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 June 30, 1997
- -------------------------------------------------------------------------------
Commission file number 33-49946
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REDWOOD MORTGAGE INVESTORS VIII
- -------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
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(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
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(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, 1996 (audited)
and June 30, 1997 (unaudited)
ASSETS
<CAPTION>
June 30, 1997 Dec. 31, 1996
(unaudited) (audited)
<S> <C> <C>
Cash $384,256 $664,434
--------------- ---------------
Accounts receivable:
Mortgage investments, secured by deeds of trust 23,206,892 15,642,990
Accrued Interest on Mortgage Investments 211,401 196,530
Advances on Mortgage Investments 94,202 8,679
Accounts receivable - unsecured 76,327 75,334
--------------- ---------------
23,588,822 15,923,533
Less Allowance for doubtful accounts 148,817 117,803
--------------- ---------------
23,440,005 15,805,730
--------------- ---------------
Real estate owned, acquired through foreclosure, held for sale 67,158 66,991
Investment in limited liability corporation, at cost which
approximates market 241,139 191,139
Formation loan due from Redwood Mortgage 1,302,359 1,073,706
Organization Costs, less accumulated amortization of $9,375
and $8,125, respectively 3,125 4,375
Due from related companies 0 311
Prepaid Expenses - deferred loan fee 17,533 20,720
--------------- ---------------
$25,455,575 $17,827,406
=============== ===============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Accounts payable and accrued expenses $0 $20,625
Notes payable - bank line of credit 5,505,000 1,500,000
Deferred interest income 0 217,480
Subscriptions to Partnership in applicant status 60,000 310,937
--------------- ---------------
5,565,000 2,049,042
Partners capital 19,890,575 15,778,364
--------------- ---------------
$25,455,575 $17,827,406
=============== ===============
<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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited)
<CAPTION>
6 mos. ended 6 mos. ended 3 mos. ended 3 mos. ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Investments $1,134,771 $807,902 $644,424 $428,429
Interest on bank deposits 5,373 1,417 1,639 662
Late Charges 2,921 2,059 2,573 1,084
Miscellaneous 125 300 75 100
----------- ----------- ----------- -----------
1,143,190 811,678 648,711 430,275
----------- ----------- ----------- -----------
Expenses:
Mortgage Servicing Fees 78,699 67,389 47,135 31,929
Interest on note payable - bank 118,911 110,638 105,075 68,326
Amortization of loan organization fees 9,437 5,062 5,031 2,531
Provision for doubtful accounts 31,014 19,085 21,020 15,506
Asset Management Fees - General 11,495 7,760 5,985 4,018
Partners
Amortization of organization costs 1,250 1,250 625 625
Clerical costs thru Redwood Mortgage 25,553 17,647 13,151 9,388
Professional Fees 21,852 16,214 14,156 6,060
Printing, Supplies & Postage 904 993 120 957
Other 4,672 3,910 1,997 20
----------- ----------- ----------- -----------
303,787 249,948 214,295 139,360
----------- ----------- ----------- -----------
Income before interest credited to
partners
in applicant status 839,403 561,730 434,416 290,915
Interest credited to partners in 5,905 1,096 1,968 246
applicant status
----------- ----------- ----------- -----------
Net Income $833,498 $560,634 $432,448 $290,669
=========== =========== =========== ===========
Net income: to General Partners (1%) $8,335 $5,606 $4,324 $2,906
Net income: to Limited Partners (99%) 825,163 555,028 428,124 287,763
=========== =========== =========== ===========
$833,498 $560,634 $432,448 $290,669
=========== =========== =========== ===========
Net income per $1,000 invested by
Limited
Partners for entire period:
-Where income is reinvested and $41.12 $41.12 $20.35 $20.33
compounded
----------- ----------- ----------- -----------
-Where partner receives income in
monthly distributions $40.44 $40.43 $20.22 $20.19
----------- ----------- ----------- -----------
<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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited)
<CAPTION>
June 30, 1997 June 30, 1996
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income: $833,498 $560,634
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of organization costs 1,250 1,250
Provision for doubtful accounts 31,014 47,353
Provision for Losses (gains) on real estate held for sale 0 (23,268)
Increase (decrease) in account payable (20,625) (4,010)
(Increase) in accrued interest and advances (100,394) (9,493)
(Increase) decrease in amount due from related companies 311 3,049
(Increase) decrease in deferred loan fee 3,187 5,061
Increase (decrease) in deferred interest income (217,480) 0
-------------- -------------
Net cash provided by operating activities 530,761 580,576
-------------- -------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 3,266,603 4,190,082
Mortgage Investments made (10,830,505) (6,615,669)
Disposition of real estate held for sale 0 299,154
Additions to real estate held for sale (167) 0
Additions to investment in limited liability corporation (50,000) 0
Accounts receivable -unsecured (993) (1,550)
Formation loan increases (285,114) (86,487)
Formation loan collections 56,461 1,117
-------------- -------------
Net cash used in investing activities (7,843,715) (2,213,353)
-------------- -------------
Cash flows from financing activities:
Increase (decrease) in note payable - Bank 4,005,000 982,000
Contributions by partner applicants 3,434,540 1,270,399
Interest credited to partners in applicant status 5,905 1,096
Interest withdrawn by partners in applicant status (1,033) (550)
Partners withdrawals (327,921) (242,635)
Early withdrawal penalties, net (6,171) (1,117)
Syndication costs incurred (77,544) (85,188)
-------------- -------------
Net cash provided by financing activities 7,032,776 1,924,005
-------------- -------------
Net increase in cash equivalents (280,178) 291,228
Cash-beginning of period 664,434 380,318
============== =============
Cash-end of period 384,256 671,546
============== =============
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (audited) AND
SIX MONTHS ENDED JUNE 30, 1997 (unaudited)
<CAPTION>
PARTNERS CAPITAL
--------------------------------------------------------------
PARTNERS IN UNALLOCATED
APPLICANT GENERAL LIMITED SYNDICATION
STATUS PARTNERS PARTNERS COSTS TOTAL
-------------- ------------- ----------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 128,772 2,887 2,809,535 (190,342) 2,622,080
Contributions on application 4,560,683 0 0 0 0
Interest credited to partners in 14,443 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn (5,774) 0 0 0 0
Transfers to Partners capital (4,508,824) 4,542 4,504,282 0 4,508,824
Net income 0 4,099 405,770 0 409,869
Syndication costs incurred 0 0 0.00 (81,023) (81,023)
Allocation of syndication costs 0 (347) (34,349) 34,696 0
Partners withdrawals 0 (3,444) (165,814) 0 (169,258)
----------- ---------- ----------- ----------- ------------
Balances at December 31, 1994 189,300 7,737 7,519,424 (236,669) 7,290,492
Contributions on application 3,634,264 0 0 0 0
Interest credited to partners in 18,908 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn (7,673) 0 0 0 0
Transfers to Partners capital (3,834,799) 3,588 3,831,211 0 3,834,799
Net income 0 8,368 828,465 0 836,833
Syndication costs incurred 0 0 0 (175,334) (175,334)
Allocation of syndication costs 0 (859) (85,045) 85,904 0
Partners withdrawals 0 (7,509) (308,554) 0 (316,063)
Early withdrawal penalties 0 0 (564) 164 (400)
----------- ---------- ----------- ----------- ------------
Balances at December 31, 1995 $0 11,325 11,784,937 (325,935) 11,470,327
Contributions on application 4,172,718 0 0 0 0
Interest credited to partners in 2,618 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn (863) 0 0 0 0
Transfers to Partners capital (3,863,536) 4,224 3,859,312 0 3,863,536
Net income 0 12,309 1,218,598 0 1,230,907
Syndication costs incurred 0 0.00 0.00 (214,689) (214,689)
Allocation of syndication costs 0 (1,177) (116,523) 117,700 0
Partners withdrawals 0 (11,132) (553,027) 0 (564,159)
Early withdrawal penalties 0 0.00 (12,108) 4,550 (7,558)
----------- ---------- ----------- ----------- ------------
Balances at December 31, 1996 310,937 15,549 16,181,189 (418,374) 15,778,364
carried to next page
<PAGE>
PARTNERS CAPITAL
--------------------------------------------------------------
PARTNERS IN UNALLOCATED
APPLICANT GENERAL LIMITED SYNDICATION
STATUS PARTNERS PARTNERS COSTS TOTAL
-------------- ------------- ----------- ---------------- --------
Forward from previous page:
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 310,937 15,549 16,181,189 (418,374) 15,778,364
Contributions on application 3,434,540 0 0 0 0
Interest credited to partners in 5,905 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn (1,033) 0 0 0 0
Transfers to Partners capital (3,690,349) 0 3,690,349 0 3,690,349
Net income 0 8,335 825,163 0 833,498
Syndication costs incurred 0 0 0 (77,544) (77,544)
Allocation of syndication costs 0 (762) (75,438) 76,200 0
Partners withdrawals 0 (7,573) (320,348) 0 (327,921)
Early withdrawal penalties 0 0 (9,604) 3,433 (6,171)
----------- ---------- ------------ ----------- ------------
Balances at June 30, 1997 $60,000 $15,549 $20,291,311 ($416,285) $19,890,575
=========== ========== ============ =========== ============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
NOTE 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 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 loans
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 June 30, 1997, the Partnership was in the
offering stage, wherein contributed capital totalled $18,677,494 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (450,000 units). Of this amount, $60,000 remained in applicant
status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the Partnership
commenced a second offering of an additional 300,000 Units ($30,000,000) and as
of June 30, 1997, collected $3,745,477 of which the total of $60,000 was in
applicant status. 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 are not paid directly by the Partnership out of the
offering proceeds. Instead, the Partnership will loan to Redwood Mortgage, an
affiliate of the General Partners, amounts to pay all sales commissions and
amounts payable in connection with unsolicited orders. This loan is referred to
as the Formation Loan. It is unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which must commence
on January 1, following the year the initial offering closes, which was in 1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$300,498 at June 30, 1997, which was 8.02% of the limited partners contributions
of $3,745,477. Sales commissions range from 0% (units sold by General Partners)
to 9% of gross proceeds. The Partnership anticipates that the sales commissions
will approximate 7.6% based on the assumption that 65% of investors will
reinvest earnings, thus generating 9% commissions. The principal balance of the
Formation Loan will increase as additional sales of units are made each year.
The amount of the annual installment payment to be made by Redwood Mortgage,
during the offering stage, will be determined at annual installments of
one-tenth of the principal balance of the Formation Loan as of December 31 of
each year. Such payment shall be due and payable by December 31 of the following
year with the first such payment to be made by December 31, 1997. Upon
completion of the offering, the balance will be repaid in ten equal annual
installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
<CAPTION>
The following summarizes Formation Loan transactions to June 30, 1997:
Initial Subsequent Total
Offering of Offering of
$15,000,000 $30,000,000
--------------- --------------- ---------------
<S> <C> <C> <C>
Limited Partner contributions $14,932,017 $3,745,477 $18,677,494
=============== =============== ===============
Formation Loan made $1,074,840 300,498 1,375,338
Payments to date (59,250) 0 (59,250)
Early withdrawal penalties applied (13,729) 0 (13,729)
--------------- --------------- ---------------
Balance June 30, 1997 $1,001,861 $300,498 $1,302,359
=============== =============== ===============
Percent loaned of Partners contributions 7.20% 8.02% 7.36%
=============== =============== ===============
</TABLE>
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.
Through June 30, 1997, organization costs of $12,500 and syndication costs
of $748,154 had been incurred by the Partnership with the following
distribution:
<TABLE>
Syndication Costs
--------------------------------------------
Offering
----------------------------
Initial Subsequent Organization
15,000,000 30,000,000 Total Costs Total
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Costs incurred $569,865 178,289 748,154 12,500 760,654
Early withdrawal penalties (8,147) 0 (8,147) 0 (8,147)
applied
Allocated and amortized to (305,034) (18,688) (323,722) (9,375) (333,097)
date
----------- ---- ----------- --- ----------- ---- --------- ---- ----------
June 30, 1997 balance $256,684 159,601 416,285 3,125 419,410
=========== ==== =========== === =========== ==== ========= ==== ==========
</TABLE>
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of June 30, 1997, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $178,289, with the costs of the offering
document being greater at the initial stages. The syndication costs payable by
the Partnership are estimated to be $1,200,000 if the maximum is sold (4% of
$30,000,000). The General Partners will pay any syndication expenses (excluding
selling commissions) in excess of ten percent of the gross proceeds or
$1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a 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
amounts 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 June 30, 1997, December 31, 1996, 1995, and 1994, there were no mortgage
investments categorized as impaired by the Partnership. Had there been a
computed amount for the reduction in carrying values of impaired loans, the
reduction would have been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements the average mortgage
investment to appraised value of security at the time the losses were
consummated was 57.59%. 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 has the tendency 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. At June 30, 1997, there was one such piece
of property with costs totalling $72,158 less a reduction of $5,000 to arrive at
the net fair value of $67,158. REDWOOD MORTGAGE INVESTORS VIII (A California
Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (audited)
and JUNE 30, 1997 (unaudited)
<PAGE>
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 Limited Liability Corporation (see Note 7)
The Partnership carries its investment in limited liability Corporation as
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
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, and filing fees.
Organizational costs have been capitalized and will be amortized over a five
year period. Syndication costs are charged against partners capital and are
being 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 annalyzed 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 values, 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 June
30, 1997, and December 31, 1996, were as follows:
June 30, Dec. 31,
1997 1996
---------- ---------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 98,817 72,803
Amounts receivable, unsecured 50,000 45,000
---------- --------
$148,817 $117,803
========== ========
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
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.
K. Reclassifications
Certain reclassifications not affecting net income have been made to prior
year amounts to conform to the current period presentation.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions For fees in connection with the review,
selection, evaluation, negotiation and extension of Partnership Mortgage
Investments in an amount up to 12% of the Mortgage Investments until 6 months
after the termination date of the offering. 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. Mortgage Servicing Fees Monthly mortgage servicing fees of up to 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 mortgage is located. Mortgage servicing fees of $155,912,
$85,456 and $29,127 were incurred for years 1996, 1995 and 1994, respectively.
For the six months under review mortgage servicing fees of $78,699 were
incurred.
C. Asset Management Fee The General Partners receive monthly fees 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).Management fees of
$17,053, $11,587 and $5,906 were incurred for years 1996, 1995 and 1994,
respectively and for the six month period through June 30, 1997, management fees
of $11,495 were incurred.
D. Other Fees The Partnership Agreement provides for other fees such as
reconveyance, mortgage assumption and mortgage extension fees. Such fees are
incurred by the borrowers and are paid to parties related to the General
Partners.
E. Income and Losses All income is credited or charged to partners in
relation to their respective partnership interests. The partnership interest of
the General Partners (combined) is a total of 1%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
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 were to contribute 1/10 of
1% in cash contributions as proceeds from the offering are admitted to limited
Partner capital. As of December 31, 1996, a General Partner, GYMNO Corporation,
had contributed $15,241, as capital 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
are not admitted to the Partnership until appropriate lending opportunities are
available. 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.
During the periods ending June 30, 1997, December 31, 1996, 1995, and 1994,
interest totalling $5,905, $2,618, $18,908 and $14,443 respectively, 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 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.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
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, 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 in the
Partnership Agreement.
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. 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 is restricted to the availability of 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 on a monthly basis, up to a
maximum interest rate of 12%. To date, actual realization exceeded the
guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit of up to $6,000,000 at .5% over
prime secured by its Mortgage Investment portfolio. The note payable balances
were $5,505,000 and $1,500,000 at June 30, 1997, December 31, 1996,
respectively, and the interest rate was 9.00% at June 30, 1997, (8.50% prime
plus .50%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
has contributed its interest (principally land) to a Limited Liability
Corporation which will complete the construction and sell the property. The
Partnership expects to realize a profit from the venture.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
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:
<TABLE>
June 30, Dec. 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Net Assets - Partners Capital per financial statements $19,890,575 $15,778,364
Unamortized syndication costs 416,285 418,374
Allowance for doubtful accounts 148,817 117,803
---------------
===============
Net assets tax basis $20,455,677 $16,314,541
=============== ===============
</TABLE>
In 1996, approximately 55% 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 INVESTMENTS
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
$23,206,892. The fair value of these investments of $ $23,140,163 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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At June
30, 1997, there were 54 Mortgage Investments outstanding with the following
characteristics:
<TABLE>
<S> <C>
Number of Mortgage Investments outstanding 54
Total Mortgage Investments outstanding $23,206,892
Average Mortgage Investment outstanding $429,757
Average Mortgage Investment as percent of total 1.85%
Average Mortgage Investment as percent of Partners Capital 2.16%
Largest Mortgage Investment outstanding $2,100,000
Largest Mortgage Investment as percent of total 9.05%
Largest Mortgage Investment as percent of Partners Capital 10.56%
Number of counties where security is located (all California) 14
Largest percentage of Mortgage Investments in one county 29.09%
Average Mortgage Investment to appraised value of security at time loan was consummated 57.59%
Number of Mortgage Investments in foreclosure status 1
Amount of Mortgage Investments in foreclosure $118,811
</TABLE>
The following categories of mortgage investments are pertinent at June 30,
1997, and December 31, 1996:
<TABLE>
June 30, Dec. 31,
1997 1996
----------------- ----------------
<S> <C> <C>
First Trust Deeds $11,368,037 $6,545,779
Second Trust Deeds 11,751,355 8,797,211
Third Trust Deeds 87,500 300,000
----------------- ----------------
Total mortgage investments 23,206,892 15,642,990
Prior liens due other lenders 36,655,793 25,161,374
-----------------
================
Total debt $59,862,685 $40,804,364
================= ================
Appraised property value at time of loan $103,942,318 $70,100,408
================= ================
Total investments as a percent of appraisals 57.59% 58.21%
================= ================
Investments by Type of Property
Owner occupied homes $2,889,584 $1,808,921
Non-Owner occupied homes 1,749,101 2,288,036
Apartments 4,233,146 2,521,515
Commercial 14,335,061 9,024,518
================= ================
$23,206,892 $15,642,990
================= ================
</TABLE>
The interest rates on the mortgage investments range from 10.00% to 14.50%
at June 30, 1997.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (audited) and
JUNE 30, 1997 (unaudited)
Scheduled maturity dates of mortgage investments as of June 30, 1997 are as
follows:
Period Ending
June 30, 1997
-------------------
1997 $1,374,130
1998 3,586,156
1999 5,705,205
2000 3,849,844
2001 2,860,828
Thereafter 5,830,729
===============
$23,206,892
===============
The scheduled maturities for 1997 include approximately $468,000 in loans
which are past maturity at December 31, 1996. Interest payment on these loans
are current.
One loan in the principal amount of $118,811 has interest paid through
September 1, 1996, and is in foreclosure. That loan, which is the only loan
categorized as delinquent, is not considered impaired because the underlying
security is sufficient to cover amounts due.
The cash balances at June 30, 1997 of $384,256 was in one bank with
interest bearing balances totalling $257,409. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $284,256.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 30, 1997, the Partnership was in the offering stage of its second
offering, and contributed capital totalled $18,677,494 (Limited Partners). Of
this amount, $60,000 remained in applicant status. The Partnership has sought
and received approval of an additional offering of $30,000,000 from the
Securities and Exchange Commission, the State of California and the NASD,
effective on December 4, 1996. Accordingly, the Partnership had approval of an
aggregate offering of $45,000,000 in Units of $100 each.
At June 30, 1997, the Partnerships Mortgage Investments outstanding
totalled $23,206,892 with interest rates ranging from 10.00% to 14.50%. The
Partnership began funding Mortgage Investments on April 14, 1993 and as of June
30, 1997, distributed earnings 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
Mortgage Investment 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 1997 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 Investments and has increased the limit from $5,000,000 to
$6,000,000. Currently, it has borrowed $5,505,000 at an interest rate of prime +
1/2%. This facility could increase as the Partnerships capital increases. This
added source of funds will help 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
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 June 30, 1997, the balance remained at $5,505,000 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 twenty 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
principal and pay-off on Mortgage Investments. 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 $148,817 which the General Partners consider
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. 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.
<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 June 30, 1997. 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 Mortgage Servicing Fee for servicing mortgage $78,699
investments
General Partners Asset management Fee for managing assets $11,495
&/or Affiliate
General Partners 1% interest in profits, losses and distributions
of cash available for distribution $8,335
Less allocation for Syndication Costs $762
------
$7,573
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 Mortgage 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 $365,979
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 $8,803
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 JUNE 30,1997
Partnership Highlights
First Trust Deeds $11,368,037.51
Appraised Value of Properties* 25,096,434.00
Total Investment as a % of Appraisal 45.30%
First Trust Deed Mortgage Investments 11,368,037.51
Second Trust Deed Mortgage Investments 11,751,354.73
Third Trust Deed Mortgage Investments 87,500.00
--------------------
$23,206,892.24
First Trust Deeds due other Lenders 35,251,145.00
Second Trust Deeds due other Lenders 1,404,648.00
--------------------
Total Debt $59,862,685.24
Appraised Property Value* $103,942,318.00
Total Investment as a % of Appraisal 57.59%
Number of Mortgage Investments Outstanding 54
Average Investment $429,757.26
Average Investment as a % of Net Partners Capital 2.16%
Largest Investment Outstanding 2,100,000.00
Largest Investment as a % of Net Partners Capital 10.56%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 48.98%
Second Trust Deed Mortgage Investments 50.64%
Third Trust Deed Mortgage Investments 0.38%
--------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $2,889,584.44 12.45%
Non Owner Occupied Homes 1,749,101.17 7.54%
Apartments 4,233,145.69 18.24%
Commercial 14,335,060.94 61.77%
----------------- --------------
Total $23,206,892.24 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure 1
*Values used are the appraisal values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County Total Loans Percent
San Francisco $6,750,434.03 29.09%
Alameda 4,345,322.73 18.72%
Santa Clara 3,390,730.38 14.61%
San Mateo 3,359,181.23 14.48%
Stanislaus 1,494,690.61 6.44%
San Joaquin 1,200,928.07 5.17%
Marin 906,131.21 3.90%
Contra Costa 660,371.35 2.85%
Santa Barbara 414,934.72 1.79%
Monterey 256,313.00 1.10%
Fresno 129,140.29 0.56%
Mendocino 125,000.00 0.54%
El Dorado 118,810.72 0.51%
Sacramento 54,903.90 0.24%
------------------ -----------
Total $23,206,892.24 100.00%
<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 June 30,
1997.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 12th day of August
1997.
REDWOOD MORTGAGE INVESTORS VIII
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 12th day of August 1997.
Signature Title Date
/s/ D. Russell Burwell
- ----------------------
D. Russell Burwell General Partner August 12, 1997
/s/ Michael R. Burwell
- ----------------------
Michael R. Burwell General Partner August 12, 1997
/s/ D. Russell Burwell
- -----------------------
D. Russell Burwell President of Gymno Corporation, August 12, 1997
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- -----------------------
Michael R. Burwell Secretary/Treasurer of Gymno August 12, 1997
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 384256
<SECURITIES> 0
<RECEIVABLES> 23588822
<ALLOWANCES> 148817
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25455575
<CURRENT-LIABILITIES> 0
<BONDS> 0
5565000
0
<COMMON> 0
<OTHER-SE> 19890575
<TOTAL-LIABILITY-AND-EQUITY> 25455575
<SALES> 0
<TOTAL-REVENUES> 1143190
<CGS> 0
<TOTAL-COSTS> 153862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31014
<INTEREST-EXPENSE> 124816
<INCOME-PRETAX> 833498
<INCOME-TAX> 0
<INCOME-CONTINUING> 833498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 833498
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
