REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                               Index to Form 10-K

                                December 31, 2005


<TABLE>
<S>       <C>                                                                                                 <C>
                                                    Part I
                                                                                                              Page No.
                                                                                                            -----------
Item 1  - Business                                                                                              4
Item 2  - Properties                                                                                            8
Item 3  - Legal Proceedings                                                                                     9
Item 4  - Submission of Matters to a Vote of Security Holders (Partners)                                        9

                                                   Part II

Item 5  - Market for the Registrant's "Limited Partnership Units" and Related Unitholder Matters                9
Item 6  - Selected Consolidated Financial Data                                                                  10
Item 7  - Management's Discussion and Analysis of Financial Condition and Results of Operations                 12
Item 7a - Quantitative and Qualitative Disclosures About Market Risk                                            21
Item 8  - Consolidated Financial Statements and Supplementary Data                                              24
Item 9  - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                  54
Item 9a - Controls and Procedures                                                                               54
Item 9b - Other Information                                                                                     54

                                                   Part III

Item 10 - Directors and Executive Officers of the Registrant                                                    54
Item 11 - Executive Compensation                                                                                56
Item 12 - Security Ownership of Certain Beneficial Owners and Management                                        57
Item 13 - Certain Relationships and Related Transactions                                                        57
Item 14 - Principal Accountant Fees & Services                                                                  57

                                                   Part IV

Item 15 - Exhibits, Financial Statements and Schedules                                                          58

Signatures                                                                                                      59

Certifications                                                                                                  61
</TABLE>



                                       1
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-K


        (Mark One)
        [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

                      For the Year Ended December 31, 2005

                                       OR

        [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________


                        Commission File Number: 000-27816


                        REDWOOD MORTGAGE INVESTORS VIII,
                        a California Limited Partnership
             (Exact name of registrant as specified in its charter)


             California
(State or other jurisdiction of                          94-3158788
 incorporation or organization)              (I.R.S. Employer Identification)


900 Veterans Blvd., Suite 500, Redwood City, CA            94063
    (address of principal executive offices)             (zip code)


                                 (650) 365-5341
              (Registrant's telephone number, including area code)


Securities registered pursuant to Section
12 (b) of the Act:                                         NONE

Securities registered pursuant to Section
12 (g) of the Act:                                Limited Partnership Units


                                       2
<PAGE>


     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act of 1933, as amended.

Yes                           No          XX
          --------------             -------------

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant  to Section  13 or  Section  15(d) of the  Securities  Act of 1934,  as
amended.

Yes                           No          XX
          --------------             -------------

     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 during
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            XX             No
          --------------             -------------

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ]   Accelerated Filer [ ]   Non-Accelerated Filer [X]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Act).

Yes                           No          XX
          --------------             -------------

     As of June 30, 2005, the aggregate value of limited  partnership units held
by  non-affiliates  was  $205,385,000.  This calculation is based on the capital
account balance of the limited partners and excludes limited  partnership  units
held by the general partner.

     Documents incorporated by reference:

     Portions of the  Prospectus  effective  August 4, 2005,  and post effective
Amendment No. 1 dated March 15, 2006,  containing  supplement  No. 1 dated March
15,  2006,  (the  "Prospectus"),  are  incorporated  in Parts II,  III,  and IV.
Exhibits  filed as part of Form  S-11  Registration  Statement  #333-125629  are
incorporated by reference in part IV.

                                       3
<PAGE>
                                     Part I


     Item 1 - Business

     Redwood  Mortgage  Investors VIII, a California  Limited  Partnership  (the
"Partnership"), was organized in 1993. Michael R. Burwell, Gymno Corporation and
Redwood Mortgage Corp., both California Corporations,  are the general partners.
The partnership is organized to engage in business as a mortgage lender, for the
primary  purpose of making loans secured  primarily by first and second deeds of
trust on  California  real  estate.  Loans are  arranged and serviced by Redwood
Mortgage  Corp.  The  partnership's  objectives are to make loans that will: (i)
yield a high rate of return from mortgage lending; and (ii) preserve and protect
the  partnership's  capital.  Investors  should not expect  the  partnership  to
provide tax benefits of the type commonly  associated  with limited  partnership
tax shelter  investments.  The partnership is intended to serve as an investment
alternative  for  investors  seeking  current  income.   However,  unlike  other
investments,  which are intended to provide current income, an investment in the
partnership  will be less liquid,  not readily  transferable,  and not provide a
guaranteed return over its investment life.

     Initially,  the partnership  offered a minimum of $250,000 and a maximum of
$15,000,000 in units,  of which  $14,932,000  were sold.  This initial  offering
closed on October 31, 1996.  Subsequently,  the  partnership  commenced a second
offering of up to  $30,000,000  in units  commencing  on December 4, 1996.  This
offering sold  $29,993,000 in units and was closed on August 30, 2000. On August
31, 2000 the  partnership  commenced its third  offering for another  30,000,000
units  ($30,000,000).  This offering sold $29,999,000 in units and was closed on
April 23,  2002.  On  October  30,  2002 the  partnership  commenced  its fourth
offering for an additional  50,000,000 units  ($50,000,000).  This offering sold
$49,985,000  in units and was closed on October 6, 2003.  On October 7, 2003 the
partnership commenced its fifth offering of 75,000,000 units ($75,000,000). This
offering sold  $74,904,000  in units and was closed on August 3, 2005. On August
4, 2005 the partnership  commenced its sixth and current offering of 100,000,000
units ($100,000,000).  As of December 31, 2005, $12,224,000 in units was sold in
this sixth offering, bringing the aggregate sale of units to $212,037,000. Units
in the sixth offering 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.

     The  partnership  began selling units in February 1993, and began investing
in  mortgages  in  April  1993.  At  December  31,  2005,  the  partnership  has
investments  in secured loans with  principal  balances  totaling  $214,012,000.
Interest rates ranged from 8.00% to 13.00%. Currently First Trust Deeds comprise
63.52% of the total  amount of the secured loan  portfolio,  a decrease of 3.49%
over the 2004 level of 67.01%.  Junior  loans (2nd and 3rd Trust  Deeds) make up
36.48%,  an  increase of 3.49% from the 2004 level of 32.99%.  Loans  secured by
single  family (1-4 units)  total 54.64% of the secured  loan  portfolio.  Loans
secured by  multi-family  properties  make up 8.98% of the total secured  loans.
Commercial loans comprise 30.45% of the secured  portfolio,  a decrease of 1.38%
from last  year and land made up 5.93% of the  secured  loan  portfolio.  Of the
total secured  loans,  71.78% are in six counties of the San Francisco Bay Area,
and 15.54% are in counties  adjacent to the San Francisco Bay Area.  The balance
of secured loans,  12.68% are in other counties  located in California.  Average
loan size decreased this year,  and is now averaging  $2,184,000 per loan,  down
$105,000  from the average  loan  balance of  $2,289,000  in 2004.  Despite this
decrease in the average loan size, the partnership's loan portfolio continued to
grow as the number of loans increased.  As of December 31, 2005 the secured loan
portfolio  balance was  $214,012,000  as compared to $171,745,000 as of December
31,  2004;  an  increase  of  $42,267,000  (24.61%).  The  number of loans  also
increased  to 98 loans as of  December  31,  2005 from 75 loans that  existed at
December 31, 2004; an increase of 23 loans (30.67%).  These increases are due to
the ability of the partnership,  by virtue of its increasing  capital, to invest
in more loans.  The average loan as of December 31,  2005,  represents  0.96% of
partner capital and 1.02% of outstanding secured loans, compared to December 31,
2004 when average loan size represented  1.25% of partners' capital and 1.33% of
outstanding  secured  loans.  Some  of  the  loans  are  fractionalized  between
affiliated  partnerships with objectives  similar to those of the partnership to
further reduce risk. However, as the partnership has grown in size the number of
fractionalized  loans has decreased and represents  8.16% of the loan portfolio.
Average  equity per loan  transaction at the time the loans were made based upon
appraisals  and prior  liens at such  time,  which is our loan  plus any  senior
loans, divided by the property's appraised value, subtracted from 100%, stood at
34.97%,  a decrease  in equity of 8.09% from the  previous  year.  This  average
equity  is  considered  conservative.  Generally,  the  more  equity,  the  more
protection for the lender.  The general partners believe the partnership's  loan
portfolio is in good condition with one property in foreclosure as of the end of
December  2005. The principal  balance of this  foreclosed  property  represents
1.68% of the secured loan  portfolio.  The  partnership  does expect that during
2006  additional  foreclosures  may need to be filed in order to collect payment
from  borrowers who have become  delinquent.  This is typical of our loan market
segment and the partnership  expects to have a level of delinquency  higher than
banking institutions within its portfolio.

                                       4
<PAGE>

     Delinquencies  are discussed  under Item 7 -  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations.

     For  the  year  ended  December  31,  2005  the  partnership  acquired  two
properties through foreclosure. One was a Monterey County undeveloped lot, which
was subsequently sold at a profit.  The other was a multi-unit  property located
in an  upscale  neighborhood  in  San  Francisco.  Following  acquisition,  this
property was  transferred  via a statutory  warranty  deed to a new entity named
Larkin Street Property Company, LLC.  Occasionally,  to assist in protecting its
own assets and to reduce  liability,  the  partnership  may transfer  properties
acquired  through the  foreclosure  process to newly  formed  Limited  Liability
Companies,  or "LLCs". The partnership owns a controlling 72.50% interest in the
property along with three other affiliated  partnerships  that  collectively own
the remaining  27.50%.  As of December 31, 2005 the  partnership has capitalized
approximately  $558,000  in  costs  related  to this  property  and the  overall
investment together with the other affiliated  partnerships totaled $11,153,000.
During 2004 the  partnership  acquired  one  property  through  foreclosure  and
acquired three  contiguous  parcels of land through deeds in lieu of foreclosure
on three loans to one borrower.  With respect to the properties acquired in 2004
the  partnership  has not transferred the real estate to any of its LLCs. One of
the properties is a single-family  residence,  upon which the borrower was doing
substantial renovation that was not completed at the time of foreclosure.  As of
December 31, 2005,  the  partnership's  investment  in this  property,  net of a
$500,000 reserve,  totaled  $1,691,000.  The other three properties  acquired in
2004 were deeded to the partnership in lieu of foreclosure. They are undeveloped
parcels  of land  comprised  of three  separate  lots.  The land is  within  the
incorporated area of Stanislaus County, California. Currently the property is on
the market for sale.  As of December 31, 2005 the  partnership's  investment  in
this  property  totaled  $4,505,000.  The property is jointly owned by two other
affiliated  partnerships.  During  2003  no  foreclosures  were  completed.  The
partnership  has provided  loss reserves of  $1,000,000  against all  properties
owned.

     The  partnership's net income continued to take an upward trend. Net income
increased  from  $9,594,000 in 2003 to $12,132,000 in 2004 and to $15,368,000 in
2005. This was made possible  largely through  investment of additional  capital
derived from sales of partnership  units into loans.  The secured loan portfolio
increased from  $147,174,000 in 2003 to $171,745,000 in 2004 and to $214,012,000
in 2005, an increase of 45.41% over the two-year  period.  The  partnership  has
placed its loans at interest  rates  competitive  in the  marketplace.  Mortgage
interest income increased from $12,496,000 in 2003 to $16,437,000 in 2004 and to
$19,203,000  in 2005,  an increase of 54% over the two-year  period.  During the
year 2005 the partnership's  annualized yield on compounding  accounts was 7.05%
and 6.83% on monthly distributing accounts.

     In 2004, due to a calendaring  oversight,  the  partnership  did not timely
renew its permit with the California  Department of Corporations  ("DOC").  Upon
discovery of this oversight,  the partnership  applied for and received from the
DOC a new permit  allowing the  partnership to continue sales in California.  To
correct  those sales that occurred  without a permit from the DOC in place,  the
partnership  offered to repurchase the units sold during the period of September
10, 2004 through January 18, 2005. The repurchase offer was made to an aggregate
of   $16,370,000  of  prior  unit  sales.   The  repurchase   offer  expired  on
approximately  March 7, 2005. The repurchase offer was accepted by three limited
partners for a total of $74,000 in unit sales and the partnership  made a timely
repurchase of the units.

     Competition and General Economic Conditions.

     The partnership's  major competitors in providing mortgage loans are banks,
savings and loan associations,  thrifts, conduit lenders,  mortgage brokers, and
other entities both larger and smaller than the partnership.  The partnership is
competitive  in large part  because the general  partners  generate all of their
loans. Many of these competitors are unable,  due to their size, to compete with
the partnership's  ability to make loans larger than $1,000,000 per transaction.
The  partnership's  ability to  regularly  entertain  loan  requests at or above
$1,000,000  reduces  competition  and can provide  either higher  quality loans,
higher  returns,  or both.  The general  partners  have been in the  business of
making or investing in mortgage loans in Northern California since 1978 and have
developed a quality reputation and recognition within the field.

                                       5
<PAGE>

     Beginning in July of 2004,  the Federal  Reserve  changed its interest rate
policy from one of three years of continuously lowered interest rates, which hit
a 40 year historic  interest  rate low, to one of tempered but gradual  interest
rate  increases.  In keeping with this new policy  since July 2004,  the Federal
Reserve has  increased the Federal  Funds Rate by one quarter  percentage  point
(1/4 of one  percent) at each of its  meetings to 5.25% as of December 31, 2005.
This  deliberate  upward  change in the Federal Funds Rate has caused short term
interest rates to rise,  and to a lesser degree,  pushed longer term rates up as
well.  Nationally and more specifically in Northern California,  the location of
the  majority  of our  lending  activities,  the  economies  have  substantially
recovered from the economic downturn lasting from 2000 through 2003.  Employment
and job  creation  has  improved.  During  2004 and 2005,  the  residential  and
commercial  real  estate  markets in  Northern  California  enjoyed  solid price
appreciation.  During the latter  half of 2005,  long-term  interest  rates have
begun to inch upward.  Residential  sales  volumes have declined yet median home
sales  prices  have  remained at or near their  record  2005  highs.  While some
concern  exists as to whether  real estate  values will soften,  interest  rates
continue to remain attractive by historical standards,  unemployment remains low
and the economy is strong.  Management believes these factors will contribute to
a real estate  marketplace with lower  appreciation in 2006 compared to 2004 and
2005. With less real estate  transactions  likely to exist competition for loans
will be fierce.  Since it appears that the bottom of the interest rate cycle was
reached in 2004, we believe loan runoff to lower  interest rates will be reduced
allowing the  partnership  to retain its loans for longer  periods.  Excess cash
will be invested in  short-term  alternative  investments,  such as money market
funds yielding considerably less than the current loan investment portfolio.

     Secured Loan Portfolio.

     A summary of the  partnership's  secured loan  portfolio as of December 31,
2005, is set forth below (in thousands):
<TABLE>
<S>           <C>                                                                      <C>
              Loans as a Percentage of Appraised Values

              First Trust Deeds                                                        $  135,945
              Appraised Value of Properties at Time of Loan                               239,781
                                                                                     -------------
                    Total Investment as a % of Appraisal                                   56.70%
                                                                                     =============

              First Trust Deed Loans                                                      135,945
              Second Trust Deed Loans                                                      73,138
              Third Trust Deed Loans                                                        4,929
                                                                                     -------------
                    Total of Trust Deed Loans                                             214,012

              Priority Positions due Other Lenders:
                First Trust Deed Loans due Other Lenders                                  222,577
                Second Trust Deed Loans due Other Lenders                                   1,996
                                                                                     -------------

                    Total Debt                                                         $  438,585
                                                                                     =============

                Appraised Property Value at Time of Loan                                  674,436
                Total Debt as a % of Appraisal based on appraised
                   values and prior liens at date loan was consummated                     65.03%
                                                                                     =============

              Number of Secured Loans Outstanding                                              98

              Average Secured Loan                                                     $    2,184
              Average Secured Loan as a % of Secured Loans Outstanding                      1.02%
              Largest Secured Loan Outstanding                                             11,927
              Largest Secured Loan as a % of Secured Loans Outstanding                      5.57%
              Largest Secured Loan as a % of Partnership Assets                             4.51%

              Secured Loans as a Percentage of Total Secured Loans                     Percent
              -----------------------------------------------------------------      -------------
              First Trust Deed Loans                                                       63.52%
              Second Trust Deed Loans                                                      34.18%
              Third Trust Deed Loans                                                        2.30%
                                                                                     -------------
              Total Trust Deed Loan Percentage                                            100.00%
                                                                                     =============
</TABLE>


                                       6
<PAGE>
<TABLE>
<S>           <C>                                                    <C>                <C>
              Type of Secured Loans by Property                      Amount             Percent
              ------------------------------------------------    -------------      -------------

              Single Family (1-4 units)                             $  116,945             54.64%
              Apartments                                                19,209              8.98%
              Commercial                                                65,167             30.45%
              Land                                                      12,691              5.93%
                                                                  -------------      -------------
              Total                                                 $  214,012            100.00%
                                                                  =============      =============
</TABLE>

     The following is a distribution of secured loans outstanding as of December
31, 2005 by California Counties (in thousands):

<TABLE>
<S>           <C>                                                          <C>              <C>
                                                                           Total
                               California County                        Secured Loans       Percent
              ----------------------------------------------------     --------------     -------------

              San Francisco Bay Area Counties
              San Francisco                                              $    54,273            25.36%
              Contra Costa                                                    26,267            12.27%
              Santa Clara                                                     25,215            11.78%
              Alameda                                                         20,807             9.72%
              San Mateo                                                       19,885             9.29%
              Marin                                                            7,185             3.36%
                                                                       --------------     -------------
                                                                             153,632            71.78%

              San Francisco Bay Area Adjacent Counties
              Napa                                                            11,930             5.57%
              Sacramento                                                      10,524             4.92%
              Solano                                                           6,154             2.88%
              San Joaquin                                                      4,324             2.02%
              Sonoma                                                             324             0.15%
                                                                       --------------     -------------
                                                                              33,256            15.54%

              Other California Counties
              Los Angeles                                                      6,666             3.11%
              Fresno                                                           4,493             2.10%
              Butte                                                            4,453             2.08%
              Sutter                                                           3,996             1.87%
              Placer                                                           1,793             0.84%
              Amador                                                           1,750             0.82%
              Riverside                                                        1,500             0.70%
              San Diego                                                        1,114             0.52%
              All others                                                       1,359             0.64%
                                                                       --------------     -------------
                                                                              27,124            12.68%

                        Total                                            $   214,012           100.00%
                                                                       ==============     =============
</TABLE>


Number of Secured Loans in Foreclosure             1              $3,600,000


                                       7
<PAGE>

     Scheduled  maturity  dates of secured  loans as of December 31, 2005 are as
follows (in thousands):

                  Year Ending
                 December 31,
           --------------------------

                     2006                 $   70,217
                     2007                     89,556
                     2008                     27,132
                     2009                      5,926
                     2010                     20,202
                  Thereafter                     979
                                        -------------

                                          $  214,012
                                        =============

     The scheduled maturities for 2006 include eight loans totaling $26,075,000,
and representing 12.18% of the secured loan portfolio, past maturity at December
31, 2005. The partnership allows borrowers to occasionally  continue to make the
payments  on debt past  maturity  for  periods of time.  Of these past  maturity
loans,  the  partnership has begun  foreclosure on one with a principal  balance
totaling $3,600,000.


     Item 2 - Properties

     During 2002, a  single-family  residence  that secured a  partnership  loan
totaling  $4,402,000,  including accrued interest and advances,  was transferred
via a  statutory  warranty  deed to a new entity  named  Russian  Hill  Property
Company,  LLC ("Russian").  Russian is wholly owned by the partnership.  Russian
was  formed by the  partnership  to  complete  the  development  and sale of the
property.  The assets,  liabilities  and operating  results of Russian have been
consolidated  into the  accompanying  consolidated  financial  statements of the
partnership.  Costs  related to the sale and  development  of this property were
capitalized  during 2003.  Commencing  January 2004,  costs related to sales and
maintenance  of the  property  are being  expensed.  As of December 31, 2005 and
December 31, 2004,  the  partnership  had  advanced  approximately  $202,000 and
$150,000,  respectively, to Russian for sales and maintenance costs. At December
31, 2005 and December 31, 2004, the  partnership's  total  investment in Russian
was $3,979,000, net of a valuation allowance of $500,000.

     In September,  2004,  the  partnership  acquired a single family  residence
through a foreclosure  sale. At the time the  partnership  took ownership of the
property,  the partnership's  investment  totaled  $1,937,000  including accrued
interest  and  advances.  The borrower  began a  substantial  renovation  of the
property,  which was not completed at the time of  foreclosure.  The partnership
has decided to pursue  development  of the property by processing  plans for the
creation of two condominium units on the property.  These plans will incorporate
the majority of the existing improvements  currently located on the property. As
of December 31, 2005, the partnership has capitalized  approximately $254,000 in
costs related to this property. Management has established a reserve of $500,000
to cover potential losses for this property, based upon management's estimate of
the fair value of the property.

     In December,  2004, the partnership  acquired  undeveloped  parcels of land
through a deed in lieu of foreclosure. The land is located in Stanislaus County,
California. It is comprised of three separate lots, which total approximately 14
acres.  The  parcels  are  currently  for  sale.  As of  December  31,  2005 the
partnership's investment in this property totaled $4,505,000,  including accrued
interest and advances,  as of the date of the acquisition.  Management  believes
that the full value of this  investment will be recovered from the eventual sale
of the  property  based  upon its  current  estimate  of the  fair  value of the
property. This property is jointly owned by two other affiliated partnerships.

                                       8
<PAGE>

     In February,  2005, the partnership  acquired a multi-unit property through
foreclosure.  This  property  is  located  in an  upscale  neighborhood  in  San
Francisco.  At the time the  partnership  took  ownership of the  property,  the
partnership's  investment,  together  with three other  affiliate  partnerships,
totaled  $10,595,000  including  accrued interest and advances.  The partnership
intends to  undertake  additional  improvements  to the  property.  No valuation
allowance  has been  established  against this  property as management is of the
opinion  that the  property  will have  adequate  equity to  recover  the entire
partnership  investment.  Upon  acquisition,  the property was transferred via a
statutory warranty deed to a new entity named Larkin Property Company,  LLC. The
partnership  owns a  72.50%  interest  in  the  property  and  the  other  three
affiliates  collectively own the remaining  27.50%. As of December 31, 2005, the
Partnership  has  capitalized  approximately  $558,000 in costs  related to this
property.  As of December 31, 2005 the Partnership's  investment,  together with
the other affiliated partnerships, totaled $11,153,000.

     In January,  2005 the partnership  acquired through foreclosure a parcel of
land in Monterey County,  CA. This property was subsequently sold in March, 2005
at a profit of $183,000.


     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,  or recoup its investment  from the
real  property  secured  by the  deeds of  trust.  None of these  actions  would
typically be of any material importance.  As of the date hereof, the partnership
is not  involved  in any  legal  proceedings  other  than  those  that  would be
considered part of the normal course of business.


     Item 4 - Submission of Matters to Vote of Security Holders (Partners)

     No matters have been submitted to a vote of the partnership.


                                     Part II


     Item 5 -  Market  for the  Registrant's  "Limited  Partnership  Units"  and
Related Unitholder Partnership Matters

     100,000,000  units  at $1  each  (minimum  purchase  of  2,000  units)  are
currently being offered  ($200,000,000 in units were previously offered and sold
through separate offerings) 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 compounding  the earnings.  Limited  partners may
withdraw  from the  partnership  in  accordance  with the  terms of the  limited
partnership agreement subject to possible early withdrawal  penalties.  There is
no established  public trading  market.  As of December 31, 2005,  5,844 limited
partners  had a capital  balance of  $227,970,000,  net of  Formation  Loans and
syndication costs.

     A  description  of  the  partnership  units,   transfer   restrictions  and
withdrawal  provisions  is  more  fully  described  under  the  section  of  the
prospectus  entitled  "Description of Units" and "Summary of Limited Partnership
Agreement",  pages 81 through  84 of the  prospectus,  a part of the  referenced
registration statement, which is incorporated by reference.

                                       9
<PAGE>

     Item 6 - Selected Consolidated Financial Data

     Redwood Mortgage Investors VIII began operations in April 1993.

     Consolidated   financial   condition  and  results  of  operation  for  the
partnership  as of and for the five  years  ended  December  31,  2005  were (in
thousands,  except for net income per $1,000  invested by limited  partners  for
entire period):


                           Consolidated Balance Sheets

                                     ASSETS
<TABLE>
<S>                                            <C>              <C>               <C>               <C>             <C>
                                                                             December 31,
                                            --------------------------------------------------------------------------------
                                               2005             2004              2003              2002            2001
                                            ------------    -------------     -------------     ------------    ------------
  Cash and cash equivalents                   $  28,853       $   16,301        $    8,921        $   7,188       $   1,917

  Loans
    Loans, secured by deeds of trust            214,012          171,745           147,174           83,650          82,790
    Loans, unsecured                                  -               34                34                -               4
    Accrued interest and late fees                3,254            4,895             4,735            3,913           3,345
    Advances on loans                               103              131               416              279             195
    Less allowance for loan losses              (3,138)          (2,343)           (2,649)          (3,021)         (2,247)

  Other receivables                                   -                -                 -              888               -

  Real estate held for sale, net                 21,328            9,793             3,979            9,286               -
  Other assets                                       72               62                44               22               6
                                            ------------    -------------     -------------     ------------    ------------
                                              $ 264,484       $  200,618        $  162,654        $ 102,205       $  86,010
                                            ============    =============     =============     ============    ============

                        LIABILITIES AND PARTNERS' CAPITAL

                                                                             December 31,
                                            -------------------------------------------------------------------------------
                                                2005             2004             2003              2002            2001
                                            -------------    -------------    -------------     -------------    -----------
  Liabilities

     Accounts payable                         $       10       $       25       $      224        $      449       $     74
     Payable to affiliate                            489              638              448               294            109
     Line of credit                               32,000           16,000           22,000                 -         11,400
     Note payable                                      -                -                -             1,782              -
     Deferred interest                                 -                -                -               112              -
     Minority interest                             3,042                -                -             1,213              -
     Subscriptions to partnership in
       applicant status                              776              424            1,210             2,578            673
                                            -------------    -------------    -------------     -------------    -----------
                                                  36,317           17,087           23,882             6,428         12,256
                                            -------------    -------------    -------------     -------------    -----------

  Partners' capital
    Limited partners subject to
       redemption                                227,970          183,368          138,649            95,690         73,687
    General partners subject to
       redemption                                    197              163              123                87             67
                                            -------------    -------------    -------------     -------------    -----------
          Total partners' capital                228,167          183,531          138,772            95,777         73,754
                                            -------------    -------------    -------------     -------------    -----------

                                              $  264,484       $  200,618       $  162,654        $  102,205       $ 86,010
                                            =============    =============    =============     =============    ===========
</TABLE>


                                       10
<PAGE>

                        Consolidated Statements of Income
<TABLE>
<S>                                               <C>             <C>             <C>               <C>             <C>
                                                                               December 31,
                                              -----------------------------------------------------------------------------
                                                  2005            2004            2003              2002            2001
                                              -------------    ------------    ------------     ------------    -----------
  Gross revenue                                 $   20,188       $  17,133       $  12,958        $  11,691       $  9,088
  Expenses                                           4,779           4,981           3,369            4,204          2,994
                                              -------------    ------------    ------------     ------------    -----------
  Income before interest credited to
    partners in applicant status                    15,409          12,152           9,589            7,487          6,094
  Interest credited to partners in
    applicant status                                    41              20              37                1              1
                                              -------------    ------------    ------------     ------------    -----------
  Minority   interest  share  of
    subsidiary loss                                      -               -              42                -              -

  Net income                                    $   15,368       $  12,132       $   9,594        $   7,486       $  6,093
                                              =============    ============    ============     ============    ===========

  Net income to general partners (1%)                  154             121              96               75             61
  Net income to limited partners (99%)              15,214          12,011           9,498            7,411          6,032
                                              -------------    ------------    ------------     ------------    -----------

  Total net income                              $   15,368       $  12,132       $   9,594        $   7,486       $  6,093
                                              =============    ============    ============     ============    ===========

  Net income per $1,000 invested by
      limited partners for entire period
        (annualized)
    - where income is compounded and
         retained                               $       70       $      72       $      78        $      87       $     90
                                              =============    ============    ============     ============    ===========

    - where partner receives income in
         monthly distributions                  $       68       $      70       $      75        $      84       $     86
                                              =============    ============    ============     ============    ===========
</TABLE>

     Annualized yields when income is compounded or distributed  monthly for the
years 2001 through 2005 are outlined in the table below:

                                Compounded          Distributed
                              ---------------     ----------------
                  2001            8.98%                8.63%
                  2002            8.69%                8.36%
                  2003            7.76%                7.50%
                  2004            7.22%                6.99%
                  2005            7.05%                6.83%

     The average annualized yield, when income is compounded and retained,  from
inception  through December 31, 2005, was 8.12%. The average  annualized  yield,
when income is distributed monthly, from inception through December 31, 2005 was
7.87%

     Certain reclassifications,  not affecting previously reported net income or
total partner  capital,  have been made to the  previously  issued  consolidated
financial statements to conform to the current year presentation.

                                       11
<PAGE>

     Item 7 - Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP

     Critical Accounting Policies.

     In preparing the consolidated 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 consolidated balance sheet dates and
income  and  expenses  during  the  reported  periods.   Such  estimates  relate
principally to the  determination of (1) the allowance for loan losses (i.e. the
amount of  allowance  established  against  loans  receivable  as an estimate of
potential  loan losses)  including  the accrued  interest and advances  that are
estimated to be unrecoverable based on estimates of amounts to be collected plus
estimates of the value of the property as  collateral  and (2) the  valuation of
real estate owned through  foreclosure.  At December 31, 2005,  the  partnership
owned  six  real  estate  properties,  which  were  taken  back  from  defaulted
borrowers.

     Loans and the related accrued interest, late fees and advances are analyzed
on a  periodic  basis  for  recoverability.  Delinquencies  are  identified  and
followed as part of the loan system.  Delinquencies  are  determined  based upon
contractual  terms.  A provision is made for loan losses to adjust the allowance
for loan losses to an amount  considered by management to be adequate,  with due
consideration  to  collateral  values,  to provide for  unrecoverable  loans and
receivables,  including impaired loans, other loans, accrued interest, late fees
and advances on loans and other accounts receivable (unsecured). The partnership
charges  off  uncollectible  loans  and  related  receivables  directly  to  the
allowance account once it is determined that the full amount is not collectible.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.

     If events and/or changes in circumstances  cause management to have serious
doubts  about the  collectibility  of the  contractual  payments,  a loan may be
categorized  as impaired  and  interest  is no longer  accrued.  Any  subsequent
payments on impaired loans are applied to reduce the outstanding  loan balances,
including  accrued interest and advances.  As of December 31, 2005 there were no
impaired loans.

     Recent  trends in the  economy  have been taken into  consideration  in the
aforementioned  process of arriving at the  allowance  for loan  losses.  Actual
results could vary from the aforementioned provisions for losses.

     Forward-Looking Statements.

     Certain  statements  in this  Report on Form 10-K which are not  historical
facts may be considered forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and  Exchange  Act of 1934,  as  amended,  including  statements  regarding  the
Company's expectations,  hopes, intentions, beliefs and strategies regarding the
future.  Forward-looking statements include statements regarding future interest
rates and  economic  conditions  and their  effect  on the  Partnership  and its
assets,  trends  in the  California  real  estate  market,  estimates  as to the
allowance for loan losses, estimates of future limited partner withdrawals,  the
total amount of the Formation Loan, 2006 annualized yield estimates,  additional
foreclosures  in  2006,   expectations  regarding  the  partnership's  level  of
delinquency,   plans  to  develop  certain  properties,  beliefs  regarding  the
partnership  recovering the full value of its investment in certain  properties,
the expectation  that borrower  foreclosures  will not have a material effect on
liquidity,  the use of  excess  cash  flow  and the  intention  not to sell  the
partnership's  loan portfolio.  Actual results may be materially  different from
what is projected by such forward-looking  statements.  Factors that might cause
such a difference include unexpected changes in economic conditions and interest
rates,  the impact of competition and  competitive  pricing and downturns in the
real estate  markets in which the Company  has made loans.  All  forward-looking
statements  and reasons  why  results may differ  included in this Form 10-K are
made as of the date  hereof,  and we assume  no  obligation  to update  any such
forward-looking statement or reason why actual results may differ.

                                       12
<PAGE>

     Related Parties.

     The general partners of the partnership are Redwood  Mortgage Corp.,  Gymno
Corporation  and Michael R.  Burwell.  Most  partnership  business is  conducted
through Redwood Mortgage Corp., which arranges,  services and maintains the loan
portfolio for the benefit of the  partnership.  The fees received by the general
partners are paid pursuant to the  partnership  agreement and are  determined at
the sole discretion of the general partners,  subject to limitations  imposed by
the partnership agreement.  In the past the general partners have elected not to
take the maximum  compensation.  The following is a list of various  partnership
activities for which related parties are compensated.

     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection, evaluation,  negotiation and extension of loans, the general partners
may  collect an amount  equivalent  to 12% of the loaned  amount  until 6 months
after the  termination  date of the  offering.  Thereafter,  the loan  brokerage
commissions  (points) will be limited to an amount not to exceed 4% of the total
partnership  assets per year.  The loan  brokerage  commissions  are paid by the
borrowers,  and thus, are not an expense of the  partnership.  In 2005, 2004 and
2003,  loan  brokerage  commissions  paid  by  the  borrowers  were  $3,697,000,
$2,443,000 and $2,621,000, respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the partnership's  loans
are paid to Redwood  Mortgage  Corp., or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer accrued thereon.  Additional servicing fees are recorded upon the receipt
of any  subsequent  payments  on  impaired  loans.  Mortgage  servicing  fees of
$1,736,000, $1,565,000 and $1,057,000 were incurred for the years ended December
31, 2005, 2004 and 2003, respectively.

     These  servicing  fees  were  charged  at 1%, on an  annual  basis,  of the
outstanding  principal balances.  If the maximum mortgage servicing fee of 1.5%,
on an annual basis, had been charged to the  partnership,  then net income would
have been reduced by approximately $868,000, $783,000 and $529,000 in 2005, 2004
and 2003,  respectively.  Reducing net income reduces the annualized  yields. An
increase  or  decrease  in this fee within  the limits set by the  partnership's
agreement directly impacts the yield to the limited partners.

     o Asset  Management  Fees The general  partners  receive  monthly  fees for
managing the partnership's portfolio and operations up to 1/32 of 1% of the `net
asset  value'  (3/8 of 1% on an annual  basis).  Management  fees to the general
partners of $814,000, $630,000 and $468,000 were incurred by the partnership for
years 2005, 2004 and 2003, respectively.

     o Other Fees The partnership  agreement  provides that the general partners
may receive other fees such as  reconveyance,  mortgage  assumption and mortgage
extension  fees.  Such fees are  incurred by the  borrowers  and are paid to the
general partners.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective partnership  interests.  The allocation
to the general partners (combined) shall not exceed 1%.

     o  Operating  Expenses  The  general  partners  may  be  reimbursed  by the
partnership for all operating  expenses actually incurred by it on behalf of the
partnership,   including   without   limitation,   out-of-pocket   general   and
administration  expenses of the  partnership,  accounting and audit fees,  legal
fees and  expenses,  postage  and  preparation  of reports to limited  partners.
During 2005, $20,000 in such fees was waived by the general partners.

     o  Contributed  Capital  The  general  partners  jointly or  severally  are
required to  contribute  1/10 of 1% in cash  contributions  as proceeds from the
offerings  are received from the limited  partners.  As of December 31, 2005 and
2004,  a general  partner,  Gymno  Corporation,  had  contributed  $213,000  and
$174,000,  respectively,  as capital in accordance  with Section  4.02(a) of the
partnership agreement.

                                       13
<PAGE>

     o Sales  Commission  - "Formation  Loan" to Redwood  Mortgage  Corp.  Sales
commissions  relating to the capital  contributions  by limited partners are not
paid directly by the  partnership  out of the offering  proceeds.  Instead,  the
partnership  loans  to  Redwood  Mortgage  Corp.,  a  general  partner,  amounts
necessary to pay all sales  commissions  and amounts  payable in connection with
unsolicited  sales.  The loan is  referred  to as the  "Formation  Loan".  It is
unsecured and  non-interest  bearing and is applied to reduce  limited  partners
capital in the consolidated  balance sheets. The sales commissions range between
0% (for units sold by the general  partners)  and 9%. It is  estimated  that the
total amount of the Formation Loan will approximate 7.6% based on the assumption
that 65% of the investors will reinvest  earnings,  which qualify for the higher
commission percentage.  Formation Loans made to Redwood Mortgage Corp. were on a
per offering basis.

     The following table summarizes Formation Loan transactions through December
31, 2005 (in thousands):
<TABLE>
<S>                                <C>           <C>           <C>           <C>           <C>           <C>           <C>
                                                                  Offering
                                ---------------------------------------------------------------------------------
                                   1st           2nd           3rd           4th           5th           6th           Total
                                ----------    ----------    ----------    ----------    ----------    ----------    -----------
Limited partner
  contributions                  $ 14,932      $ 29,993      $ 29,999      $ 49,985      $ 74,904      $ 12,224      $ 212,037
                                ==========    ==========    ==========    ==========    ==========    ==========    ===========
Formation Loans made                1,075         2,272         2,218         3,777         5,661           888         15,891
Repayments to date                  (888)       (1,206)         (748)         (846)         (388)             -        (4,076)
Early withdrawal
   penalties applied                 (79)         (120)          (85)          (14)          (11)             -          (309)
                                ----------    ----------    ----------    ----------    ----------    ----------    -----------
Balance,
  December 31, 2005              $    108      $    946      $  1,385      $  2,917      $  5,262      $    888      $  11,506
                                ==========    ==========    ==========    ==========    ==========    ==========    ===========
</TABLE>

     The amount of the annual  installments  paid by Redwood  Mortgage Corp. are
determined at annual  installments of one-tenth of the principal  balance of the
Formation Loan at December 31 of each year until the offering  period is closed.
Thereafter,  the  remaining  Formation  Loan  is paid  in ten  equal  amortizing
payments  over a period of ten years.  Interest  has been  imputed at the market
rate of interest in effect at the date the  offering  closed.  See footnote 1 to
the consolidated financial statements.

     On December  31, 2005,  the  partnership  was in the offering  stage of its
sixth offering, ($100,000,000).  Contributed capital equaled $14,932,000 for the
first offering,  $29,993,000 for the second offering,  $29,999,000 for the third
offering,  $49,985,000  for the  fourth  offering,  $74,904,000  for  the  fifth
offering  and  $12,224,000  for the sixth  offering,  totaling an  aggregate  of
$212,037,000  as of December 31,  2005.  Of this  amount,  $776,000  remained in
applicant status.

                                       14
<PAGE>

     Results of  Operations - For the years ended  December  31, 2005,  2004 and
2003

     Changes in the partnership's operating results for the years ended December
31, 2005, 2004 and 2003 are discussed below:
<TABLE>
<S>    <C>                                                                         <C>                <C>
                                                                           Changes for the years ended December 31,
                                                                         --------------------------------------------
                                                                                   2005               2004
                                                                               --------------     -------------

       Net income                                                                $ 3,236,000       $ 2,538,000
                                                                               ==============     =============
         Revenue
            Interest on loans                                                      2,766,000         3,941,000
            Late fees                                                               (98,000)            17,000
            Other                                                                    387,000           217,000
                                                                               --------------     -------------
                                                                                 $ 3,055,000       $ 4,175,000
                                                                               --------------     -------------

         Expenses
            Mortgage servicing fees                                                  171,000           508,000
            Interest expense                                                       (344,000)           551,000
            Amortization of loan origination fees                                      9,000            33,000
            Provision for losses on loans                                          (291,000)           364,000
            Clerical costs through Redwood Mortgage Corp.                            (9,000)            17,000
            Asset management fees                                                    184,000           162,000
            Professional services                                                   (64,000)           100,000
            Broker expense                                                                 -         (181,000)
            Amortization of discount on imputed interest                              76,000           124,000
            Other                                                                     87,000          (41,000)
                                                                               --------------     -------------
                                                                                 $ (181,000)       $ 1,637,000
                                                                               --------------     -------------

                 Net income increase                                             $ 3,236,000       $ 2,538,000
                                                                               ==============     =============
</TABLE>

     Although the average interest rate of the loan portfolio  declined to 9.93%
from 10.02% for the years ended  December 31, 2005 and 2004,  respectively,  the
interest income of the partnership  continued to increase by $2,766,000 (16.83%)
to $19,203,000 in 2005 and by $3,941,000  (31.54%) to $16,437,000 in 2004.  This
was  primarily  due to the  increased  size of the  partnership's  secured  loan
portfolio,  which increased by $42,267,000  (24.61%) to $214,012,000 in 2005 and
by $24,571,000 (16.70%) to $171,745,000 in 2004. Average loan portfolio balances
for the  years  ended  December  31,  2005,  2004 and 2003,  were  $183,390,000,
$159,460,000  and  $115,412,000,  respectively.  Additionally,  interest  income
increased  through the  collection  of interest  enhancements  and interest rate
provisions due upon repayment of our loans. In 2005, these totaled approximately
$1,063,000.

     The  decrease  in late  charge  income of $98,000  (45%) for the year ended
December 31, 2005 and  increase of $17,000 (8%) for the year ended  December 31,
2004 were primarily due to the reduction in overall  portfolio  delinquencies in
2005 as compared to 2004.

     The increase in other income of $387,000  (81%) and $217,000  (83%) for the
years ended  December  31, 2005 and 2004,  respectively,  was  primarily  due to
increased  imputed  interest  income from the larger  Formation Loan existing of
$11,506,000,  $9,751,000  and  $7,550,000 for the years ended December 31, 2005,
2004 and 2003,  respectively.  Imputed interest income was $395,000 and $319,000
for the years ended December 31, 2005 and 2004,  respectively.  Interest  income
from the bank deposit was $100,000 and $40,000 for the years ended  December 31,
2005 and 2004,  respectively.  Other income also increased by $183,000 through a
gain on the sale of a real  estate held for sale  property  in 2005,  whereas no
such income was derived in 2004.

     The increase in mortgage  servicing fees of $171,000  (10.93%) and $508,000
(48.06%)  for the years  ended  December  31, 2005 and 2004,  respectively,  was
primarily due to increases in the outstanding loan portfolio. The loan portfolio
increased by $42,267,000  (24.61%) in 2005 and $24,571,000 (16.70%) in 2004. The
increase in  servicing  fees for the year ended  December 31, 2005 was due to an
increased average loan portfolio balance of $183,390,000,  which the partnership
maintained in 2005 versus an average balance of $159,460,000 in 2004.

                                       15
<PAGE>

     Interest  expense on the line of credit is tied to the bank's  prime  rate.
The  decrease  in  interest  expense  of  $344,000  (55.31%)  for the year ended
December 31, 2005 was primarily  due to a substantial  reduction in the weighted
average  borrowing of  $4,536,000  in 2005 offset by an increase in the weighted
average  interest  rate to 6.14%.  An increase  in interest  expense of $551,000
(776%)  in  2004  was  primarily  due to  increased  borrowing,  which  averaged
$14,000,000  during  2004,  and  increases in the prime rate from 4% in January,
2004 to 5.25% as of December 31, 2004, an average of 4.44%.

     The  increase  in loan  origination  fees was  primarily  due to the  costs
involved in negotiating an extension of the maturity date and an increase in the
credit line facility.

     The decrease in  provision  for losses on loans and real estate of $291,000
(25.39%)  for the year ended  December 31, 2005 was  primarily  due to increased
stability in the real estate market, the stabilization of the economy, a decline
in foreclosures  to one loan totaling  $3,600,000 as of December 31, 2005 versus
six loans  totaling  $14,682,000  as of December  31,  2004,  a reduction in the
delinquent  loans 90 days or more past due in maturity and/or interest  payments
percentage to nine totaling $26,863,000 (12.55% of portfolio) as of December 31,
2005 from eleven totaling  $25,013,000  (14.56% of portfolio) as of December 31,
2004,  and  management's  determination  that no additional  amounts were needed
related to the real estate held for sale.  The  increase  in the  provision  for
losses  on loans  of  $364,000  in 2004  was  primarily  due to an  increase  in
foreclosures  to six loans  totaling  $14,682,000  as of December  31, 2004 from
three loans  totaling  $2,931,000  as of December  31, 2003,  and the  potential
acquisition  of two  properties  totaling  $6,315,000  in late 2004 and  another
property totaling $7,635,000 in early 2005.

     The  decrease  in  clerical  costs of  $9,000  (2.93%)  for the year  ended
December  31,  2005 was due to a waiver  of  approximately  $20,000  in costs by
management. The increase of $17,000 (5.86%) for the year ended December 31, 2004
was primarily due to an increase in partnership  size and costs  associated with
the increased size.

     The  increase in asset  management  fees of $184,000  (29.21%) and $162,000
(34.62%) for the years ended December 31, 2005 and 2004,  respectively,  was due
to an increase in limited partners'  capital under  management,  which increased
from $138,649,000 in 2003 to $183,368,000 in 2004 and to $227,970,000 in 2005.

     The decrease in  professional  fees of $64,000  (30.33%) for the year ended
December  31, 2005 was due to increased  efficiencies  and  reductions  in costs
associated  with  various  partnership   regulatory  filings.  The  increase  in
professional  services of $100,000 (90.09%) for the year ended December 31, 2004
was primarily due to the increased size of the  partnership  and increased costs
associated with various partnership regulatory filings and the annual audit.

     The  decrease  in broker  expense  of  $181,000  (100%)  for the year ended
December 31, 2004, was primarily due to the partnership  having an obligation to
pay  one-half  of  additional  interest  collected  on  one of  its  loans  to a
non-affiliated  real estate  broker.  This  expense  ended in 2003 with the full
collection of the additional interest totaling $1,250,000.

     The increases in  amortization  of discount on imputed  interest of $76,000
(23.82%) and $124,000  (63.59%) for the years ended  December 31, 2005 and 2004,
respectively,  is primarily due to increases in the Formation Loan from the sale
of additional limited partnership investments.

     The increase in other expenses of $87,000 (60%) for the year ended December
31, 2005 was primarily due to increased  subscription  interest  while new funds
from limited  partners  awaited entry into the partnership of $41,000 in 2005 as
compared  to  $20,000 in 2004,  and the  expensing  of the  upkeep  costs of the
properties owned by the partnership,  which totaled $118,000 in 2005 as compared
to $58,000 in 2004. The decrease in other  expenses of $41,000  (28.28%) for the
year ended December 31, 2004 was due to the partnership sustaining a loss on the
sale of a real estate held for sale property in 2003.

     Partnership  capital continued to increase as the partnership  received new
limited  partner   capital   contributions   of  $39,816,000,   $40,954,000  and
$40,030,000 and retained the earnings of limited partners that have chosen to do
so of $9,476,000,  $7,367,000 and $5,958,000 for the years 2005,  2004 and 2003,
respectively.  The fifth  offering  commenced  on  October 7, 2003 and closed on
August 3, 2005. On August 4, 2005 the  partnership  commenced its sixth offering
and funds  raised will be used to increase  the  partnership's  capital base and
provide funds for additional mortgage loans. As of December 31, 2005 the limited
partners total units purchased was 211,264,000 units aggregating $212,037,000.

                                       16
<PAGE>

     The  partnership  began  funding loans on April 14, 1993 and as of December
31,  2005 had  credited  earnings  to  limited  partners  who  elected to retain
earnings  at an  average  annualized  yield of  8.12%  since  inception  through
December  31,  2005.  Limited  partners  who  elected  to  have  their  earnings
distributed  monthly had an average  annualized  yield of 7.87% since  inception
through December 31, 2005.

     In 1995,  the  partnership  established  a line of credit with a commercial
bank secured by its loan  portfolio.  Since its inception,  the credit limit has
increased from $3,000,000 to  $50,000,000.  The size of the credit line facility
could again increase as the partnership's  capital increases.  This added source
of funds  may help in  maximizing  the  partnership's  yield by  permitting  the
partnership to minimize the amount of funds in lower yield  investment  accounts
when appropriate  loans are not available.  Additionally,  the loans made by the
partnership  bear  interest at a rate in excess of the rate  payable to the bank
which extended the line of credit. The amount to be retained by the partnership,
after  payment of the line of credit cost,  will be greater than without the use
of the line of credit. As of December 31, 2005 and 2004, the outstanding balance
on the line of credit was $32,000,000 and $16,000,000, respectively.

     Allowance for Losses.

     The general partners periodically review the loan portfolio,  examining the
status  of  delinquencies,  the  underlying  collateral  securing  these  loans,
borrowers' payment records, etc. Based upon this information and other data, the
allowance for loan losses is increased or decreased. Borrower foreclosures are a
normal aspect of partnership  operations.  The partnership is not a credit based
lender and hence  while it reviews the credit  history and income of  borrowers,
and if  applicable,  the income from income  producing  properties,  the general
partners expect that we will on occasion take back real estate security.  During
2004 and 2005 the  California  economy and the Northern  California  real estate
market have  strengthened.  At December 31, 2005 the  partnership  had six loans
past due 90 days or more in interest  payments  totaling  $17,662,000.  Three of
these six loans with  principal  totaling  $5,697,000  were 90 days or more past
maturity.  With respect to one of these three  loans,  the  partnership  filed a
notice of default, beginning the process of foreclosure. The principal amount of
the one  filed  notice  of  default  totals  $3,600,000  or  1.68%  of the  loan
portfolio.  Among  the six  loans  past due 90 days or more,  one loan  totaling
$788,000 has entered into a workout agreement. In addition to the six loans past
due 90 days or more  in  interest  payments  the  partnership  has  three  loans
totaling $9,201,000 at December 31, 2005, which are past maturity,  however, the
borrowers  have  continued  to  make  regular  monthly  interest  payments.  The
partnership  allows  borrowers  to  occasionally  continue to make the  interest
payments on debt past  maturity  for periods of time.  At December  31, 2005 the
partnership  had  nine  loans  totaling  $26,863,000,  which  were 90 days  past
maturity and/or past due 90 days or more in interest payments.

     The partnership  occasionally enters into workout agreements with borrowers
who are past  maturity or delinquent in their  regular  payments.  Typically,  a
workout agreement allows the borrower to extend the maturity date of the balloon
payment  and/or  allows the  borrower to make  current  monthly  payments  while
deferring  for periods of time,  past due  payments,  and allows time to pay the
loan in full.  Workout  agreements and  foreclosures  generally exist within our
loan portfolio to greater or lesser degrees,  depending  primarily on the health
of the  economy.  Management  expects  the number of  foreclosures  and  workout
agreements will rise during difficult  economic times and conversely fall during
good economic times. The number and amount of foreclosures  existing at December
31,  2005,  in  management's  opinion,  does not have a  material  effect on our
results of operations or liquidity.  Workouts and  foreclosures  are  considered
when  management  arrives at  appropriate  loan loss  reserves  and based on our
experience,  are  reflective  of our loan  marketplace  segment.  In  2005,  the
partnership filed foreclosure  proceedings to enforce the terms of our loans. In
some of these instances the borrowers have been able to remedy the  foreclosures
we have filed.  During 2005, we completed the  foreclosure  of two loans,  which
resulted in the partnership taking back two real estate properties. In 2005, one
of the properties  acquired  through  foreclosure  was sold within the year at a
gain of  $183,000.These  properties  are more  fully  discussed  under  Item 2 -
Properties.   In  2004,  the  partnership  took  back  four  properties  through
foreclosure or deeds in lieu of foreclosure.  During 2003, one of the properties
owned through foreclosure was sold at an overall loss of $127,000,  with $85,000
of the loss allocated to the partnership and the remaining  $42,000 allocated to
the  minority  interest.  During  2003 the  partnership  did not  take  back any
property  through the  foreclosure  process.  We may take back  additional  real
estate through the  foreclosure  process in 2006.  Borrower  foreclosures  are a
normal aspect of partnership operations and the general partners anticipate that
they will not have a material  effect on  liquidity.  As a prudent guard against
potential losses,  the general partners have made provisions for losses on loans
and real estate owned  through  foreclosure  of $4,138,000 at December 31, 2005.
These provisions for losses were made to guard against  collection  losses.  The
total cumulative  provision for losses as of December 31, 2005, 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.

                                       17
<PAGE>

     The  partnership  may  restructure  loans.  This is done either through the
modification  of an existing  loan or by  re-writing a whole new loan.  It could
involve,  among other  changes,  an extension  in maturity  date, a reduction in
repayment amount, a reduction in interest rate or granting an additional loan.

     No loans were  restructured in 2005 and 2004.  During 2003, the partnership
restructured three loans by granting one new loan and modifying two other loans.
During 2003, the total amount of restructured loans was $15,599,000.

     Borrower Liquidity and Capital Resources.

     The  partnership  relies upon sales of  partnership  units,  loan  payoffs,
borrowers'  mortgage  payments,  and, to a lesser degree, its line of credit for
the source of funds for loans.  Over the past several years,  mortgage  interest
rates have  decreased  somewhat  from those  available  at the  inception of the
partnership. If interest rates were to increase substantially,  the yield of the
partnership's loans may provide lower yields than other comparable  debt-related
investments.  As such,  additional limited partner unit purchases could decline,
which would reduce the overall liquidity of the partnership. Additionally, since
the  partnership  has made primarily fixed rate loans, if interest rates were to
rise, the likely result would be a slower  prepayment rate for the  partnership.
This  could  cause a lower  degree of  liquidity  as well as a  slowdown  in the
ability  of the  partnership  to  invest in loans at the then  current  interest
rates. Conversely,  in the event interest rates were to decline, the partnership
could see both or either of a surge of unit  purchases  by  prospective  limited
partners,  and significant borrower  prepayments,  which, if the partnership can
only obtain the then  existing  lower rates of interest  may cause a dilution of
the partnership's  yield on loans,  thereby lowering the  partnership's  overall
yield to the limited  partners.  The  partnership to a lesser degree relies upon
its line of credit to fund loans.  Generally,  the partnership's loans are fixed
rate,  whereas  the  credit  line is a  variable  rate  loan.  In the event of a
significant increase in overall interest rates, the credit line rate of interest
could increase to a rate above the average  portfolio  rate of interest.  Should
such an event occur,  the general  partners  would desire to pay off the line of
credit.  Retirement of the line of credit would reduce the overall  liquidity of
the  partnership.  Cash is constantly  being  generated  from borrower  interest
payments,  late  charges,  amortization  of loan  principal  and  loan  payoffs.
Currently, cash flow exceeds partnership expenses,  earnings and limited partner
capital  payout  requirements.  Excess  cash flow will be  invested  in new loan
opportunities, when available, and will be used to reduce the partnership credit
line or in other partnership business.

     At the time of subscription to the partnership, limited partners must elect
either to receive  monthly,  quarterly  or annual  cash  distributions  from the
partnership,  or to compound  earnings in their capital account.  If an investor
initially elects to receive  monthly,  quarterly or annual  distributions,  such
election,  once  made,  is  irrevocable.  If the  investor  initially  elects to
compound earnings in his/her capital account, in lieu of cash distributions, the
investor may,  after three (3) years,  change the election and receive  monthly,
quarterly or annual cash  distributions.  Earnings allocable to limited partners
who elect to compound earnings in their capital account, will be retained by the
partnership for making further loans or for other proper  partnership  purposes,
and such amounts will be added to such limited partners' capital accounts.

     During  the years  stated  below,  the  partnership,  after  allocation  of
syndication costs, made the following allocation of earnings both to the limited
partners  who  elected  to  compound  their  earnings,  and those  that chose to
distribute:

                                  2005             2004              2003
                             -------------    -------------     -------------
   Compounding                 $9,476,000       $7,367,000        $5,958,000
   Distributing                $5,481,000       $4,452,000        $3,362,000

     Capital balances of limited partners electing to receive cash distributions
of earnings  represented 37%, 36% and 36% of the limited  partners'  outstanding
capital  accounts as of December 31, 2005,  2004 and 2003,  respectively.  These
percentages have remained  relatively  stable.  The general partners  anticipate
that after all capital  has been  raised,  the  percentage  of limited  partners
electing to withdraw  earnings  will  decrease due to the dilution  effect which
occurs when compounding limited partners' capital accounts grow through earnings
reinvestment.

                                       18
<PAGE>

     The partnership  also allows the limited partners to withdraw their capital
account  subject to certain  limitations  and penalties  (see  "Withdrawal  From
Partnership" in the Limited  Partnership  Agreement).  Once a limited  partner's
initial five-year holding period has passed,  the general partners expect to see
an increase in liquidations  due to the ability of limited  partners to withdraw
without penalty.  This ability to withdraw five years after a limited  partner's
investment has the effect of providing limited partner liquidity and the general
partners  expect a portion of the limited  partners to avail  themselves of this
liquidity.  This has the anticipated effect of increasing the net capital of the
partnership, primarily through retained earnings during the offering period. The
general partners expect to see increasing numbers of limited partner withdrawals
during a limited partner's 5th through 10th anniversary,  at which time the bulk
of those limited partners who have sought withdrawal have been liquidated. Since
the  five-year  hold period for most limited  partners has yet to expire,  as of
December 31, 2005, many limited partners may not as yet avail themselves of this
provision for  liquidation.  Earnings and capital  liquidations  including early
withdrawals during the three years ended December 31, 2005 were:

                                2005              2004               2003
                            --------------    --------------     -------------

  Cash distributions          $ 5,481,000       $ 4,452,000       $ 3,362,000
  Capital liquidation*        $ 2,042,000       $ 1,988,000       $ 1,845,000
                            --------------    --------------     -------------

      Total                   $ 7,523,000       $ 6,440,000       $ 5,207,000
                            ==============    ==============     =============

     * These amounts represent gross of early withdrawal penalties.

     Additionally,  limited  partners  may  liquidate  their  investment  over a
one-year period subject to certain  limitations  and penalties.  During the past
three years ended  December  31,  2005,  capital  liquidated  subject to the 10%
penalty for early withdrawal, included in the distribution amounts above, was:

                                  2005             2004               2003
                            --------------    --------------     -------------
                              $   592,000       $   794,000        $  786,000

     This  represents  0.25%,  0.43% and 0.57% of the limited  partners'  ending
capital for the years ended  December  31,  2005,  2004 and 2003,  respectively.
These  withdrawals  are within the normally  anticipated  range and  represent a
small percentage of limited partner capital.

     In some  cases in order to  satisfy  Broker  Dealers  and  other  reporting
requirements, the general partners have valued the limited partners' interest in
the  partnership  on a basis which  utilizes a per unit  system of  calculation,
rather than based upon the investors' capital account. This information has been
reported  in this manner in order to allow the  partnership  to  integrate  with
certain  software used by the Broker Dealers and other  reporting  entities.  In
those cases, the partnership will report to Broker Dealers,  Trust Companies and
others a  "reporting"  number of units based upon a $1.00 per unit  calculation.
The number of reporting units provided will be calculated based upon the limited
partner's  capital  account  value  divided by $1.00.  Each  investor's  capital
account balance is set forth  periodically on the partnership  account statement
provided  to  investors.  The  reporting  units are solely  for  Broker  Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited  partner or the limited  partners' right or interest in
cash flow or any other  economic  benefit in the  partnership.  Each  investor's
capital  account balance is set forth  periodically  on the partnership  account
statement  provided  to  investors.  The  amount of  partnership  earnings  each
investor is entitled to receive is determined by the ratio that each  investor's
capital account bears to the total amount of all investor  capital accounts then
outstanding.  The capital account balance of each investor should be included on
any NASD member client account statement in providing a per unit estimated value
of the client's investment in the partnership in accordance with NASD Rule 2340.

     While the general  partners have set an estimated value for the partnership
units,  such  determination  may not be  representative  of the  ultimate  price
realized  by an  investor  for such units upon sale.  No public  trading  market
exists for the partnership's units and none is likely to develop. Thus, there is
no certainty  that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain  liquidation rights provided by the
partnership,  which may include early  withdrawal  penalties (See the section of
the  Prospectus  entitled  "Risk  Factors  -  Purchase  of Units is a Long  Term
Investment").

                                       19
<PAGE>

     Current Economic Conditions.

     During 2005, the United States  economy as a whole  performed  well.  Gross
Domestic Product estimates for 2005 of 3.5% show a slight slowdown from the 4.2%
Gross Domestic  Product of 2004.  The United States average annual  unemployment
rate for 2005 was 4.9% and has trended downward throughout 2005. Regionally, the
San Francisco Bay Area  demonstrated  a very similar  unemployment  rate with an
average annual  unemployment rate of 5.1% for 2005 down 0.9% from 2004. The rate
of inflation concerns many with energy costs having risen significantly over the
last year. The consumer price index rose 3.4% in 2005 compared to 3.3% for 2004.
These  statistics  indicate an economy that is continuing to grow, which is good
for both mortgage  lenders and the real estate industry as a whole.  The 10 year
treasury rate is hovering around 4.5% at year end but is expected to increase in
the future.  Should this occur,  real estate  markets may slow due to the higher
costs of money.

     The partnership makes loans primarily in Northern  California.  As such the
regional  real estate  market is of primary  concern to the  partnership.  As of
December 31, 2005, approximately 71.78%, ($153,632,000) of the loans held by the
partnership  were in six San Francisco Bay Area  Counties.  The remainder of the
loans held was secured  primarily by Northern  California real estate outside of
the San Francisco Bay Area.

     In general,  California  residential real estate continued to appreciate in
value during 2005.  In  California  the median price of a single  family home in
December,  2005 was $548,430  which was 15.6% higher than in December,  2004. In
the nine county San Francisco Bay Area, the median price of a single-family home
in  December,   2005  was  $633,000  14.3%  above  the  December,   2004  median
single-family home sales price of $554,000.  The total sales volumes, the number
of homes sold,  has  recently  been  declining.  This slow down in the number of
homes sold has not significantly  impacted  residential  sales prices.  Mortgage
interest  rates for both  fixed and  adjustable  rate  loans  have been  rising,
decreasing  housing  affordability.  Rising interest rates and decreasing  sales
volumes will likely slow down the rate of housing appreciation we have seen over
the last two years.  Nonetheless,  a strong  residential real estate marketplace
exists and as such  increases  lending  opportunities  and assists in  providing
adequate equity to help repay mortgage debt should borrowers  become  delinquent
in their payments.

     Commercial real estate in the San Francisco Bay Area continued its rebound.
Occupancy rates and rents increased  during 2005 in most markets  throughout the
San Francisco  Bay Area.  CB Richard  Ellis  reports that San Francisco  Class A
office rents averaged $34.54,  up from $32.52 in 2004 and that vacancy decreased
from  15.4% in 2004 to  approximately  12% in 2005.  The San  Francisco  leasing
market  absorbed an estimated 1.5 million  square feet net during 2005 according
to Grubb and Ellis. Sales of San Francisco commercial office buildings are brisk
with record per square foot prices being attained and 2005 being a record volume
sales year (Grubb & Ellis Research  Fourth  Quarter 2005). A healthy  commercial
real estate  market  increases  lending  opportunities  and assists in providing
adequate  equity to repay mortgage debt should  borrowers  become  delinquent in
their payments.

     For partnership  loans outstanding as of December 31, 2005, the partnership
had an average loan-to-value ratio of 65.03%, computed based on appraised values
and  senior  liens as of the date the loan was made.  This  percentage  does not
account for any  increases or  decreases  in property  values since the date the
loan was  made,  nor does it  include  any  reductions  in  principal  on senior
indebtedness   through  amortization  of  payments  after  the  loan  was  made.
Management  expects this low loan-to-value  ratio will assist the partnership in
weathering loan delinquencies and foreclosures should they eventuate.

     Contractual Obligations

     A summary of the contractual  obligations of the partnership as of December
31, 2005 is set forth below (in thousands):
<TABLE>
<S>   <C>                                <C>             <C>                    <C>                 <C>
      Contractual Obligation             Total           Less than 1 Year       1-3 Years           3-5 Years
    ----------------------------    ----------------    ------------------    ---------------    ----------------
    Line of credit                    $      32,000       $             -       $     22,225       $       9,775
    Construction loans                          639                   639                  -                   -
    Rehabilitation loans                     12,898                12,898                  -                   -
                                    ----------------    ------------------    ---------------    ----------------

         Total                        $      45,537       $        13,537       $     22,225       $      9,775
                                    ================    ==================    ===============    ================
</TABLE>

                                       20
<PAGE>

     Item 7a - Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market  accounts,  loans  held in the  partnership's  portfolio  and our line of
credit  as of  December  31,  2005.  The  presentation,  for  each  category  of
information,  aggregates the assets and  liabilities by their maturity dates for
maturities  occurring  in each of the years  2006  through  2010 and  separately
aggregates the information  for all maturities  arising after 2010. The carrying
values of these assets and liabilities  approximate  their fair market values as
of December 31, 2005 (in thousands).
<TABLE>
<S>                                        <C>         <C>         <C>        <C>         <C>      <C>             <C>
                                           2006        2007        2008       2009        2010     Thereafter      Total
                                      -----------------------------------------------------------------------------------
Interest earning assets:
Money market accounts                  $   26,279                                                              $   26,279
Average interest rate                       1.50%                                                                   1.50%
Loans secured by deeds of trust        $   70,217    $ 89,556   $  27,132    $ 5,926   $  20,202    $    979   $  214,012
Average interest rate                      10.32%       9.32%      10.15%      9.27%       8.86%       9.00%        9.71%

Interest bearing liabilities
Line of credit                                  -    $    889     $10,668    $10,668   $   9,775               $   32,000
Average interest rate                       6.75%                                                                   6.75%
</TABLE>

     Market Risk.

     The partnership's line of credit bears interest at a variable rate, tied to
the prime rate. As a result, the partnership's primary market risk exposure with
respect to its  obligations is to changes in interest  rates,  which will affect
the interest cost of outstanding  amounts on the line of credit. The partnership
may also suffer market risk tied to general trends  affecting real estate values
that may impact the partnership's security for its loans.

     The partnership's  primary market risk in terms of its profitability is the
exposure to  fluctuations  in earnings  resulting from  fluctuations  in general
interest rates. The majority of the  partnership's  mortgage loans earn interest
at fixed  rates.  Changes  in  interest  rates may also  affect the value of the
partnership's   investment  in  mortgage  loans  and  the  rates  at  which  the
partnership  reinvests  funds  obtained  from loan  repayments  and new  capital
contributions  from limited partners.  If interest rates increase,  the interest
rates the partnership obtains from reinvested funds will generally increase, but
the value of the partnership's existing loans at fixed rates will generally tend
to decrease.  The risk is mitigated  by the fact that the  partnership  does not
intend to sell its loan  portfolio,  rather  such  loans are held until they are
paid off. If interest  rates  decrease,  the amounts  becoming  available to the
partnership  for  investment  due  to  repayment  of  partnership  loans  may be
reinvested at lower rates than the  partnership had been able to obtain in prior
investments,  or than the rates on the repaid loans. In addition,  interest rate
decreases may encourage  borrowers to refinance their loans with the partnership
at a time where the  partnership  is unable to reinvest  in loans of  comparable
value.

     The  partnership  does not hedge or otherwise seek to manage  interest rate
risk. The partnership does not enter into risk sensitive instruments for trading
purposes.


PORTFOLIO REVIEW - For the years ended December 31, 2005, 2004 and 2003

     Secured Loan Portfolio.

     The partnership's  secured loan portfolio  consists primarily of short-term
(one to five years), fixed rate loans secured by real estate. As of December 31,
2005, 2004 and 2003 the partnership's  loans secured by real property collateral
in the six San  Francisco Bay Area counties  (San  Francisco,  San Mateo,  Santa
Clara,  Alameda,  Contra Costa, and Marin)  represented  $153,632,000  (71.78%),
$131,143,000   (76.36%)  and  $107,211,000   (72.85%),   respectively,   of  the
outstanding secured loan portfolio.  The remainder of the portfolio  represented
loans  secured by real  estate  located  primarily  in Northern  California.  No
partnership loan equals or exceeds 10% of the partnership's assets.

                                       21
<PAGE>

     The  following  table  sets  forth the  distribution  of loans  held by the
partnership  by property  type for the years ended  December 31, 2005,  2004 and
2003 (in thousands):
<TABLE>
<S>                                      <C>             <C>           <C>             <C>           <C>             <C>
                                                                           December 31,
                                       --------------------------------------------------------------------------------------
                                                2005                           2004                          2003
                                       ------------------------      -------------------------     --------------------------

Single Family (1-4 units)                $116,945        54.64%        $ 84,359        49.12%        $ 66,631        45.27%
Apartments (over 4 units)                  19,209         8.98%          30,981        18.04%          22,649        15.39%
Commercial                                 65,167        30.45%          54,670        31.83%          52,502        35.67%
Land                                       12,691         5.93%           1,735         1.01%           5,392         3.67%
                                       -----------    ----------     -----------    ----------     -----------    ----------

          Total                          $214,012       100.00%        $171,745       100.00%        $147,174       100.00%
                                       ===========    ==========     ===========    ==========     ===========    ==========
</TABLE>

     As of December 31, 2005, the partnership  held 98 loans secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the loans held by the partnership as of December 31, 2005.


        PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF SECURED LOANS
                     As of December 31, 2005 (in thousands)
<TABLE>
<S>    <C>                                                                <C>             <C>             <C>
                                                                          # of Loans      Amount          Percent
                                                                         -----------    -----------     ------------

       1st Mortgages                                                             53       $135,945           63.52%
       2nd Mortgages                                                             39         73,138           34.18%
       3rd Mortgages                                                              6          4,929            2.30%
                                                                         ===========    ===========     ============
            Total                                                                98       $214,012          100.00%

       Maturing in 2006                                                          22       $ 70,217           32.81%
       Maturing in 2007                                                          40         89,556           41.85%
       Maturing in 2008                                                           8         27,132           12.68%
       Maturing after 12/31/08                                                   28         27,107           12.66%
                                                                         ===========    ===========     ============
            Total                                                                98       $214,012          100.00%

       Average secured loan as a % of secured loan portfolio                              $  2,184            1.02%
       Largest secured loan as a % of secured loan portfolio                                11,927            5.57%
       Smallest secured loan as a % of secured loan portfolio                                   55            0.03%
       Average secured loan-to-appraised values of security
         based on appraised values and prior liens at time
         loan was consummated                                                                                65.03%
       Largest secured loan as a % of partnership assets                                  $ 11,927            4.51%
</TABLE>


     ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that the  amount  of such  losses  will vary from time to time,
depending  upon the risk  characteristics  of the loan  portfolio as affected by
economic  conditions and the financial  experiences of borrowers.  Many of these
factors  are beyond the  control of the  general  partners.  There is no precise
method of predicting  specific  losses or amounts that ultimately may be charged
off on  particular  segments of the loan  portfolio,  especially in light of the
current economic environment.

                                       22
<PAGE>

     The conclusion that a loan may become  uncollectible,  in whole or in part,
is  a  matter  of  judgment.  Although  institutional  lenders  are  subject  to
requirements and regulations  that, among other things,  require them to perform
ongoing analyses of their portfolios,  loan-to-value ratios, reserves, etc., and
to obtain and maintain  current  information  regarding  their borrowers and the
securing properties, the partnership is not subject to these regulations and has
not  adopted  certain of these  practices.  Rather,  the  general  partners,  in
connection  with  the  periodic  closing  of  the  accounting   records  of  the
partnership and the preparation of the financial  statements,  determine whether
the allowance for loan losses is adequate to cover  potential loan losses of the
partnership.  As of December 31, 2005 the general  partners have determined that
the allowance for loan losses and real estate held for sale of $4,138,000 (1.81%
of net  assets)  is  adequate  in amount.  Because  of the  number of  variables
involved,  the  magnitude  of the  swings  possible  and the  general  partners'
inability to control many of these factors,  actual results may and do sometimes
differ  significantly  from estimates made by the general partners.  At December
31,  2005 the  partnership  had six loans  past due 90 days or more in  interest
payments totaling $17,662,000.  Three of these six loans with principal totaling
$5,697,000  were 90 days or more past  maturity.  With  respect  to one of these
three loans, the partnership filed a notice of default, beginning the process of
foreclosure.  The  principal  amount of the one filed  notice of default  totals
$3,600,000 or 1.68% of the loan portfolio.  Among the six loans past due 90 days
or more,  one loan totaling  $788,000 has entered into a workout  agreement.  In
addition  to the six loans  past due 90 days or more in  interest  payments  the
partnership has three loans totaling  $9,201,000 at December 31, 2005, which are
past maturity,  however,  the borrowers  have continued to make regular  monthly
interest payments.  The partnership allows borrowers to occasionally continue to
make the  interest  payments  on debt past  maturity  for  periods  of time.  At
December 31, 2005 the  partnership  had nine loans totaling  $26,863,000,  which
were 90 days past maturity and/or past due 90 days or more in interest payments.

     The partnership also makes loans requiring periodic disbursements of funds.
As of December 31, 2005 there were fifteen such loans. These loans include loans
for the ground up  construction  of buildings  and loans for  rehabilitation  of
existing  structures.  Interest  on these  loans  is  computed  with the  simple
interest method and only on the amounts disbursed on a daily basis.

     A summary of the status of the partnership's  loans, which are periodically
disbursed as of December 31, 2005, is set forth below (in thousands):

                                  Complete Construction       Rehabilitation
                                 -----------------------     -----------------
   Disbursed funds                      $   5,434               $ 48,818
   Undisbursed funds                    $     639               $ 12,898


     "Construction  Loans" are  determined  by the  management to be those loans
made to borrowers for the  construction of entirely new structures or dwellings,
whether  residential,  commercial  or  multifamily  properties.  For  each  such
Construction Loan, the partnership has approved a maximum balance for such loan;
however,  disbursements are made in phases throughout the construction  process.
As of December 31, 2005, the partnership had commitments for Construction  Loans
totaling  $6,073,000,  of  which  $5,434,000  in  Construction  Loans  had  been
disbursed and had an  additional  $639,000,  which is yet to be  disbursed.  The
$6,073,000  of  Construction  Loans  committed  is  less  than  10% of the  loan
portfolio, which is the partnership's limit on Construction Loan funding.

     The  partnership  also  makes  loans,  the  proceeds  of which  are used to
remodel,  add to and/or rehabilitate an existing structure or dwelling,  whether
residential,   commercial  or   multifamily   properties   and  which,   in  the
determination  of  management,  are not  construction  loans.  These  loans  are
referred to by management as "Rehabilitation Loans". As of December 31, 2005 the
partnership  had funded  $48,818,000  in  Rehabilitation  Loans and  $12,898,000
remained  to be  disbursed  for a  combined  total  of  $61,716,000.  While  the
partnership  does  not  classify  Rehabilitation  Loans as  Construction  Loans,
Rehabilitation  Loans do carry  some of the same  risks as  Construction  Loans.
There is no limit on the  amount of  Rehabilitation  Loans the  partnership  may
make.

                                       23
<PAGE>

     Item 8 - Consolidated Financial Statements and Supplementary Data

     A - Consolidated Financial Statements

     The  following   consolidated  financial  statements  of  Redwood  Mortgage
Investors VIII are included in Item 8:

     o Report of Independent Registered Public Accounting Firm
     o Consolidated Balance Sheets - December 31, 2005, and December 31, 2004
     o Consolidated  Statements of Income for the years ended December 31, 2005,
       2004 and 2003
     o Consolidated  Statements  of Changes In Partners'  Capital for the years
       ended December 31, 2005, 2004 and 2003
     o Consolidated  Statements of Cash Flows for the years ended  December 31,
       2005, 2004 and 2003
     o Notes to Consolidated Financial Statements

     B - Consolidated Financial Statement Schedules

     The  following   consolidated  financial  statement  schedules  of  Redwood
Mortgage Inventors VIII are included in Item 8.

     o Schedule II - Valuation and Qualifying Accounts
     o Schedule IV - Loans on Real Estate

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related instructions or are inapplicable,  and therefore have
been omitted.


                                       24
<PAGE>








                         REDWOOD MORTGAGE INVESTORS VIII
                       (A CALIFORNIA LIMITED PARTNERSHIP)
                        CONSOLIDATED FINANCIAL STATEMENTS
                          AND SUPPLEMENTAL INFORMATION
                           DECEMBER 31, 2005 AND 2004
                         AND FOR EACH OF THE THREE YEARS
                      IN THE PERIOD ENDED DECEMBER 31, 2005













                                       25
<PAGE>



                                TABLE OF CONTENTS

                                                                    Page No.
                                                                  ------------

   Report of Independent Registered Public Accounting Firm             27

   Consolidated Balance Sheets                                         28

   Consolidated Statements of Income                                   29

   Consolidated Statements of Changes in Partners' Capital             30

   Consolidated Statements of Cash Flows                               32

   Notes to Consolidated Financial Statements                          33

   Supplemental Schedules

       Schedule II -  Valuation and Qualifying Accounts                49

       Schedule IV - Mortgage Loans on Real Estate                     50
         Rule 12-29 Loans on Real Estate




                                       26
<PAGE>

                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                         12667 Alcosta Blvd., Suite 500
                               San Ramon, CA 94583
                                 (925) 790-2600




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners
Redwood Mortgage Investors VIII
Redwood City, California

     We have audited the  accompanying  consolidated  balance  sheets of Redwood
Mortgage  Investors VIII (a California  limited  partnership) as of December 31,
2005 and 2004 and the  related  consolidated  statements  of income,  changes in
partners' capital and cash flows for each of the three years in the period ended
December  31,   2005.   These   consolidated   financial   statements   are  the
responsibility   of  Redwood   Mortgage   Investors   VIII's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable  assurance about whether the
financial  statements  are  free  of  material  misstatement.  Redwood  Mortgage
Investors VIII is not required to have, nor were we engaged to perform, an audit
of  its  internal  control  over  financial   reporting.   Our  audits  included
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the  purpose  of  expressing  an  opinion  on the  effectiveness  of Redwood
Mortgage   Investors   VIII's   internal   control  over  financial   reporting.
Accordingly,  we express no such opinion. An audit also includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Redwood  Mortgage  Investors  VIII as of  December  31,  2005  and  2004 and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2005 in conformity  with accounting
principles generally accepted in the United States of America.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic consolidated  financial  statements taken as a whole.  Schedules II and IV
are presented for purposes of additional analysis and are not a required part of
the basic consolidated financial statements. Such information has been subjected
to the  auditing  procedures  applied  in the  audits of the basic  consolidated
financial  statements  and, in our  opinion,  is fairly  stated in all  material
respects in relation to the basic consolidated  financial  statements taken as a
whole.


                                                ARMANINO McKENNA  LLP
San Ramon, California
March 3, 2006

                                       27
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                           Consolidated Balance Sheets
                           December 31, 2005 and 2004
                                 (in thousands)

                                     ASSETS
<TABLE>
<S>                                                                                             <C>             <C>
                                                                                                2005            2004
                                                                                            ------------    ------------
Cash and cash equivalents                                                                     $  28,853       $  16,301
                                                                                            ------------    ------------

Loans
   Loans, secured by deeds of trust                                                             214,012         171,745
   Loans, unsecured                                                                                   -              34
   Allowance for loan losses                                                                    (3,138)         (2,343)
                                                                                            ------------    ------------
      Net loans                                                                                 210,874         169,436
                                                                                            ------------    ------------

Interest and other receivables
   Accrued interest and late fees                                                                 3,254           4,895
   Advances on loans                                                                                103             131
                                                                                            ------------    ------------
      Total interest and other receivables                                                        3,357           5,026
                                                                                            ------------    ------------

Other assets
   Loan origination fees, net                                                                        72              62
   Real estate held for sale, net                                                                21,328           9,793
                                                                                            ------------    ------------
      Total other assets                                                                         21,400           9,855
                                                                                            ------------    ------------
      Total assets                                                                            $ 264,484       $ 200,618
                                                                                            ============    ============

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities
   Line of credit                                                                             $  32,000       $  16,000
   Accounts payable                                                                                  10              25
   Payable to affiliate                                                                             489             638
                                                                                            ------------    ------------
      Total liabilities                                                                          32,499          16,663
                                                                                            ------------    ------------

Investors in applicant status                                                                       776             424
                                                                                            ------------    ------------
Minority interest                                                                                 3,042               -
                                                                                            ------------    ------------

Partners' capital
   Limited partners' capital, subject to redemption, net of unallocated
    syndication costs of $1,653 and $1,084 for 2005 and 2004, respectively;
    and net of Formation Loan receivable of $11,506 and $9,751 for 2005
    and 2004, respectively                                                                      227,970         183,368

   General partners' capital, net of unallocated syndication costs of
    $16 and $11 for 2005 and 2004, respectively                                                     197             163
                                                                                            ------------    ------------
      Total partners' capital                                                                   228,167         183,531
                                                                                            ------------    ------------
      Total liabilities and  partners' capital                                                $ 264,484       $ 200,618
                                                                                            ============    ============
</TABLE>


     The accompanying notes are an integral part of these consolidated financial
statements.

                                       28
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                        Consolidated Statements of Income
              For the Years Ended December 31, 2005, 2004 and 2003
             (in thousands, except for per limited partner amounts)

<TABLE>
<S>                                                                                <C>             <C>             <C>
                                                                                   2005            2004            2003
                                                                               ------------    ------------    ------------
Revenues
   Interest on loans                                                             $  19,203       $  16,437       $  12,496
   Late fees                                                                           120             218             201
   Other                                                                               865             478             261
                                                                               ------------    ------------    ------------
                                                                                    20,188          17,133          12,958
                                                                               ------------    ------------    ------------

Expenses
   Mortgage servicing fees                                                           1,736           1,565           1,057
   Interest expense                                                                    278             622              71
   Amortization of loan origination fees                                                65              56              23
   Provision for losses on loans                                                       855           1,146             782
   Asset management fees                                                               814             630             468
   Clerical costs from Redwood Mortgage Corp.                                          298             307             290
   Professional services                                                               147             211             111
   Broker expense                                                                        -               -             181
   Amortization of discount on imputed interest                                        395             319             195
   Other                                                                               232             145             228
                                                                               ------------    ------------    ------------
                                                                                     4,820           5,001           3,406
                                                                               ------------    ------------    ------------

Income before minority interest                                                     15,368          12,132           9,552

Minority interest share of subsidiary loss                                               -               -              42
                                                                               ------------    ------------    ------------
Net income                                                                       $  15,368       $  12,132       $   9,594
                                                                               ============    ============    ============

Net income
   General partners (1%)                                                         $     154       $     121       $      96
   Limited partners (99%)                                                           15,214          12,011           9,498
                                                                               ------------    ------------    ------------
                                                                                 $  15,368       $  12,132       $   9,594
                                                                               ============    ============    ============

Net income per $1,000 invested by
   limited partners for entire period
     Where income is reinvested                                                  $      70       $      72       $      78
     Where partner receives income in monthly distributions                      $      68       $      70       $      75
</TABLE>


     The accompanying notes are an integral part of these consolidated financial
statements.

                                       29
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
             Consolidated Statements of Changes in Partners' Capital
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>                                                  <C>                <C>           <C>              <C>             <C>
                                                                                          Limited Partners

                                                                     ----------------------------------------------------------
                                                                        Capital                                        Total
                                                     Investors In      Account        Unallocated                     Limited
                                                       Applicant       Limited        Syndication      Formation      Partners'
                                                        Status         Partners          Costs        Loan, Gross     Capital
                                                     -------------   -------------   -------------   ------------   ------------

Balances at December 31, 2002                          $    2,578      $  101,540      $    (592)      $ (5,258)      $  95,690
  Contributions on application                             40,030               -               -              -              -
  Formation Loan increases                                      -               -               -        (2,929)        (2,929)
  Formation Loan payments received                              -               -               -            575            575
  Interest credited to partners in applicant
   status                                                      37               -               -              -              -
  Interest withdrawn                                         (14)               -               -              -              -
  Transfers to partners' capital                         (41,421)          41,421               -              -         41,421
  Net income                                                    -           9,498               -              -          9,498
  Syndication costs incurred                                    -               -           (478)              -          (478)
  Allocation of syndication costs                               -           (178)             178              -              -
  Partners' withdrawals                                         -         (5,128)               -              -        (5,128)
  Early withdrawal penalties                                    -            (79)              17             62              -
                                                     -------------   -------------   -------------   ------------   ------------

Balances at December 31, 2003                               1,210         147,074           (875)        (7,550)        138,649
  Contributions on application                             40,954               -               -              -              -
  Formation Loan increases                                      -               -               -        (3,117)        (3,117)
  Formation Loan payments received                              -               -               -            855            855
  Interest credited to partners in applicant
   status                                                      20               -               -              -              -
  Interest withdrawn                                          (8)               -               -              -              -
  Transfers to partners' capital                         (41,752)          41,752               -              -         41,752
  Net income                                                    -          12,011               -              -         12,011
  Syndication costs incurred                                    -               -           (417)              -          (417)
  Allocation of syndication costs                               -           (192)             192              -              -
  Partners' withdrawals                                         -         (6,365)               -              -        (6,365)
  Early withdrawal penalties                                    -            (77)              16             61              -
                                                     -------------   -------------   -------------   ------------   ------------

Balances at December 31, 2004                                 424         194,203         (1,084)        (9,751)        183,368
  Contributions on application                             39,816               -               -              -              -
  Formation Loan increases                                      -               -               -        (2,978)        (2,978)
  Formation Loan payments received                              -               -               -          1,178          1,178
  Interest credited to partners in applicant
   status                                                      41               -               -              -              -
  Interest withdrawn                                         (15)               -               -              -              -
  Transfers to partners' capital                         (39,490)          39,490               -              -         39,490
  Net income                                                    -          15,214               -              -         15,214
  Syndication costs incurred                                    -               -           (837)              -          (837)
  Allocation of syndication costs                               -           (257)             257              -              -
  Partners' withdrawals                                         -         (7,465)               -              -        (7,465)
  Early withdrawal penalties                                    -            (56)              11             45              -
                                                     -------------   -------------   -------------   ------------   ------------
Balances at December 31, 2005                          $      776      $  241,129      $  (1,653)      $(11,506)      $ 227,970
                                                     =============   =============   =============   ============   ============
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.

                                       30
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
       Consolidated Statements of Changes in Partners' Capital (continued)
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>                                                        <C>            <C>                <C>              <C>
                                                                       General Partners
                                                       -----------------------------------------------
                                                           Capital                           Total
                                                          Account         Unallocated        General          Total
                                                          General         Syndication       Partners'       Partners'
                                                          Partners          Costs           Capital          Capital
                                                       ---------------   -------------    ------------    --------------

  Balances at December 31, 2002                          $         93      $      (6)       $      87       $    95,777
     Contributions on application                                   -               -               -                 -
     Formation Loan increases                                       -               -               -           (2,929)
     Formation Loan payments received                               -               -               -               575
     Interest credited to partners in applicant
       status                                                       -               -               -                 -
     Interest withdrawn                                             -               -               -                 -
     Capital contributed                                           40               -              40            41,461
     Net income                                                    96               -              96             9,594
     Syndication costs incurred                                     -             (5)             (5)             (483)
     Allocation of syndication costs                              (2)               2               -                 -
     Partners' withdrawals                                       (95)               -            (95)           (5,223)
     Early withdrawal penalties                                     -               -               -                 -
                                                       ---------------   -------------    ------------    --------------

  Balances at December 31, 2003                                   132             (9)             123           138,772
     Contributions on application                                   -               -               -                 -
     Formation Loan increases                                       -               -               -           (3,117)
     Formation Loan payments received                               -               -               -               855
     Interest credited to partners in applicant
       status                                                       -               -               -                 -
     Interest withdrawn                                             -               -               -                 -
     Capital contributed                                           41               -              41            41,793
     Net income                                                   121               -             121            12,132
     Syndication costs incurred                                     -             (4)             (4)             (421)
     Allocation of syndication costs                              (2)               2               -                 -
     Partners' withdrawals                                      (118)               -           (118)           (6,483)
     Early withdrawal penalties                                     -               -               -                 -
                                                       ---------------   -------------    ------------    --------------

  Balances at December 31, 2004                                   174            (11)             163           183,531
     Contributions on application                                   -               -               -                 -
     Formation Loan increases                                       -               -               -           (2,978)
     Formation Loan payments received                               -               -               -             1,178
     Interest credited to partners in applicant
       status                                                       -               -               -                 -
     Interest withdrawn                                             -               -               -                 -
     Capital contributed                                           40               -              40            39,530
     Net income                                                   154               -             154            15,368
     Syndication costs incurred                                     -             (8)             (8)             (845)
     Allocation of syndication costs                              (3)               3               -                 -
     Partners' withdrawals                                      (152)               -           (152)           (7,617)
     Early withdrawal penalties                                     -               -               -                 -
                                                       ---------------   -------------    ------------    --------------
  Balances at December 31, 2005                          $        213      $     (16)       $     197       $   228,167
                                                       ===============   =============    ============    ==============
</TABLE>


     The accompanying notes are an integral part of these consolidated financial
statements.

                                       31
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                      Consolidated Statements of Cash Flows
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>     <C>                                                                     <C>             <C>            <C>
                                                                                2005            2004           2003
                                                                             ------------    -----------    -----------
        Cash flows from operating activities
           Net income                                                          $  15,368       $ 12,132       $  9,594
           Adjustments to reconcile net income to
            net cash provided by operating activities
              Amortization of loan origination fees                                   65             56             23
              Imputed interest income                                              (395)          (319)          (195)
              Amortization of discount                                               395            319            195
              Provision for losses on loans and real estate                          855          1,146            782
              Realized (gain) loss on sale of real estate                          (183)              -            127
              Minority interest share of subsidiary loss                               -              -           (42)
              Change in operating assets and liabilities
                 Unsecured loans                                                      34              -              -
                 Accrued interest and late fees                                    1,040        (2,566)        (3,448)
                 Advances on loans                                                  (63)             74          (500)
                 Other receivables                                                     -              -            888
                 Loan origination fees                                              (75)           (74)           (45)
                 Accounts payable                                                   (15)          (199)          (225)
                 Payable to affiliate                                              (149)            190            154
                 Deferred interest                                                     -              -          (112)
                                                                             ------------    -----------    -----------
        Net cash provided by operating activities                                 16,877         10,759          7,196
                                                                             ------------    -----------    -----------

        Cash flows from investing activities
           Loans originated                                                    (169,460)       (81,579)       (96,820)
           Principal collected on loans                                          118,772         52,359         35,097
           Payments for development of real estate                                 (939)              -          (706)
           Proceeds from disposition of real estate                                1,541              -          6,036
                                                                             ------------    -----------    -----------
        Net cash used in investing activities                                   (50,086)       (29,220)       (56,393)
                                                                             ------------    -----------    -----------

        Cash flows from financing activities
           Borrowings (repayments) on line of credit, net                         16,000        (6,000)         22,000
           Repayments on note payable                                                  -              -        (1,782)
           Contributions by partner applicants                                    39,882         41,007         40,093
           Partners' withdrawals                                                 (7,617)        (6,483)        (5,223)
           Syndication costs paid                                                  (845)          (421)          (483)
           Formation Loan lending                                                (2,978)        (3,117)        (2,929)
           Formation Loan collections                                              1,178            855            575
           Increase (distribution) to minority interest                              141              -        (1,321)
                                                                             ------------    -----------    -----------
        Net cash provided by financing activities                                 45,761         25,841         50,930
                                                                             ------------    -----------    -----------

        Net increase in cash and cash equivalents                                 12,552          7,380          1,733

        Cash and cash equivalents - beginning of year                             16,301          8,921          7,188
                                                                             ------------    -----------    -----------
        Cash and cash equivalents - end of year                                $  28,853       $ 16,301       $  8,921
                                                                             ============    ===========    ===========

        Supplemental disclosures of cash flow information                      $     278       $    622       $     71
           Cash paid for interest
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.

                                       32
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     1. Organizational and General

     Redwood  Mortgage  Investors VIII, a California  Limited  Partnership  (the
"Partnership"),  was  organized  in 1993.  The general  partners  are Michael R.
Burwell,  an individual,  Gymno  Corporation and Redwood  Mortgage  Corp.,  both
California corporations.  The Partnership was organized to engage in business as
a mortgage  lender for the primary  purpose of making loans  secured by deeds of
trust on  California  real  estate.  Loans are being  arranged  and  serviced by
Redwood Mortgage Corp., a general partner. At December 31, 2005, the Partnership
was  in  its  sixth  offering  stage,   wherein   contributed   capital  totaled
$212,037,000 of approved aggregate offerings of $300,000,000. As of December 31,
2005 and 2004,  $776,000  and  $424,000,  respectively,  remained  in  applicant
status,  and total  Partnership units sold were in the aggregate of $212,037,000
and $172,223,000, respectively.

     A minimum of $250,000 and a maximum of  $15,000,000  in  Partnership  units
were initially offered through qualified  broker-dealers.  This initial offering
closed in October 1996. In December  1996,  the  Partnership  commenced a second
offering of an additional $30,000,000 which closed on August 30, 2000. On August
31,  2000,  the  Partnership  commenced  a  third  offering  for  an  additional
$30,000,000  which closed in April 2002.  On October 31, 2002,  the  Partnership
commenced  a fourth  offering  for an  additional  $50,000,000  which  closed in
October 2003. On October 7, 2003, the Partnership commenced a fifth offering for
an additional  $75,000,000  which closed in August 2005. On August 4, 2005,  the
Partnership commenced a sixth offering for an additional $100,000,000.

     Sales commissions - Formation Loans

     Sales  commissions  are not paid  directly  by the  Partnership  out of the
offering proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., one
of the  general  partners,  amounts  to pay all sales  commissions  and  amounts
payable in  connection  with  unsolicited  orders.  This loan is  unsecured  and
non-interest bearing and is referred to as the "Formation Loan."

     The Formation Loan relating to the initial offering  ($15,000,000)  totaled
$1,075,000, which was 7.2% of limited partners' contributions of $14,932,000. It
is being repaid, without interest, in ten annual installments of $107,000, which
commenced on January 1, 1997, following the year the initial offering closed.

     The Formation Loan relating to the second  offering  ($30,000,000)  totaled
$2,272,000, which was 7.6% of limited partners' contributions of $29,993,000. It
is being repaid, without interest, in ten equal annual installments of $201,000,
which  commenced  on  January 1, 2001,  following  the year the second  offering
closed. Payments on this loan were also made during the offering period prior to
the close of the offering.

     The Formation  Loan relating to the third  offering  ($30,000,000)  totaled
$2,218,000,   which  was  7.4%  of  the  limited   partners'   contributions  of
$29,999,000. It is being repaid, without interest, in ten annual installments of
$178,000,  which  commenced  on January 1,  2003,  following  the year the third
offering closed.  Payments on this loan were also made during the offering stage
prior to the close of the offering.

     The Formation Loan relating to the fourth  offering  ($50,000,000)  totaled
$3,777,000, which was 7.6% of the limited partners contributions of $49,985,000.
It is being repaid,  without interest,  in ten annual  installments of $365,000,
which  commenced  on  January 1, 2004,  following  the year the fourth  offering
closed.  Payments on this loan were also made during the offering stage prior to
the close of the offering.

     The Formation  Loan relating to the fifth  offering  ($75,000,000)  totaled
$5,661,000, which was 7.6% of the limited partners contributions of $74,904,000.
It is being repaid,  without interest,  in ten annual  installments of $526,000,
which will commence on January 1, 2006,  following  the year the fifth  offering
closed.  Payments on this loan were also made during the offering stage prior to
the close of the offering.

                                       33
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     1. Organizational and General (continued)

     Sales commissions - Formation Loans (continued)

     The Formation  Loan relating to the sixth offering  ($100,000,000)  totaled
$888,000  as of  December  31,  2005,  which  was 7.3% of the  limited  partners
contributions  of  $12,224,000  through  December  31,  2005.  An  equal  annual
repayment  schedule on this loan,  without  interest,  will commence in the year
subsequent to the closing of this offering. Payments on this loan are being made
during the offering stage prior to the close of the offering.

     For the offerings,  sales  commissions paid to brokers range from 0% (units
sold by general partners) to 9% of gross proceeds.  The Partnership  anticipates
that the sales  commissions  will  approximate 7.6% based on the assumption that
65% of  investors  will elect to  reinvest  earnings,  thus  generating  full 9%
commissions.  The  principal  balance of the  Formation  Loan will  increase  as
additional sales of units are made. The amount of the annual installment payment
to be made by  Redwood  Mortgage  Corp.,  during  the  offering  stage,  will be
determined at annual  installments of one-tenth of the principal  balance of the
Formation Loan as of December 31 of each year.

     The following  summarizes  Formation Loan transactions to December 31, 2005
(in thousands):
<TABLE>
<S>                         <C>            <C>               <C>             <C>            <C>             <C>             <C>
                            Initial        Subsequent        Third           Fourth         Fifth           Sixth
                          Offering of     Offering of      Offering of     Offering of    Offering of     Offering of
                            $15,000         $30,000         $30,000         $50,000        $75,000         $100,000         Total
                          ------------    ------------    ------------    -----------    -----------    ------------    -----------
Limited Partner
  contributions            $   14,932      $   29,993      $   29,999      $  49,985      $  74,904      $   12,224      $ 212,037
                          ============    ============    ============    ===========    ===========    ============    ===========
Formation Loan made        $    1,075      $    2,272      $    2,218      $   3,777      $   5,661      $      888      $  15,891
Discount on
  imputed interest                (8)           (219)           (230)          (462)        (1,215)           (257)        (2,391)
                          ------------    ------------    ------------    -----------    -----------    ------------    -----------
Formation Loan
  made, net                     1,067           2,053           1,988          3,315          4,446             631         13,500
Repayments to date              (888)         (1,206)           (748)          (846)          (388)               -        (4,076)
Early withdrawal
  penalties applied              (79)           (120)            (85)           (14)           (11)               -          (309)
                          ------------    ------------    ------------    -----------    -----------    ------------    -----------
Formation Loan, net
  at December 31, 2005            100             727           1,155          2,455          4,047             631          9,115
Unamortized discount
  on imputed interest               8             219             230            462          1,215             257          2,391
                          ------------    ------------    ------------    -----------    -----------    ------------    -----------
Balance,
  December 31, 2005        $      108      $      946      $    1,385      $   2,917      $   5,262      $      888      $  11,506
                          ============    ============    ============    ===========    ===========    ============    ===========
Percent loaned                   7.2%            7.6%            7.4%           7.6%           7.6%            7.3%           7.5%
</TABLE>

     The Formation Loan has been deducted from limited  partners' capital in the
consolidated  balance  sheets.  As amounts are collected  from Redwood  Mortgage
Corp., the deduction from capital will be reduced.  Interest has been imputed at
the market rate of interest in effect at the date the  offerings  closed,  which
ranged from 4.00% to 9.50%. An estimated  amount of imputed interest is recorded
for offerings still outstanding.  During 2005, 2004 and 2003, $395,000, $319,000
and $195,000,  respectively,  were  recorded  related to the discount on imputed
interest.

                                       34
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     1. Organizational and General (continued)

     Syndication costs

     The Partnership bears its own syndication  costs,  other than certain sales
commissions,  including legal and accounting  expenses,  printing costs, selling
expenses  and filing  fees.  Syndication  costs are  charged  against  partners'
capital and are being  allocated  to  individual  partners  consistent  with the
partnership agreement.

     Through  December  31,  2005,  syndication  costs  of  $3,819,000  had been
incurred by the Partnership with the following distribution (in thousands):


                 Costs incurred                                  $    3,819
                 Early withdrawal penalties applied                   (114)
                 Allocated to date                                  (2,036)
                                                                ------------

                 December 31, 2005 balance                       $    1,669
                                                                ============

     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 $14,932,000.
Related expenditures  totaled $582,000 ($570,000  syndication costs plus $12,000
organization expense) or 3.9% of contributions.

     Syndication costs  attributable to the second offering  ($30,000,000)  were
limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess
being paid by the general  partners.  Gross proceeds of the second offering were
$29,993,000. Syndication costs totaled $598,000 or 2% of contributions.

     Syndication  costs  attributable to the third offering  ($30,000,000)  were
limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess
being paid by the general  partners.  Gross  proceeds of the third offering were
$29,999,000. Syndication costs totaled $643,000 or 2.1% of contributions.

     Syndication costs  attributable to the fourth offering  ($50,000,000)  were
limited to the lesser of 10% of the gross proceeds or $2,000,000 with any excess
to be paid by the general  partners.  Gross proceeds of the fourth offering were
$49,985,000. Syndication costs totaled $658,000 or 1.3% of contributions.

     Syndication  costs  attributable to the fifth offering  ($75,000,000)  were
limited to the lesser of 10% of the gross proceeds or $3,000,000 with any excess
to be paid by the general  partners.  Gross  proceeds of the fifth offering were
$74,904,000. Syndication costs totaled $789,000 or 1.1% of contributions.

     Syndication costs attributable to the sixth offering ($100,000,000) will be
limited to the lesser of 10% of the gross proceeds or $4,000,000 with any excess
to be paid by the general partners.  As of December 31, 2005, the sixth offering
had incurred syndication costs of $561,000 (4.6% of contributions).

     Term of the partnership

     The  Partnership  is scheduled  to  terminate on December 31, 2032,  unless
sooner terminated as provided in the partnership agreement.

                                       35
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     2. Summary of Significant Accounting Policies

     Basis of presentation

     The Partnership's consolidated financial statements include the accounts of
its 100%-owned subsidiaries,  Russian Hill Property Company, LLC ("Russian") and
Borrette Property Company,  LLC ("Borrette"),  and its 72.50%-owned  subsidiary,
Larkin Street Property  Company,  LLC ("Larkin").  All significant  intercompany
transactions and balances have been eliminated in consolidation.

     Reclassifications

     Certain reclassifications,  not affecting previously reported net income or
total partner  capital,  have been made to the  previously  issued  consolidated
financial statements to conform to the current year presentation.

     Management estimates

     The  preparation of  consolidated  financial  statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires management to make estimates and assumptions about the reported amounts
of assets and liabilities, and disclosures of contingent assets and liabilities,
at the dates of the consolidated  financial  statements and the reported amounts
of revenues and expenses  during the reported  periods.  Such  estimates  relate
principally to the determination of the allowance for loan losses, including the
valuation  of  impaired  loans and the  valuation  of real estate held for sale.
Actual results could differ significantly from these estimates.

     Loans, secured by deeds of trust

     Loans generally are stated at their  outstanding  unpaid principal  balance
with interest thereon being accrued as earned.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the contractual  terms of the loan agreement,  and the shortfall in
the  amounts  due are not  insignificant,  the  carrying  amount  of the loan is
reduced  to the  present  value of future  cash flows  discounted  at the loan's
effective interest rate. If a loan is collateral dependent,  it is valued at the
estimated fair value of the related collateral.

     If events and or changes in circumstances  cause management to have serious
doubts  about the  collectibility  of the  contractual  payments,  a loan may be
categorized  as impaired  and  interest  is no longer  accrued.  Any  subsequent
payments on impaired loans are applied to reduce the outstanding  loan balances,
including  accrued  interest and advances.  At December 31, 2005 and 2004, there
were no loans  categorized as impaired by the Partnership.  The average recorded
investment in impaired loans was $0 for 2005, 2004 and 2003.

     At December 31, 2005 and 2004, the Partnership had nine and eleven loans 90
days  past  maturity  and/or  past  due 90 days or  more in  interest  payments,
totaling  $26,863,000  and  $25,013,000,   respectively.  In  addition,  accrued
interest,  late  charges  and  advances on these loans  totaled  $1,774,000  and
$3,202,000 at December 31, 2005 and 2004, respectively. The Partnership does not
consider  these loans to be impaired  because there is sufficient  collateral to
cover the amount  outstanding to the Partnership and is still accruing  interest
on  these  loans.  As  presented  in  Note  10  to  the  consolidated  financial
statements, the average loan to appraised value of security based upon appraised
values and prior  indebtedness at the time the loans were  consummated for loans
outstanding  at December  31, 2005 and 2004 was 65.03% and 56.94%  respectively.
When loans are considered impaired,  the allowance for loan losses is updated to
reflect the change in the valuation of collateral security.  However, a low loan
to value ratio has the tendency to minimize reductions for impairment.

                                       36
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     2. Summary of Significant Accounting Policies (continued)

     Allowance for loan losses

     Loans and the related accrued interest, late fees and advances are analyzed
on a  periodic  basis  for  recoverability.  Delinquencies  are  identified  and
followed as part of the loan system.  Delinquencies  are  determined  based upon
contractual  terms.  A provision is made for loan losses to adjust the allowance
for loan losses to an amount  considered by management to be adequate,  with due
consideration  to  collateral  values,  to provide for  unrecoverable  loans and
receivables,  including impaired loans, other loans, accrued interest, late fees
and advances on loans and other accounts receivable. The Partnership charges off
uncollectible  loans and related  receivables  directly to the allowance account
once it is determined that the full amount is not collectible.

     The  composition  of the  allowance  for loan  losses  was as  follows  (in
thousands):
<TABLE>
<S>                                <C>            <C>              <C>           <C>              <C>           <C>
                                                                        December 31,
                                 -------------------------------------------------------------------------------------------
                                            2005                            2004                           2003
                                 ----------------------------     --------------------------    ----------------------------
                                                  Percent of                     Percent of                     Percent of
                                                   loans in                       loans in                       loans in
                                                     each                           each                           each
                                                   category                       category                       category
                                                   to total                       to total                       to total
                                    Amount           loans          Amount          loans          Amount          loans
                                  ------------    ------------    ------------   ------------    -----------    ------------
Balance at End of Year
Applicable to:
---------------------------------
Domestic
   Real estate - mortgage
     Single family (1-4 units)      $   1,598          54.64%       $     850         49.12%       $  1,072          45.27%
     Apartments                           145           8.98%             430         18.04%            315          15.39%
     Commercial                         1,140          30.45%           1,033         31.83%            880          35.67%
     Land                                 255           5.93%              30          1.01%            382           3.67%
                                  ------------    ------------    ------------   ------------    -----------    ------------
        Total                       $   3,138         100.00%       $   2,343        100.00%       $  2,649         100.00%
                                  ============    ============    ============   ============    ===========    ============
</TABLE>





                                       37
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     2. Summary of Significant Accounting Policies (continued)

     Allowance for loan losses (continued)

     Activity in the allowance for loan losses is as follows (in thousands):
<TABLE>
<S>                                                         <C>              <C>               <C>
                                                                    Years Ended December 31,
                                                        ------------------------------------------------
                                                            2005             2004              2003
                                                        -------------    -------------     -------------
Balance at beginning of year                              $    2,343       $    2,649        $    3,021

Charge-offs
   Domestic
      Real estate - mortgage
        Single family (1-4 units)                                 26            (842)           (1,068)
        Apartments                                                 -                -              (86)
        Commercial                                                34            (110)                 -
        Land                                                       -                -                 -
                                                        -------------    -------------     -------------
                                                                (60)            (952)           (1,154)
                                                        -------------    -------------     -------------
Recoveries
   Domestic
      Real estate - mortgage
        Single family (1-4 units)                                  -                -                 -
        Apartments                                                 -                -                 -
        Commercial                                                 -                -                 -
        Land                                                       -                -                 -
                                                        -------------    -------------     -------------
                                                                   -                -                 -
                                                        -------------    -------------     -------------
Net charge-offs                                                 (60)            (952)           (1,154)
                                                        -------------    -------------     -------------
Additions charge to operations                                   855            1,146               782
                                                        -------------    -------------     -------------
Transfer to real estate held for sale reserve                      -            (500)                 -
                                                        -------------    -------------     -------------
Balance at end of year                                    $    3,138       $    2,343        $    2,649
                                                        =============    =============     =============

Ratio of net charge-offs during the period
   to average secured loans outstanding during
   the period                                                  0.03%            0.60%             1.00%
                                                        =============    =============     =============
</TABLE>





                                       38
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     2. Summary of Significant Accounting Policies (continued)

     Cash and cash equivalents

     The  Partnership  considers all highly liquid  financial  instruments  with
maturities  of  three  months  or  less  at the  time  of  purchase  to be  cash
equivalents.

     Real estate held for sale

     Real estate held for sale includes real estate acquired through foreclosure
and is stated  at the lower of the  recorded  investment  in the loan,  plus any
senior  indebtedness,  or at the property's estimated fair value, less estimated
costs to sell.

     The Partnership  periodically compares the carrying value of real estate to
expected  undiscounted  future  cash  flows for the  purpose  of  assessing  the
recoverability  of the recorded  amounts.  If the carrying  value exceeds future
undiscounted cash flows, the assets are reduced to estimated fair value.

     Loan origination fees

     The Partnership capitalizes fees for obtaining bank financing. The fees are
amortized over the life of the financing using the straight-line method.

     Income taxes

     No  provision  for federal and state income taxes (other than an $800 state
minimum tax) is made in the consolidated financial statements since income taxes
are the obligation of the partners if and when income taxes apply.

     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 amounts  allocated  to
limited  partners  who held  their  investment  throughout  the  period and have
elected to either  leave their  earnings to compound or have  elected to receive
periodic distributions of their net income.  Individual income is allocated each
month  based on the  limited  partners'  pro rata  share of  partners'  capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those  individuals  who made or  withdrew  investments  during the
period, or selected other options.

     Late fee revenue

     Late fees are generally  charged at 6% of the monthly  installment  payment
past due. During 2005, 2004 and 2003, late fee revenue of $120,000, $218,000 and
$201,000,  respectively,  was recorded.  The Partnership has a recorded late fee
receivable at December 31, 2005 and 2004 of $103,000 and $180,000, respectively.

     Recently issued accounting pronouncements

     In June 2005,  the FASB  issued FAS No. 154,  Accounting  Changes and Error
Corrections,  a replacement of APB Opinion No. 20, Accounting Changes,  and FASB
No. 3,  Reporting  Accounting  Changes  in  Interim  Financial  Statements.  The
Statement applies to all voluntary changes in accounting principle,  and changes
the  requirements  for  accounting  for and  reporting of a change in accounting
principle.  FAS  154  requires  retrospective   application  to  prior  periods'
financial  statements of a voluntary change in accounting principle unless it is
impracticable.  It is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005.  Earlier  application is
permitted for  accounting  changes and  corrections  of errors made occurring in
fiscal years beginning  after June 1, 2005. The Partnership  does not expect the
effect of FAS 154 will have material impact on its financial statements.

                                       39
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     3. Other Partnership Provisions

     The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited  partners of the  Partnership  are governed by
the limited  partnership  agreement and Sections 15611 et seq. of the California
Corporations Code.

     The general partners are in complete  control of the Partnership  business,
subject to the voting rights of the limited partners on specified  matters.  Any
one of the general  partners acting alone has the power and authority to act for
and bind the Partnership.

     A majority of the outstanding  limited  partnership  interests may, without
the permission of the general partners,  vote to: (i) terminate the Partnership,
(ii) amend the limited  partnership  agreement,  (iii) approve or disapprove the
sale of all or  substantially  all of the  assets  of the  Partnership  and (iv)
remove or replace one or all of the general partners.

     The approval of all the limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner  after a general  partner  ceases to be a general  partner other than by
removal.

     Applicant status

     Subscription  funds received from  purchasers of Partnership  units are not
admitted to the  Partnership  until  subscription  funds are  required to fund a
loan,  fund  the  Formation  Loan,  create  appropriate   reserves,  or  to  pay
organizational expenses or other proper partnership purposes.  During the period
prior to the time of admission,  which is anticipated to be between 1 - 90 days,
purchasers'  subscriptions  will remain  irrevocable  and will earn  interest at
money  market  rates,  which  are  lower  than  the  anticipated  return  on the
Partnership's loan portfolio.

     During 2005, 2004 and 2003, interest totaling $41,000, $20,000 and $37,000,
respectively,  was credited to partners in applicant  status. As loans were made
and partners were  transferred to regular status to begin sharing in Partnership
operating  income,  the interest  credited  was either paid to the  investors or
transferred to partners' capital along with the original investment.

     Election to receive monthly, quarterly or annual distributions

     At subscription,  investors elect to receive  monthly,  quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain  limitations,  a  compounding  investor may  subsequently  change his
election, but an investor's election to have cash distributions is irrevocable.

     Profits and losses

     Profits and losses are allocated  among the limited  partners  according to
their respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.

     Liquidity, capital withdrawals and early withdrawals

     There are substantial  restrictions on transferability of Partnership units
and accordingly an investment in the Partnership is non-liquid. Limited partners
have no right to withdraw from the  Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of units.

                                       40
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     3. Other Partnership Provisions (continued)

     Liquidity, capital withdrawals and early withdrawals (continued)

     In order to provide a certain  degree of liquidity to the limited  partners
after the one-year  period,  limited  partners may withdraw all or part of their
capital accounts from the Partnership in four quarterly  installments  beginning
on the last day of the  calendar  quarter  following  the  quarter  in which the
notice of withdrawal is given,  subject to a 10% early withdrawal  penalty.  The
10% penalty is  applicable  to the amount  withdrawn  as stated in the notice of
withdrawal and will be deducted from the capital account.

     After five years from the date of purchase of the units,  limited  partners
have the  right  to  withdraw  from the  Partnership  on an  installment  basis.
Generally this is done over a five-year period in twenty quarterly installments.
Once a limited  partner has been in the  Partnership  for the minimum  five-year
period,  no penalty will be imposed if  withdrawal  is made in twenty  quarterly
installments  or longer.  Notwithstanding  the five-year (or longer)  withdrawal
period,  the general  partners may liquidate all or part of a limited  partner's
capital account in four quarterly  installments beginning on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given. This withdrawal is subject to a 10% early withdrawal  penalty  applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnership's  capacity  to return a limited  partner's
capital is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total limited partners' capital accounts  outstanding at
the beginning of any year, shall be liquidated during any calendar year.


     4. General Partners and Related Parties

     The following are  commissions  and/or fees,  which are paid to the general
partners:

     Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans, the general partners may collect an amount equivalent to
12% of the  loaned  amount  until 6 months  after  the  termination  date of the
offering.  Thereafter, loan brokerage commissions (points) will be limited to an
amount  not to exceed  4% of the total  Partnership  assets  per year.  The loan
brokerage  commissions are paid by the borrowers and thus, are not an expense of
the Partnership.  In 2005, 2004 and 2003, loan brokerage commissions paid by the
borrowers were $3,697,000, $2,443,000 and $2,621,000, respectively.

     Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid  principal  are paid to  Redwood  Mortgage  Corp.,  based  on the  unpaid
principal balance of the loan portfolio,  or such lesser amount as is reasonable
and customary in the geographic area where the property securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer accrued thereon. Additional service fees are recorded upon the receipt of
any  subsequent   payments  on  impaired  loans.   Mortgage  servicing  fees  of
$1,736,000,  $1,565,000  and $1,057,000  were incurred for 2005,  2004 and 2003,
respectively.  The  Partnership  had a payable to  Redwood  Mortgage  Corp.  for
servicing  fees of  $489,000  and  $638,000  at  December  31,  2005  and  2004,
respectively.

                                       41
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     4. General Partners and Related Parties (continued)

     Asset management fee

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations up to 1/32 of 1% of the "net asset value" (3/8 of
1% annual).  Asset  management  fees of $814,000,  $630,000  and  $468,000  were
incurred for 2005, 2004 and 2003, respectively.

     Other fees

     The  Partnership  Agreement  provides for other fees such as  reconveyance,
mortgage  assumption and mortgage  extension fees. Such fees are incurred by the
borrowers and are paid to the general partners.

     Operating expenses

     Redwood Mortgage Corp., a general partner, is reimbursed by the Partnership
for  all  operating  expenses  incurred  by it on  behalf  of  the  Partnership,
including without limitation,  out-of-pocket general and administration expenses
of the Partnership,  accounting and audit fees, legal fees and expenses, postage
and  preparation  of reports to limited  partners.  During 2005,  2004 and 2003,
operating expenses totaling $298,000, $307,000 and $290,000,  respectively, were
reimbursed to Redwood Mortgage Corp.

     Contributed capital

     The general  partners  jointly or severally are to contribute 1/10 of 1% of
limited  partners'  contributions  in cash  contributions  as proceeds  from the
offerings  are received from the limited  partners.  As of December 31, 2005 and
2004,  Gymno  Corporation,  a general  partner,  had capital in accordance  with
Section 4.02(a) of the Partnership Agreement.

     5. Real Estate Held for Sale

     The following  schedule  reflects the cost of the  properties  and recorded
reductions  to estimated  fair values,  including  estimated  costs to sell,  at
December 31, (in thousands):

                                              2005                2004
                                         --------------      -------------
       Costs of properties                 $    22,328         $   10,793
       Reduction in value                      (1,000)            (1,000)
                                         --------------      -------------

       Real estate held for sale, net      $    21,328         $    9,793
                                         ==============      =============

     Larkin

     During  2005,  the  Partnership  acquired  a  multi-unit  property  through
foreclosure.  At the time the  Partnership  took ownership of the property,  the
Partnership's  investment,  together  with three other  affiliate  partnerships,
totaled $10,595,000,  including accrued interest and advances. Upon acquisition,
the property was transferred via a statutory warranty deed to a new entity named
Larkin Street Property  Company,  LLC ("Larkin").  The Partnership owns a 72.50%
interest in the property  and the other three  affiliates  collectively  own the
remaining  27.50%.  No valuation  allowance  has been  established  against this
property as  management  is of the opinion that the property  will have adequate
equity to recover all  partnerships'  investments.  The assets,  liabilities and
operating  results  of  Larkin  have  been  consolidated  into the  accompanying
consolidated  financial statements of the Partnership.  As of December 31, 2005,
approximately $558,000 in costs related to the development of this property have
been  capitalized.  As of  December  31,  2005,  the  Partnership's  investment,
together with the other affiliated partnerships, totaled $11,153,000.

                                       42
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     5. Real Estate Held for Sale (continued)

     During  2005,  the  Partnership  acquired  land  through  a deed in lieu of
foreclosure.  At the time the  Partnership  took ownership of the property,  the
Partnership's  investment  totaled  $1,359,000  including  accrued  interest and
advances.  The property was subsequently  sold for a total of $1,542,000 and the
Partnership recognized a gain on sale of real estate in the amount of $183,000.

     In December 2004, the  Partnership  acquired land through a deed in lieu of
foreclosure.  At this  date  the  Partnership's  investment  totaled  $4,377,000
including accrued interest and advances. Management believes that the full value
of this  investment,  $4,505,000  at December 31, 2005,  will be recovered  from
eventual sale of the property based upon its current  estimate of the property's
fair value.

     In September  2004,  the  Partnership  acquired a single  family  residence
through a foreclosure  sale. At the time the  Partnership  took ownership of the
property,  the Partnership's  investment  totaled  $1,937,000  including accrued
interest and advances.  The borrower had begun a  substantial  renovation of the
property,  which was not completed at the time of  foreclosure.  The Partnership
has decided to pursue  development  of the property by processing  plans for the
creation of two condominium units on the property.  These plans will incorporate
the majority of the existing improvements  currently located on the property. At
December 31, 2005 and 2004, the Partnership's  total investment in this property
was $1,691,000 and $1,437,000, net of a valuation allowance of $500,000.

     Russian

     During 2002, a  single-family  residence  that secured a  Partnership  loan
totaling  $4,402,000,  including accrued interest and advances,  was transferred
via a  statutory  warranty  deed to a new entity  named  Russian  Hill  Property
Company, LLC ("Russian").  Russian was formed by the Partnership to complete the
development  and sale of the  property.  The assets,  liabilities  and operating
results of Russian have been  consolidated  into the  accompanying  consolidated
financial  statements  of  the  Partnership.  Costs  related  to  the  sale  and
development of this property were capitalized  during 2003.  Commencing  January
2004,  costs  related  to sales  and  maintenance  of the  property  were  being
expensed.  At December 31, 2005 and 2004, the Partnership's  total investment in
Russian was $3,979,000, net of a valuation allowance of $500,000.


     6. Income Taxes

     The following  reflects a reconciliation  of partners' capital reflected in
the consolidated  financial  statements to the tax basis of Partnership  capital
(in thousands):

                                                    2005               2004
                                               --------------     -------------

   Partners' capital per consolidated
     financial statements                        $   228,167        $  183,531
   Non-allocated syndication costs                     1,669             1,094
   Allowance for loan losses and
     real estate held for sale                         4,138             3,343
   Formation Loans receivable                         11,506             9,751
                                               --------------     -------------

   Partners' capital - tax basis                 $   245,480        $  197,719
                                               ==============     =============

     In 2005 and  2004,  approximately  45% and 46%,  respectively,  of  taxable
income was allocated to tax-exempt organizations (i.e., retirement plans).

                                       43
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     7. Bank Line of Credit

     The  Partnership  has a bank line of credit  in the  maximum  amount of the
lesser of (1)  $50,000,000,  (2)  one-third  of  partners'  capital,  or (3) the
borrowing  base as  defined  in the  agreement.  The line of credit  matures  on
November  15,  2007,  with  borrowings  at prime less  0.50% and  secured by the
Partnership's  loan  portfolio.  The outstanding  balances were  $32,000,000 and
$16,000,000 at December 31, 2005 and 2004,  respectively.  The interest rate was
6.75% at December 31, 2005 and 5.00% at December 31, 2004. The  Partnership  may
also be subject to a 0.5% fee on specified balances in the event the line is not
utilized.  The line of credit  requires the  Partnership  to comply with certain
financial  covenants.  The Partnership was in compliance with these covenants at
December 31, 2005 and 2004.


     8. Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
of financial instruments:

     (a) Cash and cash  equivalents.  The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) Secured loans  carrying  value was  $214,012,000  and  $171,745,000  at
December  31,  2005 and 2004,  respectively.  The fair  value of these  loans of
$215,102,000 and $173,067,000,  respectively, was estimated based upon projected
cash flows  discounted at the estimated  current interest rates at which similar
loans would be made.  The  applicable  amount of the  allowance  for loan losses
along  with  accrued  interest  and  advances  related  thereto  should  also be
considered in evaluating the fair value versus the carrying value.


     9. Non-Cash Transactions

     During 2005, the Partnership  foreclosed on, or acquired  property  through
deed in lieu of  foreclosure,  two properties (see Note 5), which resulted in an
increase in real estate held for sale and minority  interest of $11,954,000  and
$2,901,000,  respectively,  and a decrease in loans receivable, accrued interest
and advances of $8,361,000, $601,000 and $91,000, respectively.

     During 2004, the Partnership  foreclosed on, or acquired  property  through
deeds in lieu of foreclosure, four properties (see Note 5), which resulted in an
increase  in real estate  held for sale and  allowance  for real estate held for
sale  of  $6,315,000  and  $500,000,   respectively  and  a  decrease  in  loans
receivable,  accrued  interest,  advances,  and  allowance  for loan  losses  of
$4,422,000, $1,840,000, $53,000 and $500,000, respectively.

     During 2003, the Partnership  restructured  three loans that resulted in an
increase to secured loans  receivable  of  $2,989,000  and a decrease to accrued
interest and advances of $2,626,000 and $363,000, respectively.

     During 2003, a previously secured loan became unsecured which resulted in a
decrease to secured  loans  receivable  of $34,000 and an increase to  unsecured
loans of $34,000.

                                       44
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     10. Asset Concentrations and Characteristics

     Most loans are secured by recorded deeds of trust. At December 31, 2005 and
2004,  there were 98 and 75 secured loans  outstanding,  respectively,  with the
following characteristics (dollars in thousands):
<TABLE>
<S>           <C>                                                       <C>               <C>
                                                                        2005              2004
                                                                   ---------------    --------------

              Number of secured loans outstanding                              98                75
              Total secured loans outstanding                        $    214,012       $   171,745

              Average secured loan outstanding                       $      2,184       $     2,289
              Average secured loan as percent of total
                secured loans                                               1.02%             1.33%
              Average secured loan as percent
                of partners' capital                                         .96%             1.25%

              Largest secured loan outstanding                       $     11,927       $    12,045
              Largest secured loan as percent of total
                secured loans                                               5.57%             7.01%
              Largest secured loan as percent
                of partners' capital                                        5.23%             6.56%
              Largest secured loan as percent of total assets               4.51%             6.00%


              Number of counties where security
                is located (all California)                                    24                17
              Largest percentage of secured loans
                in one county                                              25.36%            20.48%
              Average secured loan to appraised value
                of security based on appraised values and
                prior liens at time loan was consummated                   65.03%            56.94%

              Number of secured loans in foreclosure status                     1                 6
              Amount of secured loans in foreclosure                 $      3,600       $    14,682
</TABLE>






                                       45
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     10. Asset Concentrations and Characteristics (continued)

     The following  secured loan  categories  were held at December 31, 2005 and
2004 (in thousands):
<TABLE>
<S>           <C>                                                    <C>                 <C>
                                                                     2005                2004
                                                                ---------------     ---------------
              First trust deeds                                   $    135,945        $    115,082
              Second trust deeds                                        73,138              50,282
              Third trust deeds                                          4,929               6,381
                                                                ---------------     ---------------
                  Total loans                                          214,012             171,745
              Prior liens due other lenders at time of loan            224,573              99,140
                                                                ---------------     ---------------

                  Total debt                                      $    438,585        $    270,885
                                                                ===============     ===============

              Appraised property value at time of loan            $    674,436        $    475,710

              Average secured loan to appraised value
                of security based on appraised values and
                prior liens at time loan was consummated                65.03%              56.94%

              Secured loans by type of property
                  Single family (1-4 units)                       $    116,945        $     84,359
                  Apartments                                            19,209              30,981
                  Commercial                                            65,167              54,670
                  Land                                                  12,691               1,735
                                                                ---------------     ---------------

                                                                  $    214,012        $    171,745
                                                                ===============     ===============
</TABLE>

     The  interest  rates on the loans range from 8.0% to 13.0% at December  31,
2005 and 8.50% to 13.25% at December 31, 2004.

     Scheduled  maturity  dates of secured  loans as of December 31, 2005 are as
follows (in thousands):

                       Year Ending December 31,
                   --------------------------------

                              2006                      $    70,217
                              2007                           89,556
                              2008                           27,132
                              2009                            5,926
                              2010                           20,202
                           Thereafter                           979
                                                      --------------

                                                        $   214,012
                                                      ==============


                                       46
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     10. Asset Concentrations and Characteristics (continued)

     The scheduled maturities for 2006 include eight loans totaling $26,075,000,
and  representing  12.18% of the portfolio,  which are past maturity at December
31,  2005.  Interest  payments  on five of these loans were  delinquent  and are
included in the total of loans 90 days or more  delinquent  presented in Note 2.
Occasionally,  the Partnership allows borrowers to continue to make the payments
on debt past maturity for periods of time.  Of these eight past maturity  loans,
the Partnership has begun foreclosure proceedings by filing a notice of default,
on one with an aggregate principal balance totaling $3,600,000.

     Cash deposits at December 31, 2005,  exceeded FDIC insurance  limits (up to
$100,000 per bank) by approximately $29,461,000.


     11. Commitments and Contingencies

     Construction / rehabilitation loans

     The Partnership makes construction and  rehabilitation  loans which are not
fully disbursed at loan inception. The Partnership has approved the borrowers up
to a maximum loan balance;  however,  disbursements are made periodically during
completion  phases of the construction or  rehabilitation or at such other times
as  required  under  the loan  documents.  At  December  31,  2005,  there  were
$13,537,000 of  undisbursed  loan funds which will be funded by a combination of
borrower  monthly  mortgage  payments,  line of  credit  draws,  retirements  of
principal on current loans, cash and capital  contributions from investors.  The
Partnership  does not maintain a separate  cash reserve to hold the  undisbursed
obligations, which are intended to be funded.

     Workout agreements

     The  Partnership has negotiated  various workout  agreements with borrowers
whose loans are past  maturity or who are  delinquent  in making  payments.  The
Partnership is not obligated to fund  additional  money as of December 31, 2005.
There is one loan totaling $788,000 under a workout agreement as of December 31,
2005.

     Legal proceedings

     The  Partnership is involved in various legal actions arising in the normal
course of business.  In the opinion of management,  such matters will not have a
material effect upon the financial position of the Partnership.

                                       47
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Notes to Consolidated Financial Statements
                        December 31, 2005, 2004 and 2003


     12. Selected Financial Information (Unaudited)
<TABLE>
<S> <C>                                               <C>            <C>              <C>           <C>             <C>
                                                                        Calendar Quarter
                                                     (in thousands, except for per limited partner amounts)
                                                   -----------------------------------------------------------
                                                      First          Second           Third         Fourth          Annual
                                                   ------------    ------------    ------------   ------------    ------------
    Revenues
        2005                                        $    4,525      $    4,498      $    5,099     $    6,066      $   20,188
        2004                                        $    3,850      $    3,785      $    4,504     $    4,994      $   17,133

    Expenses
        2005                                        $      981      $      802      $    1,144     $    1,893      $    4,820
        2004                                        $    1,117      $      907      $    1,418     $    1,559      $    5,001

    Net income allocated to general partners
        2005                                        $       35      $       37      $       40     $       42      $      154
        2004                                        $       27      $       29      $       31     $       34      $      121

    Net income allocated to limited partners
        2005                                        $    3,509      $    3,659      $    3,915     $    4,131      $   15,214
        2004                                        $    2,706      $    2,849      $    3,055     $    3,401      $   12,011
                                                   ------------    ------------    ------------   ------------    ------------

    Net income per $1,000 invested
      where income is
          Compounded
            2005                                    $       17      $       17      $       17     $       19      $       70
            2004                                    $       18      $       18      $       18     $       18      $       72

          Withdrawn
            2005                                    $       17      $       17      $       17     $       17      $       68
            2004                                    $       18      $       17      $       17     $       18      $       70
</TABLE>


     13. Subsequent Events

     Subsequent to December 31, 2005 and through March 3, 2006, the  Partnership
has received  $6,777,000 of new investor money for the current  offering and had
admitted  $6,571,000 of partners in applicant status into the  Partnership.  The
admitted amount includes $776,000 that awaited admission at December 31, 2005.

                                       48
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                 Schedule II - Valuation and Qualifying Accounts
              For the Years Ended December 31, 2003, 2004 and 2005
                                 (in thousands)
<TABLE>
<S>             <C>                          <C>         <C>                    <C>                    <C>                <C>
                                                                         C
                                             B                        Additions
                                         Balance at      ------------------------------------                             E
                A                        Beginning       Charged to Costs       Charged to             D              Balance at
           Description                   of Period        and Expenses         Other Accounts     Deductions         End of Period
-----------------------------------    --------------    ----------------     ---------------    --------------     ---------------

Year Ended December 31, 2003

Deducted from asset accounts

Allowance for loan losses                $     3,021       $          782       $          -       $   (1,154) (a)    $     2,649

Cumulative write-down of
 real estate held for sale (REO)                 500                    -                  -                 -                 500
                                       --------------    -----------------    ---------------    --------------     ---------------
                                         $     3,521       $          782       $          -       $   (1,154) (a)    $     3,149
                                       ==============    =================    ===============    ==============     ===============

Year Ended December 31, 2004

Deducted from asset accounts

Allowance for loan losses                $     2,649       $        1,146       $      (500)       $     (952) (a)    $     2,343

Cumulative write-down of
 real estate held for sale (REO)                 500                    -                500                 -               1,000
                                       --------------    -----------------    ---------------    --------------     ---------------
                                         $     3,149       $        1,146       $          -       $     (952) (a)    $     3,343
                                       ==============    =================    ===============    ==============     ===============

Year Ended December 31, 2005

Deducted from asset accounts

Allowance for loan losses                $     2,343       $          855       $          -       $      (60) (a)    $     3,138

Cumulative write-down of
 real estate held for sale (REO)               1,000                    -                  -                 -               1,000
                                       --------------    -----------------    ---------------    --------------     ---------------
                                         $     3,343       $          855       $          -       $      (60) (a)    $     4,138
                                       ==============    =================    ===============    ==============     ===============
</TABLE>

     Note (a) - Represents write-offs of loans.


                                       49
<PAGE>

                        REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Schedule IV - Mortgage Loans on Real Estate
                         Rule 12-29 Loans on Real Estate
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>            <C>        <C>            <C>          <C>          <C>             <C>         <C>        <C>          <C>
                                                                                               Col. H
                                                                                              Principal
                                                                   Col. F                       Amount
                                                                    Face           Col. G      of Loans
                          Col. C         Col. D                  Amount of       Carrying     Subject to  Col. I       Col. J
               Col. B      Final         Periodic     Col. E      Mortgage      Amount of     Delinquent   Type     California
Col. A        Interest   Maturity        Payment       Prior      Original       Mortgage     Principal     of      Geographic
Descrip.        Rate       Date           Terms        Liens       Amount       Investment   or Interest   Lien      Location
----------------------------------------------------------------------------------------------------------------------------------

Comm.          11.75%     12/01/09       $     3      $    -       $   148       $   109       $     -    1st        Yuba
Res.           12.00%     05/01/03            13           -         1,210         1,210         1,210    1st        Marin
Apts.          12.50%     11/15/10             4          53            39           321             -    2nd        Contra Costa
Comm.          12.00%     05/01/07             9       2,916           799           788           788    2nd        Santa Clara
Res.           12.00%     03/01/01            13           -         1,325         1,325         1,325    1st        Marin
Land           9.50%      02/01/07             8           -           987           986             -    1st        Santa Clara
Res.           10.00%     12/01/02             3           -           318           316           316    1st        San Mateo
Comm.          13.00%     11/1/06             44       8,100         4,550         4,072             -    2nd        Santa Clara
Comm.          10.50%     08/01/04            32           -         3,600         3,600         3,600    1st        Santa Clara
Res.           10.25%     06/01/06             2       1,647           263           215             -    2nd        Santa Clara
Res.           10.50%     09/01/07            11       1,468           805         1,184             -    3rd        Santa Clara
Res.           10.50%     10/01/05            16           -         1,781         1,781         1,781    1st        San Mateo
Comm.          10.50%     10/01/07             4           -           441           432             -    1st        San Mateo
Comm.          11.25%     12/01/07             9         718           900           784             -    1st & 3rd  El Dorado
Res.           10.00%     11/01/05            11         500         1,320         1,320         1,320    2nd        Napa
Comm.          10.00%     01/01/08            13           -         1,500         1,500             -    1st        Riverside
Res.           11.50%     12/01/05            98           -         7,700         9,857         9,857    1st        San Mateo
Comm.          10.00%     04/01/05            57           -         7,292         6,666         6,666    1st        Los Angeles
Comm.          12.00%     07/01/06            25           -         2,500         2,500             -    1st        Sacramento
Res.           11.00%     01/31/06            43           -         6,074         4,493             -    1st        Fresno
Apts.          9.50%      01/01/09             4           -           413           404             -    1st        San Joaquin
Res.           9.25%      12/01/08             1         376           130           128             -    2nd        Santa Clara
Res.           8.50%      01/01/06             8           -         1,070         1,052             -    1st        Placer
Comm.          9.50%      01/01/06            13           -         1,610         1,610             -    1st        Alameda
Res.           8.50%      10/01/10             4         190           500           493             -    2nd        Alameda
Res.           8.50%      02/02/09             1          42            85            84             -    3rd        San Mateo
Res.           8.50%      04/01/06             6       1,655           800           800             -    2nd        San Francisco
Res.           9.00%      05/01/09             3       2,400           335           335             -    2nd        San Francisco
Apts.          9.25%      06/01/06             7           -           881           881             -    1st        San Francisco
Apts.          9.25%      06/01/06             7           -           875           875             -    1st        San Francisco
Res.           9.25%      06/01/09             2           -           188           186             -    1st        San Joaquin
Comm.          9.00%      06/01/09             4       2,850           500           495             -    2nd        Santa Clara
Res.           8.50%      07/01/09             1           -           100            99             -    1st        San Mateo
Comm.          10.00%     06/01/07            39           -         4,650         4,650             -    1st        Marin
Res.           9.25%      07/01/09             6         716           690           684             -    2nd        San Mateo
Comm.          9.00%      08/01/09            12           -         2,000         1,600             -    1st        San Francisco
Comm.          9.50%      08/01/09            16           -         1,947         1,931             -    1st        Alameda
Res.           9.25%      10/01/07             3         764           385           385             -    2nd        San Francisco
</TABLE>

                                       50
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Schedule IV - Mortgage Loans on Real Estate
                         Rule 12-29 Loans on Real Estate
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>           <C>         <C>            <C>          <C>          <C>             <C>         <C>        <C>          <C>
                                                                                               Col. H
                                                                                              Principal
                                                                   Col. F                       Amount
                                                                    Face           Col. G      of Loans
                          Col. C         Col. D                  Amount of       Carrying     Subject to  Col. I       Col. J
               Col. B      Final         Periodic     Col. E      Mortgage      Amount of     Delinquent   Type     California
Col. A        Interest   Maturity        Payment       Prior      Original       Mortgage     Principal     of      Geographic
Descrip.        Rate       Date           Terms        Liens       Amount       Investment   or Interest   Lien      Location
----------------------------------------------------------------------------------------------------------------------------------
Res.           8.75%      09/01/06           85           -        11,685        11,684            -       1st      Contra Costa
Res.           10.00%     09/01/06           99      11,685        15,288        11,927            -       2nd      Contra Costa
Res.           9.25%      01/01/10            1         248            75            74            -       2nd      San Mateo
Apts.          11.00%     06/01/06            1         881           641           401            -       2nd      San Francisco
Apts.          11.00%     06/01/06            2         875         1,093         1,076            -       2nd      San Francisco
Comm.          9.50%      03/01/07           25           -         3,113         3,112            -       1st      San Francisco
Res.           8.50%      03/15/10           10       2,097           450           447            -       2nd      San Francisco
Comm.          10.00%     02/01/08           16       2,200         2,335         1,750            -       2nd      Amador
Comm.          9.00%      03/01/07           10       5,497         1,305         1,305            -       3rd      San Francisco
Comm.          9.00%      03/01/10            2         179           204           202            -       2nd      Monterey
Res.           9.00%      04/01/10            1         358            55            55            -       2nd      Santa Cruz
Res.           8.50%      05/01/07           37           -         5,200         2,561            -       1st      Solano
Res.           10.00%     05/01/07           28       5,200         4,016         3,394            -       2nd      Solano
Res.           9.25%      04/01/07           32           -         4,464         3,996            -       1st      Sutter
Apts.          9.25%      04/01/07           12           -         1,620         1,620            -       1st      San Francisco
Res.           9.25%      05/01/10            1         411           160           159            -       2nd      San Mateo
Res.           10.00%     12/01/07           59      36,000         8,165         6,884            -       2nd      San Francisco
Res.           9.00%      05/01/10            1         286            70            70            -       2nd      El Dorado
Res.           8.50%      10/01/10            2         379           325           324            -       3rd      Sonoma
Apts.          9.25%      05/01/07            8           -         1,040         1,040            -       1st      San Francisco
Apts.          8.50%      06/01/07           13           -         1,800         1,800            -       1st      Sacramento
Apts.          8.50%      06/01/07           11           -         1,500         1,500            -       1st      Sacramento
Comm.          8.50%      07/01/10           32       6,064         4,400         4,398            -       2nd      San Francisco
Comm.          8.00%      06/01/07           60           -         9,000         9,000            -       1st      Napa
Land           8.50%      06/01/10           56           -         9,000         7,689            -       1st      San Francisco
Apts.          9.25%      06/01/07           16           -         2,080         2,080            -       1st      San Francisco
Res.           9.25%      07/01/10            2           -           200           199            -       1st      Solano
Comm.          8.00%      07/01/07           37       5,731         5,341         5,341            -       2nd      Alameda
Res.           12.50%     07/01/08           39      19,700         4,250         3,653            -       2nd      San Mateo
Apts.          9.25%      07/01/07           17           -         2,200         2,200            -       1st      San Francisco
Res.           9.25%      07/01/07           12           -         1,560         1,560            -       1st      San Francisco
Apts.          9.25%      07/01/07           17           -         2,200         2,200            -       1st      San Francisco
Comm.          9.00%      08/01/15           13       9,500         1,000           979            -       2nd      San Francisco
Res.           8.50%      08/01/07           21           -         3,000         3,000            -       1st      Butte
Res.           10.00%     07/01/07           11       3,000         2,675         1,453            -       2nd      Butte
Apts.          11.00%     06/01/07            7       2,080         1,483           711            -       2nd      San Francisco
Res.           9.00%      08/01/10            1           -           140           140            -       1st      Ventura
Res.           10.00%     02/01/08           82      41,200        11,200         9,271            -       2nd      Santa Clara
</TABLE>

                                       51
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Schedule IV - Mortgage Loans on Real Estate
                         Rule 12-29 Loans on Real Estate
              For the Years Ended December 31, 2005, 2004 and 2003
                                 (in thousands)
<TABLE>
<S>            <C>        <C>            <C>           <C>         <C>             <C>         <C>        <C>          <C>
                                                                                               Col. H
                                                                                              Principal
                                                                   Col. F                       Amount
                                                                    Face           Col. G      of Loans
                          Col. C         Col. D                  Amount of       Carrying     Subject to  Col. I       Col. J
               Col. B      Final         Periodic     Col. E      Mortgage      Amount of     Delinquent   Type     California
Col. A        Interest   Maturity        Payment       Prior      Original       Mortgage     Principal     of      Geographic
Descrip.        Rate       Date           Terms        Liens       Amount       Investment   or Interest   Lien      Location
----------------------------------------------------------------------------------------------------------------------------------
Res.           8.50%      08/01/07          24            -         3,450         3,450           -         1st      Sacramento
Res.           10.00%     08/01/07          10        3,450         2,325         1,274           -         2nd      Sacramento
Res.           9.25%      09/01/10           1          260            71            71           -         2nd      San Mateo
Res.           9.25%      09/01/07          22            -         3,555         2,774           -         1st      San Joaquin
Comm.          9.50%      10/01/10          11          322         1,250         1,249           -         3rd      Alameda
Res.           9.25%      09/01/07           8            -         1,265           960           -         1st      San Joaquin
Res.           9.50%      03/01/07          23            -         3,040         2,895           -         1st      San Francisco
Res.           11.00%     05/01/08          31       18,744         4,080         3,229           -         2nd      Santa Clara
Land           9.50%      10/01/07           4            -           488           447           -         1st      Santa Clara
Land           10.00%     10/01/07          30            -         3,795         3,568           -         1st      San Francisco
Comm.          9.50%      10/01/10          37            -         4,200         4,193           -         1st      Alameda
Apts.          9.25%      04/01/07           8            -         1,050         1,050           -         1st      San Francisco
Res.           9.25%      05/01/07           8            -         1,031         1,031           -         1st      San Francisco
Res.           10.00%     11/01/07          20       11,500         2,564         2,335           -         2nd      Contra Costa
Res.           8.50%      11/01/10           1           99           120           120           -         2nd      San Mateo
Apts.          9.25%      05/01/07           8            -         1,050         1,050           -         1st      San Francisco
Res.           8.50%      11/01/06          18            -         2,555         2,555           -         1st      San Mateo
Res.           12.00%     12/01/07          12        3,797         1,265         1,114           -         2nd      San Diego
Res.           10.50%     12/01/07           6        2,811           740           740           -         2nd      Placer
Comm.          9.50%      12/01/07          23            -         2,900         2,900           -         1st      San Francisco
Res.           8.75%      01/01/08          41            -         5,625         5,625           -         1st      Alameda
Res.           10.00%     01/01/08          15        5,625         4,500         1,976           -         2nd      Alameda
                                                -----------------------------------------------------
Total                                             $ 224,573     $ 235,963     $ 214,012   $  26,863
                                                =====================================================
</TABLE>

                                       52
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   Schedule IV - Mortgage Loans on Real Estate
                   Rule 12-29 Loans on Real Estate (continued)
                                 (in thousands)


     Reconciliation of carrying amount (cost) of loans at close of periods

                                               Year ended December 31,
                                -----------------------------------------------
                                    2005             2004             2003
                                -------------    -------------    -------------
Balance at beginning of year      $  171,745       $  147,174       $   83,650

Additions during period
   New loans                         169,460           81,579           96,820
   Other                                   -                -            2,989
                                -------------    -------------    -------------
     Total additions                 169,460           81,579           99,809
                                -------------    -------------    -------------

Deductions during period
   Collections of principal          118,772           52,359           35,097
   Foreclosures                        8,361            4,422                -
   Cost of loans sold                      -                -                -
   Amortization of premium                 -                -                -
   Other                                  60              227            1,188
                                -------------    -------------    -------------
     Total deductions                127,193           57,008           36,285
                                -------------    -------------    -------------
Balance at close of year          $  214,012       $  171,745       $  147,174
                                =============    =============    =============



                                       53
<PAGE>

     Item 9 - Changes in and  Disagreements  with  Accountants on Accounting and
Financial Disclosure

     There were no disagreements with the partnership's  independent  registered
public accounting firm during the years ended December 31, 2005 and 2004.


     Item 9a. - Controls and Procedures

     The partnership  carried out an evaluation,  under the supervision and with
the participation of the general partners of the effectiveness of the design and
operation of the partnership's  disclosure controls and procedures as of the end
of the period  covered by this report  pursuant to Rule 13a-15 of the Securities
Exchange  Act of 1934,  as  amended.  Based upon that  evaluation,  the  general
partners  concluded that the  partnership's  disclosure  controls and procedures
were effective in timely alerting the general  partners to material  information
relating to the  Partnership  that is  required  to be included in our  periodic
filings with the Securities and Exchange Commission.

     There were no significant  changes in the  partnership's  internal  control
over financial  reporting  during the  partnership's  fourth fiscal quarter that
have materially affected,  or are likely to materially affect, the partnership's
internal control over financial reporting.


     Item 9b. - Other Information

     None


                                    Part III


     Item 10 - Directors and Executive Officers of the Registrant

     The partnership has no Officers or Directors. Rather, the activities of the
partnership are managed by three general partners, one of whom is an individual,
Michael R. Burwell.  The other two general  partners are Gymno  Corporation  and
Redwood  Mortgage  Corp.  Both are California  corporations,  formed in 1986 and
1978,  respectively.  Mr.  Burwell  is one  of the  two  shareholders  of  Gymno
Corporation,  a  California  corporation,  on an equal  (50-50)  basis.  Redwood
Mortgage  Corp.  is a  subsidiary  of The Redwood  Group Ltd.,  whose  principal
stockholders are the Burwell Trusts,  the other shareholder of Gymno Corporation
and Michael R. Burwell.  Michael R. Burwell has a controlling  interest in these
companies through his stock ownership or as trustee of the Burwell trusts.

     The General Partners.

     Michael R.  Burwell.  Michael R. Burwell,  age 49,  General  Partner,  past
member  of  Board  of  Trustees  and  Treasurer,   Mortgage  Brokers   Institute
(1984-1986);  President,  Director,  Chief Financial  Officer,  Redwood Mortgage
Corp.  (1979-present);  Director,  Secretary  and  Treasurer  A  &  B  Financial
Services, Inc. (1980-present);  President, Director, Chief Financial Officer and
Secretary (since 1986) of Gymno Corporation;  President, Director, Secretary and
Treasurer of The Redwood Group, Ltd. (1979-present).  Mr. Burwell is licensed as
a real estate sales person.

     Gymno  Corporation.  Gymno  Corporation,  General Partner,  is a California
corporation  formed in 1986 for the  purpose  of acting as a general  partner of
this  partnership  and of other limited  partnerships  formed by the  individual
general partners. The shares in Gymno Corporation are held equally by Michael R.
Burwell and the Burwell  trusts.  Michael R.  Burwell is a director of Gymno and
the director position previously held by D. Russell Burwell is currently vacant.
Michael R. Burwell is its  President,  Chief  Financial  Officer and  Secretary.
Michael R. Burwell has a controlling  interest in this company through his stock
ownership or as trustee of the Burwell trusts.


                                       54
<PAGE>

     Redwood  Mortgage  Corp.  Redwood  Mortgage Corp. is a licensed real estate
broker  incorporated  in 1978 under the laws of the State of California,  and is
engaged  primarily in the business of arranging  and servicing  mortgage  loans.
Redwood  Mortgage  Corp.  will act as the loan  broker  and  servicing  agent in
connection  with  loans,  as it has done on  behalf  of  several  other  limited
partnerships formed by the general partners.

     Financial Oversight by General Partners.

     The partnership  does not have a board of directors or an audit  committee.
Accordingly,  the general  partners  serve the  equivalent  function of an audit
committee  for,  among  other  things,  the  following  purposes:   appointment,
compensation,  review  and  oversight  of the  work  of our  independent  public
accountants,  and  establishing  the  enforcing of the Code of Ethics.  However,
since the partnership  does not have an audit committee and the general partners
are not independent of the partnership,  the partnership does not have an "audit
committee financial expert."

     Code of Ethics.

     The  general  partners  have  adopted  a Code of Ethics  applicable  to the
general partners and to any agents, employees or independent contractors engaged
by the  general  partners  to perform the  functions  of a  principal  financial
officer, principal accounting officer or controller of the partnership,  if any.
You may obtain a copy of this Code of Ethics,  without  charge,  upon request by
calling our Investor Services Department at (650) 365-5341.




                                       55
<PAGE>

     Item 11 - Executive Compensation


       COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     As  indicated  above  in  Item  10,  the  partnership  has no  Officers  or
Directors. The partnership is managed by the general partners. There are certain
fees and other items paid to management and related parties.

     A more  complete  description  of management  compensation  is found in the
prospectus (S-11) dated August 4, 2005, page 6, 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, 2005. All
such compensation is in compliance with the guidelines and limitations set forth
in the partnership agreement.
<TABLE>
<S> <C>                                       <C>                                                        <C>
    Entity Receiving Compensation             Description of Compensation and Services Rendered          Amount
    ---------------------------------------------------------------------------------------------------------------
    I. Redwood Mortgage Corp.               Mortgage Servicing Fee for servicing loans..................$1,736,000
          (General Partner)

    General Partners &/or Affiliates        Asset Management Fee for managing assets......................$814,000

    General Partners                        1% interest in profits........................................$154,000
                                            Less allocation of syndication costs............................$3,000
                                                                                                     --------------
                                                                                                          $151,000

    General Partners &/or Affiliates        Portion of early withdrawal penalties applied to
                                            reduce Formation Loan..........................................$45,000


     II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES  RELATED TO THE GENERAL  PARTNERS  DURING THE YEAR ENDED  DECEMBER 31,
2005 (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)

    Redwood Mortgage Corp.                Mortgage Brokerage Commissions for services in
                                          connection with the review, selection, evaluation,
                                          negotiation, and extension of the loans paid by the
                                          borrowers and not by the partnership..........................$3,697,000

    Redwood Mortgage Corp.                Processing and Escrow Fees for services in borrowers
                                          connection with notary, document preparation, credit
                                          investigation, and escrow fees payable by the
                                          and not by the partnership.......................................$46,000

    Gymno Corporation                     Reconveyance Fee.................................................$21,211
</TABLE>


     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
CONSOLIDATED  STATEMENTS OF INCOME DURING THE YEAR ENDED DECEMBER 31, 2005 . . .
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $298,000


                                       56
<PAGE>

     Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The  general  partners  own a  combined  total  of 1%  of  the  partnership
including a 1% portion of income and losses.


     Item 13 - Certain Relationships and Related Transactions

     Refer  to  footnotes  3  and  4 of  the  Notes  to  Consolidated  Financial
Statements in Part II item 8, which describes related party fees and data.

     Also refer to the Prospectus dated August 4, 2005,  (incorporated herein by
reference) on page 6 "Compensation of General Partners and Affiliates".


     Item 14 - Principal Accountant Fees and Services

     Fees for services performed for the partnership by the principal accountant
for 2005 and 2004 are as follows:

     Audit Fees The aggregate  fees billed  during the years ended  December 31,
2005  and  2004  for  professional  services  rendered  for  the  audit  of  the
partnership's  annual financial  statements included in the partnership's Annual
Report  on  Form  10-K,   review  of  financial   statements   included  in  the
partnership's  Quarterly  Reports  on Form  10-Q and for  services  provided  in
connection with regulatory filings were $151,082 and $161,839, respectively.

     Audit  Related  Fees  There  were no fees  billed  during  the years  ended
December 31, 2005 and 2004 for audit-related services.

     Tax fees The  aggregate  fees billed for tax  services  for the years ended
December 31, 2005 and 2004,  were $11,506 and $9,027,  respectively.  These fees
relate to professional services rendered primarily for tax compliance.

     All Other  Fees  There were no other  fees  billed  during the years  ended
December 31, 2005 and 2004.

     All audit and non-audit  services are approved by the general partner prior
to the accountant being engaged by the partnership.


                                       57
<PAGE>

                                     Part IV


     Item 15 - Exhibits, Financial Statements and Schedules

     A. Documents filed as part of this report are incorporated:

     1. In Part II, Item 8 under A - Consolidated Financial Statements.

     2. The Consolidated  Financial  Statement Schedules are listed in Part II -
        Item 8 under B - Consolidated 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
       31.1          Certification of General Partner pursuant to Section 302
                     of the Sarbanes-Oxley Act of 2002
       31.2          Certification of General Partner pursuant to Section 302
                     of the Sarbanes-Oxley Act of 2002
       31.3          Certification of General Partner pursuant to Section 302
                     of the Sarbanes-Oxley Act of 2002
       32.1          Certification of General Partner pursuant to Section 906
                     of the Sarbanes-Oxley Act of 2002
       32.2          Certification of General Partner pursuant to Section 906
                     of the Sarbanes-Oxley Act of 2002
       32.3          Certification of General Partner pursuant to Section 906
                     of the Sarbanes-Oxley Act of 2002

     All of the above exhibits,  other than exhibit 31.1, 31.2, 31.3, 32.1, 32.2
and 32.3,  were previously  filed as the exhibits to  Registrant's  Registration
Statement  on  Form  S-11  (Registration  No.  333-106900  and  incorporated  by
reference herein).

     B. See A (3) above.

     C. See A (2) above.  Additional  reference is made to the prospectus (filed
        as part of the S-11 registration statement) dated August 4, 2005,
        supplement No. 1 dated March 15, 2006 (post effective  amendment No. 1
        to the S-11 registration statement), for  financial  data  related  to
        Gymno  Corporation,  and  Redwood Mortgage Corp., the Corporate General
        Partners.

                                       58
<PAGE>

                                   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 30th day of March,
2006.


REDWOOD MORTGAGE INVESTORS VIII


By:       /S/ Michael R. Burwell
          --------------------------------------------
          Michael R. Burwell, General Partner


By:       Gymno Corporation, General Partner


          By:     /S/ Michael R. Burwell
                  -------------------------------------------
                  Michael R. Burwell, President, Secretary,
                  and Principal Financial Officer



By:       Redwood Mortgage Corp.


          By:     /S/ Michael R. Burwell
                  -------------------------------------------
                  Michael R. Burwell, President,
                  Secretary/Treasurer


                                       59
<PAGE>

     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 30th day of March, 2006.


      Signature                        Title                        Date



/S/ Michael R. Burwell
-----------------------
Michael R. Burwell                 General Partner             March 30, 2006



/S/ Michael R. Burwell
-----------------------
Michael R. Burwell       President of Gymno Corporation,       March 30, 2006
                         (Principal Executive Officer);
                         Director of Gymno Corporation
                           Secretary/Treasurer of Gymno
                         Corporation (Principal Financial
                              and Accounting Officer);




/S/ Michael R. Burwell
-----------------------
Michael R. Burwell       President, Secretary/Treasurer of      March 30, 2006
                         Redwood Mortgage Corp. (Principal
                             Financial and Accounting
                                    Officer);
                         Director of Redwood Mortgage Corp.


                                       60
<PAGE>
                                                                  Exhibit 31.1

                          GENERAL PARTNER CERTIFICATION


     I, Michael R. Burwell, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     (c)  disclosed in this report any change in the  Registrant's  control over
financial  reporting that occurred  during the  Registrant's  most recent fiscal
quarter (the Registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected,  or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the Registrant's  auditors and the audit committee of the Registrant's  board of
directors (or persons performing the equivalent functions):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial information; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, General Partner
March 30, 2006

                                       61
<PAGE>
                                                                  Exhibit 31.2


               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner of the partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     (c)  disclosed in this report any change in the  Registrant's  control over
financial  reporting that occurred  during the  Registrant's  most recent fiscal
quarter (the Registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected,  or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the Registrant's  auditors and the audit committee of the Registrant's  board of
directors (or persons performing the equivalent functions):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial information; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, President, and
Chief Financial Officer of Gymno
Corporation, General Partner
March 30, 2006


                                       62
<PAGE>
                                                                   Exhibit 31.3


                            PRESIDENT'S CERTIFICATION


     I, Michael R. Burwell,  president of Redwood Mortgage Corporation,  General
Partner, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation, and

     (c)  disclosed in this report any change in the  Registrant's  control over
financial  reporting that occurred  during the  Registrant's  most recent fiscal
quarter (the Registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected,  or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the Registrant's  auditors and the audit committee of the Registrant's  board of
directors (or persons performing the equivalent functions):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial information; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
---------------------------
Michael R. Burwell, President,
Redwood Mortgage Corporation,
General Partner
March 30, 2006


                                       63
<PAGE>
                                                                   Exhibit 32.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2005 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley  Act of 2002,  I,  Michael  R.  Burwell,  General  Partner of the
partnership, certify that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership at the dates and for the periods indicated.

     This Certification has not been, and shall not be deemed,  "filed" with the
Securities and Exchange Commission.





/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, General Partner
March 30, 2006


                                       64
<PAGE>
                                                                  Exhibit 32.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2005 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President and Chief Financial
Officer of Gymno Corporation,  General Partner of the partnership,  certify that
to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership at the dates and for the periods indicated.

     This Certification has not been, and shall not be deemed,  "filed" with the
Securities and Exchange Commission.





/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, President, and
Chief Financial Officer of Gymno
Corporation, General Partner
March 30, 2006


                                       65
<PAGE>
                                                                  Exhibit 32.3


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2005 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell,  President,  Redwood Mortgage
Corporation, General Partner, certify that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership at the dates and for the periods indicated.

     This Certification has not been, and shall not be deemed,  "filed" with the
Securities and Exchange Commission.





/s/ Michael R. Burwell
---------------------------
Michael R. Burwell, President,
Redwood Mortgage Corporation,
General Partner
March 30, 2006




                                       66