Back to GetFilings.com
REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership)
Index to Form 10-K
December 31, 1997
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 3-5
Item 3 - Legal Proceedings 5
Item 4 - Submission of Matters to a vote of Security Holders (partners) 6
Part II
Item 5 - Market for the Registrants Partners Capital and related matters 6
Item 6 - Selected Financial Data 6-7
Item 7 - Managements Discussion and Analysis of Financial condition 8-10
and Results of Operations
Item 8 - Financial Statements and Supplementary Data 11-34
Item 9 - Changes in and Disagreements with Accountants on Accounting and 35
Financial Disclosure
Part III
Item 10 - Directors and Executive Officers of the Registrant 35
Item 11 - Executive Compensation 36
Item 12 - Security Ownership of Certain Beneficial Owners and management 37
Item 13 - Certain Relationships and Related Transactions 37
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8- K. 37-38
Signatures 39
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, 1997 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)
Registrants telephone No. 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
- -------------------------------------------------------------------------------
Limited Partnership Units None
- -----------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) Limited Partnership Interests
of the Act:
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, 1992, 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
referenced in part IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VII, a California limited partnership (the
Partnership), was organized in 1989 of which D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation, are the General
Partners. The address of 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 Mortgage
Investments secured by deeds of trust on California real estate. Mortgage
Investments are arranged and serviced by Redwood Home Loan Co., dba Redwood
Mortgage, an affiliate of the General Partners. The Partnerships 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 Partnerships capital. The Partnerships 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 October 19, 1992. The offering closed on September 30, 1992, and
the Limited Partners contributed capital totalled $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, 1997, the Partnership had a balance
in its Mortgage Investments portfolio totalling $13,449,741 with interest rates
thereon ranging from 6.50% to 15.50%.
Currently, Mortgage Investments secured by First Trust Deeds comprise
50.63% of the Mortgage Investment portfolio followed by Second Trust Deeds of
42.52%, and Third Trust Deeds of 5.36%. A Fourth Trust Deed makes up the
balance. Owner-occupied homes, combined with non-owner occupied homes total
19.11% of the Mortgage Investments. Commercial Mortgage Investments origination
increased from last year, now comprising 68.50% of the portfolio, an increase of
4.96%. The past year brought many outstanding low loan to value lending
opportunities in the commercial segment of the market. 76.60% of the total
Mortgage Investments, are in six counties of the Bay Area. The County of
Stanislaus makes up 9.39% of the Mortgage Investments and the balance of
Mortgage Investments are primarily in Northern California. Mortgage Investment
size increased this past year, and is now averaging $216,931 per Mortgage
Investment, an increase of $47,406. Some of the larger Mortgage Investments
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 stood at 39.70%. A 40% equity
average on loan origination is generally considered very conservative.
Generally, the more equity, the more protection for the lender. The
Partnerships Mortgage Investment portfolio is in good condition with properties
in foreclosure as of December, 1997, totalling $409,429.
Item 2 - Properties
A summary of the Partnerships Mortgage Investment Portfolio as of December
31, 1997, is set forth below.
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds $6,810,112.92
Appraised Value of Properties 15,343,465.00
Total Investment as a % of Appraisal 44.38%
Second Trust Deed Mortgage Investments 5,719,368.83
Third Trust Deed Mortgage Investments 720,258.14
Fourth Trust Deed Mortgage Investments * 200,001.20
First Trust Deeds due other Lenders 16,829,319.00
Second Trust Deeds due other Lenders 979,402.00
Third Trust Deeds due other Lenders 142,858.00
Total Debt $31,401,320.09
Appraised Property Value 52,077,885.00
Total Investments as a % of Appraisal 60.30%
Number of Mortgage Investments Outstanding 62
Average Investment 216,931.31
Average Investment as a % of Net Assets 1.68%
Largest Investment Outstanding 1,400,000.00
Largest Investment as a % of Net Assets 10.87%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 50.63%
Second Trust Deeds 42.52%
Third Trust Deeds 5.36%
Fourth Trust Deeds 1.49%
-------------------
Total 100.00%
Mortgage Investments by Amount Percent
Type of Property
Owner Occupied Homes $1,104,742.08 8.22%
Non-Owner Occupied Homes 1,464,596.07 10.89%
Apartments 1,666,915.50 12.39%
Commercial 9,213,487.44 68.50%
------------------ -----------
Total $13,449,741.09 100.00%
* Footnotes on following page
The following is a distribution of Mortgage Investments outstanding as of
December 31, 1997 by Counties.
County Total Mortgage Percent
Investments
Alameda $3,756,697.83 27.93%
San Francisco 1,878,295.17 13.97%
Santa Clara 1,795,411.23 13.35%
Contra Costa 1,286,947.45 9.57%
Stanislaus 1,262,847.77 9.39%
San Mateo 1,215,051.36 9.03%
Solano 584,430.56 4.34%
Monterey 473,586.97 3.52%
Sonoma 369,725.52 2.75%
El Dorado 274,178.59 2.04%
Sacramento 260,004.46 1.93%
Santa Cruz 119,812.96 0.89%
Ventura 91,000.00 0.68%
Shasta 81,751.22 0.61%
------------------ -----------
Total $13,449,741.09 100.00%
* Redwood Mortgage Investors VII, together with other Redwood Partnerships,
hold a second and a fourth trust deed against the secured property. In addition,
the principals behind the borrower corporation have given personal guarantees as
collateral. The overall loan to value ratio at the inception of this loan was
76.52%. In addition to the borrower paying an interest rate of 12.25%, the
Partnership and other lenders will also participate in profits. The General
Partners have had previous loan activity with this borrower which had been
concluded successfully, with extra earnings earned for the other partnerships
involved.
Statement of Condition of Mortgage Investments
Number of Mortgage Investments in Foreclosure 2
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. Management anticipates that
the ultimate result of these cases will not have a material adverse effect on
the net assets of the Partnership, with due consideration having been given in
arriving at the allowance for doubtful accounts.
Item 4 - Submission of matters to vote of Security Holders (Partners).
No matters have been submitted to a vote of the Partnership.
Part II
Item 5 - Market for the Registrants Units and Related Partnership 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 partnerships are incorporated by
reference to the Prospectus (S-11) dated October 20, 1989, Table III pages 7
through 11 and Supplement No. 3 dated October 2, 1990 to Prospectus dated
October 20, 1989, Table III pages 27 through 33.
Financial condition and results of operation for the Partnership for three
years to December 31, 1997 were:
Balance Sheet
Assets
December 31,
------------------------------------------------------
1997 1996 1995
-------------- -------------- -------------
Cash $520,837 $755,089 $514,840
Accounts Receivable:
Mortgage Investments secured by Deeds of Trust 13,449,741 12,036,293 12,382,641
Accrued interest and other fees 427,952 264,495 940,541
Advances on Mortgage Investments 33,154 41,203 110,874
Other receivables - Unsecured 252,422 337,242 378,200
Less allowance for losses (424,738) (228,647) (200,000)
Real Estate Owned acquired through foreclosure at
estimated net realizable value 687,139 1,468,345 1,347,997
Partnership Interest 346,017 242,394 223,245
Organization cost net of amortization 0 0 368
-------------- -------------- -------------
$15,292,524 $14,916,414 $15,698,706
-------------- -------------- -------------
Liabilities and Partners Capital
December 31,
-------------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Liabilities:
Note payable - Bank $2,341,816 $1,175,000 $2,000,000
Accounts payable and accrued expenses 1,845 1,472 1,472
Discount of Mortgage Investments 69,316 154,598 0
-------------- -------------- --------------
2,412,977 1,331,070 2,001,472
Partners Capital:
General Partners 11,978 11,978 11,841
Limited Partners subject to redemption 12,867,569 13,573,366 13,685,393
-------------- -------------- --------------
Total Partners Capital 12,879,547 13,585,344 13,697,234
-------------- -------------- --------------
$15,292,524 $14,916,414 $15,698,706
-------------- -------------- --------------
Statement of Income
Gross revenue $1,623,863 $1,580,500 $1,483,881
Expenses 796,984 721,401 571,921
-------------- -------------- --------------
Net Income $826,879 $859,099 $911,960
-------------- -------------- --------------
Net income to General Partners (1%) $8,269 $8,591 $9,120
============== ============== ==============
Net Income to Limited Partners (99%) $818,610 $850,508 $902,840
============== ============== ==============
Net Income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $61 $60 $60
============== ============== ==============
- where partner receives income in monthly
distributions $59 $59 $58
============== ============== ==============
Net income in 1995 averaged at an annualized yield of 6.00%. In 1996, the
annualized yield was 6.02% and in 1997 the annualized yield was 6.10%. Average
annualized yield since inception through December 31, 1997, 7.90%
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, 1996, Partners Capital totaled $13,585,344.
At December 31, 1997, the Partnership Mortgage Investments outstanding
totalled $13,449,741. Mortgage Investments increased from $12,036,293 to
$13,449,741 during 1997, an increase of $1,413,448, chiefly due to the ability
of the General Partners to reduce the net amounts invested in real estate owned
(REO) by $781,206 during the year and by increasing the amount of Mortgage
Investments held at year end funded through the use of the bank line of credit
by increasing bank credit line borrowing to $2,341,816 as of December 31, 1997,
from $1,175,000 as of December 31, 1996. The ability of the Partnership to
invest the proceeds from the sale of REO and bank line of credit borrowings in
new Mortgage Investments was partially offset by withdrawals of income and
capital by the Limited Partners in the net amount of $705,797. Mortgage
Investments decreased slightly, by $346,348, during the year ended December 31,
1996, from $12,382,641 as of December 31, 1995, to $12,036,293 as of December
31, 1996. This Mortgage Investment reduction was due primarily to a reduced
usage of the bank line of credit. The effect of more outstanding Mortgage
Investments in 1997, was an increase in the gross amount of interest earned from
Mortgage Investments. The Partnership began funding Mortgage Investments on
December 27, 1989, and as of December 31, 1997, had credited the Partners
accounts with income at an average annualized (compounded) yield of 7.90%.
Currently, mortgage interest rates are lower than those prevalent at the
inception of the Partnership. New Mortgage Investments are being originated at
these lower interest rates. The result is a reduction of the average return
across the entire portfolio held by the Partnership. In the future, interest
rates likely will change from their current levels. The General Partners cannot
at this time predict at what levels interest rates will be in the future. The
General Partners believe the rates charged by the Partnership to its borrowers
will not change significantly in the immediate future. Based upon the rates
payable in connection with the existing Mortgage Investments, the current and
anticipated interest rates to be charged by the Partnership, and current reserve
requirements, the General Partners anticipate that the annualized yield next
year will range somewhat slightly higher from its current rate of 6.10%.
The Partnership has a line of credit with a commercial bank secured by its
Mortgage Investments to a limit of $3,000,000, at a variable interest rate set
at one half percent above the prime rate. As of December 31, 1997, it has
borrowed $2,341,816. This facility could increase as the Partnership capital
increases. This added source of funds helped in maximizing the Partnership yield
by allowing the Partnership to minimize the amount of funds in lower yield
investment accounts when appropriate Mortgage Investments are not currently
available. Since most of the Mortgage Investments made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit, once the required principal and interest payments on the line of
credit are paid to the bank, the Mortgage Investments funded using the line of
credit generate revenue for the Partnership. As of December 31, 1997, the
Partnership is current with its interest payments on the line of credit. In
1994, the Partnership incurred $135,790 of interest on note payables. The
interest rate on the line of credit was Prime + 3/4% and the Partnership was
able to maintain a positive spread between the cost of borrowing the funds and
interest earned on lending the funds. In 1995, the Partnership incurred $163,361
of interest on note payables reflecting a small increase in the overall average
credit balance outstanding. The Partnership still maintained a positive spread
between the cost of borrowing the funds and the interest earned in lending the
funds. In 1996, interest payments decreased to $127,454 reflecting the
Partnerships overall smaller average outstanding credit line balance due
primarily to a large number of Mortgage Investment payoffs. For the current year
through December 31, 1997, interest paid was $198,316 reflecting an overall
greater utilization of the credit line from the previous three years.
The Partnerships income and expenses, accruals and delinquencies are within
the normal range of the General Partners expectations, based upon their
experience in managing similar partnerships over the last twenty years. Borrower
foreclosures, as set forth under Results of Operations, are a normal aspect of
Partnership operations and the General Partners anticipate that they will not
have a material effect on liquidity. As of December 31, 1997, there were two
properties in foreclosure. Cash is constantly being generated from interest
earnings, late charges, pre-payment penalties, amortization of Mortgage
Investments and pay-off on notes. Currently, cash flow exceeds Partnership
expenses and earnings payout requirements. As Mortgage Investment opportunities
become available, excess cash and available funds are invested in new Mortgage
Investments.
The General Partners regularly review the Mortgage Investment portfolio,
examining the status of delinquencies, the underlying collateral securing these
properties, the REO expenses and sales activities, borrowers payment records,
etc. Data on the local real estate market and on the national and local economy
are studied. Based upon this information and other data, loss reserves are
increased of decreased. Because of the number on variables involved, the
magnitude of the possible swings and the General Partners inability to control
many of these factors, actual results may and do sometimes differ significantly
from estimates made by the General Partners. Management provided $306,779,
$419,437 and $434,495 as provision for doubtful accounts for the years ended
December 31, 1995, 1996 and 1997, respectively. The provision for doubtful
account increased by $112,658 in 1996 as the General Partners determined that
additional provision for doubtful accounts should be made to cover potential
losses in REO accounts or potential losses on unsecured receivables and
unspecified losses. The provision for doubtful account was increased by $15,058
in 1997, to $434,495 as the selling of REO accumulated primarily in the
California recession of the early to mid 1990s netted less proceeds than
originally anticipated and the General Partners further refinement of
anticipated sales proceeds on remaining REO, collections of unsecured
receivables, and additional provisions for unspecified losses. The Northern
California recession reached bottom in 1993. Since then, the California economy
has been improving, slowly at first, but now, more vigorously. This improvement
is reflective in increasing property values, in job growth, personal income
growth, etc., which all translates into an improved real estate market,
solidifying real estate values, and an attractive real estate lending
marketplace.
The Partnership interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling $346,017 and $242,394 for the years ended
December 31, 1997 and 1996, respectively has been invested with that of two
other Partnerships in a partnership which is in the process of obtaining
approval for constructing approximately 63 single family homes for sale. (The
Development). The proposed Development has gained significant public awareness.
Incorporated into the proposed Development are various mitigation measures not
limited to, mitigation of hazardous materials existing on the property,
endangered species, and proximity to the San Francisco Baylands. The preceding
issues and others have sparked significant public controversy. Opposition both
for and against the proposed Development exists. Notwithstanding the above, the
General Partners believe that pursuit of the proposed Development approval to be
in the interest of the Partnership. This investment has been classified in the
financial statements as Investment in 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, 1995, December 31, 1996 and December 31, 1997, the
Partnership made distributions of earnings to Limited Partners after allocation
of syndication costs of, $262,450, $327,887 and $399,379 respectively.
Distribution of Earnings to Limited Partners after allocation of syndication
costs for the years ended December 31, 1995, December 31, 1996 and December 31,
1997, to Limited Partners capital accounts and not withdrawn was $640,390,
$522,621, and $419,231 respectively. As of December 31, 1995, December 31, 1996
and December 31, 1997, Limited Partners electing to withdraw earnings
represented 36%, 44% and 53% of the Limited Partners capital.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1995, December 31,
1996, and December 31, 1997, $106,901, $412,798 and $475,348 respectivley, were
liquidated subject to the 10% penalty for early withdrawal. These withdrawals
are within the normally anticipated range that the General Partners would expect
in their experience in this and other partnerships. The General Partners expect
that a small percentage of Limited Partners will elect to liquidate their
capital accounts over one year with a 10% early withdrawal penalty. In
originally conceiving the Partnership, the General Partners wanted to provide
Limited Partners needing their capital returned a degree of liquidity.
Generally, Limited Partners electing to withdraw over one year need to liquidate
investment to raise cash. The trend the Partnership is experiencing in
withdrawals by Limited Partners electing a one year liquidation program
represents a small percentage of Limited Partner capital as of December 31,
1995, December 31, 1996 and December 31, 1997, respectively and is expected by
the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1995, December 31, 1996 and
December 31, 1997, $97,801, $318,902 and $737,568 respectively, were liquidated
by Limited Partners who have elected a liquidation program over a period of five
years or longer. This ability to withdraw after five years by Limited Partners
has the effect of providing Limited Partner liquidity which the General Partners
then expect a portion of the Limited Partners to avail themselves of. This has
the anticipated effect of the Partnership growing, primarily through
reinvestment of earnings in years one through five. The General Partners expect
to see increasing numbers of Limited Partner withdrawals in years five through
eleven, at which time the bulk of those Limited Partners who have sought
withdrawal have been liquidated. After year eleven, liquidation generally
subsides and the Partnership capital again tends to increase.
Actual liquidation of both capital and earnings from year five (1994)
through year eight (1997) is shown hereunder:
Years ended December 31,
1994 1995 1996 1997
------------- -------------- -------------- --------------
Earnings $263,206 270,760 336,341 399,379
Capital *$340,011 184,157 722,536 1,212,916
============= ============== ============== ==============
Total $603,217 $454,917 $1,058,877 $1,612,295
============= ============== ============== ==============
* These amounts represent gross of early withdrawal penalties.
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VII, a California Limited Partnership's list of
Financial Statements and Financial Statement schedules:
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VII are
included in Item 8:
Independent Auditors Report,
Balance Sheets - December 31, 1997, and December 31, 1996,
Statements of Income for the three years ended December 31, 1997,
Statements of Changes in Partners Capital for the three years ended December 31,
1997,
Statements of Cash Flows for the three years ended December 31, 1997,
Notes to Financial Statements - December 31, 1997.
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors
VII are included in Item 8.
Schedule II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule VIII Valuation of Qualifying Accounts
Schedule IX Short Term Borrowings
Schedule XII 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, 1997
(With Auditors Report Thereon)
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(510) 284-3590
INDEPENDENT AUDITORS REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1997 and 1996 and the
statements of income, changes in partners capital and cash flows for the three
years ended December 31, 1997. These financial statements are the responsibility
of the Partnerships management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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, 1997 and 1996, and the results of its operations and cash
flows for the three years ended December 31, 1997 in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ Parodi & Cropper
PARODI & CROPPER
Lafayette, California
February 27, 1998
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
-------------- --------------
Cash $520,837 $755,089
-------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 13,449,741 12,036,293
Accrued Interest on Mortgage Investments 427,952 264,495
Advances on Mortgage Investments 33,154 41,203
Accounts receivables, unsecured 252,422 337,242
-------------- --------------
14,163,269 12,679,233
Less allowance for doubtful accounts 424,738 228,647
-------------- --------------
13,738,531 12,450,586
-------------- --------------
Real estate owned, acquired through foreclosure, held for sale 687,139 1,468,345
Investment in partnership 346,017 242,394
-------------- --------------
$15,292,524 $14,916,414
============== ==============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Notes payable - bank line of credit $2,341,816 $1,175,000
Accounts payable and accrued expenses 1,845 1,472
Deferred Interest 69,316 154,598
-------------- --------------
2,412,977 1,331,070
-------------- --------------
Partners Capital
Limited partners capital, subject to redemption (Note 4E):
Net of Formation Loan receivable of $341,275 and $429,163 for
1997 and 1996, respectively 12,867,569 13,573,366
General partners capital, 11,978 11,978
-------------- --------------
Total Partners Capital 12,879,547 13,585,344
-------------- --------------
Total Liabilites and Partners Capital $15,292,524 $14,916,414
============== ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------- ------------- --------------
Revenues:
Interest on Mortgage Investments $1,593,335 $1,527,450 $1,464,136
Interest on bank deposits 7,882 10,228 8,407
Late charges 8,598 17,266 9,038
Other 14,048 25,556 2,300
------------- ------------- --------------
------------- ------------- --------------
1,623,863 1,580,500 1,483,881
------------- ------------- --------------
Expenses:
Mortgage sevicing fees 83,559 97,267 33,394
Interest on note payable - bank 198,316 127,454 163,361
Clerical costs through Redwood Mortgage 37,760 40,874 27,762
Amortization of organization costs 0 368 2,016
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 434,495 419,437 306,779
Professional services 25,107 18,802 19,557
Printing, supplies and postage 11,997 12,466 14,703
Other 5,750 4,733 4,349
------------- ------------- --------------
796,984 721,401 571,921
------------- ------------- --------------
Net Income $826,879 $859,099 $911,960
============= ============= ==============
Net income: To General Partners(1%) $8,269 $8,591 $9,120
To Limited Partners (99%) 818,610 850,508 902,840
============= ============= ==============
$826,879 $859,099 $911,960
============= ============= ==============
Net income per $1,000 invested by Limited
Partners for entire period:
-where income is reinvested and compounded $61 $ 60 $ 60
============= ============= ==============
-where partner receives income in monthly distributions $59 $ 59 $ 58
============= ============= ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
PARTNERS CAPITAL
---------------------------------------------------------------------------
LIMITED PARTNERS CAPITAL
---------------------------------------------------------------------------
Capital
Account Unallocated Formation
Limited Syndication Loan
Partners Costs Receivable Total
-------------- --------------- --------------- --------------
Balances at December 31, 1994 $13,839,989 $(97,088) $(604,939) $13,137,962
Formation Loan collections 0 0 80,542 80,542
Net income 902,840 0 0 902,840
Allocation of syndication costs (80,190) 80,190 0 0
Early withdrawal penalties (10,690) 3,310 7,346 (34)
Partners withdrawals (435,917) 0 0 (435,917)
-------------- --------------- --------------- --------------
Balances at December 31, 1995 14,216,032 (13,588) (517,051) 13,685,393
Formation Loan collections 0 0 62,225 62,225
Net income 850,508 0 0 850,508
Allocation of syndication costs (13,588) 13,588 0 0
Early withdrawal penalties (37,345) 0 25,663 (11,682)
Partners withdrawals (1,013,078) 0 0 (1,013,078)
-------------- --------------- --------------- --------------
Balances at December 31, 1996 $14,002,529 $0 $(429,163) $13,573,366
Foramtion Loan collections 0 0 60,223 60,223
Net Income 818,610 0 0 818,610
Early withdrawal penalties (40,258) 0 27,665 (12,593)
Partners withdrawals (1,572,037) 0 0 (1,572,037)
-------------- --------------- --------------- --------------
Balances at December 31, 1997 $13,208,844 $0 $(341,275) $12,867,569
============== =============== =============== ==============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
----------------------------------------------------------
Capital Account Unallocated Total
General Partners Syndication Costs Partners
Total Capital
------------------ ------------------- ------------ ----------------
Balances at December 31, 1994 $11,978 $(981) $10,997 $13,148,959
Formation Loan collections 0 0 0 80,542
Net income 9,120 0 9,120 911,960
Allocation of syndication costs (810) 810 0 0
Early withdrawal penalties 0 34 34 0
Partners withdrawals (8,310) 0 (8,310) (444,227)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1995 11,978 (137) 11,841 13,697,234
Formation Loan collections 0 0 0 62,225
Net income 8,591 0 8,591 859,099
Allocation of syndication costs (137) 137 0 0
Early withdrawal penalties 0 0 0 (11,682)
Partners withdrawals (8,454) 0 (8,454) (1,021,532)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1996 11,978 0 11,978 13,585,344
Formation Loan collections 0 0 0 60,223
Net income 8,269 0 8,269 826,879
Early withdrawal penalties 0 0 0 (12,593)
Partners withdrawals (8,269) 0 (8,269) (1,580,306)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1997 $11,978 $0 $11,978 $12,879,547
================== =================== ============ ================
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VII
(A Califonira Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------- ------------- -------------
Cash flows from operating activities:
Net income $826,879 $859,099 $911,960
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 368 2,016
Provision for doubtful accounts 374,499 204,398 74,812
Provision for losses on real estate held for sale 59,996 215,039 231,967
Early withdrawal penalty credited to income (12,593) (11,682) 0
(Increase) decrease in accrued interest & advances (155,408) 745,717 (284,506)
Increase (decrease) in accounts payable and accrued expenses 373 0 (1,501)
(Increase) decrease in amount due from or to Redwood Mortgage 0 0 (5,663)
Increase (decrease) in deferred interest on Mortgage Investments (85,282) 154,598 0
------------- ------------- -------------
Net cash provided by operating activities 1,008,464 2,167,537 929,085
------------- ------------- -------------
Cash flows from investing activities:
Principal collected on mortgage investments 6,278,832 8,923,339 1,980,879
Mortgage Investments made (7,841,128) (9,099,688) (3,592,507)
Additions to Real Estate held for sale (202,645) (147,733) (170,194)
Dispositions of real estate held for sale 979,115 200,250 1,198,211
Investment in partnership (103,623) (19,149) 0
------------- ------------- -------------
Net cash provided by (used in) investing activities (889,449) (142,981) (583,611)
------------- ------------- -------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank 1,166,816 (825,000) 70,370
Formation loan collections 60,223 62,225 80,542
Partners withdrawals (1,580,306) (1,021,532) (444,227)
------------- ------------- -------------
Net cash provided by (used in) financing activities (353,267) (1,784,307) (293,315)
------------- ------------- -------------
Net increase (decrease) in cash (234,252) 240,249 52,159
Cash - beginning of period 755,089 514,840 462,681
------------- ------------- -------------
Cash - end of period $520,837 $755,089 $514,840
============= ============= =============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the Partnership) is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Home Loan Co., dba
Redwood Mortgage, an affiliate of the General Partners. At September 30, 1992,
the offering had been closed with contributed capital totaling $11,998,359 for
limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As Mortgage
Investments were identified, partners were transferred from applicant status to
admitted partners participating in Mortgage Investment operations. Each months
income is allocated to partners based upon their proportionate share of partners
capital. Some partners have elected to withdraw income on a monthly, quarterly
or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (Units sold by General Partners) to 10%
of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General
Partners that arranges and services the Mortgage Investments. To finance the
sales commissions, the Partnership was authorized to loan to Redwood Mortgage an
amount not to exceed 8.3% of the gross proceeds provided that the Formation Loan
for the minimum offering period could be 10% of the gross proceeds for that
period. The Formation Loan is unsecured and is being repaid, without interest,
in ten installments of principal, over a ten year period commencing January 1,
1992. At December 31, 1992, Redwood Mortgage had borrowed $914,369 from the
Partnership to cover sales commissions relating to $11,998,359 limited partner
contributions (7.62%). Through December 31, 1997, $573,094 including $103,143 in
early withdrawal penalties, had been repaid leaving a balance of $341,275. The
Formation Loan, which is due from an affiliate of the General Partners, has
been deducted from Limited Partners capital in the balance sheet. As amounts
are collected from Redwood Mortgage, the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000 whichever was less. The General Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were
incurred by the Partnership. The sum of organization and syndication costs,
$425,794, approximated 3.55% of the gross proceeds contributed by the Partners.
Both the Organization and Syndication Costs have been fully amortized and
allocated to the Partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a mortgage investment, with due consideration for the
fair value of collateral, is less than the recorded investment, and related
amount due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was the
valuation method previously used on impaired loans.
At December 31, 1997, 1996 and 1995, reductions in the cost of Mortgage
Investments categorized as impaired by the Partnership totalled $0, $9,595, and
$0 respectively. The reduction in stated value was accomplished by increasing
the allowance for doubtful accounts.
As presented in Note 10 to the financial statements as of December 31,
1997, the average mortgage investment to appraised value of security at the time
the loans were consummated was 60.30%. When a loan is valued for impairment
purposes, an updating is made in the valuation of collateral security. However,
such a low loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 1997 and 1996:
December 31,
-----------------------------------------------
1997 1996
--------------- ---------------
Costs of properties $906,499 $1,655,786
Reduction in value 219,360 187,441
--------------- ---------------
Fair value reflected in financial statements $687,139 $1,468,345
=============== ===============
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
The Partnership accounts for its investment in a partnership as an
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell. At December 31, 1997, cost is considered less than fair
value and the investment is stated at cost in the financial statements.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $10,102 were capitalized and were
amortized over a five year period. Syndication costs of $415,692 were charged
against partners capital and were allocated to individual partners consistent
with the Partnership Agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral value, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
December 31, 1997 and 1996 was as follows:
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
December 31,
-----------------------------------------------
1997 1996
--------------- ---------------
Impaired mortgage investments $0 $9,595
Unspecified mortgage investments 284,738 19,052
Accounts receivable, unsecured 140,000 200,000
--------------- ---------------
$424,738 $228,647
=============== ===============
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 services in connection with the review, selection, evaluation,
negotiation and extension of Mortgage Investments in an amount up to 12% of the
principal through the period ending 6 months after the termination date of the
offering. Thereafter, loan brokerage commissions are 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, not an expense of the
Partnership.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, or such lesser amount as is reasonable and customary in the
geographic area where the property securing the Mortgage Investment is located.
Mortgage servicing fees of $83,559, $97,267 and $33,394 were incurred for years
1997, 1996 and 1995, respectively.
C. Asset Management Fee
The General Partners receive a monthly fee for managing the Partnerships
Mortgage Investment portfolio and operations of up to 1/32 of 1% of the net
asset value (3/8 of 1% annual). No management fees have been incurred for years
1997, 1996 and 1995, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
Mortgage assumption and Mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the General Partners.
E. Income and Losses
All income is credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) is a total of 1%.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
F. Operating Expenses The General Partners or their affiliate (Redwood
Mortgage) are reimbursed by the Partnership for all operating expenses actually
incurred by them on behalf of the Partnership, including without limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees, legal fees and expenses, postage and preparation of reports to
Limited Partners. Such reimbursements are reflected as expenses in the
Statements of Income.
G. General Partners Contributions
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering were admitted to limited
Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to
the Partnership until appropriate lending opportunities were available. During
the period prior to the time of admission, which ranged between 1-120 days,
purchasers subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnerships loan
portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As Mortgage Investments were made and partners were transferred to
regular status to begin sharing in income from Mortgage Investments secured by
deeds of trust, the interest credited was either paid to the investors or
transferred to Partners Capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five years, subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound for at least a period of 5 years.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is illiquid. Limited Partners have
no right to withdraw from the partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
certain degree of liquidity to the Limited Partners after the one-year
period, Limited Partners may withdraw all or part of their Capital Accounts from
the Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn as stated in the Notice of Withdrawal and will be
deducted from the Capital Account and the balance distributed in four quarterly
installments. Withdrawal after the one-year holding period and before the
five-year holding period will be permitted only upon the terms set forth above.
Limited Partners also have the right after five years from the date of
purchase of the Units to withdraw from the partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. Once this five year period expires, no penalty will be imposed if
withdrawal is made in twenty (20) quarterly installments or longer.
Notwithstanding the five-year (or longer) withdrawal period, the General
Partners will liquidate all or part of a Limited Partners capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given, subject to a
10% early withdrawal penalty applicable to any sums withdrawn prior to the time
when such sums could have been withdrawn pursuant to the five-year (or longer)
withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to
the Partnership and ending 3 months after the offering termination date, the
General partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling $346,017 has been invested with that of two
other Partnerships (total cost to date, primarily land, of $1,458,721) in a
partnership which is in the process of obtaining approval for constructing
approximately 63 single family homes for sale. Redwood Mortgage Investors V, VI
and VII have first priority on return of investment plus interest thereon, in
addition to a share of profits realized.
NOTE 6 - LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions. However, legal
actions against borrowers and other involved parties have been initiated by the
Partnership to help assure payments against unsecured accounts receivable
totalling $252,422 at December 31, 1997.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Management anticipates that the ultimate results of these cases will not
have a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its Mortgage
Investment portfolio of up to $3,000,000 at .50% over prime. The balances
outstanding as of December 31, 1997 and 1996 were $2,341,816, and $1,175,000
respectively, and the interest rate at December 31, 1997 was 9.00% (8.50% prime
+ .50%). The expiration date of the line of credit is September 1, 1998.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
-----------------------------------------------
1997 1996
---------------- ---------------
Net assets - Partners Capital per financial $12,879,547 $13,585,344
statements
Formation loan receivable 341,275 429,163
Allowance for doubtful accounts 424,738 228,647
---------------- ---------------
Net assets tax basis $13,645,560 $14,243,154
================ ===============
In 1997, approximately 68% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$13,449,741. The December 31, 1997 fair value of these investments of
$13,572,988 is 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, 1997
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
December 31, 1997, there were 62 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 62
Total Mortgage Investments outstanding $13,449,741
Average Mortgage Investment outstanding $216,931
Average Mortgage Investment as percent of total 1.61%
Average Mortgage Investment as percent of Partners Capital 1.68%
Largest Mortgage Investment outstanding $1,400,000
Largest Mortgage Investment as percent of total 10.41%
Largest Mortgage Investment as percent of Partners Capital 10.87%
Number of counties where security is located(all California) 14
Largest percentage of Mortgage Investments in one county 27.93%
Average Mortgage Investment to appraised value of security at time
loan was consummated 60.30%
Number of Mortgage Investments in foreclosure 2
The following categories of mortgage investments are pertinent at December
31, 1997 and 1996:
December 31,
------------------------------------------
1997 1996
----------------- ---------------
First Trust Deeds $6,810,113 $4,199,552
Second Trust Deeds 5,719,369 6,913,853
Third Trust Deeds 720,258 722,887
Fourth Trust Deeds 200,001 200,001
----------------- ---------------
Total mortgage investments 13,449,741 12,036,293
Prior liens due other lenders 17,951,579 22,069,554
----------------- ---------------
Total debt $31,401,320 $34,105,847
================= ===============
Appraised property value at time of loan $52,077,885 $51,863,991
================= ===============
Total investments as a percent of appraisals 60.30% 65.76%
================= ===============
Investments by Type of Property
Owner occupied homes $1,104,742 $1,742,767
Non-Owner occupied homes 1,464,596 1,112,274
Apartments 1,666,916 1,325,872
Commercial 9,213,487 7,855,380
================= ===============
$13,449,741 $12,036,293
================= ===============
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Scheduled maturity dates of mortgage investments as of December 31, 1997
are as follows:
Year Ending
December 31,
-------------------
1998 $3,960,683
1999 2,182,183
2000 1,508,571
2001 1,074,979
2002 1,322,030
Thereafter 3,401,295
===============
$13,449,741
===============
The scheduled maturities for 1998 include approximately $1,313,029 in
eleven mortgage investments which are past maturity at December 31, 1997.
Interest payment on most of these loans are current. $110,000 of those Mortgage
Investments were categorized as delinquent over 90 days.
Five mortgage investments with principal outstanding of $480,895 had
interest payments overdue in excess of 90 days. Two Mortgage Investments with
principal outstanding of $245,250 were considered impaired at December 31, 1997.
That is interest accruals are no longer recorded thereon.
The cash balance at December 31, 1997 of $520,837 was in one bank with an
interest bearing balance totalling $502,583. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $420,837. This bank is the same
financial institution that has provided the Partnership with the $3,000,000
limit line of credit. At December 31, 1997, draw down against this facility was
$2,341,816. As and when deposits in the Partnerships bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
Mortgage Investments or used to pay-down on the line of credit balance.
SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03
Column A Column B Column C Column D Column E
Name of Debtor Balance Beginning Additions Deductions Balance at end of period
of period 12/31/96 (1) (2) (1) (2)
Amounts Amounts Current Not Current
collected written off 12/31/97
Redwood Mortgage . $429,163 $0.00 $60,223 $27,665* $0.00 $341,275
The above schedule represents the Formation Loan borrowed by Redwood
Mortgage from the Partnership to pay for the selling commissions on Units. It is
an unsecured loan and will not bear interest. It is being repaid to the
Partnership in ten annual installments of principal only which began January 1,
1992.
* The amount written off represents the proportionate amount of early
withdrawal penalties allocated to the Formation Loan as provided for in the
Prospectus.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VII
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 *
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/97
Deducted from
Asset accounts:
Allowance for
Doubtful accts $228,647 $374,499 $0 $178,408 $424,738
Cumulative
write-down of
Real Estate held
for sale (REO) $187,441 $59,996 $0 $28,077 $219,360
-------------- ------------- ------------- ----------- --------------
Total $416,088 $434,495 $0 $206,485 $644,098
============= ============== ============= =========== ==============
(*) represents loss on Mortgage Investments and real estate held for sale.
SCHEDULE IX
SHORT TERM BORROWINGS
REDWOOD MORTGAGE INVESTORS VII
RULE 12-10
Column A Column B Column C Column D Column E Column F
Category of Aggregate Balance at End Weighted Average Maximum Amount Average Amount Weighted Average
Short-Term Borrowings of Period Interest Rate Outstanding Outstanding Interest Rate
during
During the Period During the Period the period
======================= ================ =================== ===================== =================== ===================
Year-Ended 12/31/97 $2,341,816 9.204% $3,000,000 $2,154,728 9.2041%
SCHEDULE XII
MORTGAGE INVESTMENTS 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 Amt. Carrying Principal Type of Geographic
Rate Maturity Payment Liens of amount of amount of Lien County
Date Terms Mortgage Mortgage Mortgage Location
Investments Investments Investments
(original subject to
amount) Delinq.
Principal
or Interest
========= ========= ========= =========== ========== ============ ============ ============ ========= ==============
Res. 13.000% 01/01/03 999.54 15,400 79,000.00 47,101.66 0.00 1st Mtg San Mateo
Res 10.000% 08/01/97 388.67 309,872 45,000.00 46,566.02 0.00 3rd Mtg San Mateo
Res 15.250% 04/01/95 588.29 11,601 45,800.00 44,430.56 0.00 1st Mtg Solano
Res 13.750% 10/01/96 916.67 369,163 80,000.00 80,000.00 0.00 1st Mtg San Mateo
Res 13.750% 10/01/96 988.28 0.00 86,250.00 86,250.00 0.00 1st Mtg Santa Clara
Res 12.500% 02/01/07 369.76 0.00 30,000.00 24,106.62 0.00 1st Mtg Santa Cruz
Res 10.000% 04/17/97 132.08 126,800 15,850.00 15,781.88 0.00 1st Mtg Sonoma
Land 15.000% 06/01/93 1,375.00 210,000 110,000.00 110,000.00 0.00 3rd Mtg Sacramento
Land 15.500% 07/15/94 1,453.13 0.00 112,500.00 112,500.00 0.00 1st Mtg San Mateo
Comm 12.000% 05/01/98 4,517.38 796,163 439,172.47 428,442.12 0.00 3rd Mtg Contra Costa
Comm 12.250% 01/01/98 4,083.36 354,077 400,002.42 400,002.42 0.00 1st Mtg Contra Costa
Res 12.000% 01/10/04 150.00 208,000 15,000.00 7,707.25 0.00 1st Mtg San Mateo
Comm 12.000% 06/01/98 2,038.01 0.00 239,850.00 194,790.33 0.00 1st Mtg Sonoma
Apts 6.500% 05/01/06 540.83 89,904 75,000.00 96,716.11 0.00 1st Mtg Sacramento
Res 12.000% 07/01/98 3,085.84 85,930 300,000.00 274,178.59 274,178.59 1st Mtg El Dorado
Res 12.750% 07/01/08 370.90 236,164 29,700.00 25,765.41 0.00 1st Mtg San Mateo
Res 13.500% 09/01/08 1,647.07 106,044 126,861.90 112,200.55 0.00 1st Mtg Contra Costa
Comm 12.000% 09/01/03 848.61 0.00 82,500.00 80,900.20 0.00 1st Mtg Alameda
Comm 12.000% 11/01/98 2,057.23 5,635 200,000.00 53,288.35 0.00 1st Mtg Sacramento
Comm 10.000% 12/01/98 647.21 0.00 73,750.00 72,847.32 0.00 1st Mtg Stanislaus
Comm 12.250% 01/01/98 2,080.84 891,453 114,286.40 200,001.20 0.00 4th Mtg Contra Costa
Comm 10.000% 12/01/98 3,619.98 0.00 412,500.00 406,541.72 0.00 1st Mtg Alameda
Comm 7.000% 12/01/03 575.74 281,250 49,586.38 40,560.78 0.00 1st Mtg Alameda
Comm 12.000% 02/01/99 3,420.75 0.00 335,638.30 335,638.30 0.00 1st Mtg Santa Clara
Land 12.000% 07/01/96 1,352.50 679,258 135,250.00 135,250.00 135,250.00 3rd Mtg Sonoma
Res 11.000% 10/01/99 571.39 478,120 60,000.00 59,032.95 0.00 1st Mtg San Mateo
Land 13.750% 12/20/96 7,366.08 338,793 757,144.25 240,000.45 0.00 1st Mtg Stanislaus
Apts 7.000% 02/10/05 234.06 160,500 40,125.00 40,125.00 0.00 1st Mtg San Francisco
Res 12.000% 03/01/98 1,562.62 0.00 280,000.00 153,320.99 0.00 1st Mtg Alameda
Apts 11.500% 04/01/05 453.88 0.00 550,000.00 45,833.34 0.00 1st Mtg San Francisco
Comm 11.875% 02/01/06 4,437.00 0.00 425,000.00 419,631.26 0.00 1st Mtg San Mateo
Comm 12.000% 12/31/01 9,792.73 5,492,794 955,000.00 979,272.93 0.00 1st Mtg Santa Clara
Land 12.000% 02/01/97 3,822.50 0.00 382,250.00 382,250.00 0.00 1st Mtg Santa Clara
Apts 12.000% 02/01/98 1,538.89 60,738 1,427,500.00 84,241.05 0.00 1st Mtg San Francisco
Comm 12.000% 02/01/99 124.00 312,000 12,000.00 12,000.00 0.00 1st Mtg Santa Clara
Res 13.000% 12/01/99 704.17 0.00 65,000.00 65,000.00 0.00 1st Mtg Ventura
Res 13.000% 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 1st Mtg Ventura
Res 13.000% 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 1st Mtg Ventura
Res 12.000% 01/01/98 1,700.00 0.00 170,000.00 170,000.00 0.00 1st Mtg Alameda
Land 12.000% 01/01/00 9,500.00 89,692 950,000.00 950,000.00 0.00 1st Mtg Stanislaus
Apts 10.750% 04/01/07 12,541.67 5,222,598 1,400,000.00 1,400,000.00 0.00 1st Mtg Alameda
Land 12.000% 05/01/99 2,354.00 0.00 235,400.00 235,400.00 0.00 1st Mtg San Mateo
Res 11.500% 11/01/98 2,012.50 0.00 210,000.00 210,000.00 0.00 1sst Mtg San Francisco
Comm 11.500% 05/01/99 5,366.67 0.00 560,000.00 560,000.00 0.00 1st Mtg Alameda
Comm 12.000% 07/01/02 10,500.00 0.00 1,350,000.00 1,050,000.00 0.00 1st Mtg San Francisco
Res 12..00% 01/01/99 3,626.03 250,668 700,000.00 395,015.54 0.00 1st Mtg Monterey
Res 9.000% 09/01/07 154.77 61,645 12,217.98 12,027.14 0.00 1st Mtg San Mateo
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 Amt. Carrying Principal Type of Geographic
Rate Maturity Payment Liens of amount of amount of Lien County
Date Terms Mortgage Mortgage Mortgage Location
Investments Investments Investments
(original subject to
amount) Delinq.
Principal
or Interest
========= ========= ========= =========== ========== ============ ============ ============ ========= ==============
Res 10.500% 10/01/01 865.34 138,202 110,000.00 95,706.34 0.00 1st Mtg Santa Cruz
Res 11.500% 04/01/99 9,993.00 210,000 561,750.00 85,665.18 0.00 1st Mtg San Francisco
Land 13.000% 10/01/00 5,200.00 0.00 480,000.00 480,000.00 0.00 1st Mtg Solano
Land 12.000% 05/01/99 460.00 235,400 46,000.00 46,000.00 0.00 1st Mtg San Mateo
Res 12.000% 05/01/99 1,162.80 0.00 1,225,000.00 362,430.60 0.00 1st Mtg San Francisco
Comm. 12.000% 01/01/03 8,328.21 0.00 1,075,000.00 832,820.75 0.00 1st Mtg Alameda
Comm 9.000% 08/06/02 371.29 17,382 46,803.50 43,977.26 0.00 1st Mtg Alameda
Comm 8.000% 09/01/03 976.00 0.00 133,000.00 123,319.67 0.00 1st Mtg San Mateo
Res 8.000% 05/01/09 753.50 0.00 81,825.00 68,576.13 0.00 1st Mtg Alameda
Comm 9.000% 05/10/02 670.52 0.00 83,333.33 81,751.22 0.00 1st Mtg Shasata
Res 8.000% 09/27/00 530.79 106,333 79,619.05 78,571.43 0.00 1st Mtg Monterey
Land 8.000% 12/01/97 400.00 0.00 60,000.00 60,000.00 0.00 1st Mtg Solano
Res 8.000% 09/18/03 87.56 0.00 11,932.83 11,806.37 0.00 1st Mtg Sonoma
Res 8.000% 09/30/03 89.71 0.00 12,225.92 12,096.94 0.00 1st Mtg Sonoma
Comm 7.000% 07/01/02 1,037.78 0.00 146,666.66 146,301.16 0.00 1st Mtg Contra Costa
Totals $147,818.79 $17,951,579 $18,458,291.39 $13,449,741.09 $409,428.59
Notes: Mortgage Investments classified as impaired Mortgage Investments had
principal balances totalling $245,250 at December 31, 1997. Impaired Mortgage
Investments are defined as Mortgage Investments 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 Mortgage Investments)
represents both costs and the tax basis of the Mortgage Investments.
Schedule XII
Reconciliation of carrying amount (cost) of Mortgage Investments at close
of periods
Year ended December 31,
----------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Balance at beginning of year 12,036,293 $12,382,641 $11,345,566
--------------- --------------- ---------------
Additions during period:
New Mortgage Investments 7,841,128 9,099,688 3,592,507
Other 0 0 0
--------------- --------------- ---------------
Total Additions 7,841,128 9,099,688 3,592,507
--------------- --------------- ---------------
Deduction during period:
Collections of principal 6,278,832 8,923,339 1,980,879
Foreclosures 148,848 492,697 485,322
Cost of Mortgage Investments sold 0 0 0
Amortization of Premium 0 0 0
Other 0 30,000 89,231
--------------- --------------- ---------------
Total Deductions 6,427,680 9,446,036 2,555,432
--------------- --------------- ---------------
Balance at close of year $13,449,741 $12,036,293 $12,382,641
=============== =============== ===============
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Partnership has neither changed its accountants nor does it have any
disagreement on any matter of accounting principles or practices of financial
statement 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 three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwells are
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, 1997. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Description of Compensation and Services Rendered Amount
Compensation
- ------------------------------------------------------------------ ------------
I. Redwood Mortgage Mortgage Servicing Fee for servicing
Mortgage Investments $83,559
General Partners &/or
Affiliate Asset Management Fee for managing assets $0
General Partners 1% interest in profits $8,269
II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES
RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT
OF THE PARTNERSHIP)
Redwood Mortgage. Mortgage Brokerage Commissions for services in
connection with the review, selection,
evaluation, negotiation, and extension of the
Mortgage Investments paid by the borrowers and
not by the Partnership $377,101
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $6,196
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. $37,760
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The General Partners are to own a combined total of 1% of the Partnership
including 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
24.1 Consent of Parodi & Cropper
24.2 Consent of Stephen C. Ryan & Associates.
All of these exhibits were previously filed as the exhibits to Registrants
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.
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 23rd day of March,
1998.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 23rd day of March, 1998.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------
D. Russell Burwell General Partner March 23, 1998
/S/ Michael R. Burwell
- -----------------------
Michael R. Burwell General Partner March 23, 1998
/S/ D. Russell Burwell
- -----------------------
D. Russell Burwell President of Gymno Corporation, March 23, 1998
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ----------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 23, 1998
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation