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, 1998
- --------------------------------------------------- --------------------------
Commission file number 333-13113
- --------------------------------------------------- --------------------------
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)
(650) 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>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
ASSETS
<CAPTION>
June 30, 1998 Dec 31, 1997
(unaudited) (audited)
---------------- ----------------
<S> <C> <C>
Cash $633,410 $663,159
---------------- ----------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 28,206,701 25,304,989
Accrued Interest on Mortgage Investments 263,917 341,976
Advances on Mortgage Investments 206,528 205,804
Accounts receivables, unsecured 63,822 62,844
---------------- ----------------
28,740,968 25,915,613
Less allowance for doubtful accounts 293,945 257,500
---------------- ----------------
28,447,023 25,658,113
---------------- ----------------
Real Estate owned, acquired through foreclosure,
held for sale 70,807 70,138
Investment in limited liability corporation, at cost which
approximates market 291,139 251,139
Organization costs, less accumulated amortization of $11,875
and $10,625, respectively 625 1,875
Due from related companies 0 2,999
Prepaid expense-deferred loan fee 5,108 10,151
---------------- ----------------
$29,448,112 $26,657,574
================ ================
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
LIABILITIES AND PARTNERS CAPITAL
<CAPTION>
June 30, 1998 Dec 31, 1997
(unaudited) (audited)
--------------- ----------------
Liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $0 $3,355
Note payable - bank line of credit 6,000,000 5,640,000
Deferred interest income 0 83,066
Subscriptions to partnership in applicant status 0 0
--------------- ----------------
6,000,000 5,726,421
--------------- ----------------
Partners Capital:
Limited partners capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $407,695 and
$431,994 for 1998 and 1997, respectively:
and Formation Loan receivable of $1,468,319 and $1,386,693
for 1998 and 1997, respectively 23,431,434 20,914,721
General Partners Capital, net of unallocated syndication costs
of $4,118 and $4,364 for 1998 and 1997, respectively 16,678 16,432
--------------- ----------------
Total Partners Capital 23,448,112 20,931,153
--------------- ----------------
Total Liabilities and Partners Capital $29,448,112 $26,657,574
=============== ================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (unaudited)
6 mos.ended 6 mos.ended 3 mos.ended 3 mos.ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<CAPTION>
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Loans $1,552,039 $1,134,771 $793,108 $644,424
Interest on bank deposits 5,058 5,373 1,480 1,639
Late Charges 12,045 2,921 10,115 2,573
Miscellaneous 422 125 222 75
----------- ----------- ----------- -----------
1,569,564 1,143,190 804,925 648,711
----------- ----------- ----------- -----------
Expenses:
Mortgage Servicing Fees 133,196 78,699 67,822 47,135
Interest on note payable-bank 242,087 118,911 121,787 105,075
Amortization of organization fees 5,043 9,437 2,521 5,031
Provision for doubtful accounts 36,445 31,014 36,015 21,020
Asset Mangement Fees - General Partners 14,688 11,495 7,579 5,985
Amoortization of organization costs 1,250 1,250 625 625
Clerical costs through Redwood Mortgage 32,169 25,553 16,242 13,151
Professional Fees 24,311 21,852 2,085 14,156
Printing, Supplies & Postage 2,326 904 1,196 120
Other 6,859 4,672 500 1,997
----------- ----------- ----------- -----------
498,374 303,787 256,372 214,295
----------- ----------- ----------- -----------
Income before interest credited to
partners
in applicant status 1,071,190 839,403 548,553 434,416
Interest credited to partners in 3,384 5,905 1,858 1,968
applicant status
----------- ----------- ----------- -----------
Net Income $1,067,806 $833,498 $546,695 $432,448
=========== =========== =========== ===========
Net income: to General Partners (1%) $10,678 $8,335 $5,467 $4,324
Net income: to Limited Partners (99%) 1,057,128 825,163 541,228 428,124
=========== =========== =========== ===========
$1,067,806 $833,498 $546,695 $432,448
=========== =========== =========== ===========
Net income per $1,000 invested by
Limited
Partners for entire period:
-Where income is reinvested and $41.17 $41.12 $20.38 $20.35
compounded
----------- ----------- ----------- -----------
-Where partner receives income in
monthly distributions $40.48 $40.44 $20.24 $20.22
----------- ----------- ----------- -----------
<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, 1997 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
PARTNERS CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS CAPITAL
--------------------------------------------------------------
<CAPTION>
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $189,300 $7,519,424 $(234,303) $(525,256) $6,759,865
Contributions on Application 3,634,264 0 0 (250,373) (250,373)
Formation Loan increases 0 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) 3,831,211 0 0 3,831,211
Net Income 0 828,465 0 0 828,465
Syndication costs incurred 0 0 (173,581) 0 (173,581)
Allocation of syndication costs 0 (85,045) 85,045 0 0
Partners withdrawals 0 (308,554) 0 0 (308,554)
Early withdrawal penalties 0 (564) 162 400 (2)
-------------- ------------ ------------- ------------ ------------
Balances at December 31, 1995 0 11,784,937 (322,677) (775,229) 10,687,031
Contributions on Application 4,172,718 0 0 0 0
Formation Loan increases 0 0 0 (314,996) (314,996)
Formation Loan payments 0 0 0 8,961 8,961
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) 3,859,312 0 0 3,859,312
Net Income 0 1,218,598 0 0 1,218,598
Syndication costs incurred 0 0 (212,542) 0 (212,542)
Allocation of syndication costs 0 (116,523) 116,523 0 0
Partners withdrawals 0 (553,027) 0 0 (553,027)
Early withdrawal penalties 0 (12,108) 4,506 7,558 (44)
-------------- ------------ ------------- ------------ ------------
Balances at December 31, 1996 310,937 16,181,189 (414,190) 14,693,293
(1,073,706)
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in 9,562 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to Partners capital (5,570,619) 5,565,372 0 0 5,565,372
Net Income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
-------------- ------------ ------------- ------------ ------------
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
<FN>
See accompanying notes to financial statements
</FN>
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
(continue from previous page)
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
PARTNERS CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS CAPITAL
--------------------------------------------------------------
<CAPTION>
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance carried forward December 31,1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on Application 1,994,920 0 0 0 0
Formation Loan increases 0 0 0 (157,578) (157,578)
Formation Loan payments 0 0 0 69,916 69,916
Interest credited to partners in 3,384 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,247) 0 0 0 0
Transfers to Partners capital (1,997,057) 1,997,057 0 0 1,997,057
Net Income 0 1,057,128 0 0 1,057,128
Syndication costs incurred 0 0 (77,028) 0 (77,028)
Allocation of syndication costs 0 (98,158) 98,158 0 0
Partners withdrawals 0 (372,750) 0 0 (372,750)
Early withdrawal penalties 0 (9,237) 3,169 6,036 (32)
-------------- ------------ ------------- ------------ ------------
Balances at June 30, 1998 $0 $25,307,448 $(407,695) $(1,468,319) $23,431,434
============== ============ ============= ============ ============
<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, 1997 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
----------------------------------------------------------
<CAPTION>
Capital Unallocated Total
Account Syndication Total Partners
General Partners Costs Capital
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $7,737 $(2,366) $5,371 $6,765,236
Contributions on Application 0 0 0 0
Formation loan increases 0 0 0 (250,373)
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 3,588 0 3,588 3,834,799
Net Income 8,368 0 8,368 836,833
Syndication costs incurred 0 (1,753) (1,753) (175,334)
Allocation of syndication costs (859) 859 0 0
Partners withdrawals (7,509) 0 (7,509) (316,063)
Early withdrawal penalties 0 2 2 0
--------------- ---------------- ----------------- ----------------
Balances at December 31, 1995 11,325 (3,258) 8,067 10,695,098
Contributions on Application 0 0 0 0
Formation loan increases 0 0 0 (314,996)
Formation loan payments 8,961
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 4,224 0 4,224 3,863,536
Net Income 12,309 0 12,309 1,230,907
Syndication costs incurred 0 (2,147) (2,147) (214,689)
Allocation of syndication costs (1,177) 1,177 0 0
Partners withdrawals (11,132) 0 (11,132) (564,159)
Early withdrawal penalties 0 44 44 0
--------------- ---------------- ----------------- ----------------
Balances at December 31, 1996 15,549 (4,184) 11,365 14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
--------------- ---------------- ----------------- ----------------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
(continued from previous page)
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
-------------------------------------------------------------
<CAPTION>
Capital Unallocated Total
Account Syndication Total Partners
General Costs Capital
Partners
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balance carried forward December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (157,578)
Formation Loan payments 0 0 0 69,916
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 0 0 0 1,997,057
Net Income 10,678 0 10,678 1,067,806
Syndication costs incurred 0 (778) (778) (77,806)
Allocation of syndication costs (992) 992 0 0
Partners withdrawals (9,686) 0 (9,686) (382,436)
Early withdrawal penalties 0 32 32 0
--------------- ---------------- ----------------- ----------------
Balances at June 30, 1998 $20,796 $(4,118) $16,678 $23,448,112
=============== ================ ================= ================
<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, 1998 AND 1997 (unaudited)
<CAPTION>
June 30, 1998 June 30, 1997
---------------- ----------------
(unaudited) (unaudited)
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,067,806 $833,498
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 1,250 1,250
Provision for doubtful accounts. 36,445 31,014
Increase (decrease) in accounts payable (3,355) (20,625)
(Increase) decrease in accrued interest & advances 77,335 (100,394)
(Increase) decrease in amount due from related companies 2,999 311
(Increase) decrease in deferred loan fee 5,043 3,187
Increase (decrease ) in deferred interest income (83,066) (217,480)
----------------
----------------
Net cash provided by operating activities 1,104,457 530,761
---------------- ----------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 4,606,287 3,266,603
Mortgage Investments made (7,507,999) (10,830,505)
Additions to real estate held for sale (669) (167)
Additions to Limited Liability Corporation (40,000) (50,000)
Accounts receivables, unsecured - (disbursements) receipts (978) (993)
----------------- ----------------
Net cash used in investing activities (2,943,359) (7,615,062)
----------------- ----------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 360,000 4,005,000
Contributions by partner applicants 1,994,920 3,434,540
Interest credited to partners in applicant status 3,384 5,905
Interest withdrawn by partners in applicant status (1,247) (1,033)
Partners withdrawals (382,436) (327,921)
Syndication costs incurred (77,806) (77,544)
Formation Loan increases (157,578) (285,114)
Formation Loan collections 69,916 50,290
----------------- ----------------
Net cash provided by financing activities 1,809,153 6,804,123
----------------- ----------------
Net increase (decrease) in cash and cash equivalents (29,749) (280,178)
Cash - beginning of period 663,159 664,434
----------------- ----------------
Cash - end of period $633,410 $384,256
================= ================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (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 Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Home Loan Co. dba Redwood
Mortgage, an affiliate of the General Partners. At June 30, 1998, the
Partnership was in the offering stage, wherein contributed capital totalled
$22,484,596 in limited partner contributions of an approved aggregate offering
of $45,000,000, in units of $100 each (224,845.96).
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) 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 loans 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 commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$593,473 at June 30, 1998, which was 7.86% of the limited partners contributions
of $7,552,579. 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 elect
to 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 beginning 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, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
The following summarizes Formation Loan transactions to June 30, 1998:
<CAPTION>
Initial Subsequent Total
Offering of Offering of
$15,000,000 $30,000,000
--------------- --------------- ---------------
<S> <C> <C> <C>
Limited Partner contributions $14,932,017 $7,552,579 $22,484,596
=============== =============== ===============
Formation Loan made $1,074,840 593,473 1,668,313
Payments to date (156,129) (21,747) (177,876)
Early withdrawal penalties applied (22,118) 0 (22,118)
--------------- --------------- ---------------
Balance June 30, 1998 $896,593 $571,726 $1,468,319
=============== =============== ===============
Percent loaned of Partners contributions 7.2% 7.86% 7.42%
=============== =============== ===============
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage, an affiliate
of the General Partners, has been deducted from Limited Partners Capital in the
balance sheet. As amounts are collected from Redwood Mortgage, the deduction
from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, registration and filing fees and other costs), will be paid by
the Partnership.
Through June 30, 1998, organization costs of $12,500 and syndication costs
of $938,836 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
----------- ----------- ----------- --------- ----------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Costs incurred $569,865 368,971 938,836 12,500 951,336
Early withdrawal penalties (12,651) 0 (12,651) 0 (12,651)
applied
Allocated and amortized to (455,209) (59,163) (514,372) (11,875) (526,247)
date
----------- ---- ----------- --- ----------- ---- --------- ---- ----------
June 30, 1998 balance $102,005 309,808 411,813 625 412,438
=========== ==== =========== === =========== ==== ========= ==== ==========
</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, 1998, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $368,971, 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, 1997 (audited) AND
JUNE 30, 1998 (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 Mortgage Investment 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, 1998 and at December 31, 1997, 1996, and 1995, 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 loans were consummated
was 53.79% When a Mortgage Investment 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, 1998, there was one such piece
of property with costs totaling $75,807 less a reduction of $5,000 to arrive at
the net fair value of $70,807
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
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 a 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 analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral 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, 1998, December 31, 1997, and 1996 was as follows:
June 30, December 31, December 31,
1998 1997 1996
---------------- ---------------- --------------
Impaired Mortgage Investments $0 $0 $13,006
Unspecified Mortgage Investments 249,945 213,500 72,803
Accounts receivable, unsecured 44,000 44,000 45,000
================ ================ ==============
$293,945 $257,500 $117,803
================ ================ ==============
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (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.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are 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, Mortgage Investment brokerage commissions will be limited to an
amount not to exceed 4% of the total Partnership assets per year. The Mortgage
Investment brokerage commissions are paid by the borrowers, and thus, not an
expense of the Partnership. In 1997, Mortgage Investment brokerage commissions
paid by the borrowers was $837,399 and for the six months through June 30, 1998
was $184,290.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, are 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 $133,196, $189,692, $155,912 and
$85,456 were incurred for the six months period ended June 30, 1998, and for the
years 1997, 1996 and 1995 respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnerships
Mortgage Investment portfolio and operations up to 1/32 of 1% of the net asset
value (3/8 of 1% annual). Management fees of $14,688, $24,966, $17,053 and
$11,587 were incurred for the six months period ended June 30, 1998, and for
years 1997, 1996 and 1995, respectively.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
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 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.
G. General Paratners Contribution
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 June 30, 1998 a General Partner, GYMNO Corporation, had
contributed $20,488, 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 six months period ending June 30, 1998, and for the years ending
December 31, 1997, 1996, and 1995, interest totalling $3,384, $9,562, $2,618 and
$18,908 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, a compounding investor may subsequently change
his election, but an investors election to have cash distributions is
irrevocable.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is illiquid. Limited Partners have
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a 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 expiring September 30, 1999, of
up to $6,000,000 at .5% over prime secured by its Mortgage Investment portfolio.
The note payable balances were $6,000,000, $5,640,000 and $1,500,000 at June 30,
1998, December 31, 1997, and 1996, respectively, and the interest rate was 9% at
June 30, 1998, (8.50% prime plus .50%).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
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 is owned 100% by the Partnership. The Corporation will
complete the construction and sell the property. The Partnership expects to
realize a profit from the venture.
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 Dec. 31
1998 1997 1996
--------------- -------------- --------------
<CAPTION>
<S> <C> <C> <C>
Net assets - Partners Capital per financial $23,448,112 $20,931,153 $14,704,658
statements
Unamortized syndication costs 411,813 436,358 418,374
Allowance for doubtful accounts 293,945 257,500 117,803
Formation Loans receivable 1,468,319 1,386,693 1,073,706
--------------- -------------- --------------
Net assets tax basis $25,622,189 $23,011,704 $16,314,541
=============== ============== ==============
</TABLE>
In 1997, approximately 61% 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
$28,206,701. The fair value of these investments of $28,531,980 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>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At June 30, 1998, there were 53 Mortgage Investments
outstanding with the following characteristics:
<CAPTION>
<S> <C>
Number of Mortgage Investments outstanding 53
Total Mortgage Investments outstanding $28,206,701
Average Mortgage Investment outstanding $532,202
Average Mortgage Investment as percent of total 1.89%
Average Mortgage Investment as percent of Partners Capital 2.27%
Largest Mortgage Investment outstanding 2,100,000
Largest Mortgage Investment as percent of total 7.45%
Largest Mortgage Investment as percent of Partners Capital 8.96%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 29.12%
Average Mortgage Investment to appraised value of security at time Mortgage Investment was
consummated 53.79%
Number of Mortgage Investments in foreclosure status 0
Amount of Mortgage Investments in foreclosure 0
</TABLE>
The following categories of mortgage investments are pertinent at June 30,
1998, December 31, 1997 and 1996:
<TABLE>
June 30 December 31 December 31
--------------- ---------------- -----------------
1998 1997 1996
--------------- ---------------- -----------------
<CAPTION>
<S> <C> <C> <C>
First Trust Deeds $18,889,785 $17,103,865 $6,545,779
Second Trust Deeds 8,385,416 8,163,624 8,797,211
Third Trust Deeds 931,500 37,500 300,000
--------------- ---------------- -----------------
Total mortgage investments 28,206,701 25,304,989 15,642,990
Prior liens due other lenders 21,991,088 24,224,566 25,161,374
---------------- -----------------
===============
Total debt $50,197,789 $49,529,555 $40,804,364
=============== ================ =================
Appraised property value at time of loan $93,317,298 $88,714,541 $70,100,408
=============== ================ =================
Total investments as a percent of appraisals 53.79% 55.83% 58.21%
=============== ================ =================
Investments by Type of Property
Owner occupied homes $1,611,665 $2,445,423 $1,808,921
Non-Owner occupied homes 6,811,342 5,318,722 2,288,036
Apartments 3,779,130 5,982,649 2,521,515
Commercial 16,004,564 11,558,195 9,024,518
=============== ================ =================
$28,206,701 $25,304,989 $15,642,990
=============== ================ =================
<FN>
The interest rates on the mortgage investments range from 8.00% to 14.00% at June 30, 1998
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (audited) AND
JUNE 30, 1998 (unaudited)
Scheduled maturity dates of mortgage investments as of June 30, 1998 are as
follows:
Year Ending
December 31,
-------------------
1998 $2,443,552
1999 10,848,630
2000 8,268,766
2001 1,273,551
2002 1,538,006
Thereafter 3,834,196
===============
$28,206,701
===============
The scheduled maturities for 1998 include approximately $40,000 in one
Mortgage Investment which was past maturity at June 30, 1998. Interest payment
on this Mortgage Investment was current.
The cash balance at June 30, 1998, of $633,410 was in one bank with
interest bearing balances totalling $562,716. The balance exceeded FDIC
insurance limits (up to $100,000 per bank) by $533,410. This bank is the same
financial institution that has provided the Partnership with the $6,000,000 line
of credit. At June 30, 1998, draw down against this facility was $6,000,000.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 30, 1998, the Partnership was in the offering stage of its second
offering, ($30,000,000) and contributed capital totalled $14,932,017 for the
first offering and $7,552,579 for the second offering with an aggregate of
$22,484,596 (Limited Partners). Of this amount, $0 remained in applicant status.
Accordingly, together with initial approved offering of $15,000,000 the
Partnership has approval for an aggregate offering of $45,000,000 in Units of
$100 each.
At June 30, 1998, the Partnerships Mortgage Investments outstanding
totalled $28,206,701. The primary reason for an increase in Mortgage Investments
Outstanding from $6,484,707 in 1994, to $12,047,252 in 1995, to $15,642,990 in
1996, to $25,304,989 in 1997, and to $28,206,701 to June 30, 1998, was the
additional capital admitted to the Partnership through sale of Limited
Partnership Units. Additional Partners Capital contributions have totalled
$4,508,824, $3,834,799, $3,863,536, $5,565,372 and $1,994,920, and the
reinvestment of earnings by partners who have elected to reinvest earnings have
totalled $239,956, $524,988, $800,218, $1,119,465 and $672,253 for the years
ended December 31, 1994, December 31, 1995, December 31, 1996, December 31,
1997, and six months ended June 30, 1998, respectively. To a lesser extent,
Mortgage Investments outstanding have also increased through the utilization of
the Partnerships line of credit. The effect of more outstanding Mortgage
Investments raised the interest earned on Mortgage Investments for the years
ended December 31, 1994, 1995, 1996, 1997, and for the six months ended June 30,
1998, to $480,110, $1,031,029, $1,718,208, $2,613,008 and $1,552,039
respectively. Interest rates on Mortgage Investments ranged from 8.00% to
14.00%. The Partnership began funding Mortgage Investments on April 14, 1993 and
as of June 30, 1998, distributed earnings at an average annualized yield of
8.36%.
Currently, mortgage interest rates have decreased from those prevalent at
the inception of the Partnership. New Mortgage Investments will be originated at
these lower interest rates which will 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 1998 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%).
During 1994, the Partnership did not have a credit line; therefore Interest
on Note Payable-Bank was -0-. In 1995, the Partnership established a line of
credit with a commercial bank secured by its Mortgage Investments and has
increased the limit from $3,000,000 to $6,000,000. For the years ended 1995,
1996, December 31, 1997, and the six months ended June 30, 1998, interest on
Note Payable-Bank was $25,889, $188,635, $340,633 and $242,087 respectively. The
primary reason for this increase during 1996, was that the Partnership did not
have access to the credit facility until September, 1995. For 1997, and the six
months ended June 30, 1998, the increase in interest on notes payable-Bank has
been attributed to a higher overall credit facility utilization. Currently, the
Partnership has borrowed $6,000,000 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. Additionally,
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, the
amount to be retained by the Partnership, after payment of the line of credit
cost, will be greater than without the use of the line of credit. As of June 30,
1998, the balance remained at $6,000,000 and in accordance with the line of
credit, the Partnership paid all accrued interest as of that date.
<PAGE>
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-one 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 regularly review the Mortgage Investments portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, borrowers payment records, etc. Data from the local real
estate market and of the national and local economy are reviewed. Based upon
this information and other data, loss reserves are increased or decreased. In
1995, 1996, 1997, and six months ended June 30, 1998, the Partnership made
provisions for doubtful accounts of $26,032, $55,383, $139,804, and $36,445
respectively. These provisions for doubtful accounts were made primarily as a
prudent action to guard against unidentified collection losses. The provision
for doubtful accounts as of June 30, 1998, of $293,945 is considered by the
General Partners to be 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 reflected in increasing property values, in
job growth, personal income growth, etc., which all translates into more loan
activity, which of course, is healthy for lending activity.
At the time of subscription to the Partnership, Limited Partners make an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1995, December 31, 1996, December 31, 1997, and the six
months ended June 30, 1998, the Partnership made distributions of earnings to
Limited Partners after allocation of syndication costs of, $303,477, $418,380,
$495,480 and $286,717 respectively. Distribution of Earnings to Limited Partners
after allocation of syndication costs for the years ended December 31, 1995,
December 31, 1996, December 31, 1997, and the six months ended June 30, 1998, to
Limited Partners capital accounts and not withdrawn was $524,988, $800,218,
$1,119,465 and $672,253 respectively. As of December 31, 1995, December 31,
1996, December 31, 1997, and the six months ended June 30, 1998, Limited
Partners electing to withdraw earnings represented 40%, 34%, 30% and 30%,
respectively of the Limited Partners outstanding capital accounts. The decreases
in percentage of Limited Partners electing to withdraw earnings is due to an
increase in percent of new Limited Partners choosing to compound earnings and
the dilution effect occurring when compounding Limited Partners capital accounts
grow through earnings reinvestment compared to Limited Partners that have
chosen to liquidate earnings.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). Once a Limited Partners initial five year hold period
has passed the General Partners expect to see an increase in liquidations due to
the ability of Limited Partners to withdraw without penalty. This ability to
withdraw five years after a Limited Partners investment has the effect of
providing Limited Partner liquidity which the General Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the Partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven, liquidation generally subsides and the Partnership capital again
tends to increase through earnings reinvestment. Since the five year hold period
has yet to expire, as of June 30, 1998, Limited Partners may not as yet avail
themselves of this provision for liquidation. Additionally, Limited Partners may
withdraw over a period of one year subject to certain limitations and penalties.
For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and
<PAGE>
the six months ended June 30, 1998, $5,640, $146,755, $132,619 and $92,817
respectively were liquidated subject to the 10% penalty for early withdrawal.
These withdrawals are within the normally anticipated range that the General
Partners would expect in their experience in this and other partnerships. The
General Partners expect that a small percentage of Limited Partners will elect
to liquidate their capital accounts over one year with a 10% early withdrawal
penalty. In originally conceiving the Partnership, the General Partners wanted
to provide Limited Partners needing their capital returned a degree of
liquidity. Generally, Limited Partners electing to withdraw over one year need
to liquidate investment to raise cash. The trend the Partnership is experiencing
in withdrawals by Limited Partners electing a one year liquidation program
represents a small percentage of Limited Partner capital as of December 31,
1995, December 31, 1996, December 31, 1997, and June 30, 1998, respectively and
is expected by the General Partners to commonly occur at these levels.
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 6-7, under the section Compensation of the General Partners
and the Affiliates, which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the six month period ended June 30,
1998. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Entity Receiving Description of Compensation Amount
Compensation and Services Rendered
- ------------------------------------------------------ -------------------------
I. Redwood Mortgage. Mortgage Servicing Fee for
servicing Mortgage Investments $133,196
General Partners &/or Asset Management Fee for
Affiliate managing assets $14,688
General Partners 1% interest in profits $10,678
Less allocation of syndication costs 992
--------
$9,686
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 Mortgage Investments
paid by the borrowers and not by the Partnership $184,290
Redwood Mortgage Processing and Escrow Fees for services in connection
with notary, document preparation, credit investigation,
and escrow fees payable by the borrowers and not
by the Partnership $4,619
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. $32,169
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF JUNE 30, 1998
Partnership Highlights
First Trust Deeds 18,889,785.21
Appraised Value of Properties* 45,018,562.00
Total Investment as a % of Appraisal 41.96%
First Trust Deed Mortgage Investments 18,889,785.21
Second Trust Deed Mortgage Investments 8,385,415.80
Third Trust Deed Mortgage Investments 931,500.00
--------------------
28,206,701.01
First Trust Deeds due other Lenders 21,271,440.00
Second Trust Deeds due other Lenders 719,648.00
--------------------
Total Debt $50,197,789.01
Appraised Property Value* 93,317,298.00
Total Investment as a % of Appraisal 53.79%
Number of Mortgage Investments Outstanding 53
Average Investment $532,201.91
Average Investment as a % of Net Partners Capital 2.27%
Largest Investment Outstanding 2,100,000.00
Largest Investment as a % of Net Partners Capital 8.96%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 66.97%
Second Trust Deed Mortgage Investments 29.73%
Third Trust Deed Mortgage Investments 3.30%
--------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $1,611,664.54 5.71%
Non Owner Occupied Homes 6,811,342.56 24.15%
Apartments 3,779,130.07 13.40%
Commercial 16,004,563.84 56.74%
----------------- --------------
Total $28,206,701.01 100.00%
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 Total Percent
Mortgage
Investments
San Francisco $8,214,611.20 29.12%
San Mateo 4,705,381.66 16.68%
Alameda 4,199,034.93 14.89%
Santa Clara 3,572,148.70 12.66%
Marin 2,060,834.85 7.31%
Stanislaus 1,800,000.00 6.38%
San Joaquin 1,193,054.19 4.23%
Contra Costa 957,304.16 3.39%
Santa Cruz 684,000.00 2.43%
Monterey 516,111.04 1.83%
Fresno 128,607.50 0.46%
Mendocino 125,000.00 0.44%
Sacramento 50,612.78 0.18%
------------------ -------
Total $28,206,701.01 100.00%
<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, 1998.
<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
1998.
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 1998.
Signature Title Date
/s/ D. Russell Burwell
- ----------------------
D. Russell Burwell General Partner August 12, 1998
/s/ Michael R. Burwell
- ----------------------
Michael R. Burwell General Partner August 12, 1998
/s/ D. Russell Burwell
- ----------------------
D. Russell Burwell President of Gymno Corporation, August 12, 1998
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- ----------------------
Michael R. Burwell Secretary/Treasurer of Gymno August 12, 1998
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<PAGE>
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