FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 2000
Commission file number 333-13113
- ----------------------------- --------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
- ---------------------------------------------------------- ---------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
- --------------------------------------------------------------------------------
(address of principal executive office)
(650) 365-5341
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------------------ ----------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
---------- ------------ -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
JUNE 30, 2000 (unaudited) AND
DECEMBER 31, 1999 (audited)
ASSETS
June 30, December 31,
2000 1999
(unaudited) (audited)
---------------- ---------------
Cash $449,982 $1,602,568
---------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 53,330,263 35,693,148
Accrued Interest on Mortgage Investments 1,190,953 711,521
Advances on Mortgage Investments 46,117 33,251
Accounts receivables, unsecured 52,339 49,090
---------------- ---------------
54,619,672 36,487,010
Less allowance for doubtful accounts 1,018,019 834,359
---------------- ---------------
53,601,653 35,652,651
---------------- ---------------
Investment in limited liability corporation, at cost which
approximates market 0 373,358
Prepaid expense-deferred loan fee 20,291 6,332
---------------- ---------------
$54,071,926 $37,634,909
================ ===============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
JUNE 30, 2000 (unaudited) AND
DECEMBER 31, 1999 (audited)
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
2000 1999
(unaudited) (audited)
-------------- ---------------
Liabilities:
Accounts payable and accrued expenses $0 $29,413
Note payable - bank line of credit 9,000,000 0
Deferred interest income 0 213,529
Investors in applicant status 129,936 330,000
-------------- ------------
9,129,936 572,942
-------------- ------------
Partners' Capital:
Limited partners' capital, subject
to redemption (note 4E):
Net of unallocated syndication
costs of $281,563 and $342,334 for
2000 and 1999, respectively:
and formation loan receivable of
$2,575,353 and $2,158,674 for
2000 and 1999, respectively 44,902,317 37,030,017
General Partners' Capital, net of
unallocated syndication costs of
$2,845 and $3,458 for 2000 and
1999, respectively 39,673 31,950
-------------- -----------
Total Partners' Capital 44,941,990 37,061,967
-------------- -----------
Total Liabilities and Partners' Capital $54,071,926 $37,634,909
============== ===========
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (unaudited)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------------- ----------------- ---------------- -----------------
Revenues:
Interest on Mortgage Investments $2,449,524 $2,117,328 $1,367,288 $1,158,863
Interest on bank deposits 9,547 2,949 2,229 1,670
Late charges 6,465 12,628 2,823 9,303
Miscellaneous 1,050 1,107 500 601
----------------- ----------------- ---------------- -----------------
2,466,586 2,134,012 1,372,840 1,170,437
----------------- ----------------- ---------------- -----------------
Expenses:
Mortgage servicing fees 158,126 216,337 86,832 133,195
Interest on note payable - bank 156,368 298,053 142,838 166,833
Amortization of loan origination fees 4,792 4,418 2,396 2,209
Provision for doubtful accounts and losses on real
estate acquired through foreclosure 48,659 193,461 45,837 131,899
Asset management fee - General Partner 27,323 19,123 14,393 9,964
Clerical costs through Redwood Mortgage Corp. 52,471 39,293 26,644 20,107
Professional services 31,706 29,820 9,918 18,258
Printing, supplies and postage 9,090 2,165 6,407 1,573
Other 8,552 5,833 1,274 543
----------------- ---------------- ---------------- -----------------
497,087 808,503 336,539 484,581
----------------- ----------------- ---------------- -----------------
Income before interest credited to partners in
applicant status 1,969,499 1,325,509 1,036,301 685,856
Interest credited to partners in applicant status 4,587 1,048 127 585
----------------- ----------------- ---------------- -----------------
Net Income $1,964,912 $1,324,461 $1,036,174 $685,271
================= ================= ================ =================
Net income: To General Partners(1%) $19,649 $13,245 $10,362 $6,853
To Limited Partners (99%) 1,945,263 1,311,216 1,025,812 678,418
----------------- ----------------- ---------------- -----------------
Total - net income $1,964,912 $1,324,461 $1,036,174 $685,271
================= ================= ================ =================
Net income per $1,000 invested by Limited Partners for entire period:
- -where income is reinvested and compounded $41.64 $41.17 $20.61 $20.37
================= ================= ================ =================
- -where partner receives income in monthly
distributions $40.94 $40.48 $20.47 $20.24
================= ================= ================ =================
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
PARTNERS' CAPITAL
------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- --------------- -------------- -------------- ---------------
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)
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
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)
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 7,116,985 0 0 0 0
Formation Loan increases 0 0 0 (541,678) (541,678)
Formation Loan payments 0 0 0 115,477 115,477
Interest credited to partners in
applicant status 4,587 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (716) 0 0 0 0
Transfers to Partners' capital (7,320,920) 7,313,810 0 0 7,313,810
Net Income 0 1,945,263 0 0 1,945,263
Syndication costs incurred 0 0 (95,216) 0 (95,216)
Allocation of syndication costs 0 (150,988) 150,988 0 0
Partners' withdrawals 0 (865,306) 0 0 (865,306)
Early withdrawal penalties 0 (14,571) 4,999 9,522 (50)
------------- --------------- -------------- -------------- ---------------
Balances at June 30, 2000 $129,936 $47,759,233 $(281,563) $(2,575,353) $44,902,317
============= =============== ============== ============== ===============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
PARTNERS' CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------------
Capital Unallocated Total Total
Account Syndication General Partners Partners'
General Costs Capital
Partners
---------------- ----------------- ------------------ ----------------
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)
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
PARTNERS' CAPITAL
-------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
-----------------------------------------------------------
Capital Account Unallocated Total Total
General Syndication General Partners'
Partners Costs Partners Capital
---------------- ----------------- ------------------ ----------------
(balance forward from previous page)
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 (541,678)
Formation Loan payments 0 0 0 115,477
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 7,110 0 7,110 7,320,920
Net Income 19,649 0 19,649 1,964,912
Syndication costs incurred 0 (962) (962) (96,178)
Allocation of syndication costs (1,525) 1,525 0 0
Partners' withdrawals (18,124) 0 (18,124) (883,430)
Early withdrawal penalties 0 50 50 0
---------------- ----------------- ------------------ ----------------
Balances at June 30, 2000 $42,518 $(2,845) $39,673 $44,941,990
================ ================= ================== ================
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (unaudited)
June 30, June 30,
2000 1999
(unaudited) (unaudited)
--------------- ---------------
Cash flows from operating activities:
Net income $1,964,912 $1,324,461
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts. 48,659 193,461
Increase (decrease) in accounts payable (29,413) (2,500)
(Increase) in accrued interest & advances (492,298) (41,908)
(Increase) decrease in deferred loan fee (13,959) 4,418
Increase (decrease ) in deferred interest income (213,529) 411,655
--------------- ---------------
Net cash provided by operating activities 1,264,372 1,889,587
--------------- ---------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 6,936,605 7,403,545
Mortgage Investments made (24,573,720) (13,758,585)
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 (3,248) (192)
--------------- ---------------
Net cash used in investing activities (17,132,005) (6,330,055)
--------------- ---------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 9,000,000 2,053,000
Contributions by partner applicants 7,116,985 3,939,708
Interest credited to partners in applicant status 4,587 1,048
Interest withdrawn by partners in applicant status (716) (371)
Partners withdrawals (883,430) (590,279)
Syndication costs incurred (96,178) (91,132)
Formation Loan increases (541,678) (279,215)
Formation Loan collections 115,477 80,597
--------------- ---------------
Net cash provided by financing activities 14,715,047 5,113,356
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,152,586) 672,888
Cash - beginning of period 1,602,568 528,688
--------------- ---------------
Cash - end of period $449,982 $1,201,576
=============== ===============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 June 30, 2000, the Partnership was in the offering stage, wherein contributed
capital totalled $42,220,816 in limited partner contributions of an approved
aggregate offering of $45,000,000, in units of $1 each (42,220,816). As of June
30, 2000, $129,936 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) 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
$2,089,553 at June 30, 2000, which was 7.66% of the limited partners
contributions of $27,288,799. 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
The following summarizes Formation Loan transactions to June 30, 2000:
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- --------------- ----------------
Limited Partner contributions $14,932,017 $27,288,799 $42,220,816
============== =============== ================
Formation Loan made $1,074,840 2,089,553 3,164,393
Payments to date (325,941) (195,806) (521,747)
Early withdrawal penalties applied (67,293) 0 (67,293)
-------------- --------------- ----------------
Balance June 30, 2000 $681,606 $1,893,747 $2,575,353
============== =============== ================
Percent loaned of Partners' contributions 7.2% 7.7% 7.5%
============== =============== ================
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, registration and filing fees and
other costs), will be paid by the Partnership.
Through June 30, 2000, organization costs of $12,500 and syndication costs of
$1,263,827 had been incurred by the Partnership with the following distribution:
Syndication Organization
Costs Costs Total
----------------- -------------- --------------
Costs incurred $1,263,827 $12,500 $1,276,327
Early withdrawal penalties applied (36,604) 0 (36,604)
Allocated and amortized to date (942,815) (12,500) (955,315)
----------------- -------------- ---------------
June 30, 2000 balance $284,408 0 $284,408
================== ============== ===============
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of June 30, 2000 syndication costs attributable to the subsequent offering
($30,000,000) totalled $693,962, (2.54% 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 June 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 57.34%. 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 June 30, 2000, there were no properties
acquired by the Partnership as real estate owned (REO).
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 June 30, 2000 and
December 31, 1999, was as follows:
June 30, December 31,
2000 1999
--------------- ----------------
Impaired mortgage investments $ 0 $ 0
Unspecified mortgage investments 978,928 795,268
Amounts receivable, unsecured 39,091 39,091
--------------- ----------------
$1,018,019 $834,359
=============== ================
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 six months through June 30, 2000 and for the year ended
December 31, 1999, mortgage broker commissions paid by the borrowers were
$837,857and $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 $158,126, $359,464 and $295,052,
were incurred for six months through June 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 $27,323, $42,215 and $31,651 were
incurred for the six months through June 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%.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 June 30, 2000 a General Partner, GYMNO Corporation, had
contributed $42,210, 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 June 30, 2000, December 31, 1999 and 1998, interest
totaling $4,587, $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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 $9,000,000 and $0 at June 30, 2000 and December 31,
1999, respectively. The interest rate was 9.75% at June 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 is owned 100% by the Partnership, and which has completed the construction
and sold the property.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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:
June 30, December 31,
2000 999
------------------ ----------------
Net Assets - Partners' Capital
per financial statements $44,941,990 $37,061,967
Non-amortized syndication costs 284,408 345,792
Allowance for doubtful accounts 1,018,019 834,359
Formation loans receivable 2,575,353 2,158,674
------------------ ----------------
Net assets tax basis $48,819,770 $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 ere used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents. The carrying amount quals fair value.
All amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments (see note 2(c)) is $53,330,263.
The fair value of these investments of $53,726,668 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At June 30,
2000, there were 59 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 59
Total Mortgage Investments outstanding $53,330,263
Average Mortgage Investment outstanding 903,903
Average Mortgage Investment as percent of total 1.69%
Average Mortgage Investment as percent of Partners' Capital 2.01%
Largest Mortgage Investment outstanding 3,150,056
Largest Mortgage Investment as percent of total 5.91%
Largest Mortgage Investment as percent of Partners' Capital 7.01%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 36.79%
Average Mortgage Investment to appraised value of security
at time loan was consummated 57.34%
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 June 30, 2000 and December 31, 1999:
June 30, December 31,
2000 1999
---------------- -----------------
First Trust Deeds $32,482,945 $19,388,394
Second Trust Deeds 20,307,074 16,082,803
Third Trust Deeds 540,244 221,951
---------------- -----------------
Total Mortgage Investments 53,330,263 35,693,148
Prior liens due other lenders 27,519,900 23,719,420
---------------- -----------------
Total debt $80,850,163 $59,412,568
================ =================
Appraised property value at time of loan $141,007,965 $97,556,330
================= =================
Total investments as a percent of appraisals 57.34% 60.90%
================= =================
Investments by Type of Property
Owner occupied homes $8,179,343 $7,336,276
Non-Owner occupied homes 11,166,479 10,957,622
Apartments 3,732,861 302,797
Commercial 30,251,580 17,096,453
----------------- -----------------
$53,330,263 $35,693,148
================= =================
The interest rates on the Mortgage Investments range from 8.00% to 14.50% at
June 30, 2000.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
Scheduled maturity dates of mortgage investments as of June 30, 2000 are as
follows:
Year Ending
December 31,
-------------------
2000 $14,255,997
2001 25,508,008
2002 8,554,719
2003 0
2004 0
Thereafter 5,011,539
----------------
$53,330,263
================
The scheduled maturities for 2000 include approximately $6,239,782 in Mortgage
Investments which are past maturity at June 30, 2000. Interest payment on only
four of these loans was delinquent.
The cash balance at June 30, 2000 of $449,982 was in one bank with interest
bearing balances totalling $147,286. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $349,982. This bank is the same financial
institution that has provided the Partnership with the $15,000,000 limit line of
credit. At June 30, 2000, draw down against this facility was $9,000,000. 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.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 30, 2000, 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 $27,288,799 for the second offering an aggregate of $42,220,816
(Limited Partners) as of June 30, 2000. Of this amount, $129,936 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 $1 each.
At June 30, 2000, the Partnership's Mortgage Investments outstanding totalled
$53,330,263. 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 $53,330,263 as of June 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
$7,109,875 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
$1,252,414, for the years ended December 31, 1997, December 31, 1998, December
31, 1999 and six months through June 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 six months through June 30, 2000, to
$2,613,008, $3,376,293, $4,337,427 and $2,449,524, respectively. Interest rates
on Mortgage Investments ranged from 8.00% to 14.50%. The Partnership began
funding Mortgage Investments on April 14, 1993 and as of June 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 six months through June 30, 2000, interest on Note Payable-Bank
was $340,633, $513,566, $526,697 and $156,368, respectively. For 1997, 1998, and
1999, and six months ended June 30, 2000, 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 June 30, 2000, the balance was
$9,000,000 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.
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 $158,126
for the years ended December 31, 1997, 1998, 1999 and six months through June
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 $27,323 for the years ended December 31,
1997, 1998 , 1999 and six months through June 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 six months through June 30, 2000, the Partnership made
provisions for doubtful accounts of $139,804, $162,969, $408,890 and $183,659,
respectively. These provisions for doubtful accounts were made primarily as a
prudent action to guard against unidentified collection losses. The provision
for doubtful accounts as of June 30, 2000, of $1,018,019 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, 1997, December 31, 1998, December 31, 1999 and six months
through June 30, 2000, the Partnership made distributions of earnings to Limited
Partners after allocation of syndication costs of $495,480, $614,383, $826,291
and $541,861, 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 six months through June 30, 2000, to Limited
Partners' capital accounts and not withdrawn was $1,119,465, $1,440,687,
$1,911,554 and $1,252,414, respectively. As of December 31, 1997, December 31,
1998, December 31, 1999 and six months through June 30, 2000, Limited Partners
electing to withdraw earnings represented 30%, 30%, 31% and 30% 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 June 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 June 30, 2000 were:
six months
through
1993 1994 1995 1996 1997 1998 1999 06/30/2000
---------- ---------- ----------- ----------- ----------- ----------- ------------- ---------------
Earnings
Liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383 $826,291 $541,861
Capital
Liquidation 0 0 $5,640 $146,755 $132,619 $257,344 $592,357 $338,016
---------- ---------- ----------- ----------- ----------- ----------- ------------- ---------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $1,418,648 $879,877
========== ========== =========== =========== =========== =========== ============= ===============
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 six months through June 30, 2000,
$132,619, $244,213, $411,838 and $154,058, respectively were liquidated subject
to the 10% penalty for early withdrawal. This represents only 0.63%, 0.90%,
1.11% and 0.34% (.68% annualized) of the Limited Partners ending capital for the
years ended December 31, 1997, 1998, 1999 and six months through June 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 June 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.
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.
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.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by the
General Partners. There are certain fees and other items paid to management and
related parties.
A more complete description of management compensation is found in the
Prospectus, pages 6-7, under the section "Compensation of the General Partners
and the Affiliates", which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and Affiliates
for services rendered during the six months ended June 30, 2000. All such
compensation is in compliance with the guidelines and limitations set forth in
the Prospectus.
Entity Receiving Compensation Description of Compensation
and Services Rendered Amount
- --------------------------------------------------------------------------------
I. Redwood Mortgage Corp. Mortgage Servicing Fee for
servicing Mortgage Investments........$158,126
General Partners &/or Asset Management Fee for
Affiliates managing assets....................... $27,323
General Partners 1% interest in profits.................$19,649
Less allocation of syndication costs... $1,525
------------
$18,124
General Partners &/or Portion of early withdrawal penalties
Affiliates applied to reduce Formation Loan........$9,522
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............$837,857
Redwood Mortgage Corp. Processing and Escrow Fees for services in
credit connection with notary, document prep-
aration, investigation, and escrow fees
payable by the borrowers and not by the
Partnership............................$16,047
Gymno Corporation, Inc. Reconveyance Fee...........................628
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. . . . . . . . . . . . . . . . . . . . . . . . . . . $52,471
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF June 30, 2000
Partnership Highlights
First Trust Deeds $32,482,944.70
Appraised Value of Properties* 63,738,795.00
Total Investment as a % of Appraised Value 50.96%
First Trust Deed Mortgage Investments 32,482,944.70
Second Trust Deed Mortgage Investments 20,307,074.23
Third Trust Deed Mortgage Investments 540,243.90
--------------------
53,330,262.83
First Trust Deeds due other Lenders 23,236,191.33
Second Trust Deeds due other Lenders 4,283,709.00
--------------------
Total Debt $80,850,163.16
Appraised Property Value* 141,007,965.00
Total Investment as a % of Appraised Value 57.34%
Number of Mortgage Investments Outstanding 59
Average Investment $903,902.76
Average Investment as a % of Net Partners Capital 2.01%
Largest Investment Outstanding 3,150,055.56
Largest Investment as a % of Net Partners Capital 7.01%
First Trust Deed Mortgage Investments 60.91%
Second Trust Deed Mortgage Investments 38.08%
Third Trust Deed Mortgage Investments 1.01%
---------------
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $8,179,343.29 15.34%
Non Owner Occupied Homes 11,166,478.49 20.94%
Apartments 3,732,860.68 7.00%
Commercial 30,251,580.37 56.72%
------------------ ---------------
Total $53,330,262.83 100.00%
Statement of Conditions of Mortgage Investments.
Number of Mortgage Investments in Foreclosure 1
*Values used are the appraised values utilized at the time the mortgage
investment was consummated.
Total
Diversification by Mortgage
County Investments Percent
San Francisco $19,622,281.80 36.79%
San Mateo 10,165,131,32 19.06%
Stanislaus 5,989,780.82 11.23%
Santa Clara 4,592,174.31 8.61%
Contra Costa 4,128,708.12 7.74%
Los Angeles 2,503.604.67 4.70%
Placer 2,424,363.25 4.55%
Marin 2,389,631.20 4.48%
Lake 737,500.00 1.38%
Alameda 405,178.74 0.76%
San Joaquin 194,597.00 0.37%
Fresno 127,311.60 0.24%
Riverside 50,000.00 0.09%
-------------------- ------------
Total $53,330,262.83 100.00%
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports on Form 8-K during
the quarter ended June 30, 2000.
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 August,
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 August, 2000.
Signature Title Date
/S/ D. Russell Burwell
- ------------------------------
D. Russell Burwell General Partner Aug. 9, 2000
/S/ Michael R. Burwell
- ------------------------------
Michael R. Burwell General Partner Aug. 9, 2000
/S/ D. Russell Burwell
- -----------------------------
D. Russell Burwell President of Gymno Corporation, Aug. 9, 2000
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------------
Michael R. Burwell Secretary/Treasurer of Gymno Aug. 9, 2000
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation