<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
June 30, 1997 0-15537
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter.)
California 95-4061580
(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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KEYSTONE MORTGAGE FUND II
A CALIFORNIA LIMITED PARTNERSHIP
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
(a) Condensed Balance Sheets, December 31, 1996 and June 30, 1997..... 3
(b) Condensed Statements of Income, three and six months ended,
June 30, 1996 and 1997............................................ 4
(c) Condensed Statements of Partners' Capital (Deficit) for the year
ended December 31, 1996 and the six months ended June 30, 1997.... 5
(d) Condensed Statements of Cash Flows, six months ended
June 30, 1997 and 1996............................................ 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
2
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
*DECEMBER 31 JUNE 30
1996 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 15,808 $ 13,699
Short-term investments (market value of $684,005 in 1996 and $883,032 in 1997)..... 684,005 883,032
Interest receivable on trust deed notes receivable................................. 9,321
Current portion of trust deed notes receivable (note B)............................ 39,732 44,920
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Total current assets........................................................... 748,866 941,651
Trust deed notes receivable, net (note B)............................................ 1,397,966 1,372,807
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$ 2,146,832 $ 2,314,458
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------------- -----------
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts payable and other liabilities............................ $ 1,295 $
Due general partners.............................................. 259,000 264,000
----------- ----------
Total Current Liabilities..................................... 260,295 264,000
Partners' capital:
General Partners.................................................. (206,601) 439
Limited Partners--41,459 units outstanding in 1996 and 1997
respectively.................................................... 2,093,138 2,050,019
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Net partners' capital......................................... 1,886,537 2,050,458
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$2,146,832 $2,314,458
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
* Extracted from audited December 31, 1996 financial statements.
3
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- --------- ---------
Revenue:
Interest on mortgage loans.......................................... $ 29,782 $ 28,862 $ 59,771 $ 55,961
Interest on short-term investments.................................. 12,635 9,604 32,132 20,753
--------- --------- --------- ---------
42,417 38,466 91,903 76,714
Expenses:
Servicing related expenses.......................................... 10,773 11,902 23,996 21,442
General and administrative expenses................................. 4,906 6,265 10,198 11,343
--------- --------- --------- ---------
15,679 18,167 34,194 32,785
NET INCOME (LOSS)............................................... $ 26,738 $ 20,299 $ 57,709 $ 43,929
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of limited partnership units outstanding...... 41,454 41,454 41,454 41,454
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per limited partnership unit............................... $ .65 $ .49 $ 1.39 $ 1.06
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to financial statements
4
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNER'S CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996............................................ $( 206,601) $ 2,093,138 $ 1,886,537
Genral Partners Contribution............................................ 206,601 206,601
Net income six months ended June 30, 1997............................... 439 43,490 43,929
Less Distribution....................................................... (86,609) (86,609)
----------- ------------ ------------
Balance as of June 30, 1997 (unaudited)................................. $ 439 $ 2,050,019 $ 2,050,458
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
5
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
----------------------
<S> <C> <C>
1997 1996
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OPERATING ACTIVITIES:
Net Income.............................................................................. $ 43,929 $ 57,709
Changes in operating assets and liabilities:
Amortization of net origination fees.................................................. (850) (850)
Decrease in interest receivable....................................................... 9,321 254
Decrease in accounts payable.......................................................... (1,295) (6)
Increase in due general partners...................................................... 5,000 5,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 56,105 62,107
INVESTING ACTIVITIES:
Decrease in notes receivable............................................................ 20,821 15,619
Increase in short-term investments...................................................... (199,027) (49,492)
FINANCING ACTIVITIES:
General Partners contributions.......................................................... 206,601
Distribution and withdrawals............................................................ (86,609) (104,782)
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Decrease in cash and cash equivalents................................................... (2,109) (76,548)
Cash and cash equivalents at beginning year............................................. 15,808 93,997
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CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 13,699 $ 17,449
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements
6
<PAGE>
KEYSTONE MORTGAGE FUND II,
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 II 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, 1996 filed by the Company under the Securities
Exchange Act of 1934.
7
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(B) Trust Deed Notes Receivable
<TABLE>
<CAPTION>
MONTHLY
PAYMENT,
INCLUDING DECEMBER 31 JUNE 30
INTEREST 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
First trust deed on industrial building, interest rate, adjusted every six
months at 2.65% plus 11th District monthly weighted average cost of
funds, due February 1, 1999.............................................. $ 12,039 $1,505,238 $ 1,484,417
---------
---------
Less current portion....................................................... 39,732 44,920
Less net deferred loan origination fees.................................... 3,540 2,690
Less allowance for loss.................................................... 64,000 64,000
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Net concurrent trust deed notes receivable............................. $1,397,966 $ 1,372,807
------------ ------------
------------ ------------
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenue for the six months ended June 30, 1997 decreased $13,780 or 23.8%
over the same period June 30, 1996. Revenue for the three months ended June 30,
1997 decreased $6,439 or 24.1% for the same period ending June 30, 1996.
This decrease was due to a decrease in interest income as a result of
distribution of loan payoff to limited partners.
Servicing expenses decreased 10.6% and general and administrative expenses
increased 11.2% for the six months ended June 30, 1997 over the same period
ended June 30, 1996. Servicing expenses increased 10.4% and general and
administrative expenses increased 27.7% for the three months ended June 30, 1997
over the same period 1996.
Net income decreased 23.8% for the six months ended June 30, 1997 over the
same period June 30, 1996. Net income decreased 24.8% for the three months ended
June 30, 1997 over the same period June 30, 1996.
Working capital increased $189,080 for six months ended June 30, 1997. 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. Revenues and net income continue to decrease
as the Partnership liquidates its assets.
9
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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
June 30, 1997.
10
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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 II
a California Limited Partnership
Date: , 1997 /s/ JOHN P. SULLIVAN
--------------------------------
KEYSTONE MORTGAGE COMPANY
By: John P. Sullivan, President
Date: , 1997 /s/ JOHN P. SULLIVAN
--------------------------------
John P. Sullivan
GENERAL PARTNER
Date: , 1997 /s/ CHRISTOPHER E. TURNER
--------------------------------
Christopher E. Turner
GENERAL PARTNER
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 13,699
<SECURITIES> 883,032
<RECEIVABLES> 1,417,727
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 941,651
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,314,458
<CURRENT-LIABILITIES> 264,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,050,458
<TOTAL-LIABILITY-AND-EQUITY> 2,314,458
<SALES> 0
<TOTAL-REVENUES> 76,714
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,929
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
