FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended March 31, 2002
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Commission file number 333-41410
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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
---------- ------------ -----------
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
1
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
MARCH 31, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
March 31, December 31,
2002 2001
---------------- ---------------
(unaudited) (audited)
Cash and cash equivalents $3,822,820 $1,916,578
---------------- ---------------
Loans
Loans secured by deeds of trust,
held to maturity 85,644,127 82,789,833
Loans, unsecured 3,967 3,967
---------------- ---------------
85,648,094 82,793,800
Less allowance for loan losses (2,473,553) (2,247,191)
---------------- ---------------
Net loans 83,174,541 80,546,609
---------------- ---------------
Interest and other receivables
Accrued interest and late fees 2,895,949 3,236,721
Advances on loans 213,603 194,655
---------------- ---------------
3,109,552 3,431,376
---------------- ---------------
Prepaid loan fees 2,739 6,123
---------------- ---------------
Total assets $90,109,652 $85,900,686
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $ 101,650 $ 73,889
Note payable - bank line of credit 10,000,000 11,400,000
-------------- --------------
Total liabilities 10,101,650 11,473,889
-------------- --------------
Investors in applicant status - 672,617
-------------- --------------
Partners' capital:
Limited partners' capital, subject to
redemption net of unallocated
syndication costs of $451,156 and
$399,249 for 2002 and 2001,
respectively and formation loan
receivable of $4,368,806 and
$4,126,430 for 2002 and 2001,
respectively 79,942,588 73,688,241
General partners' capital, net of
unallocated syndication costs of
$4,558 and $4,033 for 2002 and 2001,
respectively 65,414 65,939
-------------- --------------
Total partners' capital 80,008,002 73,754,180
-------------- --------------
Total liabilities and partners'
capital $90,109,652 $85,900,686
============== ==============
The accompanying notes are an integral part of the financial statements.
2
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2002 and 2001 (unaudited)
THREE MONTHS ENDED MARCH 31,
-------------------------------------
2002 2001
--------------- ---------------
(unaudited) (unaudited)
Revenues
Interest on loans $2,587,868 $2,138,539
Interest - interest bearing accounts 187 4,274
Late charges 12,764 3,706
Other 750 4,327
--------------- ---------------
2,601,569 2,150,846
--------------- ---------------
Expenses
Mortgage servicing fees 243,348 146,862
Interest on note payable - bank 134,403 386,249
Amortization of loan origination fees 3,384 3,385
Provision for losses on loans and
real estate acquired through foreclosure 226,365 166,661
Asset management fees 75,970 24,832
Clerical costs through Redwood Mortgage Corp. 65,195 56,804
Professional services 37,087 5,000
Printing, supplies and postage 3,810 4,250
Other 9,432 7,666
--------------- ---------------
798,994 801,709
--------------- ---------------
Other income (expense)
Interest credited to partners in
applicant status (858) (198)
--------------- ---------------
Net income $1,801,717 $1,348,939
=============== ===============
Net income: general partners (1%) $ 18,017 $ 13,489
limited partners (99%) 1,783,700 1,335,450
--------------- ---------------
Total - net income $1,801,717 $1,348,939
=============== ===============
Net income per $1,000 invested by limited
partners for entire period
Where income is reinvested and
compounded $21 $22
=============== ===============
Where partner receives income in
monthly distributions $21 $22
=============== ===============
The accompanying notes are an integral part of the financial statements.
3
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, and 2000 (audited)
and THREE MONTHS ENDED MARCH 31, 2002 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status partners Costs Receivable Total
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 1999 $ 330,000 $39,531,025 $ (342,334) $ (2,158,674) $37,030,017
Contributions on application 14,887,081 - - - -
Formation loan increases - - - (1,102,196) (1,102,196)
Formation loan payments - - - 230,116 230,116
Interest credited to partners
in applicant status 4,757 - - - -
Upon admission to partnership:
Interest withdrawn (779) - - - -
Transfers to partners' capital (14,996,159) 14,981,287 - - 14,981,287
Net income - 4,244,586 - - 4,244,586
Syndication costs incurred - - (226,903) - (226,903)
Allocation of syndication costs - (248,361) 248,361 - -
Partners' withdrawals - (1,976,594) - - (1,976,594)
Early withdrawal penalties - (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 19,712,488 - - - -
Formation loan increases - - - (1,461,530) (1,461,530)
Formation loan payments - - - 299,987 299,987
Interest credited to partners
in applicant status 800 - - - -
Upon admission to partnership:
Interest withdrawn (409) - - - -
Transfers to partners' capital (19,265,162) 19,245,470 - - 19,245,470
Net income 6,032,400 - 6,032,400
Syndication costs incurred - (291,149) - (291,149)
Allocation of syndication costs - (178,200) 178,200 - -
Partners' withdrawals - (3,316,902) - - (3,316,902)
Early withdrawal penalties - (70,366) 24,138 45,984 (244)
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 2001 $ 672,617 $78,213,920 $ (399,249) $ (4,126,430) $73,688,241
4
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, and 2000 (audited)
and THREE MONTHS ENDED MARCH 31, 2002 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status partners Costs Receivable Total
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 2001 $ 672,617 $78,213,920 $ (399,249) $ (4,126,430) $73,688,241
Contributions on application 5,066,280 - - - -
Formation loan increases - - - (364,461) (364,461)
Formation loan payments - - - 113,520 113,520
Interest credited to partners
in applicant status 858 - - - -
Upon admission to partnership:
Interest withdrawn (382) - - - -
Transfers to partners' capital (5,739,373) 5,739,373 - - 5,739,373
Net income - 1,783,700 - - 1,783,700
Syndication costs incurred - - (99,151) - (99,151)
Allocation of syndication costs - (44,550) 44,550 - -
Partners' withdrawals - (918,607) - - (918,607)
Early withdrawal penalties - (11,286) 2,694 8,565 (27)
------------- ---------------- --------------- --------------- --------------
Balances at March 31, 2002 $ 0 $84,762,550 $ (451,156) $ (4,368,806) $79,942,588
============= ================ =============== =============== ==============
The accompanying notes are an integral part of the financial statements
5
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, and 2000 (audited)
and THREE MONTHS ENDED MARCH 31, 2002 (unaudited)
PARTNERS' CAPITAL
----------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------
Capital
Account Unallocated
General Syndication Total Partners'
Partners Costs Total Capital
-------------- -------------- --------------- ------------------
Balances at December 31, 1999 $ 35,408 $ (3,458) $ 31,950 $ 37,061,967
Contributions on application - - - -
Formation loan increases - - - (1,102,196)
Formation loan payments - - - 230,116
Interest credited to partners in
applicant status - - - -
Upon admission to partnership:
Interest withdrawn - - - -
Transfers to partners' capital 14,872 - 14,872 14,996,159
Net income 42,875 - 42,875 4,287,461
Syndication costs incurred - (2,291) (2,291) (229,194)
Allocation of syndication costs (2,509) 2,509 - -
Partners' withdrawals (40,366) - (40,366) (2,016,960)
Early withdrawal penalties - 104 104 -
-------------- -------------- --------------- ------------------
Balances at December 31, 2000 50,280 (3,136) 47,144 53,227,353
Contributions on application - - - -
Formation loan increases - - - (1,461,530)
Formation loan payments - - - 299,987
Interest credited to partners in
applicant status - - - -
Upon admission to partnership:
Interest withdrawn - - - -
Transfers to partners' capital 19,692 - 19,692 19,265,162
Net income 60,933 - 60,933 6,093,333
Syndication costs incurred - (2,941) (2,941) (294,090)
Allocation of syndication costs (1,800) 1,800 - -
Partners' withdrawals (59,133) - (59,133) (3,376,035)
Early withdrawal penalties - 244 244 -
-------------- -------------- --------------- ------------------
Balances at December 31, 2001 $ 69,972 $ (4,033) $ 65,939 $ 73,754,180
6
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, and 2000 (audited)
and THREE MONTHS ENDED MARCH 31, 2002 (unaudited)
PARTNERS' CAPITAL
----------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------
Capital
Account Unallocated
General Syndication Total Partners'
Partners Costs Total Capital
-------------- -------------- --------------- -------------------
Balances at December 31, 2001 $ 69,972 $ (4,033) $ 65,939 $ 73,754,180
Contributions on application - - - -
Formation loan increases - - - (364,461)
Formation loan payments - - - 113,520
Interest credited to partners in
applicant status - - - -
Upon admission to partnership:
Interest withdrawn - - - -
Transfers to partners' capital - - - 5,739,373
Net income 18,017 - 18,017 1,801,717
Syndication costs incurred - (1,002) (1,002) (100,153)
Allocation of syndication costs (450) 450 - -
Partners' withdrawals (17,567) - (17,567) (936,174)
Early withdrawal penalties - 27 27 -
-------------- -------------- --------------- -------------------
Balances at March 31, 2002 $ 69,972 $ (4,558) $ 65,414 $ 80,008,002
============== ============== =============== ===================
The accompanying notes are an integral part of the financial statements
7
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited)
2002 2001
-------------- ---------------
Cash flows from operating activities
Net income $1,801,717 $1,348,939
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for doubtful accounts 226,365 166,661
Change in operating assets and liabilities
Accrued interest and advances, less
transfers to allowance for doubtful
accounts 260,459 (192,604)
Deferred interest - (82,253)
Prepaid loan fees 3,384 (2,864)
Accounts payable 27,761 (26,851)
--------------- ---------------
Net cash provided by operating activities 2,319,686 1,211,028
--------------- ---------------
Cash flows from investing activities
Loans made (13,834,165) (20,309,277)
Principal collected on loans 11,041,233 16,377,021
Payments for purchases of real estate - (176)
--------------- ---------------
Net cash used in investing activities (2,792,932) (3,932,432)
--------------- ---------------
Cash flows from financing activities
Borrowings (repayments) on line of credit,
net (1,400,000) (1,025,000)
Contributions by partner applicants 5,066,280 4,624,310
Interest credited to partners in applicant
status 858 198
Interest withdrawn by partners in applicant
status (382) (93)
Partners' withdrawals (936,174) (732,438)
Syndication costs incurred (100,153) (80,780)
Formation loan lending (364,461) (342,538)
Formation loan collections 113,520 77,532
---------------- ---------------
Net cash provided by financing activities 2,379,488 2,521,191
Net increase (decrease) in cash and cash
equivalents 1,906,242 (200,213)
Cash and cash equivalents - beginning of
year 1,916,578 1,459,725
---------------- ---------------
Cash and cash equivalents - end of year $3,822,820 $1,259,512
================ ===============
Cash paid for interest $ 134,403 $ 386,249
================ ===============
The accompanying notes are an integral part of these financial statements.
8
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California limited partnership (the
"Partnership"), was organized in 1993 of which Michael R. Burwell, an
individual, and Gymno Corporation and Redwood Mortgage Corp., both California
Corporations, are the general partners. The Partnership was organized to engage
in business as a mortgage lender for the primary purpose of making loans secured
by Deeds of Trust on California real estate. Loans are being arranged and
serviced by Redwood Mortgage Corp., a general partner. At March 31, 2002 and at
December 31, 2001 and 2000, the Partnership was in the offering stage, wherein
contributed capital totaled $74,742,227, $69,003,330 and $49,758,250,
respectively, in limited partner contributions of an approved aggregate offering
of $75,000,000, in Units of one dollar each. As of March 31, 2002, and December
31, 2001 and 2000, $0, $672,617 and $224,900, respectively, remained in
applicant status, and total Units sold were in the aggregate of $74,742,227,
$69,675,947 and $49,983,150, respectively. At December 31, 2001, the general
partners, Redwood Mortgage Corp. and Michael R. Burwell, have stockholder's
equity and net worth respectively in excess of $1,000,000 each. Gymno
Corporation, the Corporate General Partner, has stockholder's equity in excess
of $100,000. The material assets of Michael R. Burwell are not considered
readily marketable.
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), which was still open as of March 31,
2002. 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., one of the general partners,
amounts to pay all sales commissions and amounts payable in connection with
unsolicited orders. This loan is referred to as the "Formation Loan". It is
unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totaled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017 at
December 31, 1996. It is to be repaid, without interest, in ten annual
installments of principal, which commenced on January 1, 1997, following the
year the initial offering closed.
The Formation Loan relating to the second offering ($30,000,000) totaled
$2,271,916, which was 7.6% of limited partners contributions of $29,992,574 at
December 31, 2000. It is to be repaid, without interest, in ten annual
installments of principal, which commenced on January 1, 2001, following the
year the second offering closed.
The Formation Loan relating to the third offering ($30,000,000) totaled
$2,204,145, which was 7.4% of the limited partners contributions of $29,817,636
at March 31, 2002. It is to be repaid, without interest, in ten annual
installments of principal, which will commence on January 1, 2003. The third
offering closed in April, 2002 and total amount subscribed by the limited
partners was $29,998,623..
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.
9
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL(Continued)
The following summarizes Formation Loan transactions to March 31, 2002:
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 $29,817,636 $ 74,742,227
=============== ============== ============== ================
Formation Loan made $1,074,840 $2,271,916 $ 2,204,145 $ 5,550,901
Payments to date (456,050) (514,406) (79,436) (1,049,892)
Early withdrawal penalties applied (48,663) (59,532) (24,008) (132,203)
--------------- -------------- -------------- ----------------
Balance March 31, 2002 $ 570,127 $1,697,978 $ 2,100,701 $ 4,368,806
=============== ============== ============== ================
Percent loaned of partners'
Contributions 7.2% 7.6% 7.4% 7.4%
=============== ============== ============== ================
The Formation Loan, which is receivable from Redwood Mortgage Corp., one 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. Syndication Costs - The Partnership bears its own syndication costs,
other than certain sales commissions, including legal and accounting expenses,
printing costs, selling expenses, and filing fees. Syndication costs are charged
against partners' capital and are being allocated to the individual partners
consistent with the partnership agreement.
Through March 31, 2002, syndication costs of $1,791,086 had been incurred
by the Partnership with the following distribution:
Syndication
Costs
-----------------
Costs incurred $ 1,791,086
Early withdrawal penalties applied (69,200)
Allocated and amortized to date (1,266,172)
-----------------
March 31, 2002 balance $ 455,714
=================
Syndication costs attributable to the initial offering ($15,000,000) were
limited to the lesser of 10% of the gross proceeds or $600,000 with any excess
being paid by the general partners. Applicable gross proceeds were $14,932,017.
Related expenditures totaled $582,365 ($569,865 syndication costs plus $12,500
organization expense) or 3.90%.
Syndication costs attributable to the subsequent second offering
($30,000,000) were limited to the lessor of 10% of the gross proceeds or
$1,200,000 with any excess being paid by the general partners. Gross proceeds of
the second offering were $29,992,574. Syndication costs totaled $597,784 or 2.0%
of contributions.
In August 2000, the third offering began incurring syndication costs. As of
March 31, 2002, and December 31, 2001 and 2000 the offering had incurred
$623,437 (2.09% of contributions), $523,284 (2.11% of contributions), and
$229,195 (4.7% of contributions), respectively, 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 were 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, whichever is higher.
10
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis - Revenues and expenses are accounted for on the accrual
basis of accounting wherein revenue is recognized as earned and expenses are
recognized as incurred. Once a loan is categorized as impaired, interest is no
longer accrued thereon. Any subsequent payments on impaired loans are applied to
the outstanding balances on the Partnership's books.
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 loan losses, 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). Loans are valued at cost for financial statement purposes with
interest thereon being accrued by the effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 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.
At March 31, 2002, and at December 31, 2001, and 2000, loans categorized as
impaired by the Partnership were $0, $710,235, and $0, respectively, with a
reduction in the carrying value of the impaired loans of $0, $87,903, and $0,
respectively. The reduction in the carrying value of the impaired loans is
included in the allowance for loan losses. During the year ended December 31,
2001, $66,037 was received as cash payments on these loans.
As presented in Note 10 to the financial statements, the average loan to
appraised value of security at the time the loans were consummated for loans
existing at March 31, 2002, and at December 31, 2001 and 2000 was 59.98%, 59.67%
and 54.88%, respectively. When loans are valued for impairment purposes, the
allowance is updated to reflect the change in the valuation of collateral
security. However, this loan to value ratio has the tendency to minimize
reductions for impairment.
D. Cash and Cash Equivalents - The Partnership considers all highly liquid
financial instruments with a maturity of three months or less to be cash
equivalents.
The Partnership maintains deposits in financial institutions that are in
excess of amounts that would be covered by federal insurance. The maximum amount
of loss based upon the deposits held in the bank that could result from this
risk at March 31, 2002, and at December 31, 2001 is approximately $3,083,208,
and $2,828,574, respectively. Cash balance per book was $3,822,820, the
difference being unprocessed transactions by the bank.
E. Real Estate Owned, Held for Sale - Real estate owned, held for sale,
includes real estate acquired through foreclosure and is stated at the lower of
the recorded investment in the property, net of any senior indebtedness, or at
the property's estimated fair value, less estimated costs to sell. At March 31,
2002, and December 31, 2001 there were no properties acquired by the Partnership
as real estate owned (REO).
F. Income Taxes - No provision for Federal and State income taxes (other
than an $800 state minimum tax) is made in the financial statements since income
taxes are the obligation of the partners if and when income taxes apply.
11
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------
G. 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 lossesto adjust the allowance for loan losses 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, late fees and advances on loans,
and other accounts receivable (unsecured). The composition of the allowance for
loan losses as of March 31, 2002, and December 31, 2001, and 2000 was as
follows:
March 31, December 31,
--------------- -------------------------------------
2002 2001 2000
--------------- --------------- ----------------
Impaired loans $ 0 $ 87,903 $ 0
Unspecified loans 2,469,586 2,155,321 1,291,150
Loans, unsecured 3,967 3,967 53,788
--------------- --------------- ----------------
$2,473,553 $ 2,247,191 $1,344,938
=============== =============== ================
Allowance for loan losses reconciliation: Activity in the allowance for
doubtful accounts is as follows for the three months through March 31, 2002, and
for the years ending December 31:
March 31, December 31,
-------------- --------------------------------
2002 2001 2000
-------------- -------------- --------------
Beginning Balance $2,247,191 $1,344,938 $ 834,359
Provision for bad debt 226,365 956,639 469,442
Write-off of bad debt (3) (54,386) (99,758)
Gain on sale of property - - 140,895
-------------- -------------- --------------
Ending Balance $2,473,553 $2,247,191 $1,344,938
============== ============== ==============
H. 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 quarterly or annual 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 selected
other options.
I. Late Fee Revenue - The Company recognizes late fee revenue when it is
earned. Late fees are charged at 6% of the monthly balance, and are accrued net
of an allowance for uncollectible late fees. For the three months ended March
31, 2002, and for the years ended December 31, 2001, and 2000, late fee revenue
of $12,764, $98,817, and $65,520, respectively, was recorded.
12
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees, which are paid to the general
partners.
A. Mortgage Brokerage Commissions - For fees in connection with the review,
selection, evaluation, negotiation and extension of loans the Partnership may
collect an amount equivalent to 12% of the loaned amount until 6 months after
the termination date of the offering. Thereafter, loan brokerage commissions
(points) will be limited to an amount not to exceed 4% of the total partnership
assets per year. The loan brokerage commissions are paid by the borrowers, and
thus, are not an expense of the Partnership. In 2002, 2001 and 2000, loan
brokerage commissions paid by the borrowers were $253,099, $1,155,636 and
$1,877,921, respectively.
B. Mortgage Servicing Fees - Monthly mortgage servicing fees of up to 1/8
of 1% (1.5% annual) are paid to Redwood Mortgage Corp. based on the collection
of payments from the borrowers. Mortgage servicing fees of $243,348, $552,323,
and $505,823 were incurred for the three months through March 31, 2002, and for
the years ended December 31, 2001, and 2000, 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% annually). Management fees of $75,970, $157,999,
and $60,595, were incurred for the three months through March 31, 2002, and for
years 2001, and 2000, 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 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 distribution
to the general partners (combined) shall be a total of 1%.
F. Operating Expenses - One of the general partners, Redwood Mortgage Corp.
is reimbursed by the Partnership for all operating expenses actually incurred by
it 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 statements of
income.
G. Contributed Capital - The general partners jointly or severally were to
contribute 1/10 of 1% of the cash contributions as proceeds from the offerings
are received from the limited partners. As of December 31, 2001 and 2000 a
general partner, Gymno Corporation, had contributed $69,972 and $50,280,
respectively, as capital in accordance with Section 4.02(a) of the partnership
agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
13
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued)
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
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 1-90 days, 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 periods ending March 31, 2002, December 31, 2001, and 2000,
interest totaling $858, $800, and $4,757, 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 year.
For years two through five, limited partners may withdraw their capital balance
subject to the penalty provision set forth in (E) below. Thereafter, partners
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% of the profits
and losses are allocated to the general partners.
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
14
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued)
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, which is one year from the
effective date of the prospectus, unless extended by the general partners for
additional one-year periods, the general partners shall guarantee an earnings
rate equal to the greater of actual earnings from mortgage operations or 2%
above The Weighted Average Cost of Funds Index for the Eleventh District Savings
Institutions (Savings & Loan & Thrift Institutions) as computed by the Federal
Home Loan Bank of San Francisco on a monthly basis, up to a maximum interest
rate of 12%. To date, actual realization exceeded the guaranteed amount for each
month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
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 $10,000,000, $11,400,000 and $16,400,000 at March 31, 2002,
December 31, 2001, and 2000, respectively. The interest rate was 5.0%, 5.0% and
9.75% at March 31, 2002, December 31, 2001 and 2000 respectively, (4.75%, 4.75%
and 9.50% prime plus .25%).
Should the general partners choose not to renew the line of credit, the
balance would be converted to a three year fully amortized loan.
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
contributed its interest (principally land) to a Limited Liability Corporation
(LLC), which was owned 100% by the Partnership. During the year ended December
31, 2000, the LLC completed construction and sold the property for a gain of
$140,895 which was added to the reserves during the year. During the year ended
December 31, 2001, the LLC was dissolved.
15
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
March 31, December 31,
--------------- ------------------------------------
2002 2001 2000
--------------- --------------- ---------------
Net Assets - partners' capital per financial statements $ 80,008,002 $ 73,754,180 $ 53,227,353
Non-amortized syndication costs 455,714 403,282 313,574
Allowance for loan losses 2,473,553 2,247,191 1,344,938
Formation loans receivable 4,368,806 4,126,430 3,010,871
--------------- ---------------
Net assets tax basis $ 87,306,075 $ 80,531,083 $ 57,896,736
=============== =============== ===============
In 2001 and 2000, approximately 48% and 54% 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) Secured loans (see note 2(c)) carrying value was $85,644,127,
$82,789,833 and $68,570,992 at March 31, 2002, December 31, 2001 and 2000,
respectively. The fair value of these investments of $86,652,883, $84,000,435
and $69,150,298 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 loan losses along with accrued interest
and advances related thereto should also be considered in evaluating the fair
value versus the carrying value.
16
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At March 31, 2002, December
31, 2001 and 2000, there were 79, 76 and 68 secured loans outstanding,
respectively, with the following characteristics:
March 31, December 31,
---------------- -----------------------------------
2002 2001 2000
---------------- --------------- ---------------
Number of loans outstanding 79 76 68
Total loans outstanding $85,644,127 $82,789,833 $68,570,992
Average loan outstanding $1,084,103 $1,089,340 $1,008,397
Average loan as percent of total 1.27% 1.32% 1.47%
Average loan as percent of partners' capital 1.35% 1.48% 1.89%
Largest loan outstanding $4,750,000 $7,000,000 $4,000,000
Largest loan as percent of total 5.55% 8.46% 5.83%
Largest loan as percent of partners' capital 5.94% 9.49% 7.51%
Number of counties where security is located (all California) 14 12 12
Largest percentage of loans in one county 40.34% 41.40% 41.72%
Average loan to appraised value of security
at time loan was consummated 59.98% 59.67% 54.88%
Number of loans in foreclosure status 6 3 0
Amount of loans in foreclosure $5,191,728 $1,050,790 0
The following loan categories were held at March 31, 2002, December 31, 2001 and
2000:
March 31, December 31,
----------------- ---------------------------------------
2002 2001 2000
----------------- ---------------- ----------------
First Trust Deeds $ 42,725,515 $ 42,984,020 $37,806,032
Second Trust Deeds 36,341,856 34,640,619 29,799,535
Third Trust Deeds 6,576,756 5,165,194 965,425
----------------- ---------------- ----------------
Total loans 85,644,127 82,789,833 68,570,992
Prior liens due other lenders 67,194,926 67,944,616 37,584,916
----------------- ---------------- ----------------
Total debt $ 152,839,053 $ 150,734,449 $ 106,155,908
----------------- ---------------- ----------------
Appraised property value at time of loan $ 254,821,931 $ 252,604,011 $ 193,420,663
----------------- ---------------- ----------------
59.98% 59.67% 54.88%
----------------- ---------------- ----------------
Investments by type of property
Owner occupied homes $17,208,627 $11,018,765 $ 9,753,617
Non-owner occupied homes 27,285,321 26,523,195 16,471,074
Apartments 7,482,427 7,336,898 8,458,610
Commercial 33,667,752 37,910,975 33,887,691
----------------- ---------------- ----------------
$85,644,127 $82,789,833 $68,570,992
================= ================ ================
17
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS (Continued)
The interest rates on the loans range from 7.50% to 18.00% at March 31, 2002.
Scheduled maturity dates of loans as of March 31, 2002 are as follows:
Year Ending
December 31, Amount
---------------- -----------------
2002 $44,410,743
2003 22,197,696
2004 9,284,957
2005 2,489,760
2006 2,761,136
Thereafter 4,499,835
-----------------
$85,644,127
=================
The scheduled maturities for 2002 include twenty-five loans totaling
$27,997,473, which are past maturity at March 31, 2002. Interest payments on
three of these loans were delinquent.
Cash deposits at March 31, 2002 of $3,183,208 were in one bank with
interest bearing balances totaling $1,651,020. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $3,083,208. This bank is the same
financial institution that has provided the Partnership with the $20,000,000
limit line of credit (LOC). At March 31, 2002, the LOC had a balance of
$10,000,000. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new loans
or used to pay-down the line of credit balance.
Workout Agreements - The Partnership has negotiated various contractual
workout agreements with borrowers whose loans are past maturity or who are
delinquent in making payments. The Partnership is not obligated to fund
additional money as of March 31, 2002. There are approximately 7 loans totaling
$9,341,381 in workout agreements as of March 31, 2002.
NOTE 11: SUBSEQUENT EVENTS
The Partnership is in the process of issuing a new offering for an
additional 50,000,000 units ($50,000,000).
NOTE 12: COMMITMENTS & CONTINGENCIES
Construction Loans - The Partnership has construction loans, which are at
various stages of completion of the construction process at March 31, 2002. The
Partnership has approved the borrowers up to a maximum loan balance; however,
disbursements are made during completion phases throughout the construction
process. At March 31, 2002, there were $7,744,450 of undistributed construction
loans which will be funded by a combination of borrower monthly mortgage
payments, line of credit draw down, and retirement of principal on current
loans.
18
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 13: SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
Revenues
2002 $2,601,569 - - - -
2001 $2,150,846 2,195,208 2,264,539 2,424,607 9,035,200
2000 $1,093,746 1,372,840 1,884,128 1,998,105 6,348,819
Expenses
2002 $ 798,994 - - - -
2001 $ 801,709 711,323 675,633 756,078 2,944,743
2000 $ 159,573 336,539 763,182 797,307 2,056,601
Other income (expenses)
2002 $ (858) - - - -
2001 $ (198) (97) (270) 3,441 2,876
2000 $ (4,460) (127) (64) (106) (4,757)
Net income allocated to general partners
2002 $ 18,017 - - - -
2001 $ 13,489 14,383 15,886 17,175 60,933
2000 $ 9,297 10,362 11,209 12,007 42,875
Net income allocated to limited partners
2002 $1,783,700 - - - -
2001 $1,335,450 1,468,950 1,572,750 1,655,250 6,032,400
2000 $ 920,416 1,025,812 1,109,673 1,188,685 4,244,586
Net income per $1,000 invested
Where income is
Reinvested
2002 $ 21 - - - -
2001 $ 22 $ 22 $ 22 $ 24 $ 90
2000 $ 21 $ 21 $ 21 $ 23 $ 86
Withdrawn
2002 $ 21 - - - -
2001 $ 22 $ 22 $ 22 $ 21 $ 87
2000 $ 20 $ 21 $ 21 $ 21 $ 83
19
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
NOTE 14: RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies.
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. Such estimates relate
principally to the determination of (1) the allowance for doubtful accounts
(i.e. the amount of allowance established against loans receivable as an
estimate of potential loan losses) including the accrued interest and advances
that are estimated to be unrecoverable based on estimates of amounts to be
collected plus estimates of the value of the property as collateral and (2) the
valuation of real estate acquired through foreclosure. At March 31, 2002, there
was no real estate acquired through foreclosure.
Loans and 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. Provisions are 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 and to provide for
unrecoverable accounts receivable, including impaired loans, other loans,
accrued interest, late fees and advances on loans, and other accounts receivable
(unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for doubtful accounts.
Actual results could vary from the aforementioned provisions for losses.
Forward Looking Statements.
Some of the information in the Form 10-Q may contain forward looking
statements. Uses of words such as "will", "may", "anticipate", "estimate",
"continue" or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of 2002 includes forward looking statements
and predictions about possible future events, results of operations and
financial condition. As such, this analysis may prove to be inaccurate because
of assumptions made by the general partners or the actual development of the
future events. No assurance can be given that any of these statements or
predictions will ultimately prove to be correct or substantially correct.
20
Management's Discussion and Analysis of Financial Condition and Results of
Operations
On March 31, 2002, the Partnership was in the offering stage of its third
offering, ($30,000,000). Contributed capital totaled $14,932,017 for the first
offering, $29,992,574 for the second offering, and $29,817,636 for the third
offering, an aggregate of $74,742,227 as of March 31, 2002. Of this amount, $0
remained in applicant status. In April 2002 the third offering was fully
subscribed with $29,998,623 in subscriptions received and accepted. We are in
the process of issuing a fourth offering anticipated to be in the amount of
$50,000,000.
Results of Operations.
The Partnership began funding loans on April 14, 1993 and as of March 31,
2002, distributed earnings to limited partners who have chosen to compound and
retain earnings at an average annualized yield of 8.44%.
The net income increase of $1,345,181 (46%) for the year ended December 31,
2000, $1,805,872 (42%) for the year ended December 31, 2001, and $452,778 (33%)
for the three months ended March 31, 2002, was primarily attributable to the
increase in loans held by the Partnership:
3 months through
December 31, March 31,
---------------------------------- ---------------
2000 2001 2002
--------------- --------------- ---------------
Loans outstanding $ 68,570,992 $ 82,789,833 $ 85,644,127
Interest earned on loans 6,261,470 $ 8,920,082 $ 2,587,868
The Partnership's ability to increase its loans was due to an increase in
the capital raised, the compounding of earnings by those limited partners who
have chosen to retain their earnings in the Partnership and by leveraging the
loans through the use of a credit line from a commercial bank. During the years
ended December 31, 2000, and 2001, and the three months through March 31, 2002,
the Partnership received new capital contributions and reinvested compounding
limited partner earnings of:
3 months through
December 31, March 31,
----------------------------------- ---------------
2000 2001 2002
---------------- ---------------- ---------------
Capital contribution $ 14,887,081 $ 19,712,488 $5,066,280
Compounding or
retainment of earnings $ 2,751,266 $ 3,892,420 $1,130,511
21
In 1995, the Partnership established a line of credit with a commercial
bank secured by its loan portfolio. This credit line is in an amount of up to
$20,000,000.As of March 31, 2002, the Partnership had borrowed $10,000,000 at an
interest rate of prime +.25% (5.0%). For the years ended December 31, 2000, and
2001, and three months through March 31, 2002, interest on note payable-bank was
$526,697, $887,546, $971,901, and $134,403, respectively. From 2000 through
December 31, 2001, the increase in interest on notes payable-bank has been
attributed to a higher overall credit facility utilization. For the three months
ended March 31, 2002 the reduction in interest expense is due primarily to a
reduction in the interest rate charged on the line of credit from 9% to 5%. This
added source of funds will help in maximizing the Partnership's yield by
allowing the Partnership to minimize the amount of funds in lower yield
investment accounts when appropriate loans are not 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 December 31, 2000, and 2001,
and three months through March 31, 2002, the outstanding balance on the line of
credit was $16,400,000, $11,400,000, and $10,000,000, respectively.
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.
Mortgage servicing fees increased from $505,823, $552,323, and $243,348 for the
years ended December 31, 2000, and 2001, and three months through March 31,
2002, respectively. The mortgage servicing fees increased primarily due to
increase in the outstanding loan portfolio. Asset management fees increased from
$60,595, to $157,999, and to $75,970 for the years ended December 31, 2000, and
2001, and three months through March 31, 2002, respectively. The asset
management fee increase was due primarily to the increase in partners' capital
which the general partners are managing and the general partners raising the
amount of the management fee collected from .125% to .25% of net partnership
assets in 2001 and 2002. This increase in asset management fee was less than the
allowable fee payable to the general partners of .375% of net partnership
assets. Clerical costs through Redwood Mortgage Corp. increased from $113,580,
to $241,195, and to $65,195 for the years December 31, 2000, and 2001, and three
months through March 31, 2002. This increase in costs was due to the increased
costs attributable to managing the larger partnership and increased number of
limited partners and by the addition of additional computer and software
systems. Increases in the provision for loan losses and losses on real estate
acquired through foreclosure will be discussed in the paragraph below entitled
Allowance for Losses. All other partnership expenses fluctuated within a narrow
range commonly expected to occur, except for interest on note payable - bank
which was discussed earlier in the Management Discussion and Analysis of
Financial Condition and Results of Operations. Cash is constantly being
generated from interest earnings, late charges, pre-payment penalties,
amortization of principal and loan pay-offs. Currently, cash flow exceeds
partnership expenses and earnings requirements. Excess cash flow will be
invested in new loan opportunities, when available, and will be used to reduce
the partnership credit line or for other partnership business.
During 2001, the Federal Reserve reduced interest rates by cutting the
Federal Funds Rate eleven times to 1.75%. In May 2002, the Federal Reserve met
and did not change interest rates. The effect of the previous cuts has greatly
reduced short-term interest rates and to a lesser extent reduced long-term
interest rates. 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 have
mortgages with higher interest rates than those currently available to seek
refinancing of their obligations. 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 generated from partnership unit sales occur, we expect to
replace paid off 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 year 2002. 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 nine percent in 2002.
22
Allowance for Losses. The general partners regularly review the loan
portfolio, examining the status of delinquencies, the underlying collateral
securing these loans, borrowers' payment records, etc. Based upon this
information and other data, loss reserves are increased or decreased. Borrower
foreclosures are a normal aspect of partnership operations. The Partnership is
not a credit based lender and hence while it reviews the credit history and
income of borrowers and if applicable the income from income producing
properties, the general partners expect that we will on occasion take back real
estate security. The Partnership has been fortunate in not taking back any real
estate security over the last three years. During 2001, and continuing in 2002,
the Northern California real estate market slowed and the national and local
economies have slipped into recession. Although as of March 31, 2002 we have not
acquired any real estate through foreclose, there is a likely chance that in
2002 we may acquire some real estate through the foreclosure process. Borrower's
foreclosures are a normal aspect of partnership operations and the general
partners anticipate that they will not have a material effect on liquidity.
During 2000 and 2001 we have had to file some foreclosure proceedings to enforce
the terms of our loans. In these instances the borrowers have been able to
remedy the foreclosures we have filed. As of March 31, 2002, we have commenced
foreclosure proceedings against six loans. On April 23, 2002 one of the
foreclosed loans paid off. Of the remaining 5 foreclosures, 4 have entered into
workout agreements which call for regular monthly payments. We may file
additional foreclosures during the year 2002 to enforce the terms of our loans.
As a prudent guard against potential losses, the general partners have increased
the amount of provisions for loan losses from $375,579 to $956,639, and to
$226,365 in 2000, and 2001, and three months through March 31, 2002. These
provisions for loan losses were made to guard against collection losses. Total
cumulative provision for loan losses as of March 31, 2002, is $2,473,553 and 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.
At the time of subscription to the Partnership, limited partners must elect
whether to receive monthly, quarterly or annual cash distributions from the
Partnership, or to retain earnings in their capital account. If you initially
elect to receive monthly, quarterly or annual distributions, such election, once
made, is irrevocable. However limited partners may change their election
regarding whether they want to receive such distributions on a monthly,
quarterly or annual basis. If they initially elect to retain earnings in their
capital account, in lieu of cash distributions, they may, after three (3) years,
change the election and receive monthly, quarterly or annual cash distributions.
Earnings allocable to limited partners who elect to retain earnings in their
capital account, will be retained by the Partnership for making further loans or
for other proper partnership purposes, and such amounts will be added to such
limited partners' capital accounts.
During the periods stated below, the Partnership, after allocation of
syndication costs, made the following allocation of earnings both to the limited
partners who elected to retain their earnings, and those that chose to
distribute:
3 months through
The Year ended December 31, March 31,
--------------------------------------- ------------------
2000 2001 2002
----------------- ----------------- ------------------
Compounding $ 2,751,266 $ 3,892,420 $ 1,130,511
Distributing $ 1,244,959 $ 1,961,780 $ 608,639
As of December 31, 2000, and December 31, 2001, and three months through
March 31, 2002, limited partners electing to withdraw earnings represented 31%,
34%, and 35%, respectively of the limited partners' outstanding capital
accounts. These percentages have remained relatively stable. The general
partners anticipate that after all capital has been raised, the percentage of
limited partners electing to withdraw earnings will decrease due to the dilution
effect which occurs when compounding limited partners' capital accounts grow
through earnings retainment.
The Partnership also allows the limited partners to withdraw their capital
account subject to certain limitations (see Withdrawal From Partnership in the
Limited Partnership Agreement). Once a limited partner's initial five-year hold
period has passed, the general partners expect to see an increase in
liquidations due to the ability of limited partners to withdraw without penalty.
This ability to withdraw five years after a limited partner's investment has the
effect of providing limited partner liquidity which the general partners then
expect a portion of the limited partners to avail themselves of. This has the
anticipated effect of the Partnership growing, primarily through reinvestment of
earnings 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
23
who have sought withdrawal have been liquidated. Since the five-year hold
period for most limited partners has yet to expire, as of March 31, 2002, many
limited partners may not as yet avail themselves of this provision for
liquidation. Earnings and capital liquidations including early withdrawals
during the three years ended December 31, 2001 and three months through March
31, 2002 were:
December 31, March 31,
------------------------------------- --------------
2000 2001 2002
---------------- ---------------- --------------
Earnings liquidation $ 1,244,959 $ 1,961,780 $ 608,639
Capital liquidation* 762,060 1,425,488 321,254
---------------- ---------------- --------------
Total $ 2,007,019 $ 3,387,268 $ 929,893
================ ================ ==============
* These amounts are gross of early withdrawal penalties.
Additionally, limited partners may liquidate their investment over a one
year period subject to certain limitations and penalties. During the two years
ended December 31, 2001, and three months through March 31, 2002, capital
liquidated subject to the 10% penalty for early withdrawal was:
December 31, March 31,
----------------------------------------- ----------------
2000 2001 2002
----------------- ----------------- ----------------
$309,643 $729,676 $117,399
This represents 0.58%, 0.99% and .15% (0.75% annualized) of the limited
partners' ending capital as of December 31, 2000, and 2001, and March 31, 2002,
respectively. These withdrawals are within the normally anticipated range and
represent a small percentage of limited partner capital.
Current Economic Conditions. The Partnership makes loans primarily in
Northern California. As of March 31, 2002, approximately 79.9% of the loans held
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 recession and accompanying slow down in economic growth and
increasing unemployment. The technology companies of Silicon Valley, the airline
industry, the tourism industry and other industries are feeling the effects of
the overall United States recession, which includes lower earnings, losses and
layoffs.
The Northern California residential real estate market and particularly the
San Francisco Bay Area residential real estate market experienced increases in
values of over 10% in 1999 and 2000, respectively. In 2001, the residential real
estate marketplace slowed, this has resulted in longer listing and transaction
times and lower market prices in some segments. In spite of the U.S. recession,
the California Association of Realtors reported that in March 2002 the statewide
median home price had reached its highest point ever of $305,940 up 18.8% from a
year earlier and 6.3% higher than in February 2002. It also reported that
overall volume of pre-owned home sales surged 13.1% from the year earlier. In
spite of these numbers the general partners believe that lower-end and
mid-priced homes have continued to increase in value, although at a reduced rate
from 2000, while high end homes have decreased in value compared to 2001. This
situation is showing some signs of a turnaround. Inventories of homes available
for sale have decreased sharply from their highs in the spring of 2001. For
example, the supply of "for sale" homes, condominiums and townhomes in Santa
Clara County peaked the week of May 25, 2001, at more than 5,700, according to
Coldwell Banker Northern California statistics. As of January 18, 2002, fewer
than 2,500 homes were "for sale" countywide. Other counties in the San Francisco
Bay Area offer similar statistics. The number of single-family home sales in
Santa Clara County was 962 for December 2001 which is the greatest number of
homes sold since records became public in 1984. In Santa Clara County, the
median home price hit $535,000 in March 2002, up 1.9% from February but down
5.3% from March, 2001. The reduction in inventories and the strong sales may
indicate that the buyer's market that prevailed throughout most of 2001 may be
coming to an end and may indicate that a recovery is underway. A stabilization
of residential home prices or a recovery in home prices is good for the
Partnership since it depends more heavily than banks and other similar credit
type lenders on the value of a property.
24
Commercial property vacancy rates have continued to climb with the San
Francisco Bay Area office market surpassing 15% as a whole according to BT
Commercial Real Estate and Grubb and Ellis Co. As a result, rents have dropped
about 40% from last year's highs, giving up nearly all the gains made during the
past three years. Though vacancy rates have leaped from 2 percent in the third
quarter of 2000 to 15% at the end of 2001, landlords are bearing only about half
the pain, since nearly half the office space being offered is for sublease,
meaning landlords generally are still collecting money from the original
tenants. To the Partnership, the higher overall vacancy rates may mean that it
experiences greater delinquencies in its commercial portion of the portfolio if
landlord's existing leases expire or space becomes available through business
failures.
As of March 31, 2002, the Partnership had an average loan to value ratio
computed as of the date the loan was made of 59.98%. This percentage does not
account for any increases or decreases in property values since the date the
loan was made, nor does it include any reductions in principal through
amortization of payments after the loan was made. This low loan to value ratio
will assist the Partnership in weathering loan delinquencies and foreclosures
should they eventuate.
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. The general partners 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 March 31, 2002, many limited
partners may not as yet avail themselves of this provision for liquidation.
Earnings and capital liquidations excluding early withdrawal penalties
since inception, 1993 through March 31, 2002 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
2001 $1,961,780 $1,355,122 $3,316,902
March 31, 2002 $608,639 $309,968 $918,607
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, 2000, 2001, and three months through March 31, 2002, $132,619,
$244,213, $411,838, $309,643, $729,676, and $117,399, respectively were
liquidated subject to the 10% penalty for early withdrawal. This represents
0.63%, 0.90%, 1.11%, .58%, .99%, and .15% (0.75% annualized) of the limited
partners ending capital for the years ended December 31, 1997, 1998, 1999, 2000,
2001, and three months through March 31, 2002, 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
their investment to raise cash. The trend the Partnership is experiencing in
withdrawals by limited partners electing a one year liquidation program
25
represents a small percentage of limited partner capital as of December 31,
1997, 1998, 1999, 2000, 2001, and March 31, 2002, respectively, and is expected
by the general partners to commonly occur at these levels.
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").
26
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus dated August 31, 2000, pages 20-23, under the section "Compensation
of the General Partners and the Affiliates," which is incorporated by reference.
Such compensation is summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the three months ended March 31, 2002.
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 . . . . . . . $243,348
General Partners &/or
Affiliates Asset Management Fee for
managing assets . . . . . . . . $75,970
General Partners 1% interest in profits . . . . .. $18,017
. . . . . . .
Less allocation of syndication costs $450
. . . --------
$17,567
Redwood Mortgage Corp. Portion of early withdrawal penalties
applied to reduce Formation Loan . . . $8,565
. . .
General Partners &/or
Affiliates Organization and Offering Expenses $0
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 . . . . . . $253,099
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 . . . . . . . $6,750
Gymno Corporation, Inc. Reconveyance Fee . . . . . . . . . $470
Redwood Mortgage Corp. Assumption or Extension Fees $0
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. . . . . . . . . . . . . . . . . . . . . . . . . . .$65,195
27
LOAN PORTFOLIO SUMMARY AS OF MARCH 31, 2002
Partnership Highlights
First Trust Deeds $42,725,515.55
Appraised Value of Properties* 86,788,032.00
Total Investment as a % of Appraised Value 49.23%
First Trust Deed Loans 42,725,515.55
Second Trust Deed Loans 36,341,856.07
Third Trust Deed Loans 6,576,755.81
--------------------
$85,644,127.43
First Trust Deeds due other Lenders $58,063,648.13
Second Trust Deeds due other Lenders 9,131,278.00
--------------------
Total Debt $152,839,053.56
Appraised Property Value* $254,821,931.00
Total Investment as a % of Appraised Value 59.98%
Number of Loans Outstanding 79
Average Investment $1,084,102.88
Average Investment as a % of loans outstanding 1.27%
Largest Investment Outstanding $4,750,000.00
Largest Investment as a % of loans outstanding 5.55%
First Trust Deed Loans 49.89%
Second Trust Deed Loans 42.43%
Third Trust Deed Loans 7.68%
---------------
Total 100.00%
Loans by Type of Property
Amount Percent
------------------ ---------------
Owner Occupied Homes $ 17,208,627.20 20.09%
Non Owner Occupied Homes 27,285,321.62 31.86%
Apartments 7,482,426.87 8.74%
Commercial 33,667,751.74 39.31%
------------------ ---------------
Total $ 85,644,127.43 100.00%
Statement of Conditions of Loans.
Number of Loans in Foreclosure 6
*Values used are the appraised values utilized at the time the loan was
consummated.
28
Diversification by Total
County Loans Percent
San Francisco $34,546,885.14 40.34%
San Mateo 13,702,991.98 16.00%
Santa Clara 12,113,494.18 14.14%
Napa 5,557,726.88 6.49%
Stanislaus 5,125,981.36 5.99%
Los Angeles 4,554,297.33 5.32%
Marin 3,139,077.10 3.66%
Contra Costa 2,497,715.37 2.92%
Alameda 2,436,128.38 2.84%
Placer 760,934.55 .89%
Lake 708,000.00 .83%
San Diego 270,000.00 .31%
Merced 180,895.16 .21%
Riverside 50,000.00 .06%
-------------------- ------------
Total $85,644,127.43 100.00%
==================== ============
29
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. Post-Effective Amendment No. 2
to the S-11 Registration Statement was filed on January 30,
2002 ("Amendment 2"). Amendment 2 containing Supplement No. 2
to the Prospectus was filed to update the financial statements
of 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.
An Amended Form 8-K was filed on August 3, 2001 regarding the
Partnership's change in Accountants.
30
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 May
2002.
REDWOOD MORTGAGE INVESTORS VIII
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
-----------------------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer
By: Redwood Mortgage Corp.
By: /S/ Michael R. Burwell
-------------------------------------------
Michael R. Burwell,
President, Secretary/Treasurer
31
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 May 2002.
Signature Title Date
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell General Partner May 13, 2002
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President of Gymno Corporation, May 13, 2002
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell Secretary/Treasurer of Gymno May 13, 2002
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President, Secretary/Treasurer May 13, 2002
of Redwood Mortgage Corp.
(Principal Financial and
Accounting Officer); Director
of Redwood Mortgage Corp.