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Red Oak Capital Fund IV

Filed: 21 Sep 21, 5:02pm
 

UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 1-SA
 
☒ SEMIANNUAL REPORT PURSUANT TO REGULATION A
or
☐ SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A 
 
For the fiscal semiannual period ended: June 30, 2021
 
RED OAK CAPITAL FUND IV, LLC
(Exact name of issuer as specified in its charter)
 
Delaware 84-3642502
State or other jurisdiction of
incorporation or organization
 
(I.R.S. Employer
Identification No.)  
 
625 Kenmoor Avenue SE, Suite 200
Grand Rapids, Michigan 49546
(Full mailing address of principal executive offices)
 
(616) 734-6099
(Issuer’s telephone number, including area code)
 
 



 
 
In this semi-annual report, references to the “Company,” “we,” “us” or “our” or similar terms refer to Red Oak Capital Fund IV, LLC, a Delaware limited liability company and references to our “Manager” refer to Red Oak Capital GP, a Delaware limited liability company, our sole member and manager. As used in this semi-annual report, an affiliate of, or person affiliated with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
 
Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statement Regarding Forward Looking Statements
 
This Semi-Annual Report on Form 1-SA of Red Oak Capital Fund IV, LLC, a Delaware limited liability company, referred to herein as “we,” “us,” “our” or “the Company,” contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth or anticipated in our forward-looking statements.
 
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this report. The matters summarized below and elsewhere in this report could cause our actual results and performance to differ materially from those set forth or anticipated in forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this report, whether as a result of new information, future events or otherwise.
 
General
 
Red Oak Capital Fund IV, LLC, a Delaware limited liability company, was formed on October 31, 2019. We acquire and manage commercial real estate loans and securities and other real estate-related debt instruments. We implement an investment strategy that preserves and protects our capital while producing attractive risk-adjusted returns generated from current income on our portfolio. We actively participate in the servicing and operational oversight of our assets through our manager, Red Oak Capital GP, LLC, or our Manager, rather than subrogate those responsibilities to a third party.
 
The Company does not act as a land or real estate developer and currently has no intent to invest in, acquire, own, hold, lease, operate, manage, maintain, redevelop, sell or otherwise use any undeveloped real property or developed real property, unless such actions are necessary or prudent based upon borrower default in accordance with the terms of the debt instruments held by the Company.
 
We filed an offering statement on Form 1-A, or the Offering Statement, with the United States Securities and Exchange Commission, or the SEC, on November 19, 2019, which offering statement was qualified by the SEC on January 29, 2020. Pursuant to the Offering Statement, we offered a maximum of $50,000,000 in the aggregate of the Company’s 6.25% Series A, 8.25% Series B, 6.50% Series Ra, 9.00% Series Rb senior secured bonds, or collectively the Bonds. The purchase price per Bond was $1,000. As of August 20, 2020, the Offering reached the maximum aggregate raise of $50,000,000 through issuing $1,540,000, $44,679,000, $710,000, and $3,071,000 of Series A, Series B, Series Ra, and Series Rb Bonds, respectively. We have used and continue to use the proceeds of the sale of Bonds to invest in collateralized senior commercial mortgage notes, or property loans, and pay or reimburse selling commissions and other fees and expenses associated with the offering of the Bonds.
 
As of June 30, 2021, the Company held 12 senior secured loans, providing $41,331,421 of senior secured loans to various borrowers. The portfolio of loans possessed interest rates averaging 11% and maturities ranging from July 22, 2021 to October 28, 2022. The following tables outlines the major terms of each loan closed by the Company as lender:
 
Borrower
Location
Maturity
 Note Principal
 
 Interest Rate
 
The Legacy Group Properties, LLC New Iberia, LA10/24/2021
 $2,000,000 
  13.00%
West Valley Commons Equity Group, LLC Thomaston, GA10/31/2021
 $1,556,250 
  18.00%
Tapestry Cooper River, LLC Pennsauken Twp, NJ11/29/2021
 $2,500,000 
  19.00%
DE Group Investment, LLC Madison, FL12/16/2021
 $1,725,000 
  13.00%
Carpino Investments 2, LLC Eden, NC7/22/2021
 $1,500,000 
  11.00%
Mile High 3, LLC Egg Harbor Twp, NJ7/27/2021
 $3,350,000 
  11.00%
9711 Linkmeadow, LLC Humble, TX8/31/2021
 $1,162,600 
  8.00%
BT Apartment Rentals, LLC Topeka, KS10/31/2021
 $5,459,000 
  11.00%
Phoenix Ten Properties, LLC Roswell, GA10/15/2022
 $9,650,000 
  11.50%
M & M Iconic Venture LLC Detroit, MI10/28/2022
 $6,928,571 
  8.00%
The Oaks Senior Living, LLC San Rafael, CA6/30/2023
 $5,500,000 
  12.00%
 
 
2
 
 
On February 24, 2021, the Company entered into that certain Loan Participation and Servicing Agreement (“AI 200 Walker Agreement”) whereby the Company sold a participation interest equal to approximately 68.4% of the Loan to AI 200 Walker Funding LLC, a Delaware limited liability company, for a purchase price of $15,000,000. Descriptions of the AI 200 Walker Agreement are incorporated by reference herein to that Current Report on Form 1-U dated March 2, 2021, located at: https://www.sec.gov/Archives/edgar/data/0001794418/000165495421002214/redoakiv_1u.htm.
 
On April 21, 2021, the previous sponsor, Red Oak Capital Group, LLC (“ROCG”), of Red Oak Capital Fund IV, LLC (the “Company”) completed an interest exchange (the “Exchange”) whereby Red Oak Capital Holdings, LLC (“ROCH”) acquired all of the equity interests in the Company’s manager, Red Oak Capital GP, LLC (“ROGP”), from ROCG (former 90% owner of ROGP) and Mr. Raymond Davis (former 10% owner of ROGP). Further information is available in the Current Report on Form 1-U dated April 21, 2021, located at: https://www.sec.gov/Archives/edgar/data/0001794418/000165495421004674/redoakiv_1u.htm
 
We are managed by our Manager, which is wholly owned by Red Oak Capital Holdings, LLC and wholly controlled by Red Oak Holdings Management, LLC, a Delaware limited liability company, or our Sponsor, a Grand Rapids, Michigan based commercial real estate finance company specializing in the acquisition, processing, underwriting, operational management and servicing of commercial real estate debt instruments. We benefit from our Sponsor’s significant experience in the marketing and origination of project transactions in which to properly and efficiently evaluate suitable investments for our Company.
 
We do not have any employees. We rely on the employees of our Sponsor, as the sole member of our Manager, and its affiliates for the day-to-day operation of our business.
 
Results of Operations – For the Six-months Ended June 30, 2021
 
We operate on a calendar year. Set forth below is a discussion of our operating results for the six-months ended June 30, 2021.
 
As of June 30, 2021, the Company held twelve senior secured loans, pursuant to which the Company, as the lender, provided $56,331,421 of gross proceeds for senior secured loans to various borrowers. The Company has sold a participation interest equal to approximately 68.4% of one loan for a purchase price of $15,000,000.
 
The borrowers generally have the option to extend the maturity date of the notes for two additional six-month terms, subject to certain terms and conditions, including the payment of extension points in an amount equal to one to two percent (1.0% - 2.0%) of the outstanding and unpaid principal at the time of each additional extension and a one to two percent (1.0% - 2.0%) increase in the note’s interest rate for each additional extension option. The notes are prepayable in whole or in part, subject to the following penalties for prepayment: (i) any payment of principal within the first six (6) months of the loan term is subject to a penalty of three percent (3.0%) of the unpaid principal balance; and (ii) during the remainder of the loan term, any prepayment of the principal outstanding balance outside of the six (6) months prior to the maturity date is subject to a penalty of one percent (1.0%) of the unpaid principal balance.
 
For the six-months ended June 30, 2021, our total revenues from operations amounted to $2,641,768. Operating costs for the same period, including bond interest expense of $2,400,122 and management fees of $437,500 amounted to $3,043,046. Net loss for the period amounted to $401,278.
 
We are working diligently through our expanding pipeline of potential senior secured loans in order to deploy our cash on hand.
 
Results of Operations – For the Six-months Ended June 30, 2020
 
We operate on a calendar year. Set forth below is a discussion of our operating results for the six-months ended June 30, 2020.
 
As of June 30, 2020, the Company held five senior secured loan, pursuant to which the Company, as the lender, provided $10,593,750 of senior secured loans to various borrowers.
 
The borrowers generally have the option to extend the maturity date of the notes for two additional six-month terms, subject to certain terms and conditions, including the payment of extension points in an amount equal to two percent (2.0%) of the outstanding and unpaid principal at the time of each additional extension and a one percent (1.0%) increase in the note’s interest rate for each additional extension option. The notes are prepayable in whole or in part, subject to the following penalties for prepayment: (i) any payment of principal within the first six (6) months of the loan term is subject to a penalty of three percent (3.0%) of the unpaid principal balance; and (ii) during the remainder of the loan term, any prepayment of the principal outstanding balance outside of the six (6) months prior to the maturity date is subject to a penalty of one percent (1.0%) of the unpaid principal balance.
 
For the six-months ended June 30, 2020, our total revenues from operations amounted to $196,376. Operating costs for the same period, including organization fees of $883,460 and bond interest expense of $900,206 amounted to $1,989,898. Net loss for the period amounted to $1,793,522.
 
We are working diligently through our expanding pipeline of potential senior secured loans in order to deploy our cash on hand as well as the proceeds from future closings of our Bonds offering, which has been held on or about the 20th of each month through the final closing date of August 20, 2020.
 
 
3
 
 
Liquidity and Capital Resources
 
As of June 30, 2021, we have sold $1,455,000, $39,516,000, $710,000, and $2,492,000 of Series A, Series B, Series Ra, and Series Rb Bonds, respectively, pursuant to our offering of Bonds. Our principal demands for cash will continue to be for acquisition costs, including the purchase price or principal amount of any property loans, securities or other assets we acquire, the payment of our operating and administrative expenses, and all continuing debt service obligations, including our debt service on the Bonds. Generally, we will fund additional acquisitions from the net proceeds of the Bonds offering. We intend to acquire additional assets with cash and/or debt. We will also fund new acquisitions of investments through cash received at the maturity of existing investments.
 
We expect to use debt financing in addition to our Bonds as a source of capital. We have a limit of 25% of the aggregate Bond principal raised on the amount of additional debt that can be employed in the operations of the business.
 
We anticipate that adequate cash will be generated from operations to fund our operating and administrative expenses, and all continuing debt service obligations, including the debt service obligations of the Bonds. However, our ability to finance our operations is subject to some uncertainties. Our ability to generate working capital is dependent upon the performance of the mortgagor related to each of our assets and the economic and business environments of the various markets in which our underlying collateral properties are located. Our ability to liquidate our assets is partially dependent upon the state of real estate markets and the ability of mortgagors to obtain financing at reasonable commercial rates. In general, we intend to pay debt service from cash flow obtained from operations. If cash flow from operations is insufficient then we may exercise the option to partially leverage the asset to increase liquidity. If we have not generated sufficient cash flow from our operations and other sources, such as from borrowings, we may use funds out of our reserve account that’s used to pay our Bond obligations, or our Bond Service Reserve. Moreover, our Manager may change this policy, in its sole discretion, at any time to facilitate meeting its cash flow obligations.
 
Potential future sources of capital include secured or unsecured financings from banks or other lenders, establishing additional lines of credit, proceeds from the sale of assets and undistributed cash flow, subject to the limitations previously described. Note that, currently, we have not identified any additional source of financing, other than the proceeds from our Bonds offering, and there is no assurance that such sources of financing will be available on favorable terms or at all.
 
Trend Information
 
We reached the maximum allowable raise and closed the Offering as of August 20, 2020. As such, we will no longer issue additional bonds. We intend to use the net proceeds from the Offering to continue to issue senior secured loans on commercial real estate and thereby increase cash flows.
 
In the first quarter of 2021, we did not close on any senior secured loans and completed a partial sale of one existing loan for $15,000,000 to a participating lender. In the second quarter of 2021, we closed on one senior secured loan with $5,500,000 in principal outstanding. The closing of senior secured loans has increased from the first quarter of 2021 to the second quarter of 2021, and we expect the deployment of capital to increase through December 31, 2021. As we issue additional senior secured loans on commercial real estate, the Company’s cash flows increase.
 
As a result of the global outbreak of a new strain of coronavirus, COVID-19, economic uncertainties have arisen that continue to have an adverse impact on economic and market conditions. The global impact of the outbreak has been rapidly evolving, and the outbreak presents material uncertainty and risk with respect to our future financial results and capital raising efforts. We are unable to quantify the impact COVID-19 may have on us at this time. We have experienced an increase in the number of late payments and defaulting borrowers as of the date of this report and may experience additional adverse effects in the performance of our existing loans as a result of COVID-19 which may materially alter our ability to pay our debt service obligations and fees.
 
Item 2.  Other Information
 
None.
 

4
 
 
Item 3. Financial Statements
 
TABLE OF CONTENTS
 
RED OAK CAPITAL FUND IV, LLC FINANCIAL STATEMENTS 
Financial Statements as of June 30, 2021 and December 31, 2020 
Balance Sheet1
Statement of Operations1
Statement of Changes in Member’s Capital1
Statement of Cash Flows1
Notes to Financial Statements1
 

5
 
 
Red Oak Capital Fund IV, LLC
Balance Sheets

      
 
June 30, 2021
 
 
December 31, 2020
 
      
 
(Unaudited)
 
 
(Audited)
 
      
 
  
 
 
  
 
Assets     
 
  
 
 
  
 
      
 
  
 
 
  
 
Current assets:     
 
  
 
 
  
 
Cash and cash equivalents    
 $10,921,356 
 $4,725,533 
Restricted cash - bond service reserve   
  - 
  100,003 
Mortgage loans receivable, held for investment, net  
  19,115,915 
  18,825,424 
Loan interest receivable    
  705,060 
  282,060 
Accrued paid-in-kind interest    
  361,743 
  111,174 
Accounts receivable    
  30,000 
  - 
Total current assets    
  31,134,074 
  24,044,194 
      
    
    
Long-term assets:     
    
    
Mortgage loans receivable, held for investment, net  
  21,676,200 
  31,062,677 
      
    
    
      
    
    
Total assets     
 $52,810,274 
 $55,106,871 
      
    
    
Liabilities and Member's Deficit   
    
    
      
    
    
Current liabilities:     
    
    
Loan interest reserves    
 $5,136,275 
 $5,788,151 
Loan construction reserves    
  2,976,938 
  4,734,094 
Bond interest payable    
  1,026,332 
  1,026,332 
Due to managing member    
  178,125 
  28,125 
Other current liabilities    
  10,000 
  - 
Total current liabilities    
  9,327,670 
  11,576,702 
      
    
    
Long-term liabilities:    
    
    
Series A bonds payable, net    
  1,473,432 
  1,461,886 
Series B bonds payable, net    
  41,362,722 
  41,027,721 
Series Ra bonds payable, net    
  700,870 
  698,606 
Series Rb bonds payable, net    
  3,036,551 
  3,031,649 
Total long-term liabilities    
  46,573,575 
  46,219,862 
      
    
    
Member's deficit     
  (3,090,971)
  (2,689,693)
      
    
    
Total liabilities and member's deficit   
 $52,810,274 
 $55,106,871 
 
 
6
 
 
Red Oak Capital Fund IV, LLC
Statements of Operations
(Unaudited)


 
For the Six Months Ending June 30
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
Mortgage interest income
 $2,391,195 
 $146,292 
Paid-in-kind interest income
  250,569 
  - 
Bank interest income
  4 
  50,084 
Total revenue
  2,641,768 
  196,376 
 
    
    
Expenses:
    
    
Bond interest expense
  2,400,122 
  900,206 
Management fees
  437,500 
  165,972 
Management disposition fees
  150,000 
  - 
Organization fees
  - 
  883,460 
General and administrative
  55,424 
  40,260 
Total expenses
  3,043,046 
  1,989,898 
 
    
    
Net income (loss)
 $(401,278)
 $(1,793,522)
 

7
 
 
Red Oak Capital Fund IV, LLC
Statements of Changes in Member's Capital
(Unaudited)

 
 
Managing Member
 
 
 
 
 
Member's deficit, January 1, 2020
 $- 
 
    
Capital contributions
  100 
 
    
Net income (loss)
  (1,793,522)
 
    
Member's deficit, June 30, 2020
 $(1,793,422)
 
    
Member's deficit, January 1, 2021
 $(2,689,693)
 
    
Net income (loss)
  (401,278)
 
    
Member's deficit, June 30, 2021
 $(3,090,971)
 

8
 
 

Red Oak Capital Fund IV, LLC
Statements of Cash Flows
(Unaudited)


 
For the Six Months Ending June 30
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss)
 $(401,278)
 $(1,793,522)
 
    
    
Adjustments to reconcile net income (loss) to net cash
    
    
provided by (used in) operating activities:
    
    
Accretion of loan origination income
  (370,934)
  (39,130)
Amortization of debt issuance costs
  347,462 
  132,407 
Change in other operating assets and liabilities:
    
    
Net change in loan interest receivable
  (423,000)
  (33,278)
Net change in accrued paid-in-kind interest
  (250,569)
  - 
Net change in accounts receivable
  (30,000)
  - 
Net change in bond interest payable
  - 
  767,799 
Net change in due to managing member
  150,000 
  900 
Net change in bond proceeds received in advance
  - 
  285,000 
Net change in due to related parties
  - 
  25,000 
Net change in other current liabilities
  10,000 
  - 
 
    
    
Net cash provided by (used in) operating activities
  (968,319)
  (654,824)
 
    
    
Cash flows from investing activities:
    
    
Mortgage notes
  9,466,920 
  (10,166,313)
Loan interest reserves
  (651,876)
  582,657 
Loan construction reserve additions
  421,403 
  2,662,398 
Loan construction reserve drawdowns
  (2,178,558)
  (239,583)
 
    
    
Net cash provided by (used in) investing activities
  7,057,889 
  (7,160,841)
 
    
    
Cash flows from financing activities:
    
    
Member contributions
  - 
  100 
Proceeds from Series A Bonds
  - 
  1,455,000 
Proceeds from Series B Bonds
  - 
  39,516,000 
Proceeds from Series Ra Bonds
  - 
  710,000 
Proceeds from Series Ra Bonds
  - 
  2,492,000 
Payment of debt issuance costs
  6,250 
  (3,769,622)
 
    
    
Net cash provided by (used in) financing activities
  6,250 
  40,403,478 
 
    
    
Net change in cash, cash equivalents, and restricted cash
  6,095,820 
  32,587,813 
 
    
    
Cash, cash equivalents, and restricted cash, beginning of period
  4,825,536 
  - 
 
    
    
Cash, cash equivalents, and restricted cash, end of period
 $10,921,356 
 $32,587,813 
 

9
 
 
Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

1. Organization
 
Red Oak Capital Fund IV, LLC, (the “Company”) is a Delaware limited liability company formed to originate senior loans collateralized by commercial real estate in the United States of America. The Company’s plan is to originate, acquire, and manage commercial real estate loans and securities and other commercial real estate-related debt instruments. Red Oak Capital GP, LLC is the Managing Member and owns 100% of the member interests in the Company.
 
The Company formed on October 31, 2019 and commenced operations on February 21, 2020. The Company raised $50 million of Series A, B, Ra, and Rb Bonds (collectively the “Bonds”) pursuant to an exemption from registration under Regulation A of the Securities Act of 1933, as amended. The Company’s term is indefinite.
 
The Company’s operations may be affected by the ongoing outbreak of the coronavirus (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. Possible effects of the pandemic may include, but are not limited to, delay of payments from borrowers, an increase in extension risk, higher rate of defaults, and delaying loan closing periods due to third parties experiencing quarantines or social distancing within the labor workforce. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows.
 
2. Significant accounting policies
 
Basis of presentation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and all values are stated in United States dollars.
 
Use of estimates
The preparation of the financial statements requires the Managing Member to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. In particular, the COVID-19 pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may affect future estimates including, but not limited to, our allowance for loan losses. The Managing Member believes the estimates utilized in preparing the Company’s financial statements are reasonable and prudent; however, actual results could differ from these estimates and such differences could be material to the Company's financial statements.
 
Fair value – hierarchy of fair value
In accordance with FASB ASC 820-10, Fair Value Measurements and Disclosures, the Company discloses the fair value of its assets and liabilities in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation. FASB ASC 820-10-35-39 to 55 provides three levels of the fair value hierarchy as follows:
 
Level One - Inputs use quoted prices in active markets for identical assets or liabilities of which the Company has the ability to access.
 
Level Two - Inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
 
Level Three - Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset.
 
 
10
 
 
Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

2. Significant accounting policies (continued)
 
In instances whereby inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgement and considers factors specific to each asset or liability.
 
Cash and cash equivalents
Cash represents cash deposits held at financial institutions. Cash equivalents may include short-term highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are carried at cost, plus accrued interest, which approximates fair value. Cash equivalents are held to meet short-term liquidity requirements, rather than for investment purposes. Restricted cash represents cash held in escrow for the benefit of the Company’s bondholders for the payment of the debt service obligation.
 
Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation or Securities Investor Protection Corporation limitations.
 
The Company follows ASU 2016-18, “Restricted Cash”, which clarifies the presentation requirements of restricted cash within the statement of cash flows. The changes in restricted cash and restricted cash equivalents during the period should be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance that sum to the total of the same such amounts shown in the statement of cash flows as of June 30, 2021 and December 31, 2020:
 
 
 
6/30/2021
 
 
12/31/2020
 
Cash and cash equivalents
 $10,921,356 
 $4,725,533 
Restricted cash – bond service reserve
  - 
  100,003 
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
 $10,921,356 
 $4,825,536 
 
Mortgage loans receivable
Mortgage loans receivable are classified as held-for-investment based on the Company’s intention and ability to hold the loans until maturity. The loans are stated at the amount of unpaid principal adjusted for any impairment or allowance for loan losses. The Company’s mortgage loans receivable consists of senior secured private company loans collateralized by the borrower’s underlying commercial real estate assets. The repayment of the loans will be dependent upon the borrower’s ability to obtain a permanent financing solution or to sell the commercial real estate asset. The Company’s mortgage loans receivable have heightened credit risk stemming from several factors, including the concentration of loans to a limited number of borrowers, the likelihood of construction projects running over budget, and the inability of the borrower to sell the underlying commercial real estate asset.
 
Impairment and allowance for loan losses
Mortgage loans receivable are considered “impaired” when, based on observable information, it is probable the Company will be unable to collect the total amount outstanding under the contractual terms of the loan agreement. The Managing Member assesses mortgage loans receivable for impairment on an individual loan basis and determines the extent to which a specific valuation allowance is necessary by comparing the loan’s remaining balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s base interest rate.
 
 
11
 
 
Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

2. Significant accounting policies (continued)
 
An allowance for loan losses on mortgage loans receivable is established through a provision for loan losses charged against income and includes specific reserves for impaired loans. Loans deemed to be uncollectible are charged against the allowance when the Managing Member believes that the collectability of the principal is unlikely and subsequent recoveries, if any, are credited to the allowance. The Managing Member’s periodic evaluation of the adequacy of the allowance is based on an assessment of the current loan portfolio, including known inherent risks, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, and current economic conditions. There were no impairments recorded during the period ending June 30, 2021 or June 30, 2020.
 
Revenue recognition and accounts receivable
Interest income on mortgage loans receivable is recognized over time using the interest method. Interest is accrued when earned in accordance with the terms of the loan agreement.
 
Loan origination income is amortized over the life of the mortgage loan receivable using the interest method and is reflected as a direct deduction from the related mortgage loans receivable in the accompanying balance sheet. Accretion of loan origination income totaled $370,934 and $39,130 for the periods ending June 30, 2021 and June 30, 2020, respectively, also included in interest income in the accompanying statement of operations. The Company had gross mortgage loans receivable of $41.33 and $50.83 million, presented net of $0.54 and $0.94 million of unamortized deferred loan origination income at June 30, 2021 and December 31, 2020, respectively.
 
Bonds payable
Company-issued bonds will be held as a liability upon the effective date of closing. The bond interest will be expensed on an accrual basis. The contingent interest associated with the bonds will be recognized on an accrual basis at the end of each reporting period assuming a hypothetical liquidation of the Company’s mortgage loans receivable at fair value.
 
Income taxes
As a limited liability company, the Company itself is not subject to United States federal income taxes. The sole member is individually liable for income taxes, if any, on its share of the Company's net taxable income. Accordingly, no provision or credit for income taxes is recorded in the accompanying financial statements. The Company anticipates paying distributions to its member in amounts adequate to meet its tax obligation.
 
The Company applies the authoritative guidance for uncertainty in income taxes included in Financial Accounting Standards Board (“FASB”) ASC 740, “Income Taxes”, as amended by Accounting Standards Update 2009-06, “Implementation Guidance on Accounting for Uncertainty in Taxes and Disclosures Amendments for Nonpublic Entities.” This guidance requires the Company to recognize a tax benefit or liability from an uncertain position only if it is more likely than not that the position is sustainable, based on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If this threshold is met, the Company would measure the tax benefit or liability as the largest amount that is greater than 50% likely of being realized upon ultimate settlement.
 
As of June 30, 2021 and December 31, 2020, the Company had not recorded any benefit or liability for unrecognized taxes.
 
The Company files United States federal income tax returns as well as various state returns. With few exceptions, the Company’s tax returns and the amount of allocable income or loss are subject to examination by taxing authorities for three years subsequent to the Company’s commencement of operations. If such examinations result in changes to income or loss, the tax liability of the members could be changed accordingly. There are currently no examinations being conducted of the Company by the Internal Revenue Service or any other taxing authority.
 
 
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Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

2. Significant accounting policies (continued)
 
The Company accrues all interest and penalties under relevant tax law as incurred. As of June 30, 2021 and December 31, 2021, no amount of interest and penalties related to uncertain tax positions was recognized in the Statement of Operations.
 
Extended Transition Period
Under Section 107 of the Jumpstart Our Business Startups Act of 2012, the Company is permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. This permits the Company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.
 
Recent Accounting Pronouncements – Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update 2016-13 (“ASU 2016-13”), Financial Instruments - Credit Losses: Measurement of Credit Losses of Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial asset. An entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes for financial assets measured at amortized cost. ASU 2016-13 is effective for the Company, under the extended transition period under the JOBS Act, for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company is still evaluating the impact of adopting ASU 2016-13 on its financial statements.
 
3. Mortgage loans receivable
 
As of June 30, 2021 and December 31, 2020, the Company held approximately $40.79 and $49.89 million of mortgage loans receivable, respectively. At June 30, 2021, this consisted of eleven mortgage loans where the interest rate weighted average was 11.02%, inclusive of contractual paid-in-kind (“PIK”) interest, and where the maturities ranged from July 22, 2021 to June 30, 2023, based on twelve-month or twenty-four-month terms, with some loans having two optional six-month extensions. The Company earned and accrued $1,929,351 of mortgage loan interest income and $250,569 in PIK interest income during the period ending June 30, 2021. At the end of 2020, this consisted of ten mortgage loans where the interest rate weighted average was 9.63% and where the maturities ranged from April 24, 2021 to October 28, 2022, based on twelve-month or twenty-four-month terms with two optional six-month extensions. The company earned and accrued $1,527,684 of mortgage loan interest income and $111,175 in PIK interest income during the period ending December 31, 2020.
 
In accordance with the Company's mortgage loan receivable agreements, most borrowers must fund a loan interest reserve account with six to twelve months of interest payments. The Company may also hold prepaid interest on behalf of each borrower as applicable. As of June 30, 2021 and December 31, 2020, the loan interest reserve account, including prepaid interest, contained approximately $5.14 and $5.79 million, respectively. Additionally, the Company holds certain construction funds on behalf of each borrower which is then paid out in accordance with a construction budget, draw schedule, and payment schedule, as applicable. As of June 30, 2021 and December 31, 2020, the loan construction reserve account contained approximately $2.98 and $4.73 million, respectively.
 
4. Related party transactions
 
The Company will pay an annual management fee, calculated and payable on a quarterly basis, to the Managing Member. The management fee is based on an annual rate of 1.75% of gross principal outstanding of all Bonds. For the periods ending June 30, 2021 and June 30, 2020, $437,500 and $165,972 of management fees have been earned and paid to the Managing Member, respectively. Zero management fees were held as payable to the Managing Member as of June 30, 2021 and December 31, 2020
 
The Company will pay a disposition fee to the Managing Member. The disposition fee is calculated as 1.00% of the proceeds received from the repayment of the principal amount of any of its debt investments or any other disposition of the underlying real estate. For the periods ending June 30, 2021 and June 30, 2020, $150,000 and $0 of disposition fees have been accrued, respectively. As of June 30, 2021 and December 31, 2020, $178,125 and $28,125 in disposition fees were held as payable to the Managing Member, respectively.
 
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Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

4. Related party transactions (continued)
 
The Company will pay organization fees, calculated and payable at every closing, to the Managing Member. The organizational fee is calculated as 2.00% of the gross principal outstanding of all Bonds. For the periods ending June 30, 2021 and June 30, 2020, $0 and $883,460 of organization fees have been earned. As of June 30, 2021 and December 31, 2020 zero organization fees were held as payable to the Managing Member, respectively. 
 
5. Member’s equity
 
During the period ending June 30, 2021 and June 30, 2020, the Managing Member, as sole member of the Company, made $0 and $100 capital contributions and received no distributions, respectively.
 
6. Bonds payable
 
During the periods ending June 30, 2021 and June 30, 2020, the Company issued $0 and $1.46 million of Series A, $0 and $39.52 million of Series B, $0 and $0.71 million of Series Ra, and $0 and $2.49 million Series Rb Bonds. The Bonds are secured by a senior blanket lien on all assets of the Company. The Company has incurred debt issuance costs from the Bond offering. The Company capitalizes and amortizes the costs through the maturity of each Series as applicable. As of June 30, 2021 and December 31, 2020, there have been approximately $4.25 and $4.25 million of debt issuance costs incurred by the Company, respectively. During the periods ending June 30, 2021 and June 30, 2020, approximately $347,500 and $132,400 were amortized to bond interest expense, respectively.
 
Bonds payable as of June 30, 2021 and December 31, 2020 are comprised of the following:
 
 
 
6/30/2021
 
 
12/31/2020
 
Series A bonds payable
 $1,520,000 
 $1,520,000 
Series B bonds payable
  44,684,000 
  44,684,000 
Series Ra bonds payable
  710,000 
  710,000 
Series Rb bonds payable
  3,086,000 
  3,086,000 
Debt issuance costs
  (3,426,425)
  (3,780,138)
Total bonds payable, net
 $46,573,575 
 $46,219,862 
 
The Company will execute quarterly interest payments to the Series A, B, Ra, and Rb Bondholders at a rate of 6.25%, 8.25%, 6.50%, and 9.00% per annum, respectively. For the periods ending June 30, 2021 and June 30, 2020, the Company has recorded $2,052,660 and $767,799 of bond interest expense payable to Bondholders, respectively. As of June 30, 2021 and December 31, 2020 $1,026,332 and $1,026,332 were held as payable to all Bondholders, respectively.
 
In accordance with the Offering Documents and Indenture, a Bond Service Reserve account was established with the Company’s trustee, UMB Bank. As it is required, the Company keeps 3.75% of gross offering proceeds with the trustee for a period of one year following the first closing date of February 21, 2020. As of June 30, 2021 and December 31, 2020, the account contained $0 and $100,003, respectively, reflected as restricted cash - bond interest reserve on the Company’s balance sheet.
 
The maturity date of Series A and Ra Bonds will be June 30, 2023, whereas the maturity date will be June 30, 2026 for Series B and Rb Bonds. Upon the maturity of the Bonds, the Series A/Ra and Series B/Rb Bondholders will receive a Contingent Interest Payment equal to 4% and 24% of the Spread, respectively. The Spread is defined as the difference between such bond’s pro-rata share of revenue derived from senior secured private company loans less the interest paid to such bondholder, withholding for fees at the discretion of the Managing Member.
 
Series B and Rb Bonds will be redeemable beginning July 1, 2024. Once the Company receives written notice from the bondholder, it will have 120 days from the date of receipt to redeem the bonds at a price per bond equal to: (i) $880 plus any accrued but unpaid interest on the Bond if the notice is received on or after July 1, 2024 and (ii) $900 plus any accrued but unpaid interest on the Bond if the notice is received on or after July 1, 2025.
 
The Company’s obligation to redeem bonds in any given year pursuant to this Series B and Rb Redemption is limited to 10% of the outstanding principal balance of the Series B and Rb Bonds on January 1st of the applicable year. Bond redemptions pursuant to the Series B and Rb Redemption will occur in the order that notices are received.
 
Upon maturity, and subject to the terms and conditions described in the offering memorandum, the bonds will be automatically renewed at the same interest rate for an additional two years in the case of series A and Series Ra bonds, or an additional five years in the case of Series B or Series Rb bonds, unless redeemed upon maturity at the Company or the bondholders’ election.
 
 
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Red Oak Capital Fund IV, LLC
Notes to Financial Statements
For the period ending June 30, 2021 and December 31, 2020
(Unaudited)

7. Commitments and contingencies
 
The Company has provided general indemnifications to the Managing Member, any affiliate of the Managing Member and any person acting on behalf of the Managing Member or that affiliate when they act, in good faith, in the best interest of the Company. The Company is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim but expects the risk of having to make any payments under these general business indemnifications to be remote.
 
8. Subsequent events
 
On July 12, 2021, the Company closed a senior secured mortgage loan at a total interest rate of 10%, and total principal of $8,160,000. The underlying commercial property is an industrial building located in the state of Texas.
 
On August 25, 2021, the Company issued a notice of default to a mortgage note borrower, West Valley Commons Equity Group, LLC, and increased the interest rate to the default rate of 18% per annum. Since the borrower failed to deliver the payoff, the Company has proceeded with foreclosure proceedings. The note originally matured on April 30, 2021 and holds an unpaid principal balance of $1,556,250 with interest receivable of approximately $185,000 as of June 30, 2021. Given the property’s value, cash reserves, and existing loan-to-value, the Company does not believe there is a material risk of loss to either principal or interest.
 
On August 27, 2021, mortgage note borrower Mile High 3, LLC paid off its note with a principal balance of $3,350,000. The note originally matured on July 27, 2021 and had an interest rate of 13%. The Company received $2,415,040 in proceeds from loan payoff resulting in a full payoff of the loan carrying amount, including all principal, interest and other charges, net of outstanding interest and construction reserves.
 
On July 27, 2021, in accordance with the offering circular, the Company executed a bond interest payment for $1,026,332 to the trustee and paying agent, Great Lakes Fund Solutions, Inc.
 
The financial statements were approved by management and available for issuance on September 21, 2021. Subsequent events have been evaluated through this date.
 

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Item 4. Exhibits
 
The following exhibits are filed as part of this semi-annual report on Form 1-SA:
 
Exhibit Number Exhibit Description
   
 Certificate of Formation of Red Oak Capital Fund IV, LLC, incorporated by reference to Exhibit 2(a) of the Company’s Form 1-A filed on November 19, 2019
   
 Limited Liability Company Agreement of Red Oak Capital Fund IV, LLC incorporated by reference to Exhibit 2(b) of the Company’s Form 1-A filed on November 19, 2019
   
 Form of Indenture between Red Oak Capital Fund IV, LLC and UMB Bank, N.A., incorporated by reference to Exhibit 3(a) of the Company’s Form 1-A/A filed on December 27, 2019
   
 Form of Series A Bond, incorporated by reference to Exhibit 3(b) of the Company’s Form 1-A/A filed on December 27, 2019
   
 Form of Series B Bond, incorporated by reference to Exhibit 3(c) of the Company’s Form 1-A/A filed on December 27, 2019
   
 Form of Series Ra Bond, incorporated by reference to Exhibit 3(d) of the Company’s Form 1-A/A filed on December 27, 2019
   
 Form of Series Rb Bond, incorporated by reference to Exhibit 3(e) of the Company’s Form 1-A/A filed on December 27, 2019
   
 Pledge and Security Agreement, incorporated by reference to Exhibit 3(f) of the Company’s Form 1-A/A filed on December 27, 2019
 
 

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SIGNATURES
 
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
RED OAK CAPITAL FUND IV, LLC,
a Delaware limited liability company
 
By:             Red Oak Capital GP, LLC,
                   a Delaware limited liability company
Its:             Sole Member
 
By:            Red Oak Capital Holdings, LLC,
                  a Delaware limited liability company
Its:            Sole Member
 
By:            Red Oak Holdings Management, LLC,
                  a Delaware limited liability company
Its:            Manager
  
By:            /s/ Gary Bechtel                  
Name:       Gary Bechtel
Its:            Manager
  
By:            /s/ Joseph Elias                          
Name:       Joseph Elias
Its:            Manager
 
 By:            /s/ Kevin Kennedy                    
Name:       Kevin Kennedy
Its:            Manager
  
By:            /s/ Jason Anderson                          
Name:       Jason Anderson
Its:            Manager
  
By:            /s/ Raymond Davis                          
Name:       Raymond Davis
Its:            Manager
 
Date: September 21, 2021
 
 
By:       /s/ Gary Bechtel                     
Name:  Gary Bechtel                           
Its:       Chief Executive Officer of the Sole Member of the Manager
            (Principal Executive Officer)
 
Date: September 21, 2021
  
By:       /s/ Jason Anderson                                                                           
Name:  Jason Anderson                                                                                
Its:        Chief Financial Officer of the Sole Member of the Manager
            (Principal Financial Officer and Principal Accounting Officer)
 
Date: September 21, 2021
 

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