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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 2002
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Commission file number 33-30427
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REDWOOD MORTGAGE INVESTORS VII, a California Limited Partnership
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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.
900 Veterans Blvd., Suite 500, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------ ----------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
------------ ------------ ------------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
September 30, December 31,
2002 2001
----------------- ---------------
(unaudited) (audited)
Cash $ 267,158 $ 389,844
----------------- ---------------
Loans
Loans, secured by deeds of trust, held to maturity 9,201,968 10,091,195
Loans, unsecured 132,189 173,731
----------------- ---------------
9,334,157 10,264,926
Less allowance for loan losses (955,213) (887,578)
----------------- ---------------
Net loans 8,378,944 9,377,348
----------------- ---------------
Interest and other receivables
Accrued interest 151,624 660,551
Advances on loans 15,080 50,665
----------------- ---------------
Total interest and other receivables 166,704 711,216
----------------- ---------------
Real estate owned, held for sale 1,818,275 872,133
----------------- ---------------
Total assets $10,631,081 $11,350,541
================= ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $1,507,000 $1,907,000
Accounts payable 4,102
11,295
----------------- ---------------
Total liabilities 1,511,102 1,918,295
----------------- ---------------
Partners' capital
Limited partners' capital, subject to redemption 9,108,001 9,420,268
General partners' capital 11,978 11,978
----------------- ---------------
Total partners' capital 9,119,979 9,432,246
----------------- ---------------
Total liabilities and partners' capital $10,631,081 $11,350,541
================= ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2002 and 2001 (unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
2002 2001 2002 2001
------------- -------------- -------------- ---------------
Revenues
Interest - on loans $896,972 $888,060 $250,757 $256,016
Interest - interest bearing accounts 2,134 3,312 354 901
Late charges 11,376 6,478 5,527 3,394
Other income 18,636 3,865 3,910 1,001
------------- -------------- -------------- ---------------
929,118 901,715 260,548 261,312
------------- -------------- -------------- ---------------
Expenses
Mortgage servicing fees 123,042 55,195 26,717 15,369
Interest on note payable - bank 48,432 104,741 13,839 12,542
Clerical costs through Redwood Mortgage 23,229 29,569 7,541 9,190
Corp.
Asset management fees 26,285 28,176 8,650 9,208
Provisions for losses on loans and
real estate acquired through foreclosure 78,359 20,503 (5,250) (268)
Professional services 35,488 30,391 16,236 10,042
Printing, supplies and postage 6,696 7,681 1,603 2,148
Other 2,703 4,004 434 -
------------- -------------- -------------- ---------------
344,234 280,260 69,770 58,231
------------- -------------- -------------- ---------------
Net income $584,884 $621,455 $190,778 $203,081
============= ============== ============== ===============
Net income: To general partners (1%) 5,849 6,215 1,908 2,031
To limited partners (99%) 579,035 615,240 188,870 201,050
------------- -------------- -------------- ---------------
$584,884 $621,455 $190,778 $203,081
============= ============== ============== ===============
Net income per $1,000 invested by limited
partners for entire period
-where income is reinvested and
compounded $63.69 $63.11 $20.61 $20.61
============= ============== ============== ===============
-where partner receives income in
monthly distributions $61.96 $61.41 $20.47 $20.47
============= ============== ============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30,2002 (unaudited)
Limited General Total
Partners' Partners' Partners'
Accounts Capital Capital
---------------- --------------- ----------------
Balances at December 31, 2001 $9,420,268 $11,978 $9,432,246
Net income 579,035 5,849 584,884
Early withdrawal penalties (9,300) - (9,300)
Partners' withdrawals (882,002) (5,849) (887,851)
---------------- --------------- ----------------
Balances at September 30, 2002 $9,108,001 $11,978 $9,119,979
================ =============== ================
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 and 2001(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
2002 2001
--------------- ---------------
Cash flows from operating activities
Net income $ 584,884 $ 621,455
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for losses on loans and real estate acquired
through foreclosure 78,359 20,503
Early withdrawal penalty credited to income (9,300) (1,890)
Change in operating assets and liabilities
Accrued interest and advances on loans 506,086 (231,628)
Accounts payable (7,193) 8,695
--------------- ---------------
Net cash provided by operating activities 1,152,836 417,135
--------------- ---------------
Cash flows from investing activities
Principal collected on loans 2,060,641 5,750,503
Loans made (1,867,781) (3,050,730)
Payments for real estate held for sale (194,220) (425,660)
Proceeds from sale of real estate held for sale 2,565 34,259
Proceeds from unsecured loans 11,124 10,940
--------------- ---------------
Net cash provided by investing activities 12,329 2,319,312
--------------- ---------------
Cash flows from financing activities
Net decrease in note payable-bank (400,000) (1,598,000)
Formation loan collections - 71,461
Partners withdrawals (887,851) (1,177,825)
--------------- ---------------
Net cash used in financing activities (1.287,851) (2,704,364)
--------------- ---------------
Net increase (decrease) in cash (122,686) 32,083
Cash - beginning of year 389,844 269,000
--------------- ---------------
Cash - end of period 267,158 301,083
=============== ===============
Cash payments for interest $ 48,432 $ 104,741
=============== ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the general partners are Michael R. Burwell and Gymno
Corporation, a California corporation owned and operated on an equal 50/50%
basis by Michael R. Burwell and by D. Russell Burwell, a former general partner.
The Partnership was organized to engage in business as a mortgage lender for the
primary purpose of making loans secured by Deeds of Trust on California real
estate. Loans are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the general partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for loan losses, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans to
maturity, i.e., held for long-term investment. Loans are valued at cost for
financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable ultimate recovery of the carrying amount of a loan, with
due consideration for the fair value of collateral, is less than amounts due
according to the contractual terms of the loan agreement, and the shortfall in
amounts due are not insignificant, the carrying amount of the investment (cost)
shall be reduced to the present value of future cash flows discounted at the
loan's effective interest rate. If a loan is collateral dependent, it is valued
at the estimated fair value of the related collateral.
Once a loan is categorized as impaired, interest is no longer accrued
thereon. Any subsequent payments on impaired loans are applied to the
outstanding balances on the Partnership's books. At September 30, 2002 and
December 31, 2001 there were loans categorized as impaired by the Partnership of
$335,454 and, $889,439, respectively. In addition, the impaired loans have
accrued interest and advances totaling $10,334 and $277,479 at September 30,
2002 and December 31, 2001, respectively. The decrease in carrying value of the
impaired loans of $38,634 and $150,092 at September 30, 2002 and December 31,
2001, respectively is included in the allowance for loan losses. The average
recorded investment in the impaired loans was $612,447 and $890,018 for the nine
months ended September 30, 2002, and for the year ended December 31, 2001,
respectively. During the nine months ended September 30, 2002, and the year
ended December 31, 2001, $0 and $64,987 was received as cash payments on these
loans, respectively.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
As presented in Note 9 to the financial statements as of September 30,
2002, and December 31, 2001, the average loan to appraised value of security at
the time the loans were consummated was 65.99% and 60.66%, respectively. When
loans are valued for impairment purposes, the allowance is updated to reflect
the change in the valuation of collateral security. However, such a low
loan-to-value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
The Partnership considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of September 30, 2002 and December 31, 2001 and not including
real estate in process of acquisition at September 30, 2002:
September 30, December 31,
2002 2001
----------------- ---------------
Costs of properties $2,167,470 $1,252,189
Reduction in value, including estimated costs of sale (349,195) (380,056)
----------------- ---------------
Fair value reflected in financial statements $1,818,275 $ 872,133
================= ===============
F. Income Taxes
No provision for Federal and State income taxes, except for a minimum state
tax of $800, is made in the financial statements since income taxes are the
obligation of the partners if and when income taxes apply.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
G. Allowance for Loan Losses
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral value, to provide for unrecoverable loans
and receivables, including impaired loans, other loans, accrued interest and
advances on loans. The composition of the allowance for loan losses as of
September 30, 2002, and December 31, 2001 was as follows:
September 30, December 31,
2002 2001
----------------- -----------------
Impaired loans $38,634 $150,092
Unspecified loans 784,390 593,500
Unsecured loans 132,189 143,986
----------------- -----------------
$955,213 $887,578
================= =================
Allowance for loan losses reconciliation: Activity in the allowance for
loan losses is as follows for the nine months through September 30, 2002 and for
the year ended December 31, 2001.
September 30, December 31,
2002 2001
----------------- -----------------
Beginning Balance $ 887,578 $850,548
Provision for loan losses 78,359 37,371
Write-offs (10,724) (341)
----------------- -----------------
Ending Balance $ 955,213 $887,578
================= =================
H. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by limited partners for the entire period are actual amounts allocated
to limited partners who had their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the limited partners' pro rata share of partners' capital.
Because net income varies from month to month, amounts per $1,000 will vary for
those individuals who made or withdrew investments during the period, or select
other options.
I. Late Fee Revenue
The Partnership recognizes late fee revenue when it is earned. Late fees
are charged at 6% of the monthly balance, and are accrued net of an allowance
for uncollectible late fees. For the nine months ended September 30, 2002, and
September 30, 2001 late fee revenue of $11,376 and $6,478 respectively, was
recorded.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the general
partners, and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of loans the Partnership may collect an amount equivalent to 12%
of the loaned amount until 6 months after the termination date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the total Partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
Partnership. For the nine months through September 30, 2002, and September 30,
2001, loan brokerage commissions paid by the borrowers were $24,661 and $84,137,
respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $123,042 and $55,195 were incurred
for the nine months through September 30, 2002, and September 30, 2001,
respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the Partnership's
loan portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annual). Management fees of $26,285 and $28,176 were incurred for the nine
months through September 30, 2002, and September 30, 2001, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.
E. Operating Expenses
Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the Partnership for all operating expenses actually incurred by it on behalf
of the Partnership, including without limitation, out-of-pocket general and
administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners.
During the nine months through September 30, 2002, and September 30, 2001,
clerical costs totaling $23,229 and $29,569, respectively, were reimbursed to
Redwood Mortgage Corp. Such reimbursements are reflected as expenses in the
Statements of Income.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited Partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
A. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. Investors have the right to withdraw their capital over
a five-year period, or longer.
B. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
Subject to certain limitations, a compounding investor may subsequently change
his election, but an investor's election to have cash distributions is
irrevocable.
C. Profits and Losses
Profits and losses are allocated among the limited partners according to
their respective capital accounts after 1% is allocated to the general partners.
D. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is not liquid. Limited partners had
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of September 30, 2002. In order to provide a
certain degree of liquidity to the limited partners after the one-year period,
limited partners may withdraw all or part of their capital accounts from the
Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the Notice of Withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn early and will be deducted from the capital account.
Withdrawal after the one-year holding period and before the five-year holding
period, described below, was permitted only upon the terms set forth above.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued)
After five years from the date of purchase of the Units, limited partners
have the right to withdraw from the Partnership, on an installment basis.
Generally this is done over a five-year period in twenty (20) quarterly
installments. Once a limited partner has been in the Partnership for the minimum
five-year period, no penalty will be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the general partners may liquidate all or part of a limited
partner's capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a limited partner's
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total limited partners' capital accounts
outstanding at the beginning of any year, shall be liquidated during any
calendar year.
NOTE 5 - LEGAL PROCEEDINGS
The Partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of September
30, 2002 and December 31, 2001 were $1,507,000 and $1,907,000, respectively, and
the interest rate was 5.0% (4.75% prime + .25%) at September 30, 2002. This line
of credit expires May 1, 2003. The line of credit requires the Partnership to
meet certain financial covenants. As of September 30, 2002, the Partnership was
in compliance with all loan covenants.
Should the general partners choose not to renew the line of credit, the
balance outstanding would be converted to a three year fully amortized loan.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 7 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
September 30, December 31,
2002 2001
------------------ -----------------
Net assets - partners' capital per financial statements $9,119,979 $9,432,246
Allowance for loan losses 955,213 887,578
------------------ -----------------
Net assets tax basis $10,075,192 $10,319,824
================== =================
In 2001 approximately 68% of taxable income was allocated to tax exempt
organizations (i.e., retirement plans). Such plans do not have to file income
tax returns unless their "unrelated business income" exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) Secured loans (see note 2 (c)) had a carrying value of $9,201,968 and
$10,091,195 at September 30, 2002 and December 31, 2001, respectively. The fair
value of these investments of $8,699,544 and $10,107,321 was estimated based
upon projected cash flows discounted at the estimated current interest rates at
which similar loans would be made. The applicable amount of the allowance for
loan losses along with accrued interest and advances related thereto is also
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
Most loans are secured by recorded deeds of trust. At September 30, 2002
and at December 31, 2001, there were 31 and 36 secured loans outstanding,
respectively, with the following characteristics:
September 30, December 31,
2002 2001
------------------ -----------------
Number of secured loans outstanding 31 36
Total secured loans outstanding $9,201,968 $10,091,195
Average secured loan outstanding 296,838 280,311
Average secured loan as percent of total 3.23% 2.78%
Average secured loan as percent of partners' capital 3.25% 2.97%
Largest secured loan outstanding 1,000,000 1,000,000
Largest secured loan as percent of total 10.87% 9.91%
Largest secured loan as percent of partners' capital 10.96% 10.60%
Number of counties where security is located (all California) 11 11
Largest percentage of secured loans in one county 28.89% 31.92%
Average secured loan to appraised value of security at time
loan was consummated 65.99% 60.66%
Number of secured loans in foreclosure 1 2
Amount of secured loans in foreclosure $ 31,807 $ 216,493
The following categories of loans are pertinent at September 30, 2002 and
December 31, 2001:
September 30, December 31,
2002 2001
------------------ -----------------
First Trust Deeds $4,735,668 $5,042,062
Second Trust Deeds 4,259,964 4,803,146
Third Trust Deeds 206,336 245,987
------------------ -----------------
Total loans 9,201,968 10,091,195
Prior liens due other lenders 6,338,955 9,318,486
------------------ -----------------
Total debt $15,540,923 $19,409,681
------------------ -----------------
Appraised property value at time of loan $23,550,024 $31,997,080
------------------ -----------------
Total investments as a percent of appraisals 65.99% 60.66%
------------------ -----------------
Investments by Type of Property
Owner occupied homes $1,031,032 $ 622,435
Non-owner occupied homes 1,375,092 1,435,444
Apartments 608,647 1,563,214
Commercial 6,187,197 6,470,102
------------------ -----------------
$ 9,201,968 $10,091,195
================== =================
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS (Continued)
Scheduled maturity dates of loans as of September 30, 2002 are as follows:
Year Ending
December 31, Amount
------------------ --------------------
2002 $4,275,336
2003 1,404,893
2004 1,021,797
2005 40,125
2006 96,716
Thereafter 2,363,101
--------------------
Total $9,201,968
====================
The scheduled maturities for 2002 above include approximately $3,229,004 in
9 loans which are past maturity at September 30, 2002. Although interest
payments on most of these loans are current, $2,061,414 of these loans were
categorized as delinquent over 90 days.
Three loans with principal outstanding of $335,454 were considered impaired
at September 30, 2002. That is, interest accruals are no longer recorded
thereon.
The cash balance per bank statement at September 30, 2002 of $157,519 was
in one bank. The balances exceeded FDIC insurance limits (up to $100,000 per
bank) by $57,519. The Partnership's main bank is the same financial institution
that has provided the Partnership with the $3,500,000 limit line of credit. At
September 30, 2002, amounts drawn down against this facility was $1,507,000.
Workout Agreements
The Partnership has negotiated various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments. The Partnership is not obligated to fund additional money on these
loans. As of September 30, 2002 the Partnership had approximately 3 loans under
workout agreements totaling $260,270.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited
NOTE 10 - SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
Revenues
2002 $389,922 278,648 260,548 - -
2001 $349,061 291,342 261,312 290,666 1,192,381
2000 $307,831 356,247 362,586 411,300 1,437,964
Expenses
2002 $193,291 81,173 69,770 - -
2001 $137,576 84,453 58,231 90,924 371,184
2000 $ 74,265 128,581 140,617 194,355 537,818
Net income allocated to general partners
2002 $ 1,966 1,975 1,908 - -
2001 $ 2,115 2,069 2,031 1,997 8,212
2000 $ 2,336 2,276 2,220 2,169 9,001
Net income allocated to limited partners
2002 $194,665 195,500 188,870 - -
2001 $209,370 204,820 201,050 197,745 812,985
2000 $231,230 225,390 219,749 214,776 891,145
Net income per $1,000 invested
where income is
Reinvested
2002 $ 21 $ 21 $ 21 - -
2001 $ 21 $ 21 $ 21 $ 22 $ 85
2000 $ 21 $ 21 $ 21 $ 22 $ 85
Withdrawn
2002 $ 21 $ 21 $ 20 - -
2001 $ 20 $ 20 $ 20 $ 22 $ 82
2000 $ 20 $ 21 $ 20 $ 21 $ 82
NOTE 11 - RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP
Critical Accounting Policies.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date. Such estimates relate
principally to the determination of (1) the allowance for doubtful accounts
(i.e. the amount of allowance established against loans receivable as an
estimate of potential loan losses) including the accrued interest and advances
that are estimated to be unrecoverable based on estimates of amounts to be
collected plus estimates of the value of the property as collateral and (2) the
valuation of real estate acquired through foreclosure. At September 30, 2002,
there were 3 properties acquired through foreclosure.
Loans and related accrued interest, fees, and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. Provisions are made for bad debt to adjust the
allowance for doubtful accounts to an amount considered by management to be
adequate, with due consideration to collateral values and to provide for
unrecoverable accounts receivable, including impaired loans, other loans,
accrued interest, late fees and advances on loans, and other accounts receivable
(unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for doubtful accounts.
Actual results could vary from the aforementioned provisions for losses.
Forward Looking Statements.
Some of the information in the Form 10-Q may contain forward looking
statements. Uses of words such as "will", "may", "anticipate", "estimate",
"continue" or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of 2002 includes forward looking statements
and predictions about the possibility of future events, results of operations
and financial condition. As such, this analysis may prove to be inaccurate
because of assumptions made by the general partners or the actual development of
the future events. No assurance can be given that any of these statements or
predictions will ultimately prove to be correct or substantially correct.
Related Parties.
The general partners of the Partnership are Gymno Corp. and Michael R.
Burwell. Most Partnership business is conducted through Redwood Mortgage Corp.,
an affiliate of the general partner, which arranges, services and maintains the
loan portfolio for the benefit of the Partnership. The following is a list of
various Partnership activities for which related parties are compensated.
o Mortgage Brokerage Commissions For fees in connection with the review,
selection, evaluation, negotiation and extension of loans, the Partnership may
collect an amount equivalent to 12% of the loaned amount until 6 months after
the termination date of the offering. Thereafter, the loan brokerage commissions
(points) will be limited to an amount not to exceed 4% of the total Partnership
assets per year. The loan brokerage commissions are paid by the borrowers, and
thus, are not an expense of the partnership. For the nine months ended September
30, 2002 and 2001, loan brokerage commissions paid by borrowers were $24,661 and
$84,137, respectively.
o Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's loans
is paid to Redwood Mortgage Corp., or such lesser amount as is reasonable and
customary in the geographic area where the property securing the mortgage is
located. Mortgage servicing fees of $123,042 and $55,195 were incurred for the
nine months ended September 30, 2002 and 2001, respectively.
o Asset Management Fee The general partners receive monthly fees for
managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net
asset value' (3/8 of 1% on an annual basis). Management fees to the general
partners of $26,285 and $28,176 were incurred by the Partnership for the nine
months ended September 30, 2002 and 2001, respectively.
o Other Fees The Partnership agreement provides that the general partners
may receive other fees such as reconveyance, mortgage assumption and mortgage
extension fees. Such fees are incurred by the borrowers and are paid to the
general partners.
o Income and Losses All income and losses are credited or charged to
partners in relation to their respective Partnership interests. The allocation
to the general partners (combined) shall be a total of 1%.
o Operating Expenses An affiliate of the Partnership, Redwood Mortgage
Corp., is reimbursed by the Partnership for all operating expenses actually
incurred by it on behalf of the Partnership, including without limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees, legal fees and expenses, postage and preparation of reports to
limited partners. Such reimbursements are reflected as expenses in the statement
of income.
o Contributed Capital The general partners jointly and severally
contributed 1/10 of 1% in cash contributions as proceeds from the offerings were
received from the limited partners. As of September 30, 2002 and 2001, a general
partner, Gymno Corporation, had contributed $11,978 as capital in accordance
with Section 4.02(a) of the partnership agreement.
Results of Operations - For the three and nine months ended September 30,
2002 and 2001
The net income decrease of $12,303 (6.06%) for the three months ended
September 30, 2002 versus the three month period ended September 30, 2001 was
due primarily to a decrease in interest earned on loans of $5,259 (2.05%), a
decrease in interest-interest bearing accounts of $547 (60.71%), an increase in
late charges of $2,133 (62.85%), and an increase in other income of $2,909
(290.61%) offset by expense increases. Significant expense increases or
(decreases) for the three month period ended September 30, 2002 versus September
30, 2001 included higher mortgage servicing fees of $11,348, change in the
provision for losses on loans and real estate acquired through foreclosure of
($4,982) and an increase in professional fee of $6,194.
The net income decrease of $36,571 (5.88%) for the nine months ended
September 30, 2002 versus the nine month period ended September 30, 2001 was due
primarily to an increase in interest earned on loans of $8,912 and an increase
in late charges and other income of $19,669; offset by expense increases.
Significant expense increases or (decreases) for the nine month period ended
September 30, 2002 versus September 30, 2001 included higher mortgage servicing
fees of $67,847, an increase in the provision for losses on loans and real
estate acquired through foreclosure of $57,856, and an increase in professional
fees of $5,097.
The increase (decrease) in interest on loans of ($5,259) (2.05%) and $8,912
(1%) for the three and nine month periods ended September 30, 2002 versus
September 30, 2001 was due primarily to a reduction of the loan portfolio
average interest rate for the third quarter 2002, and the increase for the nine
months ended September 30, 2002 was due to collection of interest on loans
previously considered impaired; offset by a lower average loan portfolio
interest rate as compared to September 30, 2001.
The increase (decrease) in interest on note payable-bank of $1,297 (10%)
and ($56,309) (54%) for the three and nine month periods ended September 30,
2002 versus September 30, 2001 is due to the approximately 4.0% (9.0% vs. 5.0%)
lowering of the interest rate charged the Partnership during the first
three-quarters of 2002 as compared to 2001 and due to lower overall usage of the
line of credit during the first three-quarters of 2002.
The increase in mortgage servicing fees of $11,348 (74%) and $67,847 (123%)
for the three and nine month periods ended September 30, 2002 versus September
30, 2001 is primarily attributable to increased servicing of impaired loans.
The increase of $57,856 (282%) in provision for losses on loans and real
estate acquired through foreclosure for the nine months ended September 30, 2002
versus the respective nine month period ended September 30, 2001 reflects the
general partners' estimate of an appropriate allowance for anticipated loan
losses. As the Partnership's real estate owned has increased, the provision for
estimated loan losses has also been increased. At September 30, 2002, total
provisions for losses on loans equaled $955,213, which the general partners
consider to be adequate.
The decrease in asset management fees of $558 (6%) and $1,891 (7%) for the
three and nine months ended September 30, 2002 versus the respective periods
ended September 30, 2001 is due to a decrease in the partners' capital under
management at September 30, 2002 and 2001 of $9,119,979 and $9,619,509,
respectively.
The increase in professional fees of $6,194 (62%) and $5,097 (17%) for the
three and nine months ended September 30, 2002 versus September 30, 2001 is due
to the Partnership incurring greater costs in 2002 than in 2001 in relation to
its audit and tax return processing.
Partnership capital continued to decrease as the limited partners capital
declined due to both earnings distribution and capital liquidations. For the
three and nine months ended September 30, 2002 earnings and capital liquidated
was $254,823 and $891,302, respectively versus $361,075 and $1,177,651,
respectively for the corresponding period in 2001.
The Partnership utilized its bank line of credit less during the first
three-quarters of 2002 compared to 2001. The outstanding balances of $1,507,000
at September 30, 2002 versus $1,902,000 at September 30, 2001 are reflective of
the overall lower credit line usage. Cash generated from interest earnings, late
charges, amortization of principal and loan payoffs was utilized to pay down the
credit line.
At September 30, 2002, outstanding foreclosures decreased to 1 ($31,807)
from the two ($201,807) that existed at September 30, 2001. During the three
months ended September 30, 2002, the outstanding number of foreclosures stayed
at 1. One foreclosure originated in 2002, with a principal balance of $1,251,090
was acquired at foreclosure sale in July 2002. The general partners have
reviewed the appraisal, visited the property with real estate professionals and
have concluded that a specific reserve for losses against this loan is not
necessary as the collateral securing the loan appears adequate to cover
collection of sums due. These foreclosures are a reflection of the more
difficult economic times at September 30, 2002 as compared to September 30,
2001, yet are not unusual in the general partners' experience and we do not
anticipate a reduction in net income due to these foreclosures.
The general partners received Mortgage Brokerage Commissions from the loan
borrowers of $18,261 and $24,661 for the three and nine months ended September
30, 2002 as compared to $38,231 and $84,137 for the three and nine months ended
September 30, 2001. The reduction is due to less loans written in the three
months and nine months ended September 30, 2002.
As discussed previously, at the time of subscription to the Partnership,
limited partners must elect either to receive monthly, quarterly or annual cash
distributions from the Partnership, or to compound earnings in their capital
account.
During the three and nine month periods ended September 30, 2002 stated
below, the Partnership made the following allocation of earnings both to the
limited partners who elected to compound their earnings, and those that chose to
distribute:
Nine months ended Three months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
Compounding $347,885 $330,794 $116,456 $111,668
Distributing $231,150 $284,446 $72,414 $89,382
Also, the Partnership allows the limited partners to withdraw their capital
account subject to certain limitations. Earnings and capital liquidations
including early withdrawals during the three and nine month periods ended
September 30:
Nine months ended Three months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
Cash distributions $231,150 $284,446 $72,414 $89,382
Capital liquidation* $660,152 $893,205 $182,409 $271,693
---------------------- ---------------------- ---------------------- ----------------------
Total $891,302 $1,177,651 $254,823 $361,075
====================== ====================== ====================== ======================
*These amounts represent gross of early withdrawal penalties.
Current Economic Conditions.
The Partnership makes loans primarily in Northern California. As of
September 30, 2002, approximately 66.5% of the loans held were in the six San
Francisco Bay Area Counties. The remainder of the loans held were secured
primarily by Northern California real estate outside the San Francisco Bay Area.
Like the rest of the nation, the San Francisco Bay Area has also felt the
recession and accompanying slow down in economic growth and increasing
unemployment. The technology companies of Silicon Valley, the airline industry,
the tourism industry and other industries are feeling the effects of the overall
United States recession, which includes lower earnings, losses and layoffs.
Despite fears over failing businesses, ongoing job losses and dwindling
stock portfolios, the real estate market seems to be doing remarkably well.
According to the San Jose Mercury News of August 20, 2002, Bay Area home sales
rose 22% in July compared with a year earlier, continuing an upward trend that
began in January. The median price of homes in the nine-county area rose nearly
10% from last year to $436,000. With the Bay Area economy still faltering and
unemployment as high as 7.6% in Santa Clara County, many had expected real
estate prices would be down by now, not up from a year ago. Mortgage rates at
historic lows and a decent supply of homes on the market have kept the local
market relatively busy, especially for lower-priced homes. Annual price
appreciation varied from 5.1% in Santa Clara County, where the median price was
$515,000 for existing single-family homes sold in July, to 22.5% in Napa County,
where the median price was $359,000. Sales of single-family homes rose 22.8% in
Santa Clara County, according to statistics released by DataQuick Information
Systems, which gathers data from public records. Most counties saw sales
activity increase more than 20% from last year, and the growth was closer to 30%
in Alameda and San Mateo counties. But the July data reflects transactions
negotiated in May and June, and local real estate agents say the market has
slowed dramatically since June. "I think fewer transactions and lower prices are
in the near future," said Gary Shapiro of ReMax Real Estate Services in
Cupertino. "It's already here." The slowdown is partly a normal seasonal change,
real estate agents say, as prospective buyers vacation rather than house hunt.
For the Partnership, these statistics imply that the values of the homes secured
by mortgages in our portfolio should remain firm and assist in reducing losses
if the take back of collateral through the foreclosure process should eventuate.
It also implies increased loan activity, as the number of real estate
transactions is increasing, leaving more loan opportunities for lenders.
According to the San Francisco Chronicle, "The Bay Area commercial market's
fundamental indicators are showing signs of hitting bottom, but a recovery is at
least 18 months away, according to reports last week from major real estate
services firms. At the end of the third quarter, both Cushman & Wakefield and
Grubb & Ellis found incremental positive news for the stagnant San Francisco
office market, but it was barely reason to smile. Cushman & Wakefield said the
rate of decline in asking rents has slowed substantially. Average rent in the
central business district fell to $31.56 per square foot from $32.40 the
previous quarter. Grubb & Ellis said the San Francisco office market showed a
positive net absorption, or demand, for the first time in two years. A grand
total of 127,000 square feet was absorbed." To the Partnership, these higher
vacancy rates may mean that we could experience higher delinquencies and
foreclosures if our borrowers' tenants' leases expire or their rental space
becomes available through business failures.
For Partnership loans outstanding, as of September 30, 2002, the
Partnership had an average loan to value ratio computed as of the date the loan
was made of 65.99%. This percentage does not account for any increases or
decreases in property values since the date the loan was made, nor does it
include any reductions in principal through amortization of payments after the
loan was made. This low loan to value ratio will assist the Partnership in
weathering loan delinquencies and foreclosures should they eventuate.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table contains information about the cash held in money
market accounts, loans held in the partnership's portfolio and a note payable on
our line of credit as of September 30, 2002. The presentation, for each category
of information, aggregates the assets and liabilities by their maturity dates
for maturities occurring in each of the years 2002 through 2006 and separately
aggregates the information for all maturities arising after 2006. The carrying
values of these assets and liabilities approximate their fair market values as
of September 30, 2002:
2002 2003 2004 2005 2006 Thereafter Total
------------- ------------ ------------- ----------- ----------- ------------ -------------
Interest earning assets:
Money market accounts $ 13,280 $ 13,280
Avg. interest rate 1.20% 1.20%
Loans secured by deeds
Of trust $4,275,336 1,404,893 1,021,797 40,125 96,716 2,363,101 $9,201,968
Average interest rate 11.02% 10.93% 10.60% 7.00% 6.50% 7.46% 9.98%
Interest bearing
liabilities:
Note payable to bank $1,507,000 $1,507,000
Average interest rate 5.00% 5.00%
Market Risk.
The Partnership's note payable to the bank for its line of credit bears
interest at a variable rate, tied to the prime rate. As a result, the
Partnership's primary market risk exposure with respect to its obligations is to
changes in interest rates, which will affect the interest cost of outstanding
amounts on the note payable. The Partnership may also suffer market risk tied to
general trends affecting real estate values that may impact the Partnership's
security for its loans.
The Partnership's primary market risk in terms of its profitability is the
exposure to fluctuations in earnings resulting from fluctuations in general
interest rates. The majority of the Partnership's mortgage loans, (100% as of
September 30, 2002) earn interest at fixed rates. Changes in interest rates may
also affect the value of the Partnership's investment in mortgage loans and the
rates at which the Partnership reinvests funds obtained from loan repayments and
new capital contributions from limited partners. If interest rates increase, the
interest rates the Partnership obtains from reinvested funds will generally
increase, but the value of the Partnership's existing loans at fixed rates will
generally tend to decrease. The risk is mitigated by the fact that the
Partnership does not intend to sell its loan portfolio, rather such loans are
held until they are paid off. If interest rates decrease, the amounts becoming
available to the Partnership for investment due to repayment of Partnership
loans may be reinvested at lower rates than the Partnership had been able to
obtain in prior investments, or than the rates on the repaid loans. In addition,
interest rate decreases may encourage borrowers to refinance their loans with
the Partnership at a time where the Partnership is unable to reinvest in loans
of comparable value.
The Partnership does not hedge or otherwise seek to manage interest rate
risk. The Partnership does not enter into risk sensitive instruments for trading
purposes.
Controls and Procedures.
Within the 90 days prior to the date of this report, the General Partner of
the Partnership carried out an evaluation, under the supervision and with the
participation of the General Partner's management, including the General
Partner's President and Chief Financial Officer, of the effectiveness of the
design and operation of the Partnership's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President
and Chief Financial Officer of the General Partner concluded that the
Partnership's disclosure controls and procedures are effective. There were no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the general partners have valued the limited partners' interest in
the Partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the Partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the Partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of Units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the limited
partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the Partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
Units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit in the Partnership. Each investor's
capital account balance is set forth periodically on the Partnership account
statement provided to investors. The amount of Partnership earnings each
investor is entitled to receive is determined by the ratio that each investor's
capital account bears to the total amount of all investor capital accounts then
outstanding. The capital account balance of each investor should be included on
any NASD member client account statement in providing a per Unit estimated value
of the client's investment in the Partnership in accordance with NASD Rule 2340.
While the general partners have set an estimated value for the Partnership
Units, such determination may not be representative of the ultimate price
realized by an investor for such Units upon sale. No public trading market
exists for the Partnership Units and none is likely to develop. Thus, there is
no certainty that the Units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain liquidation rights provided by the
Partnership, which may include early withdrawal penalties (See the section of
the Prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus part of Form S-11 and subsequent amendments related to the offering
of Partnership interests, pages 12-13, under the section "Compensation of the
General Partners and the Affiliates", which are incorporated by reference. Such
compensation is summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the nine months ended September 30,
2002. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Entity Receiving
Compensation Description of Compensation and Services Rendered Amount
- ------------------------------------ -------------------------------------------------------------- --------------------
I. Redwood Mortgage Corp. Loan Servicing Fee for servicing loan ........................ $123,042
General Partners
&/or Affiliates Asset Management Fee for managing assets ..................... $26,285
General Partners 1% interest in profits ....................................... $5,849
II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE
GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP)
Redwood Mortgage Corp. Mortgage Brokerage Commissions for services in connection with
the review, selection, evaluation, negotiation, and extension of
the loan paid by the borrowers and not by the Partnership............ $24,661
Redwood Mortgage Corp. Processing and Escrow Fees for services in connection with notary,
document preparation, credit investigation, and escrow fees paid by
the borrowers and not by the Partnership ............................ $1,767
Gymno Corporation, Inc. Reconveyance Fee..................................................... $302
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $23,229
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership periodically is a defendant in various legal actions.
Please refer to Note 5 of the Financial Statements.
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(99.1) Certification of Michael R. Burwell, General Partner
(99.2) Certification of Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of Gymno
Corporation, General Partner
(b) Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 14th day of
November 2002.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
------------------------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 14th day of November 2002.
Signature Title Date
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell General Partner November 14, 2002
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President, Secretary/Treasurer November 14, 2002
of Gymno Corporation (Principal
Financial and Accounting
Officer); Director of Gymno
Corporation
Exhibit 99.1
GENERAL PARTNER CERTIFICATION
I, Michael R. Burwell, General Partner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage
Investors VII, a California Limited Partnership (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial date and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls.
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, General Partner
November 14, 2002
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VII
(the "Partnership") on Form 10-Q for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the
Partnership, certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, General Partner
November 14, 2002
Exhibit 99.2
PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION
I, Michael R. Burwell, President and Chief Financial Officer of Gymno
Corporation, General Partner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage
Investors VII, a California Limited Partnership (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial date and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls.
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, President and
Chief Financial Officer, of Gymno
Corporation, General Partner
November 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VII
(the "Partnership") on Form 10-Q for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General
Partner of the Partnership, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner
November 14, 2002