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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, 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
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<S> <C> <C>
(a) Condensed Balance Sheets, December 31, 1997 and June 30, 1998. . . . . . . . . .3
(b) Condensed Statements of Income, three and six months ended,
June 30, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Condensed Statements of Partners' Capital (Deficit) for the year ended
December 31, 1997 and the six months ended June 30, 1998 . . . . . . . . . . . . 5
(d) Condensed Statements of Cash Flows, six months ended
June 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
</TABLE>
2
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
*December 31 June 30
1997 1998
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<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,484 $ 16,959
Short-term investments (market value of $392,695 in 1997
and $435,754 in 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,695 435,754
Interest receivable on trust deed notes receivable . . . . . . . . . . . . . . 9,162 9,194
Current portion of trust deed notes receivable (note B) . . . . . . . . . . . . 35,727 1,388,959
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Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 450,068 1,850,866
Trust deed notes receivable, net (note B) . . . . . . . . . . . . . . . . . . . . . 1,368,718 - 0 -
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$1,818,786 $1,850,866
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LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . $ 11,120 $ 605
Due general partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,000 274,000
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Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . 280,120 274,605
Partners' capital:
General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 1,008
Limited Partners - authorized 41,459 units;
outstanding 41,459 units . . . . . . . . . . . . . . . . . . . . . . . . . . 1,538,034 1,575,253
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Net partners' capital . . . . . . . . . . . . . . . . . . . . . . . 1,538,666 1,576,261
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$1,818,786 $1,850,866
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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>
Three Months Ended Six Months Ended
June 30 June 30
1997 1998 1997 1998
-------------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Interest on mortgage loans . . . . . . . . . . . . . . . . . . . . $ 28,862 $ 28,057 $ 55,961 $56,131
Interest on short-term investments . . . . . . . . . . . . . . . . 9,604 4,263 20,753 8,987
-------- -------- -------- -------
38,466 32,320 76,714 65,118
Expenses:
Servicing related expenses . . . . . . . . . . . . . . . . . . . . 11,902 11,030 21,442 19,313
General and administrative expenses . . . . . . . . . . . . . . . 6,265 3,181 11,343 8,210
-------- -------- -------- -------
18,167 14,211 32,785 27,523
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 20,299 18,109 43,929 37,595
-------- -------- -------- -------
-------- -------- -------- -------
Weighted average number of
limited partnership units outstanding . . . . . . . . . . . . . . . 41,454 41,454 41,454 41,454
-------- -------- -------- -------
-------- -------- -------- -------
Net income per limited
partnership unit . . . . . . . . . . . . . . . . . . . . . . . . . . $ .49 $ .44 $ 1.06 $ .91
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
See accompanying 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 six months ended June 30, 1998 . . 376 37,219 37,595
------ ---------- ----------
Balance as of June 30, 1998 (unaudited) . . . $1,008 $1,575,253 $1,576,261
------ ---------- ----------
------ ---------- ----------
</TABLE>
5
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . $ 37,595 $ 43,929
Changes in operating assets and liabilities:
Amortization of net origination fees . . (850) (850)
Decrease in interest receivable . . . . . (32) 9,321
Decrease in accounts payable . . . . . . (10,515) (1,295)
Increase in due general partners . . . . 5,000 5,000
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NET CASH PROVIDED BY
OPERATING ACTIVITIES . . . . . . . . 31,198 56,105
INVESTING ACTIVITIES:
Decrease in notes receivable . . . . . . . . . 16,336 20,821
Increase in short-term investments . . . . . . (43,059) (199,027)
FINANCING ACTIVITIES:
General Partners contributions . . . . . . . . - 0 - 206,601
Distribution and withdrawals . . . . . . . . . - 0 - (86,609)
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Increase (Decrease) in cash and cash equivalents 4,475 (2,109)
Cash and cash equivalents at beginning year. . 12,484 15,808
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . $16,959 $ 13,699
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------- ----------
</TABLE>
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 June 30
interest 1997 1998
-------- ---- ----
<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 $1,453,949
-------
-------
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . 35,727 1,388,959
Less net deferred loan origination fees . . . . . . . . . . . . . . . . . 1,840 990
Less allowance for loss . . . . . . . . . . . . . . . . . . . . . . . . . 64,000 64,000
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Net concurrent trust deed notes receivable . . . . . . . . . . . . . $1,368,718 $ - 0 -
---------- ----------
---------- ----------
</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 six months ended June 30, 1998 decreased $11,596 or 15.1%
over the same period June 30, 1997. Revenue for the three months ended June 30,
1998 decreased $6,146 or 15.9% for the same period ending June 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 decreased 9.9% and general and administrative expenses
decreased 27.6% for the six months ended June 30, 1998 over the same period
ended June 30, 1997. Servicing expenses decreased 7.3% and general and
administrative expenses decreased 55.6% for the three months ended June 30, 1998
over the same period 1997.
Net income decreased 14.4% for the six months ended June 30, 1998 over the
same period June 30, 1997. Net income decreased 10.7% for the three months
ended June 30, 1998 over the same period June 30, 1997.
Working capital increased $1,406,313 for six months ended June 30, 1998.
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 it assets.
9
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PART II. OTHER INFORMATION
ITEM 6. EXIBITS AND REPORTS ON FORM 8-K
(a) The Registrant filed no reports on Form 8-K during the quarter ended June
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: August 6, 1998 /s/ JOHN P. SULLIVAN
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Keystone Mortgage Company
By: John P. Sullivan, President
Date: August 6, 1998 /s/ JOHN P. SULLIVAN
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John P. Sullivan
General Partner
Date: August 6, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,959
<SECURITIES> 435,754
<RECEIVABLES> 1,462,153
<ALLOWANCES> 64,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,850,866
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,850,866
<CURRENT-LIABILITIES> 274,605
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,576,261
<TOTAL-LIABILITY-AND-EQUITY> 1,850,605
<SALES> 0
<TOTAL-REVENUES> 65,118
<CGS> 0
<TOTAL-COSTS> 27,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,595
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,595
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
