FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended September 30, 2001
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Commission file number 000-27816
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REDWOOD MORTGAGE INVESTORS VIII
- --------------------------------------------------------------------------------
(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
SEPTEMBER 30, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
ASSETS
September 30, December 31,
2001 2000
(unaudited) (audited)
------------- --------------
Cash $2,511,523 $1,459,725
-------------- --------------
Accounts receivable:
Loans, secured by deeds of trust 77,379,705 68,570,992
Accrued Interest on loans 2,385,102 1,039,469
Advances on loans 123,229 172,004
Accounts receivables, unsecured 58,353 53,838
------------- --------------
79,946,389 69,836,303
Less allowance for doubtful accounts 1,933,198 1,344,938
------------- --------------
78,013,191 68,491,365
------------- --------------
Prepaid expense-deferred loan fee 9,509 13,416
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Total assets $80,534,223 $69,964,506
============= ==============
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2001 (unaudited) AND
DECEMBER 31, 2000 (audited)
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
2001 2000
(unaudited) (audited)
---------------- --------------
Liabilities:
Accounts payable and accrued expenses $0 $30,000
Note payable - bank line of credit 11,025,000 16,400,000
Deferred interest income 0 82,253
---------------- --------------
Total liabilities 11,025,000 16,512,253
---------------- --------------
Investors in applicant status 188,000 224,900
---------------- --------------
Partners' Capital:
Limited Partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $338,749 and $310,438
for 2001 and 2000, respectively:
and formation loan receivable
of $3,870,075 and $3,010,871
for 2001 and 2000, respectively 69,259,223 53,180,209
General Partners' Capital, net of unallocated
syndication costs of $3,422 and $3,136
for 2001 and 2000, respectively 62,000 47,144
---------------- ---------------
Total Partners' Capital 69,321,223 53,227,353
---------------- ---------------
Total Liabilities and Partners' Capital $80,534,223 $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 NINE AND THREE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000 (unaudited)
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
----------------- ---------------- ---------------- ----------------
Revenues:
Interest on loans $6,586,982 $4,281,466 $2,256,402 $1,831,942
Interest on bank deposits 7,234 11,025 2,085 1,478
Late charges 10,950 48,348 5,502 41,883
Miscellaneous 5,427 9,875 550 8,825
----------------- ---------------- ---------------- ----------------
6,610,593 4,350,714 2,264,539 1,884,128
----------------- ---------------- ---------------- ----------------
Expenses:
Loan servicing fees 422,658 355,819 130,570 197,693
Interest on note payable - bank 838,669 509,733 200,828 353,365
Amortization of loan origination fees 10,156 8,490 3,385 3,698
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 588,260 207,555 225,514 158,896
Asset management fee - General Partners 110,048 43,204 44,598 15,881
Clerical costs through Redwood Mortgage
Corp. 177,929 80,277 61,584 27,806
Professional services 9,867 32,456 2,051 750
Printing, supplies and postage 21,513 14,171 7,083 5,081
Other 9,565 8,564 20 12
----------------- ---------------- ---------------- ----------------
2,188,665 1,260,269 675,633 763,182
----------------- ---------------- ---------------- ----------------
Income before interest credited to partners in
applicant status 4,421,928 3,090,445 1,588,906 1,120,946
Interest credited to partners in applicant status 565 4,651 270 64
----------------- ---------------- ---------------- ----------------
Net Income $4,421,363 $3,085,794 $1,588,636 $1,120,882
================= ================ ================ ================
Net income: To General Partners(1%) $44,213 $30,858 $15,886 $11,209
To Limited Partners (99%) 4,377,150 3,054,936 1,572,750 1,109,673
----------------- ---------------- ---------------- ----------------
Total - net income $4,421,363 $3,085,794 $1,588,636 $1,120,882
================= ================ ================ ================
Net income per $1,000 invested by Limited Partners for entire period:
- -where income is reinvested and compounded $67.07 $63.31 $21.74 $20.80
================= ================ ================ ================
- -where partner receives income in monthly
distributions $65.15 $61.60 $21.59 $20.66
================= ================ ================ ================
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
NINE MONTHS ENDED SEPTEMBER 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
NINE MONTHS ENDED SEPTEMBER 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 15,157,435 0 0 0 0
Formation Loan increases 0 0 0 ( 1,122,355 ) ( 1,122,355 )
Formation Loan payments 0 0 0 229,579 229,579
Interest credited to partners in
applicant status 565 0 0 0 0
Upon admission to Partnership:
Interest withdrawn ( 254 ) 0 0 0 0
Transfers to Partners' capital ( 15,194,646 ) 15,179,504 0 0 15,179,504
Net Income 0 4,377,150 0 0 4,377,150
Syndication costs incurred 0 0 ( 179,583 ) 0 ( 179,583 )
Allocation of syndication costs 0 ( 133,650 ) 133,650 0 0
Partners' withdrawals 0 ( 2,405,103 ) 0 0 ( 2,405,103 )
Early withdrawal penalties 0 ( 51,372 ) 17,622 33,572 ( 178 )
-------------- --------------- -------------- -------------- --------------- --
Balances at September 30, 2001 $188,000 $73,468,047 $( 338,749 ) $( 3,870,075 ) $69,259,223
============== =============== ============== ============== =============== ==
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
NINE MONTHS ENDED SEPTEMBER 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 THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
NINE MONTHS ENDED SEPTEMBER 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 ( 1,122,355 )
Formation Loan payments 0 0 0 229,579
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 15,142 0 15,142 15,194,646
Net Income 44,213 0 44,213 4,421,363
Syndication costs incurred 0 ( 1,814 ) ( 1,814 ) ( 181,397 )
Allocation of syndication costs ( 1,350 ) 1,350 0 0
Partners' withdrawals ( 42,863 ) 0 ( 42,863 ) ( 2,447,966 )
Early withdrawal penalties 0 178 178 0
---------------- ----------------- ------------------ ---------------- --
Balances at September 30, 2001 $65,422 $( 3,422 ) $62,000 $69,321,223
================ ================= ================== ================ ==
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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (unaudited)
September 30 September 30
2001 2000
(unaudited) (unaudited)
--------------- -------------
Cash flows from operating activities:
Net income $4,421,363 $3,085,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 588,260 207,555
Change in operating assets and liabilities
Accounts payable ( 30,000 ) 470,587
Accrued interest & advances ( 1,296,858 ) 4,998
Deferred loan fee 3,907 ( 10,261 )
Deferred interest income ( 82,253 ) ( 213,529 )
--------------- -------------
Net cash provided by operating activities 3,604,419 3,545,144
--------------- -------------
Cash flows from investing activities:
Principal collected on loa 30,904,966 13,345,305
Loans made ( 39,713,679 ) ( 43,681,421 )
Disposition of Limited Liability Corporation 0 508,358
Accounts receivables,
unsecured - (disbursements) receipts ( 4,515 ) ( 4,643 )
--------------- --------------
Net cash used in investing activities ( 8,813,228 ) ( 29,832,401 )
--------------- --------------
Cash flows from financing activities:
Increase (decrease) in note payable-bank ( 5,375,000 ) 15,000,000
Contributions by partner applicants 15,157,435 12,448,601
Interest credited to partners
in applicant status 565 4,651
Interest withdrawn by partners
in applicant status ( 254 ) ( 734 )
Partners withdrawals ( 2,447,966 ) ( 1,392,427 )
Syndication costs incurred ( 181,397 ) ( 150,944 )
Formation Loan increases ( 1,122,355 ) ( 889,153 )
Formation Loan collections 229,579 173,126
--------------- --------------
Netcash provided byfinancing activities 6,260,607 25,193,120
--------------- --------------
Net increase(decrease) in cash
and cash equivalents 1,051,798 ( 1,094,137 )
Cash - beginning of period 1,459,725 1,602,568
--------------- --------------
Cash - end of period $2,511,523 $508,431
=============== ==============
Cash paid for interest $838,669 $509,733
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California Limited Partnership (the
"Partnership"), was organized in 1993. 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 September 30, 2001, the Partnership was in
its third offering ($30,000,000), wherein contributed capital totaled
$20,200,852, of which $188,000 remained in applicant status. As of September 30,
2001, contributed capital of the two prior offerings totaled $44,924,591, which
brought the combined contributed capital to $65,125,443 of the aggregate
offering of $75,000,000, in Units.
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 September 30, 2001, $20,200,852
of the Third Offering had been sold, with $20,012,852 of these sales contributed
to the Partnership and the remaining $188,000 in applicant status 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, while others have elected to reinvest their earnings.
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 of $107,524, 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. As of 12/31/00 the remaining balance of this loan
was $2,006,313. It is also being repaid, without interest, in ten annual
installments of principal of $200,631, 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 $1,500,509 at September 30, 2001, which was 7.5% of the
Limited Partners contributions of $20,012,852. 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 their
experience of two prior offerings that 65% of investors will elect to reinvest
earnings. 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
SEPTEMBER 30, 2001
The following summarizes Formation Loan transactions to September 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 $20,012,852 $64,937,443
================ ============== ============== ================ ==
Formation Loan made $1,074,840 $2,271,916 $1,500,509 $4,847,265
Payments to date ( 420,087 ) ( 417,517 ) ( 28,361 ) ( 865,965 )
Early withdrawal penalties applied ( 111,225 ) 0 0 ( 111,225 )
---------------- -------------- -------------- ---------------- --
Balance September 30, 2001 $543,528 $1,854,399 $1,472,148 $3,870,075
================ ============== ============== ================ ==
Percent loaned of Partners'
Contributions 7.2% 7.6% 7.5% 7.5%
================ ============== ============== ================ ==
The Formation Loan, which is receivable from Redwood Mortgage Corp., a
General Partner, has been deducted from Limited Partners' Capital in the balance
sheet. As amounts are collected from Redwood Mortgage Corp., the deduction from
capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
applicable accountant fees, registration and filing fees and other costs), are
paid by the Partnership.
Through September 30, 2001, organization costs of $12,500 and syndication costs
of $1,578,240, relating to the two prior and current offerings had been incurred
by the Partnership with the following distribution:
Syndication
Costs Costs Total
----------------- -------------- -------------
Costs incurred $1,578,240 $12,500 $1,590,740
Early withdrawal penalties applied ( 59,897 ) 0 ( 59,897 )
Allocated and amortized to date ( 1,176,172 ) ( 12,500 ) ( 1,188,672 )
----------------- -------------- -------------
September 30, 2001 balance $342,171 $0 $342,171
================= ============== =============
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
September 30, 2001 the offering had incurred $410,591 (2.1% 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
SEPTEMBER 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 September 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 58.11%.
When a loan is valued for impairment purposes, an updating is made in the
valuation of collateral security. However, such a low loan to value ratio has
the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents For purposes of the statements of cash flows,
cash and cash equivalents include interest bearing and non-interest bearing bank
deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At September 30, 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
SEPTEMBER 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
September 30, 2001 and December 31, 2000, was as follows:
September 30, December 31,
2001 2000
------------------- -----------------
Impaired loans 0 0
Unspecified loans 1,874,845 1,291,151
Amounts receivable, unsecured 58,353 53,787
------------------- -----------------
$1,933,198 $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
SEPTEMBER 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 nine months through
September 30, 2001, and for the years ended December 31, 2000 and 1999, loan
brokerage commissions paid by the borrowers were $998,556, $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., a General Partner, 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 $422,658, $505,823,
$359,464 and $295,052 were incurred for the nine months through September 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 $110,048, $60,595, $42,215 and $31,651 were
incurred for the nine months through September 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 September 30, 2001, a General Partner, Gymno Corporation,
had contributed $65,113, 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
SEPTEMBER 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 nine-month period ending September 30, 2001, and for the years
ending December 31, 2000, 1999 and 1998, interest totaling $565, $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 to receive a distribution of earnings, but an investor's election
to have cash distributions is irrevocable.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 $11,025,000, $16,400,000 and $0 at September 30, 2001, December
31, 2000, and 1999, respectively. The interest rate was 6.25% at September 30,
2001 (6.00% prime plus .25%).
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
dissolved 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:
September 30, December 31,
2001 2000
------------------ ----------------
Net Assets - partners' capital
per financial statements $69,321,223 $53,227,353
Non-amortized syndication costs 342,171 313,574
Allowance for doubtful accounts 1,933,198 1,344,938
Formation loans receivable 3,870,075 3,010,871
------------------ -----------------
Net assets tax basis $75,466,667 $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 $77,379,705 at September 30,
2001. The fair value of these investments of $81,538,320 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
SEPTEMBER 30, 2001
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At September 30, 2001, there
were 71 loans outstanding with the following characteristics:
Number of loans outstanding 71
Total loans outstanding $77,379,705
Average loan outstanding $1,089,855
Average loan as percent of total 1.41%
Largest loan outstanding 7,000,000
Largest loan as percent of total 9.05%
Number of counties where security is located (all California) 12
Largest percentage of loans in one county 41.41%
Average loan to appraised value of security
at time loan was consummated 58.11%
Number of loans in foreclosure status 1
Amount of loans in foreclosure $289,855
The following loan categories were held at
September 30, 2001 and December 31, 2000:
September 30, December 31,
----------------- ----------------
2001 2000
----------------- ----------------
First Trust Deeds $42,030,764 $37,806,032
Second Trust Deeds 32,342,365 29,799,535
Third Trust Deeds 3,006,576 965,425
----------------- ----------------
Total loans 77,379,705 68,570,992
Prior liens due other lenders 58,424,785 37,584,916
----------------- ----------------
Total debt $135,804,490 $106,155,908
================= ================
Appraised property value at
time of loan $233,705,154 $193,420,663
================= ================
Total investments as a percent of appraisals 58.11% 54.88%
================= ================
Investments by Type of Property:
Owner occupied homes $9,977,266 $9,753,617
Non-Owner occupied homes 24,620,299 16,471,074
Apartments 7,032,073 8,458,610
Commercial 35,750,067 33,887,691
----------------- ----------------
$77,379,705 $68,570,992
================= ================
The interest rates on the loans range from 8.00% to 18.00% at September 30,
2001.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
Scheduled loan maturity dates are as follows:
Year Ending
December 31, Amount
---------------- -- -----------------
2001 $28,770,494
2002 29,045,578
2003 13,399,218
2004 1,314,408
2005 396,260
Thereafter 4,453,747
-----------------
$77,379,705
=================
The scheduled maturities for 2001 include approximately $18,631,958 in
loans, which are past maturity at September 30, 2001. Interest payments on
fifteen of these loans were delinquent.
The cash balance at September 30, 2001 of $2,511,523 was in one bank with
interest bearing balances totaling $2,012,250. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $2,411,523. This bank is the same
financial institution that has provided the Partnership with the $20,000,000
line of credit (LOC). At September 30, 2001, the LOC had a balance of
$11,025,000.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 2001, the Partnership was in the offering stage of its
third offering of $30,000,000. Contributed capital totaled $14,932,017 for the
first offering, $29,992,574 for the second offering and $20,200,852 for the
third offering and an aggregate of $65,125,443 (Limited Partners) as of
September 30, 2001. Of the $20,200,852 raised to September 30, 2001 in the third
offering $188,000 remained in applicant status.
At September 30, 2001, the Partnership's loans outstanding totaled
$77,379,705. 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 $77,379,705 as of September 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 $15,142,293 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
$2,975,537, for the years ended December 31, 1997, 1998, 1999, and 2000, and the
nine months ended September 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 nine months ended
September 30, 2001, to $2,613,008, $3,376,293, $4,337,427, $6,261,470 and
$6,586,982 respectively. Interest rates on loans ranged from 8.00% to 18.00%.
The Partnership began funding loans on April 14, 1993 and as of September 30,
2001, distributed earnings at an average annualized yield of 8.44%.
Between the fall of 1999 and January, 2001, 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 eight successive cuts,
ranging from .25% to .50%. The latest cut being October 2, 2001, which reduced
the Federal Funds Rate to 2.5%. 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 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. The rates charged by the Partnership are influenced by the level of
interest rates in the market, and thus 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 percent (8.50% - 9.00%) 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 nine months through September 30, 2001, interest on Note Payable-Bank
was $340,633, $513,566, $526,697, $887,546 and $838,669, respectively. For 1997,
1998, 1999, 2000, and nine months through September 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 September 30, 2001, the balance was $11,025,000 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 $422,658 for the years ended December 31, 1997, 1998, 1999,
2000 and nine months through September 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 $110,048 for the years ended December 31, 1997, 1998, 1999, 2000, and nine
months through September 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 September 30, 2001, the
Partnership had initiated foreclosure proceedings against one borrower.
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 nine months through September 30, 2001, the
Partnership made provisions for doubtful accounts of $139,804, $162,969,
$408,890, $375,579, and $588,260, respectively. These provisions for doubtful
accounts were made primarily as a prudent action to guard against losses. The
provision for doubtful accounts as of September 30, 2001, of $1,933,198 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 United States Economy had 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%
in the 1st and 2nd quarters to a decrease of .4% in the 3rd quarter of 2001.
Additionally, the United States was attacked by terrorists on September 11,
2001. Management is deeply saddened by the loss of life and property from these
attacks and is outraged at the perpetrators. Our thoughts and prayers go out to
all those who have been affected by this horrific event. President Bush has
declared war on the terrorists, and the United States has begun military actions
in Afghanistan in response. The terrorist attacks occurred on the East Coast of
the United States far removed from the operations of the Partnership. The
Partnership was not affected directly by these attacks. Indirectly, the
Partnership will feel the effects of the attacks. The terrorist attacks have
caused a further slowing of the United States economy, the extent of this slow
down and it's longevity is not yet known. Key to the Partnership is the ability
of borrowers to make the payments associated with their respective loans. In
response to the slow down in the United States economy, the Federal Reserve has
acted as noted primarily through reductions in the Federal Funds rates to
stimulate the United States economy. Their interest rate cuts have lowered the
Federal Funds rate form 6.5% to 2.5% or 66.67% over the course of 2001.
The Partnership makes loans primarily in Northern California. As of
September 30, 2001, approximately 83%, ($64,060,303) 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.
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
now the airline industry, the tourism industry 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 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, August 2001, residential real estate sales were 14.5% lower than the
previous year, with the six San Francisco Bay Area counties experiencing
residential sales transactions down between 7.0% and 29.1%. In spite of the
lower number of transactions, the median sales price for resale homes increased
by 4% from the previous year with variances of between minus 4.2% to a positive
16.7% for the six San Francisco Bay Area Counties. The General Partners believe,
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. Significant foreclosures and
the take back of the real estate security have not significantly manifested
themselves as borrowers have been able to handle their own financial affairs.
For commercial properties vacancy rates continued to increase as space
absorption has slowed and sub lease space has been put on the market. C.B.
Richard Ellis, reports office vacancy in the San Francisco Bay Area at an
approximately 14% level as of the 3rd quarter 2001. County variances range from
10.1% to 17.2% of total availability. Lease rates are down as landlords attempt
to attract tenants. "Despite the current conditions, many feel the cycle will
not be as deep as those seen during the 80's and 90's, where new supply, not
decreased demand, drove corrections." 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.
As of September 30, 2001, the Partnership had an average loan to value
ratio computed as of the date the loan was made of 58.11%. This did not account
for any increases or decreases 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 nine months through
September 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 $1,401,613, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs' for the years ended December 31,
1997, 1998, 1999, and 2000, and nine months
through September 30, 2001, to Limited Partners' capital accounts and not
withdrawn was $1,119,465, $1,440,687, $1,911,554, $2,751,266, and $2,841,887,
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 September 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 September 30, 2001 were:
Capital
liquidation
net of early
Earnings withdrawal
liquidation penalties Total
----------------- --------------- -------------
1993 $46,855 0 $46,855
1994 $165,814 0 $165,814
1995 $303,477 $5,077 $308,554
1996 $418,380 $134,647 $553,027
1997 $495,480 $119,357 $614,837
1998 $614,383 $233,278 $847,661
1999 $826,291 $552,633 $1,378,924
2000 $1,244,959 $731,635 $1,976,594
Nine months through
September 30, 2001 $1,401,613 $1,003,490 $2,405,103
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 nine months through September 30, 2001,
$132,619, $244,213, $411,838, $309,643, and $533,895 respectively were
liquidated subject to the 10% penalty for early withdrawal. This represents
0.63%, 0.90%, 1.11%, .58%, and .77 (.96% annualized) of the Limited Partners
ending capital for the years ended December 31, 1997, 1998, 1999, 2000, and nine
months through September 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 nine months through September 30, 2001, respectively, and is expected
by the General Partners to commonly occur at these levels.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership retired 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 September 30, 2001 had $69,259,223 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.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the General Partners have valued the limited partners' interest in
the Partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the Partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the Partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the Limited
Partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit 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, there is
no certainty that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, 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").
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus dated August 31, 2000, pages 20-23, under the section "Compensation
of the General Partners and the Affiliates," which is incorporated by reference.
Such compensation is summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the nine months ended September 30,
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 . . .. . . $422,658
General Partners
&/or Affiliates Asset Management Fee for
managing assets . . . . . . $110,048
General Partners 1% interest in profits . . . . $44,213
. . . . . . .
Less allocation of
syndication costs . . . . . . $1,350
---------------
$42,863
General Partners
&/or Affiliates Portion of early withdrawal penalties
applied to reduce Formation Loan . . . $33,572
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, evalu-
ation, negotiation, and extension of the loans
paid by the borrowers and not
by the Partnership . . . . . . $998,556
Redwood Mortgage Corp. Processing and Escrow Fees for services in
credit connection with notary, document prepar-
ation, investigation, and escrow fees payable
by the borrowers and not by
the Partnership . . . . . . . $15,899
Gymno Corporation, Inc. Reconveyance Fee . . . . . . $2,903
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. . . . . . . . . . . . . . . . . . . . .. $177,929
LOAN PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 2001
Partnership Highlights
First Trust Deeds $42,030,764.02
Appraised Value of Properties* 86,535,227.00
Total Investment as a % of Appraised Value 48.57%
First Trust Deed Loans 42,030,764.02
Second Trust Deed Loans 32,342,364.96
Third Trust Deed Loans 3,006,575.61
--------------------
$77,379,704.59
First Trust Deeds due other Lenders 50,309,381.33
Second Trust Deeds due other Lenders 8,115,404.00
--------------------
Total Debt $135,804,489.92
Appraised Property Value* $233,705,154.00
Total Investment as a % of Appraised Value 58.11%
Number of Loans Outstanding 71
Average Investment $1,089,854.99
Average Investment as a % of loans outstanding 1.41%
Largest Investment Outstanding $7,000,000.00
Largest Investment as a % of loans outstanding 9.05%
First Trust Deed Loans 54.32%
Second Trust Deed Loans 41.80%
Third Trust Deed Loans 3.88%
---------------
Total 100.00%
Loans by Type of Property
Amount Percent
------------------ ---------------
Owner Occupied Homes 9,977,266.42 12.89%
Non Owner Occupied Homes 24,620,298.54 31.82%
Apartments 7,032,073.17 9.09%
Commercial 35,750,066.46 46.20%
------------------ ---------------
Total 77,379,704.59 100.00%
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 32,041,964.60 41.41%
San Mateo 10,443,877.14 13.50%
Santa Clara 8,599,209.40 11.11%
Alameda 7,607,094.57 9.83%
Stanislaus 5,629,983.00 7.28%
Los Angeles 4,036,732.79 5.22%
Marin 3,140,055.40 4.06%
Napa 2,660,180.63 3.44%
Contra Costa 2,228,101.84 2.88%
Placer 760,934.55 .98%
Merced 181,570.67 .23%
Riverside 50,000.00 .06%
-------------------- ------------
Total $77,379,704.59 100.00%
==================== ============
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
November 2001.
REDWOOD MORTGAGE INVESTORS VIII
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/ 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 November 2001.
Signature Title Date
/S/ Michael R. Burwell
- -----------------------------
Michael R. Burwell General Partner November 13, 2001
/S/ D. Russell Burwell
- -----------------------------
D. Russell Burwell President of Gymno Corporation, November 13, 2001
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ----------------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 13, 2001
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ----------------------------
Michael R. Burwell Secretary/Treasurer of Redwood November 13, 2001
Mortgage Corp. (Principal
Financial and Accounting Officer);
Director of Redwood Mortgage Corp.