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REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership)
Index to Form 10-K
December 31, 2001
Part I
Page No.
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Item 1 - Business 3
Item 2 - Properties 4
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders (Partners) 6
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and
Related Unitholder Matters 6
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 8 - Financial Statements and Supplementary Data 13
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Part III
Item 10 - Directors and Executive Officers of the Registrant 33
Item 11 - Executive Compensation 33
Item 12 - Security Ownership of Certain Beneficial Owners and Management 34
Item 13 - Certain Relationships and Related Transactions 34
Part IV
Item 14 - Exhibits, Financial Statements and Schedules,
and Reports on Form 8-K. 34
Signatures 35
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the year ended December 31, 2001 Commission file number 33-30427
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VII
(Exact name of registrant as specified in its charter)
California 94-3094928
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
- --------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
Registrant's telephone number including area code (650) 365-5341
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------------------------------------------------------------
None None
- --------------------------------------------------------------------------------
Securities registered pursuant to
Section 12(g) of the Act: Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES XXXX NO
- ------------------ -----------------
Through December 31, 2001, the limited partnership units purchased by
non-affiliates was 119,983.59 units computed at $100.00 a unit for $11,998,359.
The offering was closed on September 30, 1992.
Documents incorporated by reference:
Portions of the Prospectus dated October 20, 1989, and Supplement #5 dated
February 14, 1992, filed on form S-11, are incorporated in Parts II, III, and
IV. Exhibits filed as part of Form S-11 Registration Statement #33-30427 are
incorporated in part IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VII, a California limited partnership (the
"Partnership"), was organized in 1989 of which Michael R. Burwell and Gymno
Corporation, a California corporation, are the general partners. The address of
the partnership and the general partners is 650 El Camino Real, Suite G, Redwood
City, California 94063. The partnership is organized to engage in business as a
mortgage lender, for the primary purpose of making loans secured by deeds of
trust on California real estate. Loans are arranged and serviced by Redwood
Mortgage Corp., an affiliate of the general partners. The partnership's
objectives are to make investments, as referred to above, which will: (i)
provide the maximum possible cash returns which limited partners may elect to
(a) receive as monthly, quarterly or annual cash distributions or (b) have
credited to their capital accounts and applied to partnership activities; and
(ii) preserve and protect the partnership's capital. The partnership's general
business is more fully described under the section entitled "Investment
Objectives and Criteria" pages 26-31 of the Prospectus which is incorporated by
reference.
Originally, 60,000 Units were offered on a "best efforts" basis through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus, the general partners increased
the number of units for sale from 60,000 to 120,000 and elected to continue the
offering until September 30, 1992. The offering closed on September 30, 1992,
and the limited partners contributed capital totaled $11,998,359 of an approved
$12,000,000 issue, in units of $100 each. At that date all the applicants had
been admitted into the partnership with none left in the applicant status. The
final SR report (Report of Sales of Securities and use of proceeds therefrom),
was filed on September 21, 1992.
The partnership began selling units in October 1989 and began investing in
mortgages in December 1989. At December 31, 2001, the partnership had a balance
in its loans portfolio totaling $10,091,195 with interest rates thereon ranging
from 6.50% to 18.00%.
Currently, loans secured by First Trust Deeds comprise 49.96% of the amount
of funds in the loan portfolio followed by Second Trust Deeds of 47.60% and
Third Trust Deeds of 2.44%. Owner-occupied homes, combined with non-owner
occupied homes total 20.39% of the loans. Commercial loans origination decreased
from last year, now comprising 64.12% of the portfolio, a decrease of 1.07%.
Loans to apartments totaled 15.49%. Of the total loans, 63.51% are in five
counties of the Bay Area. The County of Stanislaus makes up 27.64% of the loans.
Stanislaus County is an adjacent county to the San Francisco Bay Area, located
approximately 65 miles from San Francisco. The balance of loans are primarily in
Northern California. Loan size decreased the past year, and is now averaging
$280,311 per loan, a decrease of $56,381. Some of the larger loans invested in
by the partnership are fractionalized between other affiliated partnerships with
objectives similar to those of the partnership to further reduce risk. Average
equity per loan transaction, which is our loan plus any senior loans, divided by
the property's appraised value, subtracted from 100%, stood at 39.34%. A 40%
equity average on loan origination is generally considered very conservative.
Generally, the more equity, the more protection for the lender. The
partnership's loan portfolio is in good condition with two properties in
foreclosure as of December 2001.
Item 2 - Properties
A summary of the partnership's loan portfolio as of December 31, 2001 is set
forth below.
Loans as a Percentage of Total Loans
First Trust Deeds $5,042,062
Appraised Value of Properties 9,387,195
-----------------
Total Investment as a % of Appraisal 53.71%
-----------------
First Trust Deeds $5,042,062
Second Trust Deed Loans 4,803,146
Third Trust Deed Loans 245,987
-----------------
10,091,195
-----------------
Priority positions
First Trust Deeds due other Lenders 7,840,390
Second Trust Deeds due other Lenders 1,478,096
-----------------
Total Debt $19,409,681
=================
Appraised Property Value $31,997,080
Total Investments as a % of Appraisal 60.66%
Number of Loans Outstanding 36
Average Investment 280,311
Average Investment as a % of Loans Outstanding 2.78%
Largest Investment Outstanding 1,000,000
Largest Investment as a % of Loans Outstanding 9.91%
Loans as a Percentage of Total Loans Percent
- ------------------------------------------- -----------
First Trust Deeds 49.96%
Second Trust Deeds 47.60%
Third Trust Deeds 2.44%
-----------
Total 100.00%
Loans by Type of Property Amount Percent
- ----------------------------------- --------------------- -----------
Owner Occupied Homes $622,435.01 6.17%
Non-Owner Occupied Homes 1,435,443.78 14.22%
Apartments 1,563,213.50 15.49%
Commercial 6,470,102.70 64.12%
--------------------- -----------
Total $10,091,194.99 100.00 %
===================== ===========
The following is a distribution of loans outstanding as of December 31, 2001 by
Counties.
Total Mortgage
County Investments Percent
San Francisco $3,221,043 31.92%
Stanislaus 2,789,206 27.64%
Santa Clara 1,336,162 13.24%
Contra Costa 965,931 9.57%
Alameda 649,951 6.44%
Santa Cruz 375,000 3.72%
San Mateo 236,157 2.34%
Sacramento 231,716 2.30%
Placer 184,609 1.83%
Shasta 78,557 0.78%
Sonoma 22,863 0.22%
------------------ ------------
Total $10,091,195 100.00%
================== ============
Statement of Condition of Loans
Number of Loans in Foreclosure 2
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31, Amount
------------------- --------------------
2002 $8,432,811
2003 556,862
2004 638,704
2005 40,125
2006 184,380
Thereafter 238,313
--------------------
Total $10,091,195
====================
The scheduled maturities for 2002 include thirteen loans totalling
approximately $4,945,909 which were past maturity at December 31, 2001. This
represents 49.01% of the loan portfolio. Six of these loans totalling $1,391,163
were paid off in March 2002. Interest payments on $656,098 of these loans were
categorized as delinquent over 90 days, which represents 6.50% of the
partnership's loan portfolio. Several other borrowers were in process of
refinancing their loans through other institutions as this was an opportune time
for them to do so and take advantage of the lower interest rate. Additionally,
the partnership allows borrowers to occasionally continue to make the payments
on debt past maturity for periods of time. The partnership, in most instances,
receives the benefit of a higher interest rate than would otherwise be available
in the currently existing loan marketplace.
Overall, the loan portfolio had eight loans with principal outstanding of
$1,318,696 where interest payments were overdue in excess of 90 days. The
principal outstanding represents 13.07% of the partnership's portfolio as of
December 31, 2001.
In addition, five loans with principals outstanding of $889,439 were
considered impaired at December 31, 2001. That is, interest accruals are no
longer recorded thereon. This represents 8.81% of the total loan portfolio.
Item 3 - Legal Proceedings
In the normal course of business the partnership may become involved in
various types of legal proceedings such as assignments of rents, bankruptcy
proceedings, appointments of receivers, unlawful detainers, judicial
foreclosures, etc., to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory notes or to protect/recoup its investment from
the real property secured by the deeds. As of the date hereof, the partnership
is not involved in any legal proceedings other than those that would be
considered part of the normal course of business. Item 4 - Submission of Matters
to a Vote of Security Holders (Partners)
No matters have been submitted to a vote of the partnership.
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and Related
Unitholder Matters
120,000 units at $100 each (minimum 20 units) were offered through
broker-dealer member firms of the National Association of Securities Dealers on
a "best efforts" basis (as indicated in Part I item 1). Investors have the
option of withdrawing earnings on a monthly, quarterly, or annual basis or
reinvesting and compounding the earnings. limited partners may withdraw from the
partnership in accordance with the terms of the partnership Agreement subject to
possible early withdrawal penalties. There is no established public trading
market.
A description of the partnership units, transfer restrictions and
withdrawal provisions is more fully described under the section entitled
"Description of Units" and "Summary of Limited Partnership Agreement", pages 47
to 50 of the Prospectus, a part of the referenced Registration Statement, which
is incorporated by reference.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VII began operations in December 1989. Financial
results for years 1984 to 1989 for prior public partnerships sponsored by the
general partners and their affiliates, are incorporated by reference to the
Prospectus (S-11)..
Financial condition and results of operation for the partnership for five
years to December 31, 2001 were:
Balance Sheets
Assets
December 31,
------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- --------------- -------------- -------------- ---------------
Cash $389,844 $269,000 $388,770 $461,544 $520,837
Loans
Loans secured by deeds of trust 10,091,195 12,794,297 11,011,660 13,209,186 13,449,741
Loans, unsecured 173,731 188,421 163,085 242,493 252,422
Interest and other receivables
Accrued interest and other fees 660,551 363,321 357,177 442,350 427,952
Advances on loans 50,665 29,825 31,669 39,733 33,154
Less allowance for losses (887,578) (850,548) (828,563) (787,042) (424,738)
Real estate owned ("REO"), net 872,133 816,094 307,931 397,396 687,139
Real estate owned in process - - 525,510 - -
Partnership interest - - - - 346,017
-------------- --------------- -------------- -------------- ---------------
$11,350,541 $13,610,410 $11,957,239 $14,005,660 $15,292,524
============== =============== ============== ============== ===============
Liabilities and Partners Capital
December 31
-----------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- -------------- ---------------
Liabilities
Note payable - bank $1,907,000 $3,500,000 $800,000 $1,912,663 $2,341,816
Accounts payable and
accrued expenses 11,295 4,102 32,234 12,547 1,845
Deferred interest - - 115,709 131,743 -
Discount of loans - - - - 69,316
-------------- --------------- -------------- -------------- ---------------
1,918,295 3,504,102 947,943 2,056,953 2,412,977
Partners' capital
General partners 11,978 11,978 11,978 11,978 11,978
Limited partners subject to
redemption 9,420,268 10,094,330 10,997,318 11,936,729 12,867,569
-------------- --------------- -------------- -------------- ---------------
Total partners capital 9,432,246 10,106,308 11,009,296 11,948,707 12,879,547
-------------- --------------- -------------- -------------- ---------------
$11,350,541 $13,610,410 $11,957,239 $14,005,660 $15,292,524
============== =============== ============== ============== ===============
Statement of Income
December 31,
------------- -- --------------- --------------------- -------------- -- ----------------
2001 2000 1999 1998 1997
------------- --------------- -------------- -------------- ----------------
Gross revenue $1,168,451 $1,437,964 $1,663,245 $1,657,728 $ 1,623,863
Expenses 347,254 537,818 753,664 811,157 796,984
------------- --------------- -------------- -------------- ----------------
Net Income $ 821,197 $ 900,146 $ 909,581 $ 846,571 $ 826,879
============= =============== ============== ============== ================
Net income to general
partners (1%) 8,212 9,001 9,096 8,466 8,269
Net income to limited
partners (99%) 812,985 891,145 900,485 838,105 818,610
------------- --------------- -------------- -------------- ----------------
$ 821,197 $ 900,146 $ 909,581 $ 846,571 $ 826,879
============= =============== ============== ============== ================
Net income per $1,000 invested by
limited partners for entire period
:
- where income is compounded
and retained $85 $85 $79 $67 $61
============= =============== ============== ============== ================
- where partner receives
income in monthly
Distributions $82 $82 $76 $65 $59
============= =============== ============== ============== ================
The annualized yield for 1999 was 7.86%, for 2000 the annualized yield was
8.52%, and for 2001 the annualized yield was 8.50%. Average annualized yield
from inception through December 31, 2001, was 7.85%.
Item 7 - Management Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
The foregoing analysis of year 2001 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 assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
Management Discussion and Analysis of Financial Condition and
Results of Operations
On September 30, 1992, the partnership had sold 119,983.59 units and its
contributed capital totaled $11,998,359 of the approved $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed. At
December 31, 2001, Partners' Capital totaled $9,432,246.
At December 31, 2001, the partnership loans outstanding totaled
$10,091,195. This represents a decline of $2,703,102 from the December 31, 2000
loans balance. This reduction in loans outstanding as of December 31, 2001 was
chiefly due to loan repayments and loan pay-offs being used to fund withdrawals
to the limited partners of $1,554,751 during twelve months through December 31,
2001 and partial reduction in line of credit balance by $1,593,000. Loans
decreased from $13,449,741 from 1997 to $10,091,195 in 2001, a decrease of
$3,358,546 chiefly due to increase in amounts of real estate owned by $184,994,
payments to withdrawing limited partners totaling $8731,235, a reduction of
outstanding Note Payable - Bank of $434,816 and investment of cash. The
partnership began funding loans on December 27, 1989, and as of December 31,
2001, had credited the partners' accounts with income at an average annualized
(compounded) yield of 7.85%.
Between the fall of 1999 to January 2001, mortgage interest rates had been
rising due primarily to economic forces and by the Federal Reserve raising its
core interest rates. However, since January 2001, the Federal Reserve has been
dramatically cutting its core interest rates with eleven successive cuts,
ranging from .25% to .50%. The latest cut being December 11, 2001, which reduced
the Federal Funds Rate to 1.75%. In late January 2002, the Federal Reserve met
and did not change interest rates signaling that it may take a wait and see
course before making any further interest rate changes. The effect of the cuts
has greatly reduced short-term interest rates and to a lesser extent reduced
long-term interest rates. New loans will be originated at then existing interest
rates. In the future, interest rates likely will change from their current
levels. The general partners cannot at this time predict at what levels interest
rates will be in the future. The general partners anticipate that new loans will
be placed at rates approximately 1% lower than similar loans during the first
half of 2001. The lowering of interest rates has encouraged those borrowers that
hold higher interest rate loans than those currently available to seek
refinancing of their existing obligations to take advantage of these lower
rates. The partnership may face prepayments in the existing portfolio from
borrowers taking advantage of these lower rates. However, demand for loans from
qualified borrowers continues to be strong and as prepayments occur, we expect
to replace these loans with loans at somewhat lower interest rates. At this
time, we believe that the average loan portfolio interest rate will decline
approximately .25% to .50% over next year. Nevertheless, based upon the rates
expected in connection with the existing loans, and anticipated interest rates
to be charged by the partnership and the general partners' experience, the
general partners anticipate that the annualized yield will range between eight
and nine percent (8.00% - 9.00%) in 2002.
The partnership has a line of credit with a commercial bank secured by its
loans to a limit of $3,500,000, at a variable interest rate set at one-quarter
percent above the prime rate. As of December 31, 2001, the prime rate was 4.75%
and the line of credit rate was 5.0%. As of December 31, 2001, December 31,
2000, and December 31, 1999, the balances were $1,907,000, $3,500,000 and
$800,000, respectively. This line of credit expires on May 01, 2003. This added
source of funds helped in maximizing the partnership yield by allowing the
partnership to minimize the amount of funds in lower yield investment accounts
when appropriate loans are not currently available. Since most of the loans made
by the partnership bear interest at a rate in excess of the rate payable to the
bank which extended the line of credit, once the required principal and interest
payments on the line of credit are paid to the bank, the loans funded using the
line of credit generate revenue for the partnership. As of December 31, 2001,
the partnership is current with its interest payments on the line of credit. For
the years ended December 31, 1999, 2000 and 2001, interest paid was $182,350,
$257,640 and $128,224, respectively. The somewhat lower interest paid in 2001 is
reflective of both a lower than average credit line usage and the lower existing
interest rate.
The partnership's income and expenses, accruals and delinquencies are
within the normal range of the general partners' expectations, based upon their
experience in managing similar partnerships over the last twenty-four years.
Loan servicing fees in 1999 were $127,440, in 2000 were $110,713, and in 2001
were $94,396. These loan servicing fees were declining as the outstanding
mortgage loan portfolio balances declined. Asset Management Fees were $44,524,
$38,400, and $37,233 for the years ended December 31, 1999, 2000 and 2001,
respectively. The Asset Management Fee is declining as the partnership
distributes partners' capital.
All other expenses fluctuated in a very close range except for Interest on
Note Payable - bank and Provision for Doubtful Accounts and losses on Real
Estate Acquired Through Foreclosure each discussed elsewhere in this Management
Discussion and Analysis of Financial Condition and Results of Operations.
Borrower foreclosures, as set forth under Results of Operations, are a normal
aspect of partnership operations and the general partners anticipate that they
will not have a material effect on liquidity. As of December 31, 2001, there
were two properties in foreclosure, representing 2.1% of the partnership's loan
portfolio. Cash is constantly being generated from interest earnings, late
charges, pre-payment penalties, amortization of principal and loan pay-offs.
Currently, cash flow exceeds partnership expenses, earnings and capital payout
requirements. Excess cash flow will be invested in new loan opportunities, when
available, and will be used to reduce the partnership credit line or in other
partnership business.
The general partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these properties,
the REO expenses and sales activities, borrowers payment records, etc. Data on
the local real estate market and on the national and local economy are studied.
Based upon this information and other data, loss reserves are increased or
decreased. Because of the number of variables involved, the magnitude of the
possible swings and the general partners inability to control many of these
factors, actual results may and do sometimes differ significantly from estimates
made by the general partners. Management provided $329,057, $65,664, and
$37,371, as provisions for doubtful accounts for the years ended December 31,
1999, 2000, and 2001, respectively. The provision for doubtful accounts was
decreased by $93,997 to $329,057 in 1999, by $263,393 to $65,664 in 2000 and by
$28,293 to $37,371 in 2001. These decreases reflect reduced expected REO
anticipated losses and improved collections of secured and unsecured
receivables. If conditions change, the partnership may again increase it's
provisions for doubtful accounts.
The partnership makes loans primarily in Northern California. As of
December 31, 2001, approximately 63.51%, ($6,409,244) of the loans held by the
partnership were in the five San Francisco Bay Area Counties. The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area. Like the rest of the nation, the San Francisco Bay
Area has also felt the recession and accompanying slow down in economic growth
and increasing unemployment. The technology companies of Silicon Valley, the
airline industry, the tourism industry and other industries are feeling the
effects of the overall United States recession, which includes lower earnings,
losses and layoffs.
The Northern California residential real estate market and particularly the
San Francisco Bay Area residential real estate market experienced increases in
values of over 10% in 1999 and 2000, respectively. In 2001, the residential real
estate marketplace slowed, this has resulted in longer listing and transaction
times and lower market prices in some segments. The California Association of
Realtors reported in November 2001 that the statewide median home price had
reached its highest point ever with a median home price of $278,740 up 11.2%
from a year earlier and 2.4% higher than in October of 2001. It also reported
that overall volume of home sales slipped 12.4% from the year earlier. In spite
of these California wide higher home prices, the San Francisco Bay Area
experienced median sales prices through October of 2001 of between minus 4.2% to
a positive 16.7% for resale homes. In spite of these numbers the general
partners believe that lower-end and mid-priced homes have continued to increase
in value, although at a reduced rate from 2000, while high end homes have begun
to decrease in value. This situation is showing some signs of a turnaround.
Inventories of homes available for sale have decreased sharply from their highs
in the spring of 2001. For example, the supply of "for sale" homes, condominiums
and townhomes in Santa Clara County peaked the week of May 25, 2001, at more
than 5,700, according to Coldwell Banker Northern California statistics. As of
January 18, 2002, fewer than 2,500 homes were "for sale" countywide. Other
counties in the San Francisco Bay Area offer similar statistics. The number of
single-family home sales in Santa Clara County was 962 for December 2001 which
is the greatest number of homes sold since records became public in 1984. The
reduction in inventories and the strong sales may indicate that the buyer's
market that prevailed throughout most of 2001 may be coming to an end and may
indicate that a recovery is underway. A stabilization of residential home prices
or a recovery in home prices is good for the partnership since we depend more
heavily than banks and other similar credit type lenders on the value of a
property.
Commercial property vacancy rates have continued to climb with the San
Francisco Bay Area office market surpassing 15% as a whole according to BT
Commercial Real Estate and Grubb and Ellis Co. As a result, rents have dropped
about 40% from last year's highs, giving up nearly all the gains made during the
past three years. Though vacancy rates have leaped from 2 percent in the third
quarter of 2000 to 15% at the end of 2001, landlords are bearing only about half
the pain, since nearly half the office space being offered is for sublease,
meaning landlords generally are still collecting money from the original
tenants. To the partnership the higher overall vacancy rates may mean that we
experience greater delinquencies in its commercial portion of the portfolio if
landlord's existing leases expire or space becomes available through business
failures.
As of December 31, 2001, the partnership had an average loan to value ratio
computed as of the date the loan was made of 60.66%. This percentage does not
account for any increases or decreases in property values since the date the
loan was made, nor does it include any reductions in principal through
amortization of payments after the loan was made. This low loan to value ratio
will assist the partnership in weathering loan delinquencies and foreclosures
should they eventuate.
The partnership's interest in land located in East Palo Alto, CA was
acquired through foreclosure. The investment was previously classified as
Investment in partnership in the Financial Statements and has been reclassified
into Real Estate Owned. The partnership's basis of $61,837, $38,238, and $9,039
for the years ended December 31, 2001, 2000, and 1999 respectively, has been
invested with that of two other partnerships. In order to pursue development
options, rezoning of the property's existing residential zoning classification
will be required. The partnership is continuing to explore remediation options
available to mitigate the pesticide contamination, which affects the property.
This pesticide contamination appears to be the result of agricultural operations
by prior owners. The general partners do not believe at this time that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the partnership.
The efforts of the general partners to subdivide the land have met with
success. The arsenic contaminated portion of the property has been delivered to
the party responsible for the arsenic contamination. The remaining land will be
made available for development or sale by the partnership. The general partners
believe this to be a good result for the partnership.
At the time of subscription to the partnership, limited partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1999, 2000, and 2001, the partnership made distributions of
earnings to limited partners after allocation of syndication costs of $490,841,
$454,386, and $374,689, respectively. Distribution of Earnings to limited
partners after allocation of syndication costs for the years ended December 31,
1999, 2000 and 2001 to limited partners' capital accounts and not withdrawn was
$409,644, $436,759, and $438,296, respectively. As of December 31 1999, 2000 and
2001, limited partners electing to withdraw earnings represented 54%, 49% and
42% 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, 1999, 2000, and 2001,
$231,025, $179,343, and $98,857 were liquidated subject to the 10% penalty for
early withdrawal. These withdrawals are within the normally anticipated range
that the general partners would expect in their experience in this and other
partnerships. The general partners expect that a small percentage of limited
partners will elect to liquidate their capital accounts over one year with a 10%
early withdrawal penalty. In originally conceiving the partnership, the general
partners wanted to provide limited partners needing their capital returned a
degree of liquidity. Generally, limited partners electing to withdraw over one
year need to liquidate their investment to raise cash. The trend the partnership
is experiencing in withdrawals by limited partners electing a one year
liquidation program represents a small percentage of limited partner capital as
of December 31, 1999, 2000, and 2001, respectively and is expected by the
general partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1999, 2000, and 2001,
$1,205,917, $1,250,291, and $1,089,113, respectively, were liquidated by limited
partners who have elected a liquidation program over a period of five years or
longer. This ability to withdraw after five years by limited partners has the
effect of providing limited partner liquidity. The general partners expect a
portion of the limited partners to take advantage of this provision. This has
the anticipated effect of the partnership growing, primarily through
reinvestment of earnings in years one through five. The general partners expect
to see increasing numbers of limited partner withdrawals in years five through
eleven, after which time the bulk of those limited partners who have sought
withdrawal have been liquidated. After year eleven, liquidation generally
subsides and the partnership capital again tends to increase.
Actual liquidation of both capital and earnings from year five (1994)
through year twelve (2001) is shown hereunder; which confirms the general
partners theory on the liquidation habits of the limited partners:
Years ended December 31,
Earnings Capital
Liquidation Liquidation Total
--------------- -------------- -----------
1994 $263,206 *$340,011 $603,217
1995 $270,760 *$184,157 $454,917
1996 $336,341 *$722,536 $1,058,877
1997 $399,379 *$1,212,916 $1,612,295
1998 $456,358 *$1,400,475 $1,856,833
1999 $490,841 *$1,436,942 $1,927,783
2000 $454,386 *$1,429,634 $1,884,020
2001 $374,689 *$1,187,970 $1,562,659
* These amounts represent gross of early withdrawal penalties.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the general partners have valued the limited partners' interest in
the partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the limited
partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit in the partnership. Each investor's
capital account balance is set forth periodically on the partnership account
statement provided to investors. The amount of partnership earnings each
investor is entitled to receive is determined by the ratio that each investor's
capital account bears to the total amount of all investor capital accounts then
outstanding. The capital account balance of each investor should be included on
any NASD member client account statement in providing a per unit estimated value
of the client's investment in the partnership in accordance with NASD Rule 2340.
While the general partners have set an estimated value for the partnership
units, such determination may not be representative of the ultimate price
realized by an investor for such units upon sale. No public trading market
exists for the partnership's units and none is likely to develop. Thus, there is
no certainty that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain liquidation rights provided by the
partnership, which may include early withdrawal penalties (See the section of
the Prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
Item 8 - Financial Statements and Supplementary Data
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VII are
included in Item 8:
o Independent Auditors' Report
o Balance Sheets - December 31, 2001, and December 31, 2000
o Statements of Income for the three years ended December 31, 2001
o Statements of Changes in Partners' Capital for the three years ended
December 31, 2001
o Statements of Cash Flows for the three years ended December 31, 2001
o Notes to Financial Statements
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors VII
are included in Item 8.
o Schedule II Valuation and Qualifying Accounts
o Schedule IV Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 2001
ARMANINO McKENNA LLP
CERTIFIED PUBLIC ACCOUNTANTS
1855 Olympic Blvd., Suite 225
Walnut Creek, CA 94596
(925) 939-8500
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA
We have audited the accompanying balance sheets of REDWOOD MORTGAGE
INVESTORS VII (a California Limited Partnership) as of December 31, 2001 and
2000 and the related statements of income, changes in partners' capital and cash
flows for the two years then ended. These financial statements and schedules are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VII as of December 31, 2001 and 2000, and the results of its operations and cash
flows for the two years then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ARMANINO McKENNA LLP
Walnut Creek, California
February 28, 2002
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd, Suite 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA
We have audited the financial statements REDWOOD MORTGAGE INVESTORS VII (A
California Limited Partnership) including the accompanying statements of income,
changes in partners' capital and cash flows for the year ended December 31,
1999. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VII operations and cash flows for the year ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
(Other Auditors prior to Armanino McKenna, LLP)
Walnut Creek, California
March 15, 2000
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
---------- ----------
Cash $ 389,844 $ 269,000
----------- ---------
Loans
Loans secured by deeds of trust, held to maturity 10,091,195 12,794,297
Loans, unsecured 173,731 188,421
----------- ----------
10,264,926 12,982,718
Less allowance for doubtful accounts 887,578 850,548
----------- ----------
Net loans 9,377,348 12,132,170
----------- ----------
Interest and other receivables
Accrued interest 660,551 363,321
Advances on loans 50,665 29,825
----------- ----------
Total interest and other receivables 711,216 393,146
----------- ----------
Real estate owned, held for sale 872,133 816,094
----------- ----------
Total assets $ 11,350,541 $ 3,610,410
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $ 1,907,000 $ 3,500,000
Accounts payable 11,295 4,102
----------- ----------
Total liabilities 1,918,295 3,504,102
----------- ----------
Partners' capital
Limited partners' capital, subject to redemption
Net of formation loan receivable of $0 and
$75,612 for 2001 and 2000, respectively 9,420,268 10,094,330
General partners' capital 11,978 11,978
----------- ----------
Total partners' capital 9,432,246 10,106,308
----------- ----------
Total liabilities and partners' capital $11,350,541 $13,610,410
=========== ==========
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2001 2000 1999
------------- ------------- -------------
Revenues
Interest - deeds of trust $1,172,474 $1,406,098 $1,634,416
Interest - interest bearing accounts 4,021 4,725 6,813
Late charges 8,495 11,219 14,367
Other income 7,391 15,922 7,649
------------- ------------- -------------
1,192,381 1,437,964 1,663,245
------------- ------------- -------------
Expenses
Mortgage servicing fees 94,396 110,713 127,440
Interest on note payable - bank 128,224 257,640 182,350
Clerical costs through Redwood Mortgage 38,313 27,032 30,367
Asset management fees 37,233 38,400 44,524
Provisions for losses on loans
and real estate acquired through foreclosure 37,371 65,664 329,057
Professional services 23,868 22,068 21,251
Printing, supplies and postage 9,034 10,293 12,554
Other 2,745 6,008 5,851
------------- ------------- -------------
371,184 537,818 753,664
------------- ------------- -------------
Net income $ 821,197 $ 900,146 $ 909,581
============= ============= =============
Net income: To general partners (1%) $ 8,212 $ 9,001 $ 9,096
To limited partners (99%) 812,985 891,145 900,485
------------- ------------- -------------
$ 821,197 $ 900,146 $ 909,581
============= ============= =============
Net income per $1,000 invested by limited partners for entire period:
-where income is reinvested and compounded $85 $85 $79
============= ============= =============
-where partner receives income in monthly distributions $82 $82 $76
============= ============= =============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
GENERAL
LIMITED PARTNERS' CAPITAL PARTNERS'
CAPITAL
---------------------------------------------------- ---------------
Limited Formation Net Limited General Total
Partners' Loan Partners' Partners' Partners'
Accounts Receivable Total Capital Capital
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 1998 $12,190,116 $(253,387) $11,936,729 $11,978 $11,948,707
Collections on Formation Loan - 75,138 75,138 - 75,138
Net income 900,485 - 900,485 9,096 909,581
Early withdrawal penalties (18,553) 12,750 (5,803) - (5,803)
Partners' withdrawals (1,909,231) - (1,909,231) (9,096) (1,918,327)
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 1999 $11,162,817 $(165,499) $10,997,318 $11,978 $11,009,296
Collections on Formation Loan - 79,505 79,505 - 79,505
Net income 891,145 891,145 9,001 900,146
Early withdrawal penalties (15,107) 10,382 (4,725) - (4,725)
Partners' withdrawals (1,868,913) - (1,868,913) (9,001) (1,877,914)
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 2000 10,169,942 (75,612) 10,094,330 11,978 10,106,308
Collections on Formation Loan 71,460 71,460 - 71,460
Net income 812,985 - 812,985 8,212 821,197
Early withdrawal penalties (7,908) 4,152 (3,756) - (3,756)
Partners' withdrawals (1,554,751) - (1,554,751 (8,212) (1,562,963)
-------------- ------------- ---------------- ------------- ---------------
Balances at December 31, 2001 $9,420,268 $ 0 $ 9,420,268 $ 11,978 $ 9,432,246
============== ============= ================ ============= ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2001 2000 1999
-------------- --------------- --------------
Cash flows from operating activities
Net income $821,197 $900,146 $909,581
Adjustments to reconcile net income to net cash provided by
operating activities
Provision (gain) for doubtful accounts 37,030 25,160 332,013
Provision for losses (gain) on real estate held for sale - 40,504 (2,956)
Early withdrawal penalty credited to income (3,756) (4,725) (5,803)
Change in operating assets and liabilities
Accrued interest and advances (318,070) (33,072) (62,310)
Accounts payable and accrued expenses 7,193 (28,132) 19,687
Deferred interest on loans - (115,709) (16,034)
-------------- --------------- --------------
Net cash provided by operating activities 543,594 784,172 1,174,178
-------------- --------------- --------------
Cash flows from investing activities
Principal collected on loans 6,123,575 5,324,620 9,314,140
Loans made (3,065,935) (7,112,078) (7,716,617)
Payments for real estate held for sale (449,197) (87,392) (14,111)
Proceeds from sale of real estate held for sale 38,620 64,235 106,532
Proceeds from unsecured loans 14,690 5,082 18,956
-------------- --------------- --------------
Net cash provided by (used in) investing activities 2,661,753 (1,805,533) 1,708,900
-------------- --------------- --------------
Cash flows from financing activities
Net increase (decrease) in note payable-bank (1,593,000) 2,700,000 (1,112,663)
Formation loan collections 71,460 79,505 75,138
Partners withdrawals (1,562,963) (1,877,914) (1,918,327)
-------------- --------------- --------------
Net cash provided by (used in) financing activities (3,084,503) 901,591 (2,955,852)
-------------- --------------- --------------
Net increase (decrease) in cash 120,844 (119,770) (72,774)
Cash - beginning of year 269,000 388,770 461,544
-------------- --------------- --------------
Cash - end of year $389,844 $269,000 $388,770
============== =============== ==============
Cash payments for interest $128,244 $257,640 $182,350
============== =============== ==============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the general partners are Michael R. Burwell and GYMNO
Corporation, a California corporation owned and operated on an equal 50/50%
basis by Michael R. Burwell and by D. Russell Burwell, a former general partner.
The partnership was organized to engage in business as a mortgage lender for the
primary purpose of making loans secured by Deeds of Trust on California real
estate. Loans are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the general partners. At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As loans were
identified, partners were transferred from applicant status to admitted partners
participating in loan operations. Each month's income is allocated to partners
based upon their proportionate share of partners' capital. Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions are not paid directly by the partnership out of the
offering proceeds. Instead, the partnership loans to Redwood Mortgage Corp., an
affiliate of the general partners, amounts to pay all sales commissions and
amounts payable in connection with unsolicited orders. This loan is referred to
as the "Formation Loan". It is unsecured and non-interest bearing.
Sales commissions ranging from 0% (Units sold by general partners) to 10%
of the gross proceeds were paid by Redwood Mortgage Corp., an affiliate of the
general partners that arranges and services the loans. To finance the sales
commissions, the partnership was authorized to loan to Redwood Mortgage Corp. an
amount not to exceed 8.3% of the gross proceeds invested in the partnership,
provided that the formation loan for the minimum offering period could be 10% of
the gross proceeds for the minimum offering period. The formation loan is being
repaid, without interest, in ten installments of principal, over a ten-year
period commencing January 1, 1992. At December 31, 1992, Redwood Mortgage Corp.
had borrowed $914,369 from the partnership to cover sales commissions relating
to $11,998,359 limited partner contributions (7.62%). At December 31, 2001, the
entire balance had been repaid. The Formation Loan, which is due from an
affiliate of the general partners', had 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
The partnership bears its own syndication costs, other than certain sales
commissions, including legal and accounting expenses, printing costs, selling
expenses, and filing fees. Syndication costs are charged against partners'
capital and are being allocated to the individual partners consistent with the
Partnership Agreement. 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 limited partners.
Both the organization and syndication costs have been fully amortized and
allocated to the limited partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
Any subsequent payments on impaired loans are applied to the outstanding
balances on the partnership's books.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
loans, and the valuation of real estate acquired through foreclosure. Actual
results could differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The partnership has both the intent and ability to hold the loans to
maturity, i.e., held for long-term investment. Therefore the loans are valued at
cost for financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable ultimate recovery of the carrying amount of a loan, with
due consideration for the fair value of collateral, is less than the recorded
investment, and related amount due and the impairment is considered to be other
than temporary, the carrying amount of the investment (cost) shall be reduced to
the present value of future cash flows.
At December 31, 2001 and 2000, there were loans categorized as impaired by
the partnership of $889,439, and $890,597, respectively. In addition, the
impaired loans have accrued interest and advances totaling $277,479 and $276,204
at December 31, 2001 and 2000, respectively. The decrease in carrying value of
the impaired loans of $150,092 and $137,175 at December 31, 2001 and 2000,
respectively is included in the allowance for doubtful accounts. The average
recorded investment in the impaired loans was $890,018, $687,563 and $484,528
for the years ended December 31, 2001, 2000, and 1999, respectively. During the
year ended December 31, 2001 and 2000, $64,987 and $44,999 was received as cash
payments on these loans, respectively.
As presented in Note 9 to the financial statements as of December 31, 2001,
the average loan to appraised value of security at the time the loans were
consummated at December 31, 2001 and 2000 was 60.66% and 60.69%, respectively.
When loans are valued for impairment purposes, the allowance is updated to
reflect the change in the valuation of collateral security. However, such a low
loan-to-value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
The partnership considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents. The partnership
maintains deposits in financial institutions that are in excess of amounts that
would be covered by federal insurance. The maximum amount of loss based upon the
deposits held in the bank that could result from this risk at December 31, 2001
and 2000, is approximately $678,630 and $69,000, respectively.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December 31, 2001 and 2000, not including real estate in
process of acquisition at December 31, 2001:
December 31,
--------------------------------------
2001 2000
------ ------
Costs of properties $1,252,189 $1,258,966
Reduction in value (380,056) (442,872)
--------------- ----------------
Fair value reflected in financial statements $872,133 $816,094
=============== ================
F. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
G. Allowance for Doubtful Accounts
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for bad debt to 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 loans, other loans,
accrued interest and advances on loans. The composition of the allowance for
doubtful accounts as of December 31, 2001 and 2000 was as follows:
December 31,
--------------------------------------
2001 2000
------ -------
Impaired loans $150,092 $137,175
Unspecified loans 593,500 569,612
Unsecured loans 143,986 143,761
--------------- ----------------
$887,578 $850,548
=============== ================
Allowance for Doubtful Accounts reconciliation:
Activity in the allowance for doubtful accounts is as follows for the years
ended December 31:
2001 2000 1999
------ ------ ------
Beginning Balance $850,548 $ 828,563 $787,042
Provision for bad debt 37,371 25,160 72,796
Write-off of bad debt (341) (3,175) (31,275)
-------------- ----------- ----------
Ending Balance $887,578 $850,548 $828,563
============== =========== ==========
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
H. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by limited partners for the entire period are actual amounts allocated
to limited partners who had their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the limited partners' pro rata share of partners' capital.
Because 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.
I. Late Fee Revenue
The partnership recognizes late fee revenue when it is earned. Late fees
are charged at 6% of the monthly balance, and are accrued net of an allowance
for uncollectible late fees. For the year ended December 31, 2001, 2000, and
1999 late fee revenue of $8,495, $11,219, and $14,367, respectively, was
recorded.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the general
partners.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of loans the partnership may collect an amount equivalent to 12%
of the loaned amount until 6 months after the termination date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the total partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
partnership. In 2001, 2000, and 1999 loan brokerage commissions paid by the
borrowers were $84,137, $130,487 and $207,739, respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $94,396, $110,713, and $127,440 were
incurred for the years ended December 31, 2001, 2000 and 1999, respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the partnership's
loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annual). Management fees of $37,233, $38,400, and $44,524 were incurred
for years 2001, 2000 and 1999, respectively.
D. Other Fees
The partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
E. Income and Losses
All income and losses are credited or charged to partners in relation to
their respective partnership interests. The partnership interest of the general
partners (combined) is a total of 1%.
F. Operating Expenses
Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the partnership for all operating expenses actually incurred by it on behalf
of the partnership, including without limitation, out-of-pocket general and
administration expenses of the partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners. 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. 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 year. For years two through five, limited partners may withdraw their
capital balance subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
Subject to certain limitations, a compounding investor may subsequently change
his election, but an investor's election to have cash distributions is
irrevocable.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
C. Profits and Losses
Profits and losses are allocated among the limited partners according to
their respective capital accounts after 1% is allocated to the general partners.
D. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the partnership is not liquid. limited partners had
no right to withdraw from the partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of December 31, 2001. In order to provide a
certain degree of liquidity to the limited partners after the one-year period,
limited partners may withdraw all or part of their capital accounts from the
partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the Notice of Withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn early and will be deducted from the capital account.
Withdrawal after the one-year holding period and before the five-year holding
period was permitted only upon the terms set forth above.
After five years from the date of purchase of the Units, limited partners
have the right to withdraw from the partnership, on an installment basis,
generally this is done over a five-year period in twenty (20) quarterly
installments. Once a limited partner has been in the partnership for the minimum
five-year period, no penalty will be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the general partners may liquidate all or part of a limited
partner's capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the partnership's capacity to return a limited partner's
capital account is restricted to the availability of partnership cash flow.
Furthermore, no more than 20% of the total limited partners' capital accounts
outstanding at the beginning of any year, shall be liquidated during any
calendar year.
E. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a limited partner was admitted to
the partnership and ending 3 months after the offering termination date, the
general partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average Cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - LEGAL PROCEEDINGS
The partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of December 31,
2001 and 2000 were $1,907,000, and $3,500,000, respectively, and the interest
rate was 5.0% (4.75% prime + .25%) at December 31, 2001. This line of credit
expires May 1, 2003.The line of credit requires the Partnership to meet certain
financial covenants. As of December 31, 2001, the Partnership was in compliance
with all loan covenants.
Should the general partners choose not to renew the line of credit, the
balance would be converted to a three year fully amortized loan.
NOTE 7 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
-----------------------------------
2001 2000
---------- ----------
Net assets - partners' capital per
financial statements $9,432,246 $10,106,308
Formation loan receivable 0 75,612
Allowance for doubtful accounts 887,578 850,548
--------------- ------------
Net assets tax basis $10,319,824 $11,032,468
=============== ============
In 2001 and 2000, approximately 68% and 70%, respectively, of taxable
income was allocated to tax exempt organizations i.e., retirement plans. Such
plans do not have to file income tax returns unless their "unrelated business
income" exceeds $1,000. Applicable amounts become taxable when distribution is
made to participants.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) Loans (see note 2 (c)) had a carrying value of $10,091,195 and
$12,794,297, at December 31, 2001 and 2000, respectively. The fair value of
these investments of $10,107,321 and $12,792,716 was estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for doubtful
accounts along with accrued interest and advances related thereto should also be
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At December 31, 2001 and
2000, there were 36 and 38 loans outstanding, respectively, with the following
characteristics:
2001 2000
------------ ----------
Number of loans outstanding 36 38
Total loans outstanding $10,091,195 $12,794,297
Average loan outstanding 280,311 336,692
Average loan as percent of total 2.78% 2.63%
Average loan as percent of partners' capital 2.97% 3.33%
Largest loan outstanding 1,000,000 1,995,452
Largest loan as percent of total 9.91% 15.60%
Largest loan as percent of partners' capital 10.60% 19.74%
Number of counties where security is
located (all California) 11 11
Largest percentage of loans in one county 31.92% 29.47%
Average loan to appraised value of security
at time loan was consummated 60.66% 60.69%
Number of loans in foreclosure 2 -
Amount of loans in foreclosure $ 216,493 $ -
The following categories of loans are pertinent at December 31, 2001 and 2000:
December 31,
------------------------------
2001 2000
------------ ----------
First Trust Deeds $5,042,062 $8,720,986
Second Trust Deeds 4,803,146 4,000,140
Third Trust Deeds 245,987 73,171
-------------- ----------
Total loans 10,091,195 12,794,297
Prior liens due other lenders 9,318,486 8,761,363
-------------- ----------
Total debt $19,409,681 $21,555,660
============== ==========
Appraised property value at time of loan $31,997,080 $35,518,467
============== ==========
Total investments as a percent of appraisals 60.66% 60.69%
============== ==========
Investments by Type of Property
Owner occupied homes $622,435 $218,942
Non-Owner occupied homes 1,435,444 1,644,636
Apartments 1,563,214 2,590,022
Commercial 6,470,102 8,340,697
-------------- -----------
$10,091,195 $12,794,297
============== ===========
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31, Amount
-------------------- -------------------
2002 $8,432,811
2003 556,862
2004 638,704
2005 40,125
2006 184,380
Thereafter 238,313
-------------------
Total $10,091,195
===================
The scheduled maturities for 2002 above include approximately $4,945,909 in
13 loans which are past maturity at December 31, 2001. Although interest
payments on most of these loans are current, $656,098 of these loans were
categorized as delinquent over 90 days.
Five loans with interest overdue in excess of 90 days and principal
outstanding of $889,439 were considered impaired at December 31, 2001. That is,
interest accruals are no longer recorded thereon.
The cash balance at December 31, 2001 of $778,630 was in one bank with
interest bearing balances totaling $304,467. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $678,630. The partnership's main
bank is the same financial institution that has provided the partnership with
the $3,500,000 limit line of credit. At December 31, 2001, draw down against
this facility was $1,907,000.
Workout Agreements
The partnership has negotiated various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments. The partnership is not obligated to fund additional money as of
December 31, 2001. As of December 31, 2001 the partnership had approximately 17
loans under workout agreements totaling $4,569,171 of which 6 of these, totaling
$1,391,163, were paid off by March 15, 2002.
NOTE 10 - COMMITMENTS & CONTINGENCIES
Construction Loans
The partnership has construction loans, which are at various completion of
the construction process at December 31, 2001. The partnership has approved the
borrowers up to a maximum loan balance; however, disbursements are made during
completion phases throughout the construction process. At December 31, 2001,
there was $42,336 of undistributed construction loan which will be funded by a
combination of line-of-credit draw downs and retirement of principal on current
loans.
SCHEDULE II
REDWOOD MORTGAGE INVESTORS VII
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Description Balance at Additions Deductions Balance at
--------------------------------------
beginning of (1) (2) Describe End of Period
of period Charged to Charged to (a)
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/01
Deducted from
Asset accounts:
Allowance for
Doubtful accts $850,548 $37,371 $0 $(341) $887,578
Cumulative
write-down of
Real Estate held
For sale (REO) $442,872 $0 $0 $(62,816) $380,056
-------------- ------------------- ------------------ ---------------- ----------------
Total $1,293,420 $37,371 $0 $(63,157) $1,267,634
============== =================== ================== ================ ================
(a) Represents net (loss) or net gain on loans and real estate held for sale.
SCHEDULE IV
REDWOOD MORTGAGE INVESTORS VII
LOANS ON REAL ESTATE.
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Interest Final Periodic Prior Face Amount Carrying Principal Type Geographic
Rate % Maturity Payment Liens of Loans Amount Amount of of Lien County
Date Terms (original of Loans Loans Location
amount) Subject to
Delinquent
Principal
or Interest
======= ==== =========== ============== ================ ================== ================== ============= ======== =============
Apts 6.50% 05/01/06 $ 540.83 $ 89,904.00 $ 75,000.00 $ 96,716.11 $27,582.33 2nd Sacramento
Res 12.75% 07/01/08 370.90 236,164.00 29,700.00 19,788.47 - 2nd San Mateo
Comm 10.00% 12/01/98 3,619.98 - 412,500.00 404,523.86 - 1st Alameda
Comm 7.00% 12/01/03 575.74 281,250.00 49,586.38 40,560.78 28,211.26 2nd Alameda
Comm 12.00% 02/01/99 3,420.76 - 335,638.30 335,638.30 - 1st Santa Clara
Apts 7.00% 02/10/05 234.06 80,250.00 40,125.00 40,125.00 - 2nd San Francisco
Comm 9.00% 05/10/02 670.52 - 83,333.33 78,557.42 - 1st Shasta
Res 8.00% 09/18/03 87.56 - 11,932.83 11,278.10 - 1st Sonoma
Res 8.00% 09/30/03 89.71 - 12,225.92 11,584.96 - 1st Sonoma
Comm 12.00% 02/01/99 124.00 312,000.00 12,000.00 12,000.00 - 2nd Santa Clara
Comm 7.00% 07/01/02 1,131.11 - 146,666.66 136,430.61 - 1st Contra Costa
Land 11.50% 09/01/99 3,833.33 - 400,000.00 400,000.00 49,833.29 1st Stanislaus
Land 11.50% 02/01/00 4,791.67 - 500,000.00 267,689.91 - 1st Stanislaus
Land 11.00% 01/01/01 9,166.67 201,686.00 1,000,000.00 800,112.32 - 2nd Stanislaus
Land 11.00% 07/01/01 9,166.67 137,737.00 1,000,000.00 1,000,000.00 - 2nd Stanislaus
Land 11.00% 11/01/00 782.52 1,141,690.00 85,365.85 73,170.73 10,172.76 3rd Stanislaus
Res 11.00% 11/01/04 1,238.02 553,179.00 130,000.00 128,704.27 - 2nd San Mateo
Comm 10.25% 12/01/01 10,121.87 - 1,185,000.00 829,500.00 - 1st Contra Costa
Comm 11.50% 03/01/02 4,165.48 - 434,659.10 434,659.10 - 1st San Francisco
Comm 11.50% 03/01/02 4,156.03 434,659.00 565,340.92 519,886.41 - 2nd San Francisco
Land 11.50% 07/01/01 1,753.05 1,000,000.00 182,926.83 182,926.83 22,789.65 2nd Stanislaus
Res 12.00% 05/01/01 994.57 800,000.00 99,457.15 99,457.15 - 2nd Placer
Apts 12.00% 05/01/01 19,680.91 - 2,010,689.63 954,488.35 - 1st San Francisco
Apts 12.00% 08/01/03 4,400.00 - 720,000.00 440,000.00 26,400.00 1st San Francisco
Apts 12.50% 04/01/02 119.83 440,000.00 31,884.05 31,884.04 1,660.65 2nd San Francisco
Comm 13.00% 11/01/02 2,220.84 310,381.00 205,000.00 204,866.75 - 2nd Alameda
Comm 10.00% 12/01/03 470.70 - 53,636.36 53,437.79 1,882.80 1st Stanislaus
Comm 10.00% 12/01/01 104.60 82,723.00 11,919.19 11,868.04 - 2nd Stanislaus
Land 12.00% 12/01/01 3,307.50 - 330,750.00 330,750.00 - 1st Santa Clara
Res 13.00% 05/01/01 922.48 899,457.00 85,151.67 85,151.67 - 3rd Placer
Res 12.00% 03/01/06 809.59 674,532.00 130,000.00 87,664.17 - 3rd San Mateo
Comm 10.00% 07/01/11 1,994.94 - 219,537.50 218,523.85 - 1st Santa Clara
Res 10.50% 09/01/02 7,000.00 428,571.00 800,000.00 800,000.00 - 2nd San Francisco
Res 12.00% 09/01/04 3,750.00 488,053.00 375,000.00 375,000.00 - 2nd Los Angeles
Res 12.00% 09/01/02 4,392.50 726,250.00 439,250.00 439,250.00 - 2nd Santa Clara
Land 8.00% 12/01/04 900.00 - 135,000.00 135,000.00 - 1st Sacramento
----------- ----------- -------------- ------------- -----------
$111,108.94 $9,318,486.00 $12,339,276.67 $10,091,194.99 $168,532.74
=========== =========== ============== ============= ===========
Notes: Loans classified as `impaired loans' had principal balances totaling
$889,439 at December 31, 2001. Impaired loans are defined as loans where the
costs of related balances exceeds the anticipated fair value less costs to
collect. Accrued interest is no longer recorded thereon.
Amounts reflected in column G (carrying amount of loans) represents both
costs and the tax basis of the loans.
SCHEDULE IV
Reconciliation of carrying amount (cost) of loans at close of periods
Year ended December 31,
-----------------------------------------------
2001 2000 1999
--------- -------- -------
Balance at beginning of year $12,794,297 $11,011,660 $13,209,186
--------- ----------- -----------
Additions during period:
New loans 3,065,934 7,112,078 7,716,617
Other 354,538 - -
---------- ----------- -----------
Total Additions 3,420,472 7,112,078 7,716,617
---------- ----------- -----------
Deduction during period:
Collections of principal 6,123,574 5,324,620 9,314,140
Foreclosures - 400,002 -
Cost of loans sold - - -
Amortization of Premium - - -
Other - 4,821 200,001
---------- ----------- ----------
Total Deductions 6,123,574 5,329,441 9,914,143
----------- ----------- ----------
Balance at close of year $10,091,195 $12,794,297 $11,011,660
=========== =========== ==========
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Bruce and/or John Cropper (the Croppers) have been providing audit and
accounting services to this partnership for over 17 years. They have been
providing auditing and accounting services to the partnership for the past 13
years through the following CPA firms: 1989-1998 - Parodi & Cropper, CPA's; 1999
- - Caporicci, Cropper & Larson, LLP and 2000-2001 - Armanino McKenna LLP. Bruce
and John Cropper were shareholders in Cropper Accountancy Corp. through December
31, 2000.
Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1989
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper &
Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi &
Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from
Caporicci, Cropper & Larson, LLP partnership. John Cropper joined the larger
regional firm of Armanino McKenna, LLP as a partner and Bruce Cropper continues
to provide services through Cropper Accountancy.
As a result, the partnership has retained the firm of Armanino McKenna,
LLP, to provide its audit and financial services. Thus, although there has been
a change in accounting firms, there has not been a change in accountants and
there have not been any disagreement on any matter of accounting principles,
practices or financial status disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant
The partnership has no officers or directors. Rather, the activities of the
partnership are managed by the two general partners of which one individual is
Michael R. Burwell. The second general partner is Gymno Corporation, a
California corporation, formed in 1986. Mr. Burwell is one of the two
shareholders of Gymno Corporation, a California corporation, on an equal
(50-50%) basis.
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in Item 10, the partnership has no officers or directors. The
partnership is managed by the general partners. There are certain fees and other
items paid to management and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 12-13, under the section "Compensation of the General Partners
and the Affiliates", which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the general partners and
affiliates for services rendered during the year ended December 31, 2001. 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 loans $ 94,396
Corp.
General Partners Asset Management Fee for managing assets......... $37,233
&/or Affiliates
General Partners 1% interest in profits........................... $8,212
General Partners Portion of early withdrawal penalties applied
&/or Affiliates to reduce Formation Loan....................... $4,151
II.FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE GENERAL
PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)
Redwood Mortgage Mortgage Brokerage Commissions for services in connection
Corp. with the review, selection, evaluation, negotiation, and
extension of the loans paid by the borrowers and not by the
partnership....................................... $84,137
Redwood Mortgage Processing and Escrow Fees or services in connection with
Corp. notary, document preparation, credit investigation, and
escrow fees payable by the borrowers and not by the partner-
ship.............................................. $2,714
Gymno Corporation
Inc. Reconveyance Fee.................................. $957
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 $ 38,313
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The general partners are to own a combined total of 1% of the partnership in-
cluding a 1% portion of income and losses.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to financial statements in Part II item 8 which
describes related party fees and data.
Also refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 "Compensation of General Partners and Affiliates" and page
14 "Conflicts of Interest".
Part IV
Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.
A. Documents filed as part of this report are incorporated:
1. In Part II, Item 8 under A - Financial Statements.
2. The Financial Statement Schedules are listed in Part II -
Item 8 under B - Financial Statement Schedules.
3. Exhibits.
Exhibit No. Description of Exhibits
- ------------------ -------------------------
3.1 Limited Partnership Agreement
3.2 Form of Certificate of Limited Partnership Interest
3.3 Certificate of Limited Partnership
10.1 Escrow Agreement
10.2 Servicing Agreement
10.3 (a) Form of Note secured by Deed of Trust which provides
for principal and interest payments.
(b) Form of Note secured by Deed of Trust which provides
principal and interest payments and right of assumption
(c) Form of Note secured by Deed of Trust which provides
for interest only payments
(d) Form of Note
10.4 (a) Deed of Trust and Assignment of Rents to accompany
Exhibits 10.3 (a), and (c)
(b) Deed of Trust and Assignment of Rents to accompany
Exhibit 10.3 (b)
(c) Deed of Trust to accompany Exhibit 10.3 (d)
10.5 Promissory Note for Formation Loan
10.6 Agreement to Seek a Lender
All of these exhibits were previously filed as the exhibits to Registrant's
Statement on Form S-11 (Registration No. 33-30427 and incorporated by reference
herein).
B........Reports of Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report. A Form 8-K was filed on February 7, 2000
relating to a change in accounting firm. Another Form 8-K was filed on
February 13, 2001, relating to the subsequent change in accounting firm
(see Item 9 above).
C. See A (3) above.
D. See A (2) above. Additional reference is made to the prospectus (S-11
filed as part of the Registration statement) dated October 20, 1989 to
pages 65 through 67 and Supplement #5 dated February 14, 1992 for
financial data related to Gymno Corporation, a general partner.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized on the 26th day of March
2002.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, President,
Secretary & Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity indicated on the 26th day of March 2002.
Signature Title Date
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell General Partner March 26, 2002
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President, Secretary & Chief March 26, 2002
Financial Officer of Gymno
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation