<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
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, 1997 0-15537
----------------------
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
----------------------
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 _____
<PAGE>
KEYSTONE MORTGAGE FUND II
A CALIFORNIA LIMITED PARTNERSHIP
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
(a) Condensed Balance Sheets, December 31, 1996 and
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . 3
(b) Condensed Statements of Income, three and nine months ended,
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . 4
(c) Condensed Statements of Partners' Capital (Deficit) for the
year ended December 31, 1996 and the nine months ended
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . 5
(d) Condensed Statements of Cash Flows, nine months ended
September 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 & 11
2
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
*December 31 September 30
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 15,808 $ 8,958
Short-term investments (market value of $684,005 in 1996
and $917,415 in 1997) . . . . . . . . . . . . . . . . . 684,005 917,415
Interest receivable on trust deed notes receivable . . . 9,321 9,202
Current portion of trust deed notes receivable (note B) . 39,732 40,133
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . 748,866 975,708
Trust deed notes receivable, net (note B) . . . . . . . . . 1,397,966 1,372,411
------------ ------------
$2,146,832 $2,348,119
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and other liabilities. . . . . . . . . . $ 1,295 $ 616
Due general partners. . . . . . . . . . . . . . . . . . . 259,000 266,500
------------ ------------
Total Current Liabilities . . . . . . . . . . . . . . . 260,295 267,116
Partners' capital:
General Partners. . . . . . . . . . . . . . . . . . . . . (206,601) 745
Limited Partners - 41,459 units outstanding in 1996 and
1997 respectively . . . . . . . . . . . . . . . . . . . 2,093,138 2,080,258
------------ ------------
Net partners' capital . . . . . . . . . . . . . . . . 1,886,537 2,081,003
------------ ------------
$2,146,832 $2,348,119
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
* Extracted from audited December 31, 1996 financial statements.
3
<PAGE>
KEYSTONE MORTGAGE FUND II
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenue:
Interest on mortgage loans . . . . . . . . $ 84,057 $ 89,341 $ 28,096 $ 29,570
Interest on short-term investments . . . . 32,294 33,027 11,541 895
-------- -------- -------- ---------
116,351 122,368 39,637 30,465
Expenses:
Servicing related expenses . . . . . . . . 25,810 29,791 4,368 5,795
General and administrative expenses. . . . 16,067 15,087 4,724 4,889
-------- -------- -------- ---------
41,877 44,878 9,092 10,684
-------- -------- -------- ---------
NET INCOME . . . . . . . . . . . . . . . $ 74,474 $ 77,490 $ 30,545 $ 19,781
-------- -------- -------- ---------
-------- -------- -------- ---------
Weighted average number of limited
partnership units outstanding. . . . . . . 41,459 41,459 41,459 41,459
-------- -------- -------- ---------
-------- -------- -------- ---------
Net income per limited partnership unit. . . $ 1.80 $ 1.87 $ .74 $ .48
-------- -------- -------- ---------
-------- -------- -------- ---------
</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
General Partners Contribution. . . . . . . . . . 206,601 206,601
Net income nine months ended September 30, 1997. 745 73,729 74,474
Less distribution. . . . . . . . . . . . . . . . (86,609) (86,609)
---------- ---------- ----------
Balance as of September 30, 1997 (unaudited) . . $ 745 $2,080,258 $2,081,003
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
5
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 74,474 $ 77,490
Changes in operating assets and liabilities:
Amortization of net origination fees . . . . . . . . (1,275) (1,275)
Decrease in interest and accounts receivable . . . . 119 625
Increase in due general partners . . . . . . . . . . 7,500 7,500
Decrease in accounts payable . . . . . . . . . . . . (679) (10)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . 80,139 84,330
INVESTING ACTIVITIES:
Decrease in notes receivable . . . . . . . . . . . . . 26,429 23,690
Increase in short-term investments . . . . . . . . . . (233,410) (74,118)
FINANCING ACTIVITIES:
General Partners contributions . . . . . . . . . . . . . 206,601
Distribution and withdrawals . . . . . . . . . . . . . . (86,609) (104,782)
---------- ----------
Decrease in cash and cash equivalents. . . . . . . . . (6,850) (70,880)
Cash and cash equivalents at beginning year. . . . . . 15,808 93,997
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 8,958 $ 23,117
---------- ----------
---------- ----------
</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 FINANCIAL STATEMENTS (CONTINUED)
(B) TRUST DEED NOTES RECEIVABLE
<TABLE>
<CAPTION>
Monthly
Payment,
including December 31 September 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 $1,478,809
-------
-------
Less current portion. . . . . . . . . . . . . . . 39,732 40,133
Less net deferred loan origination fees . . . . . 3,540 2,265
Less allowance for loss . . . . . . . . . . . . . 64,000 64,000
---------- ----------
Net noncurrent trust deed notes receivable. . $1,397,966 $1,372,411
---------- ----------
---------- ----------
</TABLE>
8
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
Revenue for the nine months ended September 30, 1997 decreased $5,284 or
5.9% over the same period September 30, 1996. Revenue for the three months
ended September 30, 1997 decreased $1,474 or 4.9% for the same period ending
Sept. 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 15.4% and general and administrative
expenses increased 6.5% for the nine months ended September 30, 1997 over the
same period ended September 30, 1996. Servicing expenses decreased 24.9% and
general and administrative expenses increased 3.4% for the three months ended
September 30, 1997 over the same period 1996.
Net income decreased $3,016 or 3.9% for the nine months ended September
30, 1997 over the same period September 30, 1996. Net income increased
$10,764 or 54.4% for the three moths ended September 30, 1997 over the same
period September 30, 1996.
Working capital increased $220,021 for nine months ended September 30,
1997. The Partnership has adequate working capital and cash reserved 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
<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, 1997.
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 II
a California Limited Partnership
Date: November 13, 1997 /S/John P. Sullivan
---------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: November 13, 1997 /S/John P. Sullivan
---------------------------------
John P. Sullivan
General Partner
Date: November 13, 1997 /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-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 8,958
<SECURITIES> 917,415
<RECEIVABLES> 9,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 975,708
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,348,119
<CURRENT-LIABILITIES> 267,116
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,081,003
<TOTAL-LIABILITY-AND-EQUITY> 2,348,119
<SALES> 0
<TOTAL-REVENUES> 116,391
<CGS> 0
<TOTAL-COSTS> 19,781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,474
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
