REDWOOD MORTGAGE INVESTORS VIII
(a California Limited Partnership)
Index to Form 10-K
December 31, 1999
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 4-5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a vote of
Security Holders (partners) 6
Part II
Item 5 - Market for the Registrant's Partners' Capital and
related matters 6
Item 6 - Selected Financial Data 6-8
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 -13
Item 8 - Financial Statements and Supplementary Data 13-37
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
Part III
Item 10 - Directors and Executive Officers of the Registrant 38
Item 11 - Executive Compensation 39
Item 12 - Security Ownership of Certain Beneficial Owners and management 40
Item 13 - Certain Relationships and Related Transactions 40
Part IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 40-41
Signatures 42
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the year ended December 31, 1999 Commission file number 333-13113
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
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(Exact name of registrant as specified in its charter)
California 94-3158788
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(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
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(address of principal executive offices) (zip code)
Registrant's telephone No. including area code (650) 365-5341
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------------------------------------------------------------
Limited Partnership Units None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g)
of the Act: Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES XXXX NO
- --------------- ------------------------
As of December 31, 1999, the limited partnership units purchased by non
affiliates was 351,109.41 units computed at $100.00 a unit for $35,110,941.
Documents incorporated by reference:
Portions of the Prospectus came into effect on December 4, 1996, (the
"Prospectus") are incorporated in Parts II, III, and IV. Exhibits filed as part
of Form S-11 Registration Statement #333-13113 are referenced in part IV.
<PAGE>
Part I
Item 1 - Business
Redwood Mortgage Investors VIII, a California limited partnership (the
"Partnership"), is organized to engage in business as a mortgage lender, for the
primary purpose of making loans secured primarily by first and second deeds of
trust on California real estate. Loans are arranged and serviced by Redwood
Mortgage Corp. The Partnership's objectives are to make loans that will: (i)
yield a high rate of return from mortgage lending; and (ii) preserve and protect
the Partnership's capital. Investors should not expect the Partnership to
provide tax benefits of the type commonly associated with limited partnership
tax shelter investments. The Partnership is intended to serve as an investment
alternative for investors seeking current income. However, unlike other
investments which are intended to provide current income, an investment in the
Partnership will be less liquid, not readily transferable, and not provide a
guaranteed return over its investment life.
Initially, a minimum of 2,500 Units ($250,000) and a maximum of 150,000 Units
$15,000,000) were sold. This initial offering closed on October 31, 1996.
Subsequently, the Partnership commenced a second offering of up to 300,000
additional Units ($30,000,000) commencing on December 4, 1996. All units are
being offered on a "best efforts" basis, which means that no one is guaranteeing
that any minimum number of Units will be sold, through broker-dealer member
firms of the National Association of Securities Dealers, Inc. (See "TERMS OF THE
OFFERING" and " PLAN OF DISTRIBUTION").
The Partnership began selling Units in February, 1993, and began investing in
mortgages in April, 1993. At December 31, 1999, the Partnership has investments
in Mortgage Investments with principal balances totalling $35,693,147. Interest
rates ranged from 8.00% to 14.00%. Currently First Trust Deeds comprise 51.81%
of the total amount of the Mortgage Investment portfolio, a decrease of 26.04%
over 1998 level of 70.05%. Junior loans (2nd and 3rd Trust Deeds) make up
48.19%, an increase of 60.90% over 1998 level of 29.95%.Owner-occupied homes,
combined with non-owner occupied Mortgage Investments, total 51.25% of the
Mortgage Investment portfolio. Loans secured by multi-family properties make up
0.85% of the total Mortgage Investments. Commercial Mortgage Investments, now
comprise 47.90% of the portfolio, an increase from 42.03% last year. 77.33% of
the total Mortgage Investments, are in six counties of the San Francisco Bay
Area. The County of Stanislaus makes up 15.54% of the Mortgage Investments.
Stanislaus County is an adjacent County to the San Francisco Bay Area, located
approximately 65 miles from San Francisco. The balance of Mortgage Investments
are primarily in Northern California. Mortgage Investment size increased this
past year, and is now averaging $673,456 per Mortgage Investment, up from
$580,108 in 1998. This increase is due to the ability of the Partnership by
virtue of its increasing size to invest in larger Mortgage Investments. The
average Mortgage Investment as of December 31, 1999, represents 1.82% of Limited
Partners capital and 1.89% of outstanding Mortgage Investments, similar to
December 31, 1998 average Mortgage Investment size of 2.14% of Limited Partners
capital and 1.82% of outstanding Mortgage Investments. Some of the Mortgage
Investments are fractionalized between affiliated partnerships with objectives
similar to those of the Partnership to further reduce risk. Average equity per
loan transaction stood at 38.56%, a decrease in equity of 1.94% from the
previous year. This average equity is generally considered very conservative.
Generally, the more equity, the more protection for the lender. The General
Partners believe the Partnership's Mortgage Investment portfolio is in good
condition with only one property in foreclosure as of the end of December, 1999.
<PAGE>
Item 2 - Properties
A summary of the Partnership's Mortgage Investment Portfolio as of December 31,
1999, is set forth below.
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds $19,388,393.83
Appraised Value of Properties 32,360,133.00
Total Investment as a % of Appraisal 59.91%
First Trust Deeds 19,388,393.83
Second Trust Deed Mortgage Investments 16,082,802.44
Third Trust Deed Mortgage Investments 221,951.22
-------------------
35,693,147.49
First Trust Deeds due other Lenders 21,119,420.00
Second Trust Deeds due other Lenders 2,600,000.00
Total Debt $59,412,567.49
Appraised Property Value $97,556,330.00
Total Investments as a % of Appraisal 60.90%
Number of Mortgage Investments Outstanding 53
Average Investment $673,455.61
Average Investment as a % of Net Assets 1.82%
Largest Investment Outstanding 2,600,000.00
Largest Investment as a % of Net Assets 7.02%
Loans as a Percentage of Total Mortgage Investments
First Trust Deeds 54.32%
Second Trust Deeds 45.06%
Third Trust Deeds 0.62%
------------------
Total 100.00%
Mortgage Investments by
Type of Property Amount Percent
Owner Occupied Homes $7,336,275.45 20.55%
Non-Owner Occupied Homes 10,957,622.03 30.70%
Apartments 302,796.53 0.85%
Commercial 17,096,453.48 47.90%
----------------- -----------
Total $35,693,147.49 100.00%
<PAGE>
The following is a distribution of Mortgage Investments outstanding as of
December 31, 1999 by Counties.
County Total Percent
Mortgage Investments
San Francisco $11,922,534.32 33.40%
Santa Clara 6,204,610.57 17.38%
San Mateo 5,698,300.21 15.96%
Stanislaus 5,545,878.38 15.54%
Marin 2,090,630.58 5.86%
Placer 1,355,608.45 3.80%
Contra Costa 1,316,342.71 3.68%
Lake 737,500.00 2.07%
Alameda 406,037.29 1.14%
San Joaquin 194,811.75 0.55%
Fresno 127,723.21 0.36%
Riverside 50,000.00 0.14%
Sacramento 43,170.02 0.12%
------------------------ -----------
Total $35,693,147.49 100.00%
Statement of Condition of Mortgage Investments
Number of Mortgage Investments in Foreclosure 1
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
-------------------
2000 $16,579,435
2001 14,365,526
2002 962,638
2003 308,957
2004 950,000
Thereafter 2,526,591
----------------
$35,693,147
================
The scheduled maturities for 2000 include approximately nine Mortgage
Investments totalling $4,984,651 which were past maturity at December 31, 1999.
Interest payment on only four of these loans was delinquent.
In 1995, the Partnership chose to allow a senior lender to foreclose out its
deed of trust on one of its Mortgage Investments. The Partnership commenced a
legal action to collect this debt. A settlement was reached for this debt
collection. As of December 31, 1999, $30,000 of the amount due has been
collected. The remaining balance due has been recorded as an account receivable
in the financial statements. Additional payments are expected in year 2000.
As of January 01, 1999, the Partnership owned a vacant lot acquired through the
foreclosure of Mortgage Investment. The vacant lot was valued at $66,000 and was
subsequently sold in April 1999 for $85,000. Additionally, the Partnership
wholly owns a limited liability company (LLC) whose sole asset is a partially
completed single family residence. This partially completed single family
residence was originally foreclosed upon by the Partnership and subsequently
transferred to the LLC at a cost of $181,139. Additional expenditures over the
$181,139 basis, have been primarily for completion of the construction. At the
time of writing this report (February, 2000), the construction was fully
completed and the property was sold.
<PAGE>
Item 3 - Legal Proceedings
In the normal course of business, the Partnership may become involved in various
types of legal proceedings such as assignment of rents, bankruptcy proceedings,
appointment of receivers, unlawful detainers, judicial foreclosure, etc., to
enforce the provisions of the deeds of trust, collect the debt owed under the
promissory notes, or to protect/ recoup its investment from the real property
secured by the deeds of trust. None of these actions would typically be of any
material importance. As of the date hereof, the Partnership is not involved in
any legal proceedings other than those that would be considered part of the
normal course of business.
Item 4 - Submission of matters to vote of Security Holders (Partners).
No matters have been submitted to a vote of the Partnership.
Part II
Item 5 - Market for the Registrant's Units and Related Partnership Matters.
300,000 units at $100 each (minimum 20 units) are being offered (150,000 units
were previously offered and sold) through broker-dealer member firms of the
National Association of Securities Dealers on a "best efforts" basis (as
indicated in Part I item 1). Investors have the option of withdrawing earnings
on a monthly, quarterly, or annual basis or reinvesting and compounding the
earnings. Limited Partners may withdraw from the Partnership in accordance with
the terms of the Partnership Agreement subject to possible early withdrawal
penalties. There is no established public trading market.
A description of the Partnership units, transfer restrictions and withdrawal
provisions is more fully described under the section entitled "Description of
Units" and summary of Limited Partnership Agreement, pages 67 through 75 of the
Prospectus, a part of the referenced Registration Statement, which is
incorporated by reference.
Pursuant to Post-effective No. 9, effective as of February 28, 2000, each unit
of the Limited Partnership shall be offered at a price of $1.00 instead of $100.
This has been done as an administrative convenience that will save the
Partnership considerable expense. The total number of units being offered has
increased to 30,000,000 from 300,000, however, the aggregate offering amount of
$30,000,000 has not increased. This is simply a semantic change with no effect
on an investor's interest, or the total aggregate dollar amount being offered.
The Partnership does not actually issue "units". An investor's interest is
determined based solely on his capital account balance.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VIII began operations in April 1993. Financial
results for years 1984 through December 31, 1998, for prior partnerships are
incorporated by reference to the Prospectus (S-11) dated December 4, 1996, Table
III pages 104 through 138, Supplement No.4 dated April 24, 1998, and Supplement
No. 5 dated April 28, 1999.
<PAGE>
Financial condition and results of operation for the Partnership for three years
to December 31, 1999 were:
<TABLE>
Balance Sheet
Assets
December 31,
------------------------------------------------------
1999 1998 1997
---------------- -------------- --------------
---------------- -------------- --------------
<S> <C> <C> <C>
Cash $1,602,568 $528,688 $663,159
Accounts Receivable:
Mortgage Investments secured by Deeds of Trust 35,693,148 31,905,958 25,304,989
Accrued interest and other fees 711,521 459,418 341,976
Advances on Mortgage Investments 33,251 211,145 205,804
Other receivables - Unsecured 49,090 48,849 62,844
Less allowance for losses (834,359) (414,073) (257,500)
Investment in Limited Liability Corporation 373,358 304,139 251,139
Real estate owned, net 0 66,000 70,138
Organization cost net of amortization 0 0 1,875
Prepaid Expenses 6,332 11,835 10,151
Due from General Partners/Related Companies 0 0 2,999
---------------- -------------- --------------
---------------- -------------- --------------
$37,634,909 $33,121,959 $26,657,574
================ ============== ==============
Liabilities and Partners Capital
December 31,
-----------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
Liabilities:
Deferred interest $213,529 $124,805 $83,066
Note payable - Bank 0 5,947,000 5,640,000
Accounts payable 29,413 2,500 3,355
Subscriptions to partnership in applicant 330,000 0 0
status
---------------- --------------- ----------------
$572,942 $6,074,305 $5,726,421
---------------- --------------- ----------------
Partners' Capital
Limited partners subject to redemption 37,030,017 27,025,331 20,914,721
General Partners 31,950 22,323 16,432
--------------- ----------------
---------------- ---------------
$37,061,967 $27,047,654 $20,931,153
---------------- ---------------
--------------- ----------------
$37,634,909 $33,121,959 $26,657,574
================ =============== ================
</TABLE>
<PAGE>
<TABLE>
Statement of Income
December 31,
--------------------------------------------------------
1999 1998 1997
-------------------- -------------- ------------
<S> <C> <C> <C>
Gross Revenue $4,426,245 $3,406,021 $2,629,457
Expenses 1,482,051 1,127,439 820,937
-------------- -------------- ------------
Income before interest credited to Partners in applicant 2,944,194 2,278,582 1,808,520
status
Interest credited to Partners in applicant status 1,914 4,454 9,562
-------------- -------------- ------------
Net Income $2,942,280 $2,274,128 $1,798,958
============== ============== ============
Net income to General Partners (1%) $29,423 $22,741 $17,990
============== ============== ============
Net Income to Limited Partners (99%) $2,912,857 $2,251,387 $1,780,968
============== ============== ============
Net Income per $1,000 invested by Limited Partners for
- where income is reinvested and compounded $84 $84 $84
============== ============== ============
- where partner receives income in monthly distributions $81 $81 $81
============== ============== ============
</TABLE>
The annualized yield for 1997 was 8.40%, for 1998 was 8.40% and for 1999 it was
8.42%. An average annualized yield since inception through December 31, 1999,
was 8.36%.
<PAGE>
Item 7
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 31, 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 $20,178,924 for the second offering an aggregate of $35,110,941
(Limited Partners) as of December 31, 1999. Of this amount, $330,000 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 December 31, 1999, the Partnership's Mortgage Investments outstanding
totalled $35,693,147. 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 $35,693,147 to
December 31, 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 $9,520,806, 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
$1,911,554, for the years ended December 31, 1994, December 31, 1995, December
31, 1996, December 31, 1997, December 31, 1998 and December 31, 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 1999 to $480,110, $1,031,029, $1,718,208, $2,613,008, $3,376,293 and
$4,337,427 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 December 31, 1999, distributed earnings at an average annualized
yield of 8.36%.
Since the Fall of 1999, mortgage interest rates have been rising due primarily
to economic forces and by the Federal Reserve raising its core interest
rates.New Mortgage Investments will be originated at higher interest rates which
could increase 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
2000 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 its inception has increased the
limit from $3,000,000 to $9,000,000. For the years ended December 31, 1996,
1997, 1998 and December 31, 1999, interest on Note Payable-Bank was $188,638,
$340,633, $513,566 and $526,697 respectively. For 1997, 1998 and the twelve
months ended December 31, 1999, the increase in interest on notes payable-Bank
has been attributed to a higher overall credit facility utilization. During
1999, the Partnership's highest borrowing was $8,600,000 at an interest rate of
prime + 1/4%. 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 December 31, 1999, the balance was $0 and in accordance with the
line of credit, the Partnership paid all accrued interest as of that date. The
zero balance, as of December 31, 1999, was
primarily due to a combination of significant loan repayments and strong
Partnership unit sales in the fourth quarter. The Partnership used these strong
cash flows to pay down its line of credit from $4,452,000, as of September 30,
1999, to $0 on December 31, 1999.
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 $359,464
for the years ended December 31, 1996, 1997, 1998 and 1999. The mortgage
servicing fees increased primarily due to increase in the outstanding Mortgage
Investment portfolio. Asset Management fees increased from $17,053 to $24,966,
to $31,651 and to $42,215 for the years ended December 31, 1996, 1997, 1998 and
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. 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 1999, the Partnership made provisions for doubtful accounts
of $55,383, $139,804, $162,969 and $408,890 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
December 31, 1999, of $834,359 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 February 18, 2000 issue of the "Alert" publication, published by the
California Chamber of Commerce, said the following about California's thriving
economy:
"Job gains grew in the fourth quarter of 1999, as the California economy
accelerated. For the year as a whole, employment grew by 2.9 percent,
considerably stronger than in the nation. This gain likely will be revised
upward to 3.3 percent, or so, in the benchmark revisions to be released in late
February.
State unemployment, at 4.9 percent in the last four months, is lower than in
more than 30 years. Tax revenues are flooding into Sacramento, in part because
of the strong economy, but also because of exercised stock options, strong
bonuses and huge realized stock market gains.
The state economy's strength has been widespread across major industries, but
concern about residential real estate is growing.
Housing permits were issued at an annual rate of 139,000 units through November
1999, well below almost everyone's expectations and the 220,000 units averaged
annually in the 1980s. Clearly, not enough housing is being built in the state.
High land prices, restrictive local land use policies, the re-emergence of the
slow growth/no growth movement, and federal environmental regulations are
constraining home building. As a result, affordability is declining at an
alarming rate.
The affordability of existing homes is low in San Diego and Orange counties and
extremely low almost everywhere in the San Francisco Bay Area. In what seems
like a paradox, an oversupply of expensive new homes is developing. This also
happened under similar circumstances in the late 1980s.
In areas of particularly high land prices and long permitting and other building
delays, building entry and mid-level housing becomes more difficult to "pencil
out". As developers turn increasingly to expensive housing, the supply of
expensive housing can quickly outstrip demand. Also, the affordability of new
homes can dip considerably below that of existing homes.
In Orange County, for example, a relatively low 32 percent of households could
afford to buy the median-priced existing home sold in November; only 19 percent
could afford to buy the median-priced new home."
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
Partnership's 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 December 31,
1999, the Partnership made distributions of earnings to Limited Partners after
allocation of syndication costs of, $418,380, $495,480, $614,383 and $826,291
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 December 31, 1999, to Limited Partners' capital accounts
and not withdrawn was $800,218, $1,119,465, $1,440,687 and $1,911,554
respectively. As of December 31, 1996, December 31, 1997, December 31, 1998 and
December 31, 1999, Limited Partners electing to withdraw earnings represented
34%, 30%, 30% and 31% respectively of the Limited Partners outstanding capital
accounts. These percentages are remaining relatively stable as new Partnership
unit sales continue to mirror previous sales of compounding and non-compounding
unit sales. Liquidations are not occurring disproportionately to compounding or
non-compounding accounts.
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 December 31, 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 December 31, 1999 were:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1998 1999
---------- ------------ ----------- ----------- ----------- ------------ -------------
Earnings
Capital Liquidation
0 0 $5,640 $146,755 $132,619 $257,344 $592,357
---------- ------------ ----------- ----------- ----------- ------------ -------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $1,418,648
========== ============ =========== =========== =========== ============ =============
</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 December 31, 1999, $146,755, $132,619,
$244,213 and $411,838 respectively were liquidated subject to the 10% penalty
for early withdrawal. This represents only 1.00%, 0.63%, 0.90% and 1.11% of the
Limited Partners ending capital for the years ended December 31, 1996, 1997,
1998 and 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
December 31, 1999, respectively, and is expected by the General Partners to
commonly occur at these levels.
The Year 2000 was considered by most to be a challenge for the entire
world with respect to the conversion of existing computerized operations. The
Partnership relies on Redwood Mortgage Corp., third parties and various software
vendors for its hardware and software needs. Since year 2000 has come, we have
not experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems are being
addressed by the appropriate software vendors or software programmers. All
month-end, quarterly, and annual computerized functions have not yet been run,
however testing of the operations has taken place. We do not expect any
significant problems.
The costs of updating our computer systems were substantially borne by
the non affiliated software vendors and the in house system conversion costs to
the partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant
manner, any industries or businesses in the marketplace in which the Partnership
places its loans. We believe that year 2000 issues are a non-event and will have
little if any future effect on the Partnership, its affiliates or the people and
businesses with which it associates.
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 assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
On February 7, 2000, the General Partners, pursuant to Section 12.4(d) of
the Partnership Agreement, admitted Redwood Mortgage Corp., a California
corporation, as a General Partner of the Partnership. Redwood Mortgage Corp. is
an affiliate of the General Partners. Redwood Mortgage Corp. was incorporated in
1978. Its principal stockholder is D. Russell Burwell, a General Partner of the
Partnership. Redwood Mortgage Corp. is a licensed real estate broker and has
been engaged primarily in the business of arranging and servicing the
Partnership's loans since its inception. The General Partners believe that the
addition of Redwood Mortgage Corp as a General Partner will strengthen the
Partnership's management team.
<PAGE>
On February 17, 2000 the Partnership filed Post-Effective Amendment No. 9 to
it's initial Registration Statement dated December 4, 1996 (the "Amendment").
The Amendment was declared effective by the Securities and Exchange Commission
(the "Commission") on February 28, 2000. The Amendment contained a revised
Prospectus for the Partnership intended to meet the plain English requirements
of the Commission. The Prospectus also includes updated financials for the
Partnership and the General Partners and incorporates the disclosure items
previously included in Supplement No. 5 dated April 26, 1999. The Prospectus
additionally includes disclosure with respect to the fact that (1) Redwood
Mortgage Corp. has been admitted as an additional General Partner (see Part III,
item 10 below); (2) the offering price of units has been changed to $1 (see Part
II, item 5 above); and (3) that in order to provide greater flexibility to its
investors, the General Partners intend to file a Dividend Reinvestment Plan with
the Commission in the first half of 2000.
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VIII, a California Limited Partnership's list of
Financial Statements and Financial Statement schedules:
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VIII are
included in Item 8:
- Independent Auditor's Report,
- Balance Sheets - December 31, 1999, and December 31, 1998, -
Statements of Income for the three years ended December 31, 1999. -
Statements of Partners' Capital for the three years ended December
31, 1999. - Statements of Cash Flows for the three years ended
December 31, 1999. - Notes to Financial Statements - December 31,
1999.
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors VIII
are included in Item 8.
- Schedule II, - Amounts receivable from related parties and
underwriters, promoters, and employees other than related parties
- Schedule VIII - Valuation of Qualifying Accounts, - Schedule IX -
Short Term Borrowings. - Schedule XII - Mortgage Investments on
real estate.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
(With Auditor's Report Thereon)
<PAGE>
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd. Ste. 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VIII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1999 and 1998 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31, 1999. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VIII
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for the three years ended December 31, 1999, in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<S> <C> <C>
1999 1998
-------------- --------------
Cash $1,602,568 $528,688
-------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 35,693,148 31,905,958
Accrued Interest on Mortgage Investments 711,521 459,418
Advances on Mortgage Investments 33,251 211,145
Accounts receivables, unsecured 49,090 48,849
-------------- --------------
36,487,010 32,625,370
Less allowance for doubtful accounts 834,359 414,073
-------------- --------------
35,652,651 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 373,358 304,139
Prepaid expense-deferred loan fee 6,332 11,835
-------------- --------------
$37,634,909 $33,121,959
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
1999 1998
-------------- --------------
Liabilities:
Accounts payable and accrued expenses $29,413 $2,500
Note payable - bank line of credit 0 5,947,000
Deferred interest income 213,529 124,805
Investors in applicant status 330,000 0
-------------- --------------
-------------- --------------
572,942 6,074,305
-------------- --------------
-------------- --------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $342,334 and
$353,875 for 1999 and 1998, respectively:
and formation loan receivable of $2,158,674 and $1,640,904
for 1999 and 1998, respectively 37,030,017 27,025,331
General Partners' Capital, net of unallocated syndication costs
of $3,458 and $3,574 for 1999 and 1998, respectively 31,950 22,323
-------------- --------------
Total Partners' Capital 37,061,967 27,047,654
-------------- --------------
Total Liabilities and Partners' Capital $37,634,909 $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 THREE YEARS ENDED DECEMBER 31, 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------------- ------------- ---------------
Revenues:
Interest on Mortgage Investments $4,337,427 $3,376,293 $2,613,008
Interest on bank deposits 8,197 8,946 9,487
Late charges 27,859 19,384 6,432
Miscellaneous 52,762 1,398 530
--------------
------------- ---------------
4,426,245 3,406,021 2,629,457
-------------- ------------- ---------------
Expenses:
Mortgage servicing fees 359,464 295,052 189,692
Interest on note payable - bank 526,697 513,566 340,633
Amortization of loan origination fees 10,503 11,415 16,819
Provision for doubtful accounts and losses on real estate
acquired through foreclosure 408,890 162,969 139,804
Asset management fee - General Partner 42,215 31,651 24,966
Amortization of organization costs 0 1,875 2,500
Clerical costs through Redwood Mortgage Corp. 85,171 67,453 54,549
Professional services 31,814 27,462 36,717
Printing, supplies and postage 7,102 7,089 9,584
Other 10,195 8,907 5,673
------------- ------------- ---------------
1,482,051 1,127,439 820,937
-------------- ------------- ---------------
Income before interest credited to partners in applicant status 2,944,194 2,278,582 1,808,520
Interest credited to partners in applicant status 1,914 4,454 9,562
-------------- ------------- ---------------
Net Income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income: To General Partners(1%) $29,423 $22,741 $17,990
To Limited Partners (99%) 2,912,857 2,251,387 1,780,968
-------------- ------------- ---------------
Total - net income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income per $1,000 invested by Limited Partners for entire period:
- -where income is reinvested and compounded $84 $84 $84
============== ============= ===============
- -where partner receives income in monthly distributions $81 $81 $81
============== ============= ===============
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, 1999
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>
Balances at December 31, 1996 $310,937 $16,181,189 $ (414,190) $ $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 applicant status 9,562 0 0 0 0
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 on 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 applicant status 4,454 0 0 0 0
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
Contributions on Application 9,530,318 0 0 0 0
Formation Loan increases 0 0 0 (708,461) (708,461)
Formation Loan payments 0 0 0 164,731 164,731
Interest credited to partners in applicant status 1,914 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,002) 0 0 0 0
Transfers to Partners' capital (9,201,230) 9,191,719 0 0 9,191,719
Net Income 0 2,912,857 0 0 2,912,857
Syndication costs incurred 0 0 (177,099) 0 (177,099)
Allocation of syndication costs 0 (175,012) 175,012 0 0
Partners' withdrawals 0 (1,378,924) 0 0 (1,378,924)
Early withdrawal penalties 0 (39,725) 13,628 25,960 (137)
--------------- ------------ ------------- ------------- -------------
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
=============== ============ ============= ============= =============
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, 1999
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, 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 applicant status 0 0 0 0
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 applicant status 0 0 0 0
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
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (708,461)
Formation Loan payments 0 0 0 164,731
Interest credited to partners in applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 9,511 0 9,511 9,201,230
Net Income 29,423 0 29,423 2,942,280
Syndication costs incurred 0 (1,789) (1,789) (178,888)
Allocation of syndication costs (1,768) 1,768 0 0
Partners' withdrawals (27,655) 0 (27,655) (1,406,579)
Early withdrawal penalties 0 137 137 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1999 $35,408 $(3,458) $31,950 $37,061,967
================ ================= ================== ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997
--------------- --------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $2,942,280 $2,274,128 $1,798,958
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 1,875 2,500
Provision for doubtful accounts. 420,286 156,573 139,804
Provision for losses (gains) on real estate held for sale (11,396) 6,396 0
Increase (decrease) in accounts payable 26,913 (855) (17,270)
(Increase) in accrued interest & advances (74,209) (122,783) (342,571)
(Increase) decrease in amount due from related companies (241) 2,999 (2,688)
(Increase) decrease in deferred loan fee 5,503 (1,684) 10,569
Increase (decrease ) in deferred interest income 88,724 41,739 (134,414)
--------------- --------------- --------------
Net cash provided by operating activities 3,397,860 2,358,388 1,454,888
--------------- --------------- --------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 20,243,729 14,262,838 10,279,337
Mortgage Investments made (24,030,919) (20,863,807) (19,941,336)
Disposition of real estate held for sale 79,282 0 0
Additions to real estate held for sale (1,886) (2,258) (3,254)
Additions to Limited Liability Corporation (69,219) (53,000) (60,000)
Accounts receivables, unsecured - (disbursements) receipts 0 13,995 12,490
--------------- --------------- --------------
Net cash used in investing activities (3,779,013) (6,642,232) (9,712,763)
--------------- --------------- --------------
Cash flows from financing activities
Increase (decrease) in note payable-bank (5,947,000) 307,000 4,140,000
Contributions by partner applicants 9,530,318 5,105,559 5,251,969
Interest credited to partners in applicant status 1,914 4,454 9,562
Interest withdrawn by partners in applicant status (1,002) (1,553) (1,849)
Partners withdrawals (1,406,579) (868,419) (631,150)
Syndication costs incurred (178,888) (127,730) (190,421)
Formation Loan increases (708,461) (403,518) (420,510)
Formation Loan collections 164,731 133,580 98,999
--------------- --------------- --------------
Net cash provided by financing activities 1,455,033 4,149,373 8,256,600
--------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 1,073,880 (134,471) (1,275)
Cash - beginning of period 528,688 663,159 664,434
--------------- --------------- --------------
Cash - end of period $1,602,568 $528,688 $663,159
=============== =============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 December 31, 1999, the Partnership was in
the offering stage, wherein contributed capital totalled $35,110,941 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (351,109.41). As of December 31, 1999, $330,000 remained in
applicant status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units ($15,000,000)
were initially offered through qualified broker-dealers. This initial offering
was closed in October, 1996. In December 1996, the Partnership commenced a
second offering of an additional 300,000 Units ($30,000,000) 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
$1,547,875 at December 31, 1999, which was 7.7% of the limited partners
contributions of $20,178,924. 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>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following summarizes Formation Loan transactions to December 31, 1999:
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- --------------- ----------------
<S> <C> <C> <C>
Limited Partner contributions $14,932,017 $20,178,924 $35,110,941
============== =============== ================
Formation Loan made $1,074,840 1,547,875 2,622,715
Payments to date (281,701) (124,569) (406,270)
Early withdrawal penalties applied (57,771) 0 (57,771)
-------------- --------------- ----------------
-------------- --------------- ----------------
Balance December 31, 1999 $735,368 $1,423,306 $2,158,674
============== =============== ================
Percent loaned of Partners' contributions 7.2% 7.7% 7.5%
============== =============== ================
</TABLE>
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 December 31, 1999, organization costs of $12,500 and syndication costs
of $1,167,649 had been incurred by the Partnership with the following
distribution:
Syndication Organization
Costs Costs Total
------------ ------------- ------------
Costs incurred $1,167,649 $12,500 $1,180,149
Early withdrawal penalties applied (31,555) 0 (31,555)
Allocated and amortized to date (790,302) (12,500) (802,802)
------------ ------------- ------------
December 31, 1999 balance $345,792 0 $345,792
============ ============= ============
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 December 31, 1999 syndication costs attributable to the subsequent
offering ($30,000,000) totalled $597,784, (3.0% of contributions), with the
costs of the offering being greater at the initial stages due to professional
and filing fees related to formulating the offering documents. 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, 1999
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. Therefore they are 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 December 31, 1999, 1998, and 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 losses were
consummated was 60.90%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1999, there were no
properties acquired by the Partnership as real estate owned (REO).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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
Partnership'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 December 31, 1999, and
1998 was as follows:
December 31,
--------------------------------------------
1999 1998
--------------- ----------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 795,268 370,073
Amounts receivable, unsecured 39,091 44,000
--------------- ----------------
$834,359 $414,073
=============== ================
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, are not an
expense of the Partnership. In 1999 and 1998, Mortgage Investment brokerage
commissions paid by the borrowers were $682,118 and $604,836, respectively.
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 $359,464, $295,052 and $189,692
were incurred for years 1999, 1998 and 1997, 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 $42,215, $31,651 and $24,966 were
incurred for years 1999, 1998 and 1997, 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, 1999
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 December 31, 1999 a General Partner, GYMNO Corporation, had
contributed $35,100, 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 periods ending December 31, 1999, 1998 and 1997, interest totaling
$1,914, $4,454 and $9,562, 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
At subscription, 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, 1999
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and accordingly
an investment in the Partnership is non-liquid. 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.
After five years from the date of purchase of the Units, Limited Partners have
the right to withdraw from the Partnership on an installment basis. Generally
this is done over a five year period in twenty (20) quarterly installments. Once
a Limited Partner has been in the Partnership for the minimum five year period,
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 may 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. This withdrawal is subject to a 10% early withdrawal penalty applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.
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
$9,000,000 at .25% over prime secured by its Mortgage Investment portfolio. The
note payable balances were $0 and $5,947,000 at December 31, 1999, and 1998,
respectively, and the interest rate was 8.75% at December 31, 1999, (8.50% prime
plus .25%).
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, and which will complete the construction
and sell the property. The Partnership expects to realize a profit from the
venture.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
----------------------------------------
1999 1998
------------------ ----------------
Net Assets - Partners' Capital per
financial statements $37,061,967 $27,047,654
Non-amortized syndication costs 345,792 357,449
Allowance for doubtful accounts 834,359 414,073
Formation loans receivable 2,158,674 1,640,904
------------------ ----------------
Net assets tax basis $40,400,792 $29,460,080
================== ================
In 1999 and 1998, approximately 58% and 61% of taxable income was allocated to
tax exempt organizations, i.e., retirement plans, respectively. 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 $35,693,148.
The fair value of these investments of $35,825,175 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, 1999
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At December 31,
1999, there were 53 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 53
Total Mortgage Investments outstanding $35,693,148
Average Mortgage Investment outstanding $673,456
Average Mortgage Investment as percent of total 1.89%
Average Mortgage Investment as percent of Partners' Capital 1.82%
Largest Mortgage Investment outstanding 2,600,000
Largest Mortgage Investment as percent of total 7.28%
Largest Mortgage Investment as percent of Partners' Capital 7.02%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 33.40%
Average Mortgage Investment to appraised value of security
at time loan was consummated 60.90%
Number of Mortgage Investments in foreclosure status 1
Amount of Mortgage Investments in foreclosure $2,600,000
The following categories of mortgage investments are pertinent at December 31,
1999 and 1998:
December 31,
------------------------------------------
1999 1998
------------------ ------------------
First Trust Deeds $19,388,394 $22,349,185
Second Trust Deeds 16,082,803 8,469,460
Third Trust Deeds 221,951 1,087,313
------------------ ------------------
Total mortgage investments 35,693,148 31,905,958
Prior liens due other lenders 23,719,420 26,411,096
------------------ ------------------
Total debt $59,412,568 $58,317,054
================== ==================
Appraised property value at time of loan $97,556,330 $98,011,150
================== ==================
Total investments as a percent of appraisals 60.90% 59.50%
================== ==================
Investments by Type of Property
Owner occupied homes $7,336,276 $6,450,199
Non-Owner occupied homes 10,957,622 8,789,445
Apartments 302,797 3,256,602
Commercial 17,096,453 13,409,712
------------------ ------------------
$35,693,148 $31,905,958
================== ==================
The interest rates on the mortgage investments range from 8.00% to 14.00% at
December 31, 1999.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
-------------------
2000 $16,579,436
2001 14,365,526
2002 962,638
2003 308,957
2004 950,000
Thereafter 2,526,591
----------------
$35,693,148
================
The scheduled maturities for 2000 include approximately $4,984,651 in Mortgage
Investments which are past maturity at December 31, 1999. Interest payment on
only four of these loans was delinquent.
The cash balance at December 31, 1999 of $1,602,568 was in one bank with
interest bearing balances totalling $1,481,699. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,502,568. This bank is the same
financial institution that has provided the Partnership with the $9,000,000
limit line of credit. At December 31, 1999, draw down against this facility was
$0. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
Mortgage Investments or used to pay-down on the line of credit balance.
<PAGE>
<TABLE>
SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03
Column A Column B Column C Column D Column E
Name of Debtor Balance Beginning Additions Deductions Balance at end of period
of period 12/31/98 (1) (2) (1) (2)
Amounts Amounts Current Not Current
collected written off 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Redwood Mortgage Corp. $1,640,904 $708,460 $164,730 $25,960 0 $2,158,674
-------------- -------------------- ---------------- ------------- ------------- ---------------
Total $1,640,904 $708,460 $164,730 $25,960 0 $2,158,674
============== ==================== ================ ============= ============= ===============
</TABLE>
The above schedule represents the Formation Loan borrowed by Redwood Mortgage
Corp. from the Partnership to pay for the selling commissions on units. It is an
unsecured loan and will not bear interest. It will be repaid to the Partnership
in ten annual installments as described in Note 1 A to the financial statements.
The amount written off in column D (2) represents the proportionate amount of
early withdrawal penalties allocated to the Formation Loan as provided in the
prospectus.
<PAGE>
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VIII
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Description Balance Additions Deductions Balance at
beginning of (1) (2) Describe End of Period
of period Charged to Charged
(credited) to
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/99
Deducted from
Asset accounts:
Allowance for
Doubtful accts $414,073 $420,286 0 0 $834,359
Cumulative
write-down of
Real Estate
held for sale
(REO) $11,396 ($11,396) 0 0 0
----------------- -------------------- ------------------ ---------------- ----------------
Totals $425,469 $408,890 0 0 $834,359
================= ==================== ================== ================ ================
</TABLE>
<PAGE>
<TABLE>
SCHEDULE XII
MORTGAGE INVESTMENTS ON REAL ESTATE.
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Descp. Interest Final Periodic Prior Liens Face Amt. of Carrying Principal Type of Geographic
Rate Maturity Payment Mortgage amount of amt of Lien County
Date Terms Investments Mortgage Mortgage Location
(original Investments Investments
amount) subject to
Delinq.
Principal or
Interest
========== ======== ========= ============ =============== ============== ============== ============== ========== =============
Comm 13.75 11/01/99 2,044.77 156,750.00 175,500.00 166,317.85 0.00 2nd mtg Alameda
Comm 13.75 10/01/96 458.33 0.00 40,000.00 15,745.00 0.00 1st mtg Santa Clara
Comm 11.00 09/01/05 846.15 846,019.00 67,500.00 43,170.02 0.00 2nd mtg Sacramento
Comm 10.00 12/01/98 1,689.33 0.00 192,500.00 189,719.44 189,719.44 1st mtg Alameda
Comm 12.00 02/01/99 5,131.14 0.00 503,457.45 503,457.45 503,457.45 1st mtg Santa Clara
Apts 11.00 11/01/99 1,980.58 713,917.00 200,000.00 194,811.75 0.00 2nd mtg San Francisco
Res 11.00 12/01/03 3,185.37 1,060,486.00 325,000.00 308,956.27 0.00 2nd mtg San Francisco
Apts 11.00 04/01/05 330.09 0.00 400,000.00 33,333.33 0.00 1st mtg San Joaquin
Comm 12.00 07/01/00 1,387.44 0.00 130,000.00 127,723.21 0.00 1st mtg Fresno
Comm 11.75 02/01/99 1,018.34 0.00 104,000.00 92,917.26 0.00 1st mtg Contra Costa
Comm 12.00 03/01/01 789.92 0.00 75,000.00 72,617.12 0.00 1st mtg San Mateo
Res 11.00 04/01/06 1,039.81 0.00 105,000.00 102,718.58 0.00 1st mtg San Francisco
Comm 12.00 03/01/01 684.60 74,754.00 65,000.00 63,351.99 0.00 2nd mtg San Mateo
Comm 12.00 02/01/99 186.00 46,800.00 18,000.00 18,000.00 18,000.00 2nd mtg Santa Clara
Comm 14.00 04/01/06 12,160.05 0.00 700,000.00 610,628.80 0.00 1st mtg San Francisco
Comm 10.75 04/01/00 447.92 121,264.00 50,000.00 50,000.00 0.00 2nd mtg Riverside
Comm 11.75 05/01/02 3,828.76 0.00 370,000.00 282,756.35 0.00 1st mtg San Mateo
Res 12.00 06/01/99 500.00 262,342.00 50,000.00 50,000.00 0.00 2nd mtg Alameda
Res 10.00 07/01/00 5,068.88 0.00 579,300.00 579,300.00 15,206.64 1st mtg San Francisco
Comm 12.00 10/01/02 1,562.50 0.00 150,000.00 129,881.93 0.00 1st mtg San Francisco
Res 11.00 04/01/99 11,661.04 579,300.00 1,320,000.00 1,320,000.00 1,320,000.00 2nd mtg San Francisco
Apts 11.00 10/01/99 18,944.44 0.00 220,000.00 36,226.00 0.00 1st mtg San Mateo
Comm 11.00 10/01/07 6,190.11 0.00 650,000.00 642,936.06 0.00 1st mtg San Francisco
Res 8.00 11/01/27 1,834.42 0.00 250,000.00 244,882.25 0.00 1st mtg San Mateo
Res 12.00 05/01/99 11,310.80 0.00 2,400,000.00 2,063,898.25 0.00 1st mtg San Francisco
Land 11.00 09/01/99 3,354.17 0.00 350,000.00 350,000.00 0.00 1st mtg Stanislaus
Res 12.00 04/01/00 8,940.00 0.00 894,000.00 894,000.00 71,520.00 1st mtg Marin
Comm 11.00 12/01/00 10,273.34 0.00 1,072,000.00 573,927.16 0.00 1st mtg Stanislaus
Res 11.00 03/01/00 1,126.59 579,300.00 950,700.00 595,673.94 0.00 2nd mtg San Francisco
Res 11.00 05/01/00 8,720.83 0.00 910,000.00 910,000.00 0.00 1st mtg San Francisco
Res 11.00 06/01/00 11,068.75 1,320,000.00 1,155,000.00 612,520.86 0.00 2nd mtg San Francisco
Res 11.00 05/01/00 9,132.92 910,000.00 953,000.00 1,269,988.85 0.00 2nd mtg San Francisco
Comm 11.00 12/01/00 16,500.00 0.00 1,800,000.00 1,800,000.00 0.00 1st mtg Santa Clara
Res 10.87 12/01/99 23,562.50 0.00 2,600,000.00 2,600,000.00 0.00 1st mtg San Mateo
Res 12.00 03/01/01 12,336.18 0.00 1,210,000.00 1,196,630.58 0.00 1st mtg Marin
Res 11.00 09/01/00 8,359.30 $0.00 896,000.00 874,486.61 0.00 1st mtg Santa Clara
Comm 10.50 03/01/01 17,937.50 3,753,523.00 2,050,000.00 2,050,000.00 0.00 2nd mtg San Mateo
Res 12.00 05/01/00 4,303.45 2,400,000.00 430,344.83 430,344.83 0.00 2nd mtg San Francisco
Comm 12.00 06/01/01 8,500.00 0.00 850,000.00 850,000.00 0.00 1st mtg San Francisco
Land 11.34 07/01/01 1,133.40 0.00 120,000.00 120,000.00 0.00 1st mtg Santa Clara
Land 11.00 01/01/01 16,500.00 363,035.00 1,800,000.00 1,800,000.00 0.00 2nd mtg Stanislaus
Land 11.00 07/01/01 23,833.33 358,116.00 2,600,000.00 2,600,000.00 23,562.50 2nd mtg Stanislaus
Res 10.87 02/01/01 2,670.05 264,025.00 950,000.00 348,466.50 0.00 2nd mtg San Mateo
Comm 12.00 06/01/01 6,742.08 850,000.00 1,028,095.22 912,352.62 0.00 2nd mtg San Francisco
Res 10.50 08/01/04 8,312.50 0.00 950,000.00 950,000.00 0.00 1st mtg Santa Clara
Res 10.50 09/01/01 6,453.13 454,885.00 737,500.00 737,500.00 0.00 2nd mtg Lake
Res 10.25 09/01/09 7,616.86 668,433.00 850,000.00 848,921.51 0.00 2nd mtg Santa Clara
Apts 12.50 03/14/00 435.55 5,733.00 38,727.14 38,425.45 0.00 2nd mtg Contra Costa
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Descp. Interest Final Periodic Prior Liens Face Amt. of Carrying Principal Type of Geographic
Rate Maturity Payment Mortgage amount of amt of Lien County
Date Terms Investments Mortgage Mortgage Location
(original Investments Investments
amount) subject to
Delinq.
Principal or
Interest
========== ======== ========= ============ =============== ============== ============== ============== ========== =============
Res 12.00 05/01/01 11,469.28 0.00 3,297,500.00 1,355,608.45 0.00 1st mtg Placer
Land 11.00 11/01/00 2,034.55 2,968,393.00 221,951.22 221,951.22 0.00 3rd mtg Stanislaus
Comm 10.25 12/01/01 10,121.88 0.00 1,185,000.00 1,185,000.00 0.00 1st mtg Contra Costa
Comm 12.75 12/01/01 11,411.25 4,467,314.00 1,074,000.00 1,074,000.00 0.00 2nd mtg Santa Clara
Comm 11.00 01/01/02 5,041.67 495,031.00 550,000.00 550,000.00 0.00 2nd mtg San Francisco
============ =============== ============== ============== ==============
============ =============== ============== ============== ==============
$352,171.83 $23,719,420.00 $40,664,075.86 $35,693,147.49 $2,141,466.03
</TABLE>
Notes:
- None of the above Mortgage Investments is considered "impaired".
Therefore, none of them has been written down. The allowance for doubtful
accounts includes $795,268 relating to the above Mortgage Investments and
accrued interest receivable and advances related thereto.
- Amounts reflected in column G (carrying amount of Mortgage Investments)
represents both cost and the tax basis of the loans.
<PAGE>
Schedule XII
Reconciliation of carrying amount (cost) of Mortgage Investments at close
of periods
Year ended December 31,
-------------------------------------------
1999 1998 1997
------------- -------------- --------------
------------- -------------- --------------
Balance at beginning of year $31,905,958 $25,304,989 $15,642,990
------------- -------------- --------------
Additions during period:
New Mortgage Investments 24,030,920 20,863,807 19,941,336
Other 0 0 0
------------- -------------- --------------
Total Additions 24,030,920 20,863,807 19,941,336
------------- -------------- --------------
Deductions during period:
Collections of principal 20,243,730 14,262,838 10,279,337
Foreclosures 0 0 0
Cost of Mortgage Investments
Amortization of Premium 0 0 0
Other 0 0 0
------------- -------------- --------------
Total Deductions 20,243,730 14,262,838 10,279,337
------------- -------------- --------------
Balance at close of year $35,693,148 $31,905,958 $25,304,989
============= ============== ==============
<PAGE>
<TABLE>
SCHEDULE IX
SHORT TERM BORROWINGS
REDWOOD MORTGAGE INVESTORS VIII - RULE 12-10
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E Column F
Category of Aggregate Balance at End Weighted Average Maximum Amount Average Amount Weighted Average
Short-Term Borrowings of Period Interest Rate Outstanding Outstanding Interest Rate
During the Period During the Period the period
- ------------------------- --------------- ------------------- --------------------- -------------------- -------------------
Year-Ended 12/31/99 $0 8.40% $8,600,000 $6,268,227 8.40%
</TABLE>
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
A. Bruce Cropper, a partner in the accounting firm of Parodi & Cropper has been
providing audit and accounting services to the Partnership since its inception
in 1993. Mr. Cropper also has been performing audit and accounting services to
the General Partners of the Partnership and their affiliates for over 15 years.
In 1999, Mr. Cropper's partner sold his portion of their practice. Mr. Cropper
decided to merge his portion of the practice into an existing CPA firm known as
"Caporicci & Larson" with offices in Irvine and Walnut Creek, California. Upon
the merging, the firm of Parodi & Cropper was dissolved, and Caporicci & Larson
became Caporicci, Cropper and Larson, LLP. As a result, the Partnership has
retained the firm of Caporicci, Cropper and Larson, LLP, to provide its audit
and financial services. Thus, although there has been a change in accounting
firms, there has not been a change in accountants and there has not been any
disagreement on any matter of accounting principles, practices or financial
status disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant
The Partnership has no Officers or Directors. Rather, the activities of the
Partnership are managed by the three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwell's are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
Effective as of February 7, 2000, Redwood Mortgage Corp., an affiliate of
the General Partners has been admitted, pursuant to Paragraph 12.4 (d) of the
Limited Partnership agreement, as an additional General Partner of the
Partnership. Redwood Mortgage Corp. is a licensed real estate broker
incorporated in 1978 under the laws of the State of California, and is engaged
primarily in the business of arranging and servicing mortgage loans.
<PAGE>
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in Item 10, the Partnership has no officers or directors. The
Partnership is managed by the General Partners. There are certain fees and other
items paid to management and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 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 year ended December 31, 1999. All such
compensation is in compliance with the guidelines and limitations set forth in
the Prospectus.
<TABLE>
<S> <C> <C>
Entity Receiving Compensation Description of Compensation and Services Amount
Rendered
- -------------------------------------- -------------------------------------------- -------------------------
I. Redwood Mortgage Corp. Mortgage Servicing Fee for servicing
Mortgage Investments...................... $359,464
General Partners &/or Affiliates Asset Management Fee for managing assets $42,215
General Partners 1% interest in profits.................... $29,423
Less allocation of syndication costs...... 1,768
---------
$27,655
General Partners &/or Affiliates Portion of early withdrawal penalties
applied to reduce Formation Loan.......... $13,628
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 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.................... $682,118
Redwood Mortgage Corp. Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable
by the Partnership........................ $13,164
Gymno Corporation, Inc. Reconveyance Fee.......................... $7,075
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. $85,171
</TABLE>
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The General Partners are to own a combined total of 1% of the Partnership
including a 1% portion of income and losses.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to financial statements in Part II item 8 which
describes related party fees and data.
Also refer to the Prospectus dated December 4, 1996, (incorporated herein by
reference) on pages 4-5 "Compensation of General Partners and Affiliates" and
page 5 "Conflicts of Interest".
Part IV
Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.
A. Documents filed as part of this report are incorporated:
1. In Part II, Item 8 under A - Financial Statements.
2. The Financial Statement Schedules are listed in Part II - Item 8 under B
- - Financial Statement Schedules.
<PAGE>
3. Exhibits.
Exhibit No. Description of Exhibits
- ---------- -------------------------
3.1 Limited Partnership Agreement
3.2 Form of Certificate of Limited Partnership Interest
3.3 Certificate of Limited Partnership
10.1 Escrow Agreement
10.2 Servicing Agreement
10.3 (a) Form of Note secured by Deed of Trust for Construction Loans
which provides for principal and interest payments
(b) Form of Note secured by Deed of Trust for Commercial and
Multi-Family loans which provides for principal and interest
payments
(c) Form of Note secured by Deed of Trust for Commercial and
Multi-Family loans which provides for interest only payments
(d) Form of Note secured by Deed of Trust for Single Family
Residential Loans which provides for interest and principal
payments
(e) Form of Note secured by Deed of Trust for Single Family
Residential loans which provides for interest only payments
10.4 (a) Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing to accompany Exhibits 10.3 (a),
and (c)
(b) Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing to accompany Exhibit 10.3 (b)
(c) Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing to accompany Exhibit 10.3 (c)
10.5 Promissory Note for Formation Loan
10.6 Agreement to Seek a Lender
24.1 Consent of Caporicci, Cropper & Larson, LLP
24.3 Consent of Landels, Ripley & Diamond
All of these exhibits were previously filed as the exhibits to Registrant's
Statement on Form S-11 (Registration No. 333-13113 and incorporated by reference
herein).
B. Reports of Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report. A Form 8-K was filed on February 7, 2000
relating to a change in accounting firms and the admittance of an
additional General Partner. (see Item 9 and 10 above, respectively)
C. See A (3) above.
D. See A (2) above. Additional reference is made to the Prospectus dated
December 4, 1996 (filed as part of the S-11) and the revised Prospectus
dated February 28, 2000 for financial data related to Gymno
Corporation, a General Partner.
<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 24th day of March,
2000.
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 persons on behalf of the registrant and
in the capacity indicated on the 24th day of March, 2000.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell General Partner March 24, 2000
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell General Partner March 24, 2000
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell President of Gymno Corporation, March 24, 2000
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 24, 2000
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,602,658
<SECURITIES> 0
<RECEIVABLES> 36,487,010
<ALLOWANCES> 834,359
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,634,909
<CURRENT-LIABILITIES> 0
<BONDS> 0
572,942
0
<COMMON> 0
<OTHER-SE> 37,061,967
<TOTAL-LIABILITY-AND-EQUITY> 37,634,909
<SALES> 0
<TOTAL-REVENUES> 4,426,245
<CGS> 0
<TOTAL-COSTS> 546,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 408,890
<INTEREST-EXPENSE> 528,611
<INCOME-PRETAX> 2,942,280
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,942,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,942,280
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
