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 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 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. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF INCOME FOR NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited) Nine Months Nine Months Three Months Three Months Ended Ended Ended Ended 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 ================= ================= ================ ================= 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 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 ============== =============== ============== ============== =============== 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited) PARTNERS' CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS' CAPITAL ---------------------------------------------------------- Capital Account Unallocated Total Total General Syndication General Partners Partners' Partners Costs Capital ---------------- ----------------- ------------------ ---------------- 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 NINE MONTHS ENDED SEPTEMBER 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 (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 ================ ================= ================== ================ See accompanying notes to financial statements REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited) September 30, September 30, 2000 1999 (unaudited) (unaudited) ------------------ ---------------- Cash flows from operating activities: 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 ================== ================ See accompanying notes to financial statements. 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. 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: Initial Second Third Offering of Offering of Offering of $15,000,000 $30,000,000 $30,000,000 Total ---------------- -------------- -------------- --------------- 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. 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). 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 ================ ================ 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%. 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. 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. 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. 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. 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. 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. 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. 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: Nine Months through 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 ========== ========== =========== =========== =========== =========== ============= =============== 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. 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 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. 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% 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. 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