Note 3 - Managers and Other Related Parties

3 Months Ended

Mar. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 3 – MANAGERS AND OTHER RELATED PARTIES

The managers are allocated one percent of the profits and losses, which amounted to $3,501 and $2,018 for the three months ended March 31, 2015 and 2014, respectively.

Formation loan

Formation loan transactions are presented in the following table at March 31, 2015.

	Three months ended			Since Inception
Balance, January 1	$	1,255,600		$	—
Formation loan made		152,561			1,730,976
Unamortized discount on imputed interest		(17,944	)		(176,020	)
		1,390,217			1,554,956
Repayments received from RMC		(8,366	)		(326,558	)
Early withdrawal penalties applied		(260	)		(4,883	)
Formation loan, net		1,381,591			1,223,515
Unamortized discount on imputed interest		17,944			176,020
Balance, March 31	$	1,399,535		$	1,399,535
Subscription proceeds to date	$	24,613,235		$	24,613,235

The formation loan has been deducted from members’ capital in the balance sheets. As amounts are collected from RMC, the deduction from capital will be reduced. Interest has been imputed at the market rate of interest in effect at the end of each quarter for the new additions to the loan.

The future minimum payments on the formation loan are presented in the following table.

2015	$	125,560
2016		125,560
2017		125,560
2018		125,560
2019		125,560
Thereafter		771,735
Total	$	1,399,535

RMC is required to repay the formation loan. During the offering period, RMC is expected to repay annually, one tenth of the principal balance of the formation loan as of December 31 of the prior year. Upon completion of the offering, the formation loan is expected to be amortized over 10 years and repaid in 10 equal annual installments. If the managers are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven.

The following commissions and fees are paid by the borrowers.

- Brokerage commissions, loan originations

For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 2% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company. For the three months ended March 31, 2015 and 2014, these fees totaled $27,925 and $52,701, respectively.

- Other fees

RMC or Gymno will receive fees for processing, notary, document preparation, credit investigation, reconveyance, and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company. For the three months ended March 31, 2015 and 2014, these fees totaled $4,322 and $8,319, respectively.

The following fees are paid by the company to the managers.

- Loan administrative fees

RMC will receive a loan administrative fee in an amount up to 1% of the principal amount of each new loan originated or acquired on the company's behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees are payable by the company upon the closing or acquisition of each loan. For the three months ended March 31, 2015 and 2014, the loan administration fees paid by the company to RMC were $36,600 and $30,878, respectively.

- Mortgage servicing fees

RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of 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. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company. To enhance the earnings of the company, RMC, in its sole discretion, may elect to accept less than the maximum amount of the mortgage servicing fee. An increase or decrease in this fee within the limits set by the operating agreement directly impacts the yield to the members. Mortgage servicing fees incurred and paid were $12,160 and $9,013 for the three months ended March 31, 2015 and 2014, respectively. RMC did not waive any mortgage servicing fees during 2015 and 2014.

- Asset management fees

The managers are entitled to receive a monthly asset management fee for managing the company's portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt.

The managers, in their sole discretion, may elect to accept less than the maximum amount of the asset management fee. An increase or decrease in this fee within the limits set by the operating agreement directly impacts the yield to the members. RMC at its sole discretion, waived asset management fees during the three months ended 2015 and 2014, of $44,149 and $34,263, respectively. There is no assurance the managers will decrease or waive these fees in the future.

Asset management fees paid to the managers are presented in the following table for the three months ended March 31.

	Three months ended March 31,
	2015			2014
Maximum chargeable by the managers	$	44,149		$	34,263
Waived by the managers		(44,149	)		(34,263	)
Charged	$	—		$	—

Costs through RMC

RMC, a manager, per the operating agreement, may request reimbursement by the company for operating expenses incurred on behalf of the company, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to members, and out-of-pocket general and administration expenses. Certain costs (e.g. postage) can be allocated specifically to the company. Other costs are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. Operating expenses, for which reimbursement was requested, were $36,286 and $41,582, for the three months ended March 31, 2015 and 2014, respectively. All fees RMC was entitled to, and requested were reimbursed during the period.

In addition, the managers, in their sole discretion, may elect to reimburse the company for professional services (primarily audit and tax expense). An increase or decrease in reimbursements from the manager directly impact the yield to the members. For the three months ended March 31, 2015, RMC reimbursed the company for professional services of $33,531. No reimbursement for professional fees were made for the three months ending March 31, 2014. There is no assurance the managers will reimburse these expenses in the future.

Syndication costs 

Syndication costs (all expenses incurred in connection with the start-up of the company or ongoing offering of the units, including legal and accounting fees, printing, mailing, distribution costs, filing fees, reimbursements to participating broker-dealers for due diligence expenses, reimbursements for training and education meetings for associated persons of a FINRA member, marketing reallowances of up to 1% of gross offering proceeds [gross offering proceeds is sale of units, excluding DRIP and premium units]) up to 4.5% of the gross proceeds, are reimbursed to RMC until RMC is repaid in full, and then the company will pay any additional costs directly. The syndication costs are substantially front-ended, and RMC is reimbursed for these expenses quarterly up to 4.5% of the cumulative-to-date gross offering proceeds.

	2015			2014
Balance, January 1	$	953,271		$	754,491
Costs reimbursed to RMC (1)		124,679			31,912
Costs paid by the company		—			517
Early withdrawal penalties applied (3)		(201	)		—
Allocated to date (2)		—			—
Balance, March 31	$	1,077,749		$	786,920
Gross offering proceeds	$	23,954,735		$	17,487,119
Percent reimbursed to RMC		4.50	%		4.50	%

(1)	As of March 31, 2015, RMC had incurred approximately $3,175,000 of syndication costs for the company and approximately $2,098,000 remains to be reimbursed by the company to RMC. As of March 31, 2014, RMC had incurred approximately $2,772,000 of syndication costs for the company and approximately $1,985,000 remained to be reimbursed to RMC.
(2)	Allocation of the syndication costs to the individual investors’ capital accounts begins after the company’s fifth full fiscal year, in accordance with the terms of the company’s operating agreement and IRS Code Section 709.
(3)	Redemption penalties collected are applied to the next installment of principal due under the formation loan and to reduce the amount owed RMC for syndication costs. The amounts credited will be determined by the ratio between the initial amount of the formation loan and the total amount of offering costs incurred by the company.