-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TyEXv9D2pTjSX5Fpur3ctBBad7z37CIWAl9VKDbTBrq48fzJtQQi6L5BCRRsmCs3 HjW30epn1noYDfkZ8BMr8A== 0000889123-98-000013.txt : 19981113 0000889123-98-000013.hdr.sgml : 19981113 ACCESSION NUMBER: 0000889123-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD MORTGAGE INVESTORS VIII CENTRAL INDEX KEY: 0000889123 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 943158788 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27816 FILM NUMBER: 98743699 BUSINESS ADDRESS: STREET 1: 650 EL CAMINO REAL STE G CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153655341 MAIL ADDRESS: STREET 1: 650 EL CAMINO REAL STE K CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 10Q FORM 10-Q SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Period Ended September 30, 1998 - -------------------------------------------------------------------------------- Commission file number 333-13113 - -------------------------------------------------------------------------------- REDWOOD MORTGAGE INVESTORS VIII - -------------------------------------------------------------------------------- (exact name of registrant as specified in its charter) CALIFORNIA 94-3158788 - -------------------------------------------------------------------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 650 El Camino Real, Suite G, Redwood City, CA 94063 - -------------------------------------------------------------------------------- (address of principal executive office) (650) 365-5341 - -------------------------------------------------------------------------------- (Registrants telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (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 issuers class of common stock, as of the latest date. NOT APPLICABLE REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) ASSETS Sept 30, 1998 Dec 31, 1997 (unaudited) (audited) ---------------- ---------------- Cash $414,573 $663,159 ---------------- ---------------- Accounts receivable: Mortgage Investments, secured by deeds of trust 30,500,761 25,304,989 Accrued Interest on Mortgage Investments 191,006 341,976 Advances on Mortgage Investments 210,097 205,804 Accounts receivables, unsecured 63,849 62,844 ---------------- ---------------- 30,965,713 25,915,613 Less allowance for doubtful accounts 334,689 257,500 ---------------- ---------------- 30,631,024 25,658,113 ---------------- ---------------- Real Estate owned, acquired through foreclosure, held for sale 71,169 70,138 Investment in limited liability corporation, at cost which approximates market 301,139 251,139 Organization costs, less accumulated amortization of $12,500and $10,625, respectively 0 1,875 Due from related companies 0 2,999 Prepaid expense-deferred loan fee 14,044 10,151 ---------------- ---------------- $31,431,949 $26,657,574 ================ ================ See accompanying notes to financial statements REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) BALANCE SHEETS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) LIABILITIES AND PARTNERS CAPITAL Sept 30, 1998 Dec 31, 1997 (unaudited) (audited) --------------- ---------------- Liabilities: Accounts payable and accrued expenses $0 $3,355 Note payable - bank line of credit 6,247,000 5,640,000 Deferred interest income 0 83,066 Subscriptions to partnership in applicant status 477,100 0 --------------- ---------------- 6,724,100 5,726,421 --------------- ---------------- Partners Capital: Limited partners capital, subject to redemption (note 4E): Net of unallocated syndication costs of $373,222 and $431,994 for 1998 and 1997, respectively: and Formation Loan receivable of $1,544,058 and $1,386,693 for 1998 and 1997, respectively 24,687,346 20,914,721 General Partners Capital, net of unallocated syndication costs of $3,770 and $4,364 for 1998 and 1997, respectively 20,503 16,432 --------------- ---------------- Total Partners Capital 24,707,849 20,931,153 --------------- ---------------- Total Liabilities and Partners Capital $31,431,949 $26,657,574 =============== ================ See accompanying notes to financial statements. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF INCOME FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited) 9 mos.ended 9 mos. ended 3 mos. ended 3 mos. ended Sept 30,1998 Sept 30, 1997 Sept 30,1998 Sept 30, 1997 (unaudited) (unaudited) (unaudited) (unaudited)
Revenues: Interest on Mortgage Loans $2,423,754 $1,809,833 $871,715 $675,062 Interest on bank deposits 7,483 6,630 2,425 1,257 Late Charges 17,410 4,223 5,365 1,302 Miscellaneous 572 305 150 180 ----------- ----------- ----------- ----------- 2,449,219 1,820,991 879,655 677,801 ----------- ----------- ----------- ----------- Expenses: Mortgage Servicing Fees 226,296 137,864 93,100 59,165 Interest on note payable-bank 371,011 208,114 128,924 89,203 Amortization of loan origination fees 9,206 14,468 4,163 5,031 Provision for doubtful accounts 77,189 55,262 40,744 24,248 Asset Mangement Fees - General Partners 22,898 18,081 8,210 6,586 Amortization of organization costs 1,875 1,875 625 625 Clerical costs through Redwood Mortgage 49,133 39,694 16,964 14,141 Professional Fees 24,861 24,627 550 2,775 Printing, Supplies & Postage 2,959 1,128 633 224 Other 9,975 8,563 3,116 3,891 ----------- ----------- ----------- ----------- 795,403 509,676 297,029 205,889 ----------- ----------- ----------- ----------- Income before interest credited to partners in applicant status 1,653,816 1,311,315 582,626 471,912 Interest credited to partners in 3,657 6,943 273 1,038 applicant status ----------- ----------- ----------- ----------- Net Income $1,650,159 $1,304,372 $582,353 $470,874 =========== =========== =========== =========== Net income: to General Partners (1%) $16,501 $13,044 $5,823 $4,709 Net income: to Limited Partners (99%) 1,633,658 1,291,328 576,530 466,165 =========== =========== =========== =========== $1,650,159 $1,304,372 $582,353 $470,874 =========== =========== =========== =========== Net income per $1,000 invested by Limited Partners for entire period: -Where income is reinvested and $62.38 $62.33 $20.37 $20.37 compounded ----------- ----------- ----------- ----------- -Where partner receives income in monthly distributions $60.72 $60.67 $20.24 $20.24 ----------- ----------- ----------- ----------- See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (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, 1994 $189,300 $7,519,424 $(234,303) $(525,256) $6,759,865 Contributions on Application 3,634,264 0 0 0 0 Formation Loan increases 0 0 0 (250,373) (250,373) Interest credited to partners in 18,908 0 0 0 0 applicant status Upon admission to Partnership: Interest withdrawn (7,673) 0 0 0 0 Transfers to Partners capital (3,834,799) 3,831,211 0 0 3,831,211 Net Income 0 828,465 0 0 828,465 Syndication costs incurred 0 0 (173,581) 0 (173,581) Allocation of syndication costs 0 (85,045) 85,045 0 0 Partners withdrawals 0 (308,554) 0 0 (308,554) Early withdrawal penalties 0 (564) 162 400 (2) -------------- ------------ ------------- ------------ ------------ Balances at December 31, 1995 0 11,784,937 (322,677) (775,229) 10,687,031 Contributions on Application 4,172,718 0 0 0 0 Formation Loan increases 0 0 0 (314,996) (314,996) Formation Loan payments 0 0 0 8,961 8,961 Interest credited to partners in 2,618 0 0 0 0 applicant status Upon admission to Partnership: Interest withdrawn (863) 0 0 0 0 Transfers to Partners capital (3,863,536) 3,859,312 0 0 3,859,312 Net Income 0 1,218,598 0 0 1,218,598 Syndication costs incurred 0 0 (212,542) 0 (212,542) Allocation of syndication costs 0 (116,523) 116,523 0 0 Partners withdrawals 0 (553,027) 0 0 (553,027) Early withdrawal penalties 0 (12,108) 4,506 7,558 (44) -------------- ------------ ------------- ------------ ------------ Balances at December 31, 1996 310,937 16,181,189 (414,190) 14,693,293 (1,073,706) Contributions on Application 5,251,969 0 0 0 0 Formation Loan increases 0 0 0 (420,510) (420,510) Formation Loan payments 0 0 0 98,999 98,999 Interest credited to partners in 9,562 0 0 0 0 applicant status Upon admission to Partnership: Interest withdrawn (1,849) 0 0 0 0 Transfers to Partners capital (5,570,619) 5,565,372 0 0 5,565,372 Net Income 0 1,780,968 0 0 1,780,968 Syndication costs incurred 0 0 (188,517) 0 (188,517) Allocation of syndication costs 0 (166,023) 166,023 0 0 Partners withdrawals 0 (614,837) 0 0 (614,837) Early withdrawal penalties 0 (13,261) 4,690 8,524 (47) -------------- ------------ ------------- ------------ ------------ Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721 ============== ============ ============= ============ ============ See accompanying notes to financial statements
(continued on next page) (continue from previous page) REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited) PARTNERS CAPITAL -------------------------------------------------------------- LIMITED PARTNERS CAPITAL --------------------------------------------------------------
Capital Partners In Account Unallocated Formation Applicant Limited Syndication Loan Status Partners Costs Receivable Total -------------- ------------ ------------- ------------ ------------ Balance carried forward December 31, $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721 1997 Contributions on Application 3,480,135 0 0 0 0 Formation Loan increases 0 0 0 (272,226) (272,226) Formation Loan payments 0 0 0 104,333 104,333 Interest credited to partners in 3,657 0 0 0 0 applicant status Upon admission to Partnership: Interest withdrawn (1,333) 0 0 0 0 Transfers to Partners capital (3,005,359) 3,001,882 0 0 3,001,882 Net Income 0 1,633,658 0 0 1,633,658 Syndication costs incurred 0 0 (93,992) 0 (93,992) Allocation of syndication costs 0 (147,238) 147,238 0 0 Partners withdrawals 0 (600,974) 0 0 (600,974) Early withdrawal penalties 0 (16,110) 5,526 10,528 (56) -------------- ------------ ------------- ------------ ------------ Balances at September 30, 1998 $477,100 $26,604,626 $(373,222) $(1,544,058) $24,687,346 ============== ============ ============= ============ ============ See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited) PARTNERS CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS CAPITAL ----------------------------------------------------------
Capital Unallocated Total Account Syndication Total Partners General Costs Capital Partners --------------- ---------------- ----------------- ---------------- Balances at December 31, 1994 $7,737 $(2,366) $5,371 $6,765,236 Contributions on Application 0 0 0 0 Formation loan increases 0 0 0 (250,373) Interest credited to partners in 0 0 0 0 applicant status Upon admission to partnership: Interest withdrawn 0 0 0 0 Transfers to Partners capital 3,588 0 3,588 3,834,799 Net Income 8,368 0 8,368 836,833 Syndication costs incurred 0 (1,753) (1,753) (175,334) Allocation of syndication costs (859) 859 0 0 Partners withdrawals (7,509) 0 (7,509) (316,063) Early withdrawal penalties 0 2 2 0 --------------- ---------------- ----------------- ---------------- Balances at December 31, 1995 11,325 (3,258) 8,067 10,695,098 Contributions on Application 0 0 0 0 Formation loan increases 0 0 0 (314,996) Formation loan payments 8,961 Interest credited to partners in 0 0 0 0 applicant status Upon admission to partnership: Interest withdrawn 0 0 0 0 Transfers to Partners capital 4,224 0 4,224 3,863,536 Net Income 12,309 0 12,309 1,230,907 Syndication costs incurred 0 (2,147) (2,147) (214,689) Allocation of syndication costs (1,177) 1,177 0 0 Partners withdrawals (11,132) 0 (11,132) (564,159) Early withdrawal penalties 0 44 44 0 --------------- ---------------- ----------------- ---------------- Balances at December 31, 1996 15,549 (4,184) 11,365 14,704,658 Contributions on Application 0 0 0 0 Formation Loan increases 0 0 0 (420,510) Formation Loan payments 0 0 0 98,999 Interest credited to partners in 0 0 0 0 applicant status Upon admission to partnership: Interest withdrawn 0 0 0 0 Transfers to Partners capital 5,247 0 5,247 5,570,619 Net Income 17,990 0 17,990 1,798,958 Syndication costs incurred 0 (1,904) (1,904) (190,421) Allocation of syndication costs (1,677) 1,677 0 0 Partners withdrawals (16,313) 0 (16,313) (631,150) Early withdrawal penalties 0 47 47 0 --------------- ---------------- ----------------- ---------------- Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153 =============== ================ ================= ================ See accompanying notes to financial statements
(continued on next page) (continued from previous page) REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited) PARTNERS CAPITAL ------------------------------------------------------------------------------ GENERAL PARTNERS CAPITAL -------------------------------------------------------------
Capital Unallocated Total Account Syndication Total Partners General Costs Capital Partners --------------- ---------------- ----------------- ---------------- Balance carried forward December 31, $20,796 $(4,364) $16,432 $20,931,153 1997 Contributions on Application 0 0 0 0 Formation Loan increases 0 0 0 (272,226) Formation Loan payments 0 0 0 104,333 Interest credited to partners in 0 0 0 0 applicant status Upon admission to partnership: Interest withdrawn 0 0 0 0 Transfers to Partners capital 3,477 0 3,477 3,005,359 Net Income 16,501 0 16,501 1,650,159 Syndication costs incurred 0 (949) (949) (94,941) Allocation of syndication costs (1,487) 1,487 0 0 Partners withdrawals (15,014) 0 (15,014) (615,988) Early withdrawal penalties 0 56 56 0 --------------- ---------------- ----------------- ---------------- Balances at September 30, 1998 $24,273 $(3,770) $20,503 $24,707,849 =============== ================ ================= ================ See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited)
Sept 30, 1998 Sept 30, 1997 ---------------- ---------------- (unaudited) (unaudited) ---------------- ---------------- Cash flows from operating activities: Net income $1,650,159 $1,304,372 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 1,875 1,875 Provision for doubtful accounts. 77,189 55,262 Increase (decrease) in accounts payable (3,355) (20,625) (Increase) decrease in accrued interest & advances 146,677 (85,880) (Increase) decrease in amount due from related companies 2,999 311 (Increase) decrease in deferred loan fee (3,893) 0 (Increase) decrease in prepaid expenses & other assets 0 8,218 Increase (decrease ) in deferred interest income (83,066) (217,480) ---------------- ---------------- Net cash provided by operating activities 1,788,585 1,046,053 ---------------- ---------------- Cash flows from investing activities: Principal collected on Mortgage Investments 8,325,018 6,578,254 Mortgage Investments made (13,520,790) (15,922,566) Additions to real estate held for sale (1,031) (2,488) Additions to Limited Liability Corporation (50,000) (50,000) Accounts receivables, unsecured - (disbursements) receipts (1,005) (993) ----------------- ---------------- Net cash used in investing activities (5,247,808) (9,397,793) ----------------- ---------------- Cash flows from financing activities Increase (decrease) in note payable-bank 607,000 4,500,000 Contributions by partner applicants 3,480,135 4,365,188 Interest credited to partners in applicant status 3,657 6,943 Interest withdrawn by partners in applicant status (1,333) (1,327) Partners withdrawals (615,988) (478,568) Syndication costs incurred (94,941) (153,913) Formation Loan increases (272,226) (352,552) Formation Loan collections 104,333 81,368 ----------------- ---------------- Net cash provided by financing activities 3,210,637 7,967,139 ----------------- ---------------- Net increase (decrease) in cash and cash equivalents (248,586) (384,601) Cash - beginning of period 663,159 664,434 ----------------- ---------------- Cash - end of period $414,573 $279,833 ================= ================ See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VIII, (the Partnership) is a California Limited Partnership, of which the General Partners are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California corporation owned and operated by the individual General Partners. The Partnership was organized to engage in business as a mortgage lender for the primary purpose of making Mortgage Investments secured by Deeds of Trust on California real estate. Mortgage Investments are being arranged and serviced by Redwood Home Loan Co. dba Redwood Mortgage, an affiliate of the General Partners. At September 30, 1998, the Partnership was in the offering stage, wherein contributed capital totalled $23,966,334 in limited partner contributions of an approved aggregate offering of $45,000,000, in units of $100 each (239,663.34). A minimum of 2,500 units ($250,000) and a maximum of 150,000 units ($15,000,000) 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 300,000 Units ($30,000,000) As Mortgage Investments are identified, partners are transferred from applicant status to admitted partners participating in Mortgage Investment operations. Each months 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, an affiliate 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 totalled $1,074,840 which was 7.2% of limited partners contributions of $14,932,017 (under the limit of 9.1% relative to the initial offering). It is to be repaid, without interest, in ten annual installments of principal, which commenced on January 1, 1997, following the year the initial offering closed, which was in 1996. The Formation Loan relating to the second offering ($30,000,000) totalled $708,121 at September 30, 1998, which was 7.84 % of the limited partners contributions of $9,034,317. 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, during the offering stage, will be determined at annual installments of one-tenth of the principal balance of the Formation Loan as of December 31 of each year. Such payment shall be due and payable by December 31 of the following year with the first such payment beginning December 31, 1997. Upon completion of the offering, the balance will be repaid in ten equal annual installments. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) The following summarizes Formation Loan transactions to September 30, 1998:
Initial Subsequent Total Offering of Offering of $15,000,000 $30,000,000 --------------- --------------- --------------- Limited Partner contributions $14,932,017 $9,034,317 $23,966,334 =============== =============== =============== Formation Loan made $1,074,840 708,121 1,782,961 Payments to date (179,944) (32,350) (212,294) Early withdrawal penalties applied (26,609) 0 (26,609) --------------- --------------- --------------- Balance September 30, 1998 $868,287 $675,771 $1,544,058 =============== =============== =============== Percent loaned of Partners contributions 7.2% 7.84% 7.44% =============== =============== ===============
The Formation Loan, which is receivable from Redwood Mortgage, an affiliate of the General Partners, has been deducted from Limited Partners Capital in the balance sheet. As amounts are collected from Redwood Mortgage, the deduction from capital will be reduced. B. Other Organizational and Offering Expenses Organizational and offering expenses, other than sales commissions, (including printing costs, attorney and accountant fees, registration and filing fees and other costs), will be paid by the Partnership. Through September 30, 1998, organization costs of $12,500 and syndication costs of $955,971 had been incurred by the Partnership with the following distribution: Syndication Costs -------------------------------------------- Offering ---------------------------- Initial Subsequent Organization 15,000,000 30,000,000 Total Costs Total
----------- ----------- ----------- --------- ---------- Costs incurred $569,865 386,106 955,971 12,500 968,471 Early withdrawal penalties (15,032) 0 (15,032) 0 (15,032) applied Allocated and amortized to date (489,670) (74,277) (563,947) (12,500) (576,447) ----------- ---- ----------- --- ----------- ---- --------- ---- ---------- September 30, 1998 balance $ 65,163 311,829 376,992 0 376,992 =========== ==== =========== === =========== ==== ========= ==== ==========
Organization and syndication costs attributable to the initial offering ($15,000,000) were limited to the lesser of 10% of the gross proceeds or $600,000 with any excess being paid by the General Partners. Applicable gross proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865 syndication costs plus $12,500 organization expense) or 3.90%. As of September 30, 1998, syndication costs attributable to the subsequent offering ($30,000,000) totalled $386,106, with the costs of the offering document being greater at the initial stages. The syndication costs payable by the Partnership are estimated to be $1,200,000 if the maximum is sold (4% of $30,000,000). The General Partners will pay any syndication expenses (excluding selling commissions) in excess of ten percent of the gross proceeds or $1,200,000. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A Accrual Basis Revenues and expenses are accounted for on the accrual basis of accounting wherein income is recognized as earned and expenses are recognized as incurred. Once a Mortgage Investment is categorized as impaired, interest is no longer accrued thereon. B. Management Estimates In preparing the financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the related periods. Such estimates relate principally to the determination of the allowance for doubtful accounts, including the valuation of impaired mortgage investments, and the valuation of real estate acquired through foreclosure. Actual results could differ significantly from these estimates. C. Mortgage Investments, Secured by Deeds of Trust The Partnership has both the intent and ability to hold the Mortgage Investments to maturity, i.e., held for long-term investment. They are therefore valued at cost for financial statement purposes with interest thereon being accrued by the simple interest method. Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective January 1, 1995) provide that if the probable ultimate recovery of the carrying amount of a Mortgage Investment, with due consideration for the fair value of collateral, is less than the recorded investment and related amounts due, and the impairment is considered to be other than temporary, the carrying amount of the investment (cost) shall be reduced to the present value of future cash flows. The adoption of these statements did not have a material effect on the financial statements of the Partnership because that was the valuation method previously used on impaired loans. At September 30, 1998 and at December 31, 1997, 1996, and 1995, there were no Mortgage Investments categorized as impaired by the Partnership. Had there been a computed amount for the reduction in carrying values of impaired loans, the reduction would have been included in the allowance for doubtful accounts. As presented in Note 10 to the financial statements, the average Mortgage Investment to appraised value of security at the time the loans were consummated was 55.28% When a Mortgage Investment is valued for impairment purposes, an updating is made in the valuation of collateral security. However, such a low loan to value ratio has the tendency to minimize reductions for impairment. D. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest bearing and non-interest bearing bank deposits. E. Real Estate Owned, Held for Sale Real Estate owned, held for sale, includes real estate acquired through foreclosure and is stated at the lower of the recorded investment in the property, net of any senior indebtedness, or at the propertys estimated fair value, less estimated costs to sell. At September 30, 1998, there was one such piece of property with costs totaling $76,169 less a reduction of $5,000 to arrive at the net fair value of $71,169. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) Effective January 1, 1996, the Partnership adopted the provisions of Statement No 121 (SFAS 121) of the Financial Accounting Standards Board, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be disposed of. The adoption of SFAS 121 did not have a material impact on the Partnerships financial position because the methods indicated were essentially those previously used by the Partnership. F. Investment in Limited Liability Corporation (see Note 7) The Partnership carries its investment in a Limited Liability Corporation as investment in real estate, which is at the lower of costs or fair value, less estimated costs to sell. G. Income Taxes No provision for Federal and State income taxes is made in the financial statements since income taxes are the obligation of the partners if and when income taxes apply. H. Organization and Syndication Costs The Partnership bears its own organization and syndication costs (other than certain sales commissions and fees described above) including legal and accounting expenses, printing costs, selling expenses, and filing fees. Organizational costs have been capitalized and were amortized over a five year period. As of September 30, 1998, organizational costs of $12,500 have been fully amortized. Syndication costs are charged against partners capital and are being allocated to individual partners consistent with the partnership agreement. I. Allowance for Doubtful Accounts Mortgage Investments 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 Mortgage Investment system. A provision is made for doubtful accounts to adjust the allowance for doubtful accounts to an amount considered by management to be adequate, with due consideration to collateral values, to provide for unrecoverable accounts receivable, including impaired Mortgage Investments, unspecified mortgage investments, accrued interest and advances on Mortgage Investments, and other accounts receivable (unsecured). The composition of the allowance for doubtful accounts as of September 30, 1998, December 31, 1997, and 1996 was as follows: Sept 30, December 31, December 31, 1998 1997 1996 ---------------- ---------------- ----------------
Impaired Mortgage Investments $0 $0 $13,006 Unspecified Mortgage Investments 290,689 213,500 72,803 Accounts receivable, unsecured 44,000 44,000 45,000 ================ ================ ================ $334,689 $257,500 $117,803 ================ ================ ================
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) J. 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 have their investment throughout the period and have elected to either leave their earnings to compound or have elected to receive monthly distributions of their net income. Individual income is allocated each month based on the Limited Partners pro rata share of Partners Capital. Because the net income percentage varies from month to month, amounts per $1,000 will vary for those individuals who made or withdrew investments during the period, or select other options. However, the net income per $1,000 average invested has approximated those reflected for those whose investments and options have remained constant. NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions and/or fees which are paid to the General Partners and/or related parties. A. Mortgage Brokerage Commissions For fees in connection with the review, selection, evaluation, negotiation and extension of Partnership Mortgage Investments in an amount up to 12% of the Mortgage Investments until 6 months after the termination date of the offering. Thereafter, Mortgage Investment brokerage commissions will be limited to an amount not to exceed 4% of the total Partnership assets per year. The Mortgage Investment brokerage commissions are paid by the borrowers, and thus, not an expense of the Partnership. In 1997, Mortgage Investment brokerage commissions paid by the borrowers was $837,399 and for the nine months through September 30, 1998 was $363,946. B. Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal, are paid to Redwood Mortgage, or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Mortgage servicing fees of $226,296, $189,692, $155,912 and $85,456 were incurred for the nine months period ended September 30, 1998, and for the years 1997, 1996 and 1995 respectively. C. Asset Management Fee The General Partners receive monthly fees for managing the Partnerships Mortgage Investment portfolio and operations up to 1/32 of 1% of the net asset value (3/8 of 1% annual). Management fees of $22,898, $24,966, $17,053 and $11,587 were incurred for the nine months period ended September 30, 1998, and for years 1997, 1996 and 1995, respectively. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) D. Other Fees The Partnership Agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to parties related to the General Partners. E. Income and Losses All income will be credited or charged to partners in relation to their respective partnership interests. The partnership interest of the General Partners (combined) shall be a total of 1%. F. Operating Expenses The General Partners or their affiliate (Redwood Mortgage) are reimbursed by the Partnership for all operating expenses actually incurred by them on behalf of the Partnership, including without limitation, out-of-pocket general and administration expenses of the Partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to Limited Partners. Such reimbursements are reflected as expenses in the Statement of Income. G. General Paratners Contribution The General Partners collectively or severally were to contribute 1/10 of 1% in cash contributions as proceeds from the offering are admitted to limited Partner capital. As of September 30, 1998 a General Partner, GYMNO Corporation, had contributed $23,965, as capital in accordance with Section 4.02(a) of the Partnership Agreement. NOTE 4 - OTHER PARTNERSHIP PROVISIONS A. Applicant Status Subscription funds received from purchasers of units are not admitted to the Partnership until appropriate lending opportunities are available. During the period prior to the time of admission, which is anticipated to be between 1-120 days in most cases, purchasers subscriptions will remain irrevocable and will earn interest at money market rates, which are lower than the anticipated return on the Partnerships Mortgage Investment portfolio. During the nine months period ending September 30, 1998, and for the years ending December 31, 1997, 1996, and 1995, interest totalling $3,657, $9,562, $2,618 and $18,908 respectively, was credited to partners in applicant status. As Mortgage Investments were made and partners were transferred to regular status to begin sharing in income from Mortgage Investments secured by deeds of trust, the interest credited was either paid to the investors or transferred to partners capital along with the original investment. B. Term of the Partnership The term of the Partnership is approximately 40 years, unless sooner terminated as provided. The provisions provide for no capital withdrawal for the first five years, subject to the penalty provision set forth in (E) below. Thereafter, investors have the right to withdraw over a five-year period, or longer. C. Election to Receive Monthly, Quarterly or Annual Distributions Upon subscriptions, 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 investors election to have cash distributions is irrevocable. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) D. Profits and Losses Profits and losses are allocated among the Limited Partners according to their respective capital accounts after 1% is allocated to the General Partners. E. Liquidity, Capital Withdrawals and Early Withdrawals There are substantial restrictions on transferability of Units and accordingly an investment in the Partnership is illiquid. 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 and the balance distributed in four quarterly installments. Withdrawal after the one-year holding period and before the five-year holding period will be permitted only upon the terms set forth in the Partnership Agreement. Limited Partners will also have the right after five years from the date of purchase of the Units to withdraw from the Partnership on an installment basis, generally over a five year period in twenty (20) quarterly installments or longer. Once this five year period expires, 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 will liquidate all or part of a Limited Partners capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn pursuant to the five-year (or longer) withdrawal period. The Partnership will not establish a reserve from which to fund withdrawals and, accordingly, the Partnerships capacity to return a Limited Partners capital is restricted to the availability of Partnership cash flow. F. Guaranteed Interest Rate For Offering Period During the period commencing with the day a Limited Partner is admitted to the Partnership and ending 3 months after the offering termination date, the General Partners shall guarantee an earnings rate equal to the greater of actual earnings from mortgage operations or 2% above The Weighted Average cost of Funds Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift Institutions) as computed by the Federal Home Loan Bank of San Francisco on a monthly basis, up to a maximum interest rate of 12%. To date, actual realization exceeded the guaranteed amount for each month. NOTE 5- LEGAL PROCEEDINGS The Partnership is not a defendant in any legal actions. NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT The Partnership has a bank line of credit expiring September 30, 2000, of up to $8,000,000 at .5% over prime secured by its Mortgage Investment portfolio. The note payable balances were $6,247,000, $5,640,000 and $1,500,000 at September 30, 1998, December 31, 1997, and 1996, respectively, and the interest rate was 9% at September 30, 1998, (8.50% prime plus .50%). REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION As a result of acquiring real property through foreclosure, the Partnership has contributed its interest (principally land) to a Limited Liability Corporation, which is owned 100% by the Partnership. The Corporation will complete the construction and sell the property. The Partnership expects to realize a profit from the venture. 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: Sept 30 Dec. 31 Dec. 31 1998 1997 1996 --------------- -------------- --------------
Net assets - Partners Capital per financial statements $24,707,849 $20,931,153 $14,704,658 Unamortized syndication costs 376,992 436,358 418,374 Allowance for doubtful accounts 334,689 257,500 117,803 Formation Loans receivable 1,544,058 1,386,693 1,073,706 --------------- -------------- -------------- Net assets tax basis $26,963,588 $23,011,704 $16,314,541 =============== ============== ==============
In 1997, approximately 61% of taxable income was allocated to tax exempt organizations, i.e., retirement plans. 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 INVESTMENTS 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) The carrying value of mortgage investments (see note 2(c) is $30,500,761. The fair value of these investments of $30,717,595 is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for doubtful accounts along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value. REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS The Mortgage Investments are secured by recorded deeds of trust. At September 30, 1998, there were 56 Mortgage Investments outstanding with the following characteristics: Number of Mortgage Investments outstanding 56 Total Mortgage Investments outstanding $30,500,761 Average Mortgage Investment outstanding $544,656 Average Mortgage Investment as percent of total 1.79% Average Mortgage Investment as percent of Partners Capital 2.20% Largest Mortgage Investment outstanding 2,500,000 Largest Mortgage Investment as percent of total 8.20% Largest Mortgage Investment as percent of Partners Capital 10.12% Number of counties where security is located (all California) 13 Largest percentage of Mortgage Investments in one county 30.59% Average Mortgage Investment to appraised value of security at time Mortgage Investment was consummated 55.28% Number of Mortgage Investments in foreclosure status 0 The following categories of mortgage investments are pertinent at September 30, 1998, December 31, 1997 and 1996: Sept 30 December 31 December 31 --------------- ---------------- ----------------- 1998 1997 1996 --------------- ---------------- -----------------
First Trust Deeds $21,285,718 $17,103,865 $6,545,779 Second Trust Deeds 8,090,196 8,163,624 8,797,211 Third Trust Deeds 1,124,847 37,500 300,000 --------------- ---------------- ----------------- Total mortgage investments 30,500,761 25,304,989 15,642,990 Prior liens due other lenders 24,113,888 24,224,566 25,161,374 ---------------- ----------------- =============== Total debt $54,614,649 $49,529,555 $40,804,364 =============== ================ ================= Appraised property value at time of loan $98,794,578 $88,714,541 $70,100,408 =============== ================ ================= Total investments as a percent of appraisals 55.28% 55.83% 58.21% =============== ================ ================= Investments by Type of Property Owner occupied homes $4,110,174 $2,445,423 $1,808,921 Non-Owner occupied homes 8,789,390 5,318,722 2,288,036 Apartments 3,242,700 5,982,649 2,521,515 Commercial 14,358,497 11,558,195 9,024,518 =============== ================ ================= $30,500,761 $25,304,989 $15,642,990 =============== ================ ================= The interest rates on the mortgage investments range from 8.00% to 14.00% at September 30, 1998
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (audited) AND SEPTEMBER 30, 1998 (unaudited) Scheduled maturity dates of mortgage investments as of September 30, 1998 are as follows: Year Ending December 31, ------------------- 1998 $2,480,378 1999 8,170,595 2000 9,532,475 2001 4,931,309 2002 1,524,257 Thereafter 3,861,747 =============== $30,500,761 =============== The scheduled maturities for 1998 include approximately $40,000 in one Mortgage Investment which was past maturity at September 30, 1998. Interest payment on this Mortgage Investment was current. The cash balance at September 30, 1998, of $414,573 was in one bank with interest bearing balances totalling $347,225. The balance exceeded FDIC insurance limits (up to $100,000 per bank) by $314,573. This bank is the same financial institution that has provided the Partnership with the $8,000,000 line of credit. At September 30, 1998, draw down against this facility was $6,247,000. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On September 30, 1998, the Partnership was in the offering stage of its second offering, ($30,000,000) and contributed capital totalled $14,932,017 for the first offering and $9,034,317 for the second offering with an aggregate of $23,966,334 (Limited Partners). Of this amount, $477,100 remained in applicant status. Accordingly, together with initial approved offering of $15,000,000 the Partnership has approval for an aggregate offering of $45,000,000 in Units of $100 each. At September 30, 1998, the Partnerships Mortgage Investments outstanding totalled $30,500,761. The primary reason for an increase in Mortgage Investments Outstanding from $6,484,707 in 1994, to $12,047,252 in 1995, to $15,642,990 in 1996, to $25,304,989 in 1997, and to $30,500,761 to September 30, 1998, was the additional capital admitted to the Partnership through sale of Limited Partnership Units. Additional Partners Capital contributions have totalled $4,508,824, $3,834,799, $3,863,536, $5,565,372 and $3,476,658, and the reinvestment of earnings by partners who have elected to reinvest earnings have totalled $239,956, $524,988, $800,218, $1,119,465 and $1,041,205 for the years ended December 31, 1994, December 31, 1995, December 31, 1996, December 31, 1997, and nine months ended September 30, 1998, respectively. To a lesser extent, Mortgage Investments outstanding have also increased through the utilization of the Partnerships line of credit. The effect of more outstanding Mortgage Investments raised the interest earned on Mortgage Investments for the years ended December 31, 1994, 1995, 1996, 1997, and for the nine months ended September 30, 1998, to $480,110, $1,031,029, $1,718,208, $2,613,008 and $2,423,754 respectively. Interest rates on Mortgage Investments ranged from 8.00% to 14.00%. The Partnership began funding Mortgage Investments on April 14, 1993 and as of September 30, 1998, distributed earnings at an average annualized yield of 8.36%. Currently, mortgage interest rates have decreased from those prevalent at the inception of the Partnership. New Mortgage Investments will be originated at these lower interest rates which could reduce the average return across the entire Mortgage Investment portfolio held by the Partnership. In the future, interest rates likely will change from their current levels. The General Partners cannot at this time predict at what levels interest rates will be in the future. Although the rates charged by the Partnership are influenced by the level of interest rates in the market, the General Partners do not anticipate that rates charged by the Partnership to its borrowers will change significantly from the beginning of 1998 over the next 12 months. Based upon the rates payable in connection with the existing Mortgage Investments, the current and anticipated interest rates to be charged by the Partnership and the General Partners experience, the General Partners anticipate that the annualized yield will range between eight & nine percent (8% - 9%). During 1994, the Partnership did not have a credit line; therefore Interest on Note Payable-Bank was -0-. In 1995, the Partnership established a line of credit with a commercial bank secured by its Mortgage Investments and has increased the limit from $3,000,000 to $8,000,000. For the years ended December 31, 1995, 1996, and 1997, and the nine months ended September 30, 1998, interest on Note Payable-Bank was $25,889, $188,635, $340,633 and $371,011 respectively. The primary reason for this increase during 1996, was that the Partnership did not have access to the credit facility until September, 1995. For 1997, and the nine months ended September 30, 1998, the increase in interest on notes payable-Bank has been attributed to a higher overall credit facility utilization. Currently, the Partnership has borrowed $6,247,000 at an interest rate of prime + 1/2%.This facility could again increase as the Partnerships capital increases. This added source of funds will help in maximizing the Partnership yield by allowing the Partnership to minimize the amount of funds in lower yield investment accounts when appropriate Mortgage Investments are not currently available. Additionally, the Mortgage Investments made by the Partnership bear interest at a rate in excess of the rate payable to the bank which extended the line of credit, the amount to be retained by the Partnership, after payment of the line of credit cost, will be greater than without the use of the line of credit. As of September 30, 1998, the balance remained at $6,247,000 and in accordance with the line of credit, the Partnership paid all accrued interest as of that date. The Partnerships 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-one years. Borrowers foreclosures, as set forth under Results of Operations, are a normal aspect of Partnership operations and the General Partners anticipate that they will not have a material effect on liquidity. Cash is constantly being generated from interest earnings, late charges, pre-payment penalties, amortization of principal and pay-off on Mortgage Investments. Currently, cash flow exceeds Partnership expenses and earnings payout requirements. As Mortgage Investment opportunities become available, excess cash and available funds are invested in new Mortgage Investments. The General Partners regularly review the Mortgage Investments portfolio, examining the status of delinquencies, the underlying collateral securing these Mortgage Investments, borrowers payment records, etc. Data from the local real estate market and of the national and local economy are reviewed. Based upon this information and other data, loss reserves are increased or decreased. In 1995, 1996, 1997, and nine months ended September 30, 1998, the Partnership made provisions for doubtful accounts of $26,032, $55,383, $139,804, and $77,189 respectively. These provisions for doubtful accounts were made primarily as a prudent action to guard against unidentified collection losses. The provision for doubtful accounts as of September 30, 1998, of $334,689 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. Its now clear the Northern California recession reached bottom in 1993. Since then, the California economy has been improving, slowly at first, but now, more vigorously. This improvement is reflected in increasing property values, in job growth, personal income growth, etc., which all translates into more loan activity, which of course, is healthy for lending activity. At the time of subscription to the Partnership, Limited Partners make an irrevocable decision to either take distributions of earnings monthly, quarterly or annually or to compound earnings in their capital account. For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and the nine months ended September 30, 1998, the Partnership made distributions of earnings to Limited Partners after allocation of syndication costs of, $303,477, $418,380, $495,480 and $445,215 respectively. Distribution of Earnings to Limited Partners after allocation of syndication costs for the years ended December 31, 1995, December 31, 1996, December 31, 1997, and the nine months ended September 30, 1998, to Limited Partners capital accounts and not withdrawn was $524,988, $800,218, $1,119,465 and $1,041,205 respectively. As of December 31, 1995, December 31, 1996, December 31, 1997, and the nine months ended September 30, 1998, Limited Partners electing to withdraw earnings represented 40%, 34%, 30% and 30%, respectively of the Limited Partners outstanding capital accounts. The decreases in percentage of Limited Partners electing to withdraw earnings is due to an increase in percent of new Limited Partners choosing to compound earnings and the dilution effect occurring when compounding Limited Partners capital accounts grow through earnings reinvestment compared to Limited Partners that have chosen to liquidate earnings. 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 Partners initial five year hold period has passed the General Partners expect to see an increase in liquidations due to the ability of Limited Partners to withdraw without penalty. This ability to withdraw five years after a Limited Partners investment has the effect of providing Limited Partner liquidity which the General Partners then expect a portion of the Limited Partners to avail themselves of. This has the anticipated effect of the Partnership growing, primarily through reinvestment of earnings in years one through five. The General Partners expect to see increasing numbers of Limited Partner withdrawals in years five through eleven, at which time the bulk of those Limited Partners who have sought withdrawal have been liquidated. After year eleven, liquidation generally subsides and the Partnership capital again tends to increase through earnings reinvestment. Since the five year hold period has yet to expire, as of September 30, 1998, Limited Partners may not as yet avail themselves of this provision for liquidation. Additionally, Limited Partners may withdraw over a period of one year subject to certain limitations and penalties. For the years ended December 31, 1995, December 31, 1996, December 31, 1997, and the nine months ended September 30, 1998, $5,640, $146,755, $132,619 and $159,870 respectively were liquidated subject to the 10% penalty for early withdrawal. These withdrawals are within the normally anticipated range that the General Partners would expect in their experience in this and other partnerships. The General Partners expect that a small percentage of Limited Partners will elect to liquidate their capital accounts over one year with a 10% early withdrawal penalty. In originally conceiving the Partnership, the General Partners wanted to provide Limited Partners needing their capital returned a degree of liquidity. Generally, Limited Partners electing to withdraw over one year need to liquidate investment to raise cash. The trend the Partnership is experiencing in withdrawals by Limited Partners electing a one year liquidation program represents a small percentage of Limited Partner capital as of December 31, 1995, December 31, 1996, December 31, 1997, and September 30, 1998, respectively and is expected by the General Partners to commonly occur at these levels. The Year 2,000 will be a challenge for the entire world, with respect to the conversion of existing computerized operations. The Partnership is completing an assessment of Year 2,000 hardware and software issues. This assessment is not yet fully complete. The Partnership relies on Redwood Mortgage Corporation, an affiliate of the Partnership, and third parties to provide loan and investor services effected by Year 2,000 computerized operations. Major services provided to the Partnership by these companies are loan servicing, accounting and investor services. The vendors that supply the software for loan servicing have already confirmed compliance with Year 2,000 issues. Installation of accounting software that is Year 2,000 compliant will begin after the 1998-year ends. The investor servicing software Year 2,000 compliance is still under assessment. Existing investor servicing software maintenance agreements provide for conversion to Year 2,000 compliance to be provided by the vendor. Additionally, the Partnership has contacted several vendors that provide investor services as a possible alternative to continuing to provide investors services in house. It would appear that these service providers would be more expensive than the current in house systems but they do provide a back-up alternative in the event of our own failure to fully convert. Hardware utilized by Redwood Mortgage Corporation, is currently being tested to insure that modifications necessary to be made prior to Year 2,000 can be accomplished. At this juncture, existing hardware appears to be substantially compliant with Year 2,000 issues. The costs of updating the various software systems will be borne by the various companies that supply the Partnership with services. Therefore, no significant capital outlays are anticipated and the Partnership expects only incidental costs of conversion for Year 2,000 issues. The Partnership is in the business of making Mortgage Investments secured by real estate. The most important factor in making the Mortgage Investments is the value of the real estate security. Year 2000 issues have some potential to effect industries and businesses located in the marketplaces in which the Partnership places its Mortgage Investments. This would only have an affect on the Partnership if Year 2000 issues cause a significant downturn in the northern California economy. In fact, Silicon Valley is located in our marketplace. There may be significant increased demand for Silicon Valley type services and goods as companies make ready for the Year 2,000 conversion. Although not fully developed if all accounting, loan servicing and investor services conversions should fail the size and scope of the Partnerships activities are such that they could be handled at an equal or higher cost on a manual basis or outsourced to other servicers existing in the industry. While this would entail some initial set up costs, these costs would likely not be so significant as to have a material effect upon the Partnership. 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, pages 6-7, under the section Compensation of the General Partners and the Affiliates, which is incorporated by reference. Such compensation is summarized below. The following compensation has been paid to the General Partners and Affiliates for services rendered during the nine month period ended September 30, 1998. All such compensation is in compliance with the guidelines and limitations set forth in the Prospectus. Entity Receiving Compensation Description of Compensation Amount and Services Rendered I. Redwood Mortgage. Mortgage Servicing Fee for servicing Mortgage Investments .............$226,296 General Partners &/or Affiliate Asset Management Fee for managing assets $22,898 General Partners 1% interest in profits............ $16,501 Less allocation of syndication costs...... 1,487 --------- $15,014 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 Mortgage Brokerage Commissions for services in connection with the review, selection, evaluation, negotiation, and extension of the Mortgage Investments paid by the borrowers and not by the Partnership......................... $363,946 Redwood Mortgage Processing and Escrow Fees for services in connection with notary, document preparation, credit investigation, and escrow fees payable by the borrowers and not by the Partnership......... $8,219 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. $49,133 MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1998 Partnership Highlights First Trust Deeds 21,285,718 Appraised Value of Properties* 46,290,842 Total Investment as a % of Appraisal 45.98% First Trust Deed Mortgage Investments 21,285,718 Second Trust Deed Mortgage Investments 8,090,196 Third Trust Deed Mortgage Investments 1,124,847 -------------------- 30,500,761 First Trust Deeds due other Lenders 22,270,740 Second Trust Deeds due other Lenders 1,843,148 -------------------- Total Debt $54,614,649 Appraised Property Value* 98,794,578 Total Investment as a % of Appraisal 55.28% Number of Mortgage Investments Outstanding 56 Average Investment $544,656 Average Investment as a % of Net Partners Capital 2.20% Largest Investment Outstanding 2,500,000 Largest Investment as a % of Net Partners Capital 10.12% Mortgage Investments as a Percentage of Total Mortgage Investments First Trust Deed Mortgage Investments 69.79% Second Trust Deed Mortgage Investments 26.52% Third Trust Deed Mortgage Investments 3.69% -------------- Total 100.00% Mortgage Investments by Type of Amount Percent Property Owner Occupied Homes $4,110,174 13.48% Non Owner Occupied Homes 8,789,390 28.82% Apartments 3,242,700 10.63% Commercial 14,358,497 47.07% ----------------- -------------- Total $30,500,761 100.00% Statement of Conditions of Mortgage Investments Number of Mortgage Investments in Foreclosure 0 *Values used are the appraisal values utilized at the time the mortgage investment was consummated. Diversification by County Total Percent Mortgage Investments San Francisco $9,330,738.96 30.59% Stanislaus 5,372,000.00 17.61% San Mateo 3,786,858.28 12.42% Santa Clara 3,572,148.68 11.71% Marin 2,536,995.31 8.32% Alameda 2,142,877.20 7.03% San Joaquin 1,190,934.25 3.90% Contra Costa 956,483.98 3.14% Santa Cruz 684,000.00 2.24% Monterey 624,806.38 2.05% Fresno 128,462.66 0.42% Mendocino 125,000.00 0.41% Sacramento 49,455.78 0.16% ----------------- ----------- Total $30,500,761.48 100.00% PART 2 OTHER INFORMATION Item 1. Legal Proceedings None 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 Not Applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Not Applicable (b) Form 8-K The registrant has not filed any reports on Form 8-K during the quarter ended September 30, 1998. 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 12th day of November 1998. REDWOOD MORTGAGE INVESTORS VIII By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, General Partner By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, General Partner By: Gymno Corporation, General Partner By: /s/ D. Russell Burwell --------------------------------------------- D. Russell Burwell, President By: /s/ Michael R. Burwell --------------------------------------------- Michael R. Burwell, Secretary/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity indicated on the 12th day of November 1998. Signature Title Date /s/ D. Russell Burwell - ------------------------- D. Russell Burwell General Partner November 12, 1998 /s/ Michael R. Burwell - ------------------------- Michael R. Burwell General Partner November 12, 1998 /s/ D. Russell Burwell - ------------------------ D. Russell Burwell President of Gymno Corporation, November 12, 1998 (Principal Executive Officer); Director of Gymno Corporation /s/ Michael R. Burwell - ------------------------ Michael R. Burwell Secretary/Treasurer of Gymno November 12, 1998 Corporation (Principal Financial and Accounting Officer); Director of Gymno Corporation EX-27 2 FDS --
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 414573 0 30965713 334689 0 0 0 0 31431949 0 0 6724100 0 0 24707849 31431949 0 2449219 0 347203 0 77189 374668 1650159 0 1650159 0 0 0 1650159 .00 .00
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