U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Transition period from ______ to ____
Commission File Number:
0-21604
Common Goal Health Care Pension and Income Fund L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 36-3644837
(State or other (I.R.S. Employer
Jurisdiction of Identification Number)
incorporation or
organization)
215 Main Street Penn Yan, New York 14527
(Address of principal executive offices) (Zip Code)
(315) 536-5985
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Units
of Limited Partnership Interest
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. No as to (1); YES as
to (2)
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
[X]
Issuer's revenues for the fiscal year ended December 31, 1998 were $283,316.
The aggregate sales price of the units of Limited Partnership Interest held by
non-affiliates of the Registrant as of March 31, 1999 was $5,221,160 (490
investors). As of March 31, 1999, there was no market for these Units and no
market is expected to develop. The aggregate sales price is accordingly not
necessarily indicative of the price at which these Units would trade.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated February 20, 1987, and filed
pursuant to Rule 424(b) and Rule 424(c) under the Securities Act of 1933, as
amended, are incorporated by reference into Part III of this Annual Report on
Form 10-KSB.
<PAGE>
PART I
Item 1. Description of Business.
General.
Common Goal Health Care Pension and Income Fund L.P. II (the "Partnership") was
organized on May 9, 1989 as a limited partnership under the Delaware Revised
Uniform Limited Partnership Act. The Partnership's general partners are Common
Goal Capital Group, Inc. II ("Common Goal II" or the "Managing General Partner")
and Common Goal Limited Partnership II (the "Associate General Partner")
(collectively, the "General Partners"). With limited exceptions, Common Goal II
has exclusive control over the business of the Partnership, including the right
to manage the Partnership's assets. The Partnership commenced operations on July
2, 1990 after having accepted subscriptions for more than the requisite number
of 117,650 units of limited partnership interest (the "Units") in a public
offering registered with the Securities and Exchange Commission (the "Public
Offering"). The Partnership raised a total of $5,221,160 when the Public
Offering terminated.
The Partnership's primary business was to invest in or make mortgage loans which
were secured by junior mortgages or deeds of trust (and may, in the future
include first mortgages or deeds of trust, but not wrap-around or other liens
which are more junior than second positions, except where approved by the Board
of Directors) on fee or leasehold interests in health care-related real estate,
including properties owned or acquired by affiliated borrowers, or other
collateral, including interests in borrowers satisfactory to the Managing
General Partner (the "Mortgage Loans"). The Partnership also made a Mortgage
Loan through a joint venture with an affiliate. The facilities underlying the
Partnership's loans to certain affiliated borrowers (See "Existing Mortgage
Loans - St. Catherine's Loans" below) were leased to an unaffiliated third party
in November 1998 (the "Third Party Lessee"). The Third Party Lessee did not
assume the St. Catherine's Loans. For further information concerning the
Partnership's present investments in Mortgage Loans, see "Existing Mortgage
Loans" below.
Mortgage Loans. Mortgage Loans which are deemed to have substantially the same
risks and potential rewards as an owner of an underlying property by virtue of
characteristics such as participation in expected residual profits or where the
lender provided all or substantially all necessary funds to acquire the property
(such that the borrower has little or no equity therein), must be treated as
investments in the underlying properties for financial accounting purposes. All
Mortgage Loans previously characterized as investments in underlying properties
were paid off in April 1995, and therefore, at December 31, 1998, 1997 and 1996,
no Mortgage Loans were treated as investments in underlying properties. See
"Item 7. Financial Statements."
The Partnership's objectives in making investments of the type described above
were: (i) to preserve and protect the Partnership's capital; (ii) to provide
quarterly distributions from investment income; and (iii) to provide for
potential long-term appreciation of its Mortgage Loan investments, principally
through participations payable at maturity of the Mortgage Loan or upon the sale
or refinancing of the underlying property (the "Participations"). Because
Participations in facility appreciation are paid only upon maturity of a
Mortgage Loan or a sale of the underlying facility, increased cash distributions
as a result of such Participations are not expected to commence for a period of
five years or more from the date that the related Mortgage Loan is made, if at
all. It is not an objective of the Partnership to provide tax-sheltered income.
The Partnership is conducting and intends to continue to conduct its operations
so that it will not become subject to regulation under the Investment Company
Act of 1940. Generally, the term "investment company" might include the
Partnership if, after a one-year period, the Partnership, among other things,
were to be engaged primarily, or were to hold itself out as being engaged
primarily, or were to propose to engage primarily, in the business of investing,
reinvesting or trading in securities, or if it were to have more than 40% of its
total assets, excluding cash and government securities, invested in "investment
securities" as that term is defined in the Investment Company Act of 1940. The
Partnership does not currently meet this test.
Types of Mortgage Loans. The Partnership made Mortgage Loans on fee interests
(or other beneficial interest essentially equivalent to a mortgage on real
property). All real estate underlying existing Mortgage Loans is used in the
health care industry, particularly real estate used as nursing home and
intermediate care facilities. The Partnership does not intend to make additional
Mortgage Loans.
Federal Income Taxes. The Partnership is not subject to federal income taxes as
the liability for such taxes is that of the partners rather than the
Partnership.
Other Operating and Investment Policies. Common Goal Health Care Participating
Mortgage Fund L.P. ("Common Goal I"), an affiliated, publicly-offered limited
partnership with investment objectives that are substantially identical to those
of the Partnership, made a loan to a third party jointly with the Partnership
(See "Joint Venture Loan" below).
The Managing General Partner will attempt to resolve any conflicts of interest
between the Partnership and others by exercising the good faith required of
fiduciaries. Neither the Partnership nor Common Goal intends to make additional
Mortgage Loans and the Joint Venture Loan matures in 2000. Accordingly, the
Managing General Partner believes that generally it will be able to resolve
conflicts, if any, on an equitable basis. The foregoing provisions are not
intended to relieve the General Partners of their fiduciary obligations to the
Partnership.
Funds held pending investment in Mortgage Loans may be invested by the
Partnership, at the direction of the Managing General Partner, in United States
government securities, certificates of deposit of United States banks with a net
worth of at least $20,000,000, repurchase agreements covering the securities of
the United States government or governmental agencies, bankers' acceptances,
commercial paper rated A-1, Prime-1 or better by Standard and Poor's Corporation
or Moody's Investors Service, Inc., respectively, money market funds having
assets in excess of $100,000,000, interest-bearing time deposits in banks and
thrift institutions or any combination of these investments.
Existing Mortgage Loans.
The St. Catherine's Loans - The principal balances outstanding for mortgage loan
receivables as of December 31, 1998 were as follows:
Second Mortgage Loans Third Mortgage Loans
--------------------- --------------------
Joint Venture Loan $50,590 ----
St. Catherine's of Tiffin 51,500 $48,353
St. Catherine's of
Bloomville 36,000 163,529
St. Catherine's of Fostoria 102,000 107,067
St. Catherine's of Findlay 142,500 119,164
St. Catherine's of
Washington Court House 68,000 362,194
Unallocated ---- 39,393
---------------------- ---------------------
Subtotal $450,590 $839,700
---------------------- ---------------------
Total $1,290,290
=====================
In November 1998, the St. Catherine's facilities were leased to the Third Party
Lessee. The Third Party Lessee did not assume the St. Catherine's Loans.
Joint Venture Loan. In 1989, the Partnership entered into a joint venture
agreement with Common Goal Health Care Participating Mortgage Fund, L.P. ("CGI")
to make a mortgage loan (the "Joint Venture Loan") to two unaffiliated Tennessee
limited partnerships (the "Borrowers"). The Joint Venture Loan was funded on
August 1, 1990, in the original principal amount of $3,430,114 ($3,400,114 at
December 31, 1991) with Common Goal I contributing 100% of such amount to the
joint venture at that time. The Partnership contributed $95,600 to the joint
venture. The Joint Venture Loan requires payment of Basic Interest at a rate of
13.7% per annum. The loan also requires payment of additional interest at a rate
of 1.95% of gross revenues from the collateral securing the Joint Venture Loan
in excess of $1,694,000 per annum. The loan also provides for payment of a
participation equal to 30% of the first $1,000,000 of increase in the fair
market value (or gross sales price) of the Facilities over aggregate secured
indebtedness (including the Joint Venture Loan) as of the date of funding of the
Joint Venture Loan and 17% of the balance of any such increase. The
participation would be payable upon sale, refinancing of a senior mortgage loan
or at maturity of the Joint Venture Loan with the fair market values to be
determined at that time. The Joint Venture Loan is secured by a second mortgage
on a 100-bed skilled and intermediate care facility owned by one of the
Borrowers as well as a collateral assignment of 100% of the general partners'
and limited partners' interest in each Borrower. The security interest was taken
in the Borrowers insofar as the retirement and assisted care facility owned by
the other Borrower is subject to a HUD regulatory agreement which prohibits
junior encumbrances. The Partnership's principal balance as of December 31, 1998
was $50,590. The entire principal balance is due at the maturity date of January
1, 2000.
At December 31, 1998, the loan was current as to regular interest and annual
gross revenue interest.
St. Catherine's Loans. The Partnership made and funded three mortgage loans to
affiliated entities (the "St. Catherine's Loans"). The Partnership's affiliation
with these entities is a result of the President and Chief Executive Officer of
the Managing General Partner also serving as the President of the entities
receiving the loans. As a result of the refinancing of the senior debt secured
by the St. Catherine's, Court House and Findlay facilities, the Partnership's
mortgage loans for these same facilities were refinanced on April 13, 1995 and
the outstanding principal and Additional Interest were subsequently paid off.
The refinancing of the senior debt did not provide sufficient proceeds to allow
payment in cash of the participations owing under the St. Catherine's, Court
House and Findlay Loans (the "SC Participations") in the total amount of The St.
Catherine's borrowers paid the SC Participations through (i) the issuance of
notes in the total amount of $400,000 bearing an interest rate of 11.00% per
annum (a) maturing on the earlier of the sale or refinancing of the Tiffin,
Bloomville, Fostoria, Washington Court House and Findlay Facilities (the "SC
Facilities") or the maturity of the refinanced senior debt (August, 2000) and
(b)cross-collateralized by second mortgage liens on the SC Facilities; and (ii)
the issuance of a contingent payment obligation by St. Catherine's of Seneca,
Inc. in the amount of $202,500 and a contingent payment obligation by St.
Catherine's Care Centers of Fostoria, Inc. in the amount of $238,000
(collectively, the "CPOs").
The CPOs bear interest at an annual rate of 11.00%, which is due quarterly, and
mature on the earlier of the sale or refinancing of the SC Facilities or the
maturity of the senior debt with South Trust (August, 2000). The CPOs provide
that interest is payable on a current basis provided that the debt service
coverage ratios on each of the SC Facilities is 1.2 to 1.0. In the event these
debt service coverage ratios are not maintained, the interest shall accrue until
the debt service coverage ratio is at least 1.2 to 1.0 or maturity. The CPOs
further provide that principal is payable only to the extent that upon a resale
or refinancing of the SC Facilities, there are sufficient proceeds to repay the
senior debt and the amounts owing under the CPOs. The CPOs were assumed by an
affiliated entity, Will Care of Ohio, Inc., and are secured, to the extent they
become payable and are not paid, by a pledge of 30 shares of St. Catherine's of
Seneca, Inc. common stock.
In accordance with FASB Statement of Standards No. 66, "Accounting for Sales of
Real Estate", the $840,500 participation cannot be recognized as income at this
time. The Partnership has recorded $400,000 of the participation amount, related
to the mortgage loan receivable, as Deferred Revenue, and the interest thereon
will be recognized as it is earned. Due to the contingent nature of the $440,500
in participation income due to the Partnership related to the CPO'S, such amount
has not been recorded as an asset of the Partnership and the participation
income and interest earned on the CPO's will be recognized only when received.
On March 13, 1997, the Managing General Partner approved loans of $425,000 to
St. Catherine's Care Center of Tiffin, Inc., St. Catherine's Care Center of
Bloomville, Inc., St. Catherine's Care Center of Washington Court House, Inc.,
St. Catherine's Care Center of Fostoria, Inc. and St. Catherine's Care Center of
Findlay, Inc., (collectively, "St. Catherine's Care Centers") affiliates of the
Managing General Partner, and to be secured by third mortgages on the real
properties owned by each of the foregoing, said mortgages being subordinated to
senior indebtedness in the amount of $10,650,000 held by South Trust Bank of
Alabama, N.A. and indebtedness of the Partnership in the amount of $400,000. The
loans bear interest at the rate of 13% per annum and will mature August 31,
2000. The Partnership funded $425,000 of these loans on April 10, 1997. On
November 3, 1997 the Managing General Partner approved an increase of an
additional $425,000 in the loans to the St. Catherine's Care Centers. As of
December 31, 1998 the loan balance was $839,700. Notwithstanding approval of the
increase in the loans in November 1997, the St. Catherine's borrowers suspended
payments of interest during the fourth quarter of 1997. Payments recommenced in
February, 1998 at the default rate of 16% per annum. As of March 31, 1999, the
St. Catherine's borrowers were approximately $41,757 behind in interest
payments.
The following charts provide certain summary information with respect to the
Partnership's Mortgage Loans.
<PAGE>
Common Goal II Second Mortgage Loans
<TABLE>
<CAPTION>
St. Catherine's
Joint Venture St. Catherine's St. Catherine's St. Catherine's St. Catherine's of Washington
Loan (1) of Tiffin of Bloomville of Fostoria of Findlay Court House
----------------- ------------- -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Date of Loan 1990 1995 1995 1995 1995 1995
Type of Loan Collateral Second Second Second Second Second
Assignment Mortgage Mortgage Mortgage Mortgage Mortgage
of Interest on one on one on one on two on one
in one facility (2) facility facility facility facilities facility
Current Principal
Amount
Outstanding as
of December 31,
1998 $50,590 $51,500 $36,000 $102,000 $142,500 $68,000
Interest Rate 13.70% (3) 11.00%(4) 11.00%(4) 11.00%(4) 11.00%(4) 11.00%(4)
Maturity January 1, 2000 April 30, 2000 April 30, 2000 April 30, 2000 April 30, 2000 April 30, 2000
Property Type/ 100-bed skilled 44-bed nursing 30-bed nursing 102-bed nursing 40-bed and 60-bed 50-bed nursing
Location of care and home in Tiffin, home in home in Fostoria, nursing home in home in Washington
Property intermediate care OH Bloomville, OH OH Findlay, OH Court House, OH
Securing facility in
Honeybrook, PA (2)
Origination Fee
Paid to an
Affiliate (Paid
by Borrower) $101,900(1) None None None None None
Relationship to
Partnership Non-Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate
</TABLE>
<PAGE>
- ----------------------
(1) Pursuant to the terms of the Joint Venture, the Partnership originally
contributed $95,600 to the Joint Venture in connection with a loan in the
original principal amount of $3,430,114. The remaining portion of the note
was funded by Common Goal Health Care Participating Mortgage Fund L.P.
("CGI"). On March 29, 1993, CGI received a principal paydown in the amount
of $70,000. On November 3, 1993, both CGI and the Partnership received
principal paydowns in conjunction with a restructuring of the Loan. The
balance of the Joint Venture Loan attributable to the Partnership as of
December 31, 1997 was $50,590.
(2) The Joint Venture Loan is also secured by collateral assignments of 100% of
the general partners and limited partners' interest in each Borrower. The
security interest was taken in the Borrowers insofar as a retirement and
assisted care facility owned by the Borrowers is subject to a HUD
regulatory agreement which prohibits junior encumbrances on the facility.
(3) In addition to Basic Interest of 13.7%, this loan requires payment of
additional interest at a rate of 1.95% of the increase in gross revenues
from the collateral securing the Joint Venture loan over the sum of
1,694,000 per annum payable in full within 45 days after the end of such
fiscal year. The loan also requires additional interest in an amount equal
to 30% of the first $1,000,000 of increase in the fair market value of the
collateral securing the Joint Venture Loan over its aggregate secured
indebtedness and 17% of the balance of any such increase in the fair market
value of such facilities in excess of $1,000,000 over the aggregate secured
indebtedness.
(4) Interest on the affiliated St. Catherine's Mortgage Loans is at a rate of
13.00% per annum, calculated on a 365-day year for the actual number of
days lapsed, and paid quarterly.
Common Goal II Third Mortgage Loans
<TABLE>
<CAPTION>
St. Catherine's
St. Catherine's St. Catherine's St. Catherine's St. Catherine's of Washington
of Tiffin of Bloomville of Fostoria of Findlay Court House Unallocated
------------- -------------- -------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Date of Loan 1997 1997 1997 1997 1997 1997
Type of Loan Third Third Third Third Third N/A
Mortgage Mortgage Mortgage Mortgage Mortgage
on one on one on one on two on one
facility facility facility facilities facility
Current Principal
Amount
Outstanding as
of December 31,
1998 $48,353 $163,529 $107,067 $119,164 $362,194 $39,393
Interest Rate 13.00%(1) 13.00%(1) 13.00%(1) 13.00%(1) 13.00%(1) 13.00%(1)
Maturity August 2000 August 2000 August 2000 August 2000 August 2000 August 2000
Property Type/ 44-bed nursing 30-bed nursing 102-bed nursing 40-bed and 60-bed 50-bed nursing
Location of home in Tiffin, home in home in Fostoria, nursing home in home in Washington
Property OH Bloomville, OH OH Findlay, OH Court House, OH
Securing
Origination Fee
Paid to an
Affiliate (Paid
by Borrower) None None None None None None
Relationship to
Partnership Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate
</TABLE>
- ----------------------
(1) Interest on the affiliated St. Catherine's Mortgage Loans is at a rate of
13.00% per annum, calculated on a 365-day year for the actual number of
days lapsed, and paid quarterly.
Partnership Allocation of Income and Loss and Distribution.
Net Income and Net Loss. Net income (except with respect to a "Disposition,"
which includes any Partnership transaction not in the ordinary course of its
business, including, without limitation, collections of principal payments,
equity participation payments, prepayments, prepayment penalties, sales,
exchanges, foreclosures or other dispositions of Mortgage Loans held by the
Partnership, recoveries of damage awards and insurance proceeds (other than the
receipt of subscriptions for Units, all forms of interest payments when due on
Mortgage Loans or business or rental interruption insurance proceeds)) and net
loss of the Partnership is allocated 97.5% to Limited Partners and 2.5% to the
General Partners. Net income arising from a Disposition is allocated 97.5% to
Limited Partners and 2.5% to the General Partners to the extent of any negative
balances in the capital accounts of the Limited Partners, and then 100% to
Limited Partners in an amount necessary to bring the Limited Partners' capital
accounts up to an amount equal to their Original Contributions, which means the
amount of $10.00 for each Unit less the return of any amount of uninvested funds
returned, as defined in the prospectus, plus the 11.5% preferred cumulative
return thereon (less previous distributions to the Limited Partners in payment
of such amounts). The remainder of such net income is allocated 85% to the
Limited Partners and 15% to the General Partners.
Distributions of Cash From Operations. Distributions of Adjusted Cash From
Operations, defined as all receipts of interest payments on Mortgage Loans less
cash receipts used to pay operating expenses and to repurchase any Units (Cash
Flow) less any amount set aside for the restoration or creation of working
capital reserves, are distributed 97.5% to the Limited Partners and 2.5% to the
General Partners, and are apportioned quarterly among Limited Partners of record
as of the record date declared within 30 days after the end of each quarter and
will be paid quarterly. No distributions of Adjusted Cash From Operations with
respect to any calendar year are made to the General Partners until the
following occurs:
First, distributions to the Limited Partners equal to the 9% annual
cumulative return on their Adjusted Contributions, defined as Original
Contributions attributable to a Unit, reduced by the total of cash
distributed from Disposition Proceeds and from working capital reserves,
for such year (plus any amounts accrued from prior years) have been made to
the Limited Partners; and
Second, payment of all previously subordinated management fees, if any,
have been made.
Thereafter, all previously subordinated amounts payable to the General Partners
with respect to their 2.5% interest are paid in full to the extent funds are
available, and if not available, are deferred and paid out of Disposition
Proceeds, defined as receipts from Dispositions net of related expenses, amounts
necessary for the payment of debts and obligations of the Partnership and any
amount set aside for working capital reserves. The Partnership made
distributions to the Limited Partners in excess of the 9% annual cumulative
return on Adjusted Contributions in 1998.
Distributions of Disposition Proceeds. The Managing General Partner has the
right to reinvest or distribute all Disposition Proceeds received through the
second anniversary of the final closing date and may reinvest disposition
proceeds as necessary thereafter to avoid classification as an investment
company under the Investment Company Act of 1940. Non- liquidating distributions
of Disposition Proceeds are distributed in the following order of priority,
except as otherwise required by law:
First, 100% to the Limited Partners until the Limited Partners have
received an amount which, when added to prior distributions of Disposition
Proceeds and cash from reserves attributable thereto, equals the Original
Contributions of the Limited Partners;
Second, 100% to the Limited Partners until each Limited Partner has
received an amount which, when added to all prior distributions to Limited
Partners from all sources (including prior distributions in satisfaction of
the 9% annual cumulative return but excluding distributions pursuant to
above), equals the 11.5% per annum preferred cumulative return on their
Adjusted Contributions, (calculated from the first day of the calendar
quarter succeeding the quarter in which Capital Contributions are
received);
Third, 100% to the General Partners until they have been paid 100% of the
subordinated portion, if any, of (a) the management fee, if any, and then
(b) their 2.5% interest in Adjusted Cash From Operations; and Fourth, the
remainder, 85% to the Limited Partners and 15% to the General Partners.
Dissolution.
Since it is the intention of the Managing General Partner to liquidate the
Partnership's assets between the tenth and fifteenth years after the final
closing date (the "Final Closing Date"), the Managing General Partner will adopt
the following procedures to provide for an orderly liquidation: the Managing
General Partner intends to confine the Partnership's investment activities to
Mortgage Loans with terms ending prior to the end of the tenth anniversary of
the Final Closing Date and will try to sell any property the Partnership has
acquired by foreclosure or otherwise in an orderly fashion. Any such sales to
affiliates of the Partnership or the General Partners ("Affiliates") would
require the approval of a majority of the independent members of the Board of
Directors of the Managing General Partner. To the extent that any Mortgage Loans
will not mature by their terms prior to the end of such tenth anniversary, it
may become necessary to sell such investments. It can be reasonably anticipated
that the Partnership may be required to sell such investments for less than
their outstanding principal balances as of the date of sale. The Partnership
intends to reinvest loan proceeds received only as and if necessary to avoid
classification as an investment company under the Investment Company Act of
1940. See "Item 6. Management's Discussion and Analysis or Plan of Operation"
regarding possible reinvestment of mortgage loan proceeds.
Proceeds from the liquidation will be applied and distributed in the following
order:
First, to the payment of creditors of the Partnership but excluding secured
creditors whose obligations will be assumed or otherwise transferred on the
liquidation of Partnership assets; and
Second, after allowance for the expenses of liquidation and the setting up
of any reserves for contingencies which the Managing General Partner
considers necessary, to the General Partners and Limited Partners in
proportion to and to the extent of the positive balances in their capital
accounts, after net income or loss arising from a Disposition has been
allocated, with any excess being distributed in accordance with the order
of priority for non-liquidating distributions.
Notwithstanding anything to the contrary, the Managing General Partner has the
right to defer liquidation if, in the opinion of the Managing General Partner,
the sale of Partnership assets in liquidation would result in a material under
realization on the Partnership's assets.
Item 2. Description of Property.
The Partnership did not own any real property as of December 31, 1998.
Item 3. Legal Proceedings.
The Partnership is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the last
quarter of 1998.
PART II
Item 5. Market for Units of Limited Partnership Interest and Related Security
Holder Matters.
The units of limited partnership interest (the "Units") are not readily
transferable. There is no public market for the Units and it is not currently
expected that any will develop. There are restrictions upon the transferability
of Units, including the requirement that the General Partners consent to any
transferee becoming a substituted Unit holder (which consent may be granted or
withheld at the sole discretion of the General Partners). In addition,
restrictions on transfer may be imposed under state securities laws.
The Revenue Act of 1987 contains provisions which may have an adverse impact on
investors in certain" publicly traded partnerships." If the Partnership were to
be classified as a "publicly traded partnership," income attributable to the
Units would be characterized as portfolio income and the gross income
attributable to Units acquired by tax-exempt entities after December 17, 1987
would be unrelated business income, with the result that the Units could be less
marketable. The General Partners will, if necessary, take appropriate steps to
ensure that the Partnership will not be deemed a "publicly traded partnership."
At March 31, 1999, 522,116 Units were outstanding, and were held by 490 holders
of record.
The Partnership made distributions to Limited Partners of $1,205,991 ($991,337
as a distribution of principal) or $2.31 per Unit during 1998 and $1,222,290
($1,027,726 as a distribution of principal) or $2.34 per Unit during 1997.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources.
Common Goal Health Care Pension and Income Fund L.P. II, a Delaware limited
partnership (the "Partnership"), was formed to make mortgage loans secured by a
mix of first and junior liens on health care-related properties. The Partnership
commenced its offering of Units to the public on January 12, 1990, authorized to
sell up to 1,000,000 Units at $10.00 per Unit. Total gross offering proceeds
raised were $5,221,160. The Partnership commenced operations on July 2, 1990. As
of December 31, 1998, all available Net Offering Proceeds have been invested in
Mortgage Loans and/or short-term investments in accordance with Partnership
guidelines. The Partnership does not intend to make additional Mortgage Loans.
As of December 31, 1998, the Partnership had six Mortgage Loans outstanding
directly or through a joint venture, including five Mortgage Loans to various
affiliated St. Catherine's Facilities.
The Mortgage Loans pay Basic Interest which is payable at higher rates than are
being earned on temporary investments and provide for payments of Additional
Interest and Participations. The interest derived from the Mortgage Loans and
repayments of Mortgage Loans contribute to the Partnership's liquidity. These
funds are used to make cash distributions to the Limited Partners, to pay normal
operating expenses as they arise and, in the case of repayment proceeds, may,
subject to certain exceptions, be used to make additional Mortgage Loans. The
movement of funds from Mortgage Loans to short-term investments has increased
the Partnership's overall liquidity, but has lowered expected interest income.
The Partnership has structured its Mortgage Loans to provide for payment of
quarterly distributions to Limited Partners from investment income.
The Partnership maintains working capital reserves of approximately 2% of gross
proceeds of the offering (approximately $104,423 at December 31, 1998), an
amount which is anticipated to be sufficient to satisfy liquidity requirements.
The Partnership has made quarterly distributions equal to 7.25% per annum for
1998 and 1997. See "Item 1. Business" and the Notes to the Financial Statements
for further information regarding the Partnership's Mortgage Loans.
On April 13, 1995, the St. Catherine's, Court House, and Findlay facilities
refinanced their senior debt and the Partnership's mortgage loans. The
outstanding principal and Additional Interest were subsequently paid off. The
refinancing of the senior debt did not provide sufficient proceeds to allow
repayment of the Participations owing under the St. Catherine's Washington Court
House and Findlay Loans (the "SC Participations") in the total amount of
$840,500. The SC Borrowers repaid the SC Participations through: (i) the
issuance of notes in the total amount of $400,000 bearing an interest rate of
11.00% per annum (a) maturing on the earlier of the sale or refinancing of the
Tiffin, Bloomville, Fostoria, Washington Court House and Findlay Facilities (the
"SC Facilities") or the maturity of the senior debt with South Trust (August,
2000) and (b) cross- collateralized by second mortgage liens on the SC
Facilities; and (ii) the issuance of a contingent payment obligation by St.
Catherine's of Seneca, Inc. in the amount of $202,500 and a contingent payment
obligation by St. Catherine's Care Centers of Fostoria, Inc. in the amount of
$238,000 (collectively, the "CPOs").
In accordance with FASB Statement of Standards No. 66, "Accounting for Sales of
Real Estate", the $840,500 participation cannot be recognized as income at this
time. The Partnership has recorded $400,000 of the participation amount, related
to the mortgage loans receivable, as Deferred Revenue, and the interest thereon
will be recognized as it is earned. Due to the contingent nature of the $440,500
in participation income due to the partnership related to the CPO'S, such amount
has not been recorded as an asset of the Partnership and the participation
income and interest earned on the CPO's will be recognized only when received.
The Partnership's balance of cash and cash equivalents at December 31, 1998 and
December 31, 1997 was $839,759 and $1,647,623, respectively, which consisted of
operating cash and working capital reserves. The decrease in cash and cash
equivalents from December 31, 1997 to December 31, 1998 of $807,864 resulted
from net income of $219,235, distributions paid in cash to limited partners of
$955,091, and additional funding to St. Catherine's Care Centers of $85,000.
Dividend distributions noted as a return of capital represent those
distributions which are in excess of current year earnings.
During the years ended December 31, 1998 and 1997, the Partnership reported net
income of $219,235 and $199,553, based on total revenues of $283,316 and
$279,251 and total expenses of $64,081 and $79,698, respectively. The
Partnership's distributions to Limited Partners were $2.31 per Unit in 1998 and
$2.34 per Unit in 1997, respectively. The 1998 distributions to Limited Partners
included a return of capital of $1.90 per Unit and the 1997 distributions
included a return of capital of $1.97 per unit. All interest received on the
Mortgage Loans is currently being recognized as interest income.
Expenses decreased in 1998 by $15,617. There was a decrease of $13,220 in
management fees caused by a drop in mortgage balances being serviced. Other
expenses decreased by $5,347 from 1997 to 1998.
Additionally, under the terms of the Partnership agreement, the Partnership is
required to reimburse the Managing General Partner for certain operating
expenses. In an effort to maintain the yield to the Limited Partners, the
Managing General Partner did not charge the Partnership for such expenses
through December 31, 1990. In 1998 and 1997, the Managing General Partner was
reimbursed by the Partnership for $32,298 and $34,457 of these expenses,
respectively. The Managing General Partner believes that such charges have not
adversely affected the current yield to Limited Partners.
The Partnership's success and the resultant rate of return to Limited Partners
will be dependent upon, among other things, (a) the result of the Refinancing
and the terms of the repayment of the St. Catherine's, Court House and Findlay
Loans, (b) the ability of the Managing General Partner to identify suitable
opportunities for the Partnership to reinvest its assets and (c) the ability of
the borrowers to pay the current interest, additional interest and principal of
the Mortgage Loans.
Year 2000 Compliance
Information provided below constitutes a year 2000 readiness disclosure pursuant
to the provisions of the Year 2000 Information Readiness and Disclosure Act.
The Year 2000 issue is the result of computer programs being written and
microchips being programmed using two digits rather than four to define the
applicable year. If not corrected, any program having time-sensitive software or
equipment incorporating embedded microchips may recognize a date using "00" as
the year 1900 rather than the year 2000 or may not recognize the year 2000 as a
leap year. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
affected are accounts receivable, accounts payable, general ledger, cash
management, computer hardware, telecommunications and property operating
systems.
The Partnership receives quarterly interest payments from only a limited number
of borrowers and its bank. The Partnership is in the process of obtaining
documentation related to year 2000 readiness from its outside vendors, including
its banks. The Partnership has received documentation from an outside vendor
that maintains its books and records, indicating that the vendor is year 2000
compliant. The Partnership expects to complete the documentation phase by
September 30, 1999. The Partnership expects to complete a contingency plan by
September 30, 1999. However, the Partnership believes that based on the status
of the Partnership's portfolio and its limited number of transactions, aside
from catastrophic failures of banks, governmental agencies, etc., it could carry
out substantially all of its critical administrative and accounting operations
on a manual basis or easily convert to systems that are year 2000 ready.
Some statements in this Form 10-KSB are forward looking and actual results may
differ materially from those stated. As discussed herein, among the factors that
may affect actual results are changes in the financial condition of the borrower
and/or anticipated changes in expenses or capital expenditures.
PART III
Item 7. Financial Statements.
See Financial Statements.
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Table of Contents
Page
Independent Auditors' Report..........................................F - 1
Financial Statements
Balance Sheet....................................................F - 2
Statements of Income.............................................F - 3
Statements of Partners' Capital..................................F - 4
Statements of Cash Flows.........................................F - 5
Notes to Financial Statements.........................................F - 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Common Goal Health Care
Pension and Income Fund L.P. II
Penn Yan, New York
We have audited the accompanying balance sheet of Common Goal Health Care
Pension and Income Fund L.P. II (a limited partnership) as of December 31, 1998,
and the related statements of income, partners' capital and cash flows for each
of the years in the two year period then ended. These financial statements are
the responsibility of the management of Common Goal Health Care Pension and
Income Fund L.P. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Common Goal Health Care Pension
and Income Fund L.P. II as of December 31, 1998, and the results of its
operations and its cash flows for each of the years in the two year period then
ended in conformity with generally accepted accounting principles.
As described in NOte 2 to the financial statements Common Goal HealthCare
Pension and Income Fund L.P. II has a significant portion of its mortgage loan
receivables concentrated in properties in which it holds a third position on
such loans.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 1, 1999
Denver, Colorado
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Balance Sheet
December 31, 1998
Assets
Cash and cash equivalents ............................... $ 839,759
Accrued interest receivable and other ................... 64,343
Due from affiliates ..................................... 9,967
Mortgage loans receivable (Note 2) ...................... 1,290,290
----------
Total assets ............................................ $2,204,359
==========
Liabilities and Partners' Capital
Due to affiliates ....................................... $ 34,967
Accrued distributions ................................... 250,000
Deferred revenue (Note 2) ............................... 400,000
----------
Total liabilities ................................. 684,967
----------
Partners' capital (Note 4)
General partners ..................................... 45,308
Limited partners ..................................... 1,474,084
----------
Total partners' capital ........................... 1,519,392
----------
$2,204,359
==========
See notes to financial statements.
F - 2
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Statements of Income
For the Years Ended
December 31,
---------------------
1998 1997
-------- --------
Revenue
Interest income ...................... $269,756 $279,251
Other income ......................... 13,560 --
-------- --------
283,316 279,251
Expenses
Professional fees .................... 23,219 20,269
Fees to affiliates
Management ......................... 15,811 29,031
Mortgage servicing ................. 1,126 1,126
Other ................................ 23,925 29,272
-------- --------
64,081 79,698
-------- --------
Net income ............................. $219,235 $199,553
======== ========
Net income allocated to general partners $ 5,481 $ 4,989
Net income allocated to limited partners 213,754 194,564
-------- --------
$219,235 $199,553
======== ========
Basic earnings per limited partner unit $ .41 $ .37
======== ========
Weighted average limited partner units
outstanding ........................... 522,116 522,116
======== ========
See notes to combined financial statements.
F - 3
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Statement of Partners' Capital
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partners Partners Capital
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 ..... $ 34,838 $ 3,493,147 $ 3,527,985
Net income ....................... 4,989 194,564 199,553
Principal distributions to limited
partners ($1.97 per unit) ....... -- (1,027,726) (1,027,726)
Distributions to limited partners
($.37 per unit) ................. -- (194,564) (194,564)
----------- ----------- -----------
Balance at December 31, 1997 ..... 39,827 2,465,421 2,505,248
Net income ....................... 5,481 213,754 219,235
Principal distributions to limited
partners ($1.90 per unit) ....... -- (991,337) (991,337)
Distributions to limited partners
($.41 per unit) ................. -- (213,754) (213,754)
----------- ----------- -----------
Balance at December 31, 1998 ..... $ 45,308 $ 1,474,084 $ 1,519,392
=========== =========== ===========
</TABLE>
See notes to financial statements.
F - 5
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income .................................. $ 219,235 $ 199,553
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities -
Accrued interest receivable ................ (2,191) --
Accrued expenses ........................... 250,000 (51,064)
Due to/from affiliates ..................... 15,183 12,022
----------- -----------
262,992 (39,042)
----------- -----------
Net cash provided by operating activities 482,227 160,511
----------- -----------
Cash flows from investing activities
Loans to affiliates ......................... (85,000) (754,700)
----------- -----------
Net cash used in investing activities ... (85,000) (754,700)
----------- -----------
Cash flows from financing activities
Distributions to partners ................... (1,205,091) (1,222,290)
----------- -----------
Net cash used in financing activities ... (1,205,091) (1,222,290)
----------- -----------
Net decrease in cash and cash equivalents ..... (807,864) (1,816,479)
Cash and cash equivalents, beginning of year .. 1,647,623 3,464,102
----------- -----------
Cash and cash equivalents, end of year ........ $ 839,759 $ 1,647,623
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid was $0 for 1998 and 1997.
Income taxes paid was $0 for 1998 and 1997.
See notes to financial statements.
F - 5
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Common Goal Health Care Pension and Income Fund L.P. (the Partnership), a
Delaware Limited Partnership, was formed on May 9, 1989 to invest in and make
mortgage loans to third parties and affiliates involved in health care. Having
previously sold more than the specified minimum of 117,650 units ($1,176,500),
the Partnership commenced operations on July 2, 1990. The Partnership's offering
terminated on January 11, 1992, with the Partnership having sold 522,116 units
($5,221,160). There is no active public trading market for the units. At
December 31, 1998, there were 522,116 unit holders.
The General Partners are Common Goal Capital Group, Inc. II, the Managing
General Partner, and Common Goal Limited Partnership II, the Associate General
Partner. Under the terms of the Partnership agreement, the General Partners are
not required to make any additional capital contributions except under certain
limited circumstances upon termination of the Partnership.
Under the terms of the Partnership agreement, the Partnership reimbursed the
General Partners for certain offering and organizational expenses incurred in
connection with the issuance and distribution of the units in an amount fixed at
5% of gross offering proceeds. These offering and organizational expenses
excluded broker/dealer selling commissions and included accountable due
diligence expense reimbursements. Health Care Securities, Inc. (HCS), an
affiliate acting as managing dealer, received selling commissions of 8% of the
gross offering proceeds on all units sold directly by HCS. Additionally, HCS
received a non-accountable expense allowance of 2% of gross proceeds for
expenses incurred in connection with the sale of Units, and also received
reimbursement of up to .5% of gross proceeds for accountable due diligence
expenses. Offering and organization expenses were recorded as a reduction of
partners' capital.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
For entities investing in and making mortgage loans to businesses in the health
care industry, certain inherent risks may increase the possibility of actual
results differing from management's estimates. These inherent risks include,
among other things, the following:
o Substantial dependence on revenues derived from reimbursement by the
Federal Medicare and state Medicaid programs;
o Government regulation, government budgetary constraints and proposed
legislative and regulatory changes; and
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
o Lawsuits alleging malpractice and related claims.
Partnership Management Fees and Operating Expenses
Under the terms of the Partnership agreement, the Partnership is required to pay
a quarterly management fee to the Managing General Partner equal to 1% per annum
of adjusted contributions, as defined. Additionally, a mortgage and investing
servicing fee equal to .25% per annum of the Partnership's outstanding mortgage
loan receivable and investment amounts are to be paid to Common Goal Mortgage
Company (CGMC), an affiliate of the General Partners.
Additionally, under the terms of the Partnership agreement, the Partnership is
required to reimburse the Managing General Partner for certain operating
expenses. In an effort to maintain the yield to the Limited Partners, the
Managing General Partner did not charge the Partnership for such expenses
through December 31, 1990. In 1998 and 1997, the Managing General Partner
charged the Partnership for $32,298 and $34,457 of these expenses, respectively.
The Managing General Partner believes that such charges have not adversely
affected the current yield to Limited Partners.
Mortgage loans that have virtually the same risk and potential rewards as joint
ventures are accounted for and classified as investments in operating
properties. The Partnership agreement authorized the payment of a 3% mortgage
placement fee to CGMC in connection with the original placement of these
mortgage loans. CGMC elected to defer the receipt of the fee until the repayment
of the mortgage loans. CGMC was entitled to a mortgage placement fee of up to
$127,468 at the time of repayment in April 1995; however, as consideration for
immediate cash payment, CGMC agreed to a fee of $116,094, representing payment
in full. Cash received related to investments in operating properties is
recognized as interest income to the extent that such properties have earnings
prior to the recognition of the distributions of cash to the Partnership;
otherwise, such cash is recorded as a reduction of the related investments.
Partnership Allocation of Income and Losses and Distributions
Net Income
Net income (except with respect to a Disposition, as defined, which includes any
Partnership transaction not in the ordinary course of its business, including
without limitation, collections of principal payments, equity participation
payments, prepayments, prepayment penalties, sales, exchanges, foreclosures
other dispositions of Mortgage Loans held by the Partnership, recoveries of
damage awards and insurance proceeds (other than the receipt of subscriptions
for Units, all forms of interest payments when due on Mortgage Loans or business
or rental interruption insurance proceeds) and net loss of the Partnership is
allocated 97.5% to Limited Partners and 2.5% to the General Partners.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Partnership Allocation of Income and Losses and Distributions (continued)
Net Income (continued)
Net income arising from a Disposition is allocated 97.5% to Limited Partners and
2.5% to the General Partners to the extent of any negative balances in the
capital accounts of the Limited Partners, and then 100% to Limited Partners in
an amount necessary to bring the Limited Partners' capital accounts up to an
amount equal to their Original Contributions, as defined, which means the amount
of $10.00 for each unit less the return of any amount of uninvested funds
returned, as defined, plus the 11.5% preferred cumulative return thereon (less
previous distribution is to the Limited Partners in repayment of such amounts).
Remaining net income is allocated 85% to the Limited Partners and 15% to the
General Partners.
Distributions of Cash from Operations
Distributions of adjusted cash from operations, defined as all receipts of
interest payments on Mortgage Loans less cash receipts used to pay operating
expenses and to repurchase any units (cash flow) less any amount set aside for
the restoration or creation of working capital reserves, are distributed 97.5%
to the Limited Partners and 2.5% to the General Partners, and are apportioned
quarterly among Limited Partners of record as of the record date declared within
30 days after the end of each quarter and will be paid quarterly. No
distributions of adjusted cash from operations with respect to any calendar year
are made to the General Partners until the following occurs:
First, distributions to the Limited Partners equal to the 9% annual
cumulative return on their adjusted contributions, as defined as original
contributions attributable to a unit, reduced by the total of cash
distributed from disposition proceeds and from working capital reserves, for
such year (plus any amounts accrued from prior years) have been made to the
Limited Partners; and
Second, payment of all previously subordinated management fees, if any, have
been made.
Thereafter, all previously subordinated amounts payable to the General Partners
with respect to their 2.5% interest are paid in full to the extent funds are
available, and if not available, are deferred and paid out of Disposition
Proceeds, defined as receipts from dispositions net of related expenses, amounts
necessary for the payment of debts and obligations of the Partnership and any
amount set aside for working capital reserves. The Partnership has been making
distributions to the Limited Partners in excess of the 9% annual cumulative
return on adjusted contributions, with the exception of the four distributions
made during the period October 5, 1994 to October 5, 1995, when the annual
cumulative return was reduced to 7.25%.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Distributions of Disposition Proceeds
The Managing General Partner has the right to reinvest or distribute all
disposition proceeds received through the second anniversary of the final
closing date and may reinvest disposition proceeds as necessary thereafter to
avoid classification as an investment company under the Investment Company Act
of 1940. Non-liquidating distributions of disposition proceeds are distributed
in the following order of priority, except as otherwise required by law;
First, 100% to the Limited Partners until the Limited Partners have received
an amount which, when added to prior distributions of disposition proceeds
and cash from reserves attributable thereto, equals the original
contributions of the limited partners;
Second, 100% to the limited partners until each limited partner has received
an amount which, when added to all prior distributions to limited partners
from all sources (including prior distributions in satisfaction of the 9%
annual cumulative return but excluding distributions pursuant to above),
equals the 11.5% per annum preferred cumulative return on their adjusted
contributions, (calculated from the first day of the calendar quarter
succeeding the quarter in which capital contributions were received);
Third, 100% to the general partners until they have been paid 100% of the
subordinated portion, if any, of (a) the partnership management fee, if any,
and then (b) their 2.5% interest in adjusted cash from operations; and
Fourth, the remainder, 85% to the limited partners and 15% to the
general partners.
Dissolution and Returns of Principal
Since it was the intentions of the managing general partner to liquidate the
partnership's assets between the tenth and fifteenth years after the closing
date (the "Final Closing Date"), the managing general partner will adopt the
following procedures to provide for an orderly liquidation; the managing general
partner intends to confine the Partnership's investment activities to mortgage
loans with terms ending prior to the end of the tenth anniversary of the final
closing date and will try to sell any property the Partnership has acquired by
foreclosure or otherwise in an orderly fashion. Any such sales to affiliates of
the Partnership or the general partners would require the approval of a majority
of the independent members of the board of directors of the managing general
partner. To the extent that any mortgage loans will not mature by their terms
prior to the end of such tenth anniversary, it may become necessary to sell such
investments. It can be reasonably anticipated that the Partnership may be
required to sell such investments for less than their outstanding principal
balances as of the date of sale. The Partnership intends to reinvest loan
proceeds received only as and if necessary to avoid classification as an
investment company under the Investment Company Act of 1940.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Dissolution and Returns of Principal (continued)
Proceeds from the liquidation will be applied and distributed in the following
order:
First, to the payment of creditors of the Partnership but excluding secured
creditors whose obligations will be assumed or otherwise transferred on the
liquidation of partnership assets; and
Second, after allowance for the expenses of liquidation and the setting up
of any reserves for contingencies which the managing general partner
considers necessary, to the general partners and limited partners in
proportion to and to the extent of the positive balances in their capital
accounts, after net income or loss arising from a disposition has been
allocated, with any excess being distributed in accordance with the order of
priority for non-liquidating distributions.
Notwithstanding anything to the contrary, the managing general partner has the
right to defer liquidation if, in the opinion of the managing general partner,
the sale of partnership assets in liquidation would result in a material
underrealization on the partnership" assets.
Allowance for Losses
An allowance for loan losses is provided, if necessary, at a level which the
Partnership's management considers adequate based upon an evaluation of known
and inherent risks in the loan portfolio. There was no allowance for losses at
December 31, 1998.
Federal Income Taxes
No income tax provision has been included in the financial statements since
income or loss of the Partnership is required to be reported by the partners on
their respective income tax returns.
Basic Earnings Per Limited Partner Unit
Basic earnings per limited partner unit is computed based on the weighted
average limited partner units outstanding for the year dividend into the net
income applicable to the Limited Partners.
There were no dilutive limit partner units during 1997 or 1998.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Partnership classifies all short-term investments with maturities of three
months or less at the date of purchase as cash equivalents. At December 31,
1998, cash equivalents consisted of money market accounts.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the Company's
only component, which would comprise comprehensive income, is its results of
operations.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No.'s 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier periods to be restated.
In February of 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS No. 132), which supercedes SFAS No.'s 87, 88, and 106. SFAS No.
132 addresses disclosure only and is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for prior periods is required. The
adoption of SFAS No. 132 will have no current impact on the Company's financial
statements, as no prior disclosures under SFAS No. 87, 88, or 106 were
applicable.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements (continued)
In June of 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15,1999. Initial application of SFAS No. 133
shall be as of the beginning of an entity's fiscal quarter, on that date,
hedging relationships shall be designated anew and documented under the
provisions of this statement. The adoption of SFAS No. 133 shall not be
retroactively applied. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any derivative
instruments or participate in any hedging activities.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of credit
risk consist primarily of cash and cash equivalents, accrued interest receivable
and mortgage loans receivable. The Company maintains cash balances in bank
deposit accounts, which at times, may exceed federally insured limits. At
December 31, 1998, the Company's cash balances were in excess of such limits by
approximately $731,000.
The accrued interest receivable and mortgage loan receivable balances at
December 31, 1998 are from the various mortgage described in Note 2.
Note 2 - Mortgage Loans Receivable
On March 7, 1997, the Partnership entered into a loan agreement with the St.
Catherine entities which are affiliated entities (Washington Court House,
Fostoria, Tiffin, Bloomville and Findlay), whereby the Partnership would fund
$425,000 for the renovation of the St. Catherine facilities. The loan, which is
secured by the St. Catherine facilities, bears interest at a rate of 13% per
annum with the entire principal balance due on the maturity date of August 31,
2000.
On March 31, 1998, the Partnership and the St. Catherine entities amended the
March 7, 1997 loan in order to increase the principal amount of the loan to
$850,000. No other terms of the loan were altered pursuant to the amendment.
The mortgage loan balances at December 31, 1998 to the affiliated St. Catherine
entities totaled $839,700 which represent third mortgages on the underlying
properties located in Ohio. The partnerships ability to recover interest and
principal on these mortgages is dependent upon the underlying properties ability
and generate sufficient operating income and/or appreciation in fair values.
A summary of mortgage loan receivable activity for the year ended December 31,
1998 is as follows:
Balance at December 31, 1997 $1,205,290
Mortgage loan advances (renovation loan) 85,000
---------
Balance at December 31, 1998 $1,290,290
=========
Investments in Operating Properties
The Partnership made and funded three mortgage loans to affiliated entities (the
"St. Catherine's Loans"). The Partnership's affiliation with these entities is a
result of the President and Chief Executive Officer of the Managing General
Partner also serving as the President of the entities receiving the loans. The
Partnership's mortgage loans to the affiliated entities were related to the
operating facilities and were accounted for as investments in operating
properties. These mortgage loans were repaid on April 13, 1995 upon refinancing
by the owners of their senior debt with an unrelated lender. In connection with
the repayment of these mortgage loans, the Partnership recognized a gain on sale
of investment in operating properties of $1,632,719. The refinancing of the
senior debt did not provide sufficient proceeds to allow repayment of the
participations owing under the St. Catherine's Washington Court House and
Findlay Loans (the "SCC Participations") in the total amount of $840,500.
The St. Catherine's Washington Court Borrowers repaid the SCC Participations
through:
(i) the issuance of notes in the total amount of $400,000
(a) bearing interest rate of 11.00% per annum, which is due quarterly
(b) maturing on the earlier of the sale or refinancing of the Tiffin,
Bloombille, Fostoria, Court House and Findlay Facilities (the "SC
Facilities") or the maturity of the senior debt with South Trust
(August 2000) and
(c) cross-collateralized by second mortgage liens on the SC Facilities;
and
(ii) the issuance of contingent payment obligation by St. Catherine's of
Senecca, Inc. in the amount of $202,500 and a contingent payment obligation
by St. Catherine's Care Centers of Fostoria, Inc. in the amount of $238,000
(collectively, the "CPOs")
(a) bearing an interest rate of 11% per annum, which is due quarterly
(b) maturing on the earlier of the sale or refinancing of the SC
Facilities or the maturity of the senior debt with South Trust (August
2000).
The CPOs provide that interest is payable on a current basis provided that
the debt service coverage ratios on each of the SC Facilities is 1.2 to 1.0.
In the event these debt service coverage ratios are not maintained, the
interest shall accrue until the debt service coverage ratio is at least 1.2
to 1.0 or maturity. The CPOs further provide that principal is payable only
to the extent that upon a resale or refinancing of the SC Facilities, there
are sufficient proceeds to repay the senior debt and the amounts owing under
the CPOs. The CPOs are being assumed by an affiliated entity, Will Care of
Ohio, Inc., and will be secured, to the extent they become payable and are
not paid, by a pledge of 30 shares of St. Catherine's of Seneca, Inc. common
stock.
In accordance with FASB Statement of Standards No. 66, "Accounting for Sales
of Real Estate", the $840,500 participation was not recognized as income
during 1995. The Partnership has recorded $400,000 of the participation
amount, related to the mortgage loan receivable, as deferred revenue, and
the interest thereon will be recognized as it is earned. Due to the
contingent nature of the $440,500 due to the Partnership related to the
CPOs, such amount has not been recorded as an asset of the Partnership and
the participation income and interest earned on the CPOs will be recognized
only when received. Interest received by the Partnership relating to the
CPOs amounted to $47,904 and $49,006 for the years ended December 31, 1998
and 1997, respectively.
At December 31, 1998, the mortgage loans receivable included $50,590,
representing the Partnership's participation in a $1,618,254 second mortgage
loan made by an affiliated limited partnership. The loan, which is secured by
two nursing home facilities in Pennsylvania, bears interest at a rate of 13.7%
per annum and provides for the payment of participation interest based on the
increase in the fair value of the properties at maturity or redemption of the
loan or pursuant to any sale of the facilities. Participation interest is
recorded as revenue when determinable, generally at maturity or redemption of
the loan or pursuant to any sale of the facilities. The loan also provides for
the payment of additional interest based upon the gross revenues of the
facilities. The entire principal balance is due at the maturity date of January
1, 2000.
The repayment terms of the mortgage loans in affiliated operating properties
resulted in new second mortgage loans on the St. Catherine's Facilities totaling
$400,000 at December 31, 1998. These new second mortgage loans are appropriately
classified as mortgage loan receivables as they do not contain virtually the
same risk and potential rewards as joint ventures.
<PAGE>
Note 3 - Fair Value of Financial Instruments
The fair value of the Partnership's mortgage loans receivable differed from
their carrying value as follows:
Carrying Fair
Value Value
----------- ----------
December 31, 1998 $1,290,290 $1,324,688
The Partnership estimates the fair value of its mortgage loans receivable by
discounting future cash flows using an appropriate interest rate.
The carrying amounts at December 31, 1998 for cash and cash equivalents, accrued
interest receivable, due from and to affiliates, and accrued expenses
approximated their fair values due to the short maturity of these instruments.
Note 4 - Partners' Capital
During 1997, the Partnership declared and paid distributions of $194,564 ($.37
per unit) to the Limited Partner unitholders. The Partnership also declared and
paid distributions during 1997 of $1,027,726 ($1.97 per unit) which was a return
of principal to the Limited Partner unitholders.
On December 15, 1998, the Partnership declared a distribution of $213,754 ($.41
per unit) to Limited Partner unitholders. The Partnership also declared
distributions during 1998 of 991,337 ($1.90 per unit) as a return of principal
to the Limited Partners. The Partnership has accrued $250,000 of these
distributions at December 31, 1998 which were subsequently paid in January 1999.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
On March 20, 1999, the Partnership engaged Ehrhardt Keefe Steiner & Hottman PC
as its independent auditors for fiscal years 1998 and 1997. Reports on Form 8-K,
8-K/A and 8-K/A2 reporting the event were filed on March 24, 1999, April 2,
1999, and April 9, 1999, respectively. There were no disagreements on financial
statement disclosures or accounting matters covering the prior two fiscal years
up through March 30, 1999 audited by the predecessor auditors.
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act.
The Partnership does not have directors or officers. The following is a list of
the officers and directors of the Managing General Partner as of March 31, 1999:
Name Age Position
Albert E. Jenkins III 51 Chairman of the Board, Chief Executive
Officer, President and Director
Richard R. Wood 75 Secretary and Treasurer
William E. Jasper 82 Director
Rev. Terry A.
Steinhauer Sr. 41 Director
Linda R. Robison 51 Director
Albert E. Jenkins III is the President and Chief Executive Officer of the
Managing General Partner and Common Goal Mortgage Company. Mr. Jenkins also
serves on the boards of directors of the above-referenced corporations. Mr.
Jenkins is a co-general partner of Common Goal Limited Partnership II, the
Associate General Partner, and Common Goal Management Company. In 1986, Mr.
Jenkins formed Common Goal Capital Group, Inc. to act as the corporate general
partner of Common Goal I. That partnership successfully raised $19,129,110 from
1,533 investors and placed seven mortgages in six states secured by 13
facilities. Mr. Jenkins is also President, Chief Executive Officer and a
director of St. Catherine's of Seneca, Inc., St. Catherine's Care Center of
Tiffin, Inc., St. Catherine's Care Center of Bloomville, Inc. and St.
Catherine's Care Centers of Fostoria, Inc. In addition, Mr. Jenkins is President
and a director of St. Catherine's Health Care Management, Inc., St. Catherine's
Care Center of Washington Court House, Inc. and St. Catherine's Care Center of
Findlay, Inc. He is also president and sole director and shareholder of
HealthCare Securities, Inc. which served as the Managing Dealer for the
distribution of limited partner interests. Mr. Jenkins has been a licensed
securities salesman since 1971 and an investment advisor registered under the
Investment Advisers Act of 1940 since 1978.
William E. Jasper, Jr. is a director of Common Goal Capital Group, Inc. II and
has been a member of the Board of Directors of Madison Square Federal Savings
Bank since 1964. Prior to 1980, when Mr. Jasper retired, he had served as
president of a multi-line insurance agency and brokerage. Mr. Jasper is a Deputy
Regional Director for a fraternal organization that is dedicated to the Maryland
Special Olympics which provides health-care training and specialized sports for
the mentally handicapped. Mr. Jasper attended Baltimore City College and has
taken numerous extended courses at Loyola College and Johns Hopkins University
in real estate, appraisals, inspections, financial planning, mortgages and
management.
Richard R. Wood, is a general partner of Common Goal Limited Partnership II and
a former director and officer of the Managing General Partner. Mr. Wood is also
a director of Common Goal Capital Group, Inc. and a general partner of Common
Goal Limited Partnership I, which is a general partner of Common Goal I, a
publicly-held limited partnership with investment objectives substantially
identical to those of the Partnership, each of which was formed in 1986. Mr.
Wood is president, a director and owner, along with his brother R. Norman Wood,
of Renwood Properties, Inc. Mr. Wood has, either individually or together with
or through Renwood, sponsored thirty-one prior private limited partnerships
which have acquired real estate. These partnerships have raised approximately
$30,762,525, with approximately 81% of the properties acquired being
government-subsidized low income housing projects for families and the elderly
and handicapped. In addition, Mr. Wood is also a controlling shareholder of
Renwood, Inc. and several of the Renwood companies, which act as co-general
partners of certain of the above-referenced syndications. Mr. Wood received a
B.A. from Harvard University in 1943 and attended Massachusetts Institute of
Technology from 1947-1948.
Rev. Terry A. Steinhauer Sr. is a director of Common Goal Capital Group, Inc.
II. He is the founder and Senior Pastor of Fostoria New Covenant Church Inc. an
independent congregation established in 1984. He is a duly ordained and licensed
minister with the State of Ohio. Rev. Steinhauer is also the president of the
board of directors for the Fostoria Bureau of Concern, a referral agency
affiliated with the Red Cross, United Way, Senior Citizens Center, Meals on
Wheels, Sharing Kitchen and Habitat for Humanity. He is also a board member for
Bettsville Local School District where he serves as the Legislative Liaison for
the Ohio School Boards Association, in addition to the Technology and Strategy
Planning Committees. Rev. Steinhauer is also a member and former editor of the
Northwest Ohio Christian Writer's Group. He is also presently a member of the
Advisory Board of St. Catherine's of Fostoria where is has consistently
ministered for the last 19 years. He is a member of the Fostoria Chamber of
Commerce and has been actively involved with the Gideons, the Fostoria
Ministerial Association, Habitat for Humanity, and the Fostoria Framework for
Progress Committee.
Linda R. Robison, is a director of Common Goal Capital Group, Inc. II. Ms.
Robison is an attorney and practices primarily in the areas of corporate
transactions, corporate finance, tax, estate planning and real estate. She
represents such industries as manufacturing, health care, construction, retail,
distribution, and computer software. Ms. Robison has been admitted to the Bar in
Massachusetts, Illinois, and Florida. She is a member of the American Bar
Association, and the U.S. Tax Court, and past chair of the ABA Small Business
Committee's subcommittee on corporate tax. She has published articles in the
Practical Tax Lawyer, Securities & Commodities Regulation, Smith's
Review-Federal, Estate and Gift Taxation, Taxation for Lawyers, and a Matthew
Bender treatise on real estate transactions. She earned her undergraduate degree
from the University of Georgia where she attained a B.S. in psychology and
graduated cum laude and Phi Beta Kappa. Ms. Robison has a L.L.M. in taxation
from Boston University. She is a co-founder and director of a wholesaler of
sportswear, and a co-founder and director of a firm which finishes plastic parts
for the computer and automotive industries. From 1983 to 1990 she was a Partner
and Board Member of the Chicago based firm of Sachnoff & Weaver. She is a
Past-President and Chairman of U.S. Committee for UNICEF/Chicago; a past
President and Board Member of the Chicago Finance Exchange; and the Treasurer
and Board Member of Chicago Midwest Women's Center. In addition she has served
on the Advisory Board of YMCA; Board Member of Women in Management and a member
of Business and Professional Women's Board.
Item 10. Executive Compensation.
The Partnership has no executive officers or directors. The Partnership is not
required to pay the officers and directors of the General Partners any current
nor any proposed compensation in such capacities. However, the Partnership is
required to pay certain fees, make distributions and allocate a share of the
profits or losses of the Partnership to the General Partners as described under
the caption "Management Compensation" on pages 8 through 11 of the Partnership's
Prospectus, which description is incorporated herein by reference. Set forth
below are the fees, compensation and other reimbursements paid or accrued to the
Managing General Partner and its Affiliates for the year ended December 31,
1998.
Capacities in
Which Compensation
Name of Affiliate was Received Remuneration
- ----------------- ------------------ ------------
Managing General Partner Management fee $15,811
Common Goal Mortgage Mortgage loan $ 1,126
Company servicing fees
No form of non-cash remuneration was paid by the Partnership.
For further information on compensation paid to Common Goal and its Affiliates,
see "Management Compensation" on pages 8-11 of the Prospectus.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The Partnership, as an entity, does not have any directors or officers. The
following is information concerning Unit ownership as of March 31, 1999.
To the best knowledge of the Partnership, no person owns more than 5% of the
outstanding Units. Messrs. Jenkins and Wood each own less than 1% of the total
outstanding Units and all officers and directors of the Managing General
Partner, as a group, own less than 1% of the total outstanding Units. No other
officer or director of the Managing General Partner owns any Units.
Item 12. Certain Relationships and Related Transactions.
The Partnership made and funded three Mortgage Loans (the St. Catherine's Loan,
the Court House Loan and the Findlay Loan) to affiliated entities. In connection
with these Mortgage Loans, the Partnership obtained the opinion of an
independent third party that the terms and conditions of the respective loans
were fair and at least as favorable to the Partnership as a loan to an
unaffiliated party in similar circumstances. See "Management's Discussion and
Analysis or Plan of Operation" for further information regarding the repayment
and refinancing of these Mortgage Loans. The Partnership has made an additional
loan to an unaffiliated party through a joint venture with Common Goal I, an
affiliated, publicly-offered limited partnership with similar investment
objectives (the Joint Venture Loan). For further information concerning those
Mortgage Loans, see "Item 1. Description of Business."
The Partnership engages the services of Common Goal Mortgage Company, an
affiliate of the General Partners, in connection with servicing Mortgage Loans
for which Common Goal Mortgage Company generally is paid a fee by the borrower.
See "Item 10. Executive Compensation," for the information concerning such fees.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) (1) Financial Statements
The response to this portion of Item 13 is submitted as a separate
section of this report, commencing on page F-1.
(2) Financial Statement Schedules
Not applicable.
(3) Exhibits
See response to Item (c), below.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the quarter
ended December 31, 1997.
(c) Exhibits
The following exhibits are included herein or incorporated by reference:
Number
3.1 (a) Amended and Restated Limited Partnership Agreement of Registrant
dated as of December 6, 1989 (incorporated by reference from
Exhibit 3.1, included in Registrant's Form S-11 Registration
Statement S.E.C. File No. 33-31358).
3.2 (b) Pages 8-11 of the Registrant's final Prospectus dated January 12,
1990, as filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of 1933,
as amended. (incorporated by reference from the Registrant's
Form S-11 Registration Statement S.E.C. File No. 33-31358)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMMON GOAL HEALTH CARE PENSION AND
INCOME FUND L.P. II
By: Common Goal Capital Group, Inc., II,
General Partner
By: /s/ Albert E. Jenkins
Albert E. Jenkins III
Chairman and Chief Executive
Officer
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Position Date
/s/ Albert E. Jenkins Chairman (Principal April 15, 1999
Albert E. Jenkins III Executive Officer),
President, Principal
Financial and
Accounting Officer
and Director of
Managing General
Partner
/s/ William E. Jasper, Jr. Director of Managing April 15, 1999
William E. Jasper, Jr. General Partner
/s/ Richard R. Wood Director of Managing April 15, 1999
Richard R. Wood General Partner
/s/ Terry Steinhauer Director of Managing April 15, 1999
Terry Steinhauer General Partner
/s/ Linda Robison Director of Managing April 15, 1999
Linda Robison General Partner
(A Majority of the Board of Directors of the Managing General Partner)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 839,759
<SECURITIES> 0
<RECEIVABLES> 1,364,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,204,359
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,519,392
<TOTAL-LIABILITY-AND-EQUITY> 2,204,359
<SALES> 0
<TOTAL-REVENUES> 283,316
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 219,235
<INCOME-TAX> 0
<INCOME-CONTINUING> 219,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,235
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
