FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended June 30, 2001
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Commission file number 000-27816
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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
JUNE 30, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
ASSETS
June 30, December 31,
2001 2000
(unaudited) (audited)
---------------- ---------------
Cash $1,494,290 $1,459,725
---------------- ---------------
Accounts receivable:
Loans, secured by deeds of trust 75,093,062 68,570,992
Accrued Interest on loans 1,742,152 1,039,469
Advances on loans 95,070 172,004
Accounts receivables, unsecured 57,490 53,838
---------------- ---------------
76,987,774 69,836,303
Less allowance for doubtful accounts 1,707,684 1,344,938
---------------- ---------------
75,280,090 68,491,365
---------------- ---------------
Prepaid expense-deferred loan fee 12,895 13,416
---------------- ---------------
Total assets $76,787,275 $69,964,506
================ ===============
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
JUNE 30, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
2001 2000
(unaudited) (audited)
---------------- -------------------
Liabilities:
Accounts payable and accrued expenses $0 $30,000
Note payable - bank line of credit 12,825,000 16,400,000
Deferred interest income 0 82,253
---------------- -------------------
Total liabilities 12,825,000 16,512,253
---------------- -------------------
Investors in applicant status 343,667 224,900
---------------- -------------------
Partners' Capital:
Limited Partners' capital, subject
to redemption (note 4E): Net of
unallocated syndication costs of
$353,066 and $310,438 for 2001 and
2000, respectively: and formation
loan receivable of $3,593,183 and
$3,010,871 for 2001 and 2000,
respectively 63,561,922 53,180,209
General Partners' Capital, net of
unallocated syndication costs
of $3,566 and $3,136 for 2001 and
2000, respectively 56,686 47,144
---------------- -------------------
Total Partners' Capital 63,618,608 53,227,353
---------------- -------------------
Total Liabilities and
Partners' Capital $76,787,275 $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 SIX AND THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (unaudited)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
--------------- ------------- --------------- ----------------
Revenues:
Interest on loans $4,330,580 $2,449,524 $2,192,041 $1,367,288
Interest on bank deposits 5,149 9,547 875 2,229
Late charges 5,448 6,465 1,742 2,823
Miscellaneous 4,877 1,050 550 500
--------------- ------------- --------------- ----------------
4,346,054 2,466,586 2,195,208 1,372,840
--------------- ------------- --------------- ----------------
Expenses:
Loan servicing fees 292,088 158,126 145,226 86,832
Interest on note payable - bank 637,841 156,368 251,592 142,838
Amortization of loan origination fees 6,771 4,792 3,386 2,396
Provision for doubtful accounts and losses on real
estate acquired through foreclosure 362,746 48,659 196,085 45,837
Asset management fee - General Partners 65,450 27,323 40,618 14,393
Clerical costs through Redwood Mortgage Corp. 116,345 52,471 59,541 26,644
Professional services 7,816 31,706 2,816 9,918
Printing, supplies and postage 14,430 9,090 10,180 6,407
Other 9,545 8,552 1,879 1,274
--------------- ------------- --------------- ----------------
1,513,032 497,087 711,323 336,539
--------------- ------------- --------------- ----------------
Income before interest credited to partners in
applicant status 2,833,022 1,969,499 1,483,885 1,036,301
Interest credited to partners in applicant status 295 4,587 97 127
--------------- ------------- --------------- ----------------
Net Income $2,832,727 $1,964,912 $1,483,788 $1,036,174
=============== ============= =============== ================
Net income: To General Partners(1%) $28,327 $19,649 $14,838 $10,362
To Limited Partners (99%) 2,804,400 1,945,263 1,468,950 1,025,812
--------------- ------------- --------------- ----------------
Total - net income $2,832,727 $1,964,912 $1,483,788 $1,036,174
=============== ============= =============== ================
Net income per $1,000 invested by Limited Partners
for entire period:
- -where income is reinvested and compounded $44.36 $41.64 $22.02 $20.61
=============== ============= =============== ================
- -where partner receives income in monthly
distributions $43.56 $40.94 $21.86 $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
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 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 (226,903) 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 9,982,341 0 0 0 0
0 0 0 (757,859) (757,859)
Formation Loan payments 0 0 0 154,608 154,608
Interest credited to partners in
applicant status 295 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (128) 0 0 0 0
Transfers to Partners' capital (9,863,741) 9,853,769 0 0 9,853,769
Net Income 0 2,804,400 0 0 2,804,400
Syndication costs incurred 0 0 (142,719) 0 (142,719)
Allocation of syndication costs 0 (89,100) 89,100 0 0
Partners' withdrawals 0 (1,530,375) 0 0 (1,530,375)
Early withdrawal penalties 0 (32,041) 10,991 20,939 (111)
-------------- --------------- -------------- -------------- ---------------
Balances at June 30, 2001 $343,667 $67,508,171 $(353,066) $(3,593,183) $63,561,922
============== =============== ============== ============== ===============
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
SIX MONTHS ENDED JUNE 30, 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 SIX YEARS ENDED DECEMBER 31, 2000 (audited) AND
SIX MONTHS ENDED JUNE 30, 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 (757,859)
Formation Loan payments 0 0 0 154,608
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 9,972 0 9,972 9,863,741
Net Income 28,327 0 28,327 2,832,727
Syndication costs incurred 0 (1,441) (1,441) (144,160)
Allocation of syndication costs (900) 900 0 0
Partners' withdrawals (27,427) 0 (27,427) (1,557,802)
Early withdrawal penalties 0 111 111 0
---------------- ----------------- ------------------ ----------------
Balances at June 30, 2001 $60,252 $(3,566) $56,686 $63,618,608
================ ================= ================== ================
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 SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (unaudited)
June 30 June 30,
2001 2000
(unaudited) (unaudited)
--------------- ----------------
Cash flows from operating activities:
Net income $2,832,727 $1,964,912
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts 362,746 48,659
Change in operating assets and liabilities
Accounts payable (30,000) (29,413)
Accrued interest & advances (625,749) (492,298)
Deferred loan fee 521 (13,959)
Deferred interest income (82,253) (213,529)
--------------- ----------------
Net cash provided by operating activities 2,457,992 1,264,372
--------------- ----------------
Cash flows from investing activities:
Principal collected on loans 25,117,889 6,936,605
Loans made (31,639,959) (24,573,720)
Disposition of Limited Liability Corporation 0 508,358
Accounts receivables, unsecured - (disbursements) receipts (3,652) (3,248)
--------------- ----------------
Net cash used in investing activities (6,525,722) (17,132,005)
--------------- ----------------
Cash flows from financing activities:
Increase (decrease) in note payable-bank (3,575,000) 9,000,000
Contributions by partner applicants 9,982,341 7,116,985
Interest credited to partners in applicant status 295 4,587
Interest withdrawn by partners in applicant status (128) (716)
Partners withdrawals (1,557,802) (883,430)
Syndication costs incurred (144,160) (96,178)
Formation Loan increases (757,859) (541,678)
Formation Loan collections 154,608 115,477
--------------- ----------------
Net cash provided by financing activities 4,102,295 14,715,047
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 34,565 ( 1,152,586)
Cash - beginning of period 1,459,725 1,602,568
--------------- ----------------
Cash - end of period $1,494,290 $449,982
=============== ================
Cash paid for interest $637,841 $156,368
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California Limited Partnership (the
"Partnership"), was organized in 1993. 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 June 30, 2001, the Partnership was
in the offering stage, wherein contributed capital totaled $59,611,852 in
Limited Partner contributions of an approved aggregate offering of $75,000,000,
in Units. As of June 30, 2001, $343,667 remained in applicant status, and total
Units sold were in the aggregate of $59,955,519.
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 of June 30, 2001, $15,030,928 of
the Third Offering had been sold, with $14,687,261 of these sales contributed to
the Partnership and the remaining $343,667 awaiting admittance. 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 ("Initial Offering")
offering totaled $1,074,840, which was 7.2% of Limited Partners contributions of
$14,932,017. It is being 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) ("Second
Offering") totaled $2,271,916, which was 7.6% of the Limited Partners
contributions of $29,992,574. It is also being repaid, without interest, in ten
annual installments of principal, which commenced on January 1, 2001, following
the year the Second Offering closed, which was in 2000.
The Formation Loan relating to the third offering ($30,000,000) ("Third
Offering") totaled $1,136,013 at June 30, 2001, which was 7.7% of the Limited
Partners contributions of $14,687,261. 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. Upon completion of the
offering, the balance will be repaid in ten equal annual installments.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
The following summarizes Formation Loan transactions to June 30, 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 $14,687,261 $59,611,852
=========== =========== ============== =============
Formation Loan made $1,074,840 $2,271,916 $1,136,013 $4,482,769
Payments to date (404,727) (367,359) (18,908) (790,994)
Early withdrawal penalties applied (98,592) 0 0 (98,592)
------------ ------------ -------------- --------------
Balance June 30, 2001 $571,521 $1,904,557 $1,117,105 $3,593,183
============ ============ ============== ==============
Percent loaned of Partners'
Contributions 7.2% 7.6% 7.7% 7.5%
============ ============ ============== ==============
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, registration and filing
fees and other costs), are paid by the Partnership.
Through June 30, 2001, organization costs of $12,500 and syndication costs
of $1,541,003 had been incurred by the Partnership with the following
distribution:
Syndication
Costs Costs Total
-------------- ------------ ------------
Costs incurred $1,541,003 $12,500 $1,553,503
Early withdrawal
penalties applied (53,199) 0 (53,199)
Allocated and amortized to date (1,131,172) (12,500) (1,143,672)
--------------- ------------- ------------
June 30, 2001 balance $356,632 $0 $356,632
=============== ============== ============
Organization and syndication costs attributable to the Initial Offering
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%. Syndication costs attributable to
the Second Offering totaled $597,784, (2.0% of contributions).
In August 2000 the Third Offering began incurring syndication costs. As of
June 30, 2001 the offering had incurred $373,354 (2.5% of contributions), with
the costs of the offering being greater at the initial stages due to
professional and filing fees related to formulating the offering documents. The
syndication costs payable by the Partnership are estimated to be $1,200,000 if
the maximum is sold (4% of $30,000,000). The General Partners will pay any
syndication expenses (excluding selling commissions) in excess of ten percent of
the gross proceeds or $1,200,000.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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 loans were consummated was 57.78%.
When a loan is valued for impairment purposes, an updating is made in the
valuation of collateral security. However, such a low loan to value ratio has
the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At June 30, 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
JUNE 30, 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 June
30, 2001 and December 31, 2000, was as follows:
June 30, December 31,
2001 2000
------------- ---------------
Impaired loans 0 0
Unspecified loans 1,650,194 1,291,151
Amounts receivable, unsecured 57,490 53,787
------------- ---------------
$1,707,684 $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
JUNE 30, 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 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 six months through June 30,
2001, and for the years ended December 31, 2000 and 1999, loan brokerage
commissions paid by the borrowers were $776,400, $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 $292,088, $505,823, $359,464 and
$295,052 were incurred for the six months through June 30, 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 $65,450, $60,595, $42,215 and $31,651 were
incurred for the six months through June 30, 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 are reimbursed by the Partnership for all operating
expenses actually incurred by them on behalf of the Partnership, including
without limitation, out-of-pocket general and administration expenses of the
Partnership, accounting and audit fees, legal fees and expenses, postage and
preparation of reports to Limited Partners. Such reimbursements are reflected as
expenses in the Statement of Income.
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering are admitted to Limited
Partner capital. As of June 30, 2001, a General Partner, Gymno Corporation, had
contributed $59,943, 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
JUNE 30, 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 six-month period ending June 30, 2001, and for the years ending
December 31, 2000, 1999 and 1998, interest totaling $295, $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
JUNE 30, 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
In the normal course of business we may become involved in various types of
legal proceedings such as assignments of rents, bankruptcy proceedings,
appointments of receivers, unlawful detainers, judicial foreclosures, etc, to
enforce the provisions of the deeds of trust, collect the debt owed under the
promissory notes or to protect/recoup the Partnership's investment from the real
property secured by the deeds. None of these actions would typically be of any
material importance. As of the date hereof, we are not involved in any legal
proceedings other than those that would be considered part of the normal course
of business.
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 $12,825,000, $16,400,000 and $0 at June 30, 2001, December 31,
2000, and 1999, respectively. The interest rate was 7.00% at June 30, 2001
(6.75% prime plus .25%).
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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. The LLC was
closed and the assets were transferred to the Partnership.
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:
June 30, December 31,
2001 2000
--------------- ----------------
Net Assets - partners' capital per
financial statements $63,618,608 $53,227,353
Non-amortized syndication costs 356,632 313,574
Allowance for doubtful accounts 1,707,684 1,344,938
Formation loans receivable 3,593,183 3,010,871
-------------- ----------------
Net assets tax basis $69,276,107 $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 was $75,093,062 at June 30, 2001.
The fair value of these investments of $75,984,586 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
JUNE 30, 2001
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At June 30, 2001, there were
75 loans outstanding with the following characteristics:
Number of loans outstanding 75
Total loans outstanding $75,093,062
Average loan outstanding $1,001,241
Average loan as percent of total 1.33%
Largest loan outstanding 7,000,000
Largest loan as percent of total 9.32%
Number of counties where security is located (all California) 14
Largest percentage of loans in one county 41.50%
Average loan to appraised value of security
at time loan was consummated 57.78%
Number of loans in foreclosure status 2
Amount of loans in foreclosure $416,789
The following loan categories were held at June 30, 2001 and December 31, 2000:
June 30, December 31,
------------ -------------
2001 2000
------------ -------------
First Trust Deeds $42,656,356 $37,806,032
Second Trust Deeds 29,307,751 29,799,535
Third Trust Deeds 3,128,955 965,425
------------ -------------
Total loans 75,093,062 68,570,992
Prior liens due other lenders 59,354,620 37,584,916
------------ -------------
Total debt $134,447,682 $106,155,908
============ =============
Appraised property value at time of loan $232,694,450 $193,420,663
============ =============
Total investments as a percent of appraisals 57.78% 54.88%
============ =============
Investments by Type of Property:
Owner occupied homes $9,468,275 $9,753,617
Non-Owner occupied homes 21,399,367 16,471,074
Apartments 7,770,707 8,458,610
Commercial 36,454,713 33,887,691
------------ -------------
$75,093,062 $68,570,992
============ =============
The interest rates on the loans range from 8.00% to 18.00% at June 30, 2001.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
Scheduled loan maturity dates are as follows:
Year Ending
December 31, Amount
---------------- -- -----------------
2001 $33,408,815
2002 25,684,068
2003 10,606,306
2004 863,001
2005 396,260
Thereafter 4,134,612
-----------------
$75,093,062
=================
The scheduled maturities for 2001 include approximately $12,789,302 in
loans, which are past maturity at June 30, 2001. Interest payments on nine of
these loans were delinquent.
The cash balance at June 30, 2001 of $1,494,290 was in one bank with
interest bearing balances totaling $1,318,754. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,394,290. This bank is the same
financial institution that has provided the Partnership with the $20,000,000
line of credit (LOC). At June 30, 2001, the LOC had a balance of $12,825,000. 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 June 30, 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 $15,030,928 for the third
offering, an aggregate of $59,955,519 (Limited Partners) as of June 30, 2001. Of
the $15,030,928 for the third offering $343,667 remained in applicant status.
At June 30, 2001, the Partnership's loans outstanding totaled $75,093,062.
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 $75,093,062 as of June 30, 2001, was the additional capital
admitted to the Partnership through sale of Limited Partnership Units and due to
the compounding of Limited Partner's earnings in their Capital Accounts.
Additional Limited Partners' Capital contributions have totaled $5,565,372,
$5,100,458, $9,520,806, $14,872,209 and $9,972,369 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 $1,913,685, for the years
ended December 31, 1997, 1998, 1999, and 2000, and the six months ended June 30,
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 six months ended June 30, 2001, to $2,613,008,
$3,376,293, $4,337,427, $6,261,470 and $4,330,580 respectively. Interest rates
on loans ranged from 8.00% to 18.00%. The Partnership began funding loans on
April 14, 1993 and as of June 30, 2001, distributed earnings at an average
annualized yield of 8.42%.
Since the fall of 1999, mortgage interest rates had 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 six successive cuts, ranging
from .25% to .50%. The latest cut being June 27, 2001, which reduced the Federal
Funds Rate to 3.75%. 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 anticipate that
rates charged by the Partnership to its borrowers will be somewhat lower than
the first half of 2001. The General Partners anticipate that new loans will be
placed at rates approximately 1% lower than similar loans during the first half
of 2001. 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 take advantage of these lower rates. The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage 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 somewhat lower interest rates. At this time, we believe that the
average loan portfolio interest rate will decline approximately .25% to .50%
over the remainder of the year. Nevertheless, based upon the rates payable in
connection with the existing loans, 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 quarter percent (8.50% - 9.25%) for the remainder of 2001.
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 six months through June 30, 2001, interest on Note Payable-Bank was
$340,633, $513,566, $526,697, $887,546 and $637,841, respectively. For 1997,
1998, 1999, 2000, and six months through June 30, 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 June 30,
2001, the balance was $12,825,000 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 $292,088 for the years ended December 31, 1997, 1998, 1999,
2000 and six months through June 30, 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 $65,450
for the years ended December 31, 1997, 1998, 1999, 2000, and six months through
June 30, 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. Cash is
constantly being generated from interest earnings, late charges, pre-payment
penalties, principal and loan pay-offs. 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. At June 30, 2001, the
Partnership had initiated foreclosure proceedings against two borrowers.
Foreclosures are a normal aspect of the lending business and occur as an
enforcement tool to the provisions of the notes and deeds of trust. In 1997,
1998, 1999, 2000, and the six months through June 30, 2001, the Partnership made
provisions for doubtful accounts of $139,804, $162,969, $408,890, $375,579, and
$362,746, respectively. These provisions for doubtful accounts were made
primarily as a prudent action to guard against losses. The provision for
doubtful accounts as of June 30, 2001, of $1,707,684 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 June
30, 2001, approximately 81%, ($61,096,672) 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.
The United States economy has slowed from the robust Gross Domestic Product
growth levels of 4.2% in 1999 and 5.0% in 2000 to a growth rate of 1.2% and .7%
for the 1st and 2nd quarter of 2001. In response to the slow down in economic
activity, the Federal Reserve has been acting primarily through reductions in
the Federal Funds rates to stimulate the United States economy. Their interest
rate cuts have lowered the Federal Funds rate from 6.5% to 3.75% or 42% over the
course of the first half of 2001. Like the rest of the nation, the San Francisco
Bay Area has also felt the slow down in economic growth. The technology
companies of Silicon Valley and other industries are feeling the effects of the
overall US economy slowdown, which include lower earnings, losses and layoffs.
The Northern California real estate market and particularly the San Francisco
Bay Area real estate marketplace experienced increases in values of over 10% in
1999 and in 2000. Throughout 2000, in the San Francisco Bay Area residential
marketplace, offers for residential real estate were often at or above asking
price. The residential market has slowed and is returning to a more normal
market, wherein buyers and sellers negotiate the terms of a sale without undue
influence from other buyers desiring the property. This has resulted in longer
listing and transaction times. According to DataQuick Information Systems, April
2001, the number of home sales for the San Francisco Bay Area, were 15.8% lower
than the previous April, yet the median sales price increased 9.4% to $394,000
during this same period. In our opinion mid priced and lower end homes have
continued to increase in value although at a reduced rate from 2000, while the
high end homes have begun to decrease in value. The Partnership may experience
higher delinquencies due to layoffs or from borrowers who need to sell their
homes in order to repay their debt not anticipating currently existing
transaction times.
For commercial properties vacancy rates continued to increase as space
absorption has slowed and sub lease space has been put on the market. According
to Grubb and Ellis vacancy in Class A and B space in San Francisco reached 7.7
percent at the end of the lst quarter of 2001. Vacancy rates for other cities in
the San Francisco Bay Area followed a similar trend. According to Grubb and
Ellis, one indication that the bottom of the market may be reached soon is that
the rate of increase in the vacancy rate has slowed. After increasing by nearly
2 percentage points a month during the first quarter, the vacancy rate increased
at less than 1 percent a month during the second quarter. The Partnership may
experience delinquencies in its commercial portion of the portfolio if
landlord's existing leases expire or space becomes available through business
failures or the completion of building renovations.
The Partnership had an average loan to value ratio computed as of the date
the loan was made of 57.78%, as of June 30, 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.
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 unknown. Stockholders, other utility companies and banks
that 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 six months through
June 30, 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 $890,715, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs' for the years ended December 31,
1997, 1998, 1999, and 2000, and six months through June 30, 2001, to Limited
Partners' capital accounts and not withdrawn was $1,119,465, $1,440,687,
$1,911,554, $2,751,266, and $1,824,585, 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
certain percentage of the Limited Partners to choose this provision. 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 June 30, 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 June 30, 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
Six months through
June 30, 2001 $890,715 * $671,701 $1,562,416
* 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 six months through June 30, 2001, $132,619,
$244,213, $411,838, $309,643, and $333,517 respectively were liquidated subject
to the 10% penalty for early withdrawal. This represents 0.63%, 0.90%, 1.11%,
.58%, and .52% (1.05% annualized) of the Limited Partners ending capital for the
years ended December 31, 1997, 1998, 1999, 2000, and six months through June 30,
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 six months through June 30, 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. Through December 31, 2000 and under Russ' stewardship,
Redwood Mortgage Investor's VIII raised $49,983,150 in Limited Partner Capital
contributions and at June 30, 2001 had $63,561,922 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. 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.
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").
The accounting firm of Caporicci, Cropper & Larson, LLP ("CCL"), the
successor in interest to Parodi & Cropper, CPA's, was retained as the
Partnership's independent public accountants when the Partnership commenced
operations in 1993. Bruce Cropper and John Cropper, formerly partners at CCL,
were the Partnership's principal contacts at CCL. Bruce Cropper and John Cropper
have been performing audit and accounting services for the benefit of the
Partnership's General Partners and their affiliates for over 18 years. Effective
as of December 31, 2000, CCL resigned from its engagement as the Partnership's
independent public accountants due to the withdrawal of Bruce Cropper and John
Cropper from the CCL partnership, making it necessary for the Partnership to
retain new independent public accountants. Bruce Cropper and John Cropper
subsequently joined the accounting firm of Armanino McKenna, LLP ("Armanino").
Based upon the long-standing relationship between the Partnership and Bruce
Cropper and John Cropper, the Partnership's General Partner determined that it
was in the best interest of the Partnership to retain Armanino as the
Partnership's independent public accountants, effective as of January 1, 2001.
The Partnership believes, and has been advised by Mr. John Cropper that he
concurs, that for the two fiscal years ended December 31, 2000, the Partnership
and CCL, as well as Armanino, did not have any disagreement on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
CCL, would have caused CCL to make reference in connection with its report on
the Partnership's financial statements to the subject matter of the
disagreement. The report of CCL on the Partnership's financial statements for
the years ending December 31, 1998 and December 31, 1999, as well as the report
of Armanino for the year ending December 31, 2000, did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During that period, there
were no "reportable events" within the meaning of Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Act of 1933.
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 six months ended June 30, 2001. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Description of Compensation
Entity Receiving Compensation and Services Rendered Amount
- --------------------------------------------------------------------------------
I. Redwood Mortgage Corp. Loan Servicing Fee for
servicing loans . . . . . . . $292,088
General Partners &/or Affiliates Asset Management Fee for
managing assets . . . . . . . $65,450
General Partners 1% interest in profits . . . $28,327
Less allocation of
syndication costs . . . . . $900
---------
$27,427
General Partners &/or Affiliates Portion of early withdrawal
penalties applied to reduce
Formation Loan . . . . . . . . $20,939
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 . . . . . . . . . . . . . . $776,400
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 . . . . $12,510
Gymno Corporation, Inc. Reconveyance Fee . . . . . . . . . . . . . . $2,134
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 . . . . . . . . . . . . . . . . . . . . . . . . . $116,345
LOAN PORTFOLIO SUMMARY AS OF JUNE 30, 2001
Partnership Highlights
First Trust Deeds $42,656,355.65
Appraised Value of Properties* 86,570,380.00
Total Investment as a % of Appraised Value 49.27%
First Trust Deed Loans 42,656,355.65
Second Trust Deed Loans 29,307,751.23
Third Trust Deed Loans 3,128,955.52
--------------------
$75,093,062.40
First Trust Deeds due other Lenders 50,327,216.33
Second Trust Deeds due other Lenders 9,027,404.00
--------------------
Total Debt $134,447,682.73
Appraised Property Value* $232,694,450.00
Total Investment as a % of Appraised Value 57.78%
Number of Loans Outstanding 75
Average Investment $1,001,240.83
Average Investment as a % of loans outstanding 1.33%
Largest Investment Outstanding $7,000,000.00
Largest Investment as a % of loans outstanding 9.32%
First Trust Deed Loans 56.80%
Second Trust Deed Loans 39.03%
Third Trust Deed Loans 4.17%
---------------
Total 100.00%
Loans by Type of Property
Amount Percent
------------------ ---------------
Owner Occupied Homes 9,468,274.74 12.61%
Non Owner Occupied Homes 21,399,366.64 28.50%
Apartments 7,770,707.44 10.35%
Commercial 36,454,713.58 48.54%
------------------ ---------------
Total 75,093,062.40 100.00%
Statement of Conditions of Loans.
Number of Loans in Foreclosure 2
*Values used are the appraised values utilized at the time the loan was
consummated.
Diversification by Total
County Loans Percent
San Francisco 31,163,715.88 41.50
San Mateo 8,811,696.17 11.73
Alameda 7,607,745.67 10.13
Santa Clara 6,731,859.01 8.96
Stanislaus 5,629,983.00 7.50
Marin 4,554,424.26 6.07
Los Angeles 3,551,697.03 4.73
Napa 2,356,024.44 3.14
Contra Costa 2,228,230.76 2.97
Placer 1,361,357.76 1.81
Lake 737,500.00 .98
Fresno 126,934.22 .17
Merced 181,894.20 .24
Riverside 50,000.00 .07
-------------------- ------------
Total $75,093,062.40 100.00%
==================== ============
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 7, 2000, relating to a change
by the Partnership's accountants in accounting firms. Another
Form 8-K was filed on February 13, 2001, relating to the
subsequent change by the Partnership's accountants to another
accounting firm. 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 and
Analysis" section. An Amended Form 8-K was filed on August 3,
2001 regarding the Partnership's change in Accountants as more
fully set forth under the section entitled "Management
Discussion and Analysis".
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 13th day of August
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 13th day of August 2001.
Signature Title Date
/S/ D. Russell Burwell
- -------------------------------
D. Russell Burwell General Partner August 13, 2001
/S/ Michael R. Burwell
- -------------------------------
Michael R. Burwell General Partner August 13, 2001
/S/ D. Russell Burwell
- -------------------------------
D. Russell Burwell President of Gymno Corporation, August 13, 2001
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno August 13, 2001
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
/S/ D. Russell Burwell
- -------------------------------
D. Russell Burwell President of Redwood Mortgage August 13, 2001
Corp., (Principal Executive
Officer); Director of Redwood
Mortgage Corp.
/S/ Michael R. Burwell
- -------------------------------
Michael R. Burwell Secretary/Treasurer of Redwood August 13, 2001
Mortgage Corp. (Principal
Financial and Accounting Officer);
Director of Redwood Mortgage Corp.