<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1996 0-14562
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KEYSTONE MORTGAGE FUND
(Exact name of registrant as specified in its charter.)
CALIFORNIA 95-3786580
(State of Incorporation) (I.R.S. Employer Identification No.)
11340 W. OLYMPIC BOULEVARD
SUITE 300
LOS ANGELES, CALIFORNIA 90064-1661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-4121
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Indicated by check mark whether the registrant (1) has filed all report required
to be filed by Section 13 of 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
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<PAGE>
KEYSTONE MORTGAGE FUND
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements.
(a) Condensed Balance Sheets, December 31, 1995 and September 30, 1996. . . . . . . . . . . . . . . . . . . . . .3
(b) Condensed Statements of Income, three and nine months ended,
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Condensed Statements of Partners' Capital (Deficit) for the year ended
December 31, 1995 and the nine months ended September 30, 1996. . . . . . . . . . . . . . . . . . . . . . . .5
(d) Condensed Statements of Cash Flows, nine months ended
September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(e) Notes to condensed financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 & 8
Item 2. Management's discussion and analysis of financial condition and
results of operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 & 11
</TABLE>
2
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
*DECEMBER 31 SEPTEMBER 30
1995 1996
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 157,848 $ 10,949
Short-term investments (market value of $1,775,183 in 1995
and $2,189,566 in 1996). . . . . . . . . . . . . . . . . . . . . . . . . . 1,772,598 2,153,171
Interest receivable on trust deed notes receivable . . . . . . . . . . . . . . 8,917 8,833
Other receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
Current portion of trust deed notes receivable (note B). . . . . . . . . . . . 11,894 11,986
------------------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,986,257 2,219,939
Investment in real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,102,804 932,971
Trust deed notes receivable, net (note B). . . . . . . . . . . . . . . . . . . . . 1,017,476 1,008,446
------------------------------
$4,106,537 $4,161,356
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LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . $ 429 $ 424
Due general partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000 277,500
------------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 270,429 277,924
Partners' capital:
General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,031 24,890
Limited partners - authorized 20,000 units, outstanding
13,272 units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,813,077 3,858,542
------------------------------
3,836,108 3,883,432
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$4,106,537 $4,161,356
------------------------------
------------------------------
</TABLE>
See accompanying notes to financial statements.
*Extracted from audited December 31, 1995 financial statements.
3
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1995 1996 1995 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Interest on mortgage loans . . . . . . . . . . . . . . . . . . . $118,419 $ 80,664 $ 40,901 $ 26,804
Interest on short-term investments . . . . . . . . . . . . . . . 78,068 55,751 14,274 3,472
Rental and other revenue from investment in real estate. . . . . 139,624 144,446 25,420 31,276
Gain on sale of real estate. . . . . . . . . . . . . . . . . . . 82,235 82,235
--------- -------- -------- --------
336,111 363,096 80,595 143,787
Expenses:
Servicing related expenses . . . . . . . . . . . . . . . . . . . 39,978 45,504 7,900 2,020
Administrative and general expenses. . . . . . . . . . . . . . . 275,661 11,863 5,139 5,483
Expenses related to real estate acquired in
settlement of loans . . . . . . . . . . . . . . . . . . . . . . 109,303 119,871 19,032 35,533
--------- -------- -------- --------
424,942 177,238 32,071 43,036
--------- -------- -------- --------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . $(88,831) $185,858 $ 48,524 $100,751
--------- -------- -------- --------
--------- -------- -------- --------
Weighted average number of
limited partnership units outstanding . . . . . . . . . . . . . . 13,272 13,272 13,272 13,272
--------- -------- -------- --------
--------- -------- -------- --------
Net income per limited partnership unit. . . . . . . . . . . . . . . $ (6.69) $ 14.00 $ 3.66 $ 7.59
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
See notes to financial statements
4
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNER'S CAPITAL
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -----
Balance at December 31, 1995............$ 23,031 $3,813,077 $3,836,108
Net income nine months
ended September 30, 1996............. 1,859 183,999 185,858
Distributions........................... (138,534) (138,534)
---------------------------------------
Balance as of September 30, 1996........$ 24,890 $3,858,542 $3,883,432
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5
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,858 $ (88,831)
Changes in operating assets & liabilities:
Depreciation expense from investment in real estate . . . . . . . . . . . . . . 37,461 39,700
Amortization of net origination fees. . . . . . . . . . . . . . . . . . . . . . (825) (775)
Decrease in interest and account receivable . . . . . . . . . . . . . . . . . . 84 5,227
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . (5) (1,296)
Increase in due general partners. . . . . . . . . . . . . . . . . . . . . . . . 7,500 267,500
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . 230,073 221,525
INVESTING ACTIVITIES:
Decrease in trust deed receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 9,763 29,032
Increase in short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . (380,573) (183,097)
Decrease in investment in real estate. . . . . . . . . . . . . . . . . . . . . . . . 132,372
FINANCING ACTIVITIES:
Distributions and withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . (138,534) (154,396)
--------- ---------
Decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . (146,899) (86,936)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . 157,848 97,409
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CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 10,949 $ 10,473
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements
6
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - UNAUDITED BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by Keystone Mortgage Fund in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying condensed financial statements contain all
adjustments necessary, which were of normal recurring nature, for a fair
statement of the results for the interim periods presented. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in Form 10-K for the
year ended December 31, 1995 filed by the Company under the Securities
Exchange Act of 1934.
7
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) TRUST DEED NOTES RECEIVABLE
<TABLE>
<CAPTION>
MONTHLY
PAYMENT,
INCLUDING DECEMBER 31 SEPTEMBER 30
INTEREST 1995 1996
-------- ---- ----
<S> <C> <C> <C>
First trust deed on an office/warehouse/light industrial
building, interest rate of 10.375%, due November 1, 1997..................... $9,965 $1,031,390 $1,021,627
--------
--------
Less net deferred loan origination fees........................................... 2,020 1,195
Less Current portion.............................................................. 11,894 11,986
---------- ----------
$1,017,476 $1,008,446
---------- ----------
---------- ----------
</TABLE>
8
<PAGE>
KEYSTONE MORTGAGE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Total revenues for the nine months ended September 30, 1996 increased
$26,985 or 8.1% over the comparable 1995 period. Total revenues for the three
months ended September 30, 1996 increased 78.1% compared to the same period
ending September 30, 1995. During the quarter ending September 30, 1996 one of
the real estate units owned by The Partnership was sold resulting in a gain of
$82,235. Cash flow from principal payments have been distributed to the limited
partners less required reserves. These amounts represent return of capital
which has caused the decrease in income producing assets over the past few
years.
Servicing related expenses increased 13.8% for the nine months and
decreased 74.4% for the three months ended September 30, 1996 over the
comparable periods ended September 30, 1995. General and administrative
expenses decreased $263,799 for the nine months and increased 6.7% for the three
months ended September 30, 1996 over the comparable periods ended September 30,
1995.
During the first quarter of 1995, a determination was made by the general
partners to seek reimbursement for which they were otherwise entitled. The
amount of general and administrative expenses were determined to be $265,000 at
June 30, 1995.
Expenses related to real estate acquired in settlement of loans increased
9.7% for the nine months ended September 30, 1996 and increased 86.7% for the
three months ended September 30, 1996 over the comparable period ended September
30, 1995.
Net income for the nine months and the three months ended September 30,
1996 increased $274,690 for the nine months and increased 107.6% for the three
months over the same periods September 1995.
The Partnership's working capital increased by $226,187 during the nine
months ended September 30, 1995. The Partnership has adequate working capital
and cash reserves to carry on its business.
The Partnership continues to distribute to the Limited Partners principal
repayments (less required reserves).
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Registrant filed no reports on Form 8-K during the quarter ended
September 30, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEYSTONE MORTGAGE FUND
a California Limited Partnership
Date: November 12, 1996 /s/ JOHN P. SULLIVAN
----------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: November 12, 1996 /s/ JOHN P. SULLIVAN
----------------------------------
John P. Sullivan
General Partner
Date: November 12, 1996 /s/ CHRISTOPHER E. TURNER
----------------------------------
Christopher E. Turner
General Partner
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,949
<SECURITIES> 2,153,171
<RECEIVABLES> 988,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,219,939
<PP&E> 1,104,880
<DEPRECIATION> 171,909
<TOTAL-ASSETS> 4,161,396
<CURRENT-LIABILITIES> 277,924
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,883,432
<TOTAL-LIABILITY-AND-EQUITY> 4,161,356
<SALES> 0
<TOTAL-REVENUES> 363,096
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 177,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 185,858
<INCOME-TAX> 0
<INCOME-CONTINUING> 185,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,858
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
