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, 1999
- ---------------------- ----------------------------------- ---------------------
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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------------------- ----------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
---------- ------------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
ASSETS
<TABLE>
Jun 30, 1999 Dec 31, 1998
(unaudited) (audited)
---------------- ----------------
<S> <C> <C>
Cash $1,201,576 $528,688
---------------- ----------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 38,260,998 31,905,958
Accrued Interest on Mortgage Investments 499,143 459,418
Advances on Mortgage Investments 213,328 211,145
Accounts receivables, unsecured 49,041 48,849
---------------- ----------------
39,022,510 32,625,370
Less allowance for doubtful accounts 618,930 414,073
---------------- ----------------
38,403,580 32,211,297
---------------- ----------------
Real Estate owned, acquired through foreclosure,
held for sale 0 66,000
Investment in limited liability corporation, at cost which
approximates market 356,358 304,139
Prepaid expense-deferred loan fee 7,417 11,835
---------------- ----------------
$39,968,931 $33,121,959
================ ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
LIABILITIES AND PARTNERS' CAPITAL
Jun 30, 1999 Dec 31, 1998
(unaudited) (audited)
--------------- ----------------
Liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $0 $2,500
Note payable - bank line of credit 8,000,000 5,947,000
Deferred interest income 536,460 124,805
Subscriptions to partnership in applicant status 606,870 0
--------------- ----------------
9,143,330 6,074,305
--------------- ----------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $374,558 and
$353,875 for June 30, 1999 and December 31, 1998,
respectively:
and Formation Loan receivable of $1,826,600 and $1,640,904
for June 30, 1999 and December 31, 1998, respectively 30,803,486 27,025,331
General Partners' Capital, net of unallocated syndication costs
of $3,782 and $3,574 for June 30, 1999 and December 31,
1998, respectively 22,115 22,323
--------------- ----------------
Total Partners' Capital 30,825,601 27,047,654
--------------- ----------------
Total Liabilities and Partners' Capital $39,968,931 $33,121,959
=============== ================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
6 mos. 6 mos. ended 3 mos. ended 3 mos. ended
ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
============== ============== =============== ===============
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Investments $2,117,328 $1,552,039 $1,158,863 $793,108
Interest on bank deposits 2,949 5,058 1,670 1,480
Late charges 12,628 12,045 9,303 10,115
Miscellaneous 1,107 422 601 222
----------------- ------------ ---------------- ---------------
2,134,012 1,569,564 1,170,437 804,925
----------------- ------------ ---------------- ---------------
Expenses:
Mortgage servicing fees 216,337 133,196 133,195 67,822
Interest on note payable - bank 298,053 242,087 166,833 121,787
Amortization of loan origination fees 4,418 5,043 2,209 2,521
Provision for doubtful accounts and
losses on real estate acquired through 193,461 36,445 131,899 36,015
foreclosure
Asset management fees - General Partners 19,123 14,688 9,964 7,579
Amortization of organization costs 0 1,250 0 625
Clerical costs through Redwood Mortgage Corp. 39,293 32,169 20,107 16,242
Professional services 29,820 24,311 18,258 2,085
Printing, supplies and postage 2,165 2,326 1,573 1,196
Other 5,833 6,859 543 500
----------------- ------------ ---------------- ---------------
808,503 498,374 484,581 256,372
----------------- ------------ ---------------- ---------------
Income before interest credited to partners
in applicant status 1,325,509 1,071,190 685,856 548,553
Income credited to partners in applicant status 1,048 3,384 585 1,858
----------------- ------------ ---------------- ---------------
Net Income $1,324,461 $1,067,806 $685,271 $546,695
================= ============ ================ ===============
Net Income: to General Partners (1%) $13,245 $10,678 $6,853 $5,467
to Limited Partners (99%) 1,311,216 1,057,128 678,418 541,228
================= ============ ================ ===============
$1,324,461 $1,067,806 $685,271 $546,695
================= ============ ================ ===============
Net income for $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $41.17 $41.17 $20.37 $20.38
================= ============ ================ ===============
- where Partner received income in
monthly distributions $40.48 $40.48 $20.24 $20.24
================= ============ ================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
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, 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) $ (1,073,706) $14,693,293
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
Contributions of Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in 4,454 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
-------------- ------------ ------------ -------------- ------------
Balances at December 31, 1998 $ 0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
See accompanying notes to financial statements
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
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, 1998 $ 0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 3,939,708 0 0 0 0
Formation Loan increases 0 0 0 (279,215) (279,215)
Formation Loan payments 0 0 0 80,597 80,597
Interest credited to partners in 1,048 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (371) 0 0 0 0
Transfers to Partners' capital (3,333,515) 3,333,515 0 0 3,333,515
Net Income 0 1,311,216 0 0 1,311,216
Syndication costs incurred 0 0 (90,221) 0 (90,221)
Allocation of syndication costs 0 (62,756) 62,756 0 0
Partners' withdrawals 0 (577,668) 0 0 (577,668)
Early withdrawal penalties 0 (19,773) 6,782 12,922 (69)
-------------- ------------ ------------ -------------- ------------
Balances at June 30, 1999 $606,870 $33,004,644 $(374,558) $(1,826,600) $30,803,486
============== ============ ============ ============== ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
PARTNERS' CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------------
Capital Unallocated Total
Account Syndication Total Partners'
General Costs Capital
Partners
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
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
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
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 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
--------------- ---------------- ----------------- ----------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
See accompanying notes to financial statements
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
PARTNERS' CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
-------------------------------------------------------------
Capital Unallocated Total
Account Syndication Total Partners'
General Costs Capital
Partners
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (279,215)
Formation Loan payments 0 0 0 80,597
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 3,333,515
Net Income 13,245 0 13,245 1,324,461
Syndication costs incurred 0 (911) (911) (91,132)
Allocation of syndication costs (634) 634 0 0
Partners' withdrawals (12,611) 0 (12,611) (590,279)
Early withdrawal penalties 0 69 69 0
--------------- ---------------- ----------------- ----------------
Balances at June 30, 1999 $25,897 $(3,782) $22,115 $30,825,601
=============== ================ ================= ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
Jun 30, 1999 Jun 30, 1998
---------------- ---------------
(unaudited) (unaudited)
---------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,324,461 $1,067,806
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 1,250
Provision for doubtful accounts. 193,461 36,445
Provision for losses (gains) on real estate held for sale 0 0
Increase (decrease) in accounts payable (2,500) (3,355)
(Increase) in accrued interest & advances (41,908) 77,335
(Increase) decrease in amount due from related companies 0 2,999
(Increase) decrease in deferred loan fee 4,418 5,043
Increase (decrease ) in deferred interest income 411,655 (83,066)
----------------
---------------
Net cash provided by operating activities 1,889,587 1,104,457
---------------- ---------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 7,403,545 4,606,287
Mortgage Investments made (13,758,585) (7,507,999)
Disposition of real estate held for sale 77,063 0
Additions to real estate held for sale (1,886) (669)
Additions to Limited Liability Corporation (50,000) (40,000)
Accounts receivables, unsecured - (disbursements) receipts (192) (978)
---------------- ---------------
Net cash used in investing activities (6,330,055) (2,943,359)
---------------- ---------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 2,053,000 360,000
Contributions by partner applicants 3,939,708 1,994,920
Interest credited to partners in applicant status 1,048 3,384
Interest withdrawn by partners in applicant status (371) (1,247)
Partners withdrawals (590,279) (382,436)
Syndication costs incurred (91,132) (77,806)
Formation Loan increases (279,215) (157,578)
Formation Loan collections 80,597 69,916
---------------- ---------------
Net cash provided by financing activities 5,113,356 1,809,153
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 672,888 (29,749)
Cash - beginning of period 528,688 663,159
---------------- ---------------
Cash - end of period $1,201,576 $633,410
================ ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (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 Mortgage Corp.,
an affiliate of the General Partners. At June 30, 1999, the Partnership was in
the offering stage, wherein contributed capital totalled $29,529,843 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (295,298.43). As of that date, $606,870 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) As
Mortgage Investments are identified, partners are transferred from applicant
status to admitted partners participating in Mortgage Investment operations.
Each month's 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 Corp., 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
$1,118,628 at June 30, 1999, which was 7.7% of the limited partners
contributions of $14,597,826. 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 Corp., 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>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
The following summarizes Formation Loan transactions to June 30, 1999:
Initial Subsequent
Offering of Offering of Total
$15,000,000 $30,000,000
--------------- --------------- ---------------
Limited Partner
contributions $14,932,017 $14,597,826 $29,529,843
=============== =============== ===============
Formation Loan made $1,074,840 1,118,628 2,193,468
Payments to date (239,157) (82,979) (322,136)
Early withdrawal penalties
applied (44,732) 0 (44,732)
--------------- --------------- ---------------
Balance June 30, 1999 $790,951 $1,035,649 $1,826,600
=============== =============== ===============
Percent loaned of Partners'
contributions 7.2% 7.7% 7.4%
=============== =============== ===============
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., 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, 1999, organization costs of $12,500 and syndication costs
of $1,079,893 had been incurred by the Partnership with the following
distribution:
Syndication Organization
Costs Costs Total
--------------- --------------- ---------------
Costs incurred $1,079,893 $12,500 $1,092,393
Early withdrawal penalties applied (24,641) 0 (24,641)
Allocated and amortized to date (676,912) (12,500) (689,412)
--------------- ---------------- --------------
June 30, 1999 balance $378,340 $0 $378,340
=============== ================ ==============
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, 1999, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $510,028, 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, 1998 (audited) AND
JUNE 30, 1999 (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
essentially the valuation method previously used on impaired loans.
At June 30, 1999, December 31, 1998, and December 31, 1997, 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 60.82%. 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 property's estimated fair
value, less estimated costs to sell. At June 30, 1999, there was no such
property.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (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
Partnershi's 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 were 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, Other 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, 1999, December
31, 1998, and 1997 was as follows:
June 30, December 31, December 31,
1999 1998 1997
------------ ------------- -------------
Impaired Mortgage Investments $0 $0 $0
Other Mortgage Investments 574,930 370,073 213,500
Accounts receivable, unsecured 44,000 44,000 44,000
------------ ============= =============
$618,930 $414,073 $257,500
============ ============= =============
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (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 1998, Mortgage Investment brokerage commissions
paid by the borrowers was $604,836 and for the six months through June 30, 1999
was $320,782.
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 Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $216,337, $295,052, $189,692 and
$155,912 were incurred for the six months period ended June 30, 1999, and for
the years 1998, 1997 and 1996 respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
Mortgage Investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $19,123, $31,651, $24,966 and
$17,053 were incurred for the six months period ended June 30, 1999, and for
years 1998, 1997, and 1996, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the General Partners.
E. Income and Losses
All income 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%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) 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 June 30, 1999 a General Partner, GYMNO Corporation, had
contributed $25,588, 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 Partnership's Mortgage Investment portfolio.
During the six months period ending June 30, 1999, and for the years ending
December 31, 1998, 1997, and 1996, interest totalling $1,048, $4,454, $9,562 and
$2,618 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 investor's election to have cash distributions is
irrevocable.
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, 1998 (audited) AND
JUNE 30, 1999 (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 Partner's capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given, 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 Partnership's capacity to return a Limited Partner's
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, 2000, of
up to $8,000,000 at .5% over prime secured by its Mortgage Investment portfolio.
The note payable balances were $8,000,000, $5,947,000 and $5,640,000 at June 30,
1999, December 31, 1998, and 1997, respectively, and the interest rate was 8.25%
at June 30, 1999, (7.75% prime plus .50%).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (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:
June 30, Dec. 31, Dec. 31,
1999 1998 1997
-------------- ------------- -------------
Net assets - Partners' Capital
per financial statements $30,825,601 $27,047,654 $20,931,153
Unamortized syndication costs 378,340 357,449 436,358
Allowance for doubtful accounts 618,930 414,073 257,500
Formation Loans receivable 1,826,600 1,640,904 1,386,693
--------------- -------------- --------------
Net assets tax basis $33,649,471 $29,460,080 $23,011,704
=============== ============== ==============
In 1998 and 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
$38,260,998. The fair value of these investments of $36,242,172 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, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At June
30, 1999, there were 59 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 59
Total Mortgage Investments outstanding $38,260,998
Average Mortgage Investment outstanding $648,491
Average Mortgage Investment as percent of to 1.69%
Average Mortgage Investment as percent of Partners' Capital 2.10%
Largest Mortgage Investment outstanding $2,600,000
Largest Mortgage Investment as percent of total 6.80%
Largest Mortgage Investment as percent of Partners' Capital 8.43%
Number of counties where security is located (all California) 12
Largest percentage of Mortgage Investments in one county 28.13%
Average Mortgage Investment to appraised value of security at
time Mortgage Investment was consummated 60.82%
Number of Mortgage Investments in foreclosure status 0
Amount of Mortgage Investments in foreclosure $0
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
JUNE 30, 1999 (unaudited)
The following categories of mortgage investments are pertinent at June 30, 1999, December 31, 1998 and 1997:
June 30 December 31 December 31
---------------- ---------------- -----------------
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
First Trust Deeds $23,865,584 $22,349,185 $17,103,865
Second Trust Deeds 10,506,762 8,469,460 8,163,624
Third Trust Deeds 3,888,652 1,087,313 37,500
---------------- ---------------- -----------------
Total mortgage investments 38,260,998 31,905,958 25,304,989
Prior liens due other lenders 29,548,502 26,411,096 24,224,566
---------------- -----------------
================
Total debt $67,809,500 $58,317,054 $49,529,555
================ ================ =================
Appraised property value at time of loan $111,498,316 $98,011,150 $88,714,541
================ ================ =================
Total investments as a percent of appraisals 60.82% 59.50% 55.83%
================ ================ =================
Investments by Type of Property
Owner occupied homes $7,038,159 $6,450,199 $2,445,423
Non-Owner occupied homes 8,261,100 8,789,445 5,318,722
Apartments 4,480,808 3,256,602 5,982,649
Commercial 18,480,931 13,409,712 11,558,195
================ ================ =================
$38,260,998 $31,905,958 $25,304,989
================ ================ =================
</TABLE>
The interest rates on the mortgage investments range from 8.00% to 14.00%
at June 30, 1999
Scheduled maturity dates of mortgage investments as of June 30, 1999 are as
follows:
Year Ending
December 31,
-------------------
1999 $7,741,728
2000 11,809,664
2001 13,408,319
2002 1,776,798
2003 1,496,009
Thereafter 2,028,480
==============
$38,260,998
==============
The scheduled maturities for 1999 include approximately $1,739,209 in seven
Mortgage Investments which were past maturity at June 30, 1999. The interest
payment on two of these Mortgage Investments were more than 90 days late.
The cash balance at June 30, 1999, of $1,201,576 was in one bank with
interest bearing balances totalling $1,091,658. The balance exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,101,576. This bank is the same
financial institution that has provided the Partnership with the $8,000,000
limit line of credit. At June 30, 1999, draw down against this facility was
$8,000,000 and the interest payment was current.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 30, 1999, the Partnership was in the offering stage of its second
offering, ($30,000,000). Contributed capital totalled $14,932,017 for the first
offering and $14,597,826 for the second offering an aggregate of $29,529,843
(Limited Partners) as of June 30, 1999. Of this amount, $606,870 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, 1999, the Partnership's Mortgage Investments outstanding
totalled $38,260,998. 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, to $31,905,958 in 1998, and to $38,260,998 as of
June 30, 1999, was the additional capital admitted to the Partnership through
sale of Limited Partnership Units and reinvestment of Limited Partners earnings.
Additional Limited Partners' Capital contributions have totalled $4,508,824,
$3,834,799, $3,863,536, $5,565,372, $5,100,458, and $3,939,708 and the
reinvestment of earnings by Limited Partners who have elected to reinvest
earnings have totalled $239,956, $524,988, $800,218, $1,119,465, $1,440,687 and
$945,644 for the years ended December 31, 1994, December 31, 1995, December 31,
1996, December 31, 1997, December 31, 1998, and six months through June 30, 1999
respectively. To a lesser extent, Mortgage Investments outstanding have also
increased through the utilization of the Partnership's 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,
1998 and six months ending June 30, 1999 to $480,110, $1,031,029, $1,718,208,
$2,613,008, $3,376,293 and $2,117,328 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, 1999, 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 could 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 1999 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%).
In 1995, the Partnership established a line of credit with a commercial
bank secured by its Mortgage Investments and since it's inception has increased
the limit from $3,000,000 to $8,000,000. For the years ended December 31, 1996,
1997, 1998, and six months through June 30, 1999, interest on Note Payable-Bank
was $188,638, $340,633, $513,566 and $298,053 respectively. From 1997 through
June 30, 1999, the increase in interest on notes payable-Bank has been
attributed to a higher overall credit facility utilization. As of June 30, 1999
the Partnership has borrowed $8,000,000 at an interest rate of prime + 1/2%.
This facility could again increase as the Partnership's 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, 1999, the balance remained at $8,000,000 and in accordance with the
line of credit, the Partnership paid all accrued interest as of that date.
The Partnership's 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-two years.
Mortgage servicing fees increased from $155,912 to $189,692 to $295,052 and to
$216,337 for the years ended December 31, 1996, 1997, 1998 and six months
through June 30, 1999. The mortgage servicing fees increased primarily due to
increase in the outstanding Mortgage Investment portfolio. Asset Management fees
<PAGE>
increased from $17,053 to $24,966 to $31,651 and to $19,123 for the years ended
December 31, 1996, 1997, 1998, and six months through June 30, 1999
respectively. The Asset Management fee increase was due primarily to the
increased Partner's capital which the General Partners are managing. All other
Partnership expenses fluctuated within a narrow range commonly expected to
occur, except for interest on note payable - bank which is discussed earlier in
the Management Discussion and Analysis of Financial Condition and Results of
Operations. Borrower's 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. Currently no
foreclosures exist. 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. Excess cash flow will be invested in new Mortgage
Investment opportunities when available, used to reduce the Partnership credit
line or in other Partnership business.
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
1996, 1997, 1998 and six months through June 30, 1999, the Partnership made
provisions for doubtful accounts of $55,383, $139,804, $162,969 and $193,461
respectively. These provisions for doubtful accounts were made out to guard
against collection losses. The provision for doubtful accounts as of June 30,
1999, of $618,930 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.
The May 1999 issue of "Economic Advisory Council", published by the
California Chamber of Commerce, said the following about the California economy:
"The state's economy continued to grow at a solid pace in early 1999 and,
despite a few areas of emerging weakness, will have another above average year
in 1999. Last year, payroll employment rose 3.6 percent - the biggest annual
gain of the 1990's. This year, it looks like employment will be up an impressive
3 percent to 3.5 percent. The better-than-expected situation results from three
main factors:"
"First, the Asian economic and financial crisis didn't hit California's
economy as badly as feared and now appears to be stabilizing or even turning
up."
"Second, the U.S. economy has been stronger than had been expected. It
expanded at about a 4 percent rate in 1998 in real terms and continued to
maintain good momentum into 1999."
"Third, after some volatility, the financial markets continued to perform
well, which gave a high level of confidence on which to base buying and
investment decisions. Given that confidence, consumers and business continued to
buy and invest."
"One measure of the strong growth within the state is that payroll tax
withholding was 14.5 percent higher in the first quarter of 1999 than it was
four quarters ago. That very large gain is reflective of the strong labor
markets, good profitability that fed bonuses and big gains in equities markets
that were realized through stock options."
"Within the state, growth varies by regions."
"The southern metropolitan areas (San Diego, Orange, Riverside and San
Bernardino counties) were very strong in 1998. Weakness in aerospace will be a
negative influence, but booming construction should be a major stimulus."
"Los Angeles continues to expand, but at a slower pace than the state. It
is losing some of its apparel manufacturing to lower cost venues."
"The San Francisco Bay Area has very tight labor markets and, though the
high technology manufacturing is not too strong, the software industry is very
robust."
<PAGE>
High Technology
"This key industry is seeing the leading signs of better times. Asia is
coming back, in terms of orders, and there is now a year-over-year increase in
the value of orders. Those trends are welcome news."
"The industry still suffers from excess capacity of production, but the
size of the problem is diminishing. The Y2K issue is still driving a higher
level of employment and spending and that strength should continue over the
year."
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnerships 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, 1996, December 31, 1997, December 31, 1998, and six months
ending June 30, 1999, the Partnership made distributions of earnings to Limited
Partners after allocation of syndication costs of, $418,380, $495,480, $614,383
and $365,572 respectively. Distribution of Earnings to Limited Partners after
allocation of syndication costs for the years ended December 31, 1996, December
31, 1997, December 31, 1998, and six months ending June 30, 1999 to Limited
Partners' capital accounts and not withdrawn was $800,218, $1,119,465,
$1,440,687 and $945,644 respectively. As of December 31, 1996, December 31,
1997, December 31, 1998, and six months ending June 30, 1999, Limited Partners
electing to withdraw earnings represented 34%, 30% , 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 Partner's 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 Partner's 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
for most of the investors has yet to expire, as of June 30, 1999, many Limited
Partners may not as yet avail themselves of this provision for liquidation.
Earnings and capital liquidations including early withdrawals since inception,
1993 through June 30, 1999 were:
<TABLE>
6 months
through
June 30,
1993 1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383 $365,572
Capital Liquidation* 0 0 $5,640 $146,755 $132,619 $257,344 $231,595
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $597,167
=========== =========== =========== =========== =========== =========== ============
* These amounts represent gross of early withdrawal penalties.
</TABLE>
<PAGE>
Additionally, Limited Partners may withdraw over a period of one year
subject to certain limitations and penalties. For the years ended December 31,
1996, December 31, 1997, December 31, 1998, and six months through June 30,
1999, $146,755, $132,619, $244,213 and $206,714 respectively were liquidated
subject to the 10% penalty for early withdrawal. This represents only 1.00%,
0.63% , 0.90% and 0.63% of the Limited Partners ending capital for the years
ended December 31, 1996, 1997, 1998, and six months ending June 30, 1999
respectively. 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, 1996, December 31, 1997, December 31, 1998, and six months ending June 30,
1999 respectively, and is expected by the General Partners to commonly occur at
these levels.
The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment of Year 2000 hardware and software issues. The hardware issue is
fully complete but the software issue is not. The Partnership relies on Redwood
Mortgage Corp., an affiliate of the Partnership, and third parties to provide
loan and investor services and other computerized functions, affected by Year
2000 computerized operations. Major services provided to the Partnership by
these companies are loan servicing, accounting and investor services. The
vendors that supply the software for loan servicing is installed and is in
compliance with Year 2000 issues. Installation of accounting software that is
Year 2000 compliant began and completed during the second quarter of 1999 and
will be tested until September 30, 1999. The investor servicing software Year
2000 compliance is still being modified. Existing investor servicing software
maintenance agreements provide for conversion to Year 2000 compliance.
Additionally, the Partnership has contacted several vendors that provide
investor services as a possible alternative to continuing to provide investors
services in house. It would appear that these service providers would be more
expensive than the current in house systems but they do provide a back-up
alternative in the event of our own failure to fully convert. Hardware utilized
by Redwood Mortgage Corp., is currently being tested to insure that any
modifications necessary to be made prior to Year 2000, can be accomplished. At
this juncture, existing hardware appears to be in compliance with Year 2000
issues. Reports are being run parallel to insure accuracy of Year 2000
compliance. This will continue until December, 1999.
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2000 issues.
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
affect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an effect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant increased demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.
Although almost fully developed, if all or any accounting, loan servicing
and investor services conversions should fail, the size and scope of the
Partnership's activities are such that they could be handled at an equal or
higher cost on a manual basis or outsourced to other servicers existing in the
industry, while correcting systems problems and are likely to be temporarily in
nature. While this would entail some initial set up costs, these costs would
likely not be so significant as to have a material effect upon the Partnership.
Shifting portions of daily operations to manual or outsourced systems may result
in time delays. Time delays in providing accurate and pertinent information
could negatively affect customer relations and lead to the potential loss of new
loans and Limited Partner investments.
<PAGE>
The foregoing analysis of Year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations and financial condition. As such, this analysis may prove to be
inaccurate because of the assumptions made by the General Partner or the actual
development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct. Various compliances and modifications will come
to an actual test upon arrival of Year 2000. Only time will tell whether the
transition will be smooth, manageable or otherwise.
Various other risks and uncertainties could also affect the Year 2000
analysis causing the effect on the Partnership to be more severe than discussed
above. The General Partners Year 2000 compliance testing cannot guarantee that
all computer systems will function without error beyond the Year 2000. Risks
also exist with respect to Year 2000 compliance by external parties who may have
no relationship to the Partnership or the General Partners, but who have a
significant relationship with one or more third parties, and may have a system
failure that adversely affects the Partnership's ability to conduct business.
While the General Partners are attempting to identify such external parties, no
assurance can be given that it will be able to do so.
Furthermore, third parties with direct relationships with the Partnership,
whose systems have been identified as likely to be Year 2000 compliant, may
suffer a breakdown due to unforeseen circumstances. It is also possible that the
information collected by the General Partners for these third parties regarding
their compliance with Year 2000 issues may be incorrect. Finally, it should be
noted that the foregoing discussion of Year 2000 issues assumes that to the
extent the General Partners systems fail, whether because of unforeseen
complications or because of third parties' failure, switching to manual
operations will allow the Partnership to continue to conduct its business. While
the General Partner believes this assumption to be reasonable, if it is
incorrect, the Partnership's results of operations would likely be adversely
affected.
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 months period ended June 30,
1999. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
I.
Entity Receiving Compensation Description of Compensation Amount
and Services Rendered
- --------------------------------------------------------------------------------
Redwood Mortgage Corp. Mortgage Servicing Fee for
servicing Mortgage Investments.....$216,337
General Partners Asset Management Fee for managing
&/or Affiliate assets..............................$19,123
General Partners 1% interest in profits..............$13,245
Less allocation of
syndication costs.......................634
--------------
$12,611
<PAGE>
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)
Entity Receiving Compensation Description of Compensation Amount
and Services Rendered
- --------------------------------------------------------------------------------
Redwood Mortgage Corp. 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...................$320,782
Redwood Mortgage Corp. 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...$5,851
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. $39,293
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF JUNE 30, 1999
Partnership Highlights
First Trust Deeds $23,865,584.18
Appraised Value of Properties* 42,403,637.00
Total Investment as a % of Appraisal 56.28%
First Trust Deed Mortgage Investments 23,865,584.18
Second Trust Deed Mortgage Investments 10,506,762.09
Third Trust Deed Mortgage Investments 3,888,651.47
--------------------
38,260,997.74
First Trust Deeds due other Lenders 26,449,392.50
Second Trust Deeds due other Lenders 3,099,110.00
--------------------
Total Debt $67,809,500.24
Appraised Property Value* 111,498,316.00
Total Investment as a % of Appraisal 60.82%
Number of Mortgage Investments Outstanding 59
Average Investment $648,491.49
Average Investment as a % of Net Partners Capital 2.10%
Largest Investment Outstanding 2,600,000.00
Largest Investment as a % of Net Partners Capital 8.43%
First Trust Deed Mortgage Investments 62.38%
Second Trust Deed Mortgage Investments 27.46%
Third Trust Deed Mortgage Investments 10.16%
--------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $7,038,159.04 18.40%
Non Owner Occupied Homes 8,261,099.75 21.59%
Apartments 4,480,808.29 11.71%
Commercial 18,480,930.66 48.30%
----------------- --------------
Total $38,260,997.74 100.00%
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 $10,762,528.92 28.13%
Stanislaus 8,873,927.16 23.19%
San Mateo 7,644,746.11 19.98%
Santa Clara 3,977,648.68 10.40%
Alameda 2,665,674.69 6.97%
Marin 2,401,845.98 6.28%
San Joaquin 1,184,180.81 3.09%
Contra Costa 431,603.77 1.13%
Fresno 128,053.68 0.33%
Solano 95,000.00 0.25%
Riverside 50,000.00 0.13%
Sacramento 45,787.94 0.12%
------------------ -----------
Total $38,260,997.74 100.00%
<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, 1999.
<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 3rd day of August
1999.
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 3rd day of August 1999.
Signature Title Date
/s/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell General Partner August 3, 1999
/s/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell General Partner August 3, 1999
/s/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell President of Gymno Corporation, August 3, 1999
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno August 3, 1999
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,201,576
<SECURITIES> 0
<RECEIVABLES> 39,022,510
<ALLOWANCES> 618,930
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9,143,330
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