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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, 1998 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
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
(a) Condensed Balance Sheets, December 31, 1997 and September 30, 1998.................. 3
(b) Condensed Statements of Income, three and nine months ended,
September 30, 1998 and 1997......................................................... 4
(c) Condensed Statements of Partners' Capital (Deficit) for the year ended
December 31, 1997 and the nine months ended September 30, 1998...................... 5
(d) Condensed Statements of Cash Flows, nine months ended
September 30, 1998 and 1997......................................................... 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
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
*December 31 September 30
1997 1998
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<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 12,484 $ 9,281
Short-term investments (market value of $392,695 in 1997
and $473,252 in 1998).................................................. 392,695 473,252
Interest receivable on trust deed notes receivable........................ 9,162 9,043
Current portion of trust deed notes receivable (note B)................... 35,727 1,381,185
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Total current assets.............................................. 450,068 1,872,761
Trust deed notes receivable, net (note B)................................... 1,368,718
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$1,818,786 $1,872,761
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LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and other liabilities................................... $ 11,120 $ 602
Due general partners..................................................... 269,000 276,500
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Total Current Liabilities........................................ 280,120 277,102
Partners' capital:
General Partners......................................................... 632 1,202
Limited Partners - authorized 41,459 units;
outstanding 41,459 units.............................................. 1,538,034 1,594,457
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Net partners' capital............................................ 1,538,666 1,595,659
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$1,818,786 $1,872,761
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---------- ----------
</TABLE>
See accompanying notes to financial statements.
* Extracted from audited December 31, 1997 financial statements.
3
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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
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenue:
Interest on mortgage loans................................. $ 83,837 $ 84,057 $ 27,706 $ 28,096
Interest on short-term investments......................... 12,618 32,294 3,631 11,541
-------- -------- -------- --------
96,455 116,351 31,337 39,637
Expenses:
Servicing related expenses 26,734 25,810 7,421 4,368
General and administrative expenses 12,728 16,067 4,518 4,724
-------- -------- -------- --------
39,462 41,877 11,939 9,092
-------- -------- -------- --------
NET INCOME............................................. $ 56,993 $ 74,474 $ 19,398 $ 30,545
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of
limited partnership units outstanding....................... 41,459 41,459 41,459 41,459
-------- -------- -------- --------
-------- -------- -------- --------
Net income per limited partnership unit...................... $ 1.37 $ 1.80 $ .47 $ .74
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to financial statements
4
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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, 1997.............................. $ 632 $1,538,034 $1,538,666
Net income nine months ended September 30, 1998........... 570 56,423 56,993
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Balance as of September 30, 1998 (unaudited).............. $ 1,202 $1,594,457 $1,595,659
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---------- ---------- ----------
</TABLE>
5
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income............................................. $ 56,993 $ 74,474
Changes in operating assets and liabilities:
Amortization of net origination fees................ (1,275) (1,275)
Decrease in interest and accounts receivable........ 119 119
Increase in due general partners.................... 7,500 7,500
Decrease in accounts payable........................ (10,518) (679)
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NET CASH PROVIDED BY OPERATING ACTIVITIES...... 52,819 80,139
INVESTING ACTIVITIES:
Decrease in notes receivable........................... 24,535 26,429
Increase in short-term investments..................... (80,557) (233,410)
FINANCING ACTIVITIES:
General Partners contributions........................... - 0 - 206,601
Distribution and withdrawals............................. - 0 - (86,609)
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Decrease in cash and cash equivalents.................. (3,203) (6,850)
Cash and cash equivalents at beginning year............ 12,484 15,808
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD............................... $ 9,281 $ 8,958
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</TABLE>
See notes to financial statements
6
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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, 1997 filed by the Company under the Securities
Exchange Act of 1934.
7
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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 1997 1998
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<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................... $ 11,426 $1,470,285 $1,445,750
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Less current portion........................................................ 35,727 1,381,185
Less net deferred loan origination fees..................................... 1,840 565
Less allowance for loss..................................................... 64,000 64,000
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Net concurrent trust deed notes receivable............................. $1,368,718 $ - 0 -
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</TABLE>
8
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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, 1998 decreased $19,896 or 17.1%
over the same period September 30, 1997. Revenue for the three months ended
September 30, 1998 decreased $8,300 or 20.9% for the same period ending
September 30, 1997.
This decrease was due to a decrease in interest income as a result of
distribution of loan payoff to limited partners.
Servicing expenses increased 3.5% and general and administrative expenses
decreased 20.8% for the nine months ended September 30, 1998 over the same
period ended September 30, 1997. Servicing expenses increased 69.9% and general
and administrative expenses increased 4.4% for the three months ended September
30, 1998 over the same perios ended September 30, 1997.
Net income decreased $17,481 or 23.5% for the nine months ended September
30, 1998 over the same peiod ended September 30, 1997. Net income decreased
$11,147 or 36.5% for the three months ended September 30, 1998 over the same
period ended September 30, 1997.
Working capital increased $1,595,659 for nine months ended September 30,
1998. 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
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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
September 30, 1998.
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: October 30, 1998 /S/ John P. Sullivan
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Keystone Mortgage Company
By: John P. Sullivan, President
Date: October 30, 1998 /S/ John P. Sullivan
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John P. Sullivan
General Partner
Date: October 30, 1998 /S/ Christopher E. Turner
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Christopher E. Turner
General Partner
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,281
<SECURITIES> 473,252
<RECEIVABLES> 9,043
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,872,761
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,872,761
<CURRENT-LIABILITIES> 277,102
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,595,659
<TOTAL-LIABILITY-AND-EQUITY> 1,872,761
<SALES> 0
<TOTAL-REVENUES> 96,455
<CGS> 0
<TOTAL-COSTS> 39,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,993
<INCOME-TAX> 0
<INCOME-CONTINUING> 56,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,993
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
