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 March 31, 2001
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Commission file number 333-41410
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REDWOOD MORTGAGE INVESTORS VIII
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(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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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
MARCH 31, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
ASSETS
March 31, December 31,
2001 2000
(unaudited) (audited)
---------------- ---------------
Cash $1,259,512 $1,459,725
---------------- ---------------
Accounts receivable:
Loans, secured by deeds of trust 72,503,248 68,570,992
Accrued Interest on loans 1,332,020 1,039,469
Advances on loans 72,057 172,004
Accounts receivables, unsecured 54,014 53,838
---------------- ---------------
73,961,339 69,836,303
Less allowance for doubtful accounts 1,511,599 1,344,938
---------------- ---------------
72,449,740 68,491,365
---------------- ---------------
Prepaid expense-deferred loan fee 16,280 13,416
---------------- ---------------
Total assets $73,725,532 $69,964,506
================ ===============
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
MARCH 31, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
2001 2000
(unaudited) (audited)
------------ -------------------
Liabilities:
Accounts payable and accrued expenses $3,149 $30,000
Note payable - bank line of credit 15,375,000 16,400,000
Deferred interest income 0 82,253
----------- -------------------
Total liabilities 15,378,149 16,512,253
----------- -------------------
Investors in applicant status 78,300 224,900
----------- -------------------
Partners' Capital:
Limited Partners' capital, subject
to redemption (note 4E): Net of
unallocated syndication costs
of $340,917 and $310,438 for 2001
and 2000, respectively:
and formation loan receivable
of $3,266,459 and $3,010,871
for 2001 and 2000, respectively 58,217,628 53,180,209
General Partners' Capital, net of
unallocated syndication costs
of $3,444 and $3,136 for 2001
and 2000, respectively 51,455 47,144
--------------- -------------------
Total Partners' Capital 58,269,083 53,227,353
--------------- -------------------
Total Liabilities and Partners' Capital $73,725,532 $69,964,506
=============== ===================
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
----------------- ------------------
Revenues:
Interest on loans $2,138,539 $1,082,236
Interest on bank deposits 4,274 7,318
Late charges 3,706 3,642
Miscellaneous 4,327 550
----------------- ------------------
2,150,846 1,093,746
----------------- ------------------
Expenses:
Loan servicing fees 146,862 71,294
Interest on note payable - bank 386,249 13,530
Amortization of loan origination fees 3,385 2,396
Provision for doubtful accounts and
losses on real estate acquired
through foreclosure 166,661 1,847
Asset management fee - General Partners 24,832 12,930
Clerical costs through
Redwood Mortgage Corp. 56,804 25,827
Professional services 5,000 21,788
Printing, supplies and postage 4,250 2,683
Other 7,666 7,278
----------------- ------------------
801,709 159,573
----------------- ------------------
Income before interest credited to
partners in applicant status 1,349,137 934,173
Interest credited to partners in
applicant status 198 4,460
----------------- ------------------
Net Income $1,348,939 $929,713
================= ==================
Net income: To General Partners(1%) $13,489 $9,297
To Limited Partners (99%) 1,335,450 920,416
----------------- ------------------
Total - net income $1,348,939 $929,713
================= ==================
Net income per $1,000 invested by
Limited Partners for entire period:
-where income is reinvested and
compounded $21.86 $20.61
================= ==================
- -where partner receives income
in monthly distributions $21.70 $20.47
================= ==================
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THREE MONTHS ENDED MARCH 31, 2001 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation Total
Applicant Limited Syndication Loan Limited
Status Partners Costs Receivable Partners
-------------- --------------- -------------- -------------- ---------------
Balances at January 1, 1998 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in
applicant status 4,454 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
-------------- --------------- -------------- -------------- ---------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 9,530,318 0 0 0 0
Formation Loan increases 0 0 0 (708,461) (708,461)
Formation Loan payments 0 0 0 164,731 164,731
Interest credited to partners in
applicant status 1,914 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,002) 0 0 0 0
Transfers to Partners' capital (9,201,230) 9,191,719 0 0 9,191,719
Net Income 0 2,912,857 0 0 2,912,857
Syndication costs incurred 0 0 (177,099) 0 (177,099)
Allocation of syndication costs 0 (175,012) 175,012 0 0
Partners' withdrawals 0 (1,378,924) 0 0 (1,378,924)
Early withdrawal penalties 0 (39,725) 13,628 25,960 (137)
-------------- --------------- -------------- -------------- -- ---------------
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
(continued on next page)
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THREE MONTHS ENDED MARCH 31, 2001 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation Total
Applicant Limited Syndication Loan Limited
Status Partners Costs Receivable Partners
-------------- --------------- -------------- -------------- ---------------
(balance forward from previous
page)
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
Contributions on Application 14,887,081 0 0 0 0
Formation Loan increases 0 0 0 (1,102,196) (1,102,196)
Formation Loan payments 0 0 0 230,116 230,116
Interest credited to partners in
applicant status 4,757 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (779) 0 0 0 0
Transfers to Partners' capital (14,996,159) 14,981,287 0 0 14,981,287
Net Income 0 4,244,586 0 0 4,244,586
Syndication costs incurred 0 0 (266,903) 0 (226,903)
Allocation of syndication costs 0 (248,361) 248,361 0 0
Partners' withdrawals 0 (1,976,594) 0 0 (1,976,594)
Early withdrawal penalties 0 (30,425) 10,438 19,883 (104)
-------------- --------------- -------------- -------------- ---------------
Balances at December 31, 2000 $224,900 $56,501,518 $(310,438) $(3,010,871) $53,180,209
Contributions on Application 4,624,310 0 0 0 0
Formation Loan increases 0 0 0 (342,538) (342,538)
Formation Loan payments 0 0 0 77,532 77,532
Interest credited to partners in
applicant status 198 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (93) 0 0 0 0
Transfers to Partners' capital (4,771,015) 4,766,395 0 0 4,766,395
Net Income 0 1,335,450 0 0 1,335,450
Syndication costs incurred 0 0 (79,972) 0 (79,972)
Allocation of syndication costs 0 (44,550) 44,550 0 0
Partners' withdrawals 0 (719,398) 0 0 (719,398)
Early withdrawal penalties 0 (14,411) 4,943 9,418 (50)
-------------- --------------- -------------- -------------- ---------------
Balances at March 31, 2001 $78,300 $61,825,004 $(340,917) $(3,266,459) $58,217,628
============== =============== ============== ============== ===============
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THREE MONTHS ENDED MARCH 31, 2001 (unaudited)
PARTNERS' CAPITAL
-------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
-----------------------------------------------------------
Capital
Account Unallocated Total Total
General Syndication General Partners'
Partners Costs Partners Capital
---------------- ----------------- ------------------ ----------------
Balances at January 1, 1998 $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
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
(continued on next page)
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THREE MONTHS ENDED MARCH 31, 2001 (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, 1999 $35,408 $(3,458) $31,950 $37,061,967
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (1,102,196)
Formation Loan payments 0 0 0 230,116
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 14,872 0 14,872 14,996,159
Net Income 42,875 0 42,875 4,287,461
Syndication costs incurred 0 (2,291) (2,291) (229,194)
Allocation of syndication costs (2,509) 2,509 0 0
Partners' withdrawals (40,366) 0 (40,366) (2,016,960)
Early withdrawal penalties 0 104 104 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 2000 $50,280 $(3,136) $47,144 $53,227,353
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (342,538)
Formation Loan payments 0 0 0 77,532
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 4,620 0 4,620 4,771,015
Net Income 13,489 0 13,489 1,348,939
Syndication costs incurred 0 (808) (808) (80,780)
Allocation of syndication costs (450) 450 0 0
Partners' withdrawals (13,040) 0 (13,040) (732,438)
Early withdrawal penalties 0 50 50 0
---------------- ----------------- ------------------ ----------------
Balances at March 31, 2001 $54,899 $(3,444) $51,455 $58,269,083
================ ================= ================== ================
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)
March 31 March 31,
2001 2000
(unaudited) (unaudited)
---------------- ----------------
Cash flows from operating activities:
Net income $1,348,939 $929,713
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for doubtful accounts 166,661 1,847
Change in operating assets and liabilities
Accounts payable (26,851) 50
Accrued interest & advances (192,604) (309,666)
Deferred loan fee (2,864) 2,395
Deferred interest income (82,253) 0
------------------ ----------------
Net cash provided by
operating activities 1,211,028 624,339
------------------ ----------------
Cash flows from investing activities:
Principal collected on loans 16,377,021 1,522,077
Loans made (20,309,277) (11,081,092)
Disposition of Limited
Liability Corporation 0 373,358
Accounts receivables,
unsecured - (disbursements) receipts (176) (2,508)
------------------ ----------------
Net cash used in investing activities (3,932,432) (9,188,165)
------------------ ----------------
Cash flows from financing activities:
Increase (decrease) in note payable-bank (1,025,000) 4,200,000
Contributions by partner applicants 4,624,310 4,199,536
Interest credited to partners in
applicant status 198 4,460
Interest withdrawn by partners in
applicant status (93) (662)
Partners withdrawals (732,438) (452,936)
Syndication costs incurred (80,780) (43,978)
Formation Loan increases (342,538) (360,965)
Formation Loan collections 77,532 62,306
------------------ ----------------
Net cash provided by financing activities 2,521,191 7,607,761
----------------- ----------------
Net increase (decrease) in cash and
cash equivalents (200,213) (956,065)
Cash - beginning of period 1,459,725 1,602,568
------------------ ----------------
Cash - end of period $1,259,512 $646,503
================== ================
Cash paid for interest $386,249 $13,530
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California Limited Partnership (the
"Partnership"), was organized in 1993 of which D. Russell Burwell, Michael R.
Burwell, Gymno Corporation and Redwood Mortgage Corp., (both California
Corporations), are the General Partners. The Partnership was organized to engage
in business as a mortgage lender for the primary purpose of making loans secured
by Deeds of Trust on California real estate. Loans are being arranged and
serviced by Redwood Mortgage Corp., a General Partner. At March 31, 2001, the
Partnership was in the offering stage, wherein contributed capital totaled
$54,524,540 in Limited Partner contributions of an approved aggregate offering
of $75,000,000, in Units. As of March 31, 2001, $78,300 remained in applicant
status, and total Units sold were in the aggregate of $54,602,840.
A minimum of $250,000 and a maximum of $15,000,000 in Units 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 in Units. 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 loans are identified, partners are
transferred from applicant status to admitted partners participating in loan
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 totaled
$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) totaled
$2,271,916, which was 7.6% of the Limited Partners contributions of $29,992,574.
The Formation Loan relating to the third offering ($30,000,000) totaled
$720,692 at March 31, 2001, which was 7.5% of the Limited Partners contributions
of $9,599,949.
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
MARCH 31, 2001
The following summarizes Formation Loan transactions to March 31, 2001:
Initial Subsequent Current
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 $9,599,949 $54,524,540
=============== ============== ============== ================
Formation Loan made $1,074,840 $2,271,916 $720,692 $4,067,448
Payments to date (387,263) (317,201) (9,454) (713,918)
Early withdrawal penalties applied (87,071) 0 0 (87,071)
--------------- -------------- -------------- ----------------
Balance March 31, 2001 $600,506 $1,954,715 $711,238 $3,266,459
=============== ============== ============== ================
Percent loaned of Partners'
Contributions 7.2% 7.6% 7.5% 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), are paid by the
Partnership.
Through March 31, 2001, organization costs of $12,500 and syndication costs
of $1,477,623 had been incurred by the Partnership with the following
distribution:
Syndication
Costs Costs Total
------------ ------------- ------------
Costs incurred $1,477,623 $12,500 $1,490,123
Early withdrawal penalties applied (47,090) 0 (47,090)
Allocated and amortized to date (1,086,172) (12,500) (1,098,672)
------------ ------------- ------------
March 31, 2001 balance $344,361 $0 $344,361
============ ============= ============
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 totaled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of December 31, 2000 syndication costs attributable to the subsequent
offering #2 ($30,000,000) totaled $597,784, (2.0% of contributions), with the
costs of the offering being greater at the initial stages due to professional
and filing fees related to formulating the offering documents.
In August 2000 the current offering #3 began incurring syndication costs.
As of March 31, 2001 the offering had incurred $309,974 (3.2% 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
MARCH 31, 2001
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 loan 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
loans, and the valuation of real estate acquired through foreclosure. Actual
results could differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans 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 loan, 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 March 31, 2001 and at December 31, 2000, 1999, and 1998, there were no
loans 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 loan to
appraised value of security at the time the losses were consummated was 57.12%.
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 March 31, 2001, 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
MARCH 31, 2001
F. 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.
G. 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.
H. Allowance for Doubtful Accounts
Loans 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 loan system. A provision is made for bad debt 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 loans, other loans,
accrued interest and advances on loans, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of March
31, 2001 and December 31,2000, was as follows:
March 31, December 31,
2001 2000
------------- ---------------
Impaired loans 0 0
Unspecified loans 1,457,585 1,291,151
Amounts receivable, unsecured 54,014 53,787
------------- ---------------
$1,511,599 $1,344,938
============= ===============
I. 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 held 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 loans in an amount to 12% of the loans until 6
months after the termination date of the offering. Thereafter, loan brokerage
commissions will be limited to an amount not to exceed 4% of the total
Partnership assets per year. The loan brokerage commissions are paid by the
borrowers, and thus, are not an expense of the Partnership. For the three months
through March 31, 2001, and for the years ended December 31, 2000 and 1999, loan
brokerage commissions paid by the borrowers were $237,459, $1,877,921 and
$682,118, respectively.
B. Loan Servicing Fees
Monthly loan 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. Loan servicing fees of $146,862, $505,823, $359,464 and
$295,052 were incurred for the three months through March 31, 2001 and for the
years ended December 31, 2000, 1999 and 1998, respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
loan portfolio and operations up to 1/32 of 1% of the "net asset value" (3/8 of
1% annual). Management fees of $24,832, $60,595, $42,215 and $31,651 were
incurred for the three months through March 31, 2001 and the years ended
December 31, 2000, 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 and losses are 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%.
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are
reimbursed by the Partnership for all operating expenses actually incurred by
them on behalf of the Partnership, including without limitation, out-of-pocket
general and administration expenses of the Partnership, accounting and audit
fees, legal fees and expenses, postage and preparation of reports to Limited
Partners. Such reimbursements are reflected as expenses in the Statement of
Income.
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering are admitted to Limited
Partner capital. As of March 31, 2001, a General Partner, Gymno Corporation, had
contributed $54,591, as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 loan portfolio.
During the three month period ending March 31, 2001, and for the years
ending December 31, 2000, 1999 and 1998, interest totaling $198, $4,757, $1,914
and $4,454, respectively, was credited to partners in applicant status. As loans
were made and partners were transferred to regular status to begin sharing in
income from loans 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
MARCH 31, 2001
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 a defendant along with other affiliated and
non-affiliated defendants in a lawsuit alleging claims related to the
construction and sales of a condominium complex. Management believes the lawsuit
has no merit and believes the ultimate outcome of the legal matter will not have
a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring June 30, 2002, of up to
$20,000,000 at .25% over prime secured by its Loan portfolio. The note payable
balances were $15,375,000, $16,400,000 and $0 at March 31, 2001, December 31,
2000, and 1999, respectively. The interest rate was 8.25% at March 31, 2001
(8.00% prime plus .25%).
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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
(LLC), which was owned 100% by the Partnership. During the year ended December
31, 2000, the LLC completed construction and sold the property for a gain of
$140,895.
NOTE 8 - INCOME TAXES
The following reflects reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
March 31, December 31,
2001 2000
--------------- ----------------
Net Assets - partners' capital per
financial statements $58,269,083 $53,227,353
Non-amortized syndication costs 344,361 313,574
Allowance for doubtful accounts 1,511,599 1,344,938
Formation loans receivable 3,266,459 3,010,871
--------------- ----------------
Net assets tax basis $63,391,502 $57,896,736
=============== ================
In 2000 and 1999, approximately 54% and 58% 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 INSTRUMENTS
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) Loans (see note 2(c)) carrying value were $72,503,248 at March 31,
2001. The fair value of these investments of $73,102,580 was estimated based
upon projected cash flows discounted at the estimated current interest rates at
which similar loans would be made. The applicable amount of the allowance for
doubtful accounts along with accrued interest and advances related thereto
should also be considered in evaluating the fair value versus the carrying
value.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At March 31, 2001, there
were 68 loans outstanding with the following characteristics:
Number of loans outstanding 68
Total loans outstanding $72,503,248
verage loan outstanding $1,066,224
Average loan as percent of total 1.47%
Largest loan outstanding 6,091,049
Largest loan as percent of total 8.40%
Number of counties where security is located (all California) 12
Largest percentage of loans in one county 45.77%
Average loan to appraised value of security
at time loan was consummated 57.12%
Number of loans in foreclosure status 1
Amount of loans in foreclosure $126,934.22
The following loan categories were held at March 31, 2001 and December 31, 2000:
March 31, December 31,
2001 2000
----------------- -----------------
First Trust Deeds $45,766,676 $37,806,032
Second Trust Deeds 25,322,344 29,799,535
Third Trust Deeds 1,414,228 965,425
----------------- -----------------
Total loans 72,503,248 68,570,992
Prior liens due other lenders 41,812,719 37,584,916
----------------- -----------------
Total debt $114,315,967 $106,155,908
================= =================
Appraised property value at
time of loan $200,116,567 $193,420,663
================= =================
Total investments as a
percent of appraisals 57.12% 54.88%
================= =================
Investments by Type of Property:
Owner occupied homes $9,344,436 $9,753,617
Non-Owner occupied homes 15,733,036 16,471,074
Apartments 10,294,331 8,458,610
Commercial 37,131,445 33,887,691
----------------- -----------------
$72,503,248 $68,570,992
================= =================
The interest rates on the loans range from 8.00% to 18.00% at March 31, 2001.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
Scheduled maturity dates of loans as of March 31, 2001 are as follows:
Year Ending
December 31, Amount
---------------- -- -----------------
2001 $38,067,870
2002 22,615,961
2003 6,250,000
2004 751,589
2005 1,692,264
Thereafter 3,125,564
-----------------
72,503,248
=================
The scheduled maturities for 2001 include approximately $12,550,257
(17.31%) in loans, which are past maturity at March 31, 2001. Interest payments
on nine of these loans were delinquent.
The cash balance at March 31, 2001 of $1,259,512 was in one bank with
interest bearing balances totaling $282,240. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,159,512. This bank is the same
financial institution that has provided the Partnership with the $20,000,000
limit line of credit (LOC). At March 31, 2001, the LOC had a balance of
$15,375,000. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new loans
or used to pay-down the line of credit balance.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On March 31, 2001, the Partnership was in the offering stage of its third
offering for $30,000,000. Contributed capital totaled $14,932,017 for the first
offering, $29,992,574 for the second offering and $9,678,249 for the third
offering, an aggregate of $54,602,840 (Limited Partners) as of March 31, 2001.
Of this amount, $78,300 remained in applicant status. Accordingly, together with
prior two approved offerings of $45,000,000 the Partnership has approval for an
aggregate offering of $75,000,000 in Units.
At March 31, 2001, the Partnership's loans outstanding totaled $72,503,248.
The primary reason for an increase in loans outstanding from $25,304,989 in
1997, to $31,905,958 in 1998 to $35,693,147 in 1999 to $68,570,992 to December
31, 2000, and to $72,503,248 as of March 31, 2001, 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 totaled $5,565,372, $5,100,458, $9,520,806, $14,872,209 and
$4,619,690 and the reinvestment of earnings by Limited Partners who have elected
to reinvest earnings, have totaled $1,119,465, $1,440,687, $1,911,554,
$2,751,266 and $912,849, for the years ended December 31, 1997, 1998, 1999, and
2000, and the three months ended March 31, 2001, respectively. Loans outstanding
have also increased through the utilization of the Partnership's line of credit.
The effect of more outstanding loans raised the interest earned on loans for the
years ended December 31, 1997, 1998, 1999, 2000, and the three months ended
March 31, 2001, to $2,613,008, $3,376,293, $4,337,427, $6,261,470 and $2,138,539
respectively. Interest rates on loans ranged from 8.00% to 18.00%. The
Partnership began funding loans on April 14, 1993 and as of March 31, 2001,
distributed earnings at an average annualized yield of 8.39%.
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. However, since January, 2001, the Federal Reserve has been
dramatically cutting its core interest rates with four successive 1/2% cuts. The
latest cut being April 18, 2001, which reduced the Federal Funds Rate to 4.50%.
The effect of the cuts has greatly reduced short-term interest rates and to a
lesser extent reduced long-term interest rates. New loans will be originated at
then existing interest rates. 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 2001 over the next 12
months. Based upon the rates payable in connection with the existing loans, 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 and one half and nine and one half
percent (8.50% - 9.50%).
In 1995, the Partnership established a line of credit with a commercial
bank secured by its loans and since its inception has increased the limit from
$3,000,000 to $20,000,000. For the years ended December 31, 1997, 1998, 1999,
2000 and three months through March 31, 2001, interest on Note Payable-Bank was
$340,633, $513,566, $526,697, $887,546 and $386,249, respectively. For 1997,
1998, 1999, 2000, and three months through March 31, 2001, 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 loans are not currently
available. Additionally, the loans 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 March 31, 2001, the balance was $15,375,000 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-four years.
Loan servicing fees increased from $189,692, to $295,052, to $359,464, to
$505,823, and to $146,862 for the years ended December 31, 1997, 1998, 1999,
2000 and three months through March 31, 2001. The loan servicing fees increased
primarily due to increase in the outstanding loan portfolio. Asset Management
fees increased from $24,966, to $31,651, to $42,215 to $60,595, and to $24,832
for the years ended December 31, 1997, 1998, 1999, 2000, and three months
through March 31, 2001, 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. At March 31, 2001, the Partnership had initiated foreclosure
proceedings against one borrower. The borrower cured this foreclosure in April,
2001. Cash is constantly being generated from interest earnings, late charges,
pre-payment penalties, amortization of principal and pay-offs on loans.
Currently, cash flow exceeds Partnership expenses and earnings payout
requirements. Excess cash flow will be invested in new loan opportunities when
available, used to reduce the Partnership credit line or in other Partnership
business.
The General Partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these loans,
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, 2000,
and the three months through March 31, 2001, the Partnership made provisions for
doubtful accounts of $139,804, $162,969, $408,890, $375,579, and $166,661,
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 March 31, 2001, of $1,511,599 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 Partnership makes loans primarily in Northern California. As of March
31, 2001, approximately 81%, ($59,016,362) of the loans held by the Partnership
were in the six San Francisco Bay Area Counties. The remainder of the loans held
were secured primarily by Northern California real estate outside the San
Francisco Bay Area. Since January 2001, the Federal Reserve has reduced the
Federal Funds Rate to 4.5%. The effect of the cuts has greatly reduced
short-term interest rates and to a lesser extent reduced long-term interest
rates. The lowering of interest rates has encouraged those borrowers that hold
higher interest rate loans than those currently available to seek refinancing of
their existing obligations to advantage themselves of these lower rates. The
Partnership may face prepayments in the existing portfolio from existing
borrowers advantaging themselves of these lower rates. However, demand for loans
from qualified borrowers continues to be strong and as prepayments and funds,
which are being generated from Partnership unit sales, occur, we expect to
replace these loans with loans at similar interest rates. Therefore, at this
time we do not believe that the average loan portfolio interest rate will
decline substantially in the coming months.
The reduction in the Federal Funds rates by the Federal Reserve has been
primarily prompted by concerns of the United States economy slowing down and
perhaps slipping into recession. Additionally, both the New York and tech-heavy
NASDAQ stock markets have suffered significant set backs over the last 10
months. The technology stocks have been particularly hard hit. Many of these
technology stocks have their headquarters in the Silicon Valley, one of the
primary lending areas of the partnership. This has resulted in significant
numbers of lay-offs in that industry. While there certainly has been a decline
in economic activity, there has not manifested a clear trend in housing prices,
the security behind many of our loans. The housing market has been incredibly
strong throughout the San Francisco Bay Area with multiple offers above the
asking price a common if not expected occurrence in the sale of residential
properties for more than a year. A return to a more normal residential real
estate market seems to be developing in the low to high average priced homes
with little, if any, value reductions. High end priced homes in the more than
one million dollar category may sustain greater price swings.
The commercial leasing market is experiencing an increase in available
vacancies and considerable available sublease space availability. According to
CB Richard Ellis commercial office vacancies have increased in San Francisco
from 3.4% in the fourth quarter of 2000 to 6.9% in the first quarter of 2001.
Lease rates are falling as landlords compete for tenants. This will have the
effect of lowering rents for buildings, which lose tenants through turnover or
financial difficulties. There may be some declines in values as commercial
property values are primarily reflective of the net income the property can
generate.
The Partnership had an average loan to value ratio computed as of the date
the loan was made of 57.12%, as of March 31, 2001. This did not account for any
increases in property values for loans, which were acquired by the Partnership
during 1997, 1998, 1999, and 2000 when Northern California Real Estate
substantially increased in value. This low loan to value will assist the
partnership in weathering downturns in real estate values if they materialize in
the coming months.
If the economic downturn persists and those employees who have been laid
off are unable to locate new jobs, the Partnership may experience delinquencies
and possibly foreclosures higher than the low numbers of delinquencies and
foreclosures it has enjoyed over the past three years.
On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest
public utility company filed for Chapter 11 bankruptcy. The full effect of
PG&E's bankruptcy is yet to be played out. Stockholders, other utility companies
and banks that have loaned PG&E millions of dollars were particularly hit hard.
When a company like PG&E goes bankrupt, it has a ripple effect. This has not
only affected the hi-tech and manufacturing industries, professional and
commercial businesses, transportation and utilities sectors, but every household
and individual as a whole. The crisis, which means higher costs to consumers,
could adversely affect the economy, employment and the Partnership's lending in
its commercial sector. The state government, PG&E and others are working
diligently to solve the power crisis in California. The likely result is that
electric and natural gas will cost consumers more than ever before. This may
have some effect upon real estate values as demand for real estate could be
reduced as companies make long term plans to locate in areas without power
delivery problems and lower cost power availability.
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, 1998, 1999, and 2000, and for the three months through
March 31, 2001, the Partnership made distributions of earnings to Limited
Partners after allocation of syndication costs of $495,480, $614,383, $826,291,
$1,244,959, and $422,601, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs' for the years ended December 31,
1997, 1998, 1999, and 2000, and three months through March 31, 2001, to Limited
Partners' capital accounts and not withdrawn was $1,119,465, $1,440,687,
$1,911,554, $2,751,266, and $868,299, respectively. As of December 31, 1997,
1998, 1999 and 2000, Limited Partners electing to withdraw earnings represented
30%, 30%, 31% and 32% 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 Partners' 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
during the offering period. The General Partners expect to see increasing
numbers of Limited Partner withdrawals during a Limited Partner's 5th through
10th anniversary, at which time the bulk of those Limited Partners who have
sought withdrawal have been liquidated. Since the five-year hold period for most
of the investors has yet to expire, as of March 31, 2001, 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 March 31, 2001 were:
Earnings Capital
Liquidation Liquidation Total
------------------- -------------- ---------------
1993 $46,855 0 $46,855
1994 $165,814 0 $165,814
1995 $303,477 * 5,640 $309,117
1996 $418,380 * $146,755 $565,135
1997 $495,480 * $132,619 $628,099
1998 $614,383 * $257,344 $871,727
1999 $826,291 * $592,357 $1,418,648
2000 $1,244,959 * $762,060 $2,007,019
Three months through
March 31, 2001 $422,601 * $311,208 $733,809
* Includes early withdrawal penalties
Additionally, Limited Partners may withdraw over a period of one year
subject to certain limitations and penalties. For the years ended December 31,
1997, 1998, 1999, and 2000, and three months through March 31, 2001, $132,619,
$244,213, $411,838, $309,643, and $150,647, respectively were liquidated subject
to the 10% penalty for early withdrawal. This represents 0.63%, 0.90%, 1.11%,
.58%, and .26% (1.04% annualized) of the Limited Partners ending capital for the
years ended December 31, 1997, 1998, 1999, 2000, and three months through March
31, 2001, 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, 1998, 1999, and 2000, and three months through
March 31, 2001, respectively, and is expected by the General Partners to
commonly occur at these levels.
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. 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 strengthen Partnership's
management team.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership has decided to
retire as a General Partner of the Partnership effective September 30, 2001.
"Russ" has enjoyed a long and successful career. His original business model,
upon which our Partnership has its roots, has withstood the test of time through
varying economic cycles. Collectively, the various Redwood Mortgage Investors
Partnerships (I-VIII) have grown from an idea to over $110,000,000 in assets and
produced excellent results for the Limited Partners. Through December 31, 2000
and under Russ' stewardship, Redwood Mortgage Investor's VIII raised $49,983,150
in Limited Partner Capital contributions and at March 31, 2001 had $58,217,628
in remaining Limited Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. The remaining General
Partners are Mr. Michael Burwell, Gymno Corporation and Redwood Mortgage Corp.,
both California Corporations. Mr. Michael Burwell has been a General Partner of
Redwood Mortgage Investors VIII since its inception and has been employed by
Redwood Mortgage Corp, an affiliate of the Partnership, since 1979 and a General
Partner since February 7, 2000. The Partnership through the remaining General
Partners and the employees of Redwood Mortgage Corp., are well prepared for
Russ' departure and look forward to emulating the steady consistent returns that
the Limited Partners have enjoyed during Russ' tenure.
Mr. D. Russell Burwell is providing this notification pursuant to Article 8
Section 8.02 of the Limited Partnership Agreement. The remaining General
Partners have elected to continue the business of the Partnership as described
in Article 9 Section 9.01(d) of the Limited Partnership Agreement.
The General Partners have determined that for purposes of establishing a
value for reporting purposes, including brokerage and trustee account
statements, the estimated value of the Limited Partnership interests on a per
unit basis is equal to the capital account balance of each investor in the
Partnership. Each investor's capital account balance is set forth periodically
on the Partnership account statement provided to investors. The amount of
Partnership earnings each investor is entitled to receive is determined by the
ratio that each investor's capital account bears to the total amount of all
investor capital accounts then outstanding. The capital account balance of each
investor should be included on any NASD member client account statement in
providing a per unit estimated value of the client's investment in the
Partnership in accordance with NASD Rule 2340. While the General Partners have
set an estimated value for the Partnership units, such determination may not be
representative of the ultimate price realized by an Investor for such units upon
sale. No public trading market exists for the Partnership's units and none is
likely to develop. Thus, the ability of an investor to liquidate his or her
investment is limited subject to certain liquidation rights provided by the
Partnership which may include early withdrawal penalties (See the section of the
Prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
Bruce and/or John Cropper (the Croppers) have been performing audit and
accounting services to the General Partners of the Partnership and their
affiliates for over 16 years through the following CPA firms: 1993-1998 - Parodi
& Cropper, CPA's; 1999 - Caporicci, Cropper & Larson, LLP and 2000 - Armanino
McKenna LLP.
Bruce and John Cropper were shareholders in Cropper Accountancy Corp.
through December 31, 2000.
Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper &
Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi &
Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from
Caporicci, Cropper & Larson, LLP partnership. John Cropper joined the larger
regional firm of Armanino McKenna LLP as a partner and Bruce Cropper continues
to provide services through Cropper Accountancy. The Croppers continue to
perform audit and accounting services to the General Partners of the partnership
and their affiliates.
As a result, the Partnership has retained the firm of Armanino McKenna 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
have not been any disagreements 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 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 three months ended March 31, 2001.
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. Loan Servicing Fee for servicing loans........$146,862
General Partners
&/or Affiliates Asset Management Fee for managing assets.........$24,832
General Partners 1% interest in profits...........................$13,489
Less allocation of syndication costs............. $450
-------
$13,039
General Partners
&/or Affiliates Portion of early withdrawal penalties
applied to reduce Formation Loan................. $9,418
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 loans paid by the borrowers and not
by the Partnership..............................$237,459
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............. $4,990
Gymno Corporation, Inc. Reconveyance Fee................................... $504
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 . . . . . . . . . . . . . . . . . . . . .$56,804
LOAN PORTFOLIO SUMMARY AS OF MARCH 31, 2001
Partnership Highlights
First Trust Deeds $45,766,675.60
Appraised Value of Properties* 92,627,497.00
Total Investment as a % of Appraised Value 49.41%
First Trust Deed Loans 45,766,675.60
Second Trust Deed Loans 25,322,343.53
Third Trust Deed Loans 1,414,228.47
--------------------
$72,503,247.60
First Trust Deeds due other Lenders 36,207,060.33
Second Trust Deeds due other Lenders 5,605,659.00
--------------------
$114,315,966.93
Total Debt
Appraised Property Value* $200,116,567.00
Total Investment as a % of Appraised Value 57.12%
Number of Loans Outstanding 68
Average Investment $1,066,224.23
Average Investment as a % of loans outstanding 1.47%
Largest Investment Outstanding $6,091,049.11
Largest Investment as a % of loans outstanding 8.40%
First Trust Deed Loans 63.12%
Second Trust Deed Loans 34.93%
Third Trust Deed Loans 1.95%
---------------
Total 100.00%
Loans by Type of Property
Amount Percent
------------------ ---------------
Owner Occupied Homes $9,344,435.93 12.89%
Non Owner Occupied Homes 15,733,035.59 21.70%
Apartments 10,294,331.46 14.20%
Commercial 37,131,444.62 51.21%
------------------ ---------------
Total $72,503,247.60 100.00%
Statement of Conditions of Loans.
Number of Loans in Foreclosure 1
*Values used are the appraised values utilized at the time the loan was
consummated.
Diversification by Total
County Loans Percent
San Francisco $33,184,816.50 45.77
San Mateo 7,781,003.18 10.73
Alameda 6,699,293.95 9.24
Stanislaus 5,629,983.00 7.77
Santa Clara 5,210,292.01 7.19
Marin 3,912,600.87 5.40
Placer 3,622,277.42 5.00
Los Angeles 3,320,190.73 4.58
Contra Costa 2,228,355.72 3.07
Lake 737,500.00 1.02
Fresno 126,934.22 0.17
Riverside 50,000.00 0.06
-------------------- ------------
Total $72,503,247.60 100.00%
==================== ============
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
Refer to notes to financial statements No. 5 discussed earlier
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
On April 30, 2001, the Partnership filed with Securities and Exchange
Commission (S.E.C.), Post-Effective Amendment No. 1 to the S-11 Registration
Statement (the "Amendment"). The Amendment, containing Supplement No. 1 to the
Prospectus ("Supplement") was filed to update the financial statements of the
Partnership and the Corporate General Partners, Gymno Corporation and Redwood
Mortgage Corp., as well as the operations of the Partnership.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not Applicable
(b) Form 8-K
Form 8-K was filed on February 13, 2001,
relating to the subsequent change in
accounting firms. On April 11, 2001, the
Partnership filed another Form 8-K regarding
D. Russell Burwell's retirement as more
fully discussed earlier under "Management
Discussion".
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 7th day of May,
2001.
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
By: Redwood Mortgage Corp.
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 7th day of May, 2001.
Signature Title Date
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell General Partner May 7, 2001
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell General Partner May 7, 2001
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell President of Gymno May 7, 2001
Corporation1
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell Secretary/Treasurer of May 7, 2001
Gymno Corporation
(Principal Financial
and Accounting Officer);
Director of Gymno Corporation
/S/ D. Russell Burwell
- -----------------------------------
D. Russell Burwell President of Redwood Mortgage May 7, 2001
Corp., (Principal Executive
Officer); Director of Redwood
Mortgage Corp.
/S/ Michael R. Burwell
- -----------------------------------
Michael R. Burwell Secretary/Treasurer of May 7, 2001
Redwood Mortgage Corp.
(Principal Financial and
Accounting Officer);
Director of Redwood Mortgage
Corp.