AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO THE
REGISTRATION STATEMENT NO. 333-83882
AS FILED ON OCTOBER 30, 2002
Under
THE SECURITIES ACT OF 1933
REDWOOD MORTGAGE INVESTORS VIII
(Exact name of registrant as specified in its charter)
CALIFORNIA 6611 94-3158788
- --------------------- ----------- -------------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Identification No.)
incorporation or Number)
organization)
900 Veterans Blvd. Suite 500, Redwood City, California 94063 (650) 365-5341
(Address and telephone number of principal executive offices)
900 Veterans Blvd. Suite 500, Redwood City, California 94063 (650) 365-5341
(Address of principal place of business or intended principal place of business)
Michael R. Burwell
900 Veterans Blvd. Suite 500, Redwood City, California 94063 (650) 365-5341
(Name, address, including zip code and telephone number, including area code of
agent for service)
Copies to:
Stephen C. Ryan, Esq.
Cox, Castle & Nicholson LLP
555 Montgomery Street, Suite 1500
San Francisco, CA 94111
Approximate date of commencement
of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
Supplement No. 1 dated January 30, 2003
to the Prospectus Dated October 30, 2002
Redwood Mortgage Investors VIII,
A California Limited Partnership
The following information updates the Prospectus of Redwood Mortgage
Investors VIII, a California limited partnership (the "Partnership") dated
October 30, 2002 ("the Prospectus").
Because this is a supplement it only updates the operations and activities
of the Partnership to date. Important additional information regarding the
business of the Partnership and the risks involved in investing in the
Partnership are contained in the Prospectus. You should carefully read the
Prospectus along with this Supplement.
1. Summary of Partnership Activities. The Partnership is engaged in
business as a mortgage lender. The Partnership makes loans to individuals and
business entities secured by residential, investment or commercial property. In
order to ensure repayment of the loans, the loans are secured by first and
second, and in some limited cases, third deeds of trust on the property. For a
more detailed discussion of deeds of trust and other factors affecting the loans
made by the Partnership, you should carefully review the Section of the
Prospectus entitled "CERTAIN LEGAL ASPECTS OF PARTNERSHIP LOANS."
[X] Initial Offerings. In February, 1993, the Partnership initially offered
$15,000,000 of limited partnership units. For ease of reference, we shall refer
to limited partnership units as "Units." All Units in the initial Offering were
sold and the Offering was terminated in October, 1996. The Partnership received
total proceeds from the sale of Units in an amount equal to $14,932,017. In
order to sell the Units, the Partnership incurred approximately $12,500 in
organizational costs that included certain costs and expenses of organizing and
forming the Partnership. We also incurred $569,865 in syndication costs which
include certain legal, accounting and broker-dealer fees. Overall, total
organization and syndication costs were less than anticipated.
In September, 1996, we elected to continue offering Units in the
Partnership in order to continue to increase the Partnership's loan investment
portfolio. By increasing the Partnership's loan portfolio, we increased
diversity and added additional safety to the portfolio. In December, 1996, the
Partnership began selling Units in its second offering of $30,000,000. This
offering closed in August, 2000. All proceeds from the sale of Units were paid
directly to the Partnership. As a result, no escrow was established. The
Partnership received total proceeds from the sale of Units in an amount equal to
$29,992,574. No expenses were incurred for organizational costs to sell the
Units. We also incurred $597,784 in syndication costs which included certain
legal, accounting and broker-dealer fees. Overall, total organization and
syndication costs were less than anticipated.
In August, 2000, we elected to continue offering Units in the Partnership
in order to continue to increase the Partnership's loan investment portfolio. By
increasing the Partnership's loan portfolio, we increased diversity and added
additional safety to the portfolio. In September, 2000, the Partnership began
selling Units in its third offering of $30,000,000. This offering closed in
April, 2002. All proceeds from the sale of Units were paid directly to the
Partnership. As a result, no escrow was established. The Partnership received
total proceeds from the sale of Units in an amount equal to $29,998,622. No
expenses were incurred for organizational costs to sell the Units. We also
incurred $616,472 in syndication costs which included certain legal, accounting
and broker-dealer fees. Overall, total organization and syndication costs were
less than anticipated.
1
[X] Current Offering. In April, 2002, we elected again to continue offering
Units in the Partnership in order to increase the Partnership's loan portfolio.
By increasing the Partnership's loan portfolio, we can continue to increase
diversity and add additional safety to the Portfolio. In October, 2002, the
Partnership began offering Units in its fourth Offering of $50,000,000. This
Offering is ongoing. All proceeds from the sale of Units are paid directly to
the Partnership. As a result, no escrow has been established.
[X] Status of Current Offering. As of December 31, 2002, the Partnership
had sold $16,315,707 of Units from the current Offering. This brings the total
proceeds received from the initial Offerings and the current Offering to
$91,238,920 as of December 31, 2002. The Partnership had outstanding loans with
a total principal balance of $83,650,455 as of December 31, 2002. As of December
31, 2002, the Partnership had, in connection with its current offering of
$50,000,000 of Units, incurred no organizational costs and $287,241 in
syndication costs.
[X] No Adverse Business Development. As of the date of this Supplement,
there have been no adverse business developments or conditions in the
Partnership, or any prior limited partnerships in which the General Partners are
involved, that would be material to a prospective investor.
2. Financial Statements. Financial Statements of Corporate General Partner.
The Balance Sheets of Redwood Mortgage Corp., as of September 30, 2002 and 2001
included in this Supplement have been audited by Armanino McKenna, LLP,
independent auditors.
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Redwood Mortgage Corp.
Redwood City, California
We have audited the accompanying balance sheets of Redwood Mortgage Corp.
as of September 30, 2002 and 2001. These balance sheets are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these balance sheets based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the balance
sheets are free of material misstatement. An audit includes examining on a test
basis evidence supporting the amounts and disclosures in the balance sheets. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Redwood Mortgage Corp. as of
September 30, 2002 and 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Thomas E. Gard
ARMANINO McKENNA LLP
San Ramon, California
November 15, 2002
3
REDWOOD MORTGAGE CORP.
Balance Sheets
September 30, 2002 and 2001
ASSETS
2002 2001
------------- -------------
Cash in bank $2,227,797 $1,196,005
Mutual funds 97,027 120,497
Receivables
Due from affiliates 53,221 62,721
Advances to related parties - 135,000
Income taxes refundable - 10,127
Accrued interest 43,333 26,947
Fixed assets, net of accumulated depreciation and amortization of $184,502 and
$155,701, respectively 72,619 75,868
Investment in mortgage loans 433,519 1,001,885
Note receivable - LLC 250,000 250,000
Prepaid expenses 48,257 -
Deferred costs of brokerage related rights, net
3,881,377 3,643,019
------------- -------------
Total assets $7,107,150 $6,522,069
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities $ 3,757 $ 7,557
Notes payable - partnerships - 150,000
Accrued compensated absences 41,444 24,335
Deposits 3,338 5,000
Accrued profit-sharing - 69,382
Advances from partnerships 4,078,874 3,870,076
Deferred income taxes 1,324,000 1,029,932
------------- -------------
Total liabilities 5,451,413 5,156,282
------------- -------------
Stockholder's equity
Common stock, wholly-owned by The Redwood Group, Ltd., at $4 stated
value (1,000 shares authorized, issued and outstanding) 4,000 4,000
Retained earnings 1,651,737 1,361,787
------------- -------------
Total stockholder's equity 1,655,737 1,365,787
------------- -------------
Total liabilities and stockholder's equity $7,107,150 $6,522,069
============= =============
4
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
1. Organization
Redwood Mortgage Corp. (the "Company"), is a wholly-owned subsidiary of The
Redwood Group, LTD. (the "Parent"), which is owned by D. Russell Burwell and
related parties. Michael R. Burwell, the son of D. Russell Burwell, and Gymno
Corporation (owned by the Burwells) are general partners in eight limited
partnerships, which invest in high-yield debt instruments, primarily promissory
notes secured by deeds of trust on California real estate. In addition, another
related company is general partner in a ninth limited partnership. Currently,
Redwood Mortgage Corp. is a general partner in only one of the partnerships,
Redwood Mortgage Investors VIII.
As of September 30, 2001, D. Russell Burwell, the founder and principal
stockholder of the Parent, retired as President of the Company. Consistent with
the preceding, D. Russell Burwell resigned as general partner in the
partnerships.
The Company maintains "trust accounts" to service mortgage investments made
principally by the aforementioned nine limited partnerships. As a real estate
broker licensed with the State of California, the Company arranges loans with
various maturities, all of which are secured by deeds of trust. At September 30,
2002, the Company was servicing a portfolio totaling $117,811,785 owned
primarily by the aforementioned partnerships.
2. Summary of Significant Accounting Policies
Accrual basis
The accompanying balance sheets were prepared on the accrual basis of
accounting.
Use of estimates
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America, management is required to
make estimates that affect the reported amounts of assets and liabilities as of
the balance sheet dates. Such estimates relate principally to lives assigned to
furniture and equipment and to the period of recoverability of deferred costs of
brokerage related rights. Actual results could differ from these estimates.
5
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
2. Summary of Significant Accounting Policies (continued)
Deferred costs of brokerage related rights
Consistent with Accounting Principles Board Opinion # 17, the Company has
recognized as an asset rights to act as the mortgage loan broker for various of
its affiliated limited partnerships. Such rights result in brokerage commissions
to the Company. The initial costs of these rights include fees paid to
broker-dealers on behalf of affiliated partnerships. Such costs are being
amortized over the anticipated 25 year period that brokerage fee net cash flows
are expected to be received in proportion to the expected receipt of these cash
flows.
In accordance with Statement of Financial Accounting Standards No 121 (FAS
121) as amended by Statement of Financial Accounting Standards No 142 (FAS 142),
the Company thereafter evaluates the fair value of these rights to determine if
the brokerage rights have been impaired. Fair value is determined based on the
estimated brokerage fee net cash flows to be received by the Company over the
expected 25 year lives of the partnerships' underlying loan portfolios. It is
the Company's experience that the underlying loan portfolios increase as partner
capital is raised and accumulated for the first seven years of a partnership's
existence, and then will begin to decline gradually over the subsequent 18 years
of their estimated lives. If the carrying value of the deferred mortgage
brokerage rights exceeds their estimated fair value, an allowance for impairment
of value is recognized. The Company has determined that no allowance for
impairment was required against its deferred mortgage brokerage rights.
Cash
Cash represents cash and short-term, highly liquid investments with
original maturities of three months or less.
Furniture, equipment and leasehold improvements, net
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed primarily on a straight-line basis
over the lesser of the related lease term or the assets' estimated useful lives
ranging from 3 to 7 years.
Income taxes
The Company's operating results are included in the consolidated tax
returns of the Parent, which files its income tax returns on the cash basis of
accounting. Income taxes are allocated to the Company by the Parent for those
taxes currently payable and those deferred as if the Company were filing
separate tax returns. Income taxes are provided for deferred taxes resulting
from differences in the timing of reporting revenue and expense items for
financial versus tax purposes.
6
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
3. Partnership Services
The following are commissions and/or fees derived by the Company from
services provided to its affiliated partnerships:
Loan commissions
The Company earns loan commissions in connection with the review,
selection, evaluation, negotiation and extension of partnership mortgage
investments in an amount up to 12% of the mortgage investments until 6 months
after the termination date of a partnership offering. Only 1 of the 9 affiliated
limited partnerships is in the offering stage. Thereafter, loan commissions are
limited to an amount not to exceed 4% of the total partnership assets per year.
The loan commissions are paid by the borrowers, and thus, are not an expense of
the partnerships.
Loan servicing fees
The Company earns loan servicing fees of up to 1/8 of 1% monthly (1.5%
annually) of the unpaid principal or such lesser amount as is reasonable and
customary in the geographic area where the property securing the mortgage is
located.
Other fees and charges
The limited partnership agreements provide for other fees such as
reconveyance, mortgage assumption and mortgage extension fees. Such fees are
incurred by the borrowers and are paid to the Company. In addition, the Company
is reimbursed for expenses and clerical costs associated with accounting and
related services incurred on behalf of the limited partnerships.
Subsidies to partnerships
Occasionally, the Company subsidizes a particular partnership by refunding
a portion of the loan servicing fees received from the partnership during the
year.
When the Company issues a subsidy, it may be a general subsidy or a
specific subsidy tied to loss concerns on a particular property. If the subsidy
is property specific, it may delineate the terms for repayment after the
partnership sells the impaired property. The Company is not obligated to provide
any subsidies nor does it guarantee a rate of return for the various
partnerships.
4. Advances from Partnerships
The Company has financed the payment of brokerage related rights with
advances from partnerships. These advances are non-interest bearing and are
being repaid equally over an approximate ten-year period from the date of the
close of a partnership offering.
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REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
4. Advances from Partnerships (continued)
Advances from partnerships mature as follows:
Year Ending September 30:
2003 $ 451,052
2004 451,052
2005 451,052
2006 451,052
2007 370,997
Thereafter 1,903,669
--------------
Total $4,078,874
==============
5. Note Receivable - LLC
The Company has a convertible note receivable from a limited liability
company totaling $250,000 at September 30, 2002 and 2001. The note is currently
in the form of a promissory note bearing 8% interest and maturing in January
2004. The Company has the sole discretion to convert the promissory note to a
membership interest in the LLC. As of September 30, 2002, the Company had not
converted the receivable into an equity investment. It is anticipated that when
the LLC's project is complete, the Company will convert the note to an
investment in the LLC.
6. Fixed Assets
Fixed assets consist of the following at September 30:
2002 2001
------------- -------------
Furniture and equipment $ 189,845 $ 180,925
Computer software 63,108 46,476
Leasehold improvements 4,168 4,168
------------- -------------
257,121 231,569
Less accumulated depreciation and amortization (184,502) (155,701)
------------- -------------
Fixed assets, net $ 72,619 $ 75,868
============= =============
8
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
7. Income Taxes
The Company's annual taxable income (loss) is included in the consolidated
income tax filing of its parent, The Redwood Group, LTD and its affiliate, A & B
Financial Services, Inc. Income taxes are allocated to the Company and reflected
in its financial statements as if the Company were filing separate returns.
The Company has net operating loss ("NOL") carry forwards available of
approximately $800,000 for Federal tax purposes and approximately $100,000 for
California tax purposes. The NOLs were generated in fiscal years ended September
30, 1998, 1999, and 2001 and can be carried forward twenty years for federal tax
purposes and five years for California purposes.
Significant components of the Company's net deferred tax liability
includes the following:
2002 2001
-------------- --------------
Cash to accrual differences $ 31,400 $ (64,800)
Deferred costs of brokerage related rights 1,662,800 1,560,700
State deferred taxes (117,700) (95,800)
Net operating loss carryforwards (286,000) (369,700)
Other 33,500 (468)
-------------- --------------
$1,324,000 $1,029,932
============== ==============
8. Investment in Mortgage Loans
At September 30, 2002 and 2001, the Company had investments in mortgage
loans as follows:
Fiscal Year
of Maturity
September 30, 2002 2001
-------------- ------------- -------------
Mortgage loans 2003 $245,000 $ -
Mortgage loans 2004 - 40,000
Mortgage loans 2005 100,000 68,500
Mortgage loans 2006 - -
Mortgage loans 2007 88,519 893,385
------------- -------------
$433,519 $1,001,885
============= =============
The average interest rates of the mortgage loans were 11.18% and 11.73% as
of September 30, 2002, and 2001, respectively. All loans are due in lump sum
balloon payments, and interest payments on mortgage loans are current. The
properties securing the loans are all located in the San Francisco Bay Area. The
fair value of the mortgage loans approximates the carrying value.
9
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
9. Related Party Transactions
Partnership transactions
As described in Notes 1 and 3, the Company's main source of revenue is from
originating and servicing mortgage obligations from nine limited partnerships
whose general partners are related to the Company (one such general partner is
the Company). The Company has received advances from these limited partnerships
to help finance the costs of brokerage related rights.
During the year, the Company assigned approximately 80% of a note
receivable to Redwood Mortgage Investors VIII. The amount assigned was
approximately $810,000.
Advances
Advances are periodically made to employees of the Company or their
relatives. At September 30, 2001, an advance of $135,000 had been made to a
related party.
Investment in mortgage loans
Included in investment in mortgage loans was a mortgage loan to an officer
with an outstanding balance at September 30, 2001 of $68,500. This amount was
transferred to The Redwood Group, Ltd. during 2002.
10. Concentrations of Risk
Cash in bank
Cash deposits at September 30, 2002, that exceeded federal insurance limits
(up to $100,000), were $1,957,579.
Mortgage loans
The mortgage loans described in Note 8 are secured by properties located in
the San Francisco Bay Area. Fluctuations in the value of real estate in the San
Francisco Bay Area could significantly affect the underlying security value of
these mortgage loans. Fluctuations in general property values also affect the
performance of mortgage investments in the affiliated limited partnerships.
10
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
11. Commitments
Beginning March 1, 2001, the Company contracted with an independent service
bureau for computer processing services for the partnership accounting function
at approximately $4,750 per month for 36 months. The contract is subject to
renewal at the end of its term. The Company receives reimbursement of a major
portion of its computer processing expenses from the nine limited partnerships.
The Company is a guarantor on a line of credit for one of the partnerships.
The line of credit provides for borrowings up to $20,000,000 at .25% over prime.
The balance on the line of credit at September 30, 2002 and 2001, was
$18,250,000 and $11,025,000, respectively. Should the Partnership choose not to
renew the line of credit, the balance would be converted to a three year fully
amortized loan.
12. Operating Leases
In 2001, the Company entered into several noncancelable operating leases
for office space that expire in June 2004. The leases require monthly rent of
$4,950 with stated annual rent increases. The Company also has an option to
renew these leases for an additional three years.
In 2002, the Company entered into a noncancelable operating lease agreement
for office space to replace their current space. The lease terminates July 29,
2009. The lease requires monthly payments of $14,083, with stated annual
increases. The Company also has the option to renew this lease for an additional
five years.
Noncancelable future minimum lease payments under these leases as of
September 30, 2002, are as follows:
2003 $ 231,717
2004 222,462
2005 183,772
2006 189,288
2007 194,972
Thereafter 318,526
-------------
$1,340,737
=============
11
REDWOOD MORTGAGE CORP.
Notes to Balance Sheets
September 30, 2002 and 2001
13. Subsequent Events
Redwood Mortgage Investors VIII, for which the Company is a general
partner, had registered an investment offering for an additional 50,000,000
units ($50,000,000) which was approved by the Securities and Exchange Commission
in October, 2002.
Subsequent to year end, the Company entered into a sub-lease agreement to
sub-lease some of the Company's previous office space. The sub-lease is
noncancelable, calls for monthly sub-lease payments of $853, and terminates in
2003.
12