000 compliant will
begin during the second quarter of 1999. The investor servicing software Year
2000 compliance is still under assessment. Existing investor servicing software
maintenance agreements provide for conversion to Year 2000 compliance to be
provided by the vendor. Additionally, the Partnership has contacted several
vendors that provide investor services as a possible alternative to continuing
to provide investors services in house. It would appear that these service
providers would be more expensive than the current in house systems but they do
provide a back-up alternative in the event of our own failure to fully convert.
Hardware utilized by Redwood Mortgage Corporation, is currently being tested to
insure that modifications necessary to be made prior to Year 2000 can be
accomplished. At this juncture, existing hardware appears to be substantially
compliant with Year 2000 issues.
<PAGE>
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2000 issues.
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
effect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an affect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant increased demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.
Although not fully developed if all or any accounting, loan servicing and
investor services conversions should fail the size and scope of the Partnerships
activities are such that they could be handled at an equal or higher cost on a
manual basis or outsourced to other servicers existing in the industry while
correcting the systems, and are likely to be temporary in nature. While this
would entail some initial set up costs, these costs would likely not be so
significant as to have a material effect upon the Partnership, shifting portions
of daily operations to manual or outsourced systems may result in time delays.
Time delays in providing accurate and pertinent information could negatively
affect customer relations and lead to the potential loss of new loans and
Limited Partner investments.
The foregoing analysis of Year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations and financial condition. As such, this analysis may prove to be
inaccurate because of the assumptions made by the General Partner or the actual
development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct.
Various other risks and uncertainties could also affect the Year 2000
analysis causing the effect on the Partnership to be more severe than discussed
above. The General Partners Year 2000 compliance testing cannot guarantee that
all computer systems will function without error beyond the Year 2000. Risks
also exist with respect to Year 2000 compliance by external parties who may have
no relationship to the Partnership or the General Partner, but who have a
significant relationship with one or more third parties, and may have a system
failure that adversely affects the Partnerships ability to conduct business.
While the General Partner is attempting to identify such external parties, no
assurance can be given that it will be able to do so. Furthermore, third parties
with direct relationships with the Partnership, whose systems have been
identified as likely to be Year 2000 compliant, may suffer a breakdown due to
unforeseen circumstances. It is also possible that the information collected by
the General Partner for these third parties regarding their compliance with Year
2000 issues may be incorrect. Finally, it should be noted that the foregoing
discussion of Year 2000 issues assumes that to the extent the General Partners
systems fail, whether because of unforeseen complications or because of third
parties failure, switching to manual operations will allow the Partnership to
continue to conduct its business. While the General Partner believes this
assumption to be reasonable, if it is incorrect, the Partnerships results of
operations would likely be adversely affected.
<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 three months period ended March 31,
1999. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Entity Receiving Description of Compensation and Services Rendered Amount
Compensation
- ---------------- ------------------------------------------------- -------
I.Redwood Mortgage Mortgage Servicing Fee for servicing
Corp. Mortgage Investments..............................$31,563
General Partners
&/or Affiliate Asset Management Fee for managing assets.............$3,827
General Partners 1% interest in profits..............................$2,205
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
Corp. connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers and
not by the Partnership..............................$73,580
Redwood Mortgage Processing and Escrow Fees for services in
Corp. connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership.............$1,835
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.......................................$7,967
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1999
Partnership Highlights
Mortgage Investment to Value Ratios
First Trust Deeds $8,649,103.32
Appraised Value of Properties * 15,246,571.00
Total Investment as a % of Appraisal 56.73%
First Trust Deed Mortgage Investments 8,649,103.32
Second Trust Deed Mortgage Investments 5,565,763.38
Third Trust Deed Mortgage Investments 330,133.55
Fourth Trust Deed Mortgage Investments ** 200,001.20
-----------------
$14,745,001.45
First Trust Deeds due other Lenders 13,804,713.00
Second Trust Deeds due other Lenders 1,168,561.00
Third Trust Deeds due other Lenders 142,858.00
-----------------
Total Debt $29,861,133.45
Appraised Property Value * 47,356,649.00
Total Investment as a % of Appraisal 63.06%
Number of Mortgage Investments Outstanding 52
Average Investment $283,557.72
Average Investment as a % of Net Assets 2.42%
Largest Investment Outstanding 1,600,000.00
Largest Investment as a % of Net Assets 13.65%
Loans as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 58.66%
Second Trust Deed Mortgage Investments 37.75%
Third Trust Deed Mortgage Investments 2.24%
Fourth Trust Deed Mortgage Investments 1.35%
----------------
Total 100.00%
Mortgage Investments by Type of
Property Amount Percent
Owner Occupied Homes $573,999.16 3.89%
Non Owner Occupied Homes 1,934,596.66 13.12%
Apartments 907,674.43 6.16%
Commercial 11,328,731.20 76.83%
----------------
------------------
Total $14,745,001.45 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure -0-
*Values used are the appraisal values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County
County Total Loans Percent
San Mateo $2,676,716.80 18.15%
Stanislaus 2,539,082.26 17.22%
San Francisco 2,165,878.33 14.69%
Alameda 1,843,686.17 12.50%
Santa Clara 1,712,387.34 11.61%
Solano 994,022.66 6.74%
Monterey 839,950.10 5.70%
Contra Costa 742,661.55 5.04%
Marin 724,999.98 4.92%
Sonoma 158,862.45 1.08%
Sacramento 127,218.81 0.86%
Ventura 91,000.00 0.62%
Shasta 80,843.72 0.55%
Santa Cruz 47,691.28 0.32%
------------------- -----------
Total $14,745,001.45 100.00%
** 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 overall loan to value ratio on this loan
is 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 March 31, 1999
<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 May,
1999.
REDWOOD MORTGAGE INVESTORS VII
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 12th day of May, 1999.
Signature Title Date
/s/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell General Partner May 12, 1999
/s/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell General Partner May 12, 1999
/s/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell President of Gymno Corporation, May 12, 1999
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno May 12, 1999
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
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