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REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
Index to Form 10-K
December 31, 2001
Part I
Page No.
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Item 1 - Business 3
Item 2 - Properties 4
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of
Security Holders (Partners) 6
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and
Related
Unitholder Matters 6
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 8 - Financial Statements and Supplementary Data 14
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 36
Part III
Item 10 - Directors and Executive Officers of the Registrant 36
Item 11 - Executive Compensation 36
Item 12 - Security Ownership of Certain Beneficial Owners and management 37
Item 13 - Certain Relationships and Related Transactions 37
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. 38
Signatures 39
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the year ended December 31, 2001 Commission file number 333-41410
- --------------------------------------------------------------------------------
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 Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
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(address of principal executive offices) (zip code)
Registrant's telephone number including area code (650) 365-5341
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------------------------------------------------------------
None None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g)
of the Act: Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES XXXX NO
- -------------- ----------------
As of December 31, 2001, the limited partnership units purchased by
non-affiliates was 69,675,947 units computed at $1.00 a unit for $69,675,947.
Documents incorporated by reference:
Portions of the prospectus effective August 31, 2000, supplement No. 1
dated April 30, 2001, and supplement No. 2 dated February 12, 2002, (the
"Prospectus"), are incorporated in Parts II, III, and IV. Exhibits filed as part
of Form S-11 Registration Statement #333-41410 are incorporated by reference in
part IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VIII, a California Limited Partnership (the
"Partnership"), was organized in 1993 of which Michael R. Burwell, Gymno
Corporation and Redwood Mortgage Corp., both California Corporations, are the
general partners. The partnership is organized to engage in business as a
mortgage lender, for the primary purpose of making loans secured primarily by
first and second deeds of trust on California real estate. Loans are arranged
and serviced by Redwood Mortgage Corp. The partnership's objectives are to make
loans that will: (i) yield a high rate of return from mortgage lending; and (ii)
preserve and protect the partnership's capital. Investors should not expect the
partnership to provide tax benefits of the type commonly associated with limited
partnership tax shelter investments. The partnership is intended to serve as an
investment alternative for investors seeking current income. However, unlike
other investments which are intended to provide current income, an investment in
the partnership will be less liquid, not readily transferable, and not provide a
guaranteed return over its investment life.
Initially, the partnership offered a minimum of $250,000 and a maximum of
$15,000,000 in Units, of which $14,932,017 were sold. This initial offering
closed on October 31, 1996. Subsequently, the partnership commenced a second
offering of up to $30,000,000 in Units commencing on December 4, 1996. This
offering sold $29,992,574 in Units and was closed on August 30, 2000. On August
31, 2000 the partnership commenced an offering for another 30,000,000 Units
($30,000,000). As of December 31, 2001, 24,751,356 Units for $24,751,356 were
sold in this third offering, bringing the aggregate sale of Units to
$69,675,947. All Units are being offered on a "best efforts" basis, which means
that no one is guaranteeing that any minimum number of Units will be sold,
through broker-dealer member firms of the National Association of Securities
Dealers, Inc. (See Section of the prospectus entitled "TERMS OF THE OFFERING"
and "PLAN OF DISTRIBUTION").
The partnership began selling Units in February 1993, and began investing
in mortgages in April 1993. At December 31, 2001, the partnership has
investments in loans with principal balances totaling $82,789,833. Interest
rates ranged from 8.00% to 18.00%. Currently First Trust Deeds comprise 51.92%
of the total amount of the loan portfolio, a decrease of 3.21% over 2000 level
of 55.13%. Junior loans (2nd and 3rd Trust Deeds) make up 48.08%, an increase of
3.21% over 2000 level of 44.87%. Loans secured by owner-occupied homes, combined
with loans secured by non-owner occupied homes, total 45.35% of the loan
portfolio. Loans secured by multi-family properties make up 8.86% of the total
loans. Commercial loans now comprise 45.79% of the portfolio, a decrease of
3.63% from last year. Of the total loans, 82.49% are in six counties of the San
Francisco Bay Area. The County of Stanislaus makes up 6.88% of the loans.
Stanislaus County is an adjacent county to the San Francisco Bay Area, located
approximately 65 miles from San Francisco. The balance of loans are primarily in
Northern California. Loan size increased this past year, and is now averaging
$1,089,340 per loan, up $80,943 from the average loan balance of $1,008,397 in
2000. This increase is due to the ability of the partnership by virtue of its
increasing size to invest in larger loans. The average loan as of December 31,
2001, represents 1.48% of limited partners capital and 1.32% of outstanding
loans, lower than December 31, 2000 when average loan size of 1.89% of limited
partners capital and 1.47% of outstanding loans. This afforded the partnership
more diversification. Some of the loans are fractionalized between affiliated
partnerships with objectives similar to those of the partnership to further
reduce risk. Average equity per loan transaction, which is our loan plus any
senior loans, divided by the property's appraised value, subtracted from 100%,
stood at 40.33%, a decrease in equity of 4.79% from the previous year. This
average equity is considered very conservative. Generally, the more equity, the
more protection for the lender. The general partners believe the partnership's
loan portfolio is in good condition with only three properties in foreclosure as
of the end of December 2001. Loan balances of these foreclosed properties
represent 1.27% of the loan portfolios.
Item 2 - Properties
A summary of the partnership's Loan Portfolio as of December 31, 2001, is set
forth below.
Loans as a Percentage of Total Loans
First Trust Deeds $42,984,020
Appraised Value of Properties 86,535,227
------------------
Total Investment as a % of Appraisal 49.67%
------------------
First Trust Deed Loans 42,984,021
Second Trust Deed Loans 34,640,619
Third Trust Deed Loans 5,165,193
------------------
Total of Trust Deed Loans 82,789,833
------------------
Priority positions:
First Trust Deed Loans due other Lenders 58,813,338
Second Trust Deed Loans due other Lenders 9,131,278
------------------
Total Debt $150,734,449
==================
Appraised Property Value 252,604,011
Total Debt as a % of Appraisal 59.67%
Number of Loans Outstanding 76
Average Loan $1,089,340
Average Loan as a % of Loans Outstanding 1.32%
Largest Loan Outstanding 7,000,000
Largest Loan as a % of Loans Outstanding 8.46%
Loans as a Percentage of Total Loans Percent
- ------------------------------------ -------
First Trust Deed Loans 51.92%
Second Trust Deed Loans 41.84%
Third Trust Deed Loans 6.24%
---------------
Total Trust Deed Loan Percentage 100.00%
===============
Loans by
Type of Property Amount Percent
- ---------------- ------ -------
Owner Occupied Homes $11,018,765 13.31%
Non-Owner Occupied Homes 26,523,195 32.04%
Apartments 7,336,898 8.86%
Commercial 37,910,975 45.79%
------------------ ---------------
Total $82,789,833 100.00%
================== ===============
The following is a distribution of loans outstanding as of December 31,
2001 by Counties.
Total
County Loans Percent
- ------ ----- -------
San Francisco $34,276,335 41.40%
San Mateo 11,485,061 13.87%
Santa Clara 9,285,168 11.22%
Alameda 7,606,154 9.19%
Stanislaus 5,699,983 6.88%
Los Angeles 4,470,942 5.40%
Napa 3,336,083 4.03%
Marin 3,139,091 3.79%
Contra Costa 2,498,844 3.02%
Placer 760,934 0.92%
Merced 181,238 0.22%
Riverside 50,000 0.06%
------------------- -----------
Total $82,789,833 100.00%
=================== ===========
Statement of Condition of Loans
Number of Loans in Foreclosure 3
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31, Amount
------------------- ---------------
2002 $57,822,416
2003 16,382,004
2004 3,690,525
2005 396,260
2006 2,784,413
Thereafter 1,714,215
---------------
$82,789,833
===============
The scheduled maturities for 2002 include twenty-five loans totaling
$23,610,528, and representing 28.52% of the portfolio, were past maturity at
December 31, 2001. Five of these totaling $1,334,162 were paid off in March
2002. Several other borrowers were in process of refinancing their loans through
other institutions as this was an opportune time for them to do so and take
advantage of the lower interest rate. Additionally, the partnership allows
borrowers to occasionally continue to make the payments on debt past maturity
for periods of time. The partnership, in most instances, receives the benefit of
a higher interest rate than would otherwise be available in the currently
existing loan marketplace. Interest payments on nine of these loans were
delinquent, however these delinquencies were not considered serious enough to
warrant the commencement of foreclosure action.
In 1995, the senior lender foreclosed on its deed of trust in connection
with a loan in which the partnership held the second deed of trust. The
partnership commenced a legal action to collect the full amount of $84,386 due
to the partnership. A settlement was reached with the borrower in December, 1997
regarding the repayment of the amounts due to the partnership. As of December
31, 2001, $30,000 of the full amount owing to the partnership had been
collected. At that time, the remaining $54,386 was written off as it was
considered uncollectible.
As of January 1, 1999, the partnership owned a vacant lot acquired through
the foreclosure of loans. The vacant lot was valued $66,000 and was subsequently
sold in April, 1999 for $85,000. Additionally, the partnership owned a limited
liability company (LLC) whose sole asset was a partially completed single-family
residence. This partially completed single-family residence was originally
foreclosed upon by the partnership and subsequently contributed to a wholly
owned LLC at a value of $181,139. Additional expenditures of $192,219 over the
$181,139 basis were primarily for completion of the construction. The
construction was fully completed in February 2000, and the property was sold in
April 2000, at a profit of $135,000. The LLC is now dissolved.
Item 3 - Legal Proceedings
In the normal course of business, the partnership may become involved in
various types of legal proceedings such as assignment of rents, bankruptcy
proceedings, appointment of receivers, unlawful detainers, judicial foreclosure,
etc., to enforce the provisions of the deeds of trust, collect the debt owed
under the promissory notes, or to protect, recoup its investment from the real
property secured by the deeds of trust. None of these actions would typically be
of any material importance. As of the date hereof, the partnership is not
involved in any legal proceedings other than those that would be considered part
of the normal course of business.
Item 4 - Submission of Matters to Vote of Security Holders (Partners).
No matters have been submitted to a vote of the partnership.
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and
Related Unitholder Partnership Matters.
30,000,000 Units at $1 each (minimum purchase of 2,000 Units) are being
offered ($45,000,000 in Units were previously offered and sold) through
broker-dealer member firms of the National Association of Securities Dealers on
a "best efforts" basis (as indicated in Part I item 1). Investors have the
option of withdrawing earnings on a monthly, quarterly, or annual basis or
reinvesting and compounding the earnings. limited partners may withdraw from the
partnership in accordance with the terms of the partnership agreement subject to
possible early withdrawal penalties. There is no established public trading
market.
A description of the partnership units, transfer restrictions and
withdrawal provisions is more fully described under the section of the
prospectus entitled "Description of Units" and "Summary of Limited Partnership
Agreement", pages 65 through 68 of the prospectus, a part of the referenced
registration statement, which is incorporated by reference.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VIII began operations in April 1993. Financial
results for years 1998 through December 31, 1999, for prior public partnerships
sponsored by the general partners and their affiliates, are incorporated by
reference to the prospectus (S-11).
Financial condition and results of operation for the partnership as of and
for the five years ended December 31, 2001 were:
Balance Sheets
Assets
December 31,
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- --------------- -------------- ---------------
Cash $1,916,578 $1,459,725 $1,602,568 $ 528,688 $ 663,159
Loans
Loans secured by deeds of trust 82,789,833 68,570,992 35,693,148 31,905,958 25,304,989
Loans, unsecured 3,967 53,838 49,090 48,849 62,844
Accrued interest and late fees 3,236,721 1,039,469 711,521 459,418 341,976
Advances on loans 194,655 172,004 33,251 211,145 205,804
Less allowance for losses (2,247,191) (1,344,938) (834,359) (414,073) (257,500)
Investment in LLC - - 373,358 304,139 251,139
Real estate owned (REO), net - - - 66,000 70,138
Prepaid expenses and other assets 6,123 13,416 6,332 11,835 15,025
-------------- -------------- --------------- -------------- ---------------
$85,900,686 $69,964,506 $37,634,909 $33,121,959 $26,657,574
============== ============== =============== ============== ===============
Liabilities and Partners Capital
December 31,
------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- --------------- -------------- ---------------
Liabilities
Accounts payable $ 73,889 $ 30,000 $ 29,413 $ 2,500 $ 3,355
Note payable - bank 11,400,000 16,400,000 - 5,947,000 5,640,000
Deferred interest - 82,253 213,529 124,805 83,066
Subscriptions to partnership in
applicant status 672,617 224,900 330,000 - -
-------------- -------------- --------------- -------------- ---------------
12,146,506 16,737,153 572,942 6,074,305 5,726,421
-------------- -------------- --------------- -------------- ---------------
Partners' capital
Limited partners subject to
Redemption 73,688,241 53,180,209 37,030,017 27,025,331 20,914,721
General partners subject to
Redemption 65,939 47,144 31,950 22,323 16,432
-------------- -------------- --------------- -------------- ---------------
Total partners' capital 73,754,180 53,227,353 37,061,967 27,047,654 20,931,153
-------------- -------------- --------------- -------------- ---------------
$85,900,686 $69,964,506 $37,634,909 $33,121,959 $26,657,574
============== ============== =============== ============== ===============
Statements of Income
December 31,
--------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- ------------- -------------- ------------- ---------------
Gross revenue $9,035,200 $6,348,819 $4,426,245 $3,406,021 $2,629,457
Expenses 2,941,067 2,056,601 1,482,051 1,127,439 820,937
-------------- ------------- -------------- ------------- ---------------
Income before interest credited to
partners in applicant status 6,094,133 4,292,218 2,944,194 2,278,582 1,808,520
Interest credited to partners in
applicant status 800 4,757 1,914 4,454 9,562
--------------
------------- -------------- ------------- ---------------
Net income $6,093,333 $4,287,461 $2,942,280 $2,274,128 $1,798,958
============== ============= ============== ============= ===============
Net income to general partners (1%) 60,933 42,875 29,423 22,741 17,990
Net income to limited partners (99%) 6,032,400 4,244,586 2,912,857 2,251,387 1,780,968
-------------- ------------- -------------- ------------- ---------------
Total net income $6,093,333 $4,287,461 $2,942,280 $2,274,128 $1,798,958
============== ============= ============== ============= ===============
Net income per $1,000 invested by
limited partners for entire period
(annualized)
- where income is compounded
and retained $90 $86 $84 $84 $84
============== ============= ============== ============= ===============
- where partner receives income in
monthly distributions $86 $83 $81 $81 $81
============== ============= ============== ============= ===============
The annualized yield, when income is compounded and retained for 1999 was
8.42%, for 2000 was 8.58% and for 2001 it was 8.98%. Our average annualized
yield, when income is compounded and retained, from inception through December
31, 2001, was 8.44%.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements.
Some of the information in the Form 10-K 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 2001 includes forward looking statements
and predictions about possible of 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.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
On December 31, 2001, 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 $24,751,356 for the
third offering, an aggregate of $69,675,947 as of December 31, 2001. Of this
amount, $672,617 remained in applicant status.
Results of Operations.
The net income increase of $668,152 (29%) for the year ended December 31,
1999, $1,345,181 (46%) for the year ended December 31, 2000, $1,805,872(42%) for
the year ended December 31, 2001, was primarily attributable to the increase in
loans held by the partnership:
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------ ------------------
Loans outstanding $35,693,148 $68,570,992 $82,789,833
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, 1999, 2000 and 2001, the partnership received new capital
contributions and reinvested compounding limited partner earnings of:
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------ ------------------
Capital contribution $9,530,318 $14,887,081 $19,712,488
Compounding or retainment
of earnings $1,911,554 $2,751,266 $3,892,420
To a lesser extent, loans outstanding have also increased through the
utilization of the partnership's line of credit. The effect of more outstanding
loans raised the interest earned on loans for the years ended:
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------ ------------------
Interest
earned on loans $4,337,427 $6,261,470 $8,920,082
The partnership began funding loans on April 14, 1993 and as of December
31, 2001, distributed earnings to limited partners who have chosen to compound
and retain earnings at an average annualized yield of 8.44%.
Beginning in the fall of 1999, mortgage interest rates had been rising due
primarily to economic forces and by the Federal Reserve raising its core
interest rates. However, beginning January 2001, the Federal Reserve has
dramatically cut its core interest rates with 11 consecutive cuts ranging from
.25% to .50%. The latest cut made was December 11, 2001, which reduced the
Federal Funds Rate to 1.75%. In late January 2002, the Federal Reserve met and
did not change interest rates signaling that it may take a wait and see course
before making any further interest rate changes. The effect of the cuts has
greatly reduced short-term interest rates and to a lesser extent reduced
long-term interest rates. New loans will be originated at then existing interest
rates. In the future, interest rates likely will change from their current
levels. The general partners cannot at this time predict at what levels interest
rates will be in the future. 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.
In 1995, the partnership established a line of credit with a commercial
bank secured by its loan portfolio and since its inception has increased the
credit limit from $3,000,000 to $20,000,000. For the years ended December 31,
1999, 2000 and 2001 interest on note payable-bank was $526,697, $887,546 and
$971,901, respectively. From 1999 through December 31, 2001, the increase in
interest on notes payable-bank has been attributed to a higher overall credit
facility utilization. As of December 31, 2001, the partnership had borrowed
$11,400,000 at an interest rate of prime +.25% (5.0%). This facility could again
increase as the partnership's capital increases. 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, 1999, 2000 and 2001, the outstanding balance on the
line of credit was $0, $16,400,000 and $11,400,000 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 $359,464, $505,823 and $552,323 for the
years ended December 31, 1999, 2000 and 2001, respectively. The mortgage
servicing fees increased primarily due to increase in the outstanding loan
portfolio. Asset management fees increased from $42,215, to $60,595 and to
$157,999 for the years ended December 31, 1999, 2000 and 2001, 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. This increase in fee for 2001 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 $85,171, to $113,580 and
$241,195 for the years December 31, 1999, 2000 and 2001. 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 doubtful account
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.
Allowance for Losses. 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.
This is attributable to many factors among these are the strength of the
Northern California real estate markets, a good general economy and careful loan
selection. During 2001, the Northern California real estate market slowed and
the national and local economies have slipped into recession. 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. Although as of December 31, 2001 we have not
acquired any real estate through foreclose, there is an increased 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 1999, 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 December 31, 2001, we have
commenced foreclosure proceedings against three loans, two of these borrowers
have been able to reinstate their loans. 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 doubtful accounts from $408,890, to $375,579 to $956,639 in 1999,
2000 and 2001. These provisions for doubtful accounts were made to guard against
collection losses. Total cumulative provision for doubtful accounts as of
December 31, 2001, is $2,247,191 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 compound 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 compound 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 compound 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 compound their earnings, and those that chose to
distribute:
The Year ended December 31,
1999 2000 2001
------------- ------------ --------------
Compounding $1,911,554 $2,751,266 $3,892,420
Distributing $826,291 $1,244,959 $1,961,780
As of December 31, 1999, December 31, 2000, December 31, 2001, limited
partners electing to withdraw earnings represented 30%, 31% and 34% 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 who
have sought withdrawal have been liquidated. Since the five-year hold period for
most limited partners has yet to expire, as of December 31, 2001, 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 were:
1999 2000 2001
---------- ----------- ------------
Earnings liquidation $ 826,291 $ 1,244,959 $ 1,961,780
Capital liquidation* 592,357 762,060 1,425,488
---------- ----------- ------------
Total $ 1,418,648 $ 2,007,019 $ 3,387,268
========== =========== ============
* 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 three years
ended December 31, 2001, capital liquidated subject to the 10% penalty for early
withdrawal was:
1999 2000 2001
-------------- -------------- --------------
$411,838 $309,643 $729,676
This represents 1.11%, 0.58% and 0.99% of the limited partners' ending
capital as of December 31, 1999, 2000 and 2001 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 December 31, 2001, approximately 82.5% 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 segements. The California Association of
Realtors reported in November 2001 that the statewide median home price had
reached its highest point ever with a median home price of $278,740 up 11.2%
from a year earlier and 2.4% higher than in October of 2001. It also reported
that overall volume of home sales slipped 12.4% from the year earlier. In spite
of these California wide higher home prices, the San Francisco Bay Area
experienced median sales prices through October of 2001 of between minus 4.2% to
a positive 16.7% for resale homes. 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 begun
to decrease in value. 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. 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.
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 December 31, 2001, the partnership had an average loan to value ratio
computed as of the date the loan was made of 59.67%. 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 December 31, 2001, 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 December 31, 2001 were:
Capital
liquidation
net of early
Earnings withdrawal
liquidation penalties Total
------------------- ----------------- ----------------
1993 $46,855 0 $46,855
1994 $165,814 0 $165,814
1995 $303,477 $5,077 $308,554
1996 $418,380 $134,647 $553,027
1997 $495,480 $119,357 $614,837
1998 $614,383 $233,278 $847,661
1999 $826,291 $552,633 $1,378,924
2000 $1,244,959 $731,635 $1,976,594
2001 $1,961,780 $1,355,122 $3,316,902
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, and 2001, $132,619, $244,213, $411,838, $309,643, and
$729,676 respectively were liquidated subject to the 10% penalty for early
withdrawal. This represents 0.63%, 0.90%, 1.11%, .58%, and .99% (1.23%
annualized) of the limited partners ending capital for the years ended December
31, 1997, 1998, 1999, 2000, and 2001, respectively. These withdrawals are within
the normally anticipated range that the general partners would expect in their
experience in this and other partnerships. The general partners expect that a
small percentage of limited partners will elect to liquidate their capital
accounts over one year with a 10% early withdrawal penalty. In originally
conceiving the partnership, the general partners wanted to provide limited
partners needing their capital returned a degree of liquidity. Generally,
limited partners electing to withdraw over one year need to liquidate their
investment to raise cash. The trend the partnership is experiencing in
withdrawals by limited partners electing a one year liquidation program
represents a small percentage of limited partner capital as of December 31,
1997, 1998, 1999, 2000 and 2001, 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").
Item 8 - Financial Statements and Supplementary Data
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VIII are
included in Item 8:
- Independent Auditors' Report
- Balance Sheets - December 31, 2001, and December 31, 2000
- Statements of Income for the three years ended December 31, 2001
- Statements of Partners' Capital for the three years ended December 31, 2001
- Statements of Cash Flows for the three years ended December 31, 2001
- Notes to Financial Statements
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors
VIII are included in Item 8.
- Schedule II - Valuation and Qualifying Accounts
- Schedule IV - Loans on Real Estate
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 2001
ARMANINO McKENNA LLP
CERTIFIED PUBLIC ACCOUNTANTS
1855 Olympic Boulevard, Suite 225
Walnut Creek, CA 94596
(925) 939-8500
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
REDWOOD CITY, CALIFORNIA
We have audited the accompanying balance sheets of REDWOOD MORTGAGE
INVESTORS VIII (A California Limited Partnership) as of December 31, 2001 and
2000 and the related statements of income, changes in partners' capital and cash
flows for the two years then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements 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
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VIII as of December 31, 2001 and 2000, and the results of its operations and
cash flows for the two years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ ARMANINO McKENNA LLP
Walnut Creek, California
February 16, 2002
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd, Suite 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
We have audited the financial statements of REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership) including the accompanying statements of
income, changes in partners' capital and cash flows for the year ended December
31, 1999. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of REDWOOD MORTGAGE INVESTORS VIII
operations and cash flows for the year ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
(Other Auditors prior to Armanino McKenna, LLP)
Walnut Creek, California
March 15, 2000
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
-------------- ------------
Cash and cash equivalents $1,916,578 $1,459,725
-------------- ------------
Loans
Loans secured by deeds of trust,
held to maturity 82,789,833 68,570,992
Loans, unsecured 3,967 53,838
-------------- ------------
82,793,800 68,624,830
Less allowance for losses 2,247,191 1,344,938
-------------- ------------
Net loans 80,546,609 67,279,892
-------------- ------------
Interest and other receivables
Accrued interest and late fees 3,236,721 1,039,469
Advances on loans 194,655 172,004
-------------- ------------
3,431,376 1,211,473
-------------- ------------
Prepaid loan fees 6,123 13,416
-------------- ------------
Total assets $85,900,686 $69,964,506
============== ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable 73,889 $ 30,000
Note payable - bank line of credit 11,400,000 16,400,000
Deferred interest - 82,253
-------------- ------------
Total liabilities 11,473,889 16,512,253
-------------- ------------
Investors in applicant status 672,617 224,900
-------------- ------------
Partners' capital:
Limited partners' capital, subject to redemption
net of unallocated syndication costs of $399,249
and $310,438 for 2001 and 2000, respectively:
and formation loan receivable of $4,126,430
and $3,010,871 for 2001 and 2000,
respectively 73,688,241 53,180,209
General partners' capital, net of unallocated syndication
costs of $4,033 and $3,136 for 2001 and 2000,
respectively 65,939 47,144
-------------- ------------
Total partners' capital 73,754,180 53,227,353
-------------- ------------
Total liabilities and partners' capital $85,900,686 $69,964,506
============== ============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
YEARS ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
------- ------- --------
Revenues
Interest on Loans $8,920,082 $6,261,470 $4,337,427
Interest - interest bearing accounts 8,270 11,154 8,197
Late charges 98,817 65,520 27,859
Other 8,031 10,675 52,762
------------ ----------- -----------
9,035,200 6,348,819 4,426,245
------------ ----------- -----------
Expenses
Mortgage servicing fees 552,323 505,823 359,464
Interest on note payable - bank 971,901 887,546 526,697
Amortization of loan origination fees 13,542 11,667 10,503
Provision for losses on loans and real
estate acquired through foreclosure 956,639 375,579 408,890
Asset management fees 157,999 60,595 42,215
Clerical costs through Redwood
Mortgage Corp. 241,195 113,580 85,171
Professional services 12,795 64,356 31,814
Printing, supplies and postage 26,778 18,249 7,102
Other 11,571 19,206 10,195
------------ ----------- ----------
2,944,743 2,056,601 1,482,051
------------ ----------- ----------
Other Income (expense)
Interest credited to partners in
applicant status (800) (4,757) (1,914)
Gain on sale of property and equipment 3,676 - -
------------ ----------- ----------
Net income $6,093,333 $4,287,461 $2,942,280
============ ============ ==========
Net income: general partners (1%) $ 60,933 $ 42,875 $ 29,423
limited partners (99%) 6,032,400 4,244,586 2,912,857
------------ ------------ ----------
Total - net income $6,093,333 $4,287,461 $2,942,280
============ ============ ==========
Net income per $1,000 invested by limited
partners for entire period
Where income is reinvested and compounded $90 $86 $84
============ =========== ==========
Where partner receives income in
monthly distributions $86 $83 $81
============ =========== ==========
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
PARTNERS' CAPITAL
--------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status partners Costs Receivable Total
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 1998 $ - $29,020,110 $ (353,875) $(1,640,904) $27,025,331
Contributions on application 9,530,318 - - - -
Formation loan increases - - - (708,461) (708,461)
Formation loan payments - - - 164,731 164,731
Interest credited to partners
in applicant status 1,914 - - - -
Upon admission to partnership:
Interest withdrawn (1,002) - - - -
Transfers to partners' capital (9,201,230) 9,191,719 - - 9,191,719
Net Income - 2,912,857 - - 2,912,857
Syndication costs incurred - - (177,099) - (177,099)
Allocation of syndication costs - (175,012) 175,012 - -
Partners' withdrawals - (1,378,924) - - (1,378,924)
Early withdrawal penalties - (39,725) 13,628 25,960 (137)
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 1999 330,000 39,531,025 (342,334) (2,158,674) 37,030,017
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 - - (266,903) - (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
============= ================ =============== =============== ==============
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
PARTNERS' CAPITAL
----------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------
Capital
Account Unallocated
General Syndication Total Partners'
Partners Costs Total Capital
-------------- -------------- --------------- ------------------
Balances at December 31, 1998 $ 25,897 $ (3,574) $ 22,323 $ 27,047,654
Contributions on application - - - -
Formation loan increases - - - (708,461)
Formation loan payments - - - 164,731
Interest credited to partners in
applicant status - - - -
Upon admission to partnership:
Interest withdrawn - - - -
Transfers to partners' capital 9,511 - 9,511 9,201,230
Net income 29,423 - 29,423 2,942,280
Syndication costs incurred - (1,789) (1,789) (178,888)
Allocation of syndication costs (1,768) 1,768 - -
Partners' withdrawals (27,655) - (27,655) (1,406,579)
Early withdrawal penalties - 137 137 -
-------------- -------------- --------------- ------------------
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
============== ============== =============== ==================
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
----------------- ------------------- -----------------
Cash flows from operating activities
Net income $6,093,333 $4,287,461 $2,942,280
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for doubtful accounts 902,253 510,579 420,286
Provision for gain on real estate held for sale
- - (11,396)
Change in operating assets and liabilities
Accrued interest and advances, less
transfers to allowance for doubtful accounts (2,219,903) (466,701)
(74,209)
Deferred interest (131,276)
(82,253) 88,724
Amounts due from unsecured loans (4,748)
49,871 (241)
Deferred loan fees 6,332
7,293 5,503
Accounts payable
43,889 587 26,913
----------------- ------------------- -----------------
Net cash provided by operating activities 4,794,483 4,202,234 3,397,860
----------------- ------------------- -----------------
Cash flows from investing activities
Loans made (47,512,368) (49,289,289) (24,030,919)
Principal collected on loans 33,293,527 16,411,445 20,243,729
Proceeds from sale of real estate
- - 79,282
Payments for purchases of real estate
- - (1,886)
Dispositions of (additions to) real estate held by
Limited Liability Corporation - 359,942
(69,219)
----------------- ------------------- -----------------
Net cash used in investing activities (14,218,841) (32,517,902) (3,779,013)
----------------- ------------------- -----------------
Cash flows from financing activities
Borrowings (repayments) on line of credit, net (5,000,000) 16,400,000 (5,947,000)
Contributions by partner applicants 19,712,488 14,887,081 9,530,318
Interest credited to partners in applicant status 4,757
800 1,914
Interest withdrawn by partners in applicant status
(409) (779) (1,002)
Partners' withdrawals (3,376,035) (2,016,960) (1,406,579)
Syndication costs incurred (294,090) (229,194) (178,888)
Formation loan lending (1,461,530) (1,102,196) (708,461)
Formation loan collections 299,987 230,116 164,731
----------------- ------------------- -----------------
Net cash provided by financing activities 9,881,211 28,172,825 1,455,033
Net increase (decrease) in cash and cash equivalents 456,853 (142,843) 1,073,880
Cash and cash equivalents - beginning of year 1,459,725 1,602,568 528,688
----------------- ------------------- -----------------
Cash and cash equivalents - end of year $1,916,578 $1,459,725 $1,602,568
================= =================== =================
Cash paid for interest $ 971,901 $ 887,546 $ 526,697
================= =================== =================
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California limited partnership (the
"Partnership"), was organized in 1993 of which Michael R. Burwell, Gymno
Corporation and Redwood Mortgage Corp., both California Corporations, are the
general partners. The partnership was organized to engage in business as a
mortgage lender for the primary purpose of making loans secured by Deeds of
Trust on California real estate. Loans are being arranged and serviced by
Redwood Mortgage Corp., a general partner. At December 31, 2001 and 2000, the
partnership was in the offering stage, wherein contributed capital totaled
$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 December 31, 2001 and 2000, $672,617 and $224,900, respectively, remained in
applicant status, and total Units sold were in the aggregate of $69,675,947 and
$49,983,150, respectively.
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 is still open. 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
$1,839,684, which was 7.4% of the limited partners contributions of $24,751,355
at December 31, 2001. It is to be repaid, without interest, in ten annual
installments of principal, which will commence on January 1, 2003. The third
offering is expected to close during 2002.
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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - ORGANIZATION AND GENERAL(Continued)
The following summarizes Formation Loan transactions to December 31, 2001:
Initial Subsequent Current
Offering of Offering of Offering of
$15,000,000 $30,000,000 $30,000,000 Total
--------------- -------------- -------------- ----------------
Limited partner contributions $14,932,017 $29,992,574 $24,751,356 $69,675,947
=============== ============== ============== ================
Formation Loan made $1,074,840 $2,271,916 $1,839,684 $5,186,440
Payments to date (430,882) (467,674) (37,816) (936,372)
Early withdrawal penalties applied (46,950) (56,106) (20,582) (123,638)
--------------- -------------- -------------- ----------------
Balance December 31, 2001 $597,008 $1,748,136 $1,781,286 $4,126,430
=============== ============== ============== ================
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 December 31, 2001, syndication costs of $1,690,933 had been
incurred by the partnership with the following distribution:
Syndication
Costs
-----------------
Costs incurred $1,690,933
Early withdrawal penalties applied (66,479)
Allocated and amortized to date (1,221,172)
-----------------
December 31, 2001 balance $403,282
=================
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%.
As of December 31, 2000, syndication costs attributable to the subsequent
offering #2 ($30,000,000) totaled $597,784, (2.0% of contributions), with the
costs of the offering being greater at the initial stages due to professional
and filing fees related to formulating the offering documents.
In August 2000, the current offering #3 began incurring syndication costs.
As of December 31, 2001 and 2000 the offering had incurred $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 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, whichever is higher.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis - Revenues and expenses are accounted for on the accrual
basis of accounting wherein income is recognized as earned and expenses are
recognized as incurred. Once a loan is categorized as impaired, interest is no
longer accrued thereon. 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 doubtful accounts, including the
valuation of impaired loans, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust - The partnership has both the intent
and ability to hold the loans to maturity, i.e., held for long-term investment.
Therefore the 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 December 31, 2001, and 2000, loans categorized as impaired by the
partnership were $710,235, and $0, respectively, with a reduction in the
carrying value of the impaired loans of $87,903, and $0 respectively. The
reduction in the carrying value of the impaired loans is included in the
allowance for doubtful accounts. 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 at December
31, 2001 and 2000 was 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 December 31, 2001 and 2000, is approximately $2,828,574 and $1,359,725,
respectively.
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 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 is made
in the financial statements since income taxes are the obligation of the
partners if and when income taxes apply.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
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 bad debt to adjust the allowance for doubtful
accounts to an amount considered by management to be adequate, with due
consideration to collateral values, to provide for unrecoverable accounts
receivable, including impaired loans, other loans, accrued interest, late fees
and advances on loans, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of December 31, 2001, and
2000 was as follows:
December 31,
------------------------------------
2001 2000
------------- ----------------
Impaired loans $87,903 $0
Unspecified loans 2,155,321 1,291,150
Loans, unsecured 3,967 53,788
------------- ----------------
$2,247,191 $1,344,938
============= ================
Allowance for Doubtful Accounts reconciliation:
Activity in the allowance for doubtful accounts is as follows for the years
ending December 31:
2001 2000 1999
-------------- -------------- -----------
Beginning Balance $1,344,938 $ 834,359 $ 414,073
Provision for bad debt 956,639 469,442 448,161
Write-off of bad debt (54,386) (99,758) (39,271)
Gain on sale of property - 140,895 11,396
-------------- ------------- -----------
Ending Balance $2,247,191 $1,344,938 $ 834,359
============== ============= ===========
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 years ended December 31,
2001, 2000, and 1999 late fee revenue of $98,817, $65,520, and $19,384,
respectively, was recorded.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
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 2001 and 2000, loan brokerage
commissions paid by the borrowers were $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 $552,323, $505,823
and $359,464 were incurred for the years ended December 31, 2001, 2000 and 1999,
respectively.
C. Asset Management Fee - The general partners receive monthly fees for
managing the partnership's loan portfolio and operations up to 1/32 of 1% of the
"net asset value" (3/8 of 1% annual). Management fees of $157,999, $60,595, and
$42,215 were incurred for years 2001, 2000 and 1999, 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 Statement 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
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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued)
During the periods ending December 31, 2001, 2000 and 1999, interest
totaling $800, $4,757 and $1,914, 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 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
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 $11,400,000 and $16,400,000 at December 31, 2001, and 2000,
respectively. The interest rate was 5.0% and 9.75% at December 31, 2001 and 2000
respectively, (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.
NOTE 8 - INCOME TAXES
The following reflects reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
------------------------------------
2001 2000
--------------- ---------------
Net Assets - partners' capital
per financial statements $73,754,180 $53,227,353
Non-amortized syndication costs 403,282 313,574
Allowance for doubtful accounts 2,247,191 1,344,938
Formation loans receivable 4,126,430 3,010,871
--------------- -------------
Net assets tax basis 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) Loans (see note 2(c)) carrying value was $82,789,833 and $68,570,992 at
December 31, 2001 and 2000, respectively. The fair value of these investments of
$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 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, 2001
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At December 31, 2001 and 2000,
there were 76 and 68 loans outstanding, respectively, with the following
characteristics:
2001 2000
-------------- -------------
Number of loans outstanding 76 68
Total loans outstanding $82,789,833 $68,570,992
Average loan outstanding $1,089,340 $1,008,397
Average loan as percent of total 1.32% 1.47%
Average loan as percent of Partners' Capital 1.48% 1.89%
Largest loan outstanding 7,000,000 4,000,000
Largest loan as percent of total 8.46% 5.83%
Largest loan as percent of Partners' Capital 9.49% 7.51%
Number of counties where security is located
(all California) 12 12
Largest percentage of loans in one county 41.40% 41.72%
Average loan to appraised value of security
at time loan was consummated 59.67% 54.88%
Number of loans in foreclosure status 3 0
Amount of loans in foreclosure $1,050,790 0
The following loan categories were held at December 31, 2001 and 2000:
2001 2000
------------- ------------
First Trust Deeds $42,984,020 $37,806,032
Second Trust Deeds 34,640,619 29,799,535
Third Trust Deeds 5,165,194 965,425
------------- ------------
Total loans 82,789,833 68,570,992
Prior liens due other lenders 67,944,616 37,584,916
------------- ------------
Total debt $150,734,449 $106,155,908
------------- ------------
Appraised property value at time of loan $252,604,011 $193,420,663
------------- ------------
Total investments as a percent of appraisals 59.67% 54.88%
------------- ------------
Investments by Type of Property
Owner occupied homes $11,018,765 $9,753,617
Non-Owner occupied homes 26,523,195 16,471,074
Apartments 7,336,898 8,458,610
Commercial 37,910,975 33,887,691
------------- ------------
$82,789,833 $68,570,992
============= ============
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS (Continued)
The interest rates on the loans range from 8.00% to 18.00% at December 31, 2001.
Scheduled maturity dates of loans as of December 31, 2001 are as follows:
Year Ending
December 31, Amount
---------------- -----------------
2002 $57,822,416
2003 16,382,004
2004 3,690,525
2005 396,260
2006 2,784,413
Thereafter 1,714,215
-----------------
$82,789,833
=================
The scheduled maturities for 2002 include twenty-five loans totaling
$23,610,528, which are past maturity at December 31, 2001. Interest payments on
nine of these loans were delinquent.
The cash balance at December 31, 2001 of $2,928,574 was in one bank with
interest bearing balances totaling $2,013,286. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $2,828,574. This bank is the same
financial institution that has provided the partnership with the $20,000,000
limit line of credit (LOC). December 31, 2001, the LOC had a balance of
$11,400,000. 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 December 31, 2001. There are approximately 11 loans
totaling $11,226,000 in workout agreements as of December 31, 2001.
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 December 31, 2001.
The partnership has approved the borrowers up to a maximum loan balance;
however, disbursements are made during completion phases throughout the
construction process. At December 31, 2001, there were $9,990,881 of
undistributed construction loans which will be funded by a combination of new
investors' money, line of credit draw down, and retirement of principal on
current loans.
SCHEDULE II
REDWOOD MORTGAGE INVESTORS VIII
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Description Balance Additions Deductions Balance at
--------------------------------------
beginning of (1) (2) Describe End of Period
of period Charged to Charged
Costs & Expenses (credited) to
Other accounts -
Describe
Year Ended
12/31/01
Deducted from
Asset accounts:
Allowance for
Doubtful accts $1,344,938 $956,639 - ($54,386)* $2,247,191
----------------- -------------------- ------------------ ---------------- ----------------
Totals $1,344,938 $956,639 - ($54,386) $2,247,191
================= ==================== ================== ================ ================
* An actual write-off against the allowance for doubtful accounts.
SCHEDULE IV
REDWOOD MORTGAGE INVESTORS VIII
LOANS ON REAL ESTATE.
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col.I Col. J
- ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Descp. Interest Final Periodic Prior Liens Face Amt. of Carrying Principal Type Geographic
Rate % Maturity Payment Loans(original Amount Amount of of County
Date Terms amount) of loans Loans Subject Lien Location
to Delinquency
Principal or
Interest
======= ======= ========== ============= ============== =============== ============= ============= === =============
Comm 10.00 12/01/98 $ 1,689.33 $ - $ 192,500.00 $ 188,777.76 $ - 1st Alameda
Comm 12.00 02/01/99 5,131.14 - 503,457.45 503,457.45 - 1st Santa Clara
Comm 12.00 03/01/01 789.92 - 75,000.00 70,806.52 - 1st San Mateo
Res 11.00 04/01/06 1,039.81 - 105,000.00 100,998.89 - 1st San Francisco
Comm 12.00 03/01/01 684.60 74,754.00 65,000.00 61,794.68 - 2nd San Mateo
Comm 12.00 02/01/99 186.00 468,000.00 18,000.00 18,000.00 - 2nd Santa Clara
Comm 14.00 04/01/06 12,160.05 - 700,000.00 472,071.13 - 1st San Francisco
Comm 10.75 04/01/00 447.92 121,264.00 50,000.00 50,000.00 - 2nd Riverside
Res 12.00 06/01/99 500.00 262,342.00 50,000.00 50,000.00 - 2nd Alameda
Res 10.00 07/01/00 5,068.88 - 579,300.00 579,300.00 - 1st San Francisco
Comm 12.00 10/01/02 1,562.50 - 150,000.00 58,479.99 - 1st San Francisco
Res 11.00 04/01/99 11,661.04 579,300.00 1,320,000.00 1,320,000.00 - 2nd San Francisco
Comm 11.00 10/01/07 6,190.11 - 650,000.00 635,381.94 - 1st San Francisco
Res 8.00 11/01/27 1,834.42 - 250,000.00 239,606.08 - 1st San Mateo
Land 11.00 09/01/99 3,354.17 - 350,000.00 350,000.00 43,604.21 1st Stanislaus
Land 11.00 12/01/00 10,273.34 - 1,072,000.00 573,927.16 - 1st Stanislaus
Res 11.00 03/01/00 1,126.59 579,300.00 950,700.00 761,909.89 - 2nd San Francisco
Res 11.00 05/01/00 8,720.83 - 910,000.00 910,000.00 - 1st San Francisco
Res 11.00 05/01/00 9,132.92 910,000.00 953,000.00 2,330,575.84 - 2nd San Francisco
Res 12.00 03/01/01 12,336.18 - 1,210,000.00 1,210,000.00 181,495.95 1st Marin
Land 11.00 01/01/01 16,500.00 363,035.00 1,800,000.00 1,440,202.18 - 2nd Stanislaus
Land 11.00 07/01/01 23,833.33 358,116.00 2,600,000.00 2,600,000.00 - 2nd Stanislaus
Res 10.25 09/01/09 7,616.86 668,433.00 850,000.00 839,227.22 - 2nd Santa Clara
Comm 13.75 11/01/99 2,044.77 156,750.00 175,500.00 162,509.83 - 2nd Alameda
Apts 12.50 03/14/00 3,552.87 46,727.69 38,727.14 308,344.28 - 2nd Contra Costa
Land 11.00 11/01/00 2,034.55 2,968,393.00 221,951.22 190,243.90 26,449.15 3rd Stanislaus
Comm 10.25 12/01/01 13,158.44 - 1,185,000.00 1,540,500.00 - 1st Contra Costa
Comm 11.00 01/01/02 5,041.67 495,031.00 550,000.00 548,770.32 - 2nd San Francisco
Comm 11.50 02/01/05 4,065.88 492,978.13 400,000.00 396,260.03 32,527.04 2nd San Francisco
Res 11.50 09/01/01 7,272.16 539,843.20 1,292,800.00 1,279,929.24 - 2nd San Mateo
Comm 11.50 03/01/02 12,496.45 - 1,303,977.27 1,303,977.27 - 1st San Francisco
Comm 11.50 03/01/02 12,468.09 1,303,977.00 1,696,022.72 1,559,659.13 - 2nd San Francisco
Land 11.50 07/01/01 4,557.93 2,600,000.00 475,609.76 475,609.76 59,253.09 2nd Stanislaus
Comm 12.50 04/01/02 30,208.33 - 2,900,000.00 2,900,000.00 - 1st San Mateo
Res 12.00 05/01/01 4,099.50 3,297,500.00 409,949.98 409,949.98 19,062.66 2nd Placer
Apts 12.00 05/01/01 38,558.51 - 3,939,310.37 1,870,017.96 - 1st San Francisco
Comm 12.00 12/01/01 28,031.03 - 4,970,000.00 4,095,941.90 - 1st Los Angeles
Comm 10.50 06/01/06 7,089.23 - 775,000.00 769,024.18 - 1st San Mateo
Res 11.00 02/01/02 7,376.67 730,284.00 1,661,035.00 315,693.37 - 2nd San Mateo
Apts 12.00 08/01/03 40,000.00 - 4,000,000.00 4,000,000.00 - 1st San Francisco
Res 12.00 03/01/01 13,250.00 - 1,325,000.00 1,325,000.00 129,187.53 1st Marin
Land 12.00 09/01/01 7,500.00 - 750,000.00 750,000.00 - 1st Santa Clara
Res 12.00 11/01/01 20,950.64 1,320,000.00 3,680,000.00 3,651,788.60 328,660.98 2nd San Francisco
SCHEDULE IV CONT'D
REDWOOD MORTGAGE INVESTORS VIII
LOANS ON REAL ESTATE.
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col.I Col. J
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Descp. Interest Final Periodic Prior Liens Face Amount of Carrying Principal Type Geographic
Rate % Maturity Payment Loans (original Amount Amt of Loans of County
Date Terms amount) of Loans Subject to Lien Location
Delinq. Prin
or Interest
======= ======== ========== ============= =============== ================ ================ =========== ==== ==========
Res 12.00 10/01/03 $ 13,000.00 $ 785,819.00 $ 1,300,000.00 $ 1,300,000.00 $ - 2nd San Mateo
Apts 12.50 04/01/02 1,089.38 4,000,000.00 289,855.07 289,855.08 15,096.65 2nd San Francisco
Comm 13.00 11/01/02 2,220.84 310,381.00 205,000.00 204,866.75 - 2nd Alameda
Comm 12.50 01/01/04 246.95 845,350.00 692,000.00 442,774.76 - 2nd San Francisco
Land 14.00 01/01/02 875.78 - 5,000,000.00 7,000,000.00 - 1st Alameda
Res 13.00 05/01/01 3,802.34 3,707,450.00 350,984.57 350,984.57 - 3rd Placer
Res 11.50 03/01/01 6,229.17 1,298,693.00 650,000.00 650,000.00 - 2nd Contra Costa
Res 12.00 03/01/01 9,500.00 - 950,000.00 950,000.00 - 1st San Francisco
Res 12.50 11/01/02 11,295.57 - 1,675,000.00 1,120,170.40 - 1st Napa
Res 13.25 10/01/02 4,633.44 950,000.00 764,000.00 503,953.29 - 2nd San Francisco
Comm 11.50 04/01/02 45,520.83 - 4,750,000.00 4,750,000.00 - 1st San Francisco
Comm 12.00 04/01/02 22,500.00 4,750,000.00 2,250,000.00 2,250,000.00 - 2nd San Francisco
Res 12.00 05/01/03 18,305.00 5,910,000.00 1,830,500.00 1,830,500.00 - 2nd Santa Clara
Res 12.00 05/01/03 15,604.36 7,740,500.00 4,116,500.00 1,748,097.28 - 3rd Santa Clara
Res 11.50 05/01/02 5,802.71 - 605,500.00 604,090.61 - 1st Marin
Apts 11.50 06/01/06 1,849.97 - 182,000.00 181,237.75 - 1st Merced
Res 13.25 12/01/02 19,725.93 581,870.00 2,188,000.00 1,856,635.68 - 2nd Santa Clara
Res 13.25 01/01/03 20,350.98 - 3,515,500.00 2,215,912.45 - 1st Napa
Res 11.00 07/01/06 4,583.33 1,254,113.10 500,000.00 500,000.00 - 3rd Santa Clara
Res 12.50 06/01/06 3,645.83 1,830,194.00 350,000.00 350,000.00 - 3rd San Mateo
Res 12.00 07/01/03 5,101.34 996,773.00 1,727,400.00 560,115.92 - 2nd San Mateo
Comm 11.50 08/01/06 3,557.64 - 350,000.00 341,080.57 - 1st San Mateo
Res 11.00 08/01/03 7,333.33 664,591.15 800,000.00 800,000.00 - 2nd Santa Clara
Res 10.50 09/01/02 17,500.00 1,071,429.00 2,000,000.00 2,000,000.00 - 2nd San Francisco
Res 13.25 03/01/03 14,249.52 - 3,368,000.00 1,374,260.40 - 1st San Mateo
Res 12.00 09/01/04 3,750.00 488,053.00 375,000.00 375,000.00 - 2nd Los Angeles
Res 12.00 09/01/02 4,392.50 726,250.00 439,250.00 439,250.00 - 2nd Santa Clara
Apts 12.50 05/01/02 7,082.55 523,140.63 740,000.00 687,443.30 - 2nd San Francisco
Res 11.00 11/01/04 3,875.21 1,131,981.00 422,750.00 422,750.00 - 3rd San Mateo
Res 10.25 11/01/04 12,812.50 2,484,362.94 1,500,000.00 1,500,000.00 - 2nd San Mateo
Res 11.50 12/01/06 693.20 166,539.67 70,000.00 70,000.00 - 2nd Stanislaus
Res 10.25 12/01/04 2,562.50 977,654.72 300,000.00 300,000.00 - 2nd San Francisco
Comm 12.50 01/01/03 9,937.69 7,000,000.00 2,454,500.00 1,603,117.51 - 3rd San Francisco
--------------- ------------- ---------------- --------------- -----------
TOTALS $709,227.05 $67,944,614.23 $93,865,580.55 $82,789,832.80 $835,340.26
=============== ============= ================ =============== ===========
Notes:
o The allowance for doubtful accounts includes $2,155,321 relating
to the above loans and accrued interest receivable and advances
related thereto.
o Amounts reflected in column G(carrying amount of loans) represents
both cost and the tax basis of the loans.
SCHEDULE IV CONT'D
Reconciliation of carrying amount (cost) of loans at close of periods
Year ended December 31,
-------------------------------------------------
2001 2000 1999
------------- ------------ ----------
Balance at beginning of year $68,570,992 $35,693,148 $31,905,958
--------------- -------------- -----------
Additions during period:
New loans 47,512,368 49,289,289 24,030,920
Other - - -
--------------- -------------- -----------
Total Additions 47,512,368 49,289,289 24,030,920
--------------- -------------- -----------
Deductions during period:
Collections of principal 33,293,527 16,411,445 20,243,730
Foreclosures - - -
Cost of loans sold - - -
Amortization of Premium - - -
Other - - -
--------------- -------------- -----------
Total Deductions 33,293,527 16,411,445 20,243,730
--------------- -------------- -----------
Balance at close of year $82,789,833 $68,570,992 $35,693,148
=============== ============== ===========
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Bruce and/or John Cropper (the Croppers) have been performing audit and
accounting services to the general partners of the partnership and their
affiliates for over 17 years. They have been providing auditing and accounting
services to the partnership for the past 8 years through the following CPA
firms: 1993-1998 - Parodi & Cropper, CPA's; 1999 - Caporicci, Cropper & Larson,
LLP and 2000-2001 - Armanino McKenna LLP.
Bruce and John Cropper were shareholders in Cropper Accountancy Corp.
through December 31, 2000.
Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper &
Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi &
Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from
Caporicci, Cropper & Larson, LLP partnership. John Cropper joined the larger
regional firm of Armanino McKenna LLP as a partner and Bruce Cropper continues
to provide services through Cropper Accountancy.
As a result, the partnership has retained the firm of Armanino McKenna LLP,
to provide its audit and financial services. Thus, although there has been a
change in accounting firms, there has not been a change in accountants and there
have not been any disagreements on any matter of accounting principles,
practices or financial status disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant
The partnership has no Officers or Directors. Rather, the activities of the
partnership are managed by three general partners of which one individual is
Michael R. Burwell. The other two general partners are Gymno Corporation and
Redwood Mortgage Corp. Both are California corporations, formed in 1986 and
1978, respectively. Mr. Burwell is one of the two shareholders of Gymno
Corporation, a California corporation, on an equal (50-50) basis. Redwood
Mortgage Corp. is a subsidiary of the Redwood Group Ltd., whose principal
stockholder is D. Russell Burwell, the other shareholder of Gymno Corporation.
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in Item 10, 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 (S-11) dated August 31, 2000, page 2, 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 year ended December 31, 2001. All
such compensation is in compliance with the guidelines and limitations set forth
in the prospectus.
Entity Receiving Description of Compensation Amount
Compensation and Services Rendered
- --------------------------------------------------------------------------------
I. Redwood Mortgage Mortgage Servicing Fee
Corp. (General Partner) for servicing loans $552,323
General Partners Asset Management Fee
&/or Affiliates for managing assets $157,999
General Partners 1% interest in profits $60,933
Less allocation of syndication
costs $1,800
---------------
$59,133
General Partners Portion of early withdrawal penalties
&/or Affiliates applied to reduce Formation Loan $45,984
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 $1,155,636
Redwood Mortgage Corp. Processing and Escrow Fees for services in connection
with notary, document preparation, credit investig-
ation, and escrow fees payable by the borrowers and
not by the partnership $19,149
Gymno Corporation, Inc. Reconveyance Fee $3,076
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. $241,195
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The general partners own a combined total of 1% of the partnership
including a 1% portion of income and losses.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to financial statements in Part II item 8,
which describes related party fees and data.
Also refer to the prospectus dated August 31, 2000, (incorporated herein by
reference) on page 2 "Compensation of General Partners and Affiliates" and page
2 "Conflicts of Interest", supplement No. 1 dated April 30, 2001, and supplement
No. 2 dated February 12, 2002.
Part IV
Item 14 - Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
A. Documents filed as part of this report are incorporated:
1. In Part II, Item 8 under A - Financial Statements.
2. The Financial Statement Schedules are listed in Part II - Item 8
under B - Financial Statement Schedules.
3. Exhibits.
A.
Exhibit No. Description of Exhibits
- ------------------ -------------------------
3.1 Limited Partnership Agreement
3.2 Form of Certificate of Limited Partnership Interest
3.3 Certificate of Limited Partnership
10.1 Escrow Agreement
10.2 Servicing Agreement
10.3 (a) Form of Note secured by Deed of Trust for
Construction Loans, which provides for principal and
interest payments.
(b) Form of Note secured by Deed of
Trust for Commercial and Multi-Family loans which
provides for principal and interest payments
(c) Form of Note secured by Deed of Trust for Com-
mercial and Multi-Family loans which provides for
interest only payments
(d) Form of Note secured by Deed of Trust for Single
Family Residential Loans, which provides for interest
and principal payments. (e) Form of Note secured by
Deed of Trust for Single Family Residential loans,
which provides for interest only payments.
10.4 (a) Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing to accompany
Exhibits 10.3 (a), and (c).
(b) Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing to accompany
Exhibit 10.3 (b).
(c) Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing to accompany
Exhibit 10.3 (c).
10.5 Promissory Note for Formation Loan
10.6 Agreement to Seek a Lender
All of these exhibits were previously filed as the exhibits to Registrant's
Registration Statement on Form S-11 (Registration No. 333-41410 and incorporated
by reference herein).
B. Reports of Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report. A Form 8-K was filed on February 11,
2000 relating to a change in accounting firms and the admittance of an
additional general partner. Another Form 8-K was filed on February 14,
2001, relating to the subsequent change in accounting firms. An amended
Form 8-K was filed on August 31, 2001 amending certain disclosure items
set forth in the Form 8-K filed on February 13, 2001 relating to the
change in accountants. A Form 8-K was filed on April 11, 2001 relating
to the retirement of D. Russell Burwell as a general partner of the
partnership effective September 1, 2001.
C. See A (3) above.
D. See A (2) above. Additional reference is made to the prospectus (filed
as part of the S-11 registration statement) dated August 31, 2000,
supplement No. 1 dated April 30, 2001 (post effective amendment No. 1
to the S-11 registration statement), and supplement No. 2 dated
February 12, 2002 (post effective amendment to the S-11 registration
statement), for financial data related to Gymno Corporation, and
Redwood Mortgage Corp., the Corporate General Partners.
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 26th day of March,
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,
and Principal Financial Officer
By: Redwood Mortgage Corp.
By: /S/ Michael R. Burwell
-----------------------------------------------------
Michael R. Burwell, President, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity indicated on the 26th day of March, 2002.
Signature Title Date
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell General Partner March 26, 2002
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell President of Gymno Corporation, March 26, 2002
(Principal Executive Officer);
Director of Gymno Corporation
Secretary/Treasurer of Gymno
Corporation (Principal Financial
and Accounting Officer);
/S/ Michael R. Burwell
- -------------------------
Michael R. Burwell President, Secretary/Treasurer of March 26, 2002
Redwood Mortgage Corp. (Principal
Financial and Accounting Officer);
Director of Redwood Mortgage Corp.