FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended September 30, 1996
- --------------------------------------------------------------------------------
Commission file number 33-49946
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
- -------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
- ------------------------------------- -------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
- -------------------------------------------------------------------------------
(address of principal executive office)
(415) 365-5341
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
- ------------------------- ----------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
- --------- ------------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
<TABLE>
Part I
Item 1
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
Balance Sheets
December 31, 1995 (audited)
and September 30, 1996 (unaudited)
<CAPTION>
ASSETS
Sept. 30, 1996 Dec. 31, 1995
(unaudited) (audited)
<S> <C> <C>
Cash ......................................................................................... $ 1,045,407 $ 380,318
----------- -----------
Accounts receivable:
Mortgage investments, secured by deeds of trust ........................................... 13,906,082 12,047,252
Accrued Interest on Mortgage Investments .................................................. 132,055 113,301
Advances on Mortgage Investments .......................................................... 2,800 8,431
Accounts receivable - unsecured ........................................................... 74,988 71,316
----------- -----------
14,115,925 12,240,300
Less Allowance for doubtful accounts ...................................................... 75,000 39,152
----------- -----------
14,040,925 12,201,148
----------- -----------
Real estate owned, acquired through foreclosure,
at estimated net realizable value ......................................................... 211,838 0.00
Formation loan due from Redwood Home Loan Co. ................................................ 1,008,742 775,229
Organization Costs, less accumulated amortization of
$7,500 and $5,625, respectively .......................................................... 5,000 6,875
Due from related companies ................................................................... 0.00 3,049
Prepaid Expenses - deferred loan fee ......................................................... 10,126 17,718
----------- -----------
$16,322,038 $13,384,337
=========== ===========
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Accounts payable and accrued expenses ...................................................... $ 0.00 $
4,010
Notes payable - bank line of credit ........................................................ 1,410,000 1,910,000
Subscriptions to Partnerships in applicant status .......................................... 718,238 0.00
----------- -----------
2,128,238 1,914,010
Partners capital ............................................................................ 14,193,800 11,470,327
----------- -----------
$16,322,038 $13,384,337
=========== ===========
<FN>
See accompanying notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (unaudited)
<CAPTION>
9 mos.ended 9 mos. ended 3 mos. ended 3 mos. ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept.30,1995
1996 (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Investments ..................... $1,154,561 628,481 414,048 232,798
Interest on bank deposits ............................ 2,819 10,782 1,402 3,954
Late Charges ......................................... 3,592 2,934 1,533 1,212
Miscellaneous ........................................ 412 464 112 113
---------- ---------- ---------- ----------
1,161,384 642,661 417,095 238,077
---------- ---------- ---------- ----------
Expenses:
Interest on Note Payable .............................. 172,292 0.00 61,654 0.00
Amortization of loan origination fee .................. 7,593 0.00 2,531 0.00
General partner management fees ....................... 12,081 8,131 4,321 3,067
Amortization of organization costs .................... 1,875 1,875 625 625
Clerical costs thru Redwood Mortgage................... 27,574 15,612 9,927 5,983
Professional Fees ..................................... 16,686 15,591 472 2,430
Provision for doubtful accounts ....................... 44,261 7,462 25,176 2,462
Printing, Supplies & Postage .......................... 993 92 0.00 0.00
Other ................................................. 3,937 1,299 27 74
---------- ---------- ---------- ----------
287,292 50,062 104,733 14,641
---------- ---------- ---------- ----------
Income before interest credited to
partners
in applicant status .................................. 874,092 592,599 312,362 223,436
Interest credited to partners in applicant status....... 1,854 13,636 758 7,567
---------- ---------- ---------- ----------
Net Income ............................................. $ 872,238 578,963 311,604 215,869
========== ========== ========== ==========
Net income: to General Partners (1%) ................... $ 8,722 5,790 3,116 2,159
Net income: to Limited Partners (99%) .................. 863,516 573,173 308,488 213,710
========== ========== ========== ==========
$ 872,238 578,963 311,604 215,869
========== ========== ========== ==========
Net income per $1,000 invested by
Limited
Partners for entire period:
-Where income is reinvested and compounded............ $ 62.32 $ 61.86 $ 20.37 $ 20.15
---------- ---------- ---------- ----------
-Where partner receives income in
monthly distributions ........................... $ 60.66 $ 60.23 $ 20.23 $ 20.02
---------- ---------- ---------- ----------
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (unaudited)
<CAPTION>
Sept. 30, 1996 Sept. 30, 1995
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income: ........................................................................... $ 872,238 $ 578,963
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of organization costs .................................................. 1,875 1,875
Increases in allowances for doubtful accounts ....................................... 35,848 7,462
(Increase) decrease in accrued interest and advances ................................ (13,123) (48,823)
(Increase) decrease in prepaid expenses and other assets ............................ 7,592 (20,250)
(Increase) decrease in amount due from related companies ............................ 3,049 0.00
Increase (decrease) in accounts payable ............................................. (4,010) 0.00
----------- -----------
Net cash provided by operating activities ............................................. 903,469 519,227
----------- -----------
Cash flows from investing activities:
Net (increase) decrease in Real Estate acquired through foreclosure .................. (211,838) 0.00
Net (increase) decrease in mortgage investments ...................................... (1,858,830) (4,043,460)
Net (increase) decrease in formation loan ............................................ (233,513) (212,028)
Net (increase) decrease in account receivable -unsecured ............................. (3,672) (70,927)
----------- -----------
Net cash used in investing activities .............................................. (2,307,853) (4,326,415)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in note payable - Bank ........................................... (500,000) 1,009,000
Contributions by partner applicants .................................................. 3,108,444 3,040,052
Interest credited to partners in applicant status .................................... 1,854 13,636
Interest withdrawn by partners in applicant status ................................... (818) (6,609)
Partners withdrawals ................................................................. (398,932) (218,663)
Early withdrawal penalties, net ...................................................... (4,264) 0.00
Syndication costs incurred ........................................................... (136,811) (119,310)
----------- -----------
Net cash provided by financing activities .......................................... 2,069,473 3,718,106
----------- -----------
Net increase (decrease) in cash and cash equivalents ................................... 665,089 (89,082)
Cash and cash equivalent at the beginning of period .................................... 380,318 397,176
=========== ===========
Cash and cash equivalent balance at the end of period .................................. 1,045,407 308,094
=========== ===========
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS CAPITAL
FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,
THROUGH DECEMBER 31, 1995 (audited) and for the
NINE MONTHS ENDED SEPTEMBER 30, 1996 (unaudited)
<CAPTION>
PARTNERS CAPITAL
-------------------------------------------------------------
PARTNERS IN UNALLOCATED
APPLICANT GENERAL LIMITED SYNDICATION
STATUS PARTNERS PARTNERS COSTS TOTAL
------------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Contribution on application ...... $2,890,530 0.00 0.00 0.00 0.00
Interest credited to Partners
in appl status.................... 4,641 0.00 0.00 0.00 0.00
Upon admission to Partnership:
Interest withdrawal ........... (1,956) 0.00 0.00 0.00 0.00
Transfer to Partners Capital . (2,764,443) 2,887 2,761,556 0.00 2,764,443
Net income ....................... 0.00 1,050 103,965 0.00 105,015
Syndication costs incurred ....... 0.00 0.00 0.00 (199,564) (199,564)
Allocation of syndication costs .. 0.00 (92) (9,130) 9,222 0.00
Partners withdrawals ............ 0.00 (958) (46,856) 0.00 (47,814)
------------ ------------ -------------- --------- ----------
Balances at December 31, 1993 .... 128,772 2,887 2,809,535 (190,342) 2,622,080
Contribution on application ...... 4,560,683 0.00 0.00 0.00 0.00
Interest credited to Partners
in appl. status................... 14,443 0.00 0.00 0.00 0.00
Upon admission to Partnership:
Interest withdrawn ............ (5,774) 0.00 0.00 0.00 0.00
Transfer to Partners capital . (4,508,824) 4,542 4,504,282 0.00 4,508,824
Net income ....................... 0.00 4,099 405,770 0.00 409,869
Syndication costs incurred ....... 0.00 0.00 0.00 (81,023) (81,023)
Allocation of syndication costs .. 0.00 (347) (34,349) 34,696 0.00
Partners withdrawals ............ 0.00 (3,444) (165,814) 0.00 (169,258)
------------ ------------ ------------ --------- ----------
Balances at December 31, 1994 .... 189,300 7,737 7,519,424 (236,669) 7,290,492
Contribution on application ...... 3,634,264 0.00 0.00 0.00 0.00
Interest credited to Partners
in appl. status................... 18,908 0.00 0.00 0.00 0.00
Upon admission to Partnership:
Interest withdrawn ............ (7,673) 0.00 0.00 0.00 0.00
Transfer to Partners capital . (3,834,799) 3,588 3,831,211 0.00 3,834,799
Net income ....................... 0.00 8,368 828,465 0.00 836,833
Syndication costs incurred ....... 0.00 0.00 0.00 (175,334) (175,334)
Allocation of syndication costs .. 0.00 (859) (85,045) 85,904 0.00
Partners withdrawals ............ 0.00 (7,509) (308,554) 0.00 (316,063)
Early withdrawal penalties ....... 0.00 0.00 (564) 164 (400)
------------ --------- ---------- -------- ----------
Balances at December 31, 1995 .... 0.00 11,325 11,784,937 (325,935) 11,470,327
Contribution on application ...... 3,107,004 0.00 0.00 0.00 0.00
Contribution, premium account * .. 1,440 0.00 0.00 0.00 0.00
Interest credited to partners ....
in appl. status................... 1,854 0.00 0.00 0.00 0.00
Upon admission to Partnership:
Interest withdrawn ............ (818) 0.00 0.00 0.00 0.00
Transfer to Partners capital . (2,391,242) 1,253 2,389,989 0.00 2,391,242
Net income ....................... 0.00 8,722 863,516 0.00 872,238
Syndication costs incurred ....... 0.00 0.00 0.00 (136,811) (136,811)
Allocation of syndication costs .. 0.00 (835) (82,665) 83,500 0.00
Partners withdrawals ............ 0.00 (7,887) (391,045) 0.00 (398,932)
Early withdrawal penalties ....... 0.00 0.00 (6,836) 2,572 (4,264)
------------ --------- ---------- -------- ----------
Balances at September 30, 1996... $ 718,238 $ 12,578 $ 14,557,896 $(376,674) $ 14,193,800
============ ========== ============ ========== ============
<FN>
* Refer to the last paragraph under Item II Management Discussion and Analysis of Financial Condition and Results of
Operations.
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 (audited) and
SEPTEMBER 30, 1996 (unaudited)
1. ORGANIZATION AND GENERAL Redwood Mortgage Investors VIII, (the
Partnership), is a California Limited Partnership, of which the General
Partners are D. Russell Burwell, Michael R. Burwell (Individual General
Partners) 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). Mortgage investments are being arranged and serviced by Redwood
Home Loan Co. (RHL Co.), dba Redwood Mortgage, an affiliate of the General
Partners. At September 30, 1996, the Partnership was in the offering stage,
wherein contributed capital totalled $14,180,211 in limited partner
contributions of an approved $15,000,000 issue, in units of $100 each. Of this
amount, $718,238 remained in applicant status at September 30, 1996.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) are being offered through qualified broker-dealers. As mortgage
investments are identified, partners are transferred from applicant status to
admitted partners participating in mortgage investment operations. Each months
income is distributed 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 gross proceeds are being paid by RHL
Co., an affiliate of the General Partners that arranges and services the
mortgage investments. To finance the sales commissions, the Partnership will
loan to RHL Co., an amount not to exceed 9.1% of the gross proceeds; provided
that amounts funded under the Formation Loan, until the minimum offering amount
was obtained, could equal up to 10% of gross proceeds. The General partners have
estimated that the Formation Loan will approximate 7.1% of the gross proceeds.
The Formation Loan will be unsecured, and will be repaid, without interest, in
ten annual installments of principal, which will commence on January 1,
following the year the offering closes. At September 30, 1996, Redwood Mortgage
had borrowed $1,013,406 from the Partnership to cover sales commissions relating
to $14,180,211 Limited Partners contributions to date. The Formation loan
balance at the end of September, 1996 was $1,008,742 after applying a credit of
$4,664 gained through early withdrawal penalties.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, registration and filing fees, and other costs), will be paid by
the Partnership up to 10% of the gross proceeds of the offering or $600,000,
whichever is less. The General Partners will pay any amount of such expenses in
excess of the lesser of 10% of the gross proceeds or $600,000.
At September 30, 1996, organization costs of approximately $12,500 and
offering costs of $557,996, net of early withdrawal penalties applied, and
amount spent on the extended offering had been incurred by the Partnership,
which is less than the 10% of the gross proceeds limitation indicated above. It
is anticipated that ultimately the sum of organization and offering costs will
be less than the present level of 4.02% of the gross proceeds contributed by the
Partners.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and expenses are accounted for on the accrual basis of accounting.
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, and filling fees.
Organizational costs have been capitalized and will be amortized over a five
year period. Syndication costs are charged against partners capital and will be
allocated to individual partners consistent with the partnership agreement.
When property is acquired through foreclosure, it will be held for prompt
sale to return the funds to the mortgage investment portfolio. Such property is
recorded at cost, which includes the principal balance of the former loan made
by the Partnership, plus accrued interest, payments made to keep the senior
loans current, costs of obtaining title and possession, less rental income, or
at estimated net realizable value. The difference between such costs and
estimated net realizable value will be deducted from cost in the Balance Sheet
to arrive at the carrying value of such property. At September 30, 1996, there
was a property acquired through foreclosure stated at $211,838.
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 to provide for unrecoverable
accounts receivable.
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 period. Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through foreclosure. Actual results could differ significantly from these
estimates.
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.
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 make or withdraw 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.
The interim financial statements dated September 30, 1996, are unaudited,
but in the opinion of the General Partners all adjustments (consisting soley of
normal adjustments) necessary to a fair presentation of the financial statements
at September 30, 1996, have been made.
<PAGE>
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. Loan Brokerage Commissions
Fees in connection with the review, selection, evaluation, negotiation, and
extension of Partnership mortgage investments in an amount up to 12% of loans
until six months after the termination date of the offering are paid to Redwood
Mortgage. Thereafter, loan brokerage commissions 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, not an expense of the
Partnership.
B. Loan Servicing Fees
Monthly loan servicing fees of up to the lesser of 1/8 of 1% (1.5% annual)
of the unpaid principal is paid to Redwood Mortgage or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Currently, such servicing fees are at 1/12 of 1% per month (1%
annually). Amounts remitted to the Partnership and recorded as interest on
mortgage investments is net of such fees. In 1993, $3,028 of the total loan
servicing fees of $8,528 were waived by Redwood Mortgage. In 1994, $15,278 of
the total loan servicing fees of $44,405 were also waived. In 1995, and for the
nine months through September 30, 1996, Redwood Mortgage received the total loan
servicing fees earned of $85,456 and $105,595 respectively.
C. Asset Management Fee
The General Partners will receive a monthly fee for managing the
Partnerships mortgage investments and operations equal to up to 1/32 of 1% of
the net asset value (3/8 of 1% per year). Such fees were reduced from $4,331 to
$192 in 1993, with the difference being waived by the General Partners. Fees
were reduced from $17,718 to $5,906 in 1994 with the difference being waived. In
1995, fees were reduced from $34,773 to $11,587 and for the nine months through
September 30, 1996, the fees were also reduced from $36,243 to $12,081 with the
difference being waived by the General Partners.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
loan assumption and loan 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 will be credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
partners (combined) shall be a total of 1%. F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. Such
reimbursements are reflected as expenses in the Statement of Income.
The General Partners, collectively or severally are to contribute an amount
equal to 1/10 of 1% of cash contributions as proceeds from the offering are
admitted to Limited Partner capital. As of September 30, 1996, a General
Partner, GYMNO Corporation, had contributed $12,270 as capital in accordance
with Section 4.02 (a) of the Partnership Agreement. The computed amount is
$14,180 and the difference will be made up by December 31, 1996.
4. OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units are not admitted to
the Partnership until needed for appropriate lending opportunities or other
proper Partnership purposes. During the period prior to the time of admission,
which is anticipated to be between 1 -120 days in most cases, purchasers
subscriptions will remain irrevocable and will earn interest at money market
rates, which are lower than the anticipated return on the Partnerships mortgage
investment portfolio.
<PAGE>
During the periods ending December 31, 1995, 1994, and 1993, and for the
nine months ended September 30, 1996, interest totalling $18,908, $14,443,
$4,641 and $1,854 respectively, was credited to partners while they were in
applicant status. As funds were needed, applicants were transferred to regular
status to begin sharing in income from loans 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, except as discussed 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
subscription, investors elect either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, an investor may subsequently change his election.
E. Liquidity, Capital Withdrawals and Early Withdrawals There are
substantial restrictions on transferability of Units and accordingly an
investment in the Partnership is illiquid. Limited Partners have no right to
withdraw from the Partnership or to obtain the return of their capital account
for at least one year from the date of purchase of units. In order to provide a
certain degree of liquidity to the Limited Partners after the one-year period,
Limited Partners may withdraw all or part of their Capital Accounts from the
Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given, (30 days notice is required), subject to a 10% early withdrawal penalty.
The 10% penalty is applicable to the amount withdrawn 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 will 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. No penalty will be imposed if withdrawal is made in twenty (20)
quarterly installments or longer. Notwithstanding the minimum twenty installment
withdrawal procedure, a Limited Partner may liquidate all or a 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 the Partnership cash flow.
F. Guaranteed Interest Rate for Offering Period During the period
commencing with the day a Limited Partner is admitted to the Partnership and
ending 3 months after the offering termination date, the General Partners shall
guarantee an earnings 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, up to a maximum interest rate of
12%. From the date of inception through September 30, 1996, actual realization
exceeded the guaranteed amount for each month.
5. LEGAL PROCEEDINGS
The Partnership is neither a defendant nor a plaintiff in any legal actions.
<PAGE>
6. NOTES PAYABLE - LINE OF CREDIT
The Partnership has a bank line of credit secured by its mortgage
investment portfolio up to $5,000,000 at .50% over prime. The balances were
$1,410,000 and $1,910,000 at September 30, 1996 and December 31, 1995
respectively, and the interest rate at September 30, 1996 was 8.75% (8.25% prime
+ .50%).
NOTE 7 - ASSET CONCENTRATION AND CHARACTERISTICS
The mortgage investments are secured by recorded deeds of trust. At
September 30, 1996, there were 52 mortgage investments outstanding with the
following characteristics:
Number of mortgage investments outstanding 52
Total mortgage investments outstanding $13,906,082
Average mortgage investment outstanding $ 267,425
Average mortgage investment as a percent of total 1.92%
Average mortgage investment as a percent of Partners Capital 1.88%
Largest mortgage investment outstanding $1,050,000
Largest mortgage investment as a percent of total 7.55%
Largest mortgage investment as a percent of Partners Capital 7.40%
Number of counties where security is located (all California) 16
Largest percentage of mortgage investments in one county 27.01%
Average mortgage investment to appraised value at time loan
was consummated 61.50%
Number of mortgage investments in foreclosure status 0
Amount of mortgage investments in foreclosure $ 0.00
The cash balance at September 30, 1996 of $1,045,407 was in one bank with
interest bearing totalling $1,013,812. The balance exceeded FDIC insurance
limits (up to $100,000 per bank) by $945,407.
<PAGE>
Item II
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 1996, the Partnership was in the offering stage, and
contributed capital totalled $14,180,211 (Limited Partners) of the approved
$15,000,000 issue, in units of $100 each. Of this amount, $718,238 remained in
applicant status. The partnership is seeking an approval of an additional
offering of $30,000,000 that it has already filed with the Securities and
Exchange Commission, the State of California and the NASD.
At September 30, 1996, mortgage investments outstanding $13,906,082 with
interest rates ranging from 10.00% to 14.50%. The Partnership began funding
mortgage loans on April 14, 1993 and as of September 30, 1996, distributed
income at an average annualized yield of 8.36%. Currently, mortgage interest
rates have decreased a little from those prevalent at the inception of the
Partnership. New loans will be originated at these lower interest rates. The
result is to reduce 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. Although the rates charged by the Partnership are
influenced by the level of interest rates in the market, the General Partners do
not anticipate that rates charged by the Partnership to its borrowers will
change significantly from the beginning of 1996 over the next 12 months. 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 the
General Partners experience, the General Partners anticipate that the
annualized yield will range between eight & nine percent (8% - 9%).
The Partnership established a line of credit with a commercial bank secured
by its mortgage loans and has increased the limit from $3,000,000 to $5,000,000.
Currently, it has borrowed $1,410,000 at an interest rate of prime +1/2%.This
facility could increase as the Partnership capital increases. This added source
of funds will help in maximizing the Partnership yield because 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. As a result, once
the principal and interest is paid to the bank, the amount to be retained by the
Partnership will be greater than without the use of the line of credit. As of
September 30, 1996, the balance remained at $1,410,000 and in accordance with
the line of credit, the Partnership paid all accrued interest as of that date.
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 nineteen years.
Borrowers 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. Cash is constantly being generated
from interest earnings, late charges, pre-payment penalties, amortization of
Notes 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 are regularly reviewing the mortgage investments
portfolio, examining the status of delinquencies, the underlying collateral
securing these properties, borrowers payment records, etc.. Data on the local
real estate market and on the national and local economy are studied. Based upon
this information and other data, loss reserves are increased or decreased.
Currently loss reserves are $111,681 which the General Partners consider as
being adequate. Because of the number of variables involved, the magnitude of
the swings possible 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.
Its now clear the Northern California recession reached bottom in 1993.
Since then, the California economy has been improving, slowly at first, but now,
more vigorously. A wide variety of indicators suggest that the economy in
California was strong in the first half of 1996, and the State is well
positioned for fast growth in the second half of the year. This improvement is
reflective in increasing property values, in job growth, personal income growth,
etc., which all translates into more loan activity. Which of course, is healthy
for our lending activity.
In recent years, the financial services industry has seen a dramatic rise
in the number of registered investment advisors working on a fee basis. While we
at Redwood continue to do most of our business through traditional registered
representatives, we wanted our no sales load mortgage program to be just as
conveniently available to Registered Investment Advisors. Therefore, a partner
who acquires a Unit directly from the Partnership in an unsolicited sale will
receive a capital account in the Partnership which initially will be equal to
the purchase price of Units plus an amount equal to the amount of sales
commissions that would otherwise have been payable by Redwood Mortgage had the
Partner acquired his Units through a Participating Broker Dealer.
<PAGE>
I. COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the period ended September 30, 1996. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus:
Entity Receiving Description of Compensation
Compensation and Services Rendered Amount
- ------------------------- -------------------------------------- ----------
Redwood Mortgage Loan Servicing Fee for servicing loans $105,595
General Partners Asset management Fee for managing assets $ 12,081
&/or Affiliate ($24,162 waived by the General Partners)
General Partners 1% interest in profits, losses and
distributions of cash available for
distribution $ 8,722
Less allocation for Syndication Costs $ 835
------------
$ 7,887
II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO
THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP):
Redwood Mortgage Loan Brokerage Commissions for services in
connection with the review, selection, evaluation,
negotiation, and extension of the Partnerships
Mortgage Investments, paid by the borrower and not
by the Partnership $291,323
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrower and not by the Partnership $ 8,590
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.
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1996
Partnership Highlights
First Trust Deeds $5,906,340.23
Appraised Value of Properties* 14,264,629.00
Total Investment as a % of Appraisal 41.41%
First Trust Deed Mortgage Investments 5,906,340.23
Second Trust Deed Mortgage Investments 7,699,741.71
Third Trust Deed Mortgage Investments 300,000.00
-------------------
$13,906,081.94
First Trust Deeds due other Lenders 27,349,433.00
Second Trust Deeds due other Lenders 360,000.00
-------------------
Total Debt $41,615,514.94
Appraised Property Value* $67,672,628.00
Total Investment as a % of Appraisal 61.50%
Number of Mortgage Investments Outstanding 52
Average Investment $267,424.65
Average Investment as a % of Net Partners Capital 1.88%
Largest Investment Outstanding 1,050,000.00
Largest Investment as a % of Net Partners Capital 7.40%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 42.47%
Second Trust Deed Mortgage Investments 55.37%
Third Trust Deed Mortgage Investments 2.16%
--------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $1,918,537.68 13.80%
Non Owner Occupied Homes 2,606,841.90 18.74%
Apartments 2,805,918.38 20.18%
Commercial 6,574,783.98 47.28%
----------------- --------------
Total $13,906,081.94 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure 0
*Values used are the appraisal values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County
San Mateo $3,755,374.38 27.01%
Santa Clara 2,991,837.83 21.51%
San Francisco 2,531,316.12 18.20%
San Joaquin 1,172,433.85 8.43%
Marin 951,089.26 6.84%
Contra Costa 624,797.30 4.49%
Alameda 505,534.41 3.64%
Santa Barbara 417,734.55 3.00%
San Luis Obispo 300,000.00 2.16%
Fresno 129,462.81 0.93%
Mendocino 125,000.00 0.90%
El Dorado 118,810.72 0.85%
Sonoma 89,213.24 0.64%
Tuolumne 88,533.46 0.64%
Sacramento 57,852.89 0.42%
Stanislaus 47,091.12 0.34%
------------------ -----------
Total $13,906,081.94 100.00%
<PAGE>
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports
on Form 8-K during the quarter ended
September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 4th day of
November, 1996.
REDWOOD MORTGAGE INVESTORS VIII
By:
---------------------------------------------
D. Russell Burwell, General Partner
By:
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By:
---------------------------------------------
D. Russell Burwell, President
By:
---------------------------------------------
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 4th day of November, 1996.
Signature Title Date
- ----------------------
D. Russell Burwell General Partner November 4, 1996
- ----------------------
Michael R. Burwell General Partner November 4, 1996
- ----------------------
D. Russell Burwell President of Gymno Corporation, November 4, 1996
(Principal Executive Officer);
Director of Gymno Corporation
- ----------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 4, 1996
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1045407
<SECURITIES> 0
<RECEIVABLES> 14115925
<ALLOWANCES> 75000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16322038
<CURRENT-LIABILITIES> 0
<BONDS> 0
2128238
0
<COMMON> 0
<OTHER-SE> 14193800
<TOTAL-LIABILITY-AND-EQUITY> 16322038
<SALES> 0
<TOTAL-REVENUES> 1161384
<CGS> 0
<TOTAL-COSTS> 72593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44261
<INTEREST-EXPENSE> 172292
<INCOME-PRETAX> 872238
<INCOME-TAX> 0
<INCOME-CONTINUING> 872238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872238
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
