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REDWOOD MORTGAGE INVESTORS VIII
(a California Limited Partnership)
Index to Form 10-K
December 31, 1998
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 4-5
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 Registrants Partners Capital and related matters 6
Item 6 - Selected Financial Data 6-8
Item 7 - Managements Discussion and Analysis of Financial Condition and
Results of Operations 9-12
Item 8 - Financial Statements and Supplementary Data 3-37
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 38
Part III
Item 10 - Directors and Executive Officers of the Registrant 38
Item 11 - Executive Compensation 39
Item 12 - Security Ownership of Certain Beneficial Owners and management 40
Item 13 - Certain Relationships and Related Transactions 40
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 40-41
Signatures 42
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, 1998 Commission file number 333-13113
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-3158788
- -------------------------------- -------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
- ------------------------------------------- -----------------------------------
(address of principal executive offices) (zip code)
Registrants telephone No. 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
- ------------------------------------------ ------------------------------------
Limited Partnership Units 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, 1998, the limited partnership units purchased by non
affiliates was 255,901.349 units computed at $100.00 a unit for $25,590,134.90
Documents incorporated by reference:
Portions of the Prospectus came into effect on December 4, 1996, (the
Prospectus) are incorporated in Parts II, III, and IV. Exhibits filed as part
of Form S-11 Registration Statement #333-13113 are referenced in part IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VIII, a California limited partnership (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., an affiliate of the General Partners. The Partnerships
objectives are to make loans that will: (i) yield a high rate of return from
mortgage lending; and (ii) preserve and protect the Partnerships 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, a minimum of 2,500 Units ($250,000) and a maximum of 150,000
Units $15,000,000) were sold. This initial offering closed on October 31, 1996.
Subsequently, the Partnership commenced a second offering of up to 300,000
additional Units ($30,000,000) commencing on December 4, 1996. 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 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, 1998, the Partnership has
investments in Mortgage Investments with principal balances totalling
$31,905,958. Interest rates ranged from 8.00% to 14.00%. Currently First Trust
Deeds comprise 70.05% of the total amount of the Mortgage Investment portfolio,
an increase of 3.64% over 1997 level of 67.59%. Junior loans (2nd and 3rd Trust
Deeds) make up 29.95%, a decrease of 2.46% over 1997 level of
32.41%.Owner-occupied homes, combined with non-owner occupied Mortgage
Investments, total 47.77% of the Mortgage Investment portfolio. Loans secured by
multi-family properties make up 10.20% of the total Mortgage Investments.
Commercial Mortgage Investments, now comprise 42.03% of the portfolio, a
decrease from 45.68% last year. 74.72% of the total Mortgage Investments, are in
six counties of the San Francisco Bay Area. The County of Stanislaus makes up
18.87% of the Mortgage Investments. Stanislaus County is a fringe County to the
San Francisco Bay Area. In 1998 the Partnership received many good lending
opportunities from this County. The balance of Mortgage Investments are
primarily in Northern California. Mortgage Investment size increased this past
year, and is now averaging $580,108 per Mortgage Investment, up from $460,091 in
1997. This increase is due to the ability of the Partnership by virtue of its
increasing size to invest in larger Mortgage Investments. The average Mortgage
Investment as of December 31, 1998, represents 2.14% of Limited Partners capital
and 1.82% of outstanding Mortgage Investments, similar to December 31, 1997
average Mortgage Investment size of 2.20% of Limited Partners capital and 1.82%
of outstanding Mortgage Investments. Some of the Mortgage Investments are
fractionalized between affiliated partnerships with objectives similar to those
of the Partnership to further reduce risk. Average equity per loan transaction
stood at 40.50%, a decrease in equity of 3.67% from the previous year. This
average equity is generally considered very conservative. Generally, the more
equity, the more protection for the lender. The General Partners believe the
Partnerships Mortgage Investment portfolio is in good condition with no
property in foreclosure as of the end of December, 1998.
Item 2 Properties
A summary of the Partnerships Mortgage Investment Portfolio as of December
31, 1998, is set forth below. Mortgage Investments as a Percentage of Total
Mortgage Investments
First Trust Deeds $22,349,185.44
Appraised Value of Properties 39,834,914.00
Total Investment as a % of Appraisal 56.10%
First Trust Deeds 22,349,185.44
Second Trust Deed Mortgage Investments 8,469,460.20
Third Trust Deed Mortgage Investments 1,087,312.76
-----------------
31,905,958.40
First Trust Deeds due other Lenders 24,567,947.50
Second Trust Deeds due other Lenders 1,843,148.00
Total Debt $58,317,053.90
Appraised Property Value $98,011,150.00
Total Investments as a % of Appraisal 59.50%
Number of Mortgage Investments Outstanding 55
Average Investment $580,108.33
Average Investment as a % of Net Assets 2.14%
Largest Investment Outstanding 2,600,000.00
Largest Investment as a % of Net Assets 9.61%
Loans as a Percentage of Total Mortgage Investments
First Trust Deeds 70.05%
Second Trust Deeds 26.54%
Third Trust Deeds 3.41%
-----------------
Total 100.00%
Mortgage Investments by
Type of Property Amount Percent
Owner Occupied Homes $6,450,199.30 20.22%
Non-Owner Occupied Homes 8,789,444.65 27.55%
Apartments 3,256,602.28 10.20%
Commercial 13,409,712.17 42.03%
------------------ ------------
Total $31,905,958.40 100.00%
The following is a distribution of Mortgage Investments outstanding as of
December 31, 1998 by Counties.
County Total Percent
Mortgage Investments
San Francisco $10,418,398.60 32.65%
Stanislaus 6,022,000.00 18.87%
San Mateo 5,377,296.75 16.85%
Santa Clara 3,372,148.70 10.57%
Alameda 2,437,266.64 7.64%
Marin 1,278,414.93 4.01%
San Joaquin 1,188,750.02 3.73%
Contra Costa 955,639.66 3.00%
Monterey 679,413.15 2.13%
Fresno 128,363.57 0.40%
Sacramento 48,266.38 0.15%
------------------------ -----------
Total $31,905,958.40 100.00%
Statement of Condition of Mortgage Investments
Number of Mortgage Investments in Foreclosure -0-
Scheduled maturity dates of mortgage investments as of December 31, 1998
are as follows:
Year Ending
December 31,
-------------------
1999 $11,815,481
2000 9,576,318
2001 5,540,542
2002 1,515,906
2003 1,336,291
Thereafter 2,121,420
===============
$31,905,958
===============
The scheduled maturities for 1999 include approximately $265,376 in
Mortgage Investments which are past maturity at December 31, 1998. Interest
payment on only one of these loans was delinquent.
In 1995, the Partnership chose to allow a senior lender to foreclose out
its deed of trust on one of its Mortgage Investments. The Partnership commenced
a legal action to collect this debt. A settlement was reached for this debt
collection. As of December 31, 1998, $30,000 of the amount due has been
collected. The remaining balance due has been recorded as an account receivable
in the financial statements. Additional payments are expected in year 1999.
As of December 31, 1998, the Partnership owned a vacant lot acquired
through the foreclosure of Mortgage Investment. The vacant lot is valued at
$66,000. Additionally, the Partnership wholly owns a limited liability company
(LLC) whose sole asset is a partially completed single family residence. This
partially completed single family residence was originally foreclosed upon by
the Partnership and subsequently transferred to the LLC at a cost of $181,139.
Additional expenditures over the $181,139 basis, have been primarily for
completion of the construction.
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 Registrants Units and Related Partnership Matters.
300,000 units at $100 each (minimum 20 units) are being offered (150,000
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 entitled
Description of Units and summary of Limited Partnership Agreement, pages 67
through 75 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 1984 through December 31, 1997, for prior partnerships are
incorporated by reference to the Prospectus (S-11) dated December 4, 1996, Table
III pages 104 through 138, and in Supplement No.4 dated April 24, 1998.
Financial condition and results of operation for the Partnership for three
years to December 31, 1998 were:
Balance Sheet
Assets
December 31,
------------------------------------------------------
1998 1997 1996
-------------- -------------- -------------
Cash $528,688 $663,159 $664.434
Accounts Receivable:
Mortgage Investments secured by Deeds of Trust 31,905,958 25,304,989 15,642,990
Accrued interest and other fees 459,418 341,976 196,530
Advances on Mortgage Investments 211,145 205,804 8,679
Other receivables - Unsecured 48,849 62,844 75,334
Less allowance for losses (414,073) (257,500) (117,803)
Investment in Limited Liability Corporation 304,139 251,139 191,139
Real estate owned, net 66,000 70,138 66,991
Organization cost net of amortization 0 1,875 4,375
Prepaid Expenses 11,835 10,151 20,720
Due from General Partners/Related Companies 0 2,999 311
============== ============= =============
$33,121,959 $26,657,574 $16,753,700
============== ============= =============
Liabilities and Partners Capital
December 31,
-----------------------------------------------------
1998 1997 1996
-------------- --------------- -------------
Liabilities:
Deferred interest $124,805 $83,066 $217,480
Note payable - Bank 5,947,000 5,640,000 1,500,000
Accounts payable 2,500 3,355 20,625
Subscriptions to partnership in applicant status 0 0 310,937
-------------- -------------- -------------
$6,074,305 $5,726,421 $2,049,042
-------------- -------------- -------------
Partners Capital
Limited partners subject to redemption 27,025,331 20,914,721 14,693,293
General Partners 22,323 16,432 11,365
-------------- -------------
--------------
27,047,654 $20,931,153 $14,704,658
--------------
-------------- -------------
$33,121,959 $26,657,574 $16,753,700
============== ============== =============
Statement of Income
December 31,
--------------------------------------------------------
1998 1997 1996
-------------------- --------------- ------------
Gross Revenue $3,406,021 $2,629,457 $1,726,635
Expenses 1,127,439 820,937 493,110
-------------- --------------- ------------
Income before interest credited to Partners in applicant 2,278,582 1,808,520 1,233,525
status
Interest credited to Partners in applicant status 4,454 9,562 2,618
-------------- --------------- ------------
Net Income $2,274,128 $1,798,958 $1,230,907
============== =============== ============
Net income to General Partners (1%) $22,741 $17,990 $12,309
============== =============== ============
Net Income to Limited Partners (99%) $2,251,387 $1,780,968 $1,218,598
============== =============== ============
Net Income per $1,000 invested by Limited Partners for
entire period (annualized)
- where income is reinvested and compounded $84 $84 $84
============== =============== ============
- where partner receives income in monthly $81 $81 $81
distributions
============== =============== ============
Annualized yield for 1996 was 8.39%, 1997 was 8.40% and for 1998 was 8.40%.
An average annualized yield since inception through December 31, 1998, was
8.36%.
Item II
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 31, 1998, the Partnership was in the offering stage of its
second offering, ($30,000,000). Contributed capital totalled $14,932,017 for the
first offering and $10,658,118 for the second offering an aggregate of
$25,590,135 (Limited Partners) as of December 31, 1998. Of this amount, none
remained in applicant status. Accordingly, together with initial approved
offering of $15,000,000 the Partnership has approval for an aggregate offering
of $45,000,000 in Units of $100 each.
At December 31, 1998, the Partnerships Mortgage Investments outstanding
totalled $31,905,958. The primary reason for an increase in Mortgage Investments
Outstanding from $6,484,707 in 1994, to $12,047,252 in 1995, to $15,642,990 in
1996, to $25,304,989 in 1997, and to $31,905,958 to December 31, 1998, was the
additional capital admitted to the Partnership through sale of Limited
Partnership Units and reinvestment of Limited Partners earnings. Additional
Limited Partners Capital contributions have totalled $4,508,824, $3,834,799,
$3,863,536, $5,565,372 and $5,100,458, and the reinvestment of earnings by
Limited Partners who have elected to reinvest earnings have totalled $239,956,
$524,988, $800,218, $1,119,465 and $1,440,687 for the years ended December 31,
1994, December 31, 1995, December 31, 1996, December 31, 1997, and December 31,
1998, respectively. To a lesser extent, Mortgage Investments outstanding have
also increased through the utilization of the Partnerships line of credit. The
effect of more outstanding Mortgage Investments raised the interest earned on
Mortgage Investments for the years ended December 31, 1994, 1995, 1996, 1997,
and 1998 to $480,110, $1,031,029, $1,718,208, $2,613,008 and $3,376,293
respectively. Interest rates on Mortgage Investments ranged from 8.00% to
14.00%. The Partnership began funding Mortgage Investments on April 14, 1993 and
as of December 31, 1998, distributed earnings at an average annualized yield of
8.36%.
Currently, mortgage interest rates have decreased from those prevalent at
the inception of the Partnership. New Mortgage Investments will be originated at
these lower interest rates which could reduce the average return across the
entire Mortgage Investment portfolio held by the Partnership. In the future,
interest rates likely will change from their current levels. The General
Partners cannot at this time predict at what levels interest rates will be in
the future. Although the rates charged by the Partnership are influenced by the
level of interest rates in the market, the General Partners do not anticipate
that rates charged by the Partnership to its borrowers will change significantly
from the beginning of 1999 over the next 12 months. Based upon the rates payable
in connection with the existing Mortgage Investments, the current and
anticipated interest rates to be charged by the Partnership and the General
Partners experience, the General Partners anticipate that the annualized yield
will range between eight & nine percent (8% - 9%).
In 1995, the Partnership established a line of credit with a commercial
bank secured by its Mortgage Investments and since its inception has increased
the limit from $3,000,000 to $8,000,000. For the years ended December 31, 1996,
and 1997, and December 31, 1998, interest on Note Payable-Bank was $188,638,
$340,633 and $513,566 respectively. For 1997, and the twelve months ended
December 31, 1998, the increase in interest on notes payable-Bank has been
attributed to a higher overall credit facility utilization. As of December 31,
1998 the Partnership has borrowed $5,947,000 at an interest rate of prime +
1/2%. This facility could again increase as the Partnerships capital increases.
This added source of funds will help in maximizing the Partnership yield by
allowing the Partnership to minimize the amount of funds in lower yield
investment accounts when appropriate Mortgage Investments are not currently
available. Additionally, the Mortgage Investments made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit, the amount to be retained by the Partnership, after payment of
the line of credit cost, will be greater than without the use of the line of
credit. As of December 31, 1998, the balance remained at $5,947,000 and in
accordance with the line of credit, the Partnership paid all accrued interest as
of that date.
The Partnerships income and expenses, accruals and delinquencies are within
the normal range of the General Partners expectations, based upon their
experience in managing similar partnerships over the last twenty-one years.
Mortgage servicing fees increased from $155,912 to $189,692, and to $295,052 for
the years ended December 31, 1996, 1997 and 1998. The mortgage servicing fees
increased primarily due to increase in the outstanding Mortgage Investment
portfolio. Asset Management fees increased from $17,053 to $24,966, and to
$31,651 for the years ended December 31, 1996, 1997 and 1998, respectively. The
Asset Management fee increase was due primarily to the increased Partners
capital which the General Partners are managing. All other Partnership expenses
fluctuated within a narrow range commonly expected to occur, except for interest
on note payable bank which is discussed earlier in the Management Discussion and
Analysis of Financial Condition and Results of Operations. Borrowers
foreclosures, as set forth under Results of Operations, are a normal aspect of
Partnership operations and the General Partners anticipate that they will not
have a material effect on liquidity. Cash is constantly being generated from
interest earnings, late charges, pre-payment penalties, amortization of
principal and pay-off on Mortgage Investments. Currently, cash flow exceeds
Partnership expenses and earnings payout requirements. Excess cash flow will be
invested in new Mortgage Investment opportunities when available, used to reduce
the Partnership credit line or in other Partnership business.
The General Partners regularly review the Mortgage Investments portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, borrowers payment records, etc. Data from the local real
estate market and of the national and local economy are reviewed. Based upon
this information and other data, loss reserves are increased or decreased. In
1996, 1997, and 1998, the Partnership made provisions for doubtful accounts of
$55,383, $139,804, and $162,969 respectively. These provisions for doubtful
accounts were made primarily as a prudent action to guard against unidentified
collection losses. The provision for doubtful accounts as of December 31, 1998,
of $414,073 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.
The December 1998 issue of Western Economic Developments, published by
the Federal Reserve Bank of San Francisco, said the following about the
California economy:
The pace of economic growth in California was solid in recent months,
despite continued contraction in some major industries. Total payroll employment
rose 3.2 percent on an annual basis in October and November. This is above the
average growth rate for the first eleven months of 1998, but it is below the 3.8
percent pace from last year. Faced by declining export demand and rising import
competition, durable goods manufacturers cut employment in November.
Manufacturers of computers and electronic components have been particularly hard
hit this year, and aerospace employment has contracted. However, the pace of job
creation has remained strong in sectors other than manufacturing, and this has
helped to lower the state unemployment rate to 5.7 percent in November.
Californias state and local governments have created new jobs at about a
2.5 percent annual pace this year, a pickup from prior years that is due in part
to improved fiscal capacity. About 21,000 of the 29,000 jobs created this year
were for educators at local schools.
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnerships lending activity.
At the time of subscription to the Partnership, Limited Partners make an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1996, December 31, 1997, and December 31, 1998, the
Partnership made distributions of earnings to Limited Partners after allocation
of syndication costs of, $418,380, $495,480 and $614,383 respectively.
Distribution of Earnings to Limited Partners after allocation of syndication
costs for the years ended December 31, 1996, December 31, 1997, and December 31,
1998,
to Limited Partners capital accounts and not withdrawn was $800,218,
$1,119,465 and $1,440,687 respectively. As of December 31, 1996, December 31,
1997, and December 31, 1998, Limited Partners electing to withdraw earnings
represented 34%, 30% and 30%, respectively of the Limited Partners outstanding
capital accounts. The decreases in percentage of Limited Partners electing to
withdraw earnings is due to an increase in percent of new Limited Partners
choosing to compound earnings and the dilution effect occurring when compounding
Limited Partners capital accounts grow through earnings reinvestment compared to
Limited Partners that have chosen to liquidate earnings.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). Once a Limited Partners initial five year hold period
has passed the General Partners expect to see an increase in liquidations due to
the ability of Limited Partners to withdraw without penalty. This ability to
withdraw five years after a Limited Partners investment has the effect of
providing Limited Partner liquidity which the General Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the Partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven, liquidation generally subsides and the Partnership capital again
tends to increase through earnings reinvestment. Since the five year hold period
for most of the investors has yet to expire, as of December 31, 1998, many
Limited Partners may not as yet avail themselves of this provision for
liquidation. Earnings and capital liquidations including early withdrawals since
inception, 1993 through December 31, 1998 were:
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
Earnings Liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383
Capital Liquidation 0 0 $5,640 $146,755 $132,619 $257,344
----------- ----------- ----------- ----------- ----------- -----------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727
=========== =========== =========== =========== =========== ===========
Additionally, Limited Partners may withdraw over a period of one year
subject to certain limitations and penalties. For the years ended December 31,
1996, December 31, 1997, and December 31, 1998, $146,755, $132,619 and $244,213
respectively were liquidated subject to the 10% penalty for early withdrawal.
This represents only 1.00%, 0.63% and 0.90% of the Limited Partners ending
capital for the years ended December 31, 1996, 1997 and 1998, 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 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,
1996, December 31, 1997, and December 31, 1998, respectively, and is expected by
the General Partners to commonly occur at these levels.
The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment of Year 2000 hardware and software issues. This assessment is not yet
fully complete. The Partnership relies on Redwood Mortgage Corp., an affiliate
of the Partnership, and third parties to provide loan and investor services and
other computerized functions, effected by Year 2000 computerized operations.
Major services provided to the Partnership by these companies are loan
servicing, accounting and investor services. The vendors that supply the
software for loan servicing have already confirmed compliance with Year 2000
issues. Installation of accounting software that is Year 2000 compliant will
begin after the 1998-year ends.
The investor servicing software Year 2000 compliance is still under
assessment. Existing investor servicing software maintenance agreements provide
for conversion to Year 2000 compliance to be provided by the vendor.
Additionally, the Partnership has contacted several vendors that provide
investor services as a possible alternative to continuing to provide investors
services in house. It would appear that these service providers would be more
expensive than the current in house systems but they do provide a back-up
alternative in the event of our own failure to fully convert. Hardware utilized
by Redwood Mortgage Corp., is currently being tested to insure that
modifications necessary to be made prior to Year 2000 can be accomplished. At
this juncture, existing hardware appears to be substantially compliant with Year
2000 issues.
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2000 issues.
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
effect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an affect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant increased demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.
Although not fully developed, if all or any accounting, loan servicing and
investor services conversions should fail, the size and scope of the
Partnerships activities are such that they could be handled at an equal or
higher cost on a manual basis or outsourced to other servicers existing in the
industry, while correcting systems problems and are likely to be temporarily in
nature. While this would entail some initial set up costs, these costs would
likely not be so significant as to have a material effect upon the Partnership.
Shifting portions of daily operations to manual or outsourced systems may result
in time delays. Time delays in providing accurate and pertinent information
could negatively affect customer relations and lead to the potential loss of new
loans and Limited Partner investments.
The foregoing analysis of Year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations and financial condition. As such, this analysis may prove to be
inaccurate because of the assumptions made by the General Partner or the actual
development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct.
Various other risks and uncertainties could also affect the Year 2000
analysis causing the effect on the Partnership to be more severe than discussed
above. The General Partners Year 2000 compliance testing cannot guarantee that
all computer systems will function without error beyond the Year 2000. Risks
also exist with respect to Year 2000 compliance by external parties who may have
no relationship to the Partnership or the General Partners, but who have a
significant relationship with one or more third parties, and may have a system
failure that adversely affects the Partnerships ability to conduct business.
While the General Partners are attempting to identify such external parties, no
assurance can be given that it will be able to do so. Furthermore, third parties
with direct relationships with the Partnership, whose systems have been
identified as likely to be Year 2000 compliant, may suffer a breakdown due to
unforeseen circumstances. It is also possible that the information collected by
the General Partners for these third parties regarding their compliance with
Year 2000 issues may be incorrect. Finally, it should be noted that the
foregoing discussion of Year 2000 issues assumes that to the extent the General
Partners systems fail, whether because of unforeseen complications or because of
third parties failure, switching to manual operations will allow the Partnership
to continue to conduct its business. While the General Partner believes this
assumption to be reasonable, if it is incorrect, the Partnerships results of
operations would likely be adversely affected.
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VIII, a California Limited Partnership's list of
Financial Statements and Financial Statement schedules:
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VIII are
included in Item 8:
- - Independent Auditors Report,
- - Balance Sheets - December 31, 1998, and December 31, 1997,
- - Statements of Income for the three years ended December 31, 1998.
- - Statements of Partners Capital for the three years ended December 31, 1998.
- - Statements of Cash Flows for the three years ended December 31, 1998.
- - Notes to Financial Statements - December 31, 1998.
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors
VIII are included in Item 8.
- - Schedule II, - Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
- - Schedule VIII - Valuation of Qualifying Accounts,
- - Schedule IX - Short Term Borrowings.
- - Schedule XII - Mortgage Investments 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, 1998
(With Auditors Report Thereon)
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(925) 284-3590
INDEPENDENT AUDITORS REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VIII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1998 and 1997 and the
statements of income, changes in partners capital and cash flows for the three
years ended December 31, 1998. These financial statements are the responsibility
of the Partnerships management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 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, 1998 and 1997, and the results of its operations and
cash flows for the three years ended December 31, 1998, in conformity with
generally accepted accounting principles. Further, it is our opinion that the
schedules referred to above present fairly the information set forth therein in
compliance with the applicable accounting regulations of the Securities and
Exchange Commission.
/s/ Bruce Cropper
PARODI & CROPPER
Lafayette, California
March 3, 1999
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
--------------- ---------------
Cash $528,688 $663,159
--------------- ---------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 31,905,958 25,304,989
Accrued Interest on Mortgage Investments 459,418 341,976
Advances on Mortgage Investments 211,145 205,804
Accounts receivables, unsecured 48,849 62,844
--------------- ---------------
32,625,370 25,915,613
Less allowance for doubtful accounts 414,073 257,500
--------------- ---------------
32,211,297 25,658,113
--------------- ---------------
Real Estate owned, acquired through foreclosure,
held for sale 66,000 70,138
Investment in limited liability corporation, at cost which
approximates market 304,139 251,139
Organization costs, less accumulated amortization of $12,500
and $10,625, respectively 0 1,875
Due from related companies 0 2,999
Prepaid expense-deferred loan fee 11,835 10,151
--------------- ---------------
$33,121,959 $26,657,574
=============== ===============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND PARTNERS CAPITAL
1998 1997
--------------- ---------------
Liabilities:
Accounts payable and accrued expenses $2,500 $3,355
Note payable - bank line of credit 5,947,000 5,640,000
Deferred interest income 124,805 83,066
--------------- ---------------
6,074,305 5,726,421
--------------- ---------------
Partners Capital:
Limited partners capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $353,875 and
$431,994 for 1998 and 1997, respectively:
and formation loan receivable of $1,640,904 and
$1,386,693
for 1998 and 1997, respectively 27,025,331 20,914,721
General Partners Capital, net of unallocated syndication
costs
of $3,574 and $4,364 for 1998 and 1997, respectively 22,323 16,432
--------------- ---------------
Total Partners Capital 27,047,654 20,931,153
--------------- ---------------
Total Liabilities and Partners Capital $33,121,959 $26,657,574
=============== ===============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
------------- ------------- --------------
Revenues:
Interest on Mortgage Investments $3,376,293 $2,613,008 $1,718,208
Interest on bank deposits 8,946 9,487 4,083
Late charges 19,384 6,432 3,847
Miscellaneous 1,398 530 497
------------- ------------- --------------
3,406,021 2,629,457 1,726,635
------------- ------------- --------------
Expenses:
Mortgage servicing fees 295,052 189,692 155,912
Interest on note payable - bank 513,566 340,633 188,638
Amortization of loan origination fees 11,415 16,819 11,999
Provision for doubtful accounts and losses on real estate
acquired through foreclosure 162,969 139,804 55,383
Asset management fee - General Partner 31,651 24,966 17,053
Amortization of organization costs 1,875 2,500 2,500
Clerical costs through Redwood Mortgage 67,453 54,549 38,799
Professional services 27,462 36,717 17,687
Printing, supplies and postage 7,089 9,584 1,192
Other 8,907 5,673 3,947
------------- ------------- --------------
1,127,439 820,937 493,110
------------- ------------- --------------
Income before interest credited to partners in applicant 2,278,582 1,808,520 1,233,525
status
Interest credited to partners in applicant status 4,454 9,562 2,618
------------- ------------- --------------
Net Income $2,274,128 $1798,958 $1,230,907
============= ============= ==============
Net income: To General Partners(1%) $22,741 $17,990 $12,309
To Limited Partners (99%) 2,251,387 1,780,968 1,218,598
============= ============= ==============
Total - net income $2,274,128 $1,798,958 $1,230,907
============= ============= ==============
Net income per $1,000 invested by Limited
Partners for entire period:
- -where income is reinvested and compounded $84 $84 $ 84
============= ============= ==============
- -where partner receives income in monthly distributions $81 $81 $ 81
============= ============= ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS CAPITAL
--------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- ------------ ------------ -------------- ------------
Balances at December 31, 1995 $0 $11,784,937 $(322,677) $(775,229) $10,687,031
Contributions on Application 4,172,718 0 0 0 0
Formation Loan increases 0 0 0 (314,996) (314,996)
Formation Loan payments 0 0 0 8,961 8,961
Interest credited to partners in 2,618 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (863) 0 0 0 0
Transfers to Partners capital (3,863,536) 3,859,312 0 0 3,859,312
Net Income 0 1,218,598 0 0 1,218,598
Syndication costs incurred 0 0 (212,542) 0 (212,542)
Allocation of syndication costs 0 (116,523) 116,523 0 0
Partners withdrawals 0 (553,027) 0 0 (553,027)
Early withdrawal penalties 0 (12,108) 4,506 7,558 (44)
-------------- ------------ ------------ -------------- ------------
Balances at December 31, 1996 $310,937 $16,181,189 $ (414,190) $ (1,073,706) $14,693,293
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in 9,562 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to Partners capital (5,570,619) 5,565,372 0 0 5,565,372
Net Income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
-------------- ------------ ------------ -------------- ------------
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in 4,454 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
-------------- ------------ ------------ -------------- ------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
============== ============ ============ ============== ============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
----------------------------------------------------------
Capital Unallocated Total
Account Syndication Total Partners
General Costs Capital
Partners
---------------- ----------------- ----------------- ---------------
Balances at December 31, 1995 $11,325 $(3,258) $8,067 $10,695,098
Contributions on Application 0 0 0 0
Formation loan increases 0 0 0 (314,996)
Formation loan payments 8,961
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 4,224 0 4,224 3,863,536
Net Income 12,309 0 12,309 1,230,907
Syndication costs incurred 0 (2,147) (2,147) (214,689)
Allocation of syndication costs (1,177) 1,177 0 0
Partners withdrawals (11,132) 0 (11,132) (564,159)
Early withdrawal penalties 0 44 44 0
---------------- ----------------- ----------------- ---------------
Balances at December 31, 1996 $15,549 $ (4,184) $11,365 $14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
---------------- ----------------- ----------------- ---------------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
Interest credited to partners in 0 0 0 0
applicant status
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
---------------- ----------------- ----------------- ---------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
================ ================= ================= ===============
See accompanying notes to financial statements
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
1998 1997 1996
--------------- -------------- --------------
Cash flows from operating activities:
Net income $2,274,128 $1,798,958 $1,230,907
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 1,875 2,500 2,500
Provision for doubtful accounts. 156,573 139,804 78,651
Provision for losses (gains) on real estate held for sale 6,396 0 (23,268)
Increase (decrease) in accounts payable (855) (17,270) 16,615
(Increase) in accrued interest & advances (122,783) (342,571) (83,477)
(Increase) decrease in amount due from related companies 2,999 (2,688) 2,738
(Increase) decrease in deferred loan fee (1,684) 10,569 (3,002)
Increase (decrease ) in deferred interest income 41,739 (134,414) 217,480
--------------- -------------- --------------
Net cash provided by operating activities 2,358,388 1,454,888 1,439,144
--------------- -------------- --------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 14,262,838 10,279,337 9,019,190
Mortgage Investments made (20,863,807) (19,941,336) (13,148,944)
Disposition of real estate held for sale 0 0 299,154
Additions to real estate held for sale (2,258) (3,254) 0
Additions to Limited Liability Corporation (53,000) (60,000) 0
Accounts receivables, unsecured - (disbursements) receipts 13,995 12,490 (4,018)
--------------- -------------- --------------
Net cash used in investing activities (6,642,232) (9,712,763) (3,834,618)
--------------- -------------- --------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 307,000 4,140,000 (410,000)
Contributions by partner applicants 5,105,559 5,251,969 4,172,718
Interest credited to partners in applicant status 4,454 9,562 2,618
Interest withdrawn by partners in applicant status (1,553) (1,849) (863)
Partners withdrawals (868,419) (631,150) (564,159)
Syndication costs incurred (127,730) (190,421) (214,689)
Formation Loan increases (403,518) (420,510) (314,996)
Formation Loan collections 133,580 98,999 8,961
--------------- -------------- --------------
Net cash provided by financing activities 4,149,373 8,256,600 2,679,590
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (134,471) (1,275) 284,116
Cash - beginning of period 663,159 664,434 380,318
--------------- -------------- --------------
Cash - end of period $528,688 $663,159 $664,434
=============== ============== ==============
See accompanying notes to financial statements.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, (the Partnership) is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the General Partners. At December 31, 1998, the Partnership was in
the offering stage, wherein contributed capital totalled $25,590,135 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (255,902).
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the Partnership
commenced a second offering of an additional 300,000 Units ($30,000,000) As
Mortgage Investments are identified, partners are transferred from applicant
status to admitted partners participating in Mortgage Investment operations.
Each months income is distributed to partners based upon their proportionate
share of partners capital. Some partners have elected to withdraw income on a
monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan Sales commissions are not paid
directly by the Partnership out of the offering proceeds. Instead, the
Partnership loans to Redwood Mortgage, an affiliate of the General Partners,
amounts to pay all sales commissions and amounts payable in connection with
unsolicited orders. This loan is referred to as the Formation Loan. It is
unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$839,413 at December 31, 1998, which was 7.9% of the limited partners
contributions of $10,658,118. Sales commissions range from 0% (units sold by
General Partners) to 9% of gross proceeds. The Partnership anticipates that the
sales commissions will approximate 7.6% based on the assumption that 65% of
investors will elect to reinvest earnings, thus generating 9% commissions. The
principal balance of the Formation Loan will increase as additional sales of
units are made each year. The amount of the annual installment payment to be
made by Redwood Mortgage, during the offering stage, will be determined at
annual installments of one-tenth of the principal balance of the Formation Loan
as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year with the first such payment beginning December
31, 1997. Upon completion of the offering, the balance will be repaid in ten
equal annual installments.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The following summarizes Formation Loan transactions to December 31, 1998:
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
--------------- --------------- ---------------
Limited Partner contributions $14,932,017 $10,658,117 $25,590,134
=============== =============== ===============
Formation Loan made $1,074,840 839,413 1,914,253
Payments to date (198,316) (43,223) (241,539)
Early withdrawal penalties applied (31,810) 0 (31,810)
Balance December 31, 1998 $844,714 $796,190 $1,640,904
=============== =============== ===============
Percent loaned of Partners contributions 7.2% 7.9% 7.5%
=============== =============== ===============
The Formation Loan, which is receivable from Redwood Mortgage, an affiliate
of the General Partners, has been deducted from Limited Partners Capital in the
balance sheet. As amounts are collected from Redwood Mortgage, the deduction
from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, registration and filing fees and other costs), will be paid by
the Partnership.
Through December 31, 1998, organization costs of $12,500 and syndication
costs of $988,761 had been incurred by the Partnership with the following
distribution:
Syndication
Organization
Costs Total
Costs
----------------- ------------- -------------
Costs incurred $988,761 $12,500 $1,001,261
Early withdrawal penalties applied (17,790) 0 (17,190)
Allocated and amortized to date (613,522) (12,500) (626,022)
-- ----------------- --- ------------- -- -------------
December 31, 1998 balance $357,449 0 $357,449
== ================= === ============= == =============
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of December 31, 1998, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $418,896, (3.93% of contributions), with the
costs of the offering document being greater at the initial stages. The
syndication costs payable by the Partnership are estimated to be $1,200,000 if
the maximum is sold (4% of $30,000,000). The General Partners will pay any
syndication expenses (excluding selling commissions) in excess of ten percent of
the gross proceeds or $1,200,000.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a Mortgage Investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was the
valuation method previously used on impaired loans.
At December 31, 1998, 1997, and 1996, there were no Mortgage Investments
categorized as impaired by the Partnership. Had there been a computed amount for
the reduction in carrying values of impaired loans, the reduction would have
been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the losses were
consummated was 59.50%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell. At December 31, 1998, there was one such
piece of property with costs totaling $77,396 less a reduction of $11,396 to
arrive at the net fair value of $66,000.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Effective January 1, 1996, the Partnership adopted the provisions of
Statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The Partnership carries its investment in a Limited Liability Corporation
as investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, and filing fees.
Organizational costs have been capitalized and were amortized over a five year
period. Syndication costs are charged against partners capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees, and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral values, to provide for unrecoverable accounts receivable, including
impaired Mortgage Investments, unspecified mortgage investments, accrued
interest and advances on Mortgage Investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
December 31, 1998, and 1997 was as follows:
December 31,
-----------------------------------------
1998 1997
--------------- ---------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 370,073 213,500
Amounts receivable, unsecured 44,000 44,000
--------------- ---------------
$414,073 $257,500
=============== ===============
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited Partners pro rata share of Partners Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of Partnership Mortgage Investments in an amount up to 12% of the
Mortgage Investments until 6 months after the termination date of the offering.
Thereafter, Mortgage Investment brokerage commissions will be limited to an
amount not to exceed 4% of the total Partnership assets per year. The Mortgage
Investment brokerage commissions are paid by the borrowers, and thus, are not an
expense of the Partnership. In 1998 and 1997, Mortgage Investment brokerage
commissions paid by the borrowers were $604,836 and $837,399, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, is paid to Redwood Mortgage, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $295,052, $189,692 and $155,912
were incurred for years 1998, 1997 and 1996, respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnerships
Mortgage Investment portfolio and operations up to 1/32 of 1% of the net asset
value (3/8 of 1% annual). Management fees of $31,651, $24,966 and $17,053 were
incurred for years 1998, 1997 and 1996, 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 parties related to the General Partners.
E. Income and Losses
All income will be credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) shall be a total of 1%.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. Such
reimbursements are reflected as expenses in the Statement of Income.
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering are admitted to limited
Partner capital. As of December 31, 1998 a General Partner, GYMNO Corporation,
had contributed $25,588, as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units are not admitted to
the Partnership until appropriate lending opportunities are available. During
the period prior to the time of admission, which is anticipated to be between
1-120 days in most cases, purchasers subscriptions will remain irrevocable and
will earn interest at money market rates, which are lower than the anticipated
return on the Partnerships Mortgage Investment portfolio.
During the periods ending December 31, 1998, 1997 and 1996, interest
totalling $4,454, $9,562 and $2,618 respectively, was credited to partners in
applicant status. As Mortgage Investments were made and partners were
transferred to regular status to begin sharing in income from Mortgage
Investments secured by deeds of trust, the interest credited was either paid to
the investors or transferred to partners capital along with the original
investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five years, subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elect either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
Subject to certain limitations, a compounding investor may subsequently change
his election, but an investors election to have cash distributions is
irrevocable.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is illiquid. Limited Partners have
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a certain degree of liquidity to the Limited Partners after the
one-year period, Limited Partners may withdraw all or part of their Capital
Accounts from the Partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn as stated in the Notice of Withdrawal and
will be deducted from the Capital Account and the balance distributed in four
quarterly installments. Withdrawal after the one-year holding period and before
the five-year holding period will be permitted only upon the terms set forth in
the Partnership Agreement.
Limited Partners will also have the right after five years from the date of
purchase of the Units to withdraw from the Partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. Once this five year period expires, no penalty will be imposed if
withdrawal is made in twenty (20) quarterly installments or longer.
Notwithstanding the five-year (or longer) withdrawal period, the General
Partners will liquidate all or part of a Limited Partners capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given, subject to a
10% early withdrawal penalty applicable to any sums withdrawn prior to the time
when such sums could have been withdrawn pursuant to the five-year (or longer)
withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital is restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner is admitted to
the Partnership and ending 3 months after the offering termination date, the
General Partners shall guarantee an earnings rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring September 30, 2000, of
up to $8,000,000 at .5% over prime secured by its Mortgage Investment portfolio.
The note payable balances were $5,947,000 and $5,640,000 at December 31, 1998,
and 1997, respectively, and the interest rate was 8.25% at December 31, 1998,
(7.75% prime plus .50%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
has contributed its interest (principally land) to a Limited Liability
Corporation, which is owned 100% by the Partnership, and which will complete the
construction and sell the property. The Partnership expects to realize a profit
from the venture.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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:
December 31,
------------------------------------------
1998 1997
----------------- ---------------
Net Assets - Partners Capital per financial statements $27,047,654 $20,931,153
Unamortized syndication costs 357,449 436,358
Allowance for doubtful accounts 414,073 257,500
Formation loans receivable 1,640,904 1,386,693
----------------- ---------------
Net assets tax basis $29,460,080 $23,011,704
================= ===============
In 1998 and 1997, approximately 61% and 61% 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 INVESTMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The carrying value of mortgage investments (see note 2(c) is
$31,905,958. The fair value of these investments of $32,231,632 is estimated
based upon projected cash flows discounted at the estimated current interest
rates at which similar loans would be made. The applicable amount of the
allowance for doubtful accounts along with accrued interest and advances related
thereto should also be considered in evaluating the fair value versus the
carrying value.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
December 31, 1998, there were 55 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 55
Total Mortgage Investments outstanding $31,905,958
Average Mortgage Investment outstanding $580,108
Average Mortgage Investment as percent of total 1.82%
Average Mortgage Investment as percent of Partners Capital 2.14%
Largest Mortgage Investment outstanding 2,600,000
Largest Mortgage Investment as percent of total 8.15%
Largest Mortgage Investment as percent of Partners Capital 9.61%
Number of counties where security is located (all California) 11
Largest percentage of Mortgage Investments in one county 32.65%
Average Mortgage Investment to appraised value of security at time loan was consummated 59.50%
Number of Mortgage Investments in foreclosure status -0-
Amount of Mortgage Investments in foreclosure -0-
The following categories of mortgage investments are pertinent at December 31, 1998 and 1997:
December 31,
-----------------------------------------
1998 1997
----------------- -----------------
First Trust Deeds $22,349,185 $17,103,865
Second Trust Deeds 8,469,460 8,163,624
Third Trust Deeds 1,087,313 37,500
----------------- -----------------
Total mortgage investments 31,905,958 25,304,989
Prior liens due other lenders 26,411,096 24,224,566
----------------- -----------------
Total debt $58,317,054 $49,529,555
================= =================
Appraised property value at time of loan $98,011,150 $88,714,541
================= =================
Total investments as a percent of appraisals 59.50% 55.83%
================= =================
Investments by Type of Property
Owner occupied homes $6,450,199 $2,445,423
Non-Owner occupied homes 8,789,445 5,318,722
Apartments 3,256,602 5,982,649
Commercial 13,409,712 11,558,195
----------------- -----------------
$31,905,958 $25,304,989
================= =================
The interest rates on the mortgage investments range from 8.00% to 14.00% at December 31, 1998.
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Scheduled maturity dates of mortgage investments as of December 31, 1998
are as follows:
Year Ending
December 31,
-------------------
1999 $11,815,481
2000 9,576,318
2001 5,540,542
2002 1,515,906
2003 1,336,291
Thereafter 2,121,420
===============
$31,905,958
===============
The scheduled maturities for 1999 include approximately $265,376 in
Mortgage Investments which are past maturity at December 31, 1998. Interest
payment on only one of these loans was delinquent.
The cash balance at December 31, 1998 of $528,688 was in one bank with
interest bearing balances totalling $492,951. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $428,688. This bank is the same
financial institution that has provided the Partnership with the $8,000,000
limit line of credit. At December 31, 1998, draw down against this facility was
$5,947,000. As and when deposits in the Partnerships bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
Mortgage Investments or used to pay-down on the line of credit balance.
SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03
Column A Column B Column C Column D Column E
Name of Debtor Balance Beginning Additions Deductions Balance at end of period
of period 12/31/97 (1) (2) (1) (2)
Amounts Amounts Current Not Current
collected written off 12/31/98
Redwood Mortgage Corp. $1,386,693 $403,518 $133,580 $15,727 0 $1,640,904
------------- --------------------- ---------------- ------------- ------------- ---------------
Total $1,386,693 $403,518 $133,580 $15,727 0 $1,640,904
============= ===================== ================ ============= ============= ===============
The above schedule represents the Formation Loan borrowed by Redwood
Mortgage Corp. from the Partnership to pay for the selling commissions on units.
It is an unsecured loan and will not bear interest. It will be repaid to the
Partnership in ten annual installments as described in Note 1 A to the financial
statements. The amount written off in column D (2) represents the proportionate
amount of early withdrawal penalties allocated to the Formation Loan as provided
in the prospectus.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VIII
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
(credited) to
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/98
Deducted from
Asset accounts:
Allowance for
Doubtful accts $257,500 $156,573 0 0 $414,073
Cumulative
write-down of
Real Estate
held for sale
(REO) $5,000 $6,396 0 0 $11,396
================= =================== =================== ================ ================
Totals $262,500 $162,969 0 0 $425,469
================= =================== =================== ================ ================
(a) represents loss realized
SCHEDULE XII
MORTGAGE INVESTMENTS 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 of Geographic
Rate Maturity Payment Mortgage amount of amount Lien County
Date Terms Investments Mortgage of Location
(original Investments Mortgage
amount) Investments
subject
to
Delinq.
Principal
or
Interest
========= ======== ========= ============ ============== =============== ============== ========== ========= =============
Comm 13.75 11/01/99 2,044.77 156,750.00 175,500.00 167,868.51 0.00 2nd mtg Alameda
Comm 13.75 10/01/96 458.33 0.00 40,000.00 40,000.00 0.00 1st mtg Santa Clara
Comm 12.00 09/01/03 848.61 0.00 82,500.00 80,397.94 0.00 1st mtg Alameda
Comm 11.00 09/01/05 846.15 846,019.00 67,500.00 48,266.38 0.00 2nd mtg Sacramento
Comm 12.00 11/01/98 2,057.23 5,635.00 200,000.00 35,656.54 0.00 2nd mtg San Francisco
Comm 10.00 12/01/98 1,689.33 0.00 192,500.00 189,719.44 8,446.65 1st mtg Alameda
Comm 12.00 02/01/99 5,131.14 0.00 503,457.45 503,457.45 0.00 1st mtg Santa Clara
Apts 11.00 11/01/99 1,980.58 713,917.00 200,000.00 196,026.80 0.00 2nd mtg San Joaquin
Res 11.00 12/01/03 3,185.37 1,060,486.00 325,000.00 312,953.37 0.00 2nd mtg San Francisco
Res 11.00 04/01/99 4,999.70 775,649.00 525,000.00 514,203.86 0.00 2nd mtg Contra Costa
Apts 11.00 04/01/05 330.09 0.00 400,000.00 33,333.33 0.00 1st mtg San Joaquin
Comm 12.00 07/01/00 1,387.44 0.00 130,000.00 128,363.57 0.00 1st mtg Fresno
Res 11.75 07/01/10 802.36 74,551.00 66,000.00 61,041.72 0.00 2nd mtg Alameda
Apts 12.00 08/01/00 6,951.28 3,033,304.00 660,000.00 642,827.22 0.00 2nd mtg San Joaquin
Comm 12.00 01/01/06 3,415.23 0.00 320,000.00 316,562.67 0.00 1st mtg San Joaquin
Comm 11.75 02/01/99 1,018.34 0.00 104,000.00 103,935.80 0.00 1st mtg Contra Costa
Comm 12.00 03/01/01 789.92 0.00 75,000.00 73,336.90 0.00 1st mtg San Mateo
Comm 12.00 12/31/01 10,106.91 5,492,794.00 955,000.00 1,010,691.25 0.00 2nd mtg Santa Clara
Res 11.00 04/01/06 1,039.81 0.00 105,000.00 103,234.28 0.00 1st mtg San Francisco
Comm 12.00 03/01/01 684.60 74,754.00 65,000.00 63,930.02 0.00 2nd mtg San Mateo
Comm 12.00 02/01/99 186.00 46,800.00 18,000.00 18,000.00 0.00 2nd mtg Santa Clara
Land 12.00 01/01/00 14,500.00 880,313.00 1,450,000.00 1,450,000.00 43,500.00 2nd mtg Stanislaus
Comm 14.00 04/01/06 12,160.05 0.00 700,000.00 664,719.00 0.00 1st mtg San Francisco
Res 11.00 05/01/99 359.38 1,660,639.00 37,500.00 37,500.00 0.00 3rd mtg Contra Costa
Comm 11.75 05/01/02 3,828.76 0.00 370,000.00 315,906.53 0.00 1st mtg San Mateo
Res 12.00 06/01/99 500.00 262,342.00 50,000.00 50,000.00 1,000.00 2nd mtg Alameda
Comm 12.00 07/01/02 10,500.00 0.00 1,350,000.00 1,050,000.00 0.00 1st mtg San Francisco
Res 11.00 07/01/00 1,787.50 0.00 195,000.00 195,000.00 0.00 1st mtg San Francisco
Res 12.00 01/01/99 6,726.86 350,000.00 712,500.00 679,413.15 0.00 2nd mtg Monterey
Res 10.00 07/01/00 5,068.88 0.00 579,300.00 579,300.00 0.00 1st mtg San Francisco
Comm 12.00 10/01/02 1,562.50 0.00 150,000.00 150,000.00 0.00 1st mtg San Francisco
Res 11.00 04/01/99 11,661.04 579,300.00 1,320,000.00 1,229,459.90 0.00 2nd mtg San Francisco
Apts 11.00 10/01/99 18,944.44 0.00 2,200,000.00 2,000,000.00 0.00 1st mtg San Mateo
Comm 11.00 10/01/07 6,190.11 0.00 650,000.00 646,554.51 0.00 1st mtg San Francisco
Res 8.00 11/01/27 1,834.42 0.00 250,000.00 247,707.97 0.00 1st mtg San Mateo
Res 12.00 05/01/99 11,310.80 0.00 2,400,000.00 1,178,418.38 0.00 1st mtg San Francisco
Comm 12.00 01/01/03 9,736.79 0.00 1,075,000.00 942,939.03 0.00 1st mtg Alameda
Res 11.00 01/01/00 9,361.09 0.00 945,300.00 945,300.00 0.00 1st mtg Alameda
Land 11.00 09/01/99 3,354.17 0.00 350,000.00 350,000.00 0.00 1st mtg Stanislaus
Res 11.00 05/01/00 3,226.67 0.00 352,000.00 352,000.00 0.00 1st mtg San Francisco
Res 12.00 04/01/00 8,940.00 1,500,000.00 894,000.00 894,000.00 17,880.00 3rd mtg Marin
Comm 12.00 12/01/99 3,000.00 1,124,681.00 300,000.00 300,000.00 0.00 2nd mtg Contra Costa
Land 11.00 12/01/00 10,273.34 0.00 1,072,000.00 1,072,000.00 0.00 1st mtg Stanislaus
Land 11.00 07/01/99 11,720.99 3,143,154.00 1,515,000.00 1,237,406.63 0.00 2nd mtg San Francisco
Apts 12.00 08/01/99 3,771.25 0.00 390,000.00 384,414.93 0.00 1st mtg Marin
Res 11.00 03/01/00 1,126.59 2,122,800.00 950,700.00 155,812.76 0.00 3rd mtg San Francisco
Res 12.00 09/01/01 12,778.56 0.00 1,137,500.00 1,242,583.71 0.00 1st mtg San Francisco
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 of Geographic
Rate Maturity Payment Mortgage amount of amount Lien County
Date Terms Investments Mortgage of Location
(original Investments Mortgage
amount) Investments
subject
to
Delinq.
Principal
or
Interest
========= ======== ========= ============ ============== =============== ============== ========== ========= =============
Res 11.00 10/01/01 22,916.66 0.00 2,500,000.00 2,500,000.00 0.00 1st mtg Stanislaus
Res 11.00 05/01/00 8,720.83 0.00 910,000.00 910,000.00 0.00 1st mtg San Francisco
Res 11.00 06/01/00 11,068.75 1,320,000.00 1,155,000.00 185,565.98 0.00 2nd mtg San Francisco
Res 10.00 11/01/00 1,750.00 277,207.50 210,000.00 76,415.33 0.00 2nd mtg San Mateo
Res 11.00 05/01/00 9,132.92 910,000.00 953,000.00 189,733.54 0.00 2nd mtg San Francisco
Comm 11.00 12/01/00 16,500.00 0.00 1,800,000.00 1,800,000.00 0.00 1st mtg Santa Clara
Res 10.87 12/01/99 23,562.50 0.00 2,600,000.00 2,600,000.00 0.00 1st mtg San Mateo
Comm 11.50 12/05/01 6,229.17 0.00 650,000.00 650,000.00 0.00 1st mtg Stanislaus
------------ -------------- --------------- --------------
$334,058.21 $26,411,095.50 $37,383,257.45 $31,905,958.40
Notes:
None of the above Mortgage Investments is considered impaired. Therefore,
none of them has been written down. The allowance for doubtful accounts includes
$370,073 relating to the above Mortgage Investments and accrued interest
receivable and advances related thereto.
Amounts reflected in column G (carrying amount of Mortgage Investments)
represents both cost and the tax basis of the loans.
Schedule XII
Reconciliation of carrying amount (cost) of Mortgage Investments at close of periods
Year ended December 31,
----------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Balance at beginning of year $25,304,989 $15,642,990 $12,047,252
--------------- --------------- ---------------
Additions during period:
New Mortgage Investments 20,863,807 19,941,336 13,148,944
Other 0 0 0
--------------- --------------- ---------------
Total Additions 20,863,807 19,941,336 13,148,944
--------------- --------------- ---------------
Deductions during period:
Collections of principal 14,262,838 10,279,337 9,019,190
Foreclosures 0 0 534,016
Cost of Mortgage Investments sold 0 0 0
Amortization of Premium 0 0 0
Other 0 0 0
--------------- --------------- ---------------
Total Deductions 14,262,838 10,279,337 9,553,206
--------------- --------------- ---------------
Balance at close of year $31,905,958 $25,304,989 $15,642,990
=============== =============== ===============
SCHEDULE IX
SHORT TERM BORROWINGS
REDWOOD MORTGAGE INVESTORS VIII - RULE 12-10
Column A Column B Column C Column D Column E Column F
Category of Aggregate Balance at End Weighted Average Maximum Amount Average Amount Weighted Average
Short-Term Borrowings of Period Interest Rate Outstanding Outstanding Interest Rate
during
During the Period During the Period the period
- ----------------------- ---------------- ------------------- --------------------- ------------------- -------------------
Year-Ended 12/31/98 $5,947,000 8.92% $6,547,000 $5,757,315 8.92%
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Partnership has neither changed its accountants nor does it have any
disagreement on any matter of accounting principles, practices or financial
statement 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 the three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwells are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
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, pages 6-7, under the section Compensation of the General Partners
and the Affiliates, which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the year ended December 31, 1998. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Compensation Description of Compensation and Services Amount
Rendered
- ------------------------------------- -------------------------------------------- -------------------------
I. Redwood Mortgage. Mortgage Servicing Fee for servicing
Mortgage Investments ...................... $295,052
General Partners &/or Affiliate Asset Management Fee for managing assets $31,651
General Partners 1% interest in profits..................... $22,741
Less allocation of syndication costs........ 1,983
$20,758
II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO
THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP)
Redwood Mortgage Mortgage Brokerage Commissions for services in connection
with the review, selection, evaluation, negotiation,
and extension of the Mortgage Investments paid
by the borrowers and not by the Partnership $604,836
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the
Partnership $13,813
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. $67,453
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The General Partners are to 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 December 4, 1996, (incorporated herein
by reference) on pages 4-5 Compensation of General Partners and Affiliates and
page 5 Conflicts of Interest.
Part IV
Item 14 - Exhibits, Financial Statements and 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.
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
Commercial 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
24.1 Consent of Parodi & Cropper
24.2 Consent of Stephen C. Ryan & Associates
All of these exhibits were previously filed as the exhibits to Registrants
Statement on Form S-11 (Registration No. 333-13113 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.
C. See A (3) above.
D. See A (2) above. Additional reference is made to the prospectus (S-11
filed as part of the Registration Statement) to pages 94 through 97, revised
Prospectus dated December 4, 1996, Supplement No. 3 dated November 26, 1997,and
Supplement No. 4 dated April 24, 1998 for financial data related to Gymno
Corporation, a General Partner.
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 24th day of March,
1999.
REDWOOD MORTGAGE INVESTORS VIII
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity indicated on the 24th day of March, 1999.
Signature Title Date
/S/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell General Partner March 24, 1999
/S/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell General Partner March 24, 1999
/S/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell President of Gymno Corp., March 24, 1999
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 24, 1999
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation