-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TP0jG7TqmXzKQ4qe8ZJrBhA+IQLeSkHvoqJYNmsqRGaEWDqbPAW203GbktoLtqjD 8rXlnNIKuZGSh83C8NDkwQ== 0000841501-10-000006.txt : 20100517 0000841501-10-000006.hdr.sgml : 20100517 20100517144242 ACCESSION NUMBER: 0000841501-10-000006 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100517 DATE AS OF CHANGE: 20100517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND A CALIF LTD PARTNERSHIP CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17248 FILM NUMBER: 10837754 BUSINESS ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 BUSINESS PHONE: 925-280-5393 MAIL ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND DATE OF NAME CHANGE: 19940902 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND II DATE OF NAME CHANGE: 19920703 10-K/A 1 omif10ka2009.htm OMIF AMENDED 10K 2009 omif10ka2009.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------

FORM 10-K/A
AMENDMENT NO. 1

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

For the Fiscal Year Ended December 31, 2009

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 000-17248

OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact name of registrant as specified in its charter)

California
  
68-0023931
(State or other jurisdiction
  
(I.R.S. Employer Identification No.)
of incorporation or organization)
    
     
2221 Olympic Boulevard
    
Walnut Creek, California
  
94595
(Address of principal executive offices)
  
(Zip Code)
     
(925) 935-3840
    
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
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [   ]  No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [   ]  No [X]

 
1
 
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 [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [  ] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer [   ]
Accelerated filer [   ]
Non-accelerated filer [   ]
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [   ] No [X]

As of June 30, 2009, the aggregate value of limited partnership units held by non-affiliates was approximately $255,525,000.  This calculation is based on the capital account balances of the limited partners and excludes limited partnership units held by the general partner.

DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits filed with Registrant’s S-11 Registration Statement No. 333-150248 are incorporated by reference into Part IV.

 
2
 
 

EXPLANATORY NOTE
 
This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K (the “Annual Report”) of the Partnership for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission on March 31, 2010, is filed solely for the purpose of adding an unintentionally omitted row (listing “Allowance for Doubtful Receivable” and the amounts thereof for 2008 and 2009) in the (unaudited) table in Note 11 to the consolidated financial statements. This correction is clerical in nature and does not change the financial condition or results of operations of the Partnership. To assist readers of this Amendment No. 1, all consolidated financial statements and supplementary information are included herein.

Except as required to reflect the changes noted above, this Amendment No. 1 does not attempt to modify or update any other disclosures set forth in the Annual Report. Additionally, this Amendment No. 1 does not purport to provide a general update or discussion of any other developments of the Partnership subsequent to the original filing.  Accordingly, this Amendment No. 1 should be read in conjunction with the original filing of the Annual Report. The filing of this Amendment No. 1 shall not be deemed an admission that the original filing, when made, included any untrue statement of material fact or omitted to state a material fact necessary to make a statement not misleading.


TABLE OF CONTENTS

PART IV

Item 15.                      Exhibits and Consolidated Financial Statement Schedules                                                                                                  &# 160;                4

Consolidated Financial Statements and Supplementary Information                                                                                                                        &# 160;         F-1

Exhibit 31.1
Exhibit 31.2
Exhibit 32


 
3
 

 
PART IV - Item 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(a)
    
(1)
Financial Statements:
  
 
Reports of Independent Registered Public Accounting Firms
F-1
 
Consolidated Balance Sheets - December 31, 2009 and 2008
F-3
 
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
F-4
 
Consolidated Statements of Partners’ Capital for the years ended December 31, 2009 and 2008
F-5
 
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
F-6
 
Notes to Consolidated Financial Statements
F-7
     
(2)
Financial Statement Schedules:
  
 
Schedule IV- Mortgage Loans on Real Estate
F-32

(3)
   Exhibits:
 
 31.1
  Section 302 Certification of General Partner Chief Executive Officer
  
 
 31.2
  Section 302 Certification of General Partner Chief Financial Officer
  
 
 32
  Certification Pursuant to 18 U.S.C. Section 1350
  
   
(b)
   Exhibits:
  
 
 31.1
Section 302 Certification of General Partner Chief Executive Officer
  
 
 31.2
Section 302 Certification of General Partner Chief Financial Officer
  
 
 32
Certification Pursuant to 18 U.S.C. Section 1350
  
     
(c)
Financial Statement Schedules
  
 
Schedule IV - Mortgage Loans on Real Estate
  
   


 
4
 
 


SIGNATURES


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 capacities and on the dates indicated.


Dated:           May 17, 2010                                                   OWENS MORTGAGE INVESTMENT FUND,
                                                                                                  a California Limited Partnership


By:  OWENS FINANCIAL GROUP, INC., GENERAL PARTNER


Dated:           May 17, 2010                                          By:     /s/ William C. Owens
William C. Owens, Director, Chief Executive Officer and President


Dated:           May 17, 2010                                          By:     /s/ Bryan H. Draper
Bryan H. Draper, Director, Chief Financial Officer and Secretary


Dated:           May 17, 2010                                          By:     /s/ William E. Dutra
William E. Dutra, Director and Senior Vice President


Dated:           May 17, 2010                                          By:     /s/ Melina A. Platt
Melina A. Platt, Controller





 
5
 


 
Report of Independent Registered Public Accounting Firm
 


The Partners
Owens Mortgage Investment Fund

 
We have audited the accompanying consolidated balance sheet of Owens Mortgage Investment Fund (the “Partnership”) as of December 31, 2009, and the related consolidated statements of operations, partners’ capital and cash flows for the year 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. The financial statements of Owens Mortgage Investment Fund as of December 31, 2008 were audited by other auditors whose report dated April 1, 2009, expressed an unqualified opinion on those financial statements prior to the retrospective change in accounting for noncontrolling interests.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Owens Mortgage Investment Fund as of December 31, 2009 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
 
We have also audited the adjustments to the 2008 financial statements to retrospectively apply the change in accounting for noncontrolling interests, as described in Note 2 to the accompanying financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2008 financial statements of the Partnership other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2008 financial statements taken as a whole.
 
As described in Note 2, effective January 1, 2009 the Partnership changed its accounting and reporting for noncontrolling interests.
 
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  Schedule IV is presented for purposes of additional analysis and is not a required part of the basic financial statements.  This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
 
We were not engaged to examine management’s assertion about the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2009 included in the accompanying Form 10-K, and accordingly, we do not express an opinion thereon.
 
/s/ Perry-Smith LLP
 
San Francisco, California
March 31, 2010
 

 
F-1
 
 
 
Report of Independent Registered Public Accounting Firm
 


The Partners
Owens Mortgage Investment Fund

 
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting and disclosure for noncontrolling interest described in Note 2, the accompanying consolidated balance sheet of Owens Mortgage Investment Fund as of December 31, 2008 and the related consolidated statements of operations, partners’ capital and cash flows for the year then ended (the 2008 financial statements before the effects of the adjustments in accounting and disclosure for noncontrolling interest described in Note 2 are not presented herein). The 2008 consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit 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 the Company's internal control over financial reporting. Accordingly, we express no such opi nion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.
 
In our opinion, the 2008 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting and disclosure for noncontrolling interest described in Note 2, present fairly, in all material respects, the consolidated financial position of Owens Mortgage Investment Fund as of December 31, 2008 and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
 
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting and disclosure for noncontrolling interests described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Perry Smith LLP.
 
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  Schedule IV is presented for purposes of additional analysis and is not a required part of the basic financial statements.  This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
 
/s/ Moss Adams LLP
 
San Francisco, California
April 1, 2009
 

 
F-2
 

 

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Balance Sheets
December 31,

Assets
2009
  
2008
  
Cash and cash equivalents
$
7,530,272
  
$
2,800,123
  
Restricted cash
  
986,150
    
1,000,000
  
Certificates of deposit
  
1,715,591
    
2,229,601
  
Loans secured by trust deeds, net of allowance for losses of $28,392,938 in 2009 and $13,727,634 in 2008
  
183,390,822
    
248,508,567
  
Due from general partner
  
—
    
44,162
  
Interest and other receivables
  
4,644,320
    
3,643,774
  
Vehicles, equipment and furniture, net of accumulated depreciation of $268,309 in 2009 and $119,281 in 2008
  
626,543
    
566,640
  
Other assets, net of accumulated amortization of $599,050 in 2009 and $516,649 in 2008
  
560,259
    
432,898
  
Investment in limited liability company
  
2,141,980
    
2,176,883
  
Real estate held for sale
  
10,852,274
    
11,413,760
  
Real estate held for investment, net of accumulated depreciation of $4,388,466 in 2009 and $3,305,857 in 2008
  
69,036,262
    
47,014,812
  
             
 
$
281,484,473
  
$
319,831,220
  
Liabilities and Partners’ Capital
            
Liabilities:
            
Accrued distributions payable
$
51,407
  
$
562,740
  
Due to general partner
  
362,210
    
—
  
Accounts payable and accrued liabilities
  
2,135,011
    
1,703,917
  
Deferred gain
  
855,482
    
878,509
  
Note payable
  
10,500,000
    
10,500,000
  
Line of credit payable
  
23,695,102
    
32,914,000
  
             
Total liabilities
  
37,599,212
    
46,559,166
  
             
Partners’ capital (units subject to redemption):
            
General partner
  
2,512,399
    
2,781,730
  
Limited partners
            
Authorized 500,000,000 units outstanding in 2009 and 2008; 555,824,886 and 552,097,845 units issued and 241,534,226 and 270,617,699 units outstanding in 2009 and 2008, respectively
  
241,338,206
    
270,421,679
  
             
Total OMIF partners’ capital
  
243,850,605
    
273,203,409
  
             
Noncontrolling interest
  
34,656
    
68,645
  
Total partners’ capital
  
243,885,261
    
273,272,054
  
             
 
$
281,484,473
  
$
319,831,220
  

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

 
 
F-3
 

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Operations
Years Ended December 31,

 
2009
  
2008
             
Revenues:
            
Interest income on loans secured by trust deeds
$
14,645,787
  
$
24,553,214
  
Gain on sale of real estate and other assets, net
  
78,883
    
1,150,301
  
Rental and other income from real estate properties
  
6,024,958
    
5,087,705
  
Income from investment in limited liability company
  
141,097
    
47,680
  
Other income
  
49,059
    
219,855
  
             
Total revenues
  
20,939,784
    
31,058,755
  
             
Expenses:
            
Management fees to general partner
  
2,033,097
    
4,203,848
  
Servicing fees to general partner
  
612,704
    
685,905
  
Administrative
  
60,000
    
60,000
  
Legal and accounting
  
666,741
    
428,859
  
Rental and other expenses on real estate properties
  
6,835,648
    
4,952,920
  
Interest expense
  
2,582,156
    
2,113,897
  
Environmental remediation expense
  
—
    
762,035
  
Other
  
150,383
    
131,204
  
Bad debt expense
  
13,723
    
625
  
Provision for loan losses
  
24,474,853
    
9,537,384
  
    Losses on real estate properties
  
3,636,248
    
6,005,018
  
             
Total expenses
  
41,065,553
    
28,881,695
  
             
Net (loss) income
$
(20,125,769
)
$
2,177,060
  
             
Less: Net income attributable to noncontrolling interest
  
(10,336
)
  
(13,896
)
             
Net (loss) income attributable to OMIF
$
(20,136,105
)
$
2,163,164
  
             
Net (loss) income allocated to general partner
$
(197,044
)
$
23,541
  
             
Net (loss) income allocated to limited partners
$
(19,939,061
)
$
2,139,623
  
             
Net (loss) income allocated to limited partners per weighted average
  limited partnership unit
$
(0.08
)
$
0.01
  

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


 
 
F-4
 

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Partners’ Capital
Years Ended December 31,



   
General
  
Limited partners
  
Total OMIF
        
Total
  
Partners’
    
Noncontrolling
  
Partners'
  
   
partner
  
Units
  
Amount
  
capital
    
interest
  
capital
  
                                       
Balances, December 31, 2007
  
$
2,960,604
    
295,979,046
  
$
295,783,026
  
$
298,743,630
  
$
 108,509
  
$
 298,852,139
  
                                       
Net income
    
23,541
    
2,139,623
    
2,139,623
    
2,163,164
    
 13,896
    
2,177,060
  
Sale of partnership units
    
410,759
    
8,407,942
    
8,407,942
    
8,818,701
    
—
    
8,818,701
  
Partners’ withdrawals
    
(410,759
)
  
(29,078,814
)
  
(29,078,814
)
  
(29,489,573
)
  
—
    
(29,489,573
)
Partners’ distributions
    
(202,415
)
  
(6,830,098
)
  
(6,830,098
)
  
(7,032,513
)
  
(53,760
)
  
(7,086,273
)
                                       
Balances, December 31, 2008
  
$
2,781,730
    
270,617,699
  
$
270,421,679
  
$
273,203,409
  
$
 68,645
  
$
 273,272,054
  
                                       
Net (loss) income
    
(197,044
)
  
(19,939,061
)
  
(19,939,061
)
  
(20,136,105
)
  
 10,336
    
(20,125,769
)
Sale of partnership units
    
—
    
100,040
    
100,040
    
100,040
    
—
    
100,040
  
Partners’ withdrawals
    
—
    
(5,112,360
)
  
(5,112,360
)
  
(5,112,360
)
  
—
    
(5,112,360
)
Partners’ distributions
    
(72,287
)
  
(4,132,092
)
  
(4,132,092
)
  
(4,204,379
)
  
(44,325
)
  
(4,248,704
)
                                       
Balances, December 31, 2009
  
  $
2,512,399
    
241,534,226
  
  $
241,338,206
  
  $
243,850,605
  
$
 34,656
  
$
 243,885,261
  
                                       




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

 
 
F-5
 

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows
Years ended December 31,
 
2009
  
2008
  
Cash flows from operating activities:
            
Net (loss) income
$
(20,125,769
)
$
2,177,060
  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
            
Gain on sale of real estate, net
  
(78,883
)
  
(1,150,301
)
Income from investment in limited liability company
  
(141,097
)
  
(47,680
)
Provision for loan losses
  
24,474,853
    
9,537,384
  
Losses on real estate properties
  
3,636,248
    
6,005,018
  
Bad debt expense
  
13,723
    
625
  
Depreciation and amortization
  
1,322,037
    
876,413
  
Changes in operating assets and liabilities:
            
    Due from general partner
  
44,162
    
(44,162
)
Interest and other receivables
  
(1,930,783
)
  
1,232,004
  
Other assets
  
(188,570)
    
(89,252
)
Accounts payable and accrued liabilities
  
422,369
    
731,906
  
Due to general partner
  
362,210
    
(2,278,330
)
Net cash provided by operating activities
  
7,810,500
    
16,950,685
  
             
Cash flows from investing activities:
            
Investment in loans secured by trust deeds
  
(17,120,824
)
  
(95,669,713
)
Principal collected on loans
  
32,774,344
    
85,295,118
  
Sales of loans to third parties
  
—
    
8,744,177
  
Investment in real estate properties
  
(733,188
)
  
(1,513,068
)
Net proceeds from disposition of real estate properties
  
467,642
    
4,732,314
  
Purchases of vehicles, equipment and furniture
  
(180,930
)
  
(361,797
)
Distribution received from investment in limited liability company
  
176,000
    
—
  
Transfer from restricted to unrestricted cash
  
13,850
    
—
  
Maturities of (investments in) certificates of deposit
  
514,010
    
(2,229,601
)
Net cash provided by (used in) investing activities
  
15,910,904
    
(1,002,570
)
             
Cash flows from financing activities
            
Proceeds from sale of partnership units
  
100,040
    
8,818,701
  
Advances on line of credit payable
  
15,546,438
    
98,899,000
  
Repayments on line of credit payable
  
(24,765,336
)
  
(93,417,000
)
Distributions to noncontrolling interest
  
(44,325
)
  
(53,760
)
Partners’ cash distributions
  
(4,715,712
)
  
(7,064,393
)
Partners’ capital withdrawals
  
(5,112,360
)
  
(29,489,573
)
Net cash used in financing activities
  
(18,991,255
)
  
(22,307,025
)
             
Net increase (decrease) in cash and cash equivalents
  
4,730,149
    
(6,358,910
)
             
Cash and cash equivalents at beginning of year
  
2,800,123
    
9,159,033
  
             
Cash and cash equivalents at end of year
$
7,530,272
  
$
2,800,123
  
             
Supplemental Disclosures of Cash Flow Information
            
Cash paid during the year for interest
$
2,513,326
  
$
2,101,086
  
See notes 4, 5 and 6 for supplemental disclosure of noncash operating, investing and financing activities.
The accompanying notes are an integral part of these consolidated financial statements.

 
 
F-6
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008


NOTE 1 – ORGANIZATION
 
Owens Mortgage Investment Fund, a California Limited Partnership, (the Partnership) was formed on June 14, 1984 to invest in loans secured by first, second and third trust deeds, wraparound, participating and construction mortgage loans and leasehold interest mortgages. The Partnership commenced operations on the date of formation and will continue until December 31, 2034 unless dissolved prior thereto under the provisions of the Partnership Agreement.
 
The general partner of the Partnership is Owens Financial Group, Inc. (OFG), a California corporation engaged in the origination of real estate mortgage loans for eventual sale and the subsequent servicing of those mortgages for the Partnership and other third-party investors. The Partnership’s operations are managed solely by OFG pursuant to the Partnership Agreement.
 
OFG is authorized to offer and sell units in the Partnership up to an aggregate of 500,000,000 units outstanding at $1.00 per unit, representing $500,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 241,534,226 and 270,617,699 as of December 31, 2009 and 2008, respectively.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Partnership and its majority- and wholly- owned limited liability companies (see Notes 5 and 6). All significant inter-company transactions and balances have been eliminated in consolidation. The Partnership is in the business of providing mortgage lending services and manages its business as one operating segment.
 
Certain reclassifications not affecting net income have been made to the 2008 consolidated financial statements to conform to the 2009 presentation.
 
Management Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 periods. Such estimates relate principally to the determination of the allowance for loan losses, including the valuation of impaired loans, the valuation of real estate held for sale and investment, and the estimate of the environmental remediation liability (see Note 4). Actual results could differ significantly from these estimates.
 
Recently Adopted Accounting Standards
 
FASB Accounting Standards Codification (ASC or Codification)

In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01 (formerly FAS 168), Topic 105 – Generally Accepted Accounting Principles - FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). On the effective date of this ASU, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The Codification is effective for interim or annual reporting periods ending after September 15, 2009. W e have made the appropriate changes to GAAP references in our financial statements.

 
F-7
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

 
ASC 810

On January 1, 2009, the Partnership adopted the provisions of Accounting Standards Codification (ASC) 810 (formerly FAS 160), Noncontrolling Interests in Consolidated Financial Statements. ASC 810 provides guidance for accounting and reporting of noncontrolling (minority) interests in consolidated financial statements. These changes require, among other items, that the consolidated statements of operations be reported at amounts inclusive of both the parent’s and noncontrolling interest’s shares, and separately, the amount of consolidated net income (loss) attributable to the parent and noncontrolling interest on the consolidated statements of operations. The adoption of ASC 810 increased net income by $13,896 for the year ended December 31, 2008, the balance of which was presented separately as net income attributable to noncontrolling interest within the statements of operations. Other than the change in this presentation, the adoption had no impact on the consolidated financial statements. The presentation and disclosure requirements of these changes were applied retrospectively.

ASC 825

In April 2009, the FASB issued ASC 825 (formerly FSP FAS 107-1 and APB 28-1), Interim Disclosures about Fair Value of Financial Instruments. ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The Partnership implemented ASC 825 in the fiscal quarter ending June 30, 2009 and the implementation did not have a material impact on its consolidated financial condition or results of operations.
 
ASC 320

In April 2009, the FASB issued ASC 320 (formerly FSP FAS 115-2 and FAS 124-2), Recognition and Presentation of Other-Than-Temporary Impairments, which amends the other-than-temporary impairment (“OTTI”) guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. ASC 320 does not amend existing recognition and measurement guidance related to OTTI of equity securities. ASC 320 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The Partnership implemented ASC 320 in the fiscal quarter ending June 30, 2009 and the implementation did not have a material impact on its consolidated financial condition or results of operations.
 
SAB 111

In April 2009, the SEC issued Staff Accounting Bulletin 111, Other than Temporary Impairment of Certain Investments in Equity Securities (SAB 111), which amends SAB 59 to exclude OTTI on debt securities from its scope. The SEC issued SAB 111 to align its guidance with that of the FASB and ASC 320, ensuring consistency in standards for determining impairments. SAB 111 was effective upon adoption of ASC 320.

ASC 820

In April 2009, the FASB issued ASC 820 (formerly FSP FAS 157-4), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. ASC 820 affirms the objective of fair value when a market is not active, clarifies and includes additional factors for determining whether there has been a significant decrease in market activity, eliminates the presumption that all transactions are distressed unless proven otherwise, and requires an entity to disclose a change in valuation technique. ASC 820 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009.  60;The Partnership implemented ASC 820 in the fiscal quarter ending June 30, 2009. The implementation did not have a material impact on the Partnership’s consolidated financial position and results of operations as its existing valuation methodology is consistent with the FASB’s clarification.
 
 
F-8
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

ASC 855

In May 2009, the FASB issued ASC 855 (formerly FAS 165), Subsequent Events. ASC 855 defines the period after the balance sheet date during which a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which a reporting entity should recognize events or transactions occurring after the balance sheet date and the disclosures required for events or transactions that occurred after the balance sheet date. Subsequent events that provide additional evidence about conditions that existed at the balance sheet date are to be recognized in the financial statements. Subsequent events that are conditions that arose after the balance sheet date but prior to the issuance of the financi al statements are not recognized in the financial statements, but should be disclosed if failure to do so would render the financial statements misleading. For subsequent events not recognized, disclosures should include a description of the nature of the event and either an estimate of its financial effect or a statement that such an estimate cannot be made. The Partnership adopted ASC 855 effective June 30, 2009. The implementation of ASC 855 did not affect the recognition or disclosure of subsequent events. The Partnership evaluates subsequent events up to the date it files its Form 10-K with the Securities and Exchange Commission. 

ASU No. 2009-05

In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value”.  This ASU provides amendments for fair value measurements of liabilities.  It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques.  ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  The Partnership implemented ASU 20 09-05 in the fiscal quarter ending December 31, 2009.  The implementation did not have a material impact on the Partnership’s consolidated financial position and results of operations.

ASU No. 2010-02

In January, 2010, the FASB issued ASU No. 2010-02, “Consolidations (Topic 810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification.” The objective of this ASU is to address implementation issues related to the changes in ownership provisions in the Consolidation – Overall Subtopic (Subtopic 810-10) of the FASB ASC (Noncontrolling Interests in Consolidated Financial Statements). The amendments affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equit y interest in another entity. The amendments in this ASU are effective as of December 31, 2009 and did no have an impact on the Partnership’s financial position or results of operations.

Recently Issued Accounting Standards

ASU No. 2010-06

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This ASU requires new disclosures with respect to transfers in and out of Levels 1 and 2 and that Level 3 fair value measurements present separately information about purchases, sales, issuances and settlements (on a gross basis). In addition, the ASU requires reporting entities to provide fair value measurement disclosures for each class of assets and liabilities and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2009 (except certain disclo sures about Level 3 activity which is effective in fiscal years beginning after December 15, 2010).
 
 
F-9
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Loans Secured by Trust Deeds
 
Loans secured by trust deeds are stated at the principal amount outstanding. The Partnership’s portfolio consists primarily of commercial real estate loans generally collateralized by first, second and third deeds of trust.  Interest income on loans is accrued by the simple interest method. Loans are generally placed on nonaccrual status when the borrowers are past due greater than ninety days or when full payment of principal and interest is not expected.  When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest remains accrued until the loan becomes current, is paid off or is foreclosed upon. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Cash receipts on nonaccrual loans are recorded as interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.
 
Allowance for Loan Losses
 
The allowance for loan losses is established as losses are estimated to have likely occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
 
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
 
The allowance consists of specific and general components.  For the specific component, an allowance is established on an impaired loan when the probable ultimate recovery of the carrying amount of a loan is less than amounts due according to the contractual terms of the loan agreement. 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 by management at the estimated fair value of the related collateral, less estimated selling costs. Estimated collateral values are determined based on third party appraisals, broker price opinions, comparable property sales or other indications of value. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement or when monthly payments are delinquent greater than 90 days. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral, if collateral dependent.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include interest-bearing and noninterest-bearing bank deposits, money market accounts and short-term certificates of deposit with original maturities of three months or less.
 
The Partnership maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. As of December 31, 2009, all amounts in the Partnership’s main checking account in excess of $500,000 (approximately $4,200,000 as of December 31, 2009) are invested overnight in a bank mutual fund product that is not currently insured by the Federal government or a private institution. Thus, the Partnership may be exposed to some risk on these balances. OFG management is currently looking to diversify these balances into fully insured accounts.
 
 
F-10
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Restricted Cash
 
Restricted cash includes non-interest bearing deposits with three banks that are required pursuant to the Partnership’s line of credit agreement with such banks.
 
Certificates of Deposit
 
At various times during the year, the Partnership may purchase certificates of deposit with various financial institutions with original maturities of up to one year. Interest income on certificates of deposit is recognized when earned. Certificates of deposit are held in several federally insured depository institutions.
 
Vehicles, Equipment and Furniture
 
Depreciation of vehicles, equipment and furniture owned by DarkHorse Golf Club, LLC, Anacapa Villas, LLC and Lone Star Golf, LLC is provided on the straight-line method over their estimated useful lives (5-7 years).
 
Other Assets
 
Other assets primarily include capitalized lease commissions and loan costs, prepaid expenses, deposits and inventory.  Amortization of lease commissions is provided on the straight-line method over the lives of the related leases. Amortization of loan costs in 720 University, LLC is provided on the straight-line method through the maturity date of the related debt.
 
Real Estate Held for Sale and Investment
 
Real estate held for sale includes real estate acquired through foreclosure and is initially stated at the property’s estimated fair value, less estimated costs to sell.
 
Depreciation of real estate properties held for investment is provided on the straight-line method over the estimated remaining useful lives of buildings and improvements (5-39 years). Depreciation of tenant improvements is provided on the straight-line method over the lives of the related leases. Costs related to the improvement of real estate held for sale and investment are capitalized, whereas those costs related to holding the property are expensed.
 
The Partnership periodically compares the carrying value of real estate held for investment to expected future cash flows as determined by internally or third party generated valuations 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 fair value.
 
The Partnership reclassifies real estate properties from held for investment to held for sale in the period in which all of the following criteria are met: 1) Management commits to a plan to sell the property; 2) The property is available for immediate sale in its present condition; 3) An active program to locate a buyer has been initiated; 4) The sale of the property is probable and the transfer of the property is expected to qualify for recognition as a completed sale, within one year; and 5) Actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.
 
If circumstances arise that previously were considered unlikely, and, as a result, the Partnership decides not to sell a real estate property classified as held for sale, the property is reclassified to held for investment. The property is then measured individually at the lower of its carrying amount, adjusted for depreciation or amortization expense that would have been recognized had the property been continuously classified as held for investment, or its fair value at the date of the subsequent decision not to sell.
 
 
F-11
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Income Taxes
 
No provision for federal and state income taxes (other than the $800 state minimum tax and non-California state income tax at the Partnership level for real estate properties) is made in the consolidated financial statements since the Partnership is not a taxable entity. Accordingly, any income or loss is included in the tax returns of the partners.
 
In accordance with the provisions of ASC 740-10, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The total amount of unrecognized tax benefits, including interest and penalties, at December 31, 2009 is zero. The amount of tax benefits that would impact the effective rate, if recognized, is expected to be zero. The Partnership does not anticipate any significant changes with respect to unrecognized tax benefits within the next twelve months.
 
NOTE 3 - LOANS SECURED BY TRUST DEEDS
 
Loans secured by trust deeds as of December 31, 2009 and 2008 are as follows:
 
   
2009
    
2008
  
By Property Type:
            
Commercial
  
$
100,400,765
    
$
118,156,590
  
Condominiums
    
59,470,752
      
93,460,019
  
Apartments
    
4,325,000
      
4,325,000
  
Single family homes (1-4 Units)
    
327,127
      
331,810
  
Improved and unimproved land
    
47,260,116
      
45,962,782
  
   
$
211,783,760
    
$
262,236,201
  
By Deed Order:
                
First mortgages
  
$
189,642,783
    
$
234,060,285
  
Second and third mortgages
    
22,140,977
      
28,175,916
  
   
$
211,783,760
    
$
262,236,201
  

The Partnership’s loan portfolio above includes Construction Loans and Rehabilitation Loans. Construction Loans are determined by the General Partner to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties.  The General Partner has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process.  As of December 31, 2009 and 2008, the Partnership held Construction Loans totaling approximately $7,781,000 and $17,569,000, respectively, and had commitments to disburse an additional $13,000 and $646,000, respectively, on Construction Loans.

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, or are used to complete improvements to land.  The General Partner has determined that these are not Construction Loans.   These loans are referred to as Rehabilitation Loans. As of December 31, 2009 and 2008, the Partnership held Rehabilitation Loans totaling approximately $53,178,000 and $64,874,000, respectively, and had commitments to disburse an additional $655,000 and $3,689,000, respectively, on Rehabilitation Loans.
 
 
F-12
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Scheduled maturities of loans secured by trust deeds as of December 31, 2009 and the interest rate sensitivity of such loans are as follows:
   
Fixed
Interest
Rate
    
Variable
Interest
Rate
    
Total
  
Year ending December 31:
                        
2009 (past maturity)
  
$
164,569,389
    
$
—
    
$
164,569,389
  
2010
    
5,076,978
      
16,228
      
5,093,206
  
2011
    
25,615,913
      
—
      
25,615,913
  
2012
    
2,215,242
      
—
      
2,215,242
  
2013
    
—
      
—
      
—
  
2014
    
—
      
9,000,000
      
9,000,000
  
Thereafter (through 2017)
    
77,127
      
5,212,883
      
5,290,010
  
   
$
197,554,649
    
$
14,229,111
    
$
211,783,760
  

Variable rate loans use as indices the one-year, five-year and 10-year Treasury Constant Maturity Index (0.47%, 2.69% and 3.85%, respectively, as of December 31, 2009), the prime rate (3.25% as of December 31, 2009) or the weighted average cost of funds index for Eleventh or Twelfth District savings institutions (2.09% and 3.10%, respectively, as of December 31, 2009) or include terms whereby the interest rate is increased at a later date. Premiums over these indices have varied from 0.25% to 0.65% depending upon market conditions at the time the loan is made.
 
The following is a schedule by geographic location of loans secured by trust deeds as of December 31, 2009 and 2008:
   
December 31, 2009
Balance
  
Portfolio
Percentage
  
December 31, 2008
Balance
  
Portfolio
Percentage
  
Arizona
  
$
16,804,823
  
7.93%
  
$
31,580,323
  
12.04%
  
California
    
111,462,827
  
52.64%
    
148,522,264
  
56.65%
  
Colorado
    
15,810,305
  
7.47%
    
13,999,402
  
5.34%
  
Florida
    
26,257,122
  
12.40%
    
23,482,581
  
8.96%
  
Idaho
    
2,200,000
  
1.04%
    
2,200,000
  
0.84%
  
Nevada
    
7,909,650
  
3.73%
    
10,357,000
  
3.95%
  
New York
    
10,500,000
  
4.96%
    
10,500,000
  
4.00%
  
Oregon
    
77,127
  
0.04%
    
81,810
  
0.03%
  
Pennsylvania
    
1,320,057
  
0.62%
    
1,320,057
  
0.50%
  
Texas
    
2,635,000
  
1.24%
    
2,635,000
  
1.00%
  
Utah
    
3,943,216
  
1.86%
    
5,305,262
  
2.02%
  
Washington
    
12,863,633
  
6.07%
    
12,252,502
  
4.67%
  
   
$
211,783,760
  
100.00%
  
$
262,236,201
  
100.00%
  

As of December 31, 2009 and 2008, the Partnership’s loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 43% ($91,708,000) and 43% ($113,998,000), respectively, of the loan portfolio. The Northern California region (which includes Monterey, Fresno, Kings, Tulare and Inyo counties and all counties north) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate. In addition, approximately 77% of the Partnership’s mortgage loans were secured by real estate located in the states of California, Arizona, Florida and Nevada, which have experienced dramatic reductions in real estate values over the past several months.
 
 
F-13
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

During the years ended December 31, 2009 and 2008, the Partnership refinanced loans totaling $0 and $13,564,000, respectively, thereby extending the maturity dates of such loans.
 
As of December 31, 2009 and 2008, approximately $201,403,000 (95.1%) and $251,792,000 (96.0%) of Partnership loans are interest-only and require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans. Borrowers occasionally are not able to pay the full amount due at the maturity date.  The Partnership may allow these borrowers to continue making the regularly scheduled monthly interest payments for certain periods of time to assist the borrower in meeting the balloon payment obligation without formally filing a notice of default.  These loans for which the principal and any accrued interest is due and payable, but the borrower has failed to make such payment of principal and/or accrued interest are referred to as “past maturity loans”. As of December 31, 2009 and 2008, the Partnership had thirty-seven and twenty past maturity loans totaling approximately $164,569,000 and $102,453,000, respectively.
 
As of December 31, 2009 and 2008, the Partnership had thirty and fifteen impaired loans, respectively, that were impaired and/or delinquent in payments greater than ninety days totaling approximately $146,039,000 and $95,743,000, respectively. This included twenty-eight and nine matured loans totaling $142,277,000 and $66,129,000, respectively. In addition, nine and eleven loans totaling approximately $22,292,000 and $36,324,000, respectively, were past maturity but current in monthly payments as of December 31, 2009 and 2008, respectively (combined total of delinquent loans of $168,331,000 and $132,067,000, respectively). Of the impaired and past maturity loans, approximately $61,859,000 and $46,148,000, respectively, were in the process of foreclosure and $29,278,000 and $10,500,000, respectively, involved borrowers who were in bankr uptcy as of December 31, 2009 and 2008. The Partnership foreclosed on nine and six loans during the years ended December 31, 2009 and 2008, respectively, with aggregate principal balances totaling $34,907,000 and $18,220,000, respectively, and obtained the properties via the trustee’s sales.
 
Of the total impaired and past maturity loans as of December 31, 2009, one loan with an aggregate principal balance of $525,000 was paid off in full subsequent to year end. In addition, the borrower of one impaired loan with a principal balance of $4,325,000 that was in the process of foreclosure as of December 31, 2009 entered into bankruptcy protection in March 2010 (subsequent to year end).

The Partnership has three loans with an aggregate principal balance of approximately $22,923,000 secured by a deed of trust on 29 parcels of land in the City of South Lake Tahoe, California. The parcels were assembled by a developer with the assistance of the City for the purpose of creating a development consisting of a retail component, a condominium hotel component and the City’s Convention and Visitor’s Center. Because of the assemblage and as security for the Partnership’s loans, a decision was made to encumber all of the assembled parcels by a blanket loan that consists of first, second and third deeds of trust.  The developer has been unable to obtain a construction loan to build the project which has resulted in the inability of the developer to honor its commitments to the existing lenders.  60;During the year ended December 31, 2009, the first deed holders on 20 of the parcels securing loans totaling approximately $18,568,000 filed notices of default on their mortgage loans and additional notices of default and notices of sale were filed subsequently filed. The Partnership also filed a notice of default in June 2009. In July 2009, the Partnership purchased at a discount the first deed holder’s interest in one loan securing two parcels with a principal balance of $1,500,000 on which the Partnership holds second deeds of trust. The Partnership purchased this loan because a foreclosure sale by the first deed holder was imminent and the General Partner wanted to protect the Partnership’s interest in the loans. In October 2009, the borrower on these loans filed for bankruptcy protection.

During 2008, the Partnership entered into participation agreements on six loans with aggregate principal balances totaling $19,845,000 with an unrelated mortgage investment group that originated the loans with the borrowers (the “Lead Lender”).  The General Partner received the monthly interest payments on these participated loans from the Lead Lender.  Pursuant to Intercreditor Agreements between the Partnership and the Lead Lender on all of the participated loans, the Partnership is guaranteed its share of interest and principal prior to any other investors participating in such loans.  During the year ended December 31, 2008, the Partnership received partial repayment on one loan in the amount of approximately $1,194,000 and
 
 
F-14
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

sold the remaining principal balance of approximately $1,169,000 to the Lead Lender. In addition, the Partnership sold a $2,000,000 portion of the principal balance of one loan to the Lead Lender and sold its entire portion of the principal balances in two additional loans to the Lead Lender in the aggregate amount of approximately $5,576,000.   The sales of these loans resulted in no gain or loss in the accompanying consolidated financial statements.
 
During 2007, the Partnership funded a $30,000,000 portion of a $75,200,000 mortgage loan and entered into a Co-Lending and Servicing Agent Agreement (the “Agreement”) with three other co-lenders in the loan. The loan is secured by a condominium complex located in Miami, Florida consisting of three buildings, two of which have been renovated and in which 168 units remain unsold (the “Point” and “South” buildings) and one which contains 160 units that have not been renovated (the “North” building).  The General Partner is also a co-lender in the subject loan and is party to the Agreement. The interest rate payable to the Partnership and the General Partner on the loan is 10% per annum. Pursuant to the Agreement, the Partnership and the General Partner, as senior co-lenders, have p riority on a pro-rata basis over all other co-lenders in such loan as follows: After any protective advances made are reimbursed to the co-lenders on a pro-rata basis, the Partnership and General Partner shall receive their share of interest in the loan prior to any other co-lender and, once all interest has been paid to the co-lenders, the Partnership and General Partner shall receive their share of principal in the loan prior to any other co-lender in the loan.  The servicer of the loan was an affiliate of the junior  co-lender (the “Servicing Agent”) and the Partnership received the payments on the loan from the Servicing Agent. As of December 31, 2009, the Partnership had funded $894,000 of its pro-rata share of unreimbursed protective advances to complete renovations to the property and funded an additional $35,000 subsequent to year end. The Partnership also received reimbursement of its pro-rata share of protective advances of $85,000 subsequent to year end. As of Decem ber 31, 2009 and 2008, the Partnership’s and General Partner’s remaining principal balance in the subject loan was approximately $23,483,000 and $7,828,000, respectively.
 
During 2008, the Servicing Agent filed a notice of default on this loan and the loan, and as of December 31, 2009, the loan continues to be in the process of foreclosure. A third party appraisal was obtained on the loan’s underlying property, which resulted in the Partnership recording a specific loan loss allowance for this loan of $4,032,000 as of December 31, 2008. In April 2009, the Partnership purchased the junior lender’s investment in the loan (including principal of $7,200,000, accrued interest of approximately $1,618,000 and protective advances of approximately $535,000) for cash of $2,100,000 and a note payable in the amount of $700,000. The $2,100,000 in cash used in the purchase of the junior lender’s interest was funded through a draw on the Partnership’s line of credit. The $700,000 note had been p aid down by approximately $108,000 from reimbursement of protective advances during 2009 and the remaining $592,000 was paid in full by the Partnership in October 2009. The Partnership and the General Partner assumed the duties of the Servicing Agent effective June 1, 2009. The Partnership recorded additional specific impairments on this loan of approximately $5,913,000 during 2009 (total allowance of $9,945,000).

The average recorded investment in impaired loans (including loans delinquent in payments greater than 90 days) was approximately $130,457,000 and $90,600,000 as of December 31, 2009 and 2008, respectively. Interest income recognized on impaired loans during the years ended December 31, 2009 and 2008 was approximately $2,152,000 and $4,589,000, respectively.  Interest income received on impaired loans during the years ended December 31, 2009 and 2008 was approximately $2,719,000 and $6,920,000, respectively.
 
The Partnership’s allowance for loan losses was $28,392,938 and $13,727,634 as of December 31, 2009 and 2008, respectively. As of December 31, 2009 and 2008, there was a general allowance for loan losses of $5,645,000 and $7,313,000, respectively, and a specific allowance for loan losses on ten and four loans in the total amount of $22,747,938 and $6,414,634, respectively.
 
 
F-15
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The composition of the specific allowance for loan losses as of December 31, 2009 and 2008 was as follows:

   
2009
  
2008
  
   
Amount
  
Percent
  
Amount
  
Percent
  
Commercial
  
$
8,770,254
    
38.6
%
$
2,382,422
    
37.1
%
Condominiums
    
13,977,684
    
61.4
%
  
4,032,212
    
62.9
%
Total
  
$
22,747,938
    
100.0
%
$
6,414,634
    
100.0
%

Changes in the allowance for loan losses, including both specific and general allowances, for the years ended December 31, 2009 and 2008 were as follows:

   
2009
  
2008
  
Balance, beginning of year
  
$
13,727,634
  
$
5,042,000
  
Provision
    
24,474,853
    
9,537,384
  
Charge-offs
    
(9,809,549
)
  
(851,750
)
Balance, end of year
  
$
28,392,938
  
$
13,727,634
  

NOTE 4 – INVESTMENT IN LIMITED LIABILITY COMPANY

During 2008, the Partnership entered into an Operating Agreement of 1850 De La Cruz LLC, a California limited liability company (“1850”), with Nanook Ventures LLC (“Nanook”), an unrelated party.  The purpose of the joint venture is to acquire, own and operate certain industrial land and buildings located in Santa Clara, California that was owned by the Partnership. The property was subject to a Purchase and Sale Agreement dated July 24, 2007 (the “Sale Agreement”), as amended, between the Partnership, as seller, and Nanook, as buyer.  During the course of due diligence under the Sale Agreement, it was discovered that the property is contaminated and that remediation and monitoring may be required.  The parties agreed to enter into the Operating Agreement to restructure t he arrangement as a joint venture.  The Partnership and Nanook are the Members of 1850 and NV Manager, LLC is the Manager. Pursuant to the Agreement, the Partnership contributed the property to 1850 at an agreed upon fair market value of $6,350,000.  Cash in the amount of $3,175,000 was then distributed by 1850 to the Partnership such that the Partnership has an initial capital account balance of $3,175,000.  Nanook contributed cash in the amount of $3,175,000 to 1850 and has an initial capital account balance of the same amount.

At the time of closing in July 2008, the two properties were separately contributed to two new limited liability companies, Nanook Ventures One LLC and Nanook Ventures Two LLC, that are wholly owned by 1850.  The Partnership recognized a gain of approximately $1,037,000 from its sale of a one-half interest in the properties to Nanook.  Pursuant to the Operating Agreement, the Partnership is responsible for all costs related to the environmental remediation on the properties and has indemnified Nanook against all obligations related to the contamination. The Partnership accrued approximately $762,000 (including $161,000 owed to Nanook) as an estimate of the expected costs to monitor and remediate the contamination on the properties based on a third party consultant’s estimate which is recorded as Environmental Remediation Expense in the accompanying consolidated statements of income for the year ended December 31, 2008.  The Partnership has estimated the amount to be paid under this guarantee based on the information available at this time. If additional amounts are required to monitor and remediate the contamination, it will be an obligation of the Partnership, as the Operating Agreement does not limit the obligations of the Partnership. As of December 31, 2009, approximately $579,000 of this obligation remains accrued on the Partnership’s books.

During the year ended December 31, 2009, the Partnership received capital distributions from 1850 in the total amount of $176,000. The net income to the Partnership from its investment in 1850 De La Cruz was approximately $141,000 and $48,000 for the years ended December 31, 2009 and 2008, respectively.
 
 
F-16
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

NOTE 5 - REAL ESTATE HELD FOR SALE
 
Real estate properties held for sale as of December 31, 2009 and 2008 consists of the following properties acquired through foreclosure between 1997 and 2008:
 
   
2009
  
2008
  
Manufactured home subdivision development, Ione, California
  
$
549,132
  
$
745,570
  
Commercial buildings, Roseville, California (see Note 6)
    
380,924
    
380,924
  
Two improved residential lots, West Sacramento, California
    
510,944
    
510,944
  
Office/retail complex, Hilo, Hawaii
    
1,666,121
    
1,655,647
  
Office condominium complex (16 units in 2009 and 17 units in 2008), Roseville, California
    
7,745,153
    
8,120,675
  
   
$
10,852,274
  
$
11,413,760
  

During the years ended December 31, 2009 and 2008, the Partnership recorded impairment losses of approximately $196,000 and $98,000, respectively, on four lots (three with houses) in the manufactured home subdivision development located in Ione, California based on estimated fair values, less estimated selling costs, which are reflected in losses on real estate properties in the accompanying consolidated statements of income.
 
2009 Foreclosure and Sales Activity
 
During the year ended December 31, 2009, the Partnership sold one unit in the office condominium complex located in Roseville, California for net sales proceeds of approximately $468,000, resulting in a gain to the Partnership of approximately $50,000.

2008 Foreclosure and Sales Activity
 
During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by an office/retail complex located in Hilo, Hawaii in the amount of $1,300,000 and obtained the property via the trustee’s sale.  In addition, certain advances made on the loan or incurred as part of the foreclosure (such as delinquent property taxes) in the total amount of approximately $336,000 were capitalized to the basis of the property.  The estimated fair value of the property was determined to be greater than the Partnership’s basis in the property at the time of foreclosure. The property is classified as held for sale as a sale is expected to be completed in the next one year period.

During the year ended December 31, 2008, the Partnership obtained deeds in lieu of foreclosure from the borrower on two first mortgage loans secured by 18 units in three buildings in an office condominium complex located in Roseville, California in the total amount of approximately $9,068,000 and obtained the properties.  In addition, certain advances made on the loans or incurred as part of the foreclosure in the total amount of approximately $34,000 were capitalized to the basis of the properties.  At the time of foreclosure, it was determined that the fair values of the units in two buildings were lower than the Partnership’s cost basis in those units by approximately $533,000, and, thus, this amount was recorded as a charge-off against the allowance for loan losses. The properties are classified as held fo r sale as sales are expected to be completed in the next one year period. During 2008, one unit was sold for net sales proceeds of approximately $562,000, resulting in a gain to the Partnership of approximately $102,000.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by two improved residential lots located in West Sacramento, California in the amount of approximately $435,000 and obtained the lots via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $76,000 were capitalized to the basis of the property.  The estimated fair values of the lots were determined to be greater than the Partnership’s basis in the lots at the time of foreclosure. The lots are classified as held for sale as sales are expected to be completed within one year.
 
 
F-17
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

During the year ended December 31, 2008, the Partnership sold the mixed-use retail building located in Sacramento, California for net sales proceeds of approximately $988,000 in cash and a note receivable of $1,450,000, resulting in a loss to the Partnership of approximately $12,000.  The note receivable was paid off in full by the buyer in May 2008.

NOTE 6 - REAL ESTATE HELD FOR INVESTMENT
 
Real estate held for investment is comprised of the following properties as of December 31, 2009 and 2008:
 
   
2009
  
2008
  
Light industrial building, Paso Robles, California
  
$
1,581,898
  
$
1,625,770
  
Commercial buildings, Roseville, California
    
636,849
    
659,531
  
Retail complex, Greeley, Colorado (held within 720 University, LLC)
    
13,009,843
    
13,440,143
  
Undeveloped, residential land, Madera County, California
    
1,225,000
    
1,225,000
  
Manufactured home subdivision development, Lake Charles, Louisiana (held within Dation, LLC)
    
2,180,780
    
1,960,000
  
Undeveloped, residential land, Marysville, California
    
594,610
    
594,610
  
Golf course, Auburn, California (held within DarkHorse Golf Club, LLC)
    
2,519,036
    
2,830,568
  
75 improved, residential lots, Auburn, California (held within Baldwin Ranch Subdivision, LLC)
    
10,950,684
    
13,898,890
  
Undeveloped, industrial land, San Jose, California
    
3,025,992
    
3,025,992
  
Undeveloped, commercial land, Half Moon Bay, California
    
2,175,357
    
2,110,809
  
Storage facility/business, Stockton, California
    
5,238,981
    
5,643,499
  
Undeveloped, residential land, Coolidge, Arizona
    
2,099,816
    
—
  
Eight townhomes, Santa Barbara, California (held within Anacapa Villas, LLC)
    
10,566,383
    
—
  
Marina with 30 boat slips and 11 RV spaces, Oakley, California (held within The Last Resort and Marina, LLC)
    
470,718
    
—
  
Nineteen condominium units, San Diego, California (held within 33rd Street Terrace, LLC)
    
1,479,380
    
—
  
Golf course, Auburn, California (held within
Lone Star Golf, LLC)
    
2,043,718
    
—
  
Industrial building, Sunnyvale, California
    
3,414,619
    
—
  
133 condominium units, Phoenix, Arizona (held within 54th Street Condos, LLC)
    
5,822,598
    
—
  
   
$
69,036,262
  
$
47,014,812
  
 
 
F-18
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The balances of land and the major classes of depreciable property for real estate held for investment as of December 31, 2009 and 2008 are as follows:
   
2009
    
2008
  
Land
  
$
35,112,002
    
$
29,564,886
  
Buildings
    
32,358,648
      
15,459,666
  
Improvements
    
5,936,153
      
5,285,690
  
Other
    
17,925
      
10,427
  
     
73,424,728
      
50,320,669
  
Less: Accumulated depreciation and amortization
    
(4,388,466
)
 
  
(3,305,857
)
   
$
69,036,262
    
$
47,014,812
  

The acquisition of certain real estate properties through foreclosure (including properties held for sale – see Note 5) resulted in the following non-cash activity for the years ended December 31, 2009 and 2008, respectively:
 
   
2009
  
2008
  
Increases:
              
Real estate held for sale and investment
  
$
25,862,919
  
$
17,904,366
  
Vehicles, equipment and furniture
    
80,000
    
—
  
Other assets
    
21,192
    
—
  
Accounts payable and accrued liabilities
    
(8,725
)
  
—
  
Decreases:
              
Loans secured by trust deeds, net of allowance for loan losses
    
(25,097,868
)
  
(17,367,948
)
Interest and other receivables
    
(857,518
)
  
(536,418
)
               

It is the Partnership’s intent to sell the majority of its real estate properties held for investment, but expected sales are not probable to occur within the next year.
 
Depreciation expense was $1,083,000 and $690,000 for the years ended December 31, 2009 and 2008, respectively.
 
For purposes of assessing potential impairment of value during 2009, the Partnership obtained updated appraisals or other valuation support on its real estate properties held for investment. This resulted in the Partnership recording impairment losses on the storage facility located in Stockton, California, the golf course located in Auburn, California (held within DarkHorse Golf Club, LLC) and the improved, residential lots in Auburn, California (held within Baldwin Ranch Subdivision, LLC) in the aggregate amount of approximately $3,420,000. In addition, the 19 condominium units located in San Diego, California were classified as held for sale at the time of foreclosure in 2009. At December 31, 2009, management determined that the property should be transferred to held for investment, which resulted in an impairment loss of approximat ely $20,000 as the property was re-measured at the lower of its carrying amount, adjusted for depreciation expense that would have been recognized had the property been continuously classified as held for investment, or its fair value at the date of the subsequent decision not to sell.
 
During 2008, the Partnership obtained updated appraisals or other valuation support as of December 31, 2008 or during the first quarter of 2009 for the unimproved, residential land located in Madera County, California, the manufactured home subdivision development located in Lake Charles, Louisiana (held within Dation, LLC), and the golf course located in Auburn, California (held within DarkHorse Golf Club, LLC). As a result, the Partnership recorded  impairment losses in the aggregate amount of approximately $5,907,000 in the accompanying consolidated statements of income.
 
 
F-19
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

2009 Foreclosure Activity

During the year ended December 31, 2009, the Partnership foreclosed on a first mortgage loan secured by undeveloped residential land located in Coolidge, Arizona in the amount of $2,000,000 and obtained the property via the trustee’s sale.  In addition, accrued interest income and certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $99,000 were capitalized to the basis of the property.  The property is classified as held for investment as a sale is not expected to be completed in the next one year period.

During the year ended December 31, 2009, the Partnership foreclosed on two first mortgage loans secured by eight luxury townhomes located in Santa Barbara, California in the amount of $10,500,000 and obtained the property via the trustee’s sale.  In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $432,000 were capitalized to the basis of the property.  The property is classified as held for investment as a sale is not expected to be completed in the next one year period.  The Partnership formed a new, wholly-owned limited liability company, Anacapa Villas, LLC (see below), to own and operate the townhomes.

During the year ended December 31, 2009, the Partnership foreclosed on a first mortgage loan secured by a marina with 30 boat slips and 11 RV spaces located in Oakley, California in the amount of $665,000 and obtained the property via the trustee’s sale.  As of December 31, 2008, it was determined that the fair value of the property was lower than the Partnership’s investment in the loan by approximately $242,000, and, thus, a specific loan allowance was established for this loan. This amount was then recorded as a charge-off against the allowance for loan losses at the time of foreclosure in 2009. The property is classified as held for investment as a sale is not expected to be completed in the next one year period. The Partnership formed a new, wholly-owned limited liability company, The Last Resort and Marina, LLC (see below), to own and operate the marina.

During the year ended December 31, 2009, the Partnership foreclosed on a first mortgage loan secured by 19 converted units in a condominium complex located in San Diego, California in the amount of approximately $1,411,000 and obtained the property via the trustee’s sale. In addition, accrued interest income and certain advances made on the loan or incurred as part of the foreclosure (such as delinquent property taxes) in the total amount of approximately $88,000 were capitalized to the basis of the property. The property is classified as held for investment as a sale is not expected to be completed in the next one year period. The Partnership formed a new, wholly-owned limited liability company, 33rd Street Terrace, LLC (see below), to own and operate the units.

During the year ended December 31, 2009, the Partnership foreclosed on a first mortgage loan secured by a golf course located in Auburn, California in the amount of $4,000,000 and obtained the property via the trustee’s sale. As of December 31, 2008, it was determined that the fair value of the property was lower than the Partnership’s investment in the loan and a specific loan allowance was established for this loan in the total amount of approximately $2,090,000. This amount was then recorded as a charge-off against the allowance for loan losses at the time of foreclosure in 2009, along with an additional charge to provision for loan losses of approximately $53,000 for additional delinquent property taxes.  The property is classified as held for investment as a sale is not expected to be completed in the next on e year period. The Partnership formed a new, wholly-owned limited liability company, Lone Star Golf, LLC (see below), to own and operate the golf course.

During the year ended December 31, 2009, the Partnership foreclosed on a first mortgage loan secured by an industrial building located in Sunnyvale, California in the amount of $3,300,000 and obtained the property via the trustee’s sale. In addition, accrued interest and certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $129,000 were capitalized to the basis of the property. The property is classified as held for investment as a sale is not expected to be completed in the next one year period. The Partnership formed a new, wholly-owned limited liability company, Wolfe Central, LLC subsequent to year end, to own and operate the building.

 
 
F-20
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

During the year ended December 31, 2009, the Partnership foreclosed on two first mortgage loans secured by 133 fully and partially renovated condominiums in a complex located in Phoenix, Arizona in the amount of $13,032,000 and obtained the units via the trustee’s sale. During 2009, it was determined that the fair value of the units was lower than the Partnership’s investment in the loans and a specific loan allowance was established for this loan in the total amount of approximately $3,589,000. This amount was then recorded as a charge-off against the allowance for loan losses at the time of foreclosure, along with an additional charge to provision for loan losses of approximately $70,000 for additional delinquent property taxes and foreclosure costs incurred.  In addition, it was determined subsequent to foreclo sure that the former borrower had not completed renovation of 79 of the units with the loan funds advanced. Thus, an additional charge to provision for loan losses of approximately $3,766,000 was recorded at the time of foreclosure for the reduction in value related to the incomplete units and current market conditions. The property is classified as held for investment as a sale is not expected to be completed in the next one year period. The Partnership formed a new, wholly-owned limited liability company, 54th Street Condos, LLC, to own and operate the units.

2008 Foreclosure Activity

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by a storage facility located in Stockton, California in the amount of approximately $5,817,000 and obtained the property via the trustee’s sale.  In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $176,000 were capitalized to the basis of the property.  At the time of foreclosure, approximately $319,000 was charged off against the allowance for loan losses to write the loan/property down to estimated fair value based on the commitment of a pending sale.  The sale contract was canceled by the potential buyer in September 2008 and it is now unlikely that the property will be sold w ithin one year. Thus, the property is classified as held for investment as of December 31, 2008.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by undeveloped, commercial land located in Half Moon Bay, California in the amount of $1,600,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $459,000 were capitalized to the basis of the property.  The property is classified as held for investment as it is unlikely that a sale will be completed within the next year.

During the year ended December 31, 2008, the Partnership transferred the undeveloped land located in San Jose, California from real estate held for sale to real estate held for investment because it was unlikely that the property would be sold within one year. The property was transferred at the lower of its carrying value or fair value.

During 2008, the Partnership obtained approval to sell the buildings individually within the commercial building complex located in Roseville, California.  Two of these buildings are currently vacant and are listed for sale. In November 2008, the book value of these buildings was transferred from real estate held for investment to real estate held for sale (see Note 5) and depreciation was discontinued.

720 University, LLC
 
The Partnership has an investment in a limited liability company, 720 University, LLC (720 University), which owns a commercial retail property located in Greeley, Colorado. The Partnership receives 65% of the profits and losses in 720 University after priority return on partner contributions is allocated at the rate of 10% per annum. The assets, liabilities, income and expenses of 720 University have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership.
 
The net income to the Partnership was approximately $170,000 and $204,000 (including depreciation and amortization totaling approximately $552,000 and $615,000) during the years ended December 31, 2009 and 2008, respectively. The non-controlling interest of the joint venture partner of approximately $35,000 and $69,000 as of December 31, 2009 and 2008, respectively, is reported in the accompanying consolidated balance sheets. The Partnership’s investment in 720 University real property was approximately $13,010,000 and $13,440,000 as of December 31, 2009 and 2008, respectively.
 
 
F-21
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Dation, LLC
 
Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a manufactured home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership advances funds to Dation as needed. The Partnership owns 50% of Dation and is the sole general manager of the LLC (pursuant to an amendment to the Operating Agreement signed on October 29, 2007). Pursuant to the Operating Agreement, the Partnership is to receive 50% of Dation’s profits and losses after receipt of all interest on the original loan and priority return on partner contributions allocated at the rate of 12% per annum. The Partnership has recorded 100% of Dation’s net income and losses since inception because it has the majori ty of the risks and rewards of ownership. The assets, liabilities, income and expenses of Dation have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.
 
Dation sold no lots or houses during the year ended December 31, 2009 and 2008. Dation repaid $0 and $75,000, respectively, of Partnership capital contributions during the years ended December 31, 2009 and 2008, respectively. The Partnership advanced an additional $226,000 and $16,000 to Dation during the years ended December 31, 2009 and 2008, respectively, for manufactured home purchases and related improvements.
 
The net operating (loss) income to the Partnership was approximately $(32,000) and $35,000 during the years ended December 31, 2009 and 2008, respectively.
 
DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.  The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $382,000 and $793,000 to DarkHorse during the years ended December 31, 2009 and 2008, respectively, for operations and equipment purchases. The net loss to the Partnership from DarkHorse was approximately $610,000 and $401,000 (including depreciation of $157,000 and $106,000) for the years ended December 31, 2009 and 2008, respectively.
 
Anacapa Villas, LLC

Anacapa Villas, LLC (Anacapa) is a California limited liability company formed in March 2009 for the purpose of owning and operating eight luxury townhomes located in Santa Barbara, California, which were acquired by the Partnership via foreclosure in February 2009. The Partnership is the sole member in Anacapa. The assets, liabilities, income and expenses of Anacapa have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.

The net loss to the Partnership from Anacapa was approximately $335,000 (including depreciation of $306,000) for the year ended December 31, 2009.
 
 
F-22
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The Last Resort and Marina, LLC

The Last Resort and Marina, LLC (Last Resort) is a California limited liability company formed in March 2009 for the purpose of owning and operating a marina with 30 boat slips and 11 RV spaces located in Oakley, California which was acquired by the Partnership via foreclosure in March 2009. The Partnership is the sole member in Last Resort. The assets, liabilities, income and expenses of Last Resort have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.

The net loss to the Partnership from Last Resort was approximately $49,000 (including depreciation of $9,000) for the year ended December 31, 2009.
 
33rd Street Terrace, LLC
 
33rd Street Terrace, LLC (33rd Street) is a California limited liability company formed in May 2009 for the purpose of owning and operating 19 condominium units in a complex located in San Diego, California, which was acquired by the Partnership via foreclosure in May 2009. The Partnership is the sole member in 33rd Street. The assets, liabilities, income and expenses of 33rd Street have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.

The net loss to the Partnership from 33rd Street was approximately $14,000 for the year ended December 31, 2009.
 
Lone Star Golf, LLC
 
Lone Star Golf, LLC (Lone Star) is a California limited liability company formed in June 2009 for the purpose of owning and operating a golf course and country club located in Auburn, California, which was acquired by the Partnership via foreclosure in June 2009. The Partnership is the sole member in Lone Star. The assets, liabilities, income and expenses of Lone Star have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.  The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $211,000 to Lone Star during the year ended December 31, 2009, for operations and equipment purchases. The net loss to the Partnership from Lone Star was approximately $92,000 (including depreciation of $28,000) for the year ended December 31, 2009.
 
54th Street Condos, LLC
 
54th Street Condos, LLC (54th Street) is an Arizona limited liability company formed in December 2009 for the purpose of owning and operating 133 condominium units in a complex located in Phoenix, California, which was acquired by the Partnership via foreclosure in November 2009. The Partnership is the sole member in 54th Street. The assets, liabilities, income and expenses of 54th Street have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.

The net loss to the Partnership from 54th Street was approximately $31,000 for the year ended December 31, 2009.

NOTE 7 - NOTE PAYABLE
 
The Partnership has a note payable with a bank in the amount of $10,500,000 through its investment in 720 University (see Note 6), which is secured by the retail development located in Greeley, Colorado. The note requires monthly interest payments until March 1, 2010 at a fixed rate of 5.07% per annum. Commencing April 1, 2010, monthly payments of $56,816 will be required, with the balance of unpaid principal due on March 1, 2015. Interest expense for the years ended December 31, 2009 and 2008 was approximately $540,000 and $541,000, respectively.
 
 
F-23
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008


NOTE 8 - LINE OF CREDIT PAYABLE

The Partnership has a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. All assets of the Partnership are pledged as security for the line of credit. The line of credit is guaranteed by the General Partner. The line of credit matured by its terms on July 31, 2009.  On October 13, 2009, a Modification to Credit Agreement (the “Modification”) was executed by the Partnership and the Lenders whereby the credit line is no longer available for further advances and the maturity date was extended to March 31, 2010. The General Partner has initiated negotiations with the Lenders to further extend the March 31, 2010 maturity date of the line of credit to a date by which it is anticipated that the Partnership will have sufficient funds to retire the entire outstanding balance on the line of credit. The General Partner’s continuing intention is to cause the Partnership to retire the line of credit as soon as practicable. Based upon discussions with the Lenders, the General Partner expects the extension will be completed on or shortly after the current maturity date, although there can be no assurance that the Partnership will obtain an extension promptly or on terms that are not materially adverse to the Partnership’s operations and financial condition.
 
 
As a result of the Modification, the agent for the Lenders has received collateral assignments of deeds of trusts for current performing note receivables with a value of at least 200% of the credit line’s principal balance.  In addition, all net proceeds of real estate property sales by the Partnership and all payments of loan principal received by the Partnership must be applied to the credit line, until it is fully repaid.  Additionally, while the Partnership has outstanding borrowings on the credit line, the Modification prevents the Partnership from making capital distributions to partners (including withdrawals), other than distributions of up to a 3% annual return on investment.

The unpaid principal amount on the line of credit now bears interest at an annual rate of 1.50% in excess of the prime rate in effect from time to time (the prime rate was 3.25% as of December 31, 2009), subject to an interest rate floor of 7.50% per annum.  Prior to March 2009, interest on the line of credit accrued at the prime rate, but a 5% interest floor was imposed by the Lenders in March 2009 as a condition of a financial covenant waiver. These interest rate increases and floors will immediately increase the Partnership’s cost of funds on such borrowings.
 
The balance outstanding on the line of credit was $23,695,000 and $32,914,000 as of December 31, 2009 and 2008, respectively.  Interest expense was approximately $2,042,000 and $1,573,000 for the years ended December 31, 2009 and 2008, respectively. The Partnership is required to maintain non-interest bearing accounts in the total amount of $986,150 and $1,000,000 as of December 31, 2009 and 2008, respectively, which has been reflected as restricted cash in the accompanying balance sheets.

NOTE 9 - PARTNERS’ CAPITAL
 
Allocations, Distributions and Withdrawals
 
In accordance with the Partnership Agreement, the Partnership’s profits, gains and losses are allocated to each limited partner and OFG in proportion to their respective capital accounts.
 
Distributions of net income are made monthly to the partners in proportion to their weighted-average capital accounts as of the last day of the preceding calendar month. Accrued distributions payable represent amounts to be distributed to partners in January of the subsequent year based on their capital accounts as of December 31.
 
The Partnership makes monthly net income distributions to those limited partners who elect to receive such distributions. Those limited partners who elect not to receive cash distributions have their distributions reinvested in additional limited partnership units. Such reinvested distributions totaled $2,832,000 and $13,162,000 for the years ended December 31, 2009 and 2008, respectively. Reinvested distributions are not shown as partners’ cash distributions or proceeds from sale of partnership units in the accompanying consolidated statements of partners’ capital and cash flows.
 
 
F-24
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts within 61 to 91 days after written notices are delivered to OFG, subject to the following limitations, among others:
 
•
No withdrawal of units can be requested or made until at least one year from the date of purchase of those units, other than units received under the Partnership’s Reinvested Distribution Plan.
 
•
Payments only return all or the requested portion of the capital account and are not affected by the value of the Partnership’s assets, except upon final liquidation of the Partnership.
 
•
Payments are made only to the extent the Partnership has available cash.
 
•
A maximum of $100,000 per partner may be withdrawn during any calendar quarter.
 
•
The general partner is not required to establish a reserve fund for the purpose of funding such payments.
 
•
The total amount withdrawn by all limited partners during any calendar year, combined with the total amount of net proceeds distributed to limited partners during the year, cannot exceed 10% of the aggregate capital accounts of the limited partners, except upon final liquidation of the Partnership.
 
•
Withdrawals requests are honored in the order in which they are received.
 
The Partnership experienced a significant increase in limited partner capital withdrawal requests at the end of 2008 and 2009. Prior to October 13, 2009, the Partnership Agreement permitted only 10% of limited partner capital to be withdrawn in any calendar year, and effective October 13, 2009 (with the adoption of amendments to the Partnership Agreement), this annual 10% limitation applies to the aggregate of limited partner withdrawals and distributions of net proceeds.  As a consequence of the annual 10% limitation, the Partnership was required to suspend approximately $5,000,000 in December 2008 withdrawal requests until January 2009.  All 2009 scheduled withdrawals in the total amount of approximately $57,368,000 (in excess of 10% of limited partner capital) were not made because the Partnership di d not have sufficient available cash to make such withdrawals and, pursuant to the modified line of credit agreement executed in October 2009, is prohibited form making capital distributions until the line of credit is fully repaid.  After the line of credit has been repaid and its restrictions no longer apply, which the General Partner now anticipates will happen in mid to late 2010, when funds become available for distribution from net proceeds, the General Partner anticipates causing the Partnership to make a pro rata distribution to partners of up to 10% of the Partnership’s capital, which will prevent any limited partner withdrawals during the same calendar year.

Carried Interest of General Partner

OFG has contributed capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest, OFG has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of OFG of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to OFG’s capital account as additional compensation. As of December 31, 2009 and 2008, OFG had made cash capital contributions of $1,496,000 to the Partnership. OFG is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance.
 
There was no carried interest expense charged to the Partnership for the years ended December 31, 2009 and 2008.
 
NOTE 10 - CONTINGENCY RESERVES
 
In accordance with the Partnership Agreement and to satisfy the Partnership’s liquidity requirements, the Partnership is required to maintain cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of at least 1-1/2% of the capital accounts of the limited partners to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. The cash capital contributions of OFG (amounting to $1,496,000 as of December 31, 2009), up to a maximum of 1/2 of 1% of the limited partners’ capital
 
 
F-25
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

accounts may be maintained as additional contingency reserves, if considered necessary by the General Partner.  Although the General Partner believes the contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments or other assets to cover such contingencies on terms which might not be favorable to the Partnership, which could lead to unanticipated losses upon sale of such assets.
 
The 1-1/2% contingency reserves required per the Partnership Agreement as of December 31, 2009 and 2008 were approximately $4,311,000 and $4,361,000, respectively. Cash, cash equivalents and certificates of deposit as of the same dates were accordingly maintained as reserves.
 
NOTE 11 - INCOME TAXES
 
The net difference between partners’ capital per the Partnership’s federal income tax return and these financial statements is comprised of the following components: 
 
   
(Unaudited)
2009
  
(Unaudited)
2008
  
Partners’ capital per financial statements
  
$
243,850,605
  
$
273,203,409
  
Accrued interest income
    
(2,100,507
)
  
(1,969,301
)
Allowance for loan losses
    
28,392,938
    
13,727,634
  
Allowance for doubtful receivable
    
—
    
662,179
  
Book/tax differences in basis of real estate properties
    
18,200,029
    
6,732,612
  
Book/tax differences in joint venture investments
    
2,626,609
    
2,192,055
  
Accrued distributions
    
51,407
    
562,740
  
Accrued fees due to general partner
    
135,565
    
(312,927
)
Tax-deferred gain on sale of real estate
    
(2,690,850
)
  
(2,690,850
)
Book-deferred gain on sale of real estate
    
855,482
    
878,509
  
Environmental remediation liability
    
579,095
    
586,877
  
Other
    
502,267
    
128,323
  
Partners’ capital per federal income tax return
  
$
290,402,640
  
$
293,701,260
  

 
NOTE 12 - TRANSACTIONS WITH AFFILIATES
 
OFG is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans at the end of the twelve months in the calendar year for services rendered as manager of the Partnership.
 
All of the Partnership’s loans are serviced by OFG, in consideration for which OFG receives up to 0.25% per annum of the unpaid principal balance of the loans.
 
OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. Even though the fees for a month may exceed 1/12 of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the 12 months must be equal to or less than the stated limits. Management fees amounted to approximately $2,033,000 and $4,204,000 for the years ended December 31, 2009 and 2008, respectively, and are included in the accompanying consolidated statements of income. Service fees amounted to approximately $613,000 and $686,000 for the years ended December 31, 200 9 and 2008, respectively, and are included in the accompanying consolidated statements of income. As of December 31, 2009, the Partnership owed management and servicing fees to OFG in the amount of approximately $362,000. As of December 31, 2008, OFG owed the Partnership approximately $44,000 as reimbursement of prior months’ management fees.
 
 
F-26
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The maximum servicing fees were paid to OFG during the years ended December 31, 2009 and 2008. If the maximum management fees had been paid to OFG during the year ended December 31, 2009, the management fees would have been $6,740,000 (increase of $4,707,000), which would have increased the net loss allocated to limited partners by approximately 23.4% and would have increased the net loss allocated to limited partners per weighted average limited partner unit by the same percentage to a loss of $0.10 from a loss of $0.08. If the maximum management fees had been paid to OFG during the year ended December 31, 2008, the management fees would have been $7,545,000 (increase of $3,341,000), which would have reduced net income allocated to limited partners by approximately 154.6%, and would have reduced net income allocated to limited partner s per weighted average limited partner unit by the same percentage to a loss of $0.004 from a profit of $0.01.
 
In determining the yield to the partners and hence the management fees, OFG may consider a number of factors, including current market yields, delinquency experience, uninvested cash and real estate activities. Large fluctuations in the management fees paid to the General Partner are normally a result of extraordinary items of income or expense within the Partnership (such as gains or losses from sales of real estate, large increases or decreases in delinquent loans, etc.). Thus, OFG expects that the management fees that it receives from the Partnership will vary in amount and percentage from period to period, and OFG may again receive less than the maximum management fees in the future. However, if OFG chooses to take the maximum allowable management fees in the future, the yield paid to limited partners may be reduced.
 
Pursuant to the Partnership Agreement, OFG receives all late payment charges from borrowers on loans owned by the Partnership, with the exception of those loans participated with outside entities. The amounts paid to or collected by OFG for such charges on Partnership loans totaled approximately $966,000 and $1,203,000 for the years ended December 31, 2009 and 2008, respectively. In addition, the Partnership remits other miscellaneous fees to OFG, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $24,000 and $34,000 for the years ended December 31, 2009 and 2008, respectively.
 
OFG originates all loans the Partnership invests in and receives loan origination fees from borrowers. Such fees earned by OFG amounted to approximately $1,588,000 and $3,549,000 on loans originated or extended of approximately $38,831,000 and $136,675,000 for the years ended December 31, 2009 and 2008, respectively. Such fees as a percentage of loans purchased by the Partnership were 4.1% and 2.6% for the years ended December 31, 2009 and 2008, respectively. Of the $1,588,000 in loan origination fees earned by OFG during the year ended December 31, 2009, approximately $1,077,000 were back-end fees that will not be collected until the related loans are paid in full.
 
OFG is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to OFG by the Partnership during the years ended December 31, 2009 and 2008 were $72,000 and $88,000, respectively.
 
During 2007, the Partnership funded a $30,000,000 portion of a $75,200,000 mortgage loan secured by a condominium complex (in the process of conversion and renovation) located in Miami, Florida and entered into a Co-Lending and Servicing Agent Agreement (the “Agreement”) with three other co-lenders in the loan.  The General Partner is also a co-lender in the subject loan and is party to the Agreement. See Note 3 for further information about this participated loan.
 
During 2007, the President of the General Partner funded a $600,000 second deed of trust secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,400,000 at an interest rate of 11% per annum.  The interest rate on the President’s loan was 12% per annum.  Both of these loans were paid off in full in 2008.
 
 
F-27
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

As of December 31, 2009 and 2008, the General Partner held second and fourth deeds of trust in the total amount of approximately $853,000 and $789,000, respectively, secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,200,000 at an interest rate of 12% per annum.  Approximately $517,000 of the General Partner’s second deed of trust is an exit fee included in the deed of trust at the time of loan origination in 2006. The interest rate on the General Partner’s loan is 17% per annum. The loans to the Partnership and the General Partner are greater than ninety days delinquent and past maturity as of December 31, 2009.
 
NOTE 13 - NET (LOSS) INCOME PER LIMITED PARTNER UNIT
 
Net (loss) income per limited partnership unit is computed using the weighted average number of limited partnership units outstanding during the year. These amounts were approximately 257,692,000 and 288,606,000 for the years ended December 31, 2009 and 2008, respectively.
 
NOTE 14 - RENTAL INCOME
 
The Partnership’s real estate properties held for investment are leased to tenants under noncancellable leases with remaining terms ranging from one to eighteen years. Certain of the leases require the tenant to pay all or some operating expenses of the properties. The future minimum rental income from noncancellable operating leases due within the five years subsequent to December 31, 2009, and thereafter is as follows:
 
Year ending December 31:
        
2010
  
$
2,006,993
  
2011
    
1,850,002
  
2012
    
1,488,433
  
2013
    
1,367,051
  
2014
    
1,252,584
  
Thereafter (through 2026)
    
5,080,777
  
         
   
$
13,045,840
  

NOTE 15 - FAIR VALUE
 
The Partnership accounts for its financial assets and liabilities pursuant to ASC 820 – Fair Value Measurements and Disclosures.  The Partnership adopted ASC 820 for its nonfinancial assets and nonfinancial liabilities effective January 1, 2009, which includes the Partnership’s real estate properties held for sale and investment. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
 
Fair value is defined in ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1       Quoted prices in active markets for identical assets or liabilities
 
Level 2       Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in active markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities
 
Level 3       Unobservable inputs that are supported by little or no market activity, such as the
Partnership’s own data or assumptions

 
F-28
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

Level 3 inputs include unobservable inputs that are used when there is little, if any, market activity for the asset or liability measured at fair value. In certain cases, the inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level in which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

The following is a description of the Partnership’s valuation methodologies used to measure and disclose the fair values of its financial and nonfinancial assets and liabilities on a recurring and nonrecurring basis.
 
Certificates of Deposit
 
Certificates of deposit are held in several federally insured depository institutions and have original maturities greater than three months. These investments are held to maturity and are recorded at fair value on a recurring basis.  Fair value measurement is estimated using a matrix based on interest rates.
 
Impaired Loans
 
The Partnership does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established.  A loan is considered impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement or when monthly payments are delinquent greater than ninety days. Once a loan is identified as impaired, management measures impairment in accordance with ASC 310-10-35.  The fair value of impaired loans is estimated by either an observable market price (if available) or the fair value of the underlying collateral, if collateral dependent.  The fair value of the loan’s collateral is determined by third party appra isals, broker price opinions, comparable property sales or other indications of value. Those impaired loans not requiring an allowance represent loans for which the fair value of the collateral exceed the recorded investments in such loans. At December 31, 2009, the majority of the total impaired loans were evaluated based on the fair value of the collateral.  In accordance with ASC 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price or is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data, the Partnership records the impaired loan as nonrecurring Level 2.  When an appraised value is not available, management determines the fair value of the collateral is further impaired below the appraised value or there is no observable market data included in a current appraisal, the Partnership records the impaired loan as nonrecurring Level 3.
 
Real Estate Held for Sale and Investment
 
Real estate held for sale and investment includes properties acquired through foreclosure of the related loans. When property is acquired, any excess of the Partnership’s recorded investment in the loan and accrued interest income over the estimated fair market value of the property, net of estimated selling costs, is charged against the allowance for credit losses. Subsequently, real estate properties are carried at the lower of carrying value or fair value less costs to sell. The Partnership periodically compares the carrying value of real estate held for investment to expected future cash flows as determined by internally or third party generated valuations (including third party appraisals) for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, th e assets are reduced to fair value. As fair value is generally based upon the future undiscounted cash flows, the Partnership records the impairment on real estate properties as nonrecurring Level 3. 
 
 
F-29
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheet measured at fair value on a recurring and nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2009 and 2008:
 
   
Fair Value Measurements Using
 
Carrying Value
Quoted Prices In Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
2009
        
Recurring:
        
Certificates of deposit
$    1,715,591
—
   $        1,715,591
 —
         
Nonrecurring:
        
Impaired loans
$  38,581,158
—
                        —
$    38,581,158
Real estate properties
$  27,733,449
—
                        —
   $    27,733,449
         
2008
        
Recurring:
        
Certificates of deposit
$    2,229,601
                             —
   $       2,229,601
                          —
         
Nonrecurring:
        
Impaired loans
$  23,978,649
                             —
                        —
      $    23,978,649
         

The following is a reconciliation of the beginning and ending balances of nonrecurring fair value measurements recognized in the accompanying consolidated balance sheet using significant unobservable (Level 3) inputs:

 
Impaired
Loans
  
Real Estate Properties
  
Balance, January 1, 2008
    $                —
  
     $           —
  
Total realized and unrealized gains and losses:
        
Included in net income
          (6,414,634)
  
                  —
  
Transfers in and/or out of Level 3
         30,393,283
  
                  —
  
Balance, December 31, 2009
     $  23,978,649
  
     $           —
  
         
Balance, January 1, 2009
$  23,978,649
  
$            —
  
Total realized and unrealized gains and losses:
Included in net loss
   (26,142,853)
  
        (3,616,519)
  
Foreclosures
          (8,414,597)
  
              8,414,597
  
Transfers in and/or out of Level 3
   49,159,959
  
          22,935,371
  
Balance, December 31, 2009
$   38,581,158
  
     $27,733,449
  


 
F-30
 
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2009 and 2008

The following methods and assumptions were used to estimate the fair value of financial instruments not recognized at fair value in the accompanying consolidated balance sheets pursuant to ASC 825-10.
 
Cash, Cash Equivalents and Restricted Cash
 
The carrying amount of cash, cash equivalents and restricted cash approximates fair value because of the relatively short maturity of these instruments.
 
Loans Secured by Trust Deeds
 
The carrying value of loans secured by trust deeds, other than those analyzed under ASC 310-10-35 and ASC 820 above, approximates the fair value. The fair value is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made by the Partnership. 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.
 
Line of Credit Payable
 
The carrying value of the line of credit payable is estimated to be fair value as borrowings on the line of credit are short-term and the line bears interest at a variable rate (equal to the bank’s prime rate plus 1.5% but subject to a floor of not less than 7.5% per annum).
 
Note Payable
 
The fair value of the Partnership’s note payable with a carrying value of $10,500,000 is estimated to be approximately $9,856,000 as of December 31, 2009. The fair value is estimated based upon comparable market indicators of current pricing for the same or similar issue or on the current rate offered to the Partnership for debt of the same remaining maturity.
 
NOTE 16 - COMMITMENTS AND CONTINGENCIES

Construction/Rehabilitation Loans

The Partnership makes construction, rehabilitation and other 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.  As of December 31, 2009, there were approximately $668,000 of undisbursed loan funds which will be funded by a combination of repayments of principal on current loans or cash reserves.  The Partnership does not maintain a separate cash reserve to hold the undisbursed obligations that will be funded.

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.

NOTE 17 – FOURTH QUARTER INFORMATION

During the quarter ended December 31, 2009, the Partnership recorded a provision for loan losses of approximately $11,046,000 and impairment losses on real estate properties of approximately $3,280,000.


 
 
F-31
 
                                                                                                                                                                                                                                                                                             SCHEDULE IV
OWENS MORTGAGE INVESTMENT FUND
MORTGAGE LOANS ON REAL ESTATE — DECEMBER 31, 2009
Description
  
Interest Rate
  
Final Maturity date
  
Carrying Amount of Mortgages
    
Principal Amount of Loans Subject to Delinquent Principal
  
Principal Amount of Loans Subject to Delinquent Payments
  
TYPE OF PROPERTY
                      
Commercial
  
8.00-12.00%
  
Current to June 2016
$
100,400,765
  
$
55,350,995
  
$
55,590,121
  
Condominiums
  
10.00-12.00%
  
Current
  
59,470,752
    
59,470,752
    
59,470,752
  
Apartments
  
11.00%
  
Current
  
4,325,000
    
4,325,000
    
4,325,000
  
Single family homes (1-4 units)
  
11.00-11.50%
  
Current to Oct. 2017
  
327,127
    
250,000
    
250,000
  
Improved and unimproved land
  
11.00-12.00%
  
Current to Sept. 2010
  
47,260,116
    
45,172,642
    
26,402,837
  
TOTAL
        
$
211,783,760
  
$
164,569,389
  
$
146,038,710
  
                           
AMOUNT OF LOAN
                      
$0-250,000
  
10.00-11.50%
  
Sept. 2010 to Oct. 2017
$
455,333
  
$
250,000
  
$
311,978
  
$250,001-500,000
  
10.00-12.00%
  
Current to Sept. 2010
  
1,492,851
    
1,062,851
    
365,000
  
$500,001-1,000,000
  
10.50-12.00%
  
Current to Sept. 2010
  
3,488,490
    
2,938,490
    
1,613,490
  
Over $1,000,000
  
8.00-12.00%
  
Current to June 2016
  
206,347,086
    
160,318,048
    
143,748,242
  
TOTAL
        
$
211,783,760
  
$
164,569,389
  
$
146,038,710
  
                           
POSITION OF LOAN
                      
First
  
8.00-12.00%
  
Current to June 2016
$
189,642,783
  
$
144,643,655
  
$
126,112,976
  
Second and Third
  
10.50-12.00%
  
Current to Feb. 2012
  
22,140,977
    
19,925,734
    
19,925,734
  
TOTAL
        
$
211,783,760
  
$
164,569,389
  
$
146,038,710
  

NOTE 1:
All loans are arranged by or acquired from an affiliate of the Partnership, namely Owens Financial Group, Inc.,
the General Partner.
NOTE 2:
 
Balance at beginning of period (1/1/08)
  
$
277,375,481
  
Additions during period:
        
New mortgage loans
    
95,669,713
  
Note taken back from sale of real estate property
    
1,450,000
  
Subtotal
    
374,495,194
  
Deductions during period:
        
Collection of principal
    
85,295,118
  
Sales of loans to third parties at face values
    
8,744,177
  
Foreclosures
    
18,219,698
  
Balance at end of period (12/31/08)
  
$
262,236,201
  
         
Balance at beginning of period (1/1/09)
  
$
262,236,201
  
Additions during period:
        
New mortgage loans
    
17,229,320
  
Subtotal
    
279,465,521
  
Deductions during period:
        
Collection of principal
    
32,774,343
  
Foreclosures
    
34,907,418
  
Balance at end of period (12/31/09)
  
$
211,783,760
  

During the years ended December 31, 2009 and 2008, the Partnership refinanced loans totaling $0 and $13,564,000, respectively, thereby extending the maturity date.
 
 
F-32
 
 
NOTE 3:  Included in the above loans are the following loans which exceed 3% of the total loans as of December 31, 2009. There are no other loans that exceed 3% of the total loans as of December 31, 2009:
Description
  
Interest Rate
  
Final Maturity  Date
  
Periodic Payment Terms
  
Prior Liens
  
Face Amount of Mortgages
  
Carrying Amount of Mortgages
Principal Amount of Loans Subject to Delinquent Principal or Interest
                                 
Condominiums  (Participated Loan)
Miami, Florida
  
10.00%
  
2/1/08
  
Interest only, balance due at maturity
  
                  $0
    
$75,200,000
    
$13,537,496
Note 5
  
$13,537,496
                                 
Land
S. Lake Tahoe, California (3 Notes)
  
12.00%
 
  
1/1/09
  
Interest only, balance due at maturity
  
  $27,770,087
    
$23,680,000
    
$22,923,490
  
$22,923,490
                                 
Assisted Living Facilities                      La Mesa and Laguna Beach, California and Bensalem, PA
  
11.00%
  
4/30/08
  
Interest only, balance due at maturity
  
       $810,000
    
$20,000,000
    
$16,000,000
  
$16,000,000
                                 
Unimproved Land
Gypsum, Colorado
(2 Notes)
  
12.00%
  
12/31/09
  
Interest only, balance due at maturity
  
                  $0
    
$12,835,000
    
$12,810,305
  
$12,810,305
                                 
Assisted Living Facility
Patterson, New York
  
10.75%
  
10/15/11
  
Interest only, balance due at maturity
  
                  $0
    
$10,500,000
    
$10,500,000
  
$0
                                 
Condominiums
(Rehabilitation Loan)
Oakland, California
(2 Notes)
  
11.00%
12.00%
  
2/15/09
  
Interest only, balance due at maturity
  
                  $0
    
$11,600,000
    
$11,600,000
  
$11,600,000
                                 
Mixed Commercial Building                       S. Lake Tahoe, California
  
9.40%
  
6/24/14
  
Interest only, balance due at maturity
  
                  $0
    
$19,000,000
    
$9,000,000
  
$0
                                 
Medical Office Condos (Rehabilitation Loan) Gilbert, Arizona
  
11.50%
  
5/1/09
  
Interest only, balance due at maturity
  
                  $0
    
$9,725,000
    
$4,690,628
Note 6
  
$4,690,628
                                 
Industrial Building Chico, California
  
12.00%
  
6/1/09
  
Interest only, balance due at maturity
  
                  $0
    
$8,500,000
    
$4,630,896
Note 7
  
$4,630,896
                                 
Mixed Commercial Building
Pleasanton, California
  
11.00%
  
4/1/09
  
Interest only, balance due at maturity
  
                  $0
    
$7,834,000
    
$7,834,000
  
     $7,834,000
                                 
Condominiums
(Rehabilitation Loan)
Phoenix, Arizona
  
11.00%
  
7/1/09
  
Interest only, balance due at maturity
  
                  $0
    
$7,535,000
    
$3,696,367
Note 8
  
     $3,696,367
                                 
Condominiums
(Rehabilitation Loan)
Lakewood, Washington
(4 Notes)
  
12.00%
  
11/28/09
  
Interest only, balance due at maturity
  
                  $0
    
$7,228,000
    
$6,957,370
  
     $6,957,370
TOTALS
              
  $28,580,087
    
$213,637,000
    
$124,180,552
  
$104,680,552

NOTE 4:
The aggregate cost of the above mortgages for Federal income tax purposes is $146,412,569 as of December 31, 2009.

NOTE 5:
A third party appraisal and other valuation support was obtained on this loan’s underlying property resulting in a total specific loan loss allowance of $9,945,085 as of December 31, 2009.

 
F-33
 
NOTE 6:
A third party appraisal was obtained on this loan’s underlying property resulting in a specific loan loss allowance of $4,901,150 as of December 31, 2009.

NOTE 7:
A third party appraisal was obtained on this loan’s underlying property resulting in a specific loan loss allowance of $3,869,104 as of December 31, 2009.

NOTE 8:
A third party appraisal was obtained on this loan’s underlying property resulting in a specific loan loss allowance of $3,516,678 as of December 31, 2009.
























 
 
F-34
 

EX-31.1 2 omif10kex31-1.htm EXHIBIT 31-1 omif10kex31-1.htm

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION


I, William C. Owens, certify that:

1.
I have reviewed this annual report on Form 10-K/A of Owens Mortgage Investment Fund, a California Limited Partnership (the “Registrant”);
 
2.
Based on my knowledge, this 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 report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
 
4.
The Registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and 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 report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
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
 
 
(d)
Disclosed in this report any change in the Registrant’s internal 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 officer 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.
 

Dated:  May 17, 2010

/s/ William C. Owens
William C. Owens
Chief Executive Officer and President
Owens Financial Group, Inc., General Partner


 
 
 

EX-31.2 3 omif10kex31-2.htm EXHIBIT 31-2 omif10kex31-2.htm

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION


I, Bryan H. Draper, certify that:

1.
I have reviewed this annual report on Form 10-K/A of Owens Mortgage Investment Fund, a California Limited Partnership (the “Registrant”);
 
2.
Based on my knowledge, this 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 report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
 
4.
The Registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and 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 report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
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
 
 
(d)
Disclosed in this report any change in the Registrant’s internal 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 officer 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.
 

Dated:  May 17, 2010

/s/ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer and Secretary
Owens Financial Group, Inc., General Partner


 
 

 EX-32 4 omif10kex32.htm EXHIBIT 32 omif10kex32.htm

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

 
 
William C. Owens as Chief Executive Officer and President of Owens Financial Group, Inc., the General Partner of Owens Mortgage Investment Fund, a California Limited Partnership
(the “Registrant”), and Bryan H. Draper, as Chief Financial Officer and Secretary of Owens Financial Group, Inc., hereby certify, pursuant to 18 U.S.C. § 1350, that:
 
          (1)  the Registrant’s Report on Form 10-K/A for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”)
fully complies with the applicable 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 Registrant.
 
 
 
/s/ William C. Owens
William C. Owens
Chief Executive Officer and President of Owens Financial Group, Inc., General Partner
May 17, 2010

/s/ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer and Secretary of Owens Financial Group, Inc., General Partner
May 17, 2010


 
 

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