FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended September 30, 2000
----------------------------- --------------------------------------------------
Commission file number 333-41410
----------------------------- --------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
--------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
--------------------------------------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
--------------------------------------------------------------------------------
(address of principal executive office)
(650) 365-5341
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------------------ ----------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
---------- ------------ -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2000 (unaudited) AND
DECEMBER 31, 1999 (audited)
ASSETS
September 30, December 31,
2000 1999
(unaudited) (audited)
---------------- --------------
Cash $508,431 $1,602,568
---------------- --------------
Accounts receivable:
Mortgage Investments, secured by
deeds of trust 66,029,264 35,693,148
Accrued Interest on Mortgage Investments 675,698 711,521
Advances on Mortgage Investments 64,076 33,251
Accounts receivables, unsecured 53,733 49,090
---------------- ---------------
66,822,771 36,487,010
Less allowance for doubtful accounts 1,176,914 834,359
---------------- ---------------
65,645,857 35,652,651
---------------- ---------------
Investment in limited liability corporation,
at cost which approximates market 0 373,358
Prepaid expense-deferred loan fee 16,593 6,332
---------------- ---------------
$66,170,881 $37,634,909
================ ===============
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2000 (unaudited) AND
DECEMBER 31, 1999 (audited)
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
2000 1999
(unaudited) (audited)
---------------- ---------------
Liabilities:
Accounts payable and accrued expenses $0 $29,413
Advances from Redwood Mortgage Corp. 500,000 0
Note payable - bank line of credit 15,000,000 0
Deferred interest income 0 213,529
Investors in applicant status 601,699 330,000
---------------- ---------------
16,101,699 572,942
---------------- ---------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E): Net of
unallocated syndication costs of $265,563 and $342,334 for 2000 and
1999, respectively:
and formation loan receivable of
$2,860,327 and $2,158,674 for 2000
and 1999, respectively 50,024,443 37,030,017
General Partners' Capital, net of
unallocated syndication costs of
$2,682 and $3,458 for 2000 and 1999,
respectively 44,739 31,950
-------------- ---------------
Total Partners' Capital 50,069,182 37,061,967
-------------- ---------------
Total Liabilities and Partners' Capital $66,170,881 $37,634,909
============== ================
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR NINE AND THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (unaudited)
<TABLE>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------- ----------------- ---------------- -----------------
Revenues:
Interest on Mortgage Investments $4,281,466 $3,268,965 $1,831,942 $1,151,637
Interest on bank deposits 11,025 4,939 1,478 1,990
Late charges 48,348 23,710 41,883 11,082
Miscellaneous 9,875 52,124 8,825 51,017
----------------- ----------------- ---------------- -----------------
4,350,714 3,349,738 1,884,128 1,215,726
----------------- ----------------- ---------------- -----------------
Expenses:
Mortgage servicing fees 355,819 295,354 197,693 79,017
Interest on note payable - bank 509,733 459,433 353,365 161,380
Amortization of loan origination fees 8,490 7,460 3,698 3,042
Provision for doubtful accounts and losses on real
estate acquired through foreclosure 207,555 374,138 158,896 180,677
Asset management fee - General Partners 43,204 30,248 15,881 11,125
Clerical costs through Redwood Mortgage Corp. 80,277 60,541 27,806 21,248
Professional services 32,456 30,614 750 794
Printing, supplies and postage 14,171 3,526 5,081 1,361
Other 8,564 8,695 12 2,862
----------------- ----------------- ----------------- -----------------
1,260,269 1,270,009 763,182 461,506
----------------- ----------------- ---------------- ------------------
Income before interest credited to partners in
applicant status 3,090,445 2,079,729 1,120,946 754,220
Interest credited to partners in applicant status 4,651 1,568 64 520
----------------- ----------------- ---------------- -----------------
Net Income $3,085,794 $2,078,161 $1,120,882 $753,700
================= ================= ================ =================
Net income: To General Partners(1%) $30,858 $20,782 $11,209 $7,537
To Limited Partners (99%) 3,054,936 2,057,379 1,109,673 746,163
----------------- ----------------- ---------------- -----------------
Total - net income $3,085,794 $2,078,161 $1,120,882 $753,700
================= ================= ================ =================
Net income per $1,000 invested by Limited Partners for entire period:
-where income is reinvested and compounded $63.31 $62.38 $20.80 $20.38
================= ================= ================ =================
-where partner receives income in monthly
distributions $61.60 $60.71 $20.66 $20.24
================= ================= ================ =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
<TABLE>
PARTNERS' CAPITAL
------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $310,937 $16,181,189 $(414,190) $(1,073,706) $14,693,293
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in
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 4,454 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
-------------- --------------- -------------- -------------- ---------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
(continued on next page)
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
<TABLE>
PARTNERS' CAPITAL
-----------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- --------------- -------------- -------------- --------------
(balance forward from previous
page)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 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
Contributions on Application 12,448,601 0 0 0 0
Formation Loan increases 0 0 0 (889,153) (889,153)
Formation Loan payments 0 0 0 173,126 173,126
Interest credited to partners in
applicant status 4,651 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (734) 0 0 0 0
Transfers to Partners' capital (12,180,819) 12,168,806 0 0 12,168,806
Net Income 0 3,054,936 0 0 3,054,936
Syndication costs incurred 0 0 (149,435) 0 (149,435)
Allocation of syndication costs 0 (218,661) 218,661 0 0
Partners' withdrawals 0 (1,363,778) 0 0 (1,363,778)
Early withdrawal penalties 0 (21,995) 7,545 14,374 (76)
-------------- --------------- -------------- -------------- ---------------
Balances at September 30, 2000 $601,699 $53,150,333 $(265,563) $(2,860,327) $50,024,443
============== =============== ============== ============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
<TABLE>
PARTNERS' CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------------
Capital
Account Unallocated Total Total
General Syndication General Partners Partners'
Partners Costs Capital
---------------- ----------------- ------------------ ----------------
<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 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners' withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
(continued on next page)
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
<TABLE>
PARTNERS' CAPITAL
--------------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
------------------------------------------------------------
Capital
Account Unallocated Total Total
General Syndication General Partners'
Partners Costs Partners Capital
---------------- ----------------- ------------------ ----------------
(balance forward from previous page)
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (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
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (889,153)
Formation Loan payments 0 0 0 173,126
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 12,013 0 12,013 12,180,819
Net Income 30,858 0 30,858 3,085,794
Syndication costs incurred 0 (1,509) (1,509) (150,944)
Allocation of syndication costs (2,209) 2,209 0 0
Partners' withdrawals (28,649) 0 (28,649) (1,392,427)
Early withdrawal penalties 0 76 76 0
---------------- ----------------- ------------------ ----------------
Balances at September 30, 2000 $47,421 $(2,682) $44,739 $50,069,182
================ ================= ================== ================
</TABLE>
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
<TABLE>
September 30, September 30,
2000 1999
(unaudited) (unaudited)
------------------ ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $3,085,794 $2,078,161
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts. 207,555 374,138
Increase (decrease) in accounts payable 470,587 (2,500)
(Increase) in accrued interest & advances 4,998 112,672
(Increase) decrease in deferred loan fee (10,261) 2,460
Increase (decrease ) in deferred interest income (213,529) 217,173
------------------ ----------------
Net cash provided by operating activities 3,545,144 2,782,104
------------------ ----------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 13,345,305 12,732,358
Mortgage Investments made (43,681,421) (18,254,646)
Additions to real estate held for sale 0 (1,886)
Disposition of real estate held for sale 0 77,063
Disposition of Limited Liability Corporation 508,358 0
Additions to Limited Liability Corporation 0 (50,000)
Accounts receivables, unsecured - (disbursements) receipts (4,643) (217)
------------------ ----------------
Net cash used in investing activities (29,832,401) (5,497,328)
------------------ ----------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 15,000,000 (1,495,000)
Contributions by partner applicants 12,448,601 6,177,022
Interest credited to partners in applicant status 4,651 1,568
Interest withdrawn by partners in applicant status (734) (706)
Partners withdrawals (1,392,427) (983,617)
Syndication costs incurred (150,944) (129,283)
Formation Loan increases (889,153) (466,772)
Formation Loan collections 173,126 121,550
------------------ ----------------
Net cash provided by financing activities 25,193,120 3,224,762
------------------ ----------------
Net increase (decrease) in cash and cash equivalents (1,094,137) 509,538
Cash - beginning of period 1,602,568 528,688
------------------ ----------------
Cash - end of period $508,431 $1,038,226
================== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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, Gymno Corporation and Redwood Mortgage Corp. 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.
At September 30, 2000, the Partnership was in the offering stage, wherein
contributed capital totalled $47,547,530 in limited partner contributions of an
approved aggregate offering of $75,000,000, in units of $1 each (47,547,530). As
of September 30, 2000, $601,699 remained in applicant status.
A minimum of 250,000 units ($250,000) and a maximum of 15,000,000 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 30,000,000 Units ($30,000,000).
This offering was closed on August 30, 2000 and on August 31, 2000, the
Partnership commenced a third offering for an additional 30,000,000 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., a General
Partner, 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
$2,271,916 at September 30, 2000, which was 7.57% of the limited partners
contributions of $29,992,574. Sales commissions ranged from 0% (units sold by
General Partners) to 9% of gross proceeds. The Partnership anticipated 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 increased as additional sales of units
were made each year. The amount of the annual installment payment to be made by
Redwood Mortgage Corp., during the offering stage, was determined at annual
installments of one-tenth of the principal balance of the Formation Loan as of
December 31 of each year. Such payment was due and payable by December 31 of the
following year with the first such payment beginning December 31, 1997.
Following completion of the offering, the balance will be repaid in ten equal
annual installments commencing December 31, 2001.
The formation loan relating to the third offering ($30,000,000) totaled $165,111
at September 30, 2000 which was 6.29% of the Limited Partners contributions of
$2,622,939.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
The following summarizes Formation Loan transactions to September 30, 2000:
<TABLE>
Initial Second Third
Offering of Offering of Offering of
$15,000,000 $30,000,000 $30,000,000 Total
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Limited Partner contributions $14,932,017 $29,992,574 $2,622,939 $47,547,530
================ ============== ============== ===============
Formation Loan made $1,074,840 2,271,916 165,111 3,511,867
Payments to date (347,971) (231,425) 0 (579,396)
Early withdrawal penalties applied (72,144) 0 0 (72,144)
---------------- -------------- -------------- ---------------
Balance September 30, 2000 $654,725 $2,040,491 $165,111 $2,860,327
================ ============== ============== ===============
Percent loaned of
Partners' contributions 7.2% 7.6% 6.3% 7.4%
================ ============== ============== ===============
The Formation Loan, which is receivable from Redwood Mortgage Corp., a
General Partner, 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 September 30, 2000, organization costs of $12,500 and syndication costs
of $1,317,539 had been incurred by the Partnership with the following
distribution:
Syndication Organization
Costs Costs Total
----------------- -------------- ------------
Costs incurred $1,318,593 $12,500 $1,331,093
Early withdrawal penalties applied (39,176) 0 (39,176)
Allocated and amortized to date (1,011,172) (12,500) (1,023,672)
----------------- -------------- ------------
September 30, 2000 balance $268,245 0 $268,245
================= ============== ============
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%.
Syndication costs attributable to the second offering ($30,000,000) totalled
$732,704, (2.44% of contributions). This was less than the maximum allowable
syndication costs of the lesser of 10% of the gross proceeds ($2,999,257) or
$1,200,000.
As of September 30, 2000, syndication costs relating to the third offering
($30,000,000) totaled $16,024.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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 September 30, 2000 and at December 31, 1999, and 1998, there were no Mortgage
Investments categorized as impaired by the Partnership. Had there been a
computed amount for the reduction in carrying values of impaired loans, the
reduction would have been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the loans were consummated
was 56.35%. 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 September 30, 2000, 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
September 30, 2000
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. In February, 2000, the Corporation sold it's real
estate and returned all advances made by the Partnership.
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 September 30, 2000 and
December 31, 1999, was as follows:
September 30, December 31,
2000 1999
---------------- ----------------
Impaired mortgage investments $ 0 $ 0
Unspecified mortgage investments 1,137,823 795,268
Amounts receivable, unsecured 39,091 39,091
---------------- ----------------
$1,176,914 $834,359
================ ================
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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 brokerage commissions will be limited to an amount not to
exceed 4% of the total Partnership assets per year. The mortgage brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
Partnership. For nine months through September 30, 2000 and for the year ended
December 31, 1999, mortgage broker commissions paid by the borrowers were
$1,625,171 and $682,118, 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 $355,819, $359,464 and $295,052,
were incurred for nine months through September 30, 2000 and for years 1999 and
1998, 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 $43,204, $42,215 and $31,651 were
incurred for the nine months through September 30, 2000 and for years 1999 and
1998, 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
September 30, 2000
F. Operating Expenses
The General Partners 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 September 30, 2000 a General Partner, GYMNO Corporation, had
contributed $47,113, 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 September 30, 2000, December 31, 1999 and 1998,
interest totaling $4,651, $1,914 and $4,454, 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
September 30, 2000
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 June 30, 2002, of up to
$15,000,000 at .25% over prime secured by its Mortgage Investment portfolio. The
note payable balances were $15,000,000 and $0 at September 30, 2000 and December
31, 1999, respectively. The interest rate was 9.75% at September 30, 2000,
(9.50% prime plus .25%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
contributed its interest (principally land) to a Limited Liability Corporation,
which was owned 100% by the Partnership, and which has completed the
construction and sold the property.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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:
September 30, December 31,
2000 1999
------------------ -----------------
Net Assets - Partners' Capital
per financial statements $50,069,182 $37,061,967
Unamortized syndication costs 268,245 345,792
Allowance for doubtful accounts 1,176,914 834,359
Formation loans receivable 2,860,327 2,158,674
----------------- -----------------
Net assets tax basis $54,374,668 $ 40,400,792
------------------ -----------------
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 $66,029,264.
The fair value of these investments of $66,858,036 is estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar Mortgage Investments 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
September 30, 2000
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At September
30, 2000, there were 65 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 65
Total Mortgage Investments outstanding $66,029,264
Average Mortgage Investment outstanding 1,015,835
Average Mortgage Investment as percent of total 1.54%
Average Mortgage Investment as percent of Partners' Capital 2.03%
Largest Mortgage Investment outstanding 4,000,000
Largest Mortgage Investment as percent of total 6.06%
Largest Mortgage Investment as percent of Partners' Capital 7.99%
Number of counties where security is located (all California) 12
Largest percentage of Mortgage Investments in one county 40.79%
Average Mortgage Investment to appraised value of security
at time loan was consummated 56.35%
Number of Mortgage Investments in foreclosure status 0
Amount of Mortgage Investments in foreclosure 0
The following categories of Mortgage Investments are pertinent at September 30,
2000 and December 31, 1999:
September 30, December 31,
2000 1999
------------------ ----------------
First Trust Deeds $38,262,738 $19,388,394
Second Trust Deeds 26,858,282 16,082,803
Third Trust Deeds 908,244 221,951
------------------ ----------------
Total Mortgage Investments 66,029,264 35,693,148
Prior liens due other lenders 32,422,612 23,719,420
------------------ ----------------
Total debt $98,451,876 $59,412,568
================== ================
Appraised property value at
time of loan $174,725,449 $97,556,330
================== ================
Total investments as a percent
of appraisals 56.35% 60.90%
================== ================
Investments by Type of Property
Owner occupied homes $9,257,428 $7,336,276
Non-Owner occupied homes 15,633,166 10,957,622
Apartments 7,996,151 302,797
Commercial 33,142,519 17,096,453
------------------ ----------------
$66,029,264 $35,693,148
================== ================
The interest rates on the Mortgage Investments range from 8.00% to 18.00% at
September 30, 2000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Scheduled maturity dates of mortgage investments as of September 30, 2000 are as
follows:
Year Ending
December 31,
-------------------
2000 $4,707,792
2001 35,696,785
2002 14,064,192
2003 5,300,000
2004 1,396,307
Thereafter 4,864,188
----------------
$66,029,264
================
The scheduled maturities for 2000 include approximately $2,717,547 in Mortgage
Investments which are past maturity at September 30, 2000. Interest payments on
only three of these loans was delinquent.
The cash balance at September 30, 2000 of $508,431 was in one bank with interest
bearing balances totalling $4,032. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $408,431. This bank is the same financial
institution that has provided the Partnership with the $15,000,000 limit line of
credit. At September 30, 2000, draw down against this facility was $15,000,000.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 2000, the Partnership was in the offering stage of its third
offering, ($30,000,000). Contributed capital totalled $14,932,017 for the first
offering, $29,992,574 for the second offering and $2,622,939 for the third
offering, an aggregate of $47,547,530 (Limited Partners) as of September 30,
2000. Of this amount, $601,699 remained in applicant status. Accordingly,
together with prior two approved offering of $45,000,000 the Partnership has
approval for an aggregate offering of $75,000,000 in Units of $1 each.
At September 30, 2000, the Partnership's Mortgage Investments outstanding
totalled $66,029,264. The primary reason for an increase in Mortgage Investments
Outstanding from $25,304,989 in 1997, to $31,905,958 in 1998 to $35,693,147 to
December 31, 1999 and to $66,029,264 as of September 30, 2000, 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 $5,565,372, $5,100,458,
$9,520,806 and $12,436,588 and the reinvestment of earnings by Limited Partners
who have elected to reinvest earnings, have totalled $1,119,465, $1,440,687,
$1,911,554 and $1,970,444, for the years ended December 31, 1997, December 31,
1998, December 31, 1999 and nine months through September 30, 2000,
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, 1997, 1998, 1999 and nine
months through September 30, 2000, to $2,613,008, $3,376,293, $4,337,427 and
$4,281,466 respectively. Interest rates on Mortgage Investments ranged from
8.00% to 18.00%. The Partnership began funding Mortgage Investments on April 14,
1993 and as of September 30, 2000, 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 $15,000,000. For the years ended December 31, 1997,
1998, 1999 and nine months through September 30, 2000, interest on Note
Payable-Bank was $340,633, $513,566, $526,697 and $509,733, respectively. For
1997, 1998, and 1999, and nine months ended September 30, 2000, the increase in
interest on notes payable-Bank has been attributed to a higher overall credit
facility utilization. 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 September 30, 2000, the balance was $15,000,000 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.
<PAGE>
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-three years. Mortgage
servicing fees increased from $189,692, to $295,052 to $359,464 and to $355,819
for the years ended December 31, 1997, 1998, 1999 and nine months through
September 30, 2000. The mortgage servicing fees increased primarily due to
increase in the outstanding Mortgage Investment portfolio. Asset Management fees
increased from $24,966, to $31,651, to $42,215 and to $43,204 for the years
ended December 31, 1997, 1998 , 1999 and nine months through September 30, 2000,
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
1997, 1998, 1999 and nine months through September 30, 2000, the Partnership
made provisions for doubtful accounts of $139,804, $162,969, $408,890 and
$207,555, 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 September 30, 2000, of $1,176,914 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.
Extracts from recent publications regarding California's economy, population,
employment and real estate said:
"In the next 10 years we (California) will again add approximately 5 million
people, but with far less building activity. In the decade after that we will
add another 7 million people with a similar pace of building activity. This
mismatch between demand and supply will not only manifest itself in home
appreciation, but also crowding in existing housing - something one now
experiences not only in old city quarters like Europe and Asia but increasingly
now in places like Manhattan and San Francisco...California's unemployment rate,
currently at 5 percent will hold steady at this level for the next 12 months
whereas the U.S. unemployment rate rises from 4.1% this year to 4.4% next year."
(Source: UCLA Anderson Forecast, September, 2000)
"- Only 31 percent of Californians can afford to buy a median-priced home, the
California Association of Realtors said yesterday.
That figure, calculated for September, compared to a 53 percent affordability
rating nationwide and was down from the same period a year ago, when 36 percent
of state residents could afford to buy a home.
The median price of a single-family home in September was $248,020, the
Association reported last month." (Source: Redwood City Daily News, November 3,
2000)
"Interest Rates - a really toss up - if the economy does indeed continue to slow
the Feds will keep a "steady as we go" course but if they sense a heating up
they will inch up rates again.
<PAGE>
Of course, for all of us in the Bay Area we will be focused on the high tech
industries and real estate. As with most emerging industries some of the high
tech players will survive and do very well - think Cisco, Sun, Oracle, Intel,
Exodus, America OnLine/Time Warner and others with a dream and no business plan
will fall out. As for real estate we have seen gains of from 35-105 percent over
the last few years. Next year appreciation will slow down to more historical
valuations but the demand will still be strong. The key for sellers will be to
price their homes "properly" (don't live in the market of six months ago -
today's market has slowed down somewhat and is different). The key for buyers is
to accept that the demand is still strong and that prices are not "out of line"
- people said that 2 years ago, 1 year ago, six months ago.
Perhaps in America we find ourselves after 10 years "on hold" - a time to
take stock and smell the roses we have bloomed. And that's not all bad. (Source:
The Independent published by Redwood City Almanac, October 28, 2000)
To the Partnership, low unemployment, an increasing population, home
appreciation, and relatively stable interest rates all bode well for the
California and San Francisco Bay Area real estate markets, our underlying
mortgage loan collateral.
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, 1997, December 31, 1998, December 31, 1999 and nine months
through September 30, 2000, the Partnership made distributions of earnings to
Limited Partners after allocation of syndication costs of $495,480, $614,383,
$826,291 and $865,831, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs for the years ended December 31,
1997, December 31, 1998, December 31, 1999 and nine months through September 30,
2000, to Limited Partners' capital accounts and not withdrawn was $1,119,465,
$1,440,687, $1,911,554 and $1,970,444, respectively. As of December 31, 1997,
December 31, 1998, December 31, 1999 and nine months through September 30, 2000,
Limited Partners electing to withdraw earnings represented 30%, 30%, 31% 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 September 30, 2000, 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 September 30, 2000 were:
<TABLE>
Nine Months
through
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1998 1999 09/30/2000
---------- ---------- ----------- ----------- ----------- ----------- ------------- ---------------
Earnings
Liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383 $826,291 $865,831
Capital
Liquidation 0 0 $5,640 $146,755 $132,619 $257,344 $592,357 $519,942
---------- ---------- ----------- ----------- ----------- ----------- ------------- ---------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $1,418,648 $1,385,773
========== ========== =========== =========== =========== =========== ============= ===============
</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, 1997,
December 31, 1998, December 31, 1999 and nine months through September 30, 2000,
$132,619, $244,213, $411,838 and $221,339, respectively were liquidated subject
to the 10% penalty for early withdrawal. This represents 0.63%, 0.90%, 1.11% and
0.44% (.54% annualized) of the Limited Partners ending capital for the years
ended December 31, 1997, 1998, 1999 and nine months through September 30, 2000,
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, 1997, December 31, 1998, December 31, 1999 and September 30, 2000,
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
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 the Redwood Group, Ltd., whose 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>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by the
General Partners. There are certain fees and other items paid to management and
related parties.
A more complete description of management compensation is found in the
Prospectus dated August 31, 2000, pages 20-23, 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 nine months ended September 30, 2000. All such
compensation is in compliance with the guidelines and limitations set forth in
the Prospectus.
Entity Receiving Description of Compensation
Compensation and Services Rendered Amount
------------------- ---------------------------------------- ------------
I. Redwood Mortgage
Corp. Mortgage Servicing Fee for
servicing Mortgage Investments........... $355,819
General Partners
&/or Affiliates Asset Management Fee for
managing assets.......................... $43,204
General Partners 1% interest in profits................... $30,858
Less allocation of syndication costs..... $2,209
-------------
$28,649
General Partners
&/or Affiliates Portion of early withdrawal penalties
applied to reduce Formation Loan......... $14,374
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.......................... $1,625,171
Redwood Mortgage Corp. Processing and Escrow Fees for services in
credit connection with notary, document
preparation, investigation, and escrow fees
payable by the borrowers and not by the
Partnership............................. $24,517
Gymno Corporation, Inc. Reconveyance Fee........................ $910
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. . . . . . . . . . . . . . . . . . . . . . . . . . . $80,277
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF September 30, 2000
Partnership Highlights
First Trust Deeds $38,262,737.64
Appraised Value of Properties* 73,344,196.00
Total Investment as a % of Appraised Value 52.17%
First Trust Deed Mortgage Investments 38,262,737.64
Second Trust Deed Mortgage Investments 26,858,282.56
Third Trust Deed Mortgage Investments 908,243.90
--------------------
66,029,264.10
First Trust Deeds due other Lenders 27,226,903.33
Second Trust Deeds due other Lenders 5,195,709.00
--------------------
Total Debt $98,451,876.43
Appraised Property Value* 174,725,449.00
Total Investment as a % of Appraised Value 56.35%
Number of Mortgage Investments Outstanding 65
Average Investment $1,015,834.83
Average Investment as a % of Net Partners Capital 2.03%
Largest Investment Outstanding 4,000,000.00
Largest Investment as a % of Net Partners Capital 7.99%
First Trust Deed Mortgage Investments 57.95%
Second Trust Deed Mortgage Investments 40.68%
Third Trust Deed Mortgage Investments 1.37%
---------------
Total 100.00%
Mortgage Investments by Type of
Property Amount Percent
------------------ ----------------
Owner Occupied Homes $9,257,428.06 14.02%
Non Owner Occupied Homes 15,633,165.79 23.68%
Apartments 7,996,150.81 12.11%
Commercial 33,142,519.44 50.19%
------------------ ---------------
Total $66,029,264.10 100.00%
Statement of Conditions of Mortgage Investments.
Number of Mortgage Investments in Foreclosure 0
*Values used are the appraised values utilized at the time the mortgage
investment was consummated.
<PAGE>
Total
Diversification by Mortgage
County Investments Percent
San Francisco $26,933,977.59 40.79%
San Mateo 12,804,868.29 19.39%
Stanislaus 5,989,780.82 9.07%
Santa Clara 5,215,409.91 7.90%
Marin 3,638,175.61 5.51%
Placer 2,900,708.03 4.39%
Contra Costa 2,726,094.29 4.13%
Los Angeles 2,700,924.46 4.09%
Alameda 2,204,699.26 3.34%
Lake 737,500.00 1.12%
Fresno 127,125.84 0.19%
Riverside 50,000.00 0.08%
-------------------- ------------
Total $66,029,264.10 100.00%
<PAGE>
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports on
Form 8-K during the quarter ended September
30, 2000.
<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 9th day of November,
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 9th day of November, 2000.
Signature Title Date
/S/ D. Russell Burwell
-----------------------
D. Russell Burwell General Partner November 9, 2000
/S/ Michael R. Burwell
-----------------------
Michael R. Burwell General Partner November 9, 2000
/S/ D. Russell Burwell
----------------------
D. Russell Burwell President of Gymno Corporation,
(Principal Executive Officer);
Director of Gymno Corporation November 9, 2000
/S/ Michael R. Burwell
----------------------
Michael R. Burwell Secretary/Treasurer of Gymno
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation November 9, 2000
