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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 2002
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Commission file number 333-41410
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REDWOOD MORTGAGE INVESTORS VIII, a California Limited Partnership
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(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
900 Veterans Blvd., Suite 500, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2002 (unaudited) and DECEMBER 31, 2001 (audited)
ASSETS
September 30, December 31,
2002 2001
---------------- ---------------
(unaudited) (audited)
Cash and cash equivalents $ 2,812,092 $1,916,578
---------------- ---------------
Loans
Loans secured by deeds of trust, held to maturity 90,858,944 82,789,833
Loans, unsecured 0 3,967
---------------- ---------------
90,858,944 82,793,800
Less allowance for loan losses (2,665,476) (2,247,191)
---------------- ---------------
Net loans 88,193,468 80,546,609
---------------- ---------------
Interest and other receivables
Accrued interest and late fees 3,351,251 3,236,721
Advances on loans 289,027 194,655
---------------- ---------------
3,640,278 3,431,376
---------------- ---------------
Real estate owned, held for sale 2,249,595 0
Investment in limited liability corporation, at fair value 3,911,909 0
Prepaid loan fees 21,875 6,123
---------------- ---------------
Total assets $100,829,217 $85,900,686
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $ 240,377 $ 73,889
Note payable - bank line of credit 18,250,000 11,400,000
---------------- ---------------
Total liabilities 18,490,377 11,473,889
---------------- ---------------
Investors in applicant status 0 672,617
---------------- ---------------
Partners' capital:
Limited partners' capital, subject to redemption net of
unallocated syndication costs of $476,225 and $399,249
for 2002 and 2001, respectively and formation loan receivable
receivable of $4,078,874 and $4,126,430 for 2002 and 2001,
Respectively 82,268,432 73,688,241
General partners' capital, net of unallocated syndication costs
of $4,811 and $4,033 for 2002 and 2001, respectively 70,408 65,939
---------------- ---------------
Total partners' capital 82,338,840 73,754,180
---------------- ---------------
Total liabilities and partners' capital $100,829,217 $85,900,686
================ ===============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2002 and 2001 (unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ---------------------------------------
2002 2001 2002 2001
---------------- --------------- ---------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues
Interest on loans $8,251,832 $6,586,982 $3,159,045 $2,256,402
Interest - interest bearing accounts 377 7,234 1 2,085
Late charges 23,780 10,950 4,070 5,502
Other 5,633 5,427 1,971 550
---------------- --------------- ---------------- ---------------
8,281,622 6,610,593 3,165,087 2,264,539
---------------- --------------- ---------------- ---------------
Expenses
Mortgage servicing fees 662,142 422,658 197,940 130,570
Interest on note payable - bank 400,688 838,669 176,966 200,828
Amortization of loan origination fees 9,249 10,156 3,125 3,385
Provision for losses on loans and real
estate acquired through foreclosure 933,644 588,260 528,259 225,514
Brokerage fees 240,376 0 240,376 0
Asset management fees 237,192 110,048 81,563 44,598
Clerical costs through
Redwood Mortgage Corp. 198,212 177,929 66,751 61,584
Professional services 59,587 9,867 7,815 2,051
Printing, supplies and postage 21,814 21,513 6,312 7,083
Other 11,973 9,565 1,515 20
---------------- --------------- ---------------- ---------------
2,774,877 2,188,665 1,310,622 675,633
---------------- --------------- ---------------- ---------------
Other income (expense)
Interest credited to partners
in applicant status (866) (565) (0) (270)
---------------- --------------- ---------------- ---------------
Net income $5,505,879 $4,421,363 $1,854,465 $1,588,636
================ =============== ================ ===============
Net income: general partners (1%) $ 55,059 $ 44,213 $ 18,545 $ 15,886
limited partners 5,450,820 4,377,150 1,835,920 1,572,750
(99%)
---------------- --------------- ---------------- ---------------
Total - net income $5,505,879 $4,421,363 $1,854,465 $1,588,636
================ =============== ================ ===============
Net income per $1,000 invested by
limited partners for entire period
- -where income is reinvested
and compounded $64.82 $67.07 $21.45 $21.74
================ =============== ================ ===============
- -where partner receives income
In monthly distributions $63.03 $65.15 $20.93 $21.59
================ =============== ================ ===============
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 NINE MONTHS ENDED SEPTEMBER 30, 2002 (unaudited)
PARTNERS' CAPITAL
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LIMITED PARTNERS' CAPITAL
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Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
------------- ---------------- --------------- --------------- --------------
Balances at December 31, 2001 $ 672,617 $ 78,213,920 $(399,249) $(4,126,430) $73,688,241
Contributions on application 5,252,513 - - - -
Formation loan increases - - - (378,268) (378,268)
Formation loan payments - - - 412,105 412,105
Interest credited to partners
in applicant status 866 - - - -
Upon admission to Partnership:
Interest withdrawn (384) - - - -
Transfers to partners' capital (5,925,612) 5,920,365 - - 5,920,365
Net income - 5,450,820 - - 5,450,820
Syndication costs incurred - - (200,146) - (200,146)
Allocation of syndication costs - (118,800) 118,800 - -
Partners' withdrawals - (2,624,641) - - (2,624,641)
Early withdrawal penalties - (18,133) 4,370 13,719 (44)
------------- ---------------- --------------- --------------- --------------
Balances at September 30, 2002 $ 0 $ 86,823,531 $(476,225) $(4,078,874) $82,268,432
============= ================ =============== =============== ==============
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 NINE MONTHS ENDED SEPTEMBER 30, 2002 (unaudited)
PARTNERS' CAPITAL
----------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------
Capital
Account Unallocated
General Syndication Total Partners'
Partners Costs Total Capital
-------------- -------------- --------------- -----------------
Balances at December 31, 2001 $ 69,972 $(4,033) $ 65,939 $73,754,180
Contributions on application - - - -
Formation loan increases - - - (378,268)
Formation loan payments - - - 412,105
Interest credited to partners in
applicant status - - - -
Upon admission to Partnership:
Interest withdrawn - - - -
Transfers to partners' capital 5,247 - 5,247 5,925,612
Net income 55,059 - 55,059 5,505,879
Syndication costs incurred - (2,022) (2,022) (202,168)
Allocation of syndication costs (1,200) 1,200 - -
Partners' withdrawals (53,859) - (53,859) (2,678,500)
Early withdrawal penalties - 44 44 -
-------------- -------------- --------------- -----------------
Balances at September 30, 2002 $ 75,219 $ (4,811) $70,408 $82,338,840
============== ============== =============== =================
The accompanying notes are an integral part of the financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (unaudited)
2002 2001
---------------- ---------------
Cash flows from operating activities
Net income $5,505,879 $4,421,363
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for losses on loans and real estate acquired
through foreclosure 933,644 588,260
Change in operating assets and liabilities
Accrued interest and advances, less transfers to
allowance for loan losses (281,657) (1,296,858)
Deferred interest - (82,253)
Prepaid loan fees (15,752) 3,907
Accounts payable 166,488 (30,000)
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Net cash provided by operating activities 6,308,602 3,604,419
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Cash flows from investing activities
Loans made (37,755,822) (39,713,679)
Principal collected on loans 23,761,809 30,904,966
Payments for purchases of real estate (379,580) (4,515)
Investment in LLC (295,659) 0
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Net cash used in investing activities (14,669,252) (8,813,228)
---------------- ---------------
Cash flows from financing activities
Borrowings (repayments) on line of credit, net 6,850,000 (5,375,000)
Contributions by partner applicants 5,252,513 15,157,435
Interest credited to partners in applicant status 866 565
Interest withdrawn by partners in applicant status (384) (254)
Partners' withdrawals (2,678,500) (2,447,966)
Syndication costs incurred (202,168) (181,397)
Formation loan lending (378,268) (1,122,355)
Formation loan collections 412,105 229,579
---------------- ---------------
Net cash provided by financing activities 9,256,164 6,260,607
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 895,514 1,051,798
Cash and cash equivalents - beginning of year 1,916,578 1,459,725
---------------- ---------------
Cash and cash equivalents - end of period $2,812,092 $2,511,523
================ ===============
Cash paid for interest $ 400,688 $ 838,669
================ ===============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, a California limited partnership (the
"Partnership"), was organized in 1993 of which Michael R. Burwell, an
individual, and Gymno Corporation and Redwood Mortgage Corp., both California
Corporations, are the general partners. The Partnership was organized to engage
in business as a mortgage lender for the primary purpose of making loans secured
by Deeds of Trust on California real estate. Loans are being arranged and
serviced by Redwood Mortgage Corp., a general partner. At December 31, 2001, the
Partnership was in its third offering stage, wherein contributed capital totaled
$69,003,330. As of June 30, 2002, the third offering closed and the contributed
capital totaled $74,923,213 in limited partner contributions of an approved
aggregate offerings of $75,000,000. As of September 30, 2002, and December 31,
2001, $0 and $672,617, respectively, remained in applicant status, and total
Units sold were in the aggregate of $74,923,213 and $69,675,947, respectively.
A minimum of $250,000 and a maximum of $15,000,000 in Units, at $1 per
Unit, 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 in Units, which was closed in
April, 2002. As loans are identified, partners are transferred from applicant
status to admitted partners participating in loan operations. Each month's
income is distributed to partners based upon their proportionate share of
partner's capital. Some partners have elected to withdraw income on a monthly,
quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions are not paid directly by the Partnership out of the
offering proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., one
of the general partners, amounts to pay all sales commissions and amounts
payable in connection with unsolicited orders. This loan is referred to as the
"Formation Loan." It is unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totaled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017 at
December 31, 1996. It is to be repaid, without interest, in ten annual
installments of principal, which commenced on January 1, 1997, following the
year the initial offering closed.
The Formation Loan relating to the second offering ($30,000,000) totaled
$2,271,916, which was 7.6% of limited partners contributions of $29,992,574 at
December 31, 2000. It is to be repaid, without interest, in ten annual
installments of principal, which commenced on January 1, 2001, following the
year the second offering closed.
The Formation Loan relating to the third offering ($30,000,000) totaled
$2,217,952, which was 7.4% of the limited partners contributions of $29,998,622
at September 30, 2002. It is to be repaid, without interest, in ten annual
installments of principal, which will commence on January 1, 2003. The third
offering closed in April, 2002 and total amount subscribed by the limited
partners was $29,998,622.
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 full 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
SEPTEMBER 30, 2002 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL (Continued)
The following summarizes Formation Loan transactions to September 30, 2002:
Initial Second Third
Offering of Offering of Offering of
$15,000,000 $30,000,000 $30,000,000 Total
---------------- --------------- --------------- ----------------
Limited partner contributions $14,932,017 $29,992,574 $29,998,622 $74,923,213
================ =============== =============== ================
Formation Loan made $1,074,840 $2,271,916 $2,217,952 $5,564,708
Payments to date (568,349) (612,661) (167,468) (1,348,478)
Early withdrawal penalties applied (49,694) (61,593) (26,069) (137,356)
---------------- --------------- --------------- ----------------
Balance September 30, 2002 $ 456,797 $1,597,662 $2,024,415 $4,078,874
================ =============== =============== ================
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 September 30, 2002, syndication costs of $1,893,101 had been
incurred by the Partnership with the following distribution:
Syndication
Costs
-----------------
Costs incurred $ 1,893,101
Early withdrawal penalties applied (70,893)
Allocated and amortized to date (1,341,172)
-----------------
September 30, 2002 balance $ 481,036
=================
Syndication costs attributable to the initial offering ($15,000,000) were
limited to the lesser of 10% of the gross proceeds or $600,000 with any excess
being paid by the general partners. Applicable gross proceeds were $14,932,017.
Related expenditures totaled $582,365 ($569,865 syndication costs plus $12,500
organization expense) or 3.90%.
Syndication costs attributable to the subsequent second offering
($30,000,000) were limited to the lesser of 10% of the gross proceeds or
$1,200,000 with any excess being paid by the general partners. Gross proceeds of
the second offering were $29,992,574. Syndication costs totaled $597,784 or 2.0%
of contributions.
Syndication costs attributable to the third offering ($30,000,000) were
limited to the lessor of 10% of the gross proceeds or $1,200,000 with any excess
being paid by the General Partners. Gross proceeds of the third offering were
$29,998,622. Syndication costs totaled $616,472 or 2% of contributions.
At September 30, 2002, $108,980 of syndication expense had been incurred
for the anticipated fourth offering.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein revenue is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
Any subsequent payments on impaired loans are applied to the outstanding
balances on the Partnership's books.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for loan losses, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans to
maturity, (i.e., held for long-term investment). Loans are valued at cost for
financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable ultimate recovery of the carrying amount of a loan, with
due consideration for the fair value of collateral, is less than amounts due
according to the contractual terms of the loan agreement, and the shortfall in
amounts due are not insignificant, the carrying amount of the investment (cost)
shall be reduced to the present value of future cash flows discounted at the
loan's effective interest rate. If a loan is collateral dependent, it is valued
at the estimated fair value of the related collateral.
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. At September 30, 2002, and at
December 31, 2001, loans categorized as impaired by the Partnership were $0, and
$710,235, respectively, with a reduction in the carrying value of the impaired
loans of $0, and $87,903, respectively. The reduction in the carrying value of
the impaired loans is included in the allowance for loan losses. During the year
ended December 31, 2001, $66,037 was received as cash payments on these loans.
As presented in Note 10 to the financial statements, the average loan to
appraised value of security at the time the loans were consummated for loans
existing at September 30, 2002, and at December 31, 2001 was 60.15%, and 59.67%,
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.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At September 30, 2002, there were two
properties acquired by the Partnership as real estate owned (REO). One of the
properties owned is held in a Limited Liability Corporation, which is 100% owned
by the Partnership (see Notes 2(F) and 7).
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
F. Investment in Limited Liability Corporation (See Note 7)
The Partnership reflects its investment in a Limited Liability Corporation
at the lower of cost or fair value.
G. Income Taxes
No provision for Federal and State income taxes (other than an $800 state
minimum tax) is made in the financial statements since income taxes are the
obligation of the partners if and when income taxes apply.
H. Allowance for Loan Losses
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 loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral values, to provide for unrecoverable loans
and receivables, including impaired loans, other loans, accrued interest, late
fees and advances on loans, and other accounts receivable (unsecured). The
composition of the allowance for loan losses as of September 30, 2002, and
December 31, 2001 was as follows:
September 30, December 31,
2002 2001
----------------- ----------------
Impaired loans $ 0 $ 87,903
Unspecified loans 2,665,476 2,155,321
Loans, unsecured 0 3,967
----------------- ----------------
$2,665,476 $2,247,191
================= ================
Allowance for loan losses reconciliation: Activity in the allowance for
loan losses is as follows for the nine months through September 30, 2002, and
for the year ending December 31, 2001
September 30, December 31,
2002 2001
----------------- ---------------
Beginning Balance $2,247,191 $1,344,938
Provision for loan losses 433,644 956,639
Write-offs (15,359) (54,386)
----------------- ---------------
Ending Balance $2,665,476 $2,247,191
================= ===============
I. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by limited partners for the entire period are actual amounts allocated
to limited partners who held their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the limited partners' pro rata share of partners' capital.
Because net income 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
J. Late Fee Revenue
The Partnership 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 nine months ended September 30, 2002, and
September 30, 2001, late fee revenue of $23,780 and $10,950, respectively, was
recorded.
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 the nine month period ended September 30, 2002 and September 30,
2001, loan brokerage commissions paid by the borrowers were $886,893 and
$998,556, 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 unpaid principal balance of the loan
portfolio, or such lesser amount as is reasonable and customary in the
geographic area where the property securing the loan is located. Mortgage
servicing fees of $662,142 and $422,658 were incurred for the nine months
through September 30, 2002, and September 30, 2001, respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the Partnership's
loan portfolio and operations up to 1/32 of 1% of the "net asset value" (3/8 of
1% annually). Management fees of $237,192 and $110,048 were incurred for the
nine months through September 30, 2002, and September 30, 2001, 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. Operating Expenses
One of the general partners, Redwood Mortgage Corp. is reimbursed by the
Partnership for all operating expenses actually incurred by it on behalf of the
Partnership, including without limitation, out-of-pocket general and
administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners. Such
reimbursements are reflected as expenses in the statements of income.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES (Continued)
F. General Partners' 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 September 30, 2002 and December 31, 2001 a general
partner, Gymno Corporation, had maintained $75,220 and $69,972, respectively, as
capital in accordance with Section 4.02(a) of the partnership agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited partners of the Partnership are governed by
the limited partnership agreement and Sections 15611 et seq. of the California
Corporations Code.
The general partners are in complete control of the Partnership business,
subject to the voting rights of the limited partners on specified matters. Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.
A majority of the outstanding limited partnership interests may, without
the permission of the general partners, vote to: (i) terminate the Partnership,
(ii) amend the limited partnership agreement, (iii) approve or disapprove the
sale of all or substantially all of the assets of the Partnership and (iv)
remove or replace one or all of the general partners.
The approval of all limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.
A. Applicant Status
Subscription funds received from purchasers of Units are not admitted to
the Partnership until appropriate lending opportunities are available. During
the period prior to the time of admission, which is anticipated to be between
1-90 days, purchasers' subscriptions will remain irrevocable and will earn
interest at money market rates, which are lower than the anticipated return on
the Partnership's loan portfolio.
During the nine month periods ending September 30, 2002, and September 30,
2001, interest totaling $866 and $565, 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.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 4 - OTHER PARTNERSHIP PROVISIONS (Continued)
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 initial through third offering
termination dates, which in all cases will be August, 2002, the general partners
guaranteed an earnings rate equal to the greater of actual earnings from
mortgage operations or 2% above The Weighted Average Cost of Funds Index for the
Eleventh District Savings Institutions (Savings & Loan & Thrift Institutions) as
computed by the Federal Home Loan Bank of San Francisco on a monthly basis, up
to a maximum interest rate of 12%. To date, actual realization exceeded the
guaranteed amount for each month.
NOTE 5 - LEGAL PROCEEDINGS
The Partnership is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a line of credit which will expire on June 30, 2004, of
up to $20,000,000 at the bank's prime rate of interest. This line of credit is
secured by its loan portfolio. The line balances were $18,250,000 and
$11,025,000 at September 30, 2002, and September 30, 2001, respectively. The
interest rate was 4.75% and 5.0% at September 30, 2002 and December 31, 2001,
respectively.
Should the general partners choose not to renew the line of credit at its
maturity, the balance would be converted to a three year fully amortized loan.
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
During the quarter ended September 30, 2002, the Partnership acquired a
property by deed in lieu of foreclosure and contributed its interest (land and
building) to a limited liability corporation (LLC), which is owned 100% by the
Partnership. The Partnership's investment in LLC is reflected at the lower of
the LLC's cost or fair value, including estimated costs of property disposition.
The only asset of this LLC is the contributed property interest and there have
been no revenues or expenses to date in the LLC. The following schedule reflects
the cost of LLC's property and recorded reductions to estimated fair values:
September 30, 2002
------------------------
Cost of property $4,411,909
Reduction in value (500,000)
------------------------
Fair value reflected in financial statement $3,911,909
========================
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
September 30, December 31,
2002 2001
----------------- ---------------
Net Assets - partners' capital per financial statements $82,338,840 $73,754,180
Non-allocated syndication costs 481,036 403,282
Allowance for loan losses 2,665,476 2,247,191
Formation loans receivable 4,078,874 4,126,430
---------------- ---------------
Net assets tax basis $89,564,226 $80,531,083
================ ===============
In 2001 approximately 48% of taxable income was allocated to tax exempt
organizations, (i.e., retirement plans). Such plans do not have to file income
tax returns unless their "unrelated business income" exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) Secured loans (see note 2(c)) carrying value was $90,858,944 and
$82,789,833 at September 30, 2002 and December 31, 2001, respectively. The fair
value of these investments of $91,802,339 and $84,000,435 was estimated based
upon projected cash flows discounted at the estimated current interest rates at
which similar loans would be made. The applicable amount of the allowance for
loan losses along with accrued interest and advances related thereto is also
considered in evaluating the fair value versus the carrying value.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
Most loans are secured by recorded deeds of trust. At September 30, 2002
and December 31, 2001 there were 75 and 76 secured loans outstanding,
respectively, with the following characteristics:
September 30, December 31,
2002 2001
-------------------- ----------------
Number of secured loans outstanding 75 76
Total secured loans outstanding $90,858,944 $82,789,833
Average secured loan outstanding $1,211,453 $1,089,340
Average secured loan as percent of total 1.33% 1.32%
Average secured loan as percent of partners' capital 1.47% 1.48%
Largest secured loan outstanding $4,750,000 $ 7,000,000
Largest secured loan as percent of total 5.23% 8.46%
Largest secured loan as percent of partners' capital 5.77% 9.49%
Number of counties where security is located (all California) 13 12
Largest percentage of secured loans in one county 30.36% 41.40%
Average secured loan to appraised value of security
at time loan was consummated 60.15% 59.67%
Number of secured loans in foreclosure status 5 3
Amount of secured loans in foreclosure $3,823,974 $ 1,050,790
The following loan categories were held at September 30, 2002, and December
31, 2001:
September 30, December 31,
2002 2001
-------------------- ----------------
First Trust Deeds $ 48,830,087 $42,984,020
Second Trust Deeds 33,710,292 34,640,619
Third Trust Deeds 8,318,565 5,165,194
-------------------- ----------------
Total loans 90,858,944 82,789,833
Prior liens due other lenders 91,259,081 67,944,616
-------------------- ----------------
Total debt $182,118,025 $150,734,449
-------------------- ----------------
Appraised property value at time of loan $302,751,817 $252,604,011
-------------------- ----------------
60.15% 59.67%
-------------------- ----------------
Investments by type of property
Owner occupied homes $15,900,874 $11,018,765
Non-owner occupied homes 26,881,303 26,523,195
Apartments 6,573,790 7,336,898
Commercial 41,502,977 37,910,975
-------------------- ----------------
$90,858,944 $82,789,833
==================== ================
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS (Continued)
The interest rates on the loans range from 7.50% to 18.00% at September 30,
2002and 8.00% to 18.00% at September 30, 2001.
Scheduled maturity dates of loans as of September 30, 2002 are as follows:
Year Ending
December 31, Amount
---------------- -------------------
2002 $32,524,169
2003 26,173,705
2004 11,954,663
2005 9,625,233
2006 2,238,384
Thereafter 8,342,790
-------------------
$90,858,944
===================
The remaining scheduled maturities for 2002 include fifteen loans totaling
$19,603,510, which are past maturity at September 30, 2002. Interest payments on
ten of these loans were 90 days or more delinquent.
Cash deposits at September 30, 2002 of $1,279,085 were in one bank. The
balances exceeded FDIC insurance limits (up to $100,000 per bank) by $1,179,085.
This bank is the same financial institution that has provided the Partnership
with the $20,000,000 limit line of credit (LOC). As and when deposits in the
Partnership's bank accounts increase significantly beyond the insured limit, the
funds are typically 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 on these
loans as of September 30, 2002. There are approximately 5 loans totaling
$6,869,828 in workout agreements as of September 30, 2002.
NOTE 11 - COMMITMENTS & CONTINGENCIES
Construction Loans
The Partnership has construction loans, which are at various stages of
completion of the construction process at September 30, 2002. The Partnership
has approved the borrowers up to a maximum loan balance; however, disbursements
are made during completion phases throughout the construction process. At
September 30, 2002, there were $4,218,554 of undistributed loans which will be
funded by a combination of borrower monthly mortgage payments, line of credit
draw-downs, and retirement of principal on current loans.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 12 - SELECTED FINANCIAL INFORMATION (UNAUDITED)
Calendar Quarter
--------------------------------------------------------------
First Second Third Fourth Annual
------------- ------------ ------------- ------------ -------------
Revenues
2002 $2,601,569 2,514,966 3,165,087 - -
2001 $2,150,846 2,195,208 2,264,539 2,424,607 9,035,200
2000 $1,093,746 1,372,840 1,884,128 1,998,105 6,348,819
Expenses
2002 $ 798,994 665,261 1,310,622 - -
2001 $ 801,709 711,323 675,633 756,078 2,944,743
2000 $ 159,573 336,539 763,182 797,307 2,056,601
Other income (expenses)
2002 $ (858) (8) 0 - -
2001 $ (198) (97) (270) 3,441 2,876
2000 $ (4,460) (127) (64) (106) (4,757)
Net income allocated to general partners
2002 $ 18,017 18,497 18,545 - -
2001 $ 13,489 14,838 15,886 16,720 60,933
2000 $ 9,297 10,362 11,209 12,007 42,875
Net income allocated to limited partners
2002 $1,783,700 1,831,200 1,835,920 - -
2001 $1,335,450 1,468,950 1,572,750 1,655,250 6,032,400
2000 $ 920,416 1,025,812 1,109,673 1,188,685 4,244,586
Net income per $1,000 invested
Where income is
Reinvested
2002 $ 21 $ 21 $ 21 - -
2001 $ 22 $ 22 $ 22 $ 24 $ 90
2000 $ 21 $ 21 $ 21 $ 23 $ 86
Withdrawn
2002 $ 21 $ 21 $ 21 - -
2001 $ 22 $ 22 $ 22 $ 21 $ 87
2000 $ 20 $ 21 $ 21 $ 21 $ 83
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (unaudited)
NOTE 13 - RECENT PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of business to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Partnership will adopt SFAS No. 144 in fiscal year 2002.
Management does not feel that the adoption of this standard will have a material
effect on the Partnership's results of operations or financial position.
NOTE 14 - SUBSEQUENT EVENTS
The Partnership's fourth offering of 50,000,000 Units ($50,000,000) became
effective October 30, 2002. The Partnership began Unit sales shortly thereafter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP
Critical Accounting Policies.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date. Such estimates relate
principally to the determination of (1) the allowance for doubtful accounts
(i.e. the amount of allowance established against loans receivable as an
estimate of potential loan losses) including the accrued interest and advances
that are estimated to be unrecoverable based on estimates of amounts to be
collected plus estimates of the value of the property as collateral and (2) the
valuation of real estate acquired through foreclosure. At September 30, 2002,
there were two real estate properties owned by the Partnership.
Loans and related accrued interest, fees, and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. Provisions are made for bad debt to adjust the
allowance for doubtful accounts to an amount considered by management to be
adequate, with due consideration to collateral values and to provide for
unrecoverable accounts receivable, including impaired loans, other loans,
accrued interest, late fees and advances on loans, and other accounts receivable
(unsecured).
Recent trends in the economy have been taken into consideration in the
aforementioned process of arriving at the allowance for doubtful accounts.
Actual results could vary from the aforementioned provisions for losses.
Forward Looking Statements.
Some of the information in the Form 10-Q may contain forward looking
statements. Uses of words such as "will", "may", "anticipate", "estimate",
"continue" or other forward looking words, discuss future expectations or
predictions. The foregoing analysis of 2002 includes forward looking statements
and predictions about the possibile 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.
Related Parties.
The general partners of the Partnership are Redwood Mortgage Corp., Gymno
Corp and Michael R. Burwell. Most Partnership business is conducted through
Redwood Mortgage Corp. which arranges, services and maintains the loan portfolio
for the benefit of the Partnership. The following is a list of various
Partnership activities for which related parties are compensated.
o 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, the 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. For the nine months ended September
30, 2002 and 2001, loan brokerage commissions paid by the borrowers were
$886,893 and $998,556, respectively.
o Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's loans
is paid to Redwood Mortgage Corp., or such lesser amount as is reasonable and
customary in the geographic area where the property securing the mortgage is
located. Mortgage servicing fees of $662,142 and $422,658 were incurred for the
nine months ended September 30, 2002 and 2001, respectively.
o Asset Management Fee The general partners receive monthly fees for
managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net
asset value' (3/8 of 1% on an annual basis). Management fees to the general
partners of $237,192 and $110,048 were incurred by the Partnership for nine
months ended September 30, 2002 and 2001, respectively.
o Other Fees The Partnership agreement provides that the general partners
may receive 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.
o Income and Losses All income and losses are credited or charged to
partners in relation to their respective Partnership interests. The allocation
to the general partners (combined) shall be a total of 1%.
o 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.
o Contributed Capital The general partners jointly and severally were to
contribute 1/10 of 1% in cash contributions as proceeds from the offerings are
received from the limited partners. As of December 31, 2001 and September 30,
2002, a general partner, Gymno Corporation, had contributed $69,972 and $75,219,
respectively, as capital in accordance with Section 4.02(a) of the partnership
agreement.
o Sales Commission - "Formation Loan" to Redwood Mortgage Corp. Sales
commissions relating to the capital contributions by limited partners are not
paid directly by the Partnership out of the offering proceeds. Instead, the
Partnership loans to Redwood Mortgage Corp., a general partner, amounts
necessary to pay all sales commissions and amounts payable in connection with
unsolicited orders. The loan is referred to as the "Formation Loan". It is
unsecured and non-interest bearing and is applied to reduce limited partners
capital in the balance sheets. The sales commissions range between 0 (for units
sold by the general partners) and 9%. It is estimated that the total amount of
the formation loan will approximate 7.6% based on the assumption that 65% of the
investors will reinvest earnings, which qualify for the higher commission
percentage.
The following summarizes aggregate formation loan transactions through
September 30, 2002:
Limited partner contributions $74,923,213
=================
Formation loans made to Redwood Mortgage Corp. 5,564,708
Principal payments to date (1,348,478)
Reduction of formation loan due to early withdrawal penalties 137,356
-----------------
Balance at September 30, 2002 $4,078,874
================
The amount of the annual installments paid by Redwood Mortgage Corp. are
determined at annual installment of one-tenth of the principal balance of the
formation loan at December 31 of each year until the offering period is closed.
Thereafter, the remaining formation loan is paid in ten equal amortizing
payments.
On September 30, 2002, the Partnership had completed its third offering,
$30,000,000. Contributed capital equaled $14,932,017 for the first offering and
$29,992,574 for the second offering, and $29,998,622 for the third offering,
totaling an aggregate of $74,923,213 as of September 30, 2002. Of this amount,
none remained in applicant status. On October 30, 2002 the Partnership went
effective with its fourth offering of $50,000,000 in Units.
Results of Operations - For the three and nine months ended September 30,
2002 and 2001
The net income increase of $1,084,516 (25%) and $265,829 (17%) for the nine
and three months ended September 30, 2002 versus the nine and three month
periods ended September 30, 2001 was due primarily to an increase in interest
earned on loans of $1,664,850 and $902,643 and reduced interest costs of
$437,981 and $23,862 on the Partnership's note payable-bank; offset by expense
increases due to the increased size of the Partnership's loan portfolio.
Significant expense increases or (decreases) for the three and nine month
periods ended September 30, 2002 versus September 30, 2001 included higher
mortgage servicing fees of $67,370 and $239,484, change in the provision for
losses on loans and real estate acquired through foreclosure of $302,745 and
$345,384, increased asset management fees of $36,965 and $127,144, and an
increase in brokerage fees of $240,376 and $240,376.
The increase in interest on loans of $902,643 (40%) and $1,664,550 (25%)
for the three and nine month periods ended September 30, 2002 versus September
30, 2001 was due primarily to the increased size of the Partnership secured loan
portfolio at September 30, 2002 as compared to September 30, 2001 of $90,858,944
and $77,379,705, and due to collection of "additional interest" of $480,754
derived from one of the Partnership's loans.
The decrease in interest on note payable-bank of $23,862 (12%) and $437,981
(52%) for the three and nine month periods ended September 30, 2002 versus
September 30, 2001 is due to the approximately 4.0% (9.0% vs. 5.0%) lowering of
the interest rate charged the Partnership during the first three-quarters of
2002 as compared to 2001 and due to approximately 30% lower overall usage of the
line of credit during the first three-quarters of 2002.
The increase in mortgage servicing fees of $67,370 (52%) and $239,484 (57%)
for the three and nine month periods ended September 30, 2002 versus September
30, 2001 is primarily attributable to the increased principal amount of
mortgages being serviced of $90,858,944 and $77,379,705 at September 30, 2002
and 2001, respectively. The Partnership pays servicing fees based on the unpaid
principal balance of the loan portfolio.
The increase of $302,745 (134%) and $345,384 (59%) in provision for losses
on loans and real estate acquired through foreclosure for the three and nine
months ended September 30, 2002 versus the respective three and nine month
periods ended September 30, 2001 reflects the general partners' estimate of an
appropriate allowance for anticipated losses. As the Partnership's loan
portfolio has increased, and since the Partnership acquired two properties
through borrower defaults in the third quarter of 2002, the provision for
estimated losses has also been increased. At September 30, 2002, total
provisions for losses on loans and real estate acquired through foreclosure
equaled $3,165,476, which the general partners consider to be adequate.
The increase in the asset management fees of $36,965 (83%) and $127,144
(116%) for the three months and nine months ended September 30, 2002 versus the
respective periods ended September 30, 2001 is due to an increase in the
partners' capital under management at September 30, 2002 and 2001 of $82,268,432
and $69,259,223, respectively. In addition, the general partners began
collecting the full asset management fees of .375% annualized during the first
three-quarters of 2002 as compared to .25% annualized for the first
three-quarters of 2001.
The increase in professional fees of $5,764 (281%) and $49,720 (504%) for
the three and nine months ended September 30, 2002 versus September 30, 2001 is
due to the Partnership incurring greater costs and timing differences in 2002
than in 2001 in relation to its audit and tax return processing.
The increase in brokerage fees of $240,376 and $240,376 for the three
months and nine months ended September 30, 2002 versus September 30, 2001 is due
to the Partnership incurring an obligation to pay one-half of the "additional
interest" collected on one of its loans to a non-affiliated real estate broker.
Partnership capital continued to increase as the Partnership received new
limited partner capital contributions of $0 and $5,247,266 and retained the
earnings of limited partners that have chosen to do so of $1,181,817 and
$3,474,055 for the three months and nine months ended September 30, 2002, as
compared to $4,766,290 and $15,142,293 and $1,017,302 and $2,841,887 for the
three and nine months ended September 30, 2001. The increased Partnership
capital helped increase loans outstanding to $90,858,944 at September 30, 2002,
as compared to $77,379,705 at September 30, 2001. The reduced limited partner
contributions of $0 and $5,247,266 versus $4,766,290 and $15,142,293 is due to
the completion of the third offering in April 2002. We are in the process of
issuing a fourth offering in the amount of $50,000,000 which became effective
October 30, 2002. This fourth offering of $50,000,000 will be used to increase
the Partnership's capital base and provide funds for additional mortgage loans.
The Partnership utilized its bank line of credit less during the first half
of 2002 compared to 2001. Cash generated from interest earnings, late charges,
amortization of principal, loan payoffs and capital contributions by limited
partners was utilized to pay down the credit line.
At September 30, 2002, outstanding foreclosures increased to 5 ($3,823,974)
from the one ($289,855) that existed at September 30, 2001. During the three
months ended September 30, 2002, the outstanding number of foreclosures declined
to 5 and the outstanding principal subject to foreclosure decreased to
$3,823,975 from $5,694,697 at June 30, 2002. This was an increase of 2
foreclosures from the 3 ($1,050,790) existing as of December 31, 2001. Of the
foreclosures at September 30, 2002, four have entered into workout agreements
which require regular monthly payments. These foreclosures are a reflection of
the more difficult economic times at September 30, 2002 as compared to September
30, 2001, yet are not unusual in the general partners' experience and we do not
anticipate a reduction in net income due to these foreclosures. At September 30,
2002 we have acquired two properties. The Partnership's principle balances were
$5,986,268.
The general partners received Mortgage Brokerage Commissions from the loan
borrowers of $370,954 and $886,893 for the three and nine months ended September
30, 2002 as compared to $222,156 and $998,556 for the three and nine months
ended September 30, 2001. The reduction is due to less loans written in the nine
months ended September 30, 2002 and the increase for the three months is due to
more loans being written.
At the time of subscription to the Partnership, limited partners must elect
either to receive monthly, quarterly or annual cash distributions from the
Partnership, or to compound earnings in their capital account.
During the three and nine month periods ended September 30, 2002 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:
Nine months ended Three months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
Compounding $3,474,055 $2,841,887 $1,181,817 $1,017,302
Distributing $1,857,965 $1,401,613 $624,403 $510,898
Also, the Partnership allows the limited partners to withdraw their capital
account subject to certain limitations. Earnings and capital liquidations
including early withdrawals during the three and nine month periods ended
September 30:
Nine months ended Three months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
Cash distributions $1,857,965 $1,401,613 $624,403 510,898
Capital liquidation* $784,809 $1,054,862 $215,304 $383,161
---------------------- ---------------------- ---------------------- ----------------------
Total $2,642,774 $2,456,475 $839,707 $894,059
====================== ====================== ====================== ======================
*These amounts represent gross of early withdrawal penalties.
During 2001, and through November 6, 2002, the Federal Reserve reduced
interest rates by cutting the Federal Funds Rate twelve times to 1.25%. The
effect of the previous cuts has greatly reduced short-term interest rates and to
a lesser extent reduced long-term interest rates. The general partners
anticipate that new loans will be placed at rates approximately 1% to 1.50%
lower than similar loans during 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 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
..50% to .75% 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.
Allowance for Losses.
The general partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these loans,
borrowers' payment records, etc. Based upon this information and other data, the
allowance for loan losses is increased or decreased. Borrower foreclosures are a
normal aspect of Partnership operations. The Partnership is not a credit based
lender and hence while it reviews the credit history and income of borrowers and
if applicable the income from income producing properties, the general partners
expect that we will on occasion take back real estate security. During 2001, and
continuing in 2002, the Northern California real estate market slowed and the
national and local economies have slipped into recession. During 2001 and 2002
we have had to file some foreclosure proceedings to enforce the terms of our
loans. In most of these instances the borrowers have been able to remedy the
foreclosures we have filed. As of September 30, 2002, we have commenced
foreclosure proceedings against five loans totaling $3,823,974. Of the
foreclosures, 4 have entered into workout agreements which call for regular
monthly payments. As of September 30, 2002 we have acquired two properties. The
Partnership's principal balances were $5,986,268. There is a chance that in 2002
we may acquire some additional 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. As a prudent guard against potential losses, the general partners
have made provisions for losses on loans and real estate acquired through
foreclosure of $933,644 and $588,260, ($528,259 and $225,514), for the nine (and
three months) through September 30, 2002, and 2001, respectively. These
provisions for losses were made to guard against collection losses. The total
cumulative provision for losses as of September 30, 2002, is $2,665,476 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.
Current Economic Conditions.
The Partnership makes loans primarily in Northern California. As of
September 30, 2002, approximately 80.71% 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.
Despite fears over failing businesses, ongoing job losses and dwindling
stock portfolios, the real estate market seems to be doing remarkably well.
According to the San Jose Mercury News of August 20, 2002, Bay Area home sales
rose 22% in July compared with a year earlier, continuing an upward trend that
began in January. The median price of homes in the nine-county area rose nearly
10% from last year to $436,000. With the Bay Area economy still faltering and
unemployment as high as 7.6% in Santa Clara County, many had expected real
estate prices would be down by now, not up from a year ago. Mortgage rates at
historic lows and a decent supply of homes on the market have kept the local
market relatively busy, especially for lower-priced homes. Annual price
appreciation varied from 5.1% in Santa Clara County, where the median price was
$515,000 for existing single-family homes sold in July, to 22.5% in Napa County,
where the median price was $359,000. Sales of single-family homes rose 22.8% in
Santa Clara County, according to statistics released by DataQuick Information
Systems, which gathers data from public records. Most counties saw sales
activity increase more than 20% from last year, and the growth was closer to 30%
in Alameda and San Mateo counties. But the July data reflects transactions
negotiated in May and June, and local real estate agents say the market has
slowed dramatically since June. "I think fewer transactions and lower prices are
in the near future," said Gary Shapiro of ReMax Real Estate Services in
Cupertino. "It's already here." The slowdown is partly a normal seasonal change,
real estate agents say, as prospective buyers vacation rather than house hunt.
For the Partnership, these statistics imply that the values of the homes secured
by mortgages in our portfolio should remain firm and assist in reducing losses
if the take back of collateral through the foreclosure process should eventuate.
It also implies increased loan activity, as the number of real estate
transactions is increasing, leaving more loan opportunities for lenders.
According to the San Francisco Chronicle, "The Bay Area commercial market's
fundamental indicators are showing signs of hitting bottom, but a recovery is at
least 18 months away, according to reports last week from major real estate
services firms. At the end of the third quarter, both Cushman & Wakefield and
Grubb & Ellis found incremental positive news for the stagnant San Francisco
office market, but it was barely reason to smile. Cushman & Wakefield said the
rate of decline in asking rents has slowed substantially. Average rent in the
central business district fell to $31.56 per square foot from $32.40 the
previous quarter. Grubb & Ellis said the San Francisco office market showed a
positive net absorption, or demand, for the first time in two years. A grand
total of 127,000 square feet was absorbed." To the Partnership, these higher
vacancy rates may mean that we could experience higher delinquencies and
foreclosures if our borrowers' tenants' leases expire or their rental space
becomes available through business failures.
For Partnership loans outstanding, as of September 30, 2002, the
Partnership had an average loan to value ratio computed as of the date the loan
was made of 60.15%. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table contains information about the cash held in money
market accounts, loans held in the partnership's portfolio and a note payable on
our line of credit as of September 30, 2002. The presentation, for each category
of information, aggregates the assets and liabilities by their maturity dates
for maturities occurring in each of the years 2002 through 2006 and separately
aggregates the information for all maturities arising after 2006. The carrying
values of these assets and liabilities approximate their fair market values as
of September 30, 2002:
2002 2003 2004 2005 2006 Thereafter Total
-------------- ------------- -------------- ------------ ------------ ------------ --------------
Interest earning
assets:
Money market
Accounts $ 1,209 $ 1,209
Avg. interest rate 0.250% 0.250%
Loans secured
by deeds of trust $32,524,169 26,173,705 11,954,663 9,625,233 2,238,384 8,342,790 $90,858,944
Avg. interest rate 11.88% 12.24% 10.66% 11.63% 11.50% 10.40% 11.65%
Interest bearing
liabilities:
Note payable to
Bank $18,250,000 $18,250,000
Avg. interest rate 4.75% 4.75%
Market Risk.
The Partnership's note payable to the bank for its line of credit bears
interest at a variable rate, tied to the prime rate. As a result, the
Partnership's primary market risk exposure with respect to its obligations is to
changes in interest rates, which will affect the interest cost of outstanding
amounts on the note payable. The Partnership may also suffer market risk tied to
general trends affecting real estate values that may impact the Partnership's
security for its loans.
The Partnership's primary market risk in terms of its profitability is the
exposure to fluctuations in earnings resulting from fluctuations in general
interest rates. The majority of the Partnership's mortgage loans, (100% as of
September 30, 2002) earn interest at fixed rates. Changes in interest rates may
also affect the value of the Partnership's investment in mortgage loans and the
rates at which the Partnership reinvests funds obtained from loan repayments and
new capital contributions from limited partners. If interest rates increase, the
interest rates the Partnership obtains from reinvested funds will generally
increase, but the value of the Partnership's existing loans at fixed rates will
generally tend to decrease. The risk is mitigated by the fact that the
Partnership does not intend to sell its loan portfolio, rather such loans are
held until they are paid off. If interest rates decrease, the amounts becoming
available to the Partnership for investment due to repayment of Partnership
loans may be reinvested at lower rates than the Partnership had been able to
obtain in prior investments, or than the rates on the repaid loans. In addition,
interest rate decreases may encourage borrowers to refinance their loans with
the Partnership at a time where the Partnership is unable to reinvest in loans
of comparable value.
The Partnership does not hedge or otherwise seek to manage interest rate
risk. The Partnership does not enter into risk sensitive instruments for trading
purposes.
Controls and Procedures.
Within the 90 days prior to the date of this report, the General Partner of
the Partnership carried out an evaluation, under the supervision and with the
participation of the General Partner's management, including the General
Partner's President and Chief Financial Officer, of the effectiveness of the
design and operation of the Partnership's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President
and Chief Financial Officer of the General Partner concluded that the
Partnership's disclosure controls and procedures are effective. There were no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
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 Units and none is likely to develop. Thus, there is
no certainty that the Units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain liquidation rights provided by the
Partnership, which may include early withdrawal penalties (See the section of
the prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus part of Form S-11 and subsequent amendments related to the offering
of Partnership interests dated August 31, 2000, pages 20-23, under the section
"Compensation of the General Partners and the Affiliates," which is incorporated
by reference. Such compensation is summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the nine months ended September 30,
2002. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Description of Compensation
Entity Receiving Compensation And Services Rendered Amount
- -------------------------------- -------------------------------------------------------------- -----------------
I. Redwood Mortgage Corp. Loan Servicing Fee for servicing loans........................ $662,142
General Partners
&/or Affiliates Asset Management Fee for managing assets...................... $237,192
General Partners 1% interest in profits........................................ $55,059
Less allocation of syndication costs ......................... $1,200
-----------------
$53,859
Redwood Mortgage Corp. Portion of early withdrawal penalties applied to reduce
Formation Loan................................................ $13,719
General Partners Organization and Offering Expenses............................ $0
&/or Affiliates
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............................................ $886,893
Redwood Mortgage Corp. Processing and Escrow Fees for services in connection with
notary, document preparation, investigation, and escrow fees
fees payable by the borrowers and not by the Partnership...... $18,088
Gymno Corporation, Inc. Reconveyance Fee.............................................. $2,542
Redwood Mortgage Corp. Assumption or Extension Fees.................................. $0
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $198,212
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
Refer to notes to financial statements No. 5 discussed earlier
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On March 6, 2002, Form S-11 Registration Statement was
filed with the Securities & Exchange Commission for an
additional $50,000,000 offering.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(99.1) Certification of Michael R. Burwell, General Partner
(99.2) Certification of Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of
Gymno Corporation, General Partner
(b) Form 8-K
Not Applicable
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 14th day of
November, 2002.
REDWOOD MORTGAGE INVESTORS VIII
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ Michael R. Burwell
-----------------------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer
By: Redwood Mortgage Corp.
By: /S/ Michael R. Burwell
-----------------------------------------------
Michael R. Burwell,
President, Secretary/Treasurer
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 14th day of November, 2002.
Signature Title Date
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell General Partner November 14, 2002
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President of Gymno Corporation, November 14, 2002
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 14, 2002
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell President, Secretary/Treasurer November 14, 2002
of Redwood Mortgage Corp.
(Principal Financial and
Accounting Officer); Director
of Redwood Mortgage Corp.
Exhibit 99.1
GENERAL PARTNER CERTIFICATION
I, Michael R. Burwell, General Partner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial date and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls.
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, General Partner
November 14, 2002
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VIII
(the "Partnership") on Form 10-Q for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the
Partnership, certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, General Partner
November 14, 2002
Exhibit 99.2
PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION
I, Michael R. Burwell, President and Chief Financial Officer of Gymno
Corporation, General Partner, and Redwood Mortgage Corp., General Partner,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial date and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls.
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, President and Chief
Financial Officer, of Gymno Corporation,
General Partner, and Redwood Mortgage
Corp., General Partner
November 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors VIII
(the "Partnership") on Form 10-Q for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General
Partner of the Partnership, and Redwood Mortgage Corp., General Partner of the
Partnership, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Michael R. Burwell
_____________________________
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner,
And of Redwood Mortgage Corp., General Partner
November 14, 2002