U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K-SB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 1998 33-42406-A
FEDERAL MORTGAGE INVESTORS, LTD.
(a Florida limited partnership)
(Exact name of Registrant as specified in its Charter)
Florida 65-0287111
- ------------------------------ ----------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
1800 Second Street, Suite 780, Sarasota, Florida 34236
-------------------------------------------------------
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: 941-954-2328
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No.
Federal Mortgage Investors, Ltd. had total revenues of $28,279 for the year
ended December 31, 1998.
As of December 31, 1998, the Partnership has 1,552 Limited Partnership Units
outstanding. As indicated, the Partnership is a limited partnership organized
pursuant to Florida law.
PART I
Item 1. Description of Business
FEDERAL MORTGAGE INVESTORS, LTD. (the Partnership) is a limited partnership
which has been organized pursuant to the Florida Revised Uniform Limited
Partnership Law. The initial certificate legally creating the Partnership
was filed in July, 1991 by the General Partners of the Partnership, Guy S.
Della Penna (Della Penna) and Capital Mortgage Management, Inc.
(Capital Mortgage), a corporation wholly-owned by Della Penna.
The lawsuit that the Partnership entered into in July 1995 is pending. The
attorney who represented the Partnership in the mediation in 1996, commenced
litigation in 1997 to recover attorney's fees from the Partnership that the
Partnership does not believe he is entitled to receive.
This litigation revolves around the modification of the original contingency
agreement which would have greatly reduced the percentage for the payment of
attorney's fees. The Partnership is defending the claim to recover funds
previously paid. The litigation is pending as of January 31, 1999.
The purpose of Federal Mortgage Investors, Ltd. (the Partnership) is to acquire
and deal in mortgage notes secured by first liens on real estate and to acquire
insured instruments of deposits and/or debt securities issued by the United
States and instrumentalities thereof. Purchases of the mortgage notes,
instruments of deposits and debt securities are made in accordance with
policies set forth in the limited partnership agreement. However, during mid to
late fiscal 1996, management evaluated the costs associated with servicing
individual residential mortgage notes, the delinquency rate and factors
contributing to delinquencies, and the annualized return on investments.
Management has taken steps to cut expenses and find viable areas of revenues
and alternative sources of capital. With increasing the revenue stream as a
primary objective, interim lending was considered a good relatively
short-term investment alternative and such had minimal costs associated with
it.
The Partnership encounters competition in its efforts to acquire acceptable
mortgage loans for its Portfolio. Numerous investment entities presently
exist, including affiliates which are in the continuous business of acquiring
residential real estate loans from the sources intended to be utilized by the
Partnership. The basis of this competition in Portfolio loan acquisition is
related to the ability of the Partnership to thoroughly identify sources of
loan purchases, the ability of the Partnership to rapidly and effectively
evaluate mortgage loan acquisition candidates and the price that the
Partnership is able and willing to pay or broker for acceptable residential
mortgage loans within its Portfolio Acquisition Policy.
The Partnership has no employees at December 31, 1998.
Item 2. Properties
Management continued its review and cleanup of the portfolio during all of
fiscal 1997. At December 31, 1998, the Partnership did not hold any
properties available for sale.
Item 3. Legal Proceedings
LAWSUIT
The Partnership entered into a lawsuit in July 1995, regarding the purchase of
nineteen first lien residential mortgage notes with an unpaid principal balance
of approximately $1,529,000. The Partnership purchased these mortgage notes
for approximately $1,193,000 in July 1993. The Partnership alleges that the
individuals (one a former officer of the Corporate General Partner) entered
into a conspiracy to obtain mortgages for the Partnership which were worth
considerably less than described. On October 7, 1996, the Partnership
entered into a Mediation Settlement Agreement with the defendants. This
settlement calls for the defendants to purchase mortgage notes from the
Partnership with an average "spread" between the Partnership's cost and
selling price of 400 basis points (4%).
The Settlement Agreement provides for the Partnership to earn from this
"spread" on mortgages sold to defendants a sum of $977,000. Other general
provisions of the settlement include, but are not limited to the following:
1. The Partnership must provide the mortgage notes to the defendants in minimum
blocks of $250,000 of outstanding principal balance.
2. Each mortgage shall be a fixed rate mortgage with a minimum ten (10%)
interest rate and a maximum 360 month amortization.
3. Each mortgage must have a minimum of five percent (5%) verifiable cash down
payment and a loan-to-value ratio no greater than 95% of the fair market
value, measured in accordance with an appraisal by a national appraisal
firm using FNMA Standard No. 704 or better, conducted within one (1) year
of the purchase.
4. The property which is security for the mortgage must be located within the
Continental United States unless otherwise agreed by defendants.
5. Each mortgage must be on a Standard FMNA Form and all supporting documents.
6. The borrowers under each mortgage must meet acceptable credit standards.
The Partnership remains optimistic that revenues will be generated through
this settlement.
LAWSUIT
In the preceding, the Partnership was initially represented by Daniel Joy,
Esq., of the law firm of Joy & Moran n/k/a Law Office of Michael Moran,
pursuant to a written contingency contract which provided that Joy & Moran
would receive, for attorney's fees, a percentage of any recovery realized by
the Partnership from the litigation referenced above. Prior to the Mediation
of that litigation, Daniel Joy, Esq., was temporarily suspended from the
practice of law in the State of Florida and thus he could not represent the
Partnership in the Mediation. Michael Moran, Esq., who had been Mr. Joy's
partner, represented the Partnership at the Mediation. As a result of the
mediated Settlement Agreement providing for the Partnership to earn $977,000,
Mr. Moran and the Partnership agreed to modify the terms of the original
contingency agreement to significantly reduce the percentage for the payment
of attorney's fees. In or about 1997, Mr. Moran commenced litigation to
recover attorney's fees that the Partnership did not believe he was entitled
to receive. The Partnership defended the claim and asserted a Counterclaim
to recover certain monies previously paid to Mr. Moran concerning the
litigation referenced above. The litigation has been settled. Pursuant to
the Settlement Agreement, the terms of same are confidential. All parties
have fully performed their obligations pursuant to the terms of the
Settlement Agreement. The Partnership has no executory obligations.
LAWSUIT
In or about June, 1998, a limited partner in Federal Mortgage Investors, Ltd
("FMIL"), filed a lawsuit against Guy S. Della Penna alleging that Mr. Della
Penna breached an oral promise to repay his entire limited partnership
investment in FMIL on or before March 31, 1998. Although the complaint makes
no reference to the specific amount of the alleged claim, the plaintiff
invested $100,000 in FMIL and has to date recovered approximately fifty (50%)
percent of his initial investment through ordinary, pro rata, distributions
made by FMIL to its investors.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Partnership's Units and Related Partner Matters
As a limited partnership formed pursuant to the Florida Revised Uniform Limited
Partnership Law, the Partnership has no authorized class of Common Stock or
other equity securities. The Partnership had 1,552 non-assessable Units of
limited partnership interest outstanding at December 31, 1998.
In accordance with the terms of the Agreement, such Units may only be
transferred upon consent of the General Partners of the Partnership. As of
December 31, 1998, there has not been, nor is it expected that any active
secondary market will develop with respect to such Units.
Since no active trading market for the Units is expected to develop, Limited
Partners desiring to sell their Units may be required to individually
negotiate sale/purchase transactions with suitable Unit purchasers in
accordance with the Agreement requirements relating to the written consent of
the General Partners.
During the life of the Partnership, the Partnership, liquidated a total of
1,079 Units, as a result of investor death or hardships.
The Partnership acts as its own transfer agent and registrar with respect to
its Units.
Item 6. Selected Financial Data
The Partnership experienced a net (loss) of ($4,125), and($331,628) for the
years ended December 31, 1998, and 1997, respectively.
During the year ended December 31, 1998, the Partnership had operating revenues
of $28,279 an increase of $1,596 as compared to the same period in 1997. The
following is a table reflecting the increases and decreases in operating
income and expenses for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Operating revenue 1998 1997 Increase/
(decrease)
- ----------------- -------- ------- ----------
<S> <C> <C> <C>
Interest income $ --- $ 16,685 $ (16,685)
All other operating revenues 28,279 9,998 18,281
-------- -------- ----------
Total revenue $ 28,279 $ 26,683 $ 1,596
======== ======== ==========
Operating expenses
- ------------------
Legal and accounting 25,200 10,398 14,802
Losses on residential
mortgage loans and other
real estate owned --- 286,567 (286,567)
Management fees --- 396 (396)
Salaries and wages --- 24,575 (24,575)
All other operating expenses 7,204 36,375 (29,171)
-------- -------- ----------
Total expenses $ 32,404 $358,311 $(325,907)
======= ======== ==========
</TABLE>
Overall, both income and the related expenses decreased for the year ended
December 31, 1998, compared to the same period ended 1997.
The decrease is due to several factors which include the clean up of the
portfolio during fiscal 1997 and the lawsuit discussed in item 3.
During the year ended December 31, 1998, the Partnership had no mortgage notes
or other real estate for sale.
Item 7. Management's Discussion and Analysis of Financial Conditions and
results of Operation.
During fiscal 1998, the Partnership decreased the return of capital
distributions to the limited partners. There can be no assurance that the
Partnership will continue to make such distributions in the future.
Item 8. Financial Statements and Supplementary Data
Included with this Annual Report on Form 10-K SB as an Exhibit are the audited
financial statements specified in Instruction (a) to the Item 7.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
As a limited partnership formed pursuant to the Florida Revised Uniform Limited
Partnership Law, the Partnership does not have directors or officers. The day-
to-day business and affairs of the Partnership are managed and carried out by
the General Partners. Mr. Guy S. Della Penna serves in an individual capacity
as a General Partner of the Partnership and Capital Mortgage, a Florida
corporation, also serves as a Co-General Partner. Capital Mortgage is wholly-
owned by Mr. Della Penna. Mr. Della Penna serves as the sole director and
President of Capital Mortgage. Information concerning Mr. Della Penna is
presented below:
Mr. Della Penna, age 46, has been a resident of Sarasota, Florida since 1980
and is the founder and President of Capital Management Group, Inc.
Capital Management Group, Inc. was organized by Mr. Della Penna in 1989.
Under the auspices of Capital Management Group, Inc., Mr. Della Penna has
provided financial and tax consulting and advisory services to individuals
and corporate entities. Capital Management Group, Inc. also acts as general
agent for various insurance companies. Mr. Della Penna is a General
Securities Principal and Financial and Operations Principal pursuant to NASD
Rules. Additionally, at December 31, 1994, Mr. Della Penna is the majority
shareholder, director and officer of Executive Wealth Management Services,
Inc., the manager of the Unit offering. Mr. Della Penna has been active
in the financial industry for approximately 15 years. During the period
April 1980 to January 1986, Mr. Della Penna served as the Assistant to the
Chairman of the Board of Snelling & Snelling, Inc., as well as Assistant
Treasurer. Snelling & Snelling, Inc. is a franchisor of an employee
recruitment business. While with such firm, Mr. Della Penna also served as a
member of the Executive, Acquisition and Pension and Profit Sharing Committees.
Mr. Della Penna also served as the personal business manager and financial
advisor to the Snelling family and affiliated entities and in such capacity,
was responsible for cash management, tax and investment analysis and
commitments. The Snelling family are the principal shareholders of Snelling
& Snelling, Inc. During the period April, 1978 through February 1980, Mr.
Della Penna was an associated person of Lehman Brothers, New York, New
York, where he was involved in the structuring, documentation and marketing
of tax exempt financing issued by state and local governments. Mr. Della Penna
holds a Bachelor of Science degree in Business Administration from Ithaca
College, Ithaca, New York and received a Master of Business Administration
degree in Finance from the State University of New York, Albany, New York.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Securities
Name Annual Restricted Under- All Other
Principal Compen- Stock lying LTIP Compen-
And sation Award(s) Options Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- --------- ----- --------- ------- ------- ---------- --------- -------- --------
1998
1997 396
1996 26,077
1995 48,394
General
Partner 1994 61,019
Guy S.
Della Penna 1993 88,894
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1998, Mr. Della Penna owns eight Units.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership include an individual and a corporation
owned wholly by that individual.
For their services to the Partnership, the general partners are entitled to
receive an annual management fee that is equal to three percent (3%) of the
aggregate principal balance of the portfolio investments as defined by the
Partnership Agreement at December 31, plus one percent of the cash flow of
the Partnership as defined by the Partnership Agreement. In addition, the
management fee also includes one percent (1%) of the net income from capital
transactions.
Management fees for the years ended December 31, 1998 and 1997 are none and
$396, respectively. The Partnership received $13,889 and $9,998 for the years
ended December 31, 1998 and 1997, respectively, in servicing fees from an
affiliate Company in which the individual General Partner owns 100% of the
outstanding stock. This fee relates to the servicing of mortgage loans
included in the affiliate's portfolio.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Annual Report:
(1) The financial statements of the Partnership for the fiscal year ended
December 31, 1998, as examined by Bobbitt, Pittenger & Co., P.A., Certified
Public Accountants, is included as Exhibit 1 attached to this report.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FEDERAL MORTGAGE INVESTORS, LTD.
By CAPITAL MORTGAGE MANAGEMENT, INC.,
Co-General Partner
By Guy S. Della Penna
--------------------
Guy S. Della Penna, President
By Guy S. Della Penna
--------------------
Guy S. Della Penna, individually,
Co-General Partner
March, 1999
-----------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 109
<SECURITIES> 0
<RECEIVABLES> 10,159
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,268
<PP&E> 586
<DEPRECIATION> (482)
<TOTAL-ASSETS> 10,372
<CURRENT-LIABILITIES> 9,321
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,051
<TOTAL-LIABILITY-AND-EQUITY> 10,372
<SALES> 28,279
<TOTAL-REVENUES> 28,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,125)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FEDERAL MORTGAGE INVESTORS, LTD.
CONTENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
March 8, 1999
TO THE PARTNERS
Federal Mortgage Investors, Ltd.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying statements of financial condition of Federal
Mortgage Investors, Ltd., as of December 31, 1998 and 1997 and the related
statements of operations, changes in partners' capital, and cash flows for
the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Federal Mortgage Investors,
Ltd. at December 31, 1998 and 1997 and the results of its operations, changes
in partners' capital and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note I to the
financial statements, the Partnership has suffered recurring losses from
operations. Management's plans in regard to these matters are also described
in Note I. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Certified Public Accountants
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ -----
ASSETS
<S> <C> <C>
Cash $ 109 $ 7,565
Accounts receivable - related party 10,159 1,774
Equipment at cost, net of
accumulated depreciation 104 4,375
-------- --------
TOTAL ASSETS $10,372 $ 13,714
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Overdrafts $ 9,211 $
Accounts payable and other liabilities 110
-------- ---------
TOTAL LIABILITIES 9,321
Partners' capital 4,674 59,837
Prepaid management fees - affiliate (3,623) (46,123)
-------- --------
1,051 13,714
-------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 10,372 $ 13,714
======== =========
</TABLE>
See notes to financial statements.
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
REVENUE
Interest income - residential mortgage loans $ $ 7,574
Servicing fees 13,889 9,998
Interest income - other 9,111
Other income 724
Gain on sale of assets 13,666
--------- --------
28,279 26,683
--------- --------
EXPENSES
Amortization 178
Bank service charges 4,462
Commissions 5,667
Consulting 436 696
Depreciation 837 4,581
Fees and licenses 535 1,708
Legal and accounting 25,200 10,398
Loss on sale of residential mortgage loans
and other real estate owned 286,567
Management fees 396
Miscellaneous 411 1,730
Office 430 2,166
Rent 8,594
Salaries and wages 24,575
Taxes 93 5,285
Telephone 4,101
Travel 1,669
-------- --------
32,404 358,311
-------- --------
NET LOSS $ (4,125) $(331,628)
======== =========
</TABLE>
See notes to financial statements.
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
BALANCE,
at January 1, 1997 $ 722,452
REDEMPTION OF LIMITED PARTNERSHIP UNITS (176,000)
DISTRIBUTIONS (154,987)
NET LOSS (331,628)
PREPAID MANAGEMENT FEES - AFFILIATE (46,123)
----------
BALANCE,
at December 31, 1997 13,714
----------
DISTRIBUTIONS (51,038)
NET LOSS (4,125)
REPAYMENT OF MANAGEMENT FEES - AFFILIATE 33,100
RECLASS OF MANAGEMENT FEES - AFFILIATES TO
ACCOUNTS RECEIVABLE 9,400
----------
BALANCE,
at December 31, 1998 $ 1,051
==========
See notes to financial statements.
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (4,125) $(331,628)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 837 4,759
Gain on sale of assets (13,666)
Decrease (increase) in operating assets:
Accounts receivable - related party 1,015 (47,231)
Prepaid management fees 33,100 58,019
Portfolio of residential mortgage loans 441,798
Real estate owned and available for sale 301,011
Increase in operating liabilities:
Overdrafts 9,211
Accounts payable and other liabilities 110 (138,176)
--------- ---------
Total adjustments 30,607 620,180
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,482 288,552
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of furniture, fixtures and equipment 17,100
Receipt of proceeds of note
receivable - related party 50,000
--------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 17,100 50,000
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of limited partnership units (176,000)
Distributions to limited partners (51,038) (154,987)
---------- ---------
NET CASH USED BY FINANCING ACTIVITIES (51,038) (330,987)
(DECREASE) INCREASE IN CASH (7,456) 7,565
CASH, at beginning of year 7,565
---------- ---------
CASH, at end of year $ 109 $ 7,565
========== =========
Supplemental Disclosure:
No interest was paid in 1998 or 1997
</TABLE>
See notes to financial statements.
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A - ORGANIZATION
The purpose of Federal Mortgage Investors, Ltd. (the Partnership) is to place
and service mortgage loans secured by first liens on real estate, and to
acquire insured instruments of deposits and/or debt securities issued by the
United States Government and agencies thereof. Purchases of the mortgage
loans, instruments of deposits and debt securities are made in accordance
with policies set forth in the partnership agreement.
Profits and losses are allocated and cash distributions are made in accordance
with the partnership agreement.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Furniture, Fixtures and Equipment
Depreciation is provided for in amounts sufficient to allocate the cost of
assets to operations over the estimated useful lives using the straight-line
method.
Income Taxes
The financial statements include no provisions for federal or state income
taxes since the income or loss is reportable on the tax returns of the partners.
Statements of Cash Flows
For purposes of reporting cash flows, the Partnership considers cash and cash
equivalents as those amounts which are not subject to restrictions or
penalties and have an original maturity of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 financial statement presentation. Such
reclassifications had no effect on net loss as previously reported.
NOTE C - FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment at December 31, follows:
1998 1997
---- ----
Furniture and fixtures $ 311 $ 311
Equipment 275 22,733
----- -------
586 23,044
Less: accumulated depreciation (482) (18,669)
----- -------
$ 104 $ 4,375
===== =======
NOTE D - RELATED PARTY TRANSACTIONS
The general partners of the Partnership include an individual and a corporation
owned wholly by that individual. A registered securities broker-dealer, of
which a majority is owned by the individual general partner, conducted the
offering of partnership units for sale to the general public.
For their services to the Partnership, the general partners are entitled to
receive an annual management fee that is equal to three percent (3%) of the
aggregate principal balance of the portfolio investments (as defined by the
partnership agreement) at December 31, plus one percent (1%) of the cash flow
of the Partnership (as defined by the partnership agreement).
In addition, the management fee also includes one percent (1%) of the net
income from capital transactions. Management fees for 1997 were $396. There
was no management fee expense for the year ended December 31, 1998.
The Partnership received approximately $14,000 and $10,000 in servicing fees
for the years ended December 31, 1998 and 1997, respectively, from affiliated
companies in which the individual general partner owns 100% of the
outstanding stock. This fee relates to the servicing of mortgage loans
included in the affiliate's portfolio.
In 1998, the partnership sold equipment with a book value of $3,434 to an
affiliated company in which the individual general partner owns 100% of the
outstanding stock. The sales price was $17,100.
During the year ended December 31, 1997, the Partnership rented office space
from an affiliate for $8,594.
As of December 31, 1998 and 1997, the Partnership had a receivable from the
general partner in the amount of $13,023 and $46,123, respectively, which
consisted primarily of prepayment of management fees.
NOTE E - LIMITED PARTNERSHIP CAPITAL UNITS
During 1997, 176 partnership units were redeemed for $176,000. No partnership
units were redeemed in 1998.
As of December 31, 1998 and 1997, there were 1,552 partnership units issued and
outstanding.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE
WITH THE REQUIREMENTS OF SFAS NO. 107
The Partnership's financial instruments consist of all of its assets and
liabilities. The Partnership's management has determined that the fair
value of all of its financial instruments is equivalent to the carrying cost.
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership invests in various financial institutions whose deposits are
insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum
of $100,000. At December 31, 1998 and 1997, the Partnership had no deposits
in excess of FDIC insured limits.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Partnership entered into a lawsuit in July, 1995, regarding the purchase of
nineteen first lien residential mortgage notes which were worth considerably
less than represented. In 1996, the Partnership resolved the suit in an out
of court settlement and obtained a judgment totaling $977,000. Applicable
attorney fees are $150,000, of which $125,000 is unpaid at December 31, 1998.
The Partnership will be compensated by purchasing acceptable mortgages, as
defined in a mediation agreement, and selling these mortgages at a four
percentage point spread to the defendants. The parties shall each use their
best efforts to complete performance of payment within a forty-eight month
period ending October, 2000 unless extended by mutual agreement. As of
December 31, 1998 no securities had been purchased under this agreement.
NOTE I - GOING CONCERN
As shown in the accompanying financial statements, the Partnership incurred a
net loss of $4,125 during the year ended December 31, 1998, and partners'
capital totals $1,051. The ability of the Partnership to continue as a
going concern is dependent on obtaining additional capital and financing and
operating at a profitable level. The financial statements do not include any
adjustments that might be necessary if the Partnership is unable to continue
as a going concern.
